price crash

On Friday, CME/NYMEX WTI Cushing crude oil for April delivery closed at $44.76/bbl, down more than $16/bbl, or about 27%, since New Year’s Day. The declines in natural gas and NGL prices were not quite as severe, but only because those commodities were hit harder than crude during 2019. Even before COVID-19 landed on the market, energy prices were already under pressure from continued record production levels from U.S. shale, weakening demand, a mostly mild winter and a general investor pall over all things carbon. The threat of a global coronavirus pandemic was all it took to push things over the edge. So now what? Of course, nobody knows. But we can contemplate what this all could mean for energy markets, based on what we’ve seen in recent market statistics and price behavior. So that’s what we’ll do in today’s blog.

On Friday of last week, two more large E&Ps filed for Chapter 11 – Ultra petroleum with $3.8 billion in unsecured debt and Midstates Petroleum filing with a $2 billion debt-for-equity swap deal.  Over the past 18 months there have been 65 E&P bankruptcies – mostly small companies, but nine companies make up 75% of the $28 billion in total debt exposure of all of these firms.   This chaos in the oil, gas, and NGL markets is having all kinds of financial and strategic ramifications.  One of the consequences of all of the turmoil could be a wave of asset sales, demands for contract restructuring, and more bankruptcy proceedings.  But there can be some real opportunities in all this chaos if you know what to look for, understand where the needs and pitfalls can lie, and especially to recognize that “the sun’ll come up tomorrow.” 

Crude oil production in the Gulf of Mexico (GOM) has been riding high in recent months, still surfing the wave of deepwater and ultra-deepwater projects whose development started in the “good ole days” of $100/Bbl oil. Some incremental output is still being added, keeping GOM production levels high even as onshore oil output is declining in response to low crude prices and drilling cutbacks. But exploration and production companies (E&Ps) are cutting their spending on offshore projects, and unless oil prices start to rebound soon the Gulf too will see a leveling off—and after that, a gradual fall--in production. Today, we conclude our series on resilient production levels in the GOM with a look at recent cutbacks and what they may mean for Gulf oil output in 2016 and beyond.

Prices for prompt delivery of West Texas Intermediate (WTI) crude as quoted on the CME/NYMEX futures exchange fell by 60% from their high over $107/Bbl in June 2014 to a low under $44/Bbl on March 17, 2015. After recovering about 37% in April and May WTI prices have remained stuck close to $60/Bbl ever since - closing yesterday (June 23, 2015) at $61.01/Bbl. With market contango narrowing, inventory levels falling, and refinery throughputs rising – why aren’t prices moving higher faster?  Today we review the fundamental data.

In spite of a brief respite provided last week by increased geopolitical risk in Saudi Arabia, crude oil prices are still in the $50/Bbl range – down more than 50% since last Summer - and inventories at Cushing and on the Gulf Coast continue at record levels. The fall in crude prices was initially consistent across markets with international benchmark Brent trading within $1/Bbl of U.S. benchmark West Texas Intermediate (WTI) and Gulf Coast marker Light Louisiana Sweet (LLS) in January 2015. But since February the relationship between Brent, WTI and LLS has changed as the build up of Cushing inventories weighs on prices in the Midwest. Today we provide an update on crude price differentials at The Gulf Coast.

On Friday (January 23, 2015) West Texas Intermediate (WTI) futures prices closed under $46/Bbl for the second time this year. RBN’s analysis of producer internal rates of return (IRRs) for typical oil wells indicates that Bakken IRRs have fallen from 39% in the fall of 2014 to just 1% today. IRRs for typical Permian wells are down to 3% and typical Eagle Ford wells are at breakeven. Everything is underwater or close to it except for the sweet spot wells with higher production. Today we present highlights from RBN’s IRR and breakeven analysis – published in full today in our latest Drill Down Report.

There was no open outcry trading on the CME NYMEX yesterday because of the MLK holiday but after rallying on Friday U.S. crude prices resumed their descent here in electronic trading and the London ICE Brent contract lost $1.40/Bbl to close at $48.77/Bbl. Unsurprisingly the Baker Hughes oil drilling rig count is down by 209 (13%) since December 2014 as producers take a hard look at their production budgets. Yet production is still expected to increase in the short term – in part because the rigs that are left will focus on “sweet spots”. In today’s blog “It Don’t Come Easy – Low Crude Prices, Producer Breakevens and Drilling Economics – Part 2” Sandy Fielden looks at the assumptions behind RBN’s IRR and breakeven scenario analysis.

One positive element to the oil price crash is that consumers are paying less at the pump for their gasoline. Of course it is natural that prices at the pump don’t fall as fast as they do in spot or futures markets – there is a lag – usually measured in days. However, while average retail gas prices have fallen over $1/Gal in the past year – more or less in line with spot and futures markets, it seems that changes to diesel prices at the pump have lagged further behind refinery prices. The result is that retail buyers filling their diesel truck at the pump have benefited far less from the oil price windfall than gasoline powered vehicle owners – at least so far. Today we review the data.

Welcome to 2015!  No, the last few months of 2014 were not a dream – or nightmare, depending on your perspective.  Crude oil prices really did come crashing to earth, sucking down NGL prices in the process.  And natural gas prices followed, falling to $3/MMbtu last week.  Price relationships are out the window, as are drilling budgets.  Over the next few months, these markets will be going through some of the most dynamic changes in years, with unpredictable consequences.  Unpredictable?  Nah.  No mere market turmoil will dissuade RBN from sticking our collective necks out a third year in a row to peer once more into the crystal ball.   Today we wrap up RBNs Top Ten Energy Prognostications for 2015 – Year of the Goat – #5 to #1.

In time honored RBN blogging tradition – we’ve been at this blogging business three years –we look back today at the 250 blogs posted this year to see which ones had the highest hit rates.  The number of hits any blog gets tells you a lot about what is going on in the energy markets – which topics resonate with our members, and which don’t attract much attention.  Last year the big hitter blogs came in about 17,000 hits.  This year the big numbers are closer to 50,000.  With that many folks paying attention these days it is even more important that we take a page out of the late Casey Kasem’s playbook to look at the top blogs of 2014 based on numbers of website hits.