Last updateFri, 03 Jul 2020 5pm

IHS Markit: U.S. to Halt 1.75 Million b/d of Production

Due to the collapse in oil prices, IHS Markit expects U.S. producers are in the process of curtailing about 1.75 million barrels a day (b/d) of existing production by early June due to operating cash losses, lack of demand and storage capacity, and an unwillingness to sell resources at the very low prices available since the onset of the COVID crisis.

These reductions are not permanent. IHS Markit has projected a return of most curtailed volumes in the summer and fall of 2020 as tightening fundamentals lead operating margins back to positive territory. This resumption of production may accelerate if WTI remains above $30 per barrel—a price that allows operators to cover their operating costs and that reflects improved storage availability.

IEA: Energy Demand May Never Recover After Pandemic

A new report from the International Energy Agency (IEA) projects that energy demand will fall 6% in 2020 – seven times the decline after the 2008 global financial crisis. In absolute terms, the decline is unprecedented – the equivalent of losing the entire energy demand of India, the world’s third largest energy consumer. Advanced economies are expected to see the biggest declines, with demand set to fall by 9% in the U.S. and by 11% in the EU.

“This is a historic shock to the entire energy world. Amid today’s unparalleled health and economic crises, the plunge in demand for nearly all major fuels is staggering, especially for coal, oil and gas. Only renewables are holding up during the previously unheard-of slump in electricity use,” said Dr Fatih Birol, the IEA executive director. “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”

Major Shifts in Energy Supply and Demand Patterns Due to COVID-19

Reduced economic activity resulting from shelter-in-place restrictions due to COVID-19 drove significant near-term disruptions to energy markets in the month of April with U.S. petroleum demand falling nearly 27% to 14.2 million barrels per day (b/d), according to data released in the American Petroleum Institute’s April 2020 Monthly Statistical Report. Gasoline deliveries fell more than 31% in April to their lowest level since 1972, while jet fuel posted its largest monthly decline on record, falling nearly 56% to 0.6 million b/d. On a weekly basis, total U.S. petroleum demand rebounded by 1.6 million b/d as of May 1 after appearing to bottom out during the second week of April.

On the supply side, U.S. oil-targeted drilling fell a record 52% over the past two months as producers adjusted output to align with this historic decline in demand. Domestic oil production fell 0.9 million b/d in April to 12.0 million b/d, which combined with reductions in natural gas and other liquids output, amounted to the largest monthly decline in U.S. total liquids supply on record.

U.S. & UK Chemical Industries Begin Bilateral Trade Negotiations

The United States and United Kingdom entered formal trade negotiations on May 5. U.S.-UK chemicals trade totaled $5.3 billion in 2019. The chemical industry is the UK’s largest exporter of manufactured goods. A trade agreement that eliminates U.S. tariffs on chemical imports from the UK could save U.S. chemical manufacturers $76 million per year. Eliminating UK tariffs on chemical imports from the U.S. would reduce tariffs paid in the U.K by $84 million.

EIA Expects Lower Natural Gas Production in 2020

In its May 2020 Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) forecasts that U.S. marketed natural gas production will decrease by 2% in 2020 because of a weakening economic outlook from the impact of efforts to reduce the spread of COVID-19. EIA expects U.S. marketed natural gas production to average 97.1 billion cubic feet per day (cf/d) in 2020, down from 99.2 billion cf/d in 2019.

Before the economic contraction caused by mitigation efforts in response to COVID-19, EIA expected natural gas production would flatten in 2020 because of the oversupplied market created as natural gas production growth has outpaced demand growth. The U.S. set annual natural gas production records in 2018 and 2019, largely because of the increase in drilling in shale and tight oil formations. This increase in production led to higher volumes of natural gas in storage and a decrease in natural gas prices.

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