Crude prices has climbed as more producers announced production cuts, but remained near 18-year lows as the coronavirus pandemic continued to weaken demand
Diamondback Energy said that it will further cut its spending and production outlooks as more oil producers take a second swipe at reductions within a single month amid a nearly unprecedented global demand collapse.
Fellow Permian operator Devon Energy said that it would cut its capital budget yet again, to US$1bn from US$1.3bn, including deferring all new activity in South Texas’ Eagle Ford Shale. The cuts contributed to a US$4.14 rally in the Platts Midland assessment to US$14.23 per day, pulling it from an all-time low US$10.09 per day.
“Oil is potentially near a bottom and it will start to show further signs of life if oversupply concerns ease a little,” said OANDA senior market analyst Edward Moya. “Until markets can start to understand how bad the demand shock will be since practically the whole world is on lockdown, most oil rallies will get faded.”
The market remains glutted with crude as Saudi Arabia and Russia have yet to back off their plans to expand market share despite the drop in demand.
Gasoline and jet fuel crack spreads have been especially hard hit, with some turning negative as governments increasingly close businesses and schools, while airlines slash flights.
At least 32 US states and the District of Columbia have issued blanket ‘stay-at-home’ orders, and partial orders are present in at least 12 other states, according to media reports. At least 265 million people are facing government requests that non-essential workers stay home.
According to S&P Global Platts Analytics, global oil demand is expected to decline around 4.5 million bpd in 2020.
The reduced upstream activity should materialise in lower production eventually. The current low-priced, US$20 per bbl crude environment is putting roughly five million bpd of high cost crude production at risk of being shut in, according to Platts Analytics.
But in a worst-case scenario, if global demand falls by about 20 million bpd or more, a supply-demand gap of 24 million bpd could emerge, said Ethan Bellamy, an energy analyst with Robert W. Baird & Co.
Over the next few months, S&P Global Platts Analytics sees global ‘massive’ crude stock builds of 500 mmbbl in its best case scenario, compared with the one billion-barrel build in its worst case scenario, relative to end February levels.
Global refineries have started to cut operations because of low demand for transportation fuels. In the US, refiners are expected to cut runs by roughly 2.2 million bpd in April from January’s 16.5 million bpd figure, according to S&P Global Platts Analytics.
