Forbes Article: G20 deal doomed to failure

[BLA + 1,666]

“This scenario looks to keep prices on track with our base case outlook, with second quarter Brent at $17/bbl, with a three-month point price target of $8/bbl, moving back to the high $20s by the year end and the $30s in 2021.”

CITI Analyst quote

_______________________________________

https://www.forbes.com/sites/timtreadgold/2020/04/11/g20-oil-agreement-doomed-to-fail-as-all-earlier-opec-deals-have-failed/#293a081d65a3l

Reality

I don't know ? The CITI numbers might be a little extreme.  But the thought process is correct. 

Can't fight the Covid demand destruction.

The increasing supply and decreasing demand has been a long time coming.  This dynamic will not cease once the pandemic ends.  Get used to it.  

 

Edited April 12, 2020 by BLA

[Tds 0]

Oil prices could be over $100 in 2021 due to the rig count destruction, not like demand went to nothing, look at the weekly oil inventories not as bad as thought 

[Tds 0]

Oil prices could be over $100 in 2021 due to the rig count destruction, not like demand went to nothing, look at the weekly oil inventories not as bad as thought

[Gerry Maddoux + 3,627]

1 hour ago, Tds said:

Oil prices could be over $100 in 2021 due to the rig count destruction

That would take a protracted shooting war somewhere, which would empty the tanks rapidly. 

Even if the president were to impose a tariff tomorrow, as he has threatened upon further perusal of the situation, he would most likely place a contingency on it to serve as a blowout cap. 

While I'm convinced the president understands the folly of trusting the Saudis, and probably sees right through their scheme, he is not in the mood for hundred-dollar oil in the aftermath of a global depression. And that's where we are. 

Nationalism is looking better and better, on so many fronts. Due to the Internet, and also because of the urge for oppressed people to get a taste of freedom that would allow their creative, entrepreneurial spirit to fly, there will always be some degree of globalism, it'll just be vetted better than in the past. And oil is going to become "local," and to keep it that way we need a price tag of roughly $60/barrel. 

[BLA + 1,666]

16 hours ago, Tds said:

Oil prices could be over $100 in 2021 due to the rig count destruction, not like demand went to nothing, look at the weekly oil inventories not as bad as thought 

Yes "Oil prices could be over $100 in 2021"

and the Detroit Lions could win the Super Bowl this season. 

I wouldn't bet on either 

Edited April 12, 2020 by BLA

[ronwagn + 6,290]

11 hours ago, Gerry Maddoux said:

That would take a protracted shooting war somewhere, which would empty the tanks rapidly. 

Even if the president were to impose a tariff tomorrow, as he has threatened upon further perusal of the situation, he would most likely place a contingency on it to serve as a blowout cap. 

While I'm convinced the president understands the folly of trusting the Saudis, and probably sees right through their scheme, he is not in the mood for hundred-dollar oil in the aftermath of a global depression. And that's where we are. 

Nationalism is looking better and better, on so many fronts. Due to the Internet, and also because of the urge for oppressed people to get a taste of freedom that would allow their creative, entrepreneurial spirit to fly, there will always be some degree of globalism, it'll just be vetted better than in the past. And oil is going to become "local," and to keep it that way we need a price tag of roughly $60/barrel. 

We have had a glut of natural gas for years with plenty of supply. Why can't we operate the same way with oil, gasoline, and diesel? The oil majors own many of their own gas stations, they seem like the natural winners. Just asking. I want us to use our own oil though, thus tariffs.

[Douglas Buckland + 6,308]

13 hours ago, BLA said:

“This scenario looks to keep prices on track with our base case outlook, with second quarter Brent at $17/bbl, with a three-month point price target of $8/bbl, moving back to the high $20s by the year end and the $30s in 2021.”

CITI Analyst quote

_______________________________________

https://www.forbes.com/sites/timtreadgold/2020/04/11/g20-oil-agreement-doomed-to-fail-as-all-earlier-opec-deals-have-failed/#293a081d65a3l

Reality

I don't know ? The CITI numbers might be a little extreme.  But the thought process is correct. 

Can't fight the Covid demand destruction.

The increasing supply and decreasing demand has been a long time coming.  This dynamic will not cease once the pandemic ends.  Get used to it.  

 

So you are saying that even when the virus issue is resolved that the demand destruction will not recover at all?

[Jay McKinsey + 1,489]

3 hours ago, ronwagn said:

We have had a glut of natural gas for years with plenty of supply. Why can't we operate the same way with oil, gasoline, and diesel? The oil majors own many of their own gas stations, they seem like the natural winners. Just asking. I want us to use our own oil though, thus tariffs.

The natural gas glut has been due to it being a byproduct of the LTO. The big decrease in price the past year has been due to several new pipelines from the Permian coming online. Natural gas production hasn't had to support itself.

[BLA + 1,666]

18 hours ago, ronwagn said:

We have had a glut of natural gas for years with plenty of supply. Why can't we operate the same way with oil, gasoline, and diesel? The oil majors own many of their own gas stations, they seem like the natural winners. Just asking. I want us to use our own oil though, thus tariffs.

Actually  most of the Oil Majors don't own their gas stations anymore.  In the mid 2000's the Congress had a series of hearings on the majors as they relate to monopolies. The committee questioned the majors ownership of E&P thru to Retail Gasoline Marketing.  They also asked why the majors pay no taxes (transfer pricing/offshore). 

 

As a result they sold their gas stations.  They sold the use of their name for marketing with the caveat that they also signed long-term contracts to buy their gas from that major

The one holdout was Chevron. That may have changed.

Edited April 12, 2020 by BLA

[BLA + 1,666]

3 hours ago, Douglas Buckland said:

So you are saying that even when the virus issue is resolved that the demand destruction will not recover at all?

No not saying that at all. 

Before covid their was a building supply that outpaced demand.  That will continue in my opinion.

 

Edited April 12, 2020 by BLA

[El Nikko + 2,145]

10 hours ago, Douglas Buckland said:

So you are saying that even when the virus issue is resolved that the demand destruction will not recover at all?

I really do wonder how many of those 16 million people who have just been made unemployed in the US will get rehired when the lockdown ends.

I would imagine this is going to scar people for years to come and that people will be very cautious about spending money, no doubt house prices will fall quite a bit as well

[wrs + 893]

10 hours ago, BLA said:

No not saying that at all. 

Before covid their was a building supply that outpaced demand.  That will continue in my opinion.

 

Actually that's not true IMO.  I believe that the market was well balanced.  The storage at cushing was below 40mmbbl and the market was not in contango.  The price was over $60 and the big question mark was the effect of the trade deal.  The shorts used CV as an excuse to start hammering oil early.  From what I can tell the storage would never have risen without the economy being shut down.  The rig count had been falling as well but not as fast as it had earlier in the year when prices were between 45 and 55.

When the US goes back to work the demand will immediately go back to near January levels, just as fast as it dropped off.  People will be out driving all over the place.  Gas will be guzzled.  The surplus will be quickly worked off because production will be 2mmbbl/day lower, bank on it.  I told Dan that I wouldn't be surprised to see 11mmbbl/day by June but now I think it will be more like 10mmbbl/day.  With those low levels of production, storage will be consumed at the rate of about 75mmbbl/mo.

We could easily see $75/bbl by August.

Edited April 12, 2020 by wrs

[Gerry Maddoux + 3,627]

1 hour ago, wrs said:

The rig count had been falling as well but not as fast as it had earlier in the year when prices were between 45 and 55.

This just out:

The U.S. horizontal oil rig count is poised to drop by an estimated 65% amid the unprecedented effects of the oil price war and Covid-19 pandemic, according to a new analysis by Rystad Energy.

“From a peak of about 620 rigs in mid-March 2020, the oil rig count is forecast to free-fall to a potential bottom of around 200,” the Rystad team said Tuesday, citing guidance from exploration and production (E&P) companies. “Most of the anticipated decline will come already by the end of April. The horizontal rig count has so far dropped to roughly 500, falling by 19% from the recent apogee just three weeks ago.”

1 hour ago, wrs said:

When the US goes back to work the demand will immediately go back to near January levels, just as fast as it dropped off.  People will be out driving all over the place.

But not flying all over the place--and that's what eats up the fuel. Zoom videoconferencing has replaced the majority of business travel.

1 hour ago, wrs said:

We could easily see $75/bbl by August.

Only if we either ban OPEC++ oil or tariff it. Or have a shooting war. Iran is on the brink. Having so little to lose, I think they'll probably start it. But the other possibility is China. Having unleashed this pestilence upon the world, they want to emerge as THE WORLD SUPERPOWER. That can't be allowed, and since we're already angry at Xi's lies and betrayals, it would be pretty easy to suddenly decide to put the Spratley Islands under the water again. 

{I'm not trying to pick your thesis to bits, and I hope you're right, but I just don't see it, not with the demand destruction, the fear, the disruption in the way we live and do business now, compared to just a month ago. Plus, we're set for the second wave sometime in July-August. That's going to cause the stock market to retest the lows, because that will truly be a dying time, and we won't be able to close down the country this time.}  

[wrs + 893]

36 minutes ago, Gerry Maddoux said:

But not flying all over the place--and that's what eats up the fuel. Zoom videoconferencing has replaced the majority of business travel.

 

Well I am not sure how you arrive at that conclusion when there are only about 4 gallons of jet fuel in a 42 gallon barrel of oil.

Anyway, they just released the results and it's 10mmbbl/day, there is an agreement.

 

https://english.alarabiya.net/en/business/energy/2020/04/12/OPEC-confirms-deal-to-cut-output-by-near-10-mln-bpd-starting-May-1-Kuwait-minister.html

Edited April 12, 2020 by wrs

[Gerry Maddoux + 3,627]

Yeah, a deal starting May 1 . . . . at which point the Saudis will have offloaded as much as possible in Motiva and elsewhere. 

Then they'll cheat. That cheat oil will likely go to China, at a far-reduced price. And in doing so, they'll displace Iranian and Russian oil. 

My prediction is that WTI will fall like a stone this coming week--the futures market knows that storage is scant, the market is horribly oversupplied, and demand destruction by the coronavirus has been at least 25 mm bod. 

I look for $10 WTI by May 1. Eventually we'll likely still have to slap a tariff on KSA. Which is exactly what should have been done today.

[Gerry Maddoux + 3,627]

I was just startled into realizing that ORO hasn't posted for a few days. He is usually all over this stuff, especially the viral data. Does anyone know if he's alright? I have a pretty good list of people that I check on every day or two--this damn virus is everywhere! I miss his exceptional posts and hope he's safe. 

[BLA + 1,666]

8 hours ago, El Nikko said:

I really do wonder how many of those 16 million people who have just been made unemployed in the US will get rehired when the lockdown ends.

I would imagine this is going to scar people for years to come and that people will be very cautious about spending money, no doubt house prices will fall quite a bit as well

How many people are going to go right back to flying, taking a cruise or going to a sit down restaurant if you are older than 60. 

[ronwagn + 6,290]

16 hours ago, BLA said:

Actually  most of the Oil Majors don't own their gas stations anymore.  In the mid 2000's the Congress had a series of hearings on the majors as they relate to monopolies. The committee questioned the majors ownership of E&P thru to Retail Gasoline Marketing.  They also asked why the majors pay no taxes (transfer pricing/offshore). 

 

As a result they sold their gas stations.  They sold the use of their name for marketing with the caveat that they also signed long-term contracts to buy their gas from that major

The one holdout was Chevron. That may have changed.

Thanks, I wonder if they have a large percentage of the stock in Circle K, Pilot, Flying J, 7-11, Casey's etc., etc. 

[BLA + 1,666]

4 minutes ago, ronwagn said:

Thanks, I wonder if they have a large percentage of the stock in Circle K, Pilot, Flying J, 7-11, Casey's etc., etc. 

I don't know how that worked but the business model of combo gas/convenince store spread like wild fire.  Many of these new companies consolidated. 

[ronwagn + 6,290]

We had several Circle Ks pop up in Decatur just about a month ago. About the same time gasoline prices crashed. 

Great for our cheap drinking habits during summer.

[ronwagn + 6,290]

17 hours ago, Jay McKinsey said:

The natural gas glut has been due to it being a byproduct of the LTO. The big decrease in price the past year has been due to several new pipelines from the Permian coming online. Natural gas production hasn't had to support itself.

Thank you, but now we need to know how that natural gas can be produced from the shale and other sources around America. How difficult and expensive would that be. There are also plenty of gassy wells in the Marcellus area etc.