Since reaching a record in mid-March, daily U.S. crude production has declined by more than a million barrels. An oil operation in the Permian Basin.
Photo: larry w. smith/EPA/ShutterstockEnergy producers are throttling back their output, drivers are returning to the road and U.S. oil prices are roughly twice what they were a week ago, raising hopes—but not confidence—that the mounting fuel glut won’t overwhelm the world’s capacity to store oil.
Since reaching a record in mid-March, daily U.S. crude production has declined by more than a million barrels and big producers are promising to push it lower yet by shutting in old wells, waiting to bring online the newly drilled and dialing down flows where they can.
Meanwhile, demand for transportation fuels has begun to climb back from what was at least a 30-year low in early April. Executives at the largest U.S. refiner say that the worst of the historic drop in fuel demand caused by the coronavirus pandemic appears to be in the rearview mirror.
West Texas Intermediate for June delivery fell 2.3% to close at $23.99 a barrel Wednesday, its first decline after five days of gains. That is down 61% from the start of the year but a marked improvement from April, when supply and demand were so out of whack that it appeared there would be no place to store the excess and May futures contracts traded below $0 for the first time ever.
“I never thought $22 oil would be exciting,” said Diamondback Energy Inc.’s finance chief, Kaes Van’t Hof. That was early Tuesday, before the main U.S. oil price pushed higher to close at $24.56, up 99% from a week earlier. “It certainly looks better for the June month from a contract perspective than it did in May,” he said.
Goldman Sachs Group Inc. analysts call the climb a “relief rally” and said it would take much longer for West Texas Intermediate to double again. They don’t expect it to average more than $30 a barrel this quarter or next, but forecast U.S. oil to exceed $50 by the second half of 2021.
Given the glut motorists and airlines must burn through, producers will have to keep cutting production to buoy prices and prevent storage facilities from filling, they and other analysts say.
Companies such as Diamondback are doing their part. The Austin, Texas, firm, which produced about 200,000 barrels of oil a day during the first quarter, ceased bringing new wells to production in March and said it would reduce planned output by 15% this month.
“The risk of WTI prices declining further outweighs the benefit of producing as much as possible,” Chief Executive Travis Stice told investors on Tuesday.
Two of Diamondback’s rivals in the Permian Basin of West Texas said they would take even greater portions of their oil off the market.
Centennial Resources Development Inc. suspended drilling and well-completion work and plans to curtail up to 40% of its production this month. Parsley Energy Inc. has shut in hundreds of older wells that together produced more than 5,000 barrels a day and will choke back as much as 23,000 barrels a day in May. Pipeline operator Plains All American Pipeline LP said it expects roughly 1 million barrels of Permian production will be shut in this month.
Given the glut motorists and airlines must burn through, producers will have to keep cutting production to buoy prices and prevent storage facilities from filling, analysts say.
Photo: Patrick T. Fallon/Bloomberg News“Currently the world does not need more of our product and we only get one chance to produce this precious resource for our stakeholders,” said Parsley CEO Matt Gallagher.
U.S. crude production was a record 13.1 million barrels a day in mid-March when many Americans were ordered to shelter in place to avoid spreading the deadly virus. By May 1, it was down to 11.9 million barrels as producers ranging from ConocoPhillips to scores of closely held concerns closed the spigots.
In the three weeks since April 10, when demand for transportation fuels was at multidecade lows, consumption of gasoline has risen 31% as parts of America began to reopen, according to U.S. Energy Information Administration data that approximately measure petroleum-product consumption. Jet fuel use, after rising 73% the week ended April 24, declined during the most recent week and is up 11% since April 10.
The U.S. Energy Information Administration is scheduled to release supply data for the week ended May 1 on Wednesday.
The data include approximate measures of petroleum-product consumption. Early last month, demand for gasoline and jet fuel plunged to multidecade lows.
In the two weeks since April 10, consumption of gasoline has risen 15% and jet fuel 73% as parts of America began to reopen.
There were an average of 76,833 daily flights during the week ended May 5, up 14% from April 10 though still not half as many as in February, according to flight tracker Flightradar24.
“The week of April 6 is really what we’re calling kind of the bottom of the market.” said Brian Partee, who heads refinery fuel sales for Marathon Petroleum Inc.
Share Your Thoughts
Have you been driving and flying, and if not when do you think you will again? Join the conversation below.
Since then, the Findlay, Ohio, company’s sales have increased steadily, though not enough for Marathon to restart refineries in California and New Mexico that it idled in response to the dramatic drop in demand.
Retail gasoline sales at its thousands of filling stations fell more than 50% and have recovered between 5% and 15% from their low, depending on the region, said Timothy Griffith, president of Marathon’s Speedway business.
“There’s probably a few months before we can really give a better sense for exactly how this is going to play out, but we’re definitely off the lows,” he said.
STAY INFORMED
Get a coronavirus briefing six days a week, and a weekly Health newsletter once the crisis abates: Sign up here.
Write to Ryan Dezember at ryan.dezember@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"Oil" - Google News
May 07, 2020 at 02:28AM
https://ift.tt/3dqcafR
Oil’s ‘Relief Rally’ Stalls After Prices Double - The Wall Street Journal
"Oil" - Google News
https://ift.tt/2SukWkJ
https://ift.tt/3fcD5NP
Bagikan Berita Ini
0 Response to "Oil’s ‘Relief Rally’ Stalls After Prices Double - The Wall Street Journal"
Post a Comment