OPEC today published Tuesday’s closing price of its basket of crudes at $22.61 a barrel, down 56% from $52 a barrel on March 4 before the last OPEC+ meeting.
At the close of the European markets, Brent oil traded at $25.41 a barrel and WTI at $20.31 a barrel, both with a loss of 56% and 57% respectively, accumulating in a loss of $29 and $26 a barrel respectively during March. The end of this first quarter of 2020 has been catastrophic for the oil market.
Saudi Arabia, Russia, and the United States.
After the OPEC+ meeting, a price war broke out between Saudi Arabia and Russia, which blocked the proposed agreement to cut production by 2 million barrels of oil and instead led each of the players to increase their production from February’s levels, thus flooding a market already affected by the unprecedented drop in demand due to the global economic recession caused by the COVID-19 pandemic.
Saudi Arabia announced that it will increase its crude oil exports to 12 million barrels a day in a clear indication that the efforts of the US administration to reach an agreement with the Saudi Kingdom have been unsuccessful so far.
The case of Russia is different. Yesterday, the first meeting was announced between Russian Energy Minister Alexander Novak and US Energy Secretary Danny Ray Brouillette in search of solutions and stabilizing the market, as agreed by Presidents Trump and Putin in a telephone conversation.
If any joint action is achieved between Russia and the US, it would be the first time that this has happened and would be a clear sign that the three big oil producers are capable of agreeing and coordinating their actions in the oil market beyond the decisions of an OPEC weakened by the fall in production of most of its members as a result of wars, sanctions, and political destabilization. In the midst of this situation and marked by the collapse of prices, the oil market may be undergoing strategic changes in its behavior that must be observed by OPEC as a whole.
Cancellation of projects.
The world’s oil companies are cutting costs this year after the collapse of prices since the projection of prices at levels, even below $20 a barrel and the collapse of demand estimated for this year, puts at risk the viability of oil operations and investments. Listed oil companies have lost $553.739 million in market capitalization value in one month, according to Reuters.
Meanwhile, major oil companies are making cuts to their initial spending budgets estimated for 2020. To date, some companies have announced a total of $28 billion in budget cuts according to a Reuters report, or 20% of their initial $142 billion spending plans.
BP reports that it will cut its capital spending by 25% this year, estimating it will spend $12 billion this year, below initial expectations of $15 billion. These capital expenditure cuts include $1 billion in the U.S. shale business. The company is postponing certain exploration activities and aims to reduce costs by $2.5 billion by the end of next year compared to 2019 levels.
Aramco CEO Amin Nasser announced on March 16 that he expects capital spending in 2020 to be between $25 and $30 billion compared to $32.8 billion in 2019.
Petrobras has adjusted its production by 100,000 barrels a day and delayed dividend payments and cutbacks to its investment plan for 2020.
On March 24, Chevron announced a reduction in its spending budget, focusing on organic capital and exploration spending for 2020 by 20% to US$16 billion. They are also reducing their exploration spending by 30% to the approved 2020 budget.
Today, it is reported that Chevron, PDVSA’s partner in the PetroPiar Joint Venture in the east of the country and in the PetroBoscán Joint Venture in the west, announced the cancellation of oil service contracts in the country, attributing its decision to the fall in prices.
On the other hand, there is uncertainty in the sector about the possibility that the North American administration extends the OFAC operating license to Chevron to continue operating in the country, which expires this month. But after the Justice Department’s accusations last week against the president of the Republic and other high officials of the country, three of whom being members of the Intervention Commission that is in charge of PDVSA’s management.
In the face of these announcements by international companies, PDVSA, a company that is in a state of collapse of its own operations, is not in a position to compensate for the drop in production in the Mixed Companies with Chevron, so the country will continue to decline in its total production which, according to the last OPEC report of February, closed at 700 thousand barrels per day.
In addition to this uncertainty regarding the continued fall in PDVSA’s production, which has increased since the period of General Quevedo was at the head of the company and the militarization of the company, Rosneft has announced that it will cease its operations in the country and transfer its assets and holdings in Venezuela to another identity, not announced until now, which is 100% owned by the Russian government. This transfer of assets and participation has not been approved by the Executive or the National Assembly as established in the Organic Law on Hydrocarbons but does not guarantee Russia’s commitment to increase or maintain production in the country, in light of the overproduction of oil in the market and the fall in the price of heavy crude oil, particularly Maya, the marker of Venezuelan Merey crude.
While the country remains without gasoline due to the collapse of the Venezuelan refinery system, the result of successive interventions and budget cuts over the last 6 years, accidents continue to occur in PDVSA’s facilities as a result of inputs and maintenance in operational areas as well as the lack of technical capacity and expertise of the company’s management.
Tuesday, there was a fire in the TK-010 crude oil tank in the tank yard of the Petropiar Mixed Company in the Jose Complex, located in the north of Anzoátegui State, as reported on the Twitter account of Eudis Girot, a director of the Unitary Federation of Oil Workers of Venezuela (Futpv).
This is the second accident in 11 days in the east of the country, after the explosion at the Carito Flow Station on March 20 in the Punta de Mata Division in the state of Monagas, which affected the production of at least 38 MBD. These accidents continue to compromise oil production in the country.