Last updateFri, 03 Jul 2020 5pm

Price of Oil Drops Below Zero for First Time Ever

At the close of trading on Monday, the price for West Texas Intermediate crude oil fell to minus $37.63 a barrel. “The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due,” Bloomberg reports.

“The extreme move showed just how oversupplied the U.S. oil market has become with industrial and economic activity grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus. An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand.”

U.S. Shale Output Set to Drop in 2020

Due to the combined effect of the COVID-19 pandemic and the low oil prices, U.S. shale operators are reducing spending, production and overall activity in 2020. Although the country’s oil production was previously poised for annual growth of 8.1%, based solely on interpretation of operators’ guidance, Rystad Energy is projecting a decline of at least 2.7% year-on-year.

As shut-ins, reductions in spending and activities weigh in, the fourth quarter of 2020, which was projected to see a year-on-year oil production increase of 650,000 barrels per day, is now instead forecast to see a reduction of 1.5 million bpd. In other words, production for the quarter will be lower by some 2.15 million bpd compared to what was expected before the COVID-19 crisis. 

Loose Valve Caused ExxonMobil Refinery Fire

An internal report from ExxonMobil showed that the Baton Rouge, LA refinery fire on Feb. 11 “was caused by air getting into a line containing hydrocarbon material in a pipe rack and igniting,” WAFB reports. That resulting fire caused the pipe to leak and then affected other lines nearby.

“ExxonMobil says it will ensure the valves associated with the air getting into the line are locked in a closed position to prevent it from happening again.”

U.S. Water Business Hurt by Drilling Slowdown

By the end of 2022, produced water from oil and gas wells in onshore U.S. plays is expected to fall to nearly 20 billion barrels annually, reflecting an oilfield water market valued at $28 billion, according to analysis by IHS Markit. While still considerable, these volumes represent a decline of nearly 4% from 2019 volumes, driven by plunging oil prices and falling oil demand due, in part, to COVID-19 impacts.

“After the recent oil price collapse and demand destruction for oil due to COVID-19 and other market factors, we now expect the total water management market size in the U.S. to drop about 20% below our previous estimates,” said Paola Perez-Peña, principal research analyst at IHS Markit and lead author of its water market analysis. “The dramatic decrease in drilling and completion (D&C) activity in the next two years will significantly reduce frack water volumes, while the decline in produced water volumes will be less severe.”

EIA Cuts 2020, 2021 U.S. Oil Production Forecasts

The U.S. Energy Information Administration (EIA) forecasts significant decreases in U.S. liquid fuels demand during the first half of 2020 as a result of COVID-19 travel restrictions and significant disruptions to business and economic activity. EIA expects that the largest impacts will occur in the second quarter of 2020, before gradually dissipating over the course of the next 18 months.

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