Exploration and development expenditures likely to drop from 2019’s four-year high (5/28/2020)

Global expenditures related to oil and gas exploration and development (E and D) increased $42 billion (13%) in 2019, totaling $361 billion, according to the aggregate financial reports for 102 oil companies. Additions to these companies’ collective proved reserves totaled 18 billion barrels of oil equivalent (BOE), consistent with the 2010–18 annual average additions. As a result of the significant price declines since the beginning of 2020, however, global proved reserves will likely be revised significantly downward this year. E and D expenditures will also likely decline significantly, with several companies already announcing large budget reductions. ... More »

North American crude oil prices are closely, but not perfectly, connected (5/20/2020)

The decline on April 20, 2020 in the price of the front-month New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) futures contract was the largest and swiftest on record. Front-month WTI prices dropped as low as -$40.32 per barrel (b) on April 20 during intraday trading before closing at -$37.63/b. Prices have since recovered, with NYMEX front-month WTI prices closing at $31.82/b on May 18. The April 20 NYMEX WTI market event proved short-lived, but the incident is still useful for highlighting the interconnectedness of the wider North American crude oil market. In addition to the NYMEX WTI futures contract, several important North American crude oil spot price markers also fell below zero on April 20, including WTI Midland, Mars, West Texas Sour (WTS), and Bakken Clearbrook. Although these markers correspond to different types of crude oils and trade at different places around the continent, the integration of North American crude oil transportation infrastructure and the use of NYMEX WTI in formulas used to calculate some other prices all but ensured that the highly local shock to NYMEX WTI on April 20 was quickly felt throughout the North American market. ... More »

EIA raises crude oil price outlook slightly as announced supply cuts lead to high inventory draws in 2021 (5/13/2020)

In its May Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects Brent crude oil prices will average $34 per barrel (b) in 2020 and $48/b in 2021. Although market outlooks are subject to many risks, the May STEO remains subject to heightened levels of uncertainty because the effects on energy markets of mitigation efforts related to the 2019 novel coronavirus disease (COVID-19) are still evolving. Despite the April agreement between the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) to reduce production levels through the end of 2022, crude oil prices have remained at some of their lowest levels in more than 20 years. EIA expects that global liquid fuels inventories will grow by an average of 2.6 million barrels per day (b/d) in 2020 after falling by about 0.2 million b/d in 2019. EIA expects global inventory builds will be largest in the first half of 2020, rising at a rate of 6.6 million b/d in the first quarter and increasing to builds of 11.5 million b/d in the second quarter because of widespread travel limitations and sharp reductions in economic activity. After the first half of 2020, EIA expects global consumption to increase, leading to inventory draws for at least six consecutive quarters and putting upward pressure on crude oil prices (Figure 1). ... More »

Low crude oil prices, record-high inventories, and low demand drive gasoline prices down (5/6/2020)

On April 27, 2020, the U.S. average regular retail gasoline price was $1.77 per gallon (gal), the lowest price since February 2016. On May 4, the U.S. average gasoline price increased slightly to $1.79/gal. The United States declared a national emergency on March 13 in response to concerns regarding spread of the 2019 novel coronavirus disease (COVID-19). From March 16 to May 4, the U.S. average regular retail gasoline price fell by $0.46/gal. The lower gasoline prices reflect low crude oil prices, low gasoline demand, and rising gasoline inventories. ... More »

Record low demand and low crack spreads drive refinery run declines (4/29/2020)

Transportation fuel demand in the United States has decreased since mid-March 2020, as a result of reduced economic activity and stay-at-home orders aimed at slowing the spread of the 2019 novel coronavirus disease (COVID-19). With low demand and a decrease in profitability, as measured by crack spreads, U.S. refineries have reduced gross inputs (runs), which dropped to 12.8 million barrels per day (b/d) for the week ending April 17, 3.8 million b/d lower than the previous five-year (2015–19) average and the lowest level since 2008 (Figure 1). Gross inputs increased slightly to 13.2 million b/d the week of April 24. ... More »

WTI crude oil futures prices fell below zero because of low liquidity and limited available storage (4/22/2020)

On Monday, April 20, 2020, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil front-month futures prices fell below zero dollars per barrel (b)—at one point, trading at -$40.32/b and remained below zero for part of the following trading day. Monday marked the first time the price for the WTI futures contract fell below zero since trading began in 1983. Negative prices in commodity markets are very rare, but when they occur they typically indicate high transactions costs and significant infrastructure constraints. In this case, the WTI front-month futures contract was for May 2020 delivery, and the contract was set to expire on April 21, 2020. Market participants that hold WTI futures contracts to expiration must take physical delivery of WTI crude oil in Cushing, Oklahoma. Typically, most market participants close any futures contracts ahead of expiration through cash settlement in order to avoid taking physical delivery, and only about 1% of contracts are physically settled. The extreme market events of April 20 and April 21 were driven by several factors, including the inability of contract holders to find other market participants to sell the futures contracts. In addition, in this case, the scarcity of available crude oil storage meant several market participants could not take physical delivery at expiration and resorted to selling their futures contracts at negative prices, in effect paying a counterparty to take hold of the contracts. ... More »