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image100

CNBC

 

WARREN BUFFETT’S BERKSHIRE BUYS DOMINION ENERGY NATURAL GAS ASSETS IN $10 BILLION DEAL

 

Becky Quick @BECKYQUICK

KEY POINTS

  • The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets of Dominion Energy.
  • Including the assumption of debt, the deal totals almost $10 billion.
  • It’s Berkshire’s first major purchase since the coronavirus pandemic and subsequent market collapse in March.
  • With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8%.
    Warren Buffett’s Berkshire Hathaway is finally pulling the trigger.
    The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets
    of Dominion Energy. Including the assumption of debt, the deal totals almost $10 billion. It’s Berkshire’s first major purchase since the coronavirus pandemic and subsequent market collapse in March.
    At his annual shareholder meeting in May, Buffett revealed that Berkshire had built up a record $137 billion cash hoard as financial markets tanked and that he hadn’t seen many favorable deals, despite the stock market’s swoon.
    “We have not done anything because we don’t see anything that attractive to do,” Buffett said at the time, suggesting that the quick actions taken by the Federal Reserve this year meant companies could get more access to financing in the public markets than they could during the financial crisis in 2008 and 2009.
    “If we really liked what we were seeing, we would do it, and that will happen someday,” Buffett said in May.
    For Dominion, the move is part of its transition to a pure-play regulated utility company that focuses on clean energy production from wind, solar and natural gas. Following the sale, Dominion expects that 90% of its future operating earnings will come from its utility companies that provide energy to more than 7 million customers in states like Virginia, North and South Carolina, Ohio and Utah.
    Dominion also announced that it is cancelling its Atlantic Coast Pipeline project with Duke Energy. The $8 billion project has faced increasing regulatory scrutiny and delays that have ballooned projected costs and raised doubts about its economic feasibility.
    As a result of the sale and its streamlined operations, Dominion is warning that it now expects its operating earnings for 2020 to be $3.37 to $3.63 a share. Its previous guidance was for $4.25 to $4.60 a share. The company is also planning to cut its dividend in the fourth quarter to 63 cents a share, from the 94 cents a share that it paid out in each of the first two quarters of the year and that it anticipates paying out for the third quarter.
    Currently, Dominion pays out 85% of its operating earnings, but post transaction the company is targeting an operating earnings payout of 65%, which it says is more in line with its peers.
    For Berkshire, the move greatly increases its footprint in the natural gas business. With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States,

https://www.cnbc.com/2020/07/05/warren-buffetts-berkshire-buys-dominion-energy-natural-gas-assets-in-10-billion-deal.html

up from 8% currently.

Under the deal, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission and 50% of Iroquois Gas Transmission System. Berkshire will also acquire 25% of Cove Point LNG, an export-import and storage facility for liquefied natural gas, one of just six in the U.S.

Berkshire Energy will pay $4 billion in cash for the assets, and assume $5.7 billion in debt. Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year.

The deal is subject to regulatory approval and is expected to close in the fourth quarter.

image101

A PARTIAL LIST OF PRODUCTS MADE FROM PETROLEUM (144 OF 6000 ITEMS)

 

One 42-gallon barrel of oil creates 19.4 gallons of gasoline. The rest (over half) is used to make things like:

Solvents Upholstery
Dresses Motorcycle Helmet Curtains Dashboards Percolators

Tool Racks Umbrellas Denture Adhesive Tennis Rackets Water Pipes Guitar Strings Clothes Vaporizers Enamel

Dentures Fan Belts

Diesel fuel Sweaters
Tires
Caulking
Food Preservatives Cortisone

Life Jackets
Car Battery Cases Yarn
Linoleum
Rubber Cement Hand Lotion Luggage Toothbrushes Balloons
Pillows
Model Cars
Car Enamel

Motor Oil
Boats
Golf Bags Petroleum Jelly Basketballs Deodorant Rubbing Alcohol Epoxy

Fertilizers
Ice Cube Trays Fishing Boots Roller Skates Aspirin
Ice Chests
Sun Glasses Dishes
Folding Doors Shaving Cream

Bearing Grease Insecticides Perfumes Transparent Tape Soap

Shoelace Aglets Linings
Paint
Hair Coloring Synthetic Rubber Dice

Surf Boards Safety Glasses Footballs Tents Cameras

Hair Curlers Ammonia

Ink

Floor Wax

Ballpoint Pens

Football Cleats

Bicycle Tires

Sports Car Bodies

Nail Polish

Fishing lures

Cassettes

Dishwasher parts

Tool Boxes

Shoe Polish

CD Player

Faucet Washers

Antiseptics

Clothesline

Vitamin Capsules

Antihistamines

Purses

Shoes

Putty

Dyes

Panty Hose

Refrigerant

Skis

TV Cabinets

Shag Rugs

Electrician’s Tape

Mops

Slacks

Insect Repellent

Oil Filters

Roofing

Toilet Seats

Fishing Rods

Lipstick

Speakers

Plastic Wood

Electric Blankets

Glycerin

Nylon Rope

Candles

Trash Bags

House Paint

Shampoo

Wheels

Paint Rollers

Shower Curtains

Antifreeze

Football Helmets

Awnings

Eyeglasses

Combs

CD’s & DVD’s

Paint Brushes

Detergents

Heart Valves

Crayons

Parachutes

Telephones

Anesthetics

Artificial Turf

Artificial limbs

Bandages

Cold cream

Movie film

Soft Contact lenses

Drinking Cups

Refrigerators

Golf Balls

Toothpaste

Gasoline

Americans consume petroleum products at a rate of three-and-a-half gallons of oil and more than 250 cubic feet of natural gas per day each. However, as shown here petroleum is not just used for fuel.

image102

MarketWatch

 Market Extra 

INFLATION EXPECTATIONS MAY RECOVER WITH CRUDE OIL PRICES, CREATING DEMAND FOR PROTECTION

 

Published: April 28, 2020 at 4:14 p.m. ET

By

Sunny Oh

CRUDE OIL PRICES ARE A KEY DRIVER OF INFLATION EXPECTATIONS

BRNM20     CLM20         TIP

+2.54%                     6.00%                        +0.34%

The collapse in world crude oil prices since February is taking a toll on U.S. inflation expectations which are now at their lowest levels since the 2007-2009 recession.

But some strategists think there’s scope for price

pressures to build up again once the COVID-19 pandemic passes and the deflationary impact of the oil-market slump disappears, creating an opportunity to

invest in inflation protected bonds.

“With market-based inflation expectations now at such beaten-up levels, and with the disinflationary effect of falling energy prices set to fade, we see an opportunity to play for a cyclical rebound in inflation breakevens across the developed markets,” said analysts at BCA Research, in a Tuesday note.

BCA analysts expect Brent crude oil, the global benchmark, to rise to $42 a barrel by the end of this year, and $78 by the end of 2021.

Brent futures for June delivery BRNM20, +2.54% settled at $20.46 a barrel on Tuesday, and $12.34 a barrel for U.S. crude CLM20, 6.00%, FactSet data show.
Oil is a crucial input for a broad basket of consumer goods and some industrial products like plastics.

A recovery in crude oil prices could thus have a knock-on impact for consumer price inflation, especially as the muted inflation backdrop even before the COVID-19 pandemic led swings in energy prices to become “the marginal driver of both realized and expected inflation,” said the BCA analysts.

Based on current trading in U.S. Treasury inflation-protected securities, or TIPs, price levels were expected to average 1.14% over the next decade.

Investors buying up inflation insurance may be making a bet that prices are unlikely to undershoot the U.S. historical average of around 2% for an extended stretch of time, said market participants.

Last week, an auction for $17 billion of 5-year Treasury inflation-protected securities saw the strongest take-up since 2009.

The iShares TIPS Bond exchange-traded

fund TIP, +0.34% is up nearly 5% this year, reflecting the gains in government bond prices as cash has flowed into safe haven investments after

March’s stock-market crash.But traders in the TIPs market say it’s difficult to sometimes tell if U.S. Treasury auctions are an accurate reflection of demand for inflation insurance, given that trading in such securities remains thin even after the Federal Reserve’s purchases of hundreds of billions of government bonds over the past few weeks.

“There’s a lack of liquidity in the secondary market,” said Tim Magnusson, senior portfolio manager at Garda Capital Partners, in an interview.

Even now, he had a hard time buying and selling TIPs in significant size, as primary dealers to deal with the Federal Reserve are still unwilling to free up space on their trading books to act as middlemen for some government bond securities.

The strong auction demand could thus reflect the way in which the sale of inflation protected U.S. Treasury debt offers the main option for money managers to top up on TIPs, said Magnusson.

https://www.marketwatch.com/story/inflation-expectations-may-recover-with-crude-oil-prices- creating-demand-for-protection-2020-04-28

image103

Goldman lists 5 reasons traders should load up on energy stocks following oil's historic plunge (XLE

 Matthew Fox 

APR. 28, 2020, 11:00 AM•

 

IN A NOTE PUBLISHED MONDAY

 

night, analysts at Goldman

Sachs listed five reasons

investors should add exposure

to energy stocks following

oil's historic plunge into

negative territory.

• Goldman said it thinks that

energy fundamentals have bottomed and that there is potential for a lasting recovery depending on the pace of the demand rebound.

• The risk behind the call, the analysts noted, is a much slower oil-demand recovery, which would likely happen if the coronavirus pandemic lingers longer than expected

Goldman Sachs thinks now is the time for investors to add exposure

to energy stocks following oil's historic plunge into negative territory

last week.
The investment bank gave five reasons in a note published Monday

night.

Goldman thinks energy fundamentals have bottomed and sees potential for a lasting recovery in energy stocks depending on the pace of the rebound in demand for oil.

The main risk related to the call, according to the analysts, is a much slower oil-demand recovery, which could be exacerbated if the coronavirus pandemic lingers longer than investors expect.

Here are the five reasons Goldman Sachs is bullish on energy stocks.

1. "Oil prices are at/below cash costs."

West Texas Intermediate oil is below the $20- to $25-per-barrel prices often seen as "typical cash cost floors." Goldman thinks the current

low prices and even the negative oil prices seen last week are warranted because of the level of oversupply in oil markets. At the same time, these ultra-low prices should force a reduction in production, thus reducing supply and helping put a floor in oil prices.

2. "Shut-in announcements are becoming material."

"The combination of OPEC+ supply cut and US/Canada shut-ins should reduce the need for prolonged low shale activity needed to rebalance oil prices," Goldman said.

3. "Demand appears to be at a trough."

Goldman expects global demand in oil to improve off trough levels before the end of the quarter and "gradually recover over the next two years." Goldman's commodities-research team sees a transition from building oil inventories to drawing on oil inventories by June.

4. "Valuation near 25-year lows on EV/gross cash invested basis."

"E&P stocks are trading near $0.50 cents on the dollar per dollar invested adjusted for longer-term degradation in corporate returns — this is slightly above troughs seen since 1995," Goldman said.

5. "Stocks on average have stopped falling on recent bad micro news."

Between dividend cuts, production shut-ins, and lower front-month oil prices, oil stocks no longer appear to be harmed by the poor headlines coming out of the oil industry. Goldman said that "as producer announcements shift from capex/dividend cuts to shut-ins, we expect equity response to inflect more positively."

WTI oil traded down more than 3% on Tuesday morning, to $12.34 per barrel. Energy stocks, as measured by the XLE ETF, were down 40% year-to-date.

Here's a potential timeline for oil's recovery, according to the bank:

Goldman Sachs Research

https://markets.businessinsider.com/commodities/news/oil-price-buy-energy-stocks-why-goldman- lists-reasons-plunge-2020-4-1029139451#

image104

Amy Harder Oct 14, 2019 COLUMN / HARDER LINE

 

FACING CLIMATE CHANGE, EXXONMOBIL RAMPS UP ENERGY RESEARCH

 

ExxonMobil is expanding its research efforts with the stated goal of producing more — but cleaner — energy in the face of climate change.

Driving the news: The world’s biggest publicly traded oil company has been creating new partnerships with American and foreign universities in recent years totaling at least $75 million, and it just inked another, unprecedented $100 million deal with the U.S. Energy Department.

The big picture: Oil and gas companies have been funding energy and climate research at universities and other entities for years. Exxon’s recent moves are an expansion of this trend at a time of heightened scrutiny facing oil companies and their role fueling climate change.

  • To critics, this corporate funding casts doubt on the scientific independence of research, especially from oil and gas producers with bottom lines to protect in the face of policies targeting their products.
  • To academics and executives involved, the partnerships are genuine and mutually beneficial as oil companies seek to adopt cleaner energy technologies and universities get deep pockets of money and expertise.
    What they're saying: Princeton University professor Lynn Loo has defended the $5 million she got from Exxon beginning in 2015 as part of her leadership of the school’s Andlinger Center for Energy and Environment.
    “When I first declared I was going to work with ExxonMobil, I faced a lot of backlash. I said, ‘Look, they’re an energy company. I want them at the table, and we have information that can help them make responsible decisions.’ ”
    — Lynn Loo, Princeton University engineering professor
    Where it stands: In 2014, Exxon began pursuing an internal goal to establish several partnerships with leading universities — roughly one per year — that go far beyond

money. Exxon-employed scientists spend significant time at the universities. Many have offices, give guest lectures and co-author peer-reviewed research.

Since 2014, Exxon has helped establish 5 energy centers with 6 universities, including:

  • Massachusetts Institute of Technology (2014), Princeton University (2015), University of Texas at Austin (2016), Stanford University (2018), and 2 schools in Singapore: Nanyang Technological University and National University of Singapore (2019).
  • Today, Exxon announced a new collaboration with the Indian Institute of Technology in two cities in India.
  • Each agreement's funding ranges from $5 million to $25 million, for a total of at least $75 million.
  • Exxon’s agreement with the Energy Department’s national laboratory system, led by the Colorado-based National Renewable Energy Laboratory and announced in May, is unprecedented. At $100 million over 10 years, it’s the largest single non- federal investment in NREL’s 42-year-history.
    “The vast majority of technology you see deployed in energy today started in academia. We need a line of sight,” said Vijay Swarup, Exxon’s chief scientist, in a recent interview at the company's research headquarters in Clinton, New Jersey. “Everything we do in research is designed to give us a competitive advantage.”
    The complete reach of Exxon’s university funding and that of other oil and gas companies is hazy.
  • The liberal Center for American Progress did a study on the topic in 2010, but public tracking of the trend doesn’t appear to exist nor more recent data.
  • That report scrutinized, among other agreements, a $100 million investment Exxon put into a Stanford energy initiative earlier last decade.
    Exxon’s research spans everything from solar panels to batteries, but its two biggest strategies to lower emissions are algae biofuels (to replace jet fuel, for example) and carbon dioxide capture technology, which could enable using oil and natural gas with far fewer emissions.

• Most of Exxon’s collaborations appear to be touting cleaner-energy technologies as opposed to, say, extracting oil and gas more efficiently. But none of the actual contracts specify that the research should go toward any one type of technology.

“The vast majority of our agreements have an element in them that is addressing the dual challenge: How to scale energy and how to scale energy with lower emissions,” Swarup says.

The other side: Environmentalists and some academic experts view these collaborations with deep skepticism. They point to decades of oil companies resisting

climate policy and claims by environmentalists that companies, especially Exxon, tried to muddle climate science for decades. Exxon denies such allegations.

Benjamin Franta, a J.D.-Ph.D. student researching this topic at Stanford University, said he wasn’t aware of certain aspects of the collaborations, including Exxon scientists co-authoring papers.

“It’s not a good idea for the fossil-fuel industry to be funding work that is supposed to ultimately put the fossil-fuel industry out of business. The case is made even stronger when you realize just how much disinformation and denial the industry has put out there for so many decades.”

— Benjamin Franta, Stanford University

What I’m watching: To what degree Exxon increases its funding and seeks to commercialize a particular low-carbon technology. Princeton's Loo says she pushes the company to spend more on research, pointing out that the amount is tiny compared to Exxon’s profits: $21 billion in 2018.

“We’re not just taking their money and are happy with what they’re telling us,” Loo said. “We’re good partners because we challenge each other.”

image105

OIL: BUY THE DIP IN CRUDE

 

FEB. 21, 2020 8:40 AM ET
ABOUT: IPATH S&P GSCI CRUDE OIL TOTAL RETURN INDEX ETN (OIL)

QUANDARYFX

 

SHORT-TERM HORIZON, CURRENCIES, COMMODITIES, LONG/SHORT EQUITY

 

Summary

The recent selling of OIL has largely been due to fears regarding the coronavirus – fears which are decoupled from the underlying fundamentals.

Crude market fundamentals continue to become more bullish which means that the recent selloff provides an excellent buying opportunity.

Roll yield for OIL is currently negative but with an uptrend in price emerging, we are likely to see this flip once again.

Over the last few weeks, the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) has taken a bit of a hit as global fears regarding the coronavirus have impacted the prices of commodities. In this piece, I will hone in on the fundamentals of crude oil to make the case that the recent drop in price is decoupled from economic realities and that crude will likely rally from here.

Crude Markets

When it comes to understanding the battle between supply and demand in the crude markets, a very helpful tool is the 5-year range of inventories.

As you can see in the above chart, we are currently under both the 5-year average as well as 2019’s figures in overall stocks. The reason why this matters is that it indicates that at present, the balance is indicating that demand is surpassing available supply.

If you’ve listened to any headlines regarding the oil markets, then this last statement probably comes as a shock. And for good reason: the actual level of refining demand has been fairly poor for some time now with much of last year’s utilization under the 5-year average.

However, what is important to realize about balancing the crude market is that demand in isolation is meaningless. To generate a comprehensive view, we need to look at all 4 components of supply and demand to get an idea of what is driving market fundamentals.

For example, even though refining demand is poor, exports (another form of demand) remain robust and have grown consistently since legalization in late 2015.

So when we examine total demand, we can generally say that it’s neutral since weakness in refining is offset by growing exports (more than offset in my opinion, but I’ll give the bears the benefit of the doubt here).

But when we flip over to supply, we rapidly see

very bullish elements entering the picture. First off, it is true that production continues to grow,

which is another of the bear’s arguments.

However, what is overlooked in a chart like the one above is that the rate of growth is actually slowing.

And when you dig further into the data, you’ll find that this slowdown in production growth is broad-based in basically every region.

This is where things start becoming quite bullish. You see, the reason why slowing production growth is a big deal is that demand

itself continues to grow. In other words, you must have growing supply or demand will almost certainly outpace it and crude prices will rise while inventories fall.

The issue becomes even more bullish when you look at the data to understand exactly what’s happening. Essentially, we are seeing drilling activity slow.

And the reason why this activity is slowing has to do with capital discipline as well as bankruptcies of several operators.

Situations like this are really only resolved by

higher crude prices in the long run since higher prices equate directly to

higher revenues for those in E&P. In other words, this downwards trend of production grow and drilling activity is almost certainly going to continue until the price of crude rises. And as long as the trend continues, the greater the chances of crude rallying due to tighter balances.

And the second supply variable remains quite bullish: imports. Imports have been decimated due to ongoing OPEC cuts.

I have a lot of charts that make the case that overall imports into the United States are very poor right now due to OPEC’s actions, but the above chart conveys it

with a good degree of clarity.

The basic problem here

is that frankly, OPEC wants higher prices. And OPEC has demonstrated through several different cuts over the past few years that it has the will and resolve to get higher prices. At present, we are trading around the level of OPEC’s cuts which went into effect at the beginning

of 2019 and have been deepened and extended through today. Given that we’re still around these levels, I believe that OPEC will act to prop up the market once again at is meeting in early March. When OPEC acts, the market tightens due to less supply and the price of crude generally will trend higher as a result.

It’s a great time to buy the OIL ETN because the underlying fundamentals beyond strictly refining demand are uniformly bullish. This underlying fundamental picture is what I believe the recent wave of sellers in crude oil have missed. As these fundamentals continue to play out, I believe that OIL will trade higher.

Understanding OIL

Let’s take a quick pause to understand what exactly the OIL ETN is. Put simply, it is an exchange traded note which tracks the GSCI crude index. I’ve said this before in other places, but my basic qualms with the GSCI crude index is that it bills itself as a global crude benchmark when it’s really just holding two highly correlated instruments. But on the flip side, it does benefit on the roll yield front in that by having holdings across two futures curves, market structure exposure is diversified. Let’s break this down a bit more.

There’s a basic tendency in futures markets for prices along a forward curve to move towards the spot price of the commodity. This means that when futures are in contango (front cheaper than back), futures will generally be falling towards the front of the curve. Conversely, a curve in backwardation (front over back) will see prices along the curve move up in value towards the front of the curve.

In general, WTI futures typically see contango in most time periods in the front two contracts. Conversely, Brent has seen healthy backwardation in recent quarters due to its direct-competitive nature with OPEC barrels since it also is a waterborne barrel. What this means for holdings in OIL is that roll yield of the overall instrument has (over the past few quarters) been generally to strongly positive which means that investors in the note have benefited from this effect.

At present, roll yield is negative due to moderate contango in Brent and WTI, but I believe that as the market continues to tighten and prices rise, we will see roll yield become positive once again, further benefiting holdings.

Conclusion

The recent selling of OIL has largely been due to fears regarding the coronavirus – fears which are decoupled from the underlying fundamentals. Crude market fundamentals continue to become more bullish which means that the recent selloff provides an excellent buying opportunity. Roll yield for OIL is currently negative but with an uptrend in price emerging, we

are likely to see this flip once again.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

image106

OPEC SEES OIL RISING TO $40 IN SECOND HALF OF 2020

 

BY TSVETANA PARASKOVA - APR 27, 2020, 10:00 AM CDT

  

OIL PRICES ARE SET TO RECOVER WITH THE OPEC+ PRODUCTION CUTS AND GRADUAL LIFTING OF LOCKDOWNS AROUND THE WORLD IN THE SECOND HALF OF 2020, WHEN OIL PRICES “WILL BE $40 STARTING FROM THE THIRD QUARTER,” MOHAMED ARKAB, ENERGY MINISTER OF OPEC’S ROTATING PRESIDENTALGERIA, SAID ON SUNDAY.

THE GLOBAL ECONOMY WILL NOT STAY PARALYZED FOR TOO LONG, AND TOGETHER WITH THE 9.7 MILLION BPD CUTS THAT OPEC AND ITS ALLIES PLEDGED FOR MAY AND JUNE, THESE FACTORS ARE SET TO LIFT THE PRICE OF OIL IN H2 2020, ARKAB TOLD ALGERIA’S NATIONAL RADIO, AS QUOTED BY TURKEY’S ANADOLU AGENCY.

IN CHINA, WHICH WAS HIT FIRST BY THE CORONAVIRUS, AND WHICH EXITED THE LOCKDOWN FIRST, THE RETURN TO NORMALIZATION IN THE TRANSPORTATION SECTOR “IS DRIVING UP GLOBAL DEMAND,” ACCORDING TO ALGERIA’S ENERGY MINISTER.

JUST A FEW DAYS BEFORE THE OPEC+ DEAL ENTERS INTO FORCE, OIL PRICES CRASHED AGAIN EARLY ON MONDAY, AS THE MARKET CONTINUES TO SEE THE IMMINENT STORAGE SHORTAGE PROBLEM AS A BIGGER FACTOR FOR PRICES THAN THE POTENTIAL EFFECT OF THE OPEC+ CUTS AND THE POTENTIAL EASING OF THE LOCKDOWN MEASURES.

AT 8.30 A.M. EDT ON MONDAY, BRENT CRUDE WAS DOWN BY NEARLY 5 PERCENT AT $20 A BARREL, AND WTI CRUDE WAS CRASHING BY MORE THAN 20 PERCENT TO BELOW $14 PER BARREL.

LAST WEEK, OPEC’S FOURTH-LARGEST PRODUCER, KUWAIT, SAID IT HAD ALREADY STARTED TO REDUCE CRUDE OIL SUPPLY TO INTERNATIONAL MARKETS AHEAD OF MAY 1, “SENSING A RESPONSIBILITY RESPONDING TO MARKET CONDITIONS.” SAUDI ARABIA, OPEC’S TOP PRODUCER AND THE WORLD’S TOP OIL EXPORTER, HAS ALSO BEGUN TO REDUCE PRODUCTION EARLIER, A SAUDI INDUSTRY OFFICIAL WITH KNOWLEDGE OF THE ISSUE TOLD BLOOMBERG OVER THE WEEKEND. 

OTHERS, HOWEVER, INCLUDING NIGERIA AND THE LEADER OF THE NON-OPEC PRODUCERS, RUSSIA, HAVEN’T RUSHED TO CUT PRODUCTION AHEAD OF SCHEDULE.

DESPITE SOLEMN COMMITMENTS FROM OPEC+ PRODUCERS AND TENTATIVE SCHEDULES FORREOPENING ECONOMIES AND EASING THE LOCKDOWNS, INCLUDING IN ITALY, OIL MARKET PARTICIPANTS CONTINUE TO FOCUS ON THE IMMINENT THREAT OF GLOBAL STORAGE OVERFLOWING RATHER THAN ON THE EFFECT OF THE CUTS AND EASED LOCKDOWNS TWO TO THREE MONTHS DOWN THE ROAD.

BY TSVETANA PARASKOVA FOR OILPRICE.COM

image107

REMAINING RECOVERABLE PETROLEUM IN TEN GIANT OIL FIELDS OF THE LOS ANGELES BASIN, SOUTHERN CALIFOR

 UBS: Oil prices will spike 115% by the end of 2020 in a dramatic reversal of the current crisis (UBS) 

 

Saloni Sardana

Apr. 28, 2020, 07:21 AM Thomson Reuters

• UBS' wealth management arm forecast that Brent crude oil prices could rise by

115% by the end of 2020.• Mark Haefele, chief investment officer

at UBS Global Wealth Management said he expects the oil market to "become under- supplied in 4Q," pushing prices up to $43

per barrel.

  • Oil prices have been volatile in recent days due to lack of storage
    options, and last week US oil dropped into negative territory for the
    first time in history.
  • On Monday oil prices plummeted 30% after United States Oil Fund,
    one of the biggest exchange traded funds in oil announced it would sell all futures contracts for delivery in June over a four day period.

Oil prices have tanked in recent days as traders scramble to find places to store oil, but

UBS expects the reverse situation to happen in the fourth quarter of the year.

The Swiss bank expects Brent prices to climb back to $43 a barrel in the second half of the year once economies are expected to be back in running and have exited lockdowns.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said: "While the oil market is heavily oversupplied this quarter, we expect it to move toward balance

next quarter and become under-supplied in 4Q this year as lockdown restrictions are eased and oil demand picks up."

He added: "We forecast Brent to recover to $43 a barrel by year-end."

An increase to $43 per barrel for Brent would represent a gain of around 115% from its currently price, with the international benchmark trading at around $20 per barrel on Tuesday.

Oil prices have been volatile in recent days as traders are fearing the world is running out of global oil storage.

On Monday oil prices plummeted 30% after United States Oil Fund, one of the biggest exchange traded funds in oil announced it would sell all futures contracts for delivery in June over a four day period.

US oil prices had turned negative for the first time in history last week as the May contract expired, meaning traders had to pay people to take the oil off their hands as storage facilities were limited, particularly at a key storage facility in Cushing,

Oklahoma.

Coronavirus has battered demand for the fuel, with every major economy into lockdown, and economic activity remains subdued.

Some US states, including Oklahoma, have started reopening their economies this week, and several others are doing the same and lifting stay-at-home orders by Thursday, likely boosting economic activity and oil consumption in the coming weeks.

Naeem Aslam, chief market analyst at Avatrade, said: "Overall, I do contemplate that fundamentals are improving to a small extent because the US shale oil rig count has dropped vividly over the last week, and it is bound to have a positive influence on supply."

He added: "As for the demand side, I reason we have hit the bottom. This is because, with the easing global lockdown measures, it is only a matter of time when we will start witnessing the demand equation showing more signs of life."

Meanwhile, oil giant BP reported a 66% drop in first quarter profits on Tuesday as the

impact of coronavirus bites companies across the globe, particularly the energy sector.

"Our industry has been hit by supply and demand shocks on a scale never seen before," Bernard Looney, BP's CEO said in a statement.

https://markets.businessinsider.com/commodities/news/oil-price-will-jump-115-percent-by-end-of- year-2020-4-1029137604

 

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