The weekly update is usually posted Sunday; internet access issues accounted for the delay. The official date of the post is April 20, 2020, but "technically" it's the April 19, 2020, edition, at least by my calculations. Macht nichts. It will take me awhile to go through it. The writer highlights two items:Oil: fascinating.
- The writer estimates US production cuts at 1 million bpd for the next two months...no special insight, the big round number just makes the math easier.
- OPEC's 9.7 million barrel per day cut was based on October 2018 production...why October 2018? because it was their highest production in 3 years....based on their February production, their cut is closer to 7.2 million barrels per day....they'd have to cut another 9.3 million bpd to balance supply and projected demand...
Recommendation: keep your gasoline tanks full; don't let them get below 3/4ths or maybe even 7/8ths full.
PowerLine: link here. The headline -- Saudi Arabian tankers streaming to America. Okay, so what? Where will they unload that oil? Lots of oil storage capacity remains mid-continent US, but I doubt there's much storage along the coast.
Just when you thought it couldn't get any worse:
WTI closes at a minus $16.20/bbl. That means that there were traders who were committed to taking physical oil -- this was not a "paper trade" -- the traders had actually committed for real, physical black oil but they had no place to store it. They scrambled to find places to store it; they couldn't find any storage and had no choice but to sell it back to perhaps the company who was "holding" the oil -- and that company -- free market capitalism -- "kept" it or took it back as long as the "owner" was willing to pay $16.20/bbl. At least that's how I understand it but I don't understand the global trading market.
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Back to the Bakken
Active rigs:| -$16.20 | 4/20/2020 | 04/20/2019 | 04/20/2018 | 04/20/2017 | 04/20/2016 |
|---|---|---|---|---|---|
| Active Rigs | 31 | 63 | 59 | 49 | 28 |
Four new permits, #37526 - #37529, inclusive -- the daily activity report only reports two new permits (#37526, #37527) but "well search" suggests there were four new permits as noted below --
- Operator: Crescent Point Energy
- Field: Dublin
- Comments:
- Crescent Point Energy has permits for four Pankake wells in SESE/SWSE 31-158-99, Dublin oil field;
- the wells will be sited in section 31, but will south into sections 6/7 where is one producing well --
- 21043, 554, Bruin, Pankake 157-99-6A-7-1H, Dubline, t12/11;cum 238K 7/19; offline 8/19; remains offline 2/20;
- Bruin, #25445, Ann H. Thome 5-25-36H; Strandahl oil field;
My friend sent me this.....I thought it was well explained...
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You are all seeing the news flash talking about oil price going negative. So here is a very brief simplified explanation for what's happening
1. Most of the oil is traded via Futures Contracts. There is a Spot Price as well, which is taken into account while arriving at the "theoretical futures price"
2. There are two main Futures Contracts (remember this is simplified) - The WTI and the Brent
3. WTI refers to the Oil from North America, while Brent refers to oil from Middle-east, Europe and Russia
4. There are a million variants, but we will omit those for the moment, since they complicate the discussion without really adding any clarity
5. The "Oil Price" that's gone negative is the settlement prices for the May 2020 Delivery Contract (ONLY THAT ONE)
6. Some more complexity - There are two forms of settlements for Crude Oil Futures Contracts (and for most commodities), viz Net Settlement and Physical Delivery
7. Net settlement allows the buyers of the contracts to settle the financial difference between the buying price and the settlement price
8. If a buyer of a Futures Contract doesn't opt for net settlement on or before the "Notice Date", which passed last week for the May 2020 Delivery, then they are assumed to be taking physical delivery of the underlying quantity of Crude Oil
9, And that's the "technical problem" that's pushing the settlement price of May 2020 Delivery Contracts to become negative. There is a buyer, or a series of buyers, who are stuck with physical delivery option that they can't actually use, ie they can't take physical delivery of the underlying crude oil because they don't have the storage capacity to store this
10. The negative price indicates that they are getting some buyer, probably a refiner, or a storage facility or a driller, to take the delivery off their hands by PAYING them to buy the oil that's ready for May delivery
11. It's never happened before in the history of Crude Oil Futures trading. It's a very unique situation
12. However, the June delivery WTI futures are still trading in positive territory at $20+/ BBL. And the Brent Futures for June 2020 delivery are trading at $25+/ BBL
13. Will this have implications: surely so. It means that the US Crude Oil producers are now facing a glut and if they don't stop drilling, they will have to give the oil away free, and/or pay people to buy that oil.
14. This oil can't be dumped or disposed off, since that will cause an environmental disaster and result in billions of dollars of penalty (Exxon Valdez, Deepwater Horizon, etc.)
Thank you for the summary; much appreciated. Paragraph 13 is perhaps over-simplified, but the point is well taken.
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