It was a week where oil remained essentially flat but natural gas prices settled sharply higher.
On the news front, the slump in oil prices prompted Italy’s Eni SpA E to announce a €3.5 billion write-down. Meanwhile, another European major BP plc BP shelled out $1 billion to India’s Reliance Industries for a 49% stake in its retail fuel business.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures were roughly unchanged at $40.55 per barrel, natural gas prices gained 4.1% for the week to finish at 1.805 per million Btu (MMBtu). In particular, the oil market hit a speed bump after reaching its highest since March in the previous week.
Coming back to the week ended Jul 10, the crude benchmark was little changed with large but opposing forces at work. The commodity got a leg up after the International Energy Agency revised up its growth estimates for 2020 global oil demand. At the same time, investors remain worried of the supply glut. In total, U.S. commercial stockpiles are up by more than 19% since March, while domestic fuel demand, though improving, remains weak. As it is, another build in distillate inventories in the latest EIA weekly report, taking supplies to 37-year high, kept traders worried. Moreover, refinery utilization in the United States remains far below the usual capacity usage at this time of the year.
Meanwhile, natural gas prices spiked on prospects of less associated gas draining the oversupply and hopes of rising demand due to the onset of hotter weather.
Recap of the Week’s Most Important Stories
1. Eni SpA has estimated a write-off of roughly €3.5 billion from its non-current assets value following the downward revision of its long-term oil prices. The company added that the write-offs will mostly be booked against upstream assets.
The downward revisions were a result of the coronavirus pandemic-dented global energy demand. Also, the company believes that post COVID-19, there will be rising transition to a low-carbon economy since investors are increasingly building pressure on oil companies to drastically reduce carbon emissions, in line with the Paris climate goals.
To incorporate these impacts, Eni trimmed its forecast for Brent oil price starting 2023 from $70 per barrel to $60. Moreover, for the years 2020 to 2022, the energy giant made a downward revision for its forecast of Brent crude from $45, $55 and $70 per barrel to $40, $48 and $55 per barrel, respectively. (Here's Why Eni Has Decided to Write Off EUR 3.5B From Assets)
2. BP announced the payment of $1 billion to Reliance Industries (“RIL”) for a 49% stake in Reliance BP Mobility Limited (“RBML”) – a joint venture (JV) with RIL holding the remaining 51%.
The transaction marked the completion of the initial agreement entered by the companies on Aug 6, 2019. With the investment, the British Energy giant – carrying a Zacks Rank #3 (Hold) - will capitalize on fast-growing fuels and mobility markets of India to become a leading player in the country. BP said that it will now be able to leverage the wide customer networks of RIL in India through the Jio digital platform.
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BP says that through the next two decades, it expects India to be the world’s fastest-growing fuel market. The integrated energy major added that India will likely see its number of passenger cars increase six-fold over the period. Thus, in order to keep pace with the mounting fuel demand, the JV is planning to boost the number of fuel retailing stations to 5,500 from 1,400 over the next five years. (BP to Capitalize on India's Fuel Market With $1B Investment)
3. Equinor ASA EQNR announced that along with partners, it has been successful in finding natural gas and condensate at the 30/2-5 S Atlantis exploration well on the Kvitebjørn Field in North Sea.
The drilling of the exploration well took place across more than 17 kilometres to the south of the Kvitebjørn Field using West Hercules drilling rig. Based on preliminary estimates, the discovery at exploration well, which intended to ascertain the presence of hydrocarbons in the Middle Jurassic reservoir of the Brent Group has proven reserves of 3-10 million standard cubic metres of recoverable oil equivalent.
Drilled at a vertical depth of 14,301 feet below sea level with water level as deep as 465 feet in the area, 30/2-5 S Atlantis marks the first exploration well to be drilled in production license 878. The license was awarded in the Awards in Predefined Areas 2016 (APA 2016). Equinor owns a 60% stake in the license while Source Energy and Wellesley Petroleum have 20% partnership interests each. (Equinor Hits Gas & Condensate in Atlantis Exploration Well)
4. Halliburton Company HAL together with TechnipFMC FTI has launched Odassea, the first distributed acoustic sensing solution for subsea wells. This technology is said to improve seismic imaging and reservoir diagnostics while reducing costs and improving the data gathered for oil and natural reservoirs below the sea floor.
Oilfield services giant Halliburton will be responsible for the fiber optic sensing technology, completions and analysis for reservoir diagnostics while TechnipFMC will cater to the optical connectivity from the topside to the completions.
The collaboration will reportedly combine hardware with digital systems, which in turn, will reinforce digital resources in facilitating subsea reservoir monitoring and production optimisation. Further, this technology enables operators to accelerate full-field subsea fiber optic sensing, design and execution. (Halliburton With TechnipFMC Launches Odassea Technology)
5. In its weekly release, Baker Hughes Company BKR reported another drop in the U.S. rig count. Rigs engaged in the exploration and production of oil and natural gas in the United States fell to an all-time low of 258 in the week through Jul 10, compared with the prior-week count of 263. The current national rig count is well below the prior year’s 958.
Investors should know that with the recent all-time low mark, the tally has touched record-low levels for 10 successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.
The Oil rig count was 181 in the week through Jul 10, compared with 185 in the week ended Jul 2. Since crude prices are in the bearish territory, explorers are cutting their capital budget considerably. This led the weekly tally of oil rigs to fall for 17 consecutive weeks. (US Oil & Gas Rig Tally Hits Record Lows for 10 Straight Weeks)
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
Company Last Week Last 6 Months
XOM -3.2% -38.9%
CVX -3.5% -26.9%
COP -5% -39.1%
OXY -6% -64.1%
SLB -1.1% -54.7%
RIG +2.2% -69.9%
VLO -4.8% -44.3%
MPC +0.4% -39.3%
The Energy Select Sector SPDR – a popular way to track energy companies – lost 4.8% last week. The worst performer was oil and gas producer Occidental Petroleum OXY whose stock shed 6%.
Longer-term, over six months, the sector tracker is down 40.6%. Offshore driller Transocean Ltd. was the major loser during this period, experiencing a 69.9% price plunge.
What’s Next in the Energy World?
All eyes will be on Wednesday’s crucial OPEC+ web conference, which will decide the way forward to the cartel’s output cut agreement. As usual, market participants will also be tracking the regular releases to watch for signs of a rebound in oil consumption.. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - will be on the energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed.
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TechnipFMC plc (FTI) : Free Stock Analysis Report
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Eni SpA (E) : Free Stock Analysis Report
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