I mentioned it in another thread, but Saudi/Russia started a price war at about the worst time in history. If this Covid-19 stuff ends up pushing into the heavy travel season, O&G is going to implode on itself. There's already about a 30-35% projected contraction in the market for 2020 since the last projections in 4Q '19. The last downturn took out a lot of the more heavily-leveraged O&G companies, so a lot of the current companies were in considerably better shape, financially. However, there's only so much you can do to cut costs in the short term. No one will even bother with production at sub-$20/bbl prices. I mean, it won't even pay to pull the oil out of the ground, much less pay for overhead expenses. There will be a lot of rigs mothballed over the coming months.
After 43 years in one aspect or another of the crazy hydrocarbon business been through a few of these. I suspect you have too.
Yes, at times like this it often is better to leave it in the ground; the cheapest crude oil "storage" of all, LOL.
Buddy of mine texted me today: at the Alberta distribution point, it was $7.47. Saudi oil going for $15 in Rotterdam. Pretty soon there won't be anywhere to store it!
You also have to take into consideration the grade of oil. The Canadian price you referenced is for Western Canadian Select, a heavy oil sands crude blend (it closed at $8.61 today). Syncrude Sweet Premium, an oil sands product that comes from an upgrader, closed at $23.01 (compared to $24.14 for West Texas Intermediate and 29.69 for Brent, the two most commonly referenced grades quoted in the media).
are we looking at $10 dollar per barrel oil?
The Covid-19 virus and the ongoing oil price war have created such a large global supply surplus that Western Canada’s oil production will need to be cut from April by some 11%, or 440,000 barrels per day (bpd), Rystad Energy estimates, as the country is days away from running out of
available storage capacity.
Spot prices get all the press. But very little crude actually trades at spot.
The Canadian situation in the oil patch was dire even before the virus hit. Mostly self-inflicted. You are close enough to the border to have probably heard about the various pipeline fights, particularly TransMountain, which feeds Canadian crude to Cherry Point.
As an aside, there's no doubt every oil producer worldwide is getting hit by this. But here's some stats I compiled a while back that might help keep things in perspective.
As tough as this is on USA stripper production and the marginal drillers in the shale oil plays, I think the peanut gallery experts may be surprised at how resilient USA shale oil, particularly the Texas Permian (Midland and Delaware basins) proves to be.
Who capitulates first will depend on who suffers the most pain and which can stand it the longest. In my view what Russia and the mercurial tempered Saudi Crown Prince did was a head shot to some of the more vulnerable OPEC members, particularly Iraq, and maybe also Iran. Looking at the data below, tell me again who's most dependent on oil production and sales to keep their country running.
Figures in US$ equivalents. Hydrocarbon portion is 2019 data.
Russian nominal annual GDP $1.64 Trillion (IMF, October 2019)
Russia average liquid hydrocarbon production (includes crude + NGLs) 10,603,000 bbls per day (January 2020)
Russian total annual exports ~$400 Billion
Russian crude oil exports ~$96 Billion
Russian refined products exports ~$58 Billion
Russian natural gas exports ~$20 Billion
Russian coal exports ~$16 Billion
Russian non-military aerospace exports ~$8 Billion
Saudi Arabia nominal annual GDP $780 Billion (IMF, October 2019)
Saudi average liquid hydrocarbon production (includes crude + NGLs) 9,748,000 bbls per day (January 2020)
Saudi total annual exports ~$180 Billion
Saudi crude oil exports ~$102 Billion
Saudi refined products exports ~$18 Billion
Saudi commodity petrochemical exports ~$28 Billion
USA nominal annual GDP $21.44 Trillion (IMF, October 2019)
USA average liquid hydrocarbon production (includes crude + NGLs) 12,971,000 bbls per day (January 2020)
USA total annual exports ~$1,645 Billion
USA machinery exports ~$206 Billion
USA electronics goods/computer exports ~$170 Billion
USA aerospace products and components exports ~$131 Billion
USA vehicle exports ~$127 Billion
USA petroleum exports (crude, refined products, natural gas, NGLs) ~$106 Billion.
