Oil Prices Stuck At $40

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Oil prices fell back to around $40 for WTI and $43 for Brent – familiar territory for the market over the past few weeks. The EIA’s data for this week was more downbeat, dashing hopes of positive momentum.

Still, crude remains stable and steady at around $40, trapped between coronavirus fears on the downside, and improving fundamentals on the upside.

Goldman: More M&A to come. The Chevron (NYSE: CVX) purchase of Noble Energy (NASDAQ: NBL) may spark more M&A activity. Goldman Sachs said more M&A could be positive for the macro outlook for oil because consolidation will translate into slower production growth. “We believe strip prices are too low and are likely to move higher in 2021, a catalyst not only for fundamental upside to E&P stocks but also for potential M&A values,” Goldman Sachs said in a note.

NY seeking bids for 4GW of renewables. New York is seeking bids for 2.5 GW of offshore wind and 1.5 GW of onshore renewables. The state will also invest $400 million in port upgrades to support offshore wind.

Saudi Arabia explores asset sales. Saudi Arabia is accelerating plans to sell off state assets and is considering an income tax in order to shore up its budget.

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Equinor posts surprise profit. Equinor (NYSE: EQNR) said that it earned $646 million in the second quarter, down by half from a year ago, but much better than analysts had anticipated. Notably, however, Equinor did not touch its long-term oil price forecasts, so it did not report any write-downs.

Schlumberger cuts 21,000 jobs. Schlumberger (NYSE: SLB), the largest oilfield services company in the world, said it would eliminate 21,000 jobs. The company posted a loss of $3.4 billion in the second quarter, including a $3.7 billion dollar impairment. Schlumberger’s CEO Olivier Le Peuch said the company is preparing “for a market of smaller scale and lower growth outlook, but with higher returns.”

ConocoPhillips buys Montney shale assets. ConocoPhillips (NYSE: COP) said it would spend $375 million to acquire 140,000 net acres in the liquids-rich Inga-Fireweed asset of the Montney shale in British Columbia. The acquisition adds over 1 billion barrels of oil equivalent to reserves, with an all-in cost of supply in the mid-$30s.

Tesla announces gigafactory in Texas. Tesla (NASDAQ: TSLA) confirmed rumours that it plans on building a gigafactory in Austin, Texas. The factory will be used to build the Cybertruck, Tesla’s electric pickup.

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Congestion at China’s oil ports. Congestion at China’s east coast oil ports is adding costs for shippers and importers, a bottleneck that could stretch into August. China has purchased a record amount of oil in recent months.

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U.S. oil production increase likely fleeting. The rise in weekly production to 11.1 mb/d in the latest EIA data will likely be temporary, according to analysts. The steep declines in shale wells are expected to overwhelm the return of shut-in production by the end of the summer, dragging overall output back down.

Russia considers oil hedge. Pemex routinely secures massive oil hedges, but Russia appears ready to follow suit. President Vladimir Putin gave his government the go-ahead to consider hedging Russia’s massive oil and gas export revenues to protect the country from drops in prices, according to Bloomberg.

Chevron turns to solar…to produce oil. Chevron (NYSE: CVX) is using solar in California to cut the cost of oil production.

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Political strife in Guyana threatens oil future. Months of deadlock over a disputed presidential election has ratcheted up tensions in Guyana. President David Granger is widely interpreted as having lost the election but has refused to concede. ExxonMobil (NYSE: XOM) admitted in an earnings call that the political conflict has slowed key permitting decisions. Exxon pushed back its oil production goals by six to 12 months.

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Malfunctioning flares in Permian leads to high methane emissions. One in every 10 flares in the Permian basin in June was unlit, venting unburned methane into the atmosphere, according to a new report.

Baker Hughes sees a long road to recovery. Baker Hughes (NYSE: BKR) reported a net loss of $201 million in the second quarter and does not see a swift rebound ahead. “Although the majority of lockdowns have been easing globally and economic activity likely troughed during the second quarter, visibility on the economic outlook remains extremely limited,” said Lorenzo Simonelli, CEO of Baker Hughes.

Slight uptick in LNG prices offer glimmers of hope. LNG spot prices in Asia (JKM) rose to $2.40/MMBtu on improving demand, compared to the record low of $1.85/MMBtu in May. Demand in Asia is rising steadily.

Shale lending contracts. Banks have already cut their reserve-based lending amounts, but the tightfisted approach is showing no signs of loosening. Lack of capital puts a lot of shale drilling in danger. “As long as oil prices stay at $40 or less and gas stays at $2 or less, I think banks are going to continue to be very cautious and continue to pull back,” said Spencer Cutter, an analyst at Bloomberg Intelligence. “It’ll be the end of shale if oil stays below $40.”

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