Summary of oil picture in the U.S.

The Energy Information Administration Tuesday released a sharp downward revision to its U.S. crude oil production forecast.

  • Declines are now projected to be deeper and begin faster than the prior forecast issued less than a month ago, as the chart above shows.
  • EIA now sees U.S. crude oil production falling to an average of 11.76 million barrels per day this year and just over 11 million in 2021.
  • And via Politico, “EIA’s forecast may still be too rosy, since many industry analysts are expecting U.S. production to decline by 3 million barrels per day or more this year as companies tighten spending and idle drilling rigs.”

The big picture: EIA’s closely watched outlook was not the only sign yesterday of how the twin effects of collapsing demand and low prices are taking hold, prompting layoffs and pushing some firms closer to bankruptcy.

What they’re saying: A new report from the Kansas City Fed, which surveyed energy companies, finds that activity “decreased at a steep pace in the first quarter of 2020.”

  • Why it matters: The Kansas City Fed region covers oil and natural gas producing states of Colorado, Wyoming, and Oklahoma.
  • What they found: The survey showed that expectations around future profits, employment, spending and revenues all fell.
  • What’s next: The survey asked what prices for WTI the firms need for drilling to be profitable in fields where they’re active. The average is $47-per-barrel. Prices are currently in the $24 range.
  • Threat level: Participants in the survey expect, on average, that 61% of firms will stay solvent in the next year if prices were at $30, and that only moves to 64% at $40.

Meanwhile, the law firm Haynes and Boone, which carefully tracks industry finances, issued its latest report on bankruptcies and what’s ahead.

  • They tallied eight bankruptcies in the oilfield services sector in Q1, a slight uptick over Q4 of 2019 but below Q3 2019 levels.
  • Seven oil-and-gas companies filed for bankruptcy, which is below the prior three quarters.
  • However, their analysis finds that as Q2 begins, “extreme financial pressure is being felt at all levels of the energy industry.”
  • Among oilfield services companies, “many smaller or highly leveraged companies may not be able to hold on.”

Source: Axios

%d bloggers like this: