The Energy 202: Oil prices are bouncing back from coronavirus-fueled lows

with Paulina Firozi

The price of oil price has rebounded big time – just a month after it took an unprecedented plunge briefly below $0.

West Texas Intermediate, a crucial U.S. benchmark that turned heads on April 20 after trading for near negative $40, inched above $30 and hit a two-month high as demand for energy returns from the depths of the coronavirus pandemic. And the price of Brent crude, a global benchmark, is now selling for around $35 a barrel.

The oil industry is hardly out of the woods. Petroleum began the year trading above $60, and fuel prices still are still too low for some U.S. wells to be profitable and for some companies to survive.

Yet oil’s rebound from that “Twilight Zone”-esque moment when sellers had to pay buyers to take a barrel off their hands has oil executives and government officials finally breathing a sigh of relief.

“Certainly, it would appear that the market has found a bottom,” Chevron chief executive Mike Wirth said last week in an online interview series held in lieu of the annual CERAWeek oil industry conference, which was canceled because of the coronavirus.

President Trump, who has staked his reelection on the economy, is shouting for joy in all-caps on Twitter.

OIL (ENERGY) IS BACK!!!!

— Donald J. Trump (@realDonaldTrump) May 18, 2020

“We see a less pessimistic picture,” Fatih Birol, executive director of the International Energy Agency, said in his own CERAWeek interview. “Last month I said at the beginning of April, that month could go down in the history of the oil industry as ‘black April.’ After that we saw oil prices negative and lots of pressure on stocks everywhere especially on the oil industry — unprecedented pressure. This month is a little better. We see early signs of a gradual rebalancing of the global oil markets.”

The coronavirus pandemic is far from over, but a number of economic forces are propping up oil prices.

On the supply side of the oil equation, oil-producing nations part of OPEC have kept their word and are throttling back production in May, according to the analytics firm Rystad Energy. Three members of the international oil cartel — Saudi Arabia, Kuwait and the United Arab Emirates — have said they would enact even deeper cuts for June.

“There was some skepticism that [Saudi Arabia] would actually follow through with the cuts,” said Tarun Ajwani, vice president of business development at Validere, an oil and gas software company in Canada.

The U.S. government has little power to force private companies within its borders to turn off the spigot, but they, too, cut are cutting back production. American operators have already announced they are shutting off wells that have would have produced at least 1.2 million barrels per day through in May and June, according to Rystad.

More importantly, demand for energy is returning as many U.S. states begin easing stay-at-home orders that helped drive the price per gallon of gasoline to less than $1 at some pumps.

Motorists were already returning to the roads, with weekly demand for gasoline rebounding by 22 percent over a four-week period in April, according to the gasoline price tracker GasBuddy, though purchases at the pump are still well below 2019 levels. Demand is up even more in Tennessee, South Carolina and Georgia, three states that started easing restrictions last month.

“Sub-$1 gas prices have vaporized,” said Patrick De Haan, an oil analyst at GasBuddy.

Don’t expect a repeat of prices going below $0 when the oil contract period ends this week.

The contract period for June delivery of West Texas Intermediate closes today. When it ends, whoever holds those agreements is due some number of barrels of oil.

When the contract period was nearing its end at this time last month, the country’s oil storage facilities were quickly filling, and many traders with no intention of or ability to actually store oil had to dump them fast, forcing the price down.

“They were really desperate,” said Paola Rodriguez-Masiu of Rystad Energy. “They were in a corner.”

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This time around, oil tankers are lining the coast of Southern California and anchoring in the Gulf of Mexico to help store excess crude. And speculators “learned a hard lesson,” Rodriguez said, and are not sitting on as many contracts as the deadline looms.

With the price of oil up, some — but not all — hurt producers see a light at the end of the tunnel.

Tapping shale oil is generally more expensive than extracting other kinds of petroleum reserves, and the U.S. companies specializing in that production are among the hardest hit by the crash in prices. The crude prices breaking above $30 may be a much-needed boon for them.

Kevin Book, a managing director at Clearview Energy Partners, said that some shale oil wells begin to break even around $25. Already two Texas-based shale oil producers, Diamondback Energy Inc. and Parsley Energy Inc., told Bloomberg News they needed oil around $30 a barrel to consider bringing back production and starting new wells.

Birol, for one, sees shale oil mounting a comeback “around $40” or more. “Many people around the world are saying that we may well see shale is done forever, ” he said. “I don’t agree with that.”

Still, many other shale oil plays will remain unprofitable unless the price of oil goes even higher than that, Book said, especially if the company in question is saddled with debt, as many shale producers are. “It really depends on where you are,” Book said, “and it depends on who you are.”

It will still take a while for the energy industry to recover from its deep, coronavirus-inflicted wounds.

The sector has shed a total of 1.3 million jobs in the United States since the beginning of the pandemic, according to an analysis published Monday by BW Research. Around 958,500 of those energy jobs were lost in April alone, a 12 percent drop in employment over the course of the month.

Power plays

Joe Biden says he would revoke a Trump administration permit authorizing the Keystone XL pipeline.

The controversial project, which the Obama administration rejected in 2015, has been in political and legal limbo for the last decade.

During his 2016 presidential bid, Trump promised to revive the pipeline, which would transport 830,000 barrels of crude oil a day from Canada to refineries in Texas. Shortly after taking office, his administration issued permits to allow it to move forward, but it has remained stalled because of legal challenges.

The Biden campaign told me and Matt Viser that if the former vice president is elected, he would pull the controversial project’s permit, citing concerns about continued dependence on oil as the world warms. “Denial of science ends on Day 1 of a Biden presidency,” said Stef Feldman, the Biden campaign’s policy director.

Environmental groups praised the campaign’s announcement. The political action arm of advocacy group 350.org called it a sign of his “willingness to stand up to Big Oil for the benefit of the people and the planet.”

But the oil industry said shuttering the projects hurts job growth. “It will provide much-needed middle-class sustaining jobs throughout the country, while safely transporting the energy that Americans use every day and that our economy will rely on to recover from the COVID-19 pandemic,” said Robin Rorick, vice president of midstream and industry operations at the American Petroleum Institute, a major oil and gas lobbying group.

Ryan Zinke says he believes he was targeted by the department’s inspector general.

The former interior secretary criticized the numerous investigations into his tenure and said his attorneys told him the probes were “intended to harass.” In an interview with the Washington Examiner, he claimed the inspector general’s office was “in coordination with the opposition,” though he didn’t cite any specific evidence. He said he resigned so that he wouldn’t have to pay $25,000 a month in legal fees to defend himself against the probes.

“During his tenure, Zinke came under scrutiny for several allegations, including that his wife traveled with him in government vehicles against agency policy and that he blocked Native American tribes from opening a casino in Connecticut under lobbying pressure from MGM Resorts,” per the report. “The Interior Department watchdog was also exploring a real estate deal that involved Zinke’s family and the chairman of oil services giant Halliburton in an inquiry that was referred to the Justice Department.”

Energy secretary compared banks’ refusal to fund Arctic oil and gas development to racial “redlining.”

In an interview with Axios, Dan Brouillette used the term referring to a practice where banks denied loans to people of color to criticize a number of big banks that have announced they won’t finance oil and gas development in the Arctic.

Trump administration critics were quick to ding Brouillette for the comments. Niel Lawrence, Alaska director at the Natural Resources Defense Council, said “it is deeply offensive to compare these investment decisions to willful and illegal discrimination against citizens on the basis of race.”

Virginia, Maryland and D.C. plan to sue the Environmental Protection Agency over the Chesapeake Bay cleanup plan.

The district and two states say EPA chief Andrew Wheeler failed to enforce a court-ordered agreement to significantly lower pollution in the Chesapeake Bay, Darryl Fears and Brady Dennis report.

The group of attorneys general say Wheeler “stood by as New York and Pennsylvania allowed levels of pollution that violated the plan into rivers that feed into the Chesapeake. Under an agreement signed by six states in the bay watershed — also including West Virginia and Delaware — the federal agency is tasked with policing the cleanup.”

Coronavirus fallout

At least 21 publicly-traded energy firms have received emergency federal payroll loans totaling $221 million.

Many of them were already in financial peril. Other companies got loans even while their business seemed to be doing well.

“The federal loan program is limited to smaller businesses — firms that in the energy field have been the most vulnerable to the downdrafts that even before the pandemic were running counter to the general growth in the national economy,” Will Englund reports. For the firms that were struggling, “the loans were at least a temporary lifeline but not a solution to their problems.”

Carmakers are putting protocols in place as the industry resumes factory work.

Companies in Detroit say they will quickly test any symptomatic employees. They have placed testing resources at “most locations for workers who are feverish or showing other symptoms. Fiat Chrysler said it has contracts with hospitals in Michigan, Indiana, Ohio and Illinois to test symptomatic workers,” the Wall Street Journal reports. “A United Auto Workers spokesman said the union continues to advocate for as much testing of its members as possible and is pushing for testing of all workers once it is feasible.”

The Energy Department is trying to help find a cure for the coronavirus.

The agency created a campaign in March to use the fastest supercomputers in the world to “find the molecular breakthrough that could become the drug with the best chance of disarming the insidious novel coronavirus,” E&E News reports. The effort was launched alongside the White House Office of Science and Technology Policy and IBM.

“So far, 46 projects have been approved, based on the most advanced 21st century technologies including, in addition to high-speed computing, human genome research and 3D molecular models of the coronavirus with its ominous spikes,” per the report. “.. The coronavirus investigation appears to be the most urgent, direct challenge put to the DOE national labs, whose roots go back to the World War II race to build the atomic bomb.”

In other news

Tropical Storm Arthur brushed against North Carolina’s Outer Banks.

The storm brought torrential rainfall, vicious surf and coastal flooding, and at least a half a foot of rain, Matthew Cappucci reports.

“Once it’s finished breezing through the coastal Carolinas, Arthur’s recurving track will swing it out to sea,” he writes. “But it won’t be done impacting land masses — Bermuda looks to be next in play.”

The strongest, most dangerous hurricanes are now far more likely because of climate change, according to a new study.

The report from group of researchers at the National Oceanic and Atmospheric Administration and the University of Wisconsin at Madison found a global increase of about 8 percent a decade of the likelihood that a tropical cyclone will become a Category 3 or stronger storm, Andrew Freedman and Jason Samenow report.

“Tropical cyclones are a category of storms that includes hurricanes and typhoons worldwide. This is consistent with what scientists expect to happen as the world warms, given that hurricanes get their energy from warm ocean waters and water vapor in the air, among other factors,” they write.

PG&E said wildfire victims have overwhelmingly approved a proposed settlement.

The $13.5 billion settlement, which Pacific Gas & Electric said thousands of homeowners and businesses voted to approve, would require the utility to start paying victims as soon as August, the New York Times reports.

“The vote helps clear one of the last major hurdles PG&E faces in restructuring its debts,” per the report. “The company is trying to resolve its bankruptcy by June 30 to qualify for a $20 billion wildfire fund created by California lawmakers. That fund will help cover the cost of future fires caused by utility equipment.”

www.washingtonpost.com