Recently, international oil prices have continued to strengthen, and WTI crude oil has also rebounded above US$30 per barrel. However, analysts believe that this is not enough for U.S. shale oil producers to turn a profit, and small shale oil stocks with poor performance are not optimistic.
The market expectation at a deeper level is that the epidemic in Europe and the United States has not yet been controlled, and the epidemic in South America and India is getting worse. The current rebound in the crude oil market is more of a positive confirmation for the resumption of work, and it is a negative for the future. factors have not yet been reflected.
Oil prices have rebounded, but demand recovery will not be smooth sailing
Crude oil prices have rebounded significantly in the past month, rising by more than 60%, helped by the history of OPEC+ The comprehensive production reduction agreement came into effect in May, and economies such as China, Europe and the United States gradually reopened. International benchmark Brent crude oil is currently trading around $35/barrel, and WTI crude oil is around $33/barrel.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed in April to cut production by 9.7 million barrels per day. Russian Energy Minister Alexander Novak said in a statement on May 25 that producers around the world have so far reduced global oil supply by 14 million to 15 million barrels per day, and the oil market is expected to decline in June. Or achieve balance in July.
Fatih Birol, Director of the International Energy Agency (IEA), also expressed a more optimistic view on oil demand on the 25th, pointing out that global oil demand has not yet peaked. The IEA maintains that global oil demand will continue to grow over the next decade or so before stabilizing around 2030.
Gasoline demand in China and the United States, the world’s two largest crude oil consumers, has rebounded rapidly.
IHS Markit data shows that China’s oil demand in April reached 89% of the same period last year, and Jim Burkhard, the company’s vice president and head of oil markets, expects it to rise further in May. 92%.
However, Tom Kool, director of operations at Oilprice, believes that it is difficult to say whether the rebound in demand will continue. He said: “Concerns about a severe global economic recession and a wave of layoffs are not unfounded. The extent of the economic damage is far greater than during the last crisis, and many people worry that the jobs lost may not come back.”
Researchers at the University of Chicago’s Becker Institute of Economics estimate that 42% of jobs could be permanently lost. Shocking job losses and a large number of companies switching to working from home may make it harder for the oil market to recover.
$30 is far from enough
The rebound in oil prices has pleased U.S. President Trump, who had previously pushed for an agreement on production cuts. A few days ago, he praised the rise in oil prices on Twitter, shouting “Oil (energy) is back!”. But in the opinion of independent journalist Nick Cunningham, these enthusiasms do not reflect the true situation of the U.S. oil industry at all.
Cunningham wrote that even if oil prices were twice today’s, shale oil drillers would not be profitable, and WTI crude oil prices of $30 per barrel have left them in the red.
According to reports from Evercore ISI and the Wall Street Journal, over the past decade, the overall expenditures of large U.S. oil drilling companies reached US$1.18 trillion, but their operations generated only US$819 billion in cash flow. In other words, drillers have been short of more than $350 billion over the past decade. Most of the time, oil prices have been at $50 a barrel or higher.
In 2015 and 2019, more than 200 North American oil and gas companies filed for bankruptcy protection. The pace of bankruptcies actually accelerated last year as investors became disillusioned with the industry. And, this was before the coronavirus pandemic.
Rystad data shows that due to rounds of write-downs, the top 39 independent shale oil listed companies in the United States lost US$26 billion in the first quarter of this year. Given that the first quarter only reflected some of the impact of the market rout, things will worsen dramatically in the second quarter.
The suffering of the shale oil industry is evident in the number of oil rigs. Baker Hughes reported on May 22 that the number of active oil rigs in the United States fell by 21 to 237 in the week ended 21, marking the tenth consecutive week of decline and recording the lowest level since mid-2009. , a decrease of 560 compared to the same period last year. U.S. oil production had dropped to 11.5 million barrels per day in mid-May, and U.S. Energy Secretary Dan Brouillette estimated that more than 2.2 million barrels per day had been shut down.
Small shale oil company stocks dumped
Small U.S. shale oil drillers endured this spring’s energy collapse There has been tremendous pain, and with stock prices languishing, analysts are finding it increasingly difficult to rate them.
According to foreign media reports, on May 22, Houston-based energy research institution Heikkinen Energy Advisors and investment bank Tudor Pickering Holt & Co LLC terminated their investments in Centennial Resource Development Inc., Callon Petroleum Co. and QEP Resources Inc.’s ratings. Heikkinen also suspended ratings on other drillers, including Chesapeake Energy Corp., Goodrich Petroleum Corp., Gulfport Energy Corp., Montage Resources Corp. and Oasis Petroleum Inc.
Heikkinen told clients in a note that for the majority of its client base, market caps are below $300 million and share prices are below $1.�Stocks generally have no investment value due to their small size and low trading liquidity.
Tyler Hardt, a portfolio manager at Pelican Bay Capital Management in Florida, said that oil and gas research institutions and investment banks are consolidating resources, and the most vulnerable place to be deleted is small energy stocks, many of which are People have no hope in them. So far this year, 17 smaller U.S. oil and gas producers have filed for bankruptcy, with debts totaling about $14 billion, according to law firm Haynes & Boone. Analysts at Rystad predict that the total number of bankruptcies could rise to 73 by the end of this year. If oil prices remain at current levels, another 170 are expected to declare bankruptcy next year. If oil prices fall back below $30, the number of bankruptcies will rise further. Fitch predicts that the default rate on U.S. high-yield energy bonds will reach 17% by the end of this year.
Attorney Buddy Clark said: “I don’t think a $30 oil price can save many oil producers who are lying on gurneys in emergency rooms waiting for heart transplants. There will be more bankruptcies to follow.”</p
