The Energy Bulletin Weekly: 6 April 2020

April 6, 2020

Editors:   Tom Whipple, Steve Andrews

Quotes of the Week

“Comparisons with previous periods of disruption in oil markets are inevitable but misplaced. The oil industry has never seen anything like 2020.”-International Energy Agency statement 

“Even if Saudi Arabia gets Russia to agree to the 500,000 bpd cut (which remains unlikely), this means that the markets will see a production reduction of only 3.5 million bpd – a far cry from the 10-15 million bpd that President Trump claimed in his tweet this morning…The oil rally caused by Trump’s tweet is likely to fade.”-Tom Kool,

[About the possible Saudi-Russian deal] “It’s too little, too late.  Cuts are required immediately, and unless they happen, the price is going to go down significantly and force them to happen.”-Ed Morse, head of commodities research at Citigroup Inc.

Graphic of the Week

1. Energy prices and production 

Last week saw one of the biggest price leaps in the history of the oil industry, with US futures surging from around $20 a barrel at mid-week to a close of $28.34 on Friday.  The surprise surge came after President Trump tweeted Thursday morning that the Saudis and Russia were going to cut production by “10 million barrels or may be substantially more.” The tweet came after Trump talked with the Saudi crown prince.  Later in the day, Moscow weighed in to say that it was unaware of such an agreement and that the Saudis were making every effort to increase, not cut oil production.

Analysts and the IEA were quick to point out that the coronavirus pandemic had already cut global oil demand by an estimated 20-30 million b/d or possibly more.  In the unlikely occurrence that OPEC+ could agree on production cuts totaling millions of barrels, any agreement to cut output would likely be too late and too little.  The market is grappling with an enormous oversupply.  Vitol, the world’s largest independent oil trader, says demand is set to fall by as much as 30 million barrels a day in April.

Attention quickly turned to the specifics of the impending production deal and the OPEC+ meeting, maybe including the US, that might determine the size of the cut, if any.  By Friday, the Russians were saying that the OPEC+ group of producers would meet online on Monday, April 6th, to discuss a possible production cut and that the US was invited to attend the video conference, which would constitute the meeting.

On Thursday, senior US officials said that the US would not ask domestic oil companies for a coordinated cut in production to counter the price meltdown and was awaiting the details of planned cuts in Saudi Arabia and Russia.  However, US shale oil production likely is falling rapidly due to a lack of demand.

Saturday, President Putin, whose participation is vital to any agreement. said a cut to global oil production of about 10 million b/d is possible, but only if all significant crude producers, including the US, join in the pact.  Putin’s comments marked the first time since the talks collapsed that the Kremlin has acknowledged a willingness to re­-engage on production cuts. “We can talk about a reduction in the volume of about 10 million b/d, a little less, maybe a little more,” Putin said at a meeting of government officials and executives from his oil companies. “Of course, all this must be done in a partnership … we are ready for co-operation with the United States of America on this issue.”

Later Friday, Trump hosted a White House meeting with executives from Exxon, Chevron, Continental Resources, and others as his government seeks to contain the slump in oil prices. Following the meeting, US Energy Secretary Brouillette told an industry conference call that Trump had directed him to work with Treasury Secretary Mnuchin to look for ways to immediately fix the energy industry’s “liquidity shock,” according to sources who listened in on the call.

Washington’s measures could include easing banking regulations to expand the oil industry’s access to credit, which has shrunk rapidly alongside the decline in oil prices.  Brouillette also pointed out that the administration was helping the industry cope with a rapidly worsening storage glut by leasing out space in the nation’s emergency oil reserve, the sources said. Interior Secretary Bernhardt, who was also on the call, said he was making federal lands available to drillers and considering a series of other options to help oil companies, but provided no details.

However, the briefing quashed rumors that the Trump administration was planning to announce measures to restrict US crude oil production, as it pushes Saudi Arabia, Russia, and other major oil producers to do so.  This position is obviously a non-starter with Moscow and must change if there is to be an agreement.

The energy industry had expected the administration to offer some additional ways to help the industry weather the crisis, including waiving royalty payments from drillers for oil produced on federal lands, imposing an import tariff on foreign crude oil, or easing shipping regulations. One of the sources called the outcome of the conference “a waste of time.”

After the meeting, Trump said his administration planned to make sure the US oil industry stays in “good shape”. Asked if he is considering tariffs on Saudi oil, Trump said: “Tariffs are a way of evening the score … Am I doing it now? No. Am I thinking about imposing it as of this moment? No. But if we’re not treated fairly, it’s certainly a tool in the toolbox.”

As could be expected, plans for the Monday meeting fell apart Saturday when OPEC officials said the teleconference would likely be postponed until April 8th or 9th to allow more time for negotiations among oil producers on supply cuts.  In the meantime, global oil production was unabated except for US shale oil, and more and more countries slowed consumption.  The week before last, total US commercial petroleum inventories increased by 21.0 million barrels, despite a spate of reports that shale oil production was cutting back rapidly.

No matter what happens with the OPEC+ production cut, it will be weeks before it can have an impact on the supply of crude and the need for storage.  After Congress refused to authorize the government to buy 30 million barrels of oil, the Trump administration said it would store the oil in the Strategic Petroleum Reserve without purchasing it for the government.  This offer would take care of only about a week’s surplus unless production and refining are halted or reduced significantly.

North American producers, refiners, and traders are now looking to store excess oil in rail yards in Texas, Saskatchewan, and Manitoba. With oil for May delivery trading at a steep discount to future months — a structure known as contango — more firms are hoarding barrels rather than sell at a loss.  But crude tanks and supertankers are filling up fast, with the world projected to run out of storage space within the next few months, according to IHS Markit.

The US shale oil industry is contracting rapidly, but it will be a couple of months before the EIA can sort out just how much production has declined.  Six weeks ago, the discussion was about how much slower the growth of shale oil production would be this year.  Now the issue is how much it might fall.

American pipeline operators have begun asking oil producers to cut back their output voluntarily in the most definitive sign yet that a growing glut of crude is overwhelming storage capacity.  Plains All American Pipeline, one of the biggest shippers of oil in the US, sent a letter last week asking its suppliers to scale back production.  A Texas oil regulator said Saturday that drillers in the state were getting similar notices from other pipeline operators.

As the oil war and coronavirus demand destruction rage on, WTI crude prices briefly dipped below $20 per barrel last week, but many producers aren’t even getting that much as they are struggling to find buyers for their crude.  Prices in Oklahoma, Colorado, Kansas, and Louisiana, for instance, have dropped significantly over the last week, with benchmark prices such as Louisiana Light falling to $5.85 and Oklahoma Sweet falling to $16.50 on Monday, while prices in Wyoming have fallen to $1.25.  The deepest discounts are often found in more remote areas with little access to pipeline and export infrastructure; these are often the areas where, once shut-in, production isn’t likely to be restarted anytime soon.

Larger shale producers such as Pioneer, Exxon, and Chevron can bring back production relatively easy, as we’ve seen in the past.  Still, smaller producers are more likely to either shut-in production or face bankruptcy.  The Houston Chronicle cites energy data provider Enverus as saying that stripper wells now make up about 6 percent of total US oil production or about 850,000 b/d.  About 500,000 b/d or more of that could be at stake with oil prices in the teens or lower.

As part of the $2 trillion fiscal stimuli meant to resuscitate the US economy, Congress allocated $454 billion to help underwrite the special lending programs.  This could generate up to $4.540 trillion in new lending (assuming 10x leverage for highly-rated assets}.  It now turns out that the first industry to benefit from direct Fed loans is the US energy sector, some of which is facing near-certain bankruptcy, assuring that new loans will never be repaid.

Global spending on oilfield equipment and services this year is expected to fall 21 percent from 2019 to $211 billion, the lowest level since 2005, according to a report to be released on Wednesday by consultancy Spears & Associates.  Spears’ estimate for 2020 spending is below industry outlays at the nadir of the last price crash in 2016, and less than half the 2014 peak of $473 billion.  The company, which surveys oilfield firms, evaluates company reports and models sales, historically has not publicly released its data.

Oil is entering a period of unparalleled demand destruction this month that promises to transform the industry for years to come.  Daily consumption is forecast to plummet by 20 million to 22 million b/d from a year earlier.  The crash has already led to refiners slashing processing, drillers halting output, and storage tanks swelling across the world. “This will likely be a game-changer for the industry,” Goldman Sachs analysts including Jeffrey Currie and Damien Courvalin said in a March 30th note.  “It is impossible to shut down that much demand without large and persistent ramifications to supply.”

2. Geopolitical instability 

Iraq finds itself in serious trouble as the coronavirus-induced oil price plunges have cut the countries oil revenue by nearly 50 percent.  According to data from Iraq’s oil ministry, February sales of 98.3 million barrels of crude oil earned the state $5.5 billion. Iraq Oil Report quoted the oil ministry as saying that its oil typically sells at around $4 a barrel discount to Brent, so in the past couple of weeks, Iraq’s crude oil was selling for $21 a barrel.

As with many countries, the ongoing oil price depression is bringing about a new era of impending economic implosion.  The country has no real government, it is exhausted by the fight against the Islamic State and is taking the brunt of a conflict between the US and Iran. Baghdad hoped to rebuild the country this year – its initial 2020 budget was the largest in history and was focused on rebuilding the nation’s dilapidated infrastructure – however, the fall in oil prices has cut the ambitious targets short.

The situation is so bad that a parliamentary committee recently recommended that the foreign oil companies be paid for their services in crude rather than in hard cash.  The committee also recommends the semi-autonomous Kurdish supply the Baghdad government’s oil ministry with its crude to be marketed federally, rather than by the Kurdish oil ministry. Revenue from the oil sales would be distributed among Iraq’s governorates, according to the size of their population.

“Paying IOCs in crude oil rather than cash is a method that has been used fairly successfully by the Kurdistan Regional Government,” said Niamh McBurney, head of the Middle East and North Africa at Verisk Maplecroft.  “With a considerably larger number of IOCs and services companies to pay, the greater volumes involved, and the extremely low prices of Iraqi crudes at the moment, this would be unsatisfactory for IOCs.”  The oil ministry is in talks with IOCs over the best way to move forward, given the low oil prices and their impact on Iraq’s economy and finances.

There is a need to reach an agreement, whereby the IOCs’ payments are not a burden on the government’s limited finances while, at the same time, making sure the IOCs continue to operate in the country.  Although Iraq is free to pump at will with the expiry of the OPEC+ production agreement on March 31, it is struggling to boost production as the coronavirus pandemic slashes the demand for oil.

The war of words between the US and Iran continued last week with President Trump warning Iran against launching a sneak attack against US forces in Iraq.  He said Tehran would pay a hefty price for such an attack but gave no details.  Iran’s President Rouhani said on Wednesday that, with the advent of the coronavirus, the US had missed a historic opportunity to lift sanctions on his country.

As Iran struggles with the coronavirus outbreak, a broken economy, and a severe shortage of medical equipment, it says that American trade sanctions are taking Iranian lives and has called for the US to lift them on humanitarian grounds.  Tehran says some 50,000 people have the disease, and some 3,000 have died, but public health experts say the toll is several times higher.  Iran’s plea is gaining traction with the European Union, the UN Secretary-General, rights groups, and three dozen members of Congress, appealing to the Trump administration to suspend the sanctions for as long as Iran is battling the coronavirus.  On Tuesday, US Secretary of State Mike Pompeo raised the possibility that Washington might consider easing sanctions on Iran and other nations to help fight the epidemic but gave no concrete sign it plans to do so.

Natural gas exports from Iran to Turkey were halted last Tuesday after an explosion and fire on the pipeline just inside the border of Turkey.  An official at Turkey’s energy ministry said that “all necessary efforts” were underway to manage the situation, but that currently it was unclear when the line would reopen.

The US has offered to lift crippling sanctions against Venezuela if its leaders agree to a power-sharing deal.  Under the US plan, Venezuela’s President Nicolás Maduro would “step aside” and a transitional council would govern until fresh elections.

In an unexpected move, the Russian state oil company Rosneft announced that it would halt all activities in Venezuela and sell all its assets related to businesses in the country.  The announcement comes less than three weeks after the Trump administration added a subsidiary of Rosneft, Geneva-based TNK Trading International, to its financial blacklist for allegedly helping Venezuela sell its oil in violation of US sanctions. That embargo followed Washington’s decision in February to sanction Swiss-registered Rosneft Trading SA, warning that anyone caught doing business with Rosneft’s subsidiary risks being punished by the US.

3. Climate change

This year’s UN climate meeting was scheduled for November in Glasgow, Scotland.  The conference has been pushed back to 2021, though dates and details have not been set. Countries were expected to announce emboldened climate pledges and discuss another infusion of funds to help developing countries prepare for coming climate impacts.  Postponing the meeting will slow progress, but it gives world leaders more time to evaluate the outcome of the US election in November.

The European Union had set an ambitious course for the years ahead.  By 2050, the bloc had decreed, under the banner of its Green Deal, there would be no net greenhouse gas emissions from the entire continent.  The cancellation of the Glasgow meeting underscores what had already become readily apparent.  Europe’s commitment to meeting its energy goals—and to the prioritization of climate-friendly policies at all costs— will be difficult.

NASA and the European Space Agency keep delivering climate data from satellites, even as mission control headquarters empty, and some scientists fall ill.  The millions of data points captured by these satellites feed the scientific models that track and predict the pace of climate change.  They’re how we know, for instance, that sea ice is melting, water levels are rising, and forests are disappearing.  The manufacturing and launch of new satellites are impacted by the situation, as well as some space missions.  But the agency’s 15 satellites currently in orbit gathering climate data continue to operate.

The Trump administration issued final fuel economy targets for 2021-26 model-year light-duty vehicles, rolling back the existing goals to an annual efficiency increase of 1.5 percent from 5 percent.  Easing the requirements on automakers would increase US oil demand by 500,000 b/d, according to estimates by the Environmental Protection Agency and National Highway Traffic Safety Administration.  The regulatory rollback has been in the works since 2018 and remains the subject of legal challenges by states and environmental groups fighting to keep the Obama-era standards.

The Environmental Protection Agency (EPA) was wrong to withhold information about how it devised its new fuel efficiency standards, a panel of judges ruled after the Trump administration rolled back Obama-era mileage standards.  The 2nd Circuit Court of Appeals on Wednesday sided with the Natural Resources Defense Council and the Environmental Defense Fund, which sued the EPA to gain insight into a controversial modeling technique that many said oversold the benefits for rolling back the Obama administration’s policy.

Democrats are pushing for the next coronavirus package to include numerous green infrastructure provisions in defiance of past GOP complaints about combining such measures with efforts to combat the COVID-19 pandemic.  The chairman of the House Transportation and Infrastructure Committee said the package would include a “substantial investment” in high-speed rail, while aiming to shift the national highway system toward electrification, for cars and trucks alike.  It also contains provisions to reduce the carbon footprint of concrete, by altering the mix, and that of asphalt, by recycling existing materials.

4. Global economy and trade wars

The coronavirus pandemic and lockdowns imposed by governments around the world have pushed the global economy into the sharpest downturn since the Great Depression.  The US economy lost 710,000 jobs in early March — far worse than economists had been expecting. Business surveys across Europe showed the services sector to be in deep trouble with the most significant drop in activity for more than 20 years.

The head of the IMF, Kristalina Georgieva, warned that “This is a crisis like no other. Never in the history of the IMF have we witnessed the world economy coming to a standstill,” she said. “It is way worse than the global financial crisis.”  Worse data is going to come in April, economists say, with many now forecasting double-digit percentage declines in output in the second quarter as much of the world’s two most advanced economic zones shut down. “It’s clear that the economy is contracting more quickly than ever before during peacetime,” said Jack Allen-Reynolds, an economist at Capital Economics.

International airline seat capacity has dropped by almost 80 percent from a year ago, and half the world’s airplanes are in storage.  The aviation industry may take years to recover from the coronavirus pandemic.  Several large carriers have warned they are likely to emerge from the crisis smaller.  It’s also possible that some smaller airlines will have gone bust, and uneconomic discounts will be necessary to attract demand back.

Orders and employment at US factories contracted in March at the fastest pace in 11 years as producers grappled with pandemic-related demand destruction, the Institute for Supply Management data showed Wednesday.  The purchasing managers’ group’s gauge of bookings tumbled 7.6 points to 42.2, the lowest since March 2009, while its employment index slid to 43.8, the weakest since May of that year.  Readings less than 50 indicate shrinking activity.  Ten of the 18 manufacturing industries reported growth in March.  A jump in the supplier deliveries index, the biggest since 2005, reflects the virus outbreak that’s led to dysfunction in global supply lines and created a sales vacuum as many businesses close.

President Putin prolonged until April 30 a paid non-working period across Russia, stepping up measures to stem the spread of coronavirus just a week after the Kremlin said there was no epidemic.  Russia, which has reported 3,548 cases and 30 deaths, has already imposed a partial lockdown on many regions, including the capital Moscow, which has become the epicenter of the country’s outbreak.

China says it logged fewer new infections last week, but measures restricting movement across the country have tightened in some places allegedly due to fear of imported cases. Chinese authorities remain concerned about the risks posed by imported cases of the virus and have, in recent days, banned foreign passport holders from entering and ordered a sharp reduction in international flights by allowing no more than 134 per week for Chinese citizens.

The CIA has been warning the White House since at least early February that China has vastly understated its coronavirus infections and that its count could not be relied upon as the US compiles predictive models to fight the virus.  The intelligence briefings in recent weeks, based at least in part on information from CIA assets in China, played an important role in President Trump’s negotiation on Thursday of an apparent détente with President Xi Jinping of China. Since then, both countries have ratcheted back criticism of each other.

Obtaining a more accurate count of the Chinese infection and death rates from the virus has worldwide public health implications at a time of grave uncertainty over its speed of transmission and other fundamental questions.  American intelligence agencies have concluded that the Chinese government itself does not know the extent of the virus and is as blind as the rest of the world.  Midlevel bureaucrats in the city of Wuhan, where the virus originated, and elsewhere in China have been lying about infection rates, testing, and death counts, fearful that if they report numbers that are too high, they will be punished.

An official gauge of China’s manufacturing activity rebounded strongly in March as work resumption picked up, though economists warned that business activity remains far from normal following the virus outbreak.  China’s official manufacturing purchasing managers index jumped to a reading of 52.0 in March from a record low of 35.7 in February, the National Bureau of Statistics said Tuesday.  A separate nonmanufacturing PMI, also released Tuesday, showed service and construction activity similarly rebounding in March to 52.3 from 29.6 in February.

China is burning more coal in yet another sign that the first country to be hit by the virus is returning to a level of normalcy.  Daily coal burn at select coastal plants has doubled from early February at the height of the country’s lockdown.  The plants are responding to increased electricity demand as factories restart.  China’s independent refineries’ crude imports from the Middle East jumped 59 percent on the month in March, with Saudi Arabian shipments climbing to second place.  The combined imports from Saudi Arabia, Iraq, Oman, and the UAE increased to 4.73 million tons, from a lower base of 2.98 million in February.

A hidden pile of debt threatens dozens of emerging-market countries as the global economy stalls, and commodity prices tumble.  An estimated $200 billion of emerging-market debt owed to China has gone unreported in official statistics in recent years.  Even before the market crash, some borrowers were buckling under their debts to China.  Pakistan turned to the International Monetary Fund in 2018 for a bailout.  Sri Lanka was forced to cede to China’s control a strategically located port to shore up state finances.

US and European economists are drawing parallels to the 1980s debt crisis. Economists say a global recession would magnify the problem.  An index tracking emerging-market sovereign bond performance has fallen around 16%.  In contrast, more than $80 billion has flowed out of emerging-markets stocks and bonds since the market turmoil began, according to the Institute of International Finance.

5. The Briefs (date of the article in the Peak Oil News is in parentheses)

Oil tanker costs explode: The cost of hauling oil from the US to China has skyrocketed to nearly $10 a barrel — almost half of what the American benchmark crude is currently valued at — as the price war spurs a rush for ships. The rate has jumped from $6.55 million in early March to $19.5 million in the first half of May as Saudi Arabia booked vessels to unleash a flood of crude and traders scrambled for ships for floating storage. (4/2)

Russian state oil company Rosneft’s decision to cease operations in Venezuela and sell its assets there to a Russian government-owned company was a “maneuver” made in reaction to collapsing oil prices. (4/1)

Neutral zone oil shipment: The first crude export in more than five years from the Neutral Zone shared by Kuwait and with Saudi Arabia is set to take place this week. Al-Khafji, one of two major fields in the Neutral Zone, along with the onshore Wafra, has been shuttered by a political dispute between Saudi Arabia and Kuwait before a deal brokered in December paved the way for their restart. The fields have a combined capacity of 550,000 b/d. (4/3)

In Kazakhstan, loadings of CPC crude grade spiked to a record-high 1.65 million b/d in March propelled by production from the giant Tengiz and Kashagan fields. Loadings in March were 150,000 b/d higher than the previous record set in June last year, on a b/d basis. The surge means Kazakhstan has been contributing to massive worldwide oversupply in crude. (4/3)

China just announced that it had extracted a record amount (861,400 cubic meters) of gas hydrates: natural gas trapped in frozen water. Gas hydrates don’t garner a lot of media attention as a rule, simply because they have yet to become an addition to the world’s energy mix. But when they do—if they do—they may change the international oil and gas market even more than the coronavirus outbreak has changed it now by decimating demand for hydrocarbons. (3/31)

In Venezuela, President Maduro’s government is struggling to provide fuel to the OPEC nation’s service stations due to chronic refinery problems and US sanctions that have left most trading firms unwilling to ship gasoline to Venezuela. Venezuela’s food production has plummeted after years of state control over the farming sector, contributing to malnutrition and a humanitarian crisis during six years of economic recession. (4/2)

In Mexico, as the number of reported coronavirus cases continues to mount, an uptick in social distancing and work-from-home measures in the country are posing a significant downside risk to natural gas demand from both power generators and industrial end-users. (3/31)

Canada’s oil sands hammered: Due to the price war and the demand plunge from the pandemic, the price of Western Canadian Select, the benchmark price of oil from Canada’s oil sands, is US$5 or less these days, pushing all producers out of the profitability range and raising the question: Will Canada’s oil sands industry make it through this price slump? (4/3)

A sands shutdown: The last major oil-sands mine to start operating in northern Alberta could be Canada’s first big casualty of the Saudi-Russian price war and the COVID-19 pandemic. Teck Resources, one of the partners in the Fort Hills project that formally opened in September 2018, is considering a full shutdown of the mine to cut costs after local prices hit record lows. Fort Hills can produce 194,000 b/d. (4/2)

Keystone update: A Canadian company said Tuesday it plans to start construction of the disputed Keystone XL oil sands pipeline through the US Midwest in April. Work will begin after lining up customers and money for a proposal that is bitterly opposed by environmentalists and some American Indian tribes. (4/2)

Offshore Canada: China National Offshore Oil Corporation (CNOOC) is postponing this year’s planned drilling campaign offshore Newfoundland and Labrador because of the coronavirus pandemic, the Chinese state-held oil firm told CBC News on Tuesday. Earlier this month, Husky Energy and Norway’s Equinor deferred their joint Bay du Nord project offshore Newfoundland and Labrador, citing the collapse in oil prices. (4/1)

In Canada, Newfoundland’s only refinery is shutting down, the first North American fuel maker to be idled as the coronavirus outbreak crushes demand. The plant could be shut for two to five months. The 130,000 b/d refinery supplies fuel to eastern Canadian markets and the US East Coast. (4/4 >> 3/30)

The US oil rig count dropped by 62 last week to 562, a year-over-year decline of one-third, Baker Hughes reported. Gas rigs declined by 2 to 100, down 48% from last year. Canada’s overall rig count decreased by 13 rigs as well this week, to a total of just 41 rigs. Oil and gas rigs in Canada are now down 27 year on year. (4/4)

The price of one key US oil grade is already the lowest in the modern era of the market, when adjusted for inflation. Louisiana Light Sweet crude, a key crude stream on the US Gulf Coast, has fallen below $5 a barrel in real terms, the lowest in data going back to 1983. (4/1)

Crude cratered: Bakken crude in Guernsey, Wyoming sank to a record-low $3.18 a barrel Monday while Western Canadian Select in Hardisty, Alberta, was worth just $4.18. Even oil in West Texas is as cheap as it’s ever been. West Texas Intermediate in Midland was $10.68, just above its all-time low from 1998. And it’s lower-quality counterpart, West Texas Sour, slid to a record $7.18, the lowest in data going back to 1988. (4/4 >> 3/30)

Two want TRC to act: Pioneer Natural Resources Co. and Parsley Energy Inc. asked the three-member Texas Railroad Commission on Monday to call a virtual emergency meeting no later than April 13 and issue an order setting the “reasonable market demand for oil from Texas” for May. (3/31)

Storage bottleneck: US pipeline operators have issued a warning to some oil producers operating in Texas: reduce production rates because storage is filling up. (3/31)

Renting storage in SPR: US oil producers may soon have access to federal oil storage space to alleviate the glut that is threatening to overwhelm existing private storage capacity. The Energy Department is considering the option, and an official announcement could come later. The storage problem is becoming critical on a global scale. According to the chief analyst of data analytics firm Kayrros, if storage continues to fill up, oil prices could fall close to zero. (4/2)

BP is cutting its planned capital expenditure this year by around 25 percent from previous guidance to $12 billion, targeting reductions in US shale activity as well as spending on exploration and major projects, with some output reduction expected. (4/1)

Whiting Petroleum Corp filed for Chapter 11 bankruptcy, the US shale oil producer said on Wednesday. This is the first publicly traded casualty of crashing crude oil prices that are expected to bite into record US output. Whiting, once the largest oil producer in North Dakota’s Bakken region, said its creditors have agreed to cut its debt by about $2.2 billion. (4/2)

Natural gas doldrums: The last time the global economy was in free fall, an economic savior showed up in southwestern Pennsylvania. Energy companies, which had discovered a way to get at the state’s vast natural-gas reserves, invested billions of dollars in the region, cushioning the blow of the Great Recession. But 12 years later, as the area braces for the coronavirus recession, natural-gas companies are much more likely to weigh on the local economy than to rescue it. Even before the latest shock, gas operators were reeling from self-inflicted wounds. They had taken on too much debt and drilled so many wells that they had flooded the market with gas, sending its price into a tailspin. (4/1)

EV tax hikes: More states are imposing special registration fees on electric vehicles, sparking complaints that the levies undermine efforts to get consumers to embrace alternative-fuel cars. Twenty-eight states charge from $50 to more than $200 a year for plug-in electric vehicles, and 14 states have annual fees for plug-in hybrids that also use gasoline. The charges are meant to make up for the fact that electric-vehicle owners don’t buy gas and thus don’t pay gas taxes to support the maintenance of the roads they use. (3/30)

China will extend the subsidies and tax exemption provided for the purchase of new energy vehicles, which was due to be removed by the end of this year, for another two years in a bid to boost purchases of the car. (4/1)

Power cutback: East Kentucky Power Cooperative reduced its monthly delivery amounts with four barge coal suppliers by 20 percent, or a combined 16,000 tons/month. That 20 percent reduction is the maximum reduction allowed by the contract. (4/1)

Solar wants bailout: Coronavirus is hitting the energy industry hard. First, it led to a spectacular oil price crash. Now, the Permian Basin, once the site of an unparalleled shale boom, is currently facing tens of thousands of layoffs. Then the virus crushed biofuel markets across the world. Now it’s hitting the renewable energy industry, and solar is begging for a bailout. (3/31)

Massive new solar plant: In China, GCL System Integration Technology Co. plans to build the world’s biggest solar-panel manufacturing plant, with the capacity to meet half of the global demand. The Chinese manufacturer plans to invest $2.54 billion to construct a facility in eastern Hefei province that will be able to produce 60 gigawatts of solar panels a year. The plant’s maximum output is double the 30 gigawatts of capacity installed in China in 2019 and would be able to supply to almost 51 percent of solar installations worldwide. (3/31)

Some domestic flights targeted? President Donald Trump said on Wednesday he was considering a plan to halt domestic flights to coronavirus hot spots inside the United States as the country struggles to contain a pandemic projected to kill at least 100,000 people. Such a plan might conceivably shut down traffic at airports in hard-hit New York, New Orleans, and Detroit and extend to major hubs across the country as infections spread. (4/2)

Food balance shifting: All across America, store shelves are emptying, and people are becoming increasingly frustrated because they can’t get their hands on needed supplies. Most Americans are blaming “hoarders” for the current mess, but it is much more complicated than that. Typically, Americans get a lot of their food from restaurants. In fact, during regular times, 36 percent of all Americans eat at a fast-food restaurant on any given day. But now that most of the US is under some sort of a “shelter-in-place” order and most of our restaurants have shut down, things have completely changed. Suddenly our grocery stores are being flooded with unexpected traffic (4/2)

Insurance dustup: Some regulators have declared moratoriums on cancellations and non-renewals of policies. And some are urging car insurers to lower people’s bills. These states note that policyholders now working from home don’t have the commutes they used to and thus aren’t on the roads as much. This push comes despite specific contractual exclusions in most standard policies for claims stemming from viruses. (3/31)

Sweden a holdout: The ski pistes are open, the restaurants are doing ample business, and the malls are awash with shoppers. Welcome to Sweden, the last holdout among the small number of Western countries to have taken a radically different approach to the coronavirus pandemic. (3/31)

The Russian parliament has approved an “anti-virus” package of laws including up to seven years in prison for severe violations of quarantine rules. The harsh laws and amendments were rushed through in record time, as regions across Russia followed Moscow’s lead in imposing strict lockdowns. (4/1)

Russia’s coronavirus case tally jumped to 3,548 on Thursday, a record daily increase of 771, Russia’s crisis response canter said. Cases have been recorded in 76 of Russia’s more than 80 regions, but Moscow remains the epicenter of the outbreak with 595 cases. Thirty people have died across the country. (4/2)

Lockdown vs. poverty: Prime minister Modi warned that if India did not get the next 21 days right, it would risk wiping out the gains of 21 years. In South Africa, Cyril Ramaphosa ordered one of the world’s strictest lockdowns before the country had registered even a single coronavirus death. All across the developing world – with some exceptions, including Brazil – leaders are closing their economies to stop the pandemic. But in countries with high death rates from other illnesses and with brutal levels of poverty—often with people crammed 6 or 8 to a room with no running water—could the cure be worse than the disease? (4/2)

Prime Minister Modi’s call to Indians to switch off lights Sunday at 9 p.m. for nine minutes and instead use candles to “challenge the darkness” of the coronavirus outbreak will mean blackouts for some citizens as utilities take steps to safeguard their equipment.

That may result in a sudden drop of about 15 gigawatts of power demand across the nation. In Uttar Pradesh, India’s most populated state, the state-run utility plans to switch off power in phases to stop the surge in voltage from threatening the state’s power grid and equipment. (4/4)

Water temperatures in the Gulf of Mexico are running more than three degrees above average, increasing the prospects for severe thunderstorms and tornadoes this spring and potentially more potent hurricane activity in the summer and fall. (4/1)

After four active hurricane seasons — each of which featured at least one violent Category 5 storm in the Atlantic — experts at Colorado State University are predicting another busy hurricane season in 2020. Significantly, forecasters said they anticipate an “above-average probability for major hurricanes making landfall along with the continental United States.” (4/4)

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.  

Tags: geopolitics, oil price