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BUT WAIT! THERE IS MORE …

The Very Real Prospect Of $5 Oil

The rebound in oil prices on Thursday didn’t last long as bearish sentiment once
again took hold on Friday morning, with some analysts contemplating the possibility
of $5 WTI

Distributed by email on Friday, March 20th, 2020

Oil prices rebounded on Thursday on hopes of a trillion-dollar stimulus package

from Washington, along with other stimulus measures from governments around
the world. The rally was short-lived however, with a growing number of analysts see
a deeper bottom for oil.

Citi: $5 oil is possible. Citigroup laid out a pessimistic scenario in which WTI falls
to $5 per barrel. Energy Aspects said Brent could fall to $10. Mizuho Securities said
some oil could even fall into negative territory absent shale shut ins. “This is
Operation Desert Storm, Enron, 9/11, Hurricane Katrina/Rita, Lehman Bros,
combined,” Stephen Schork, president of the energy consultancy Schork Group
Inc., told Bloomberg.

Majors could store jet fuel at sea. Oil companies are rushing to store oil at sea,
but the glut has become so severe that the majors are looking at even storing jet
fuel at sea. That practice is rare because jet fuel degrades more quickly than other
fuels and is sensitive to contamination. “The industry generally expects products will
be used within three months of being produced,” said George Hoekstra, an
independent consultant, told Reuters.

Texas considers the unthinkable – regulating production. Several oil

executives have reached out to the Texas Railroad Commission, which regulates oil
and gas in the state, asking for regulation on production in order to rescue prices,
according to the WSJ. In Bloomberg Opinion, Texas Railroad Commissioner Ryan
Sitton proposed rationing production, cutting output in the state by 10 percent.
North Dakota to keep inactive wells inactive. North Dakota regulators are
considering moves that would allow oil producers to keep their wells inactive, rather
than forcing them to choose between producing and reclamation. The logic would
be trying to keep unwanted production offline.

Halliburton furloughs 3,500 workers. Halliburton (NYSE: HAL) furloughed 3,500

workers on Wednesday, putting them on limited work schedules for two months.

Moody’s: Oilfield services most at risk of credit shock. Moody’s said that
weaker oilfield services companies are the most vulnerable to a credit shock.
Roughly $32 billion in debt in oilfield services falls due between this year and 2024.
Smaller regional players “face the brunt of the sector’s weakness, and therefore the
greatest refinancing risk.”

Refiners look to cut processing. Low oil prices are typically good for refiners, but
demand destruction is putting refiners in a bind. Refining margins for transportation
fuels fell into negative territory in Europe and Asia. Marathon (NYSE: MPC) cut
production at its Los Angeles refinery, California’s largest. Meanwhile, a growing
number of refiners are sending staff home because of the coronavirus, including
HollyFrontier (NYSE: HFC), Royal Dutch Shell (NYSE: RDS.A) and Valero
(NYSE: VLO).

Total to cut spending and freeze recruitment. Total (NYSE: TOT) said that it
would halt its share buyback program, its recruitment program and also cut capex,
perhaps by as much as 20 percent.

Iraq calls for emergency meeting. Iraq’s oil minister called for an emergency
OPEC meeting, but a meeting seems unlikely before June.

Shell suspends construction at cracker plant. Royal Dutch Shell (NYSE:

RDS.A) suspended construction at its massive ethane cracker in Western
Pennsylvania due to the coronavirus. The project has around 8,000 workers on site.

ConocoPhillips suspends flights to Alaska North Slope. The coronavirus has

forced ConocoPhillips (NYSE: COP) to cancel flights for hundreds of workers to
Alaska’s North Slope for at least two weeks.

Shale drillers getting crushed. More shale drillers are exploring debt restructuring
as WTI sinks into the mid-$20s.

Shale industry lost $2.1 billion last year. A survey of 34 North American shale-
focused drillers reported a combined $2.1 billion in 2019, according to IEEFA. That
capped off a decade in which they spent $189 billion more than they generated.

Capex cuts top $31 billion. The global oil and gas industry has already slashed
$31 billion from spending plans this month, following the historic collapse in prices.
Natural gas prices could rise on shale knockout. With the Permian basin on the
ropes, associated gas production could decline as drilling dries up, tightening up the
gas market. “We increase our 2021 price forecast to $2.45/MMbtu as we expect to
see accelerating production declines next year,” Bank of America Merrill Lynch
wrote in a note. At the same time, gas demand in the power sector is down as the
U.S. goes on lockdown and appears set to enter into economic recession.

Oil crash could destroy biofuels market. The crash in oil prices makes ethanol
comparatively expensive around the world.

I HOPE YOU ARE WELL AND WORKING

FROM HOME — SELF−ISOLATING AND
KEEPING A SAFE "SOCIAL DISTANCE”