This week continues several of the same themes from last week as OPEC+ maintained their production cuts, which kept WTI crude oil prices rising, which continued gasoline price increases, which encouraged US producers to continue bringing back wells online, which now brings some early reports of supply building once again (unfortunately, as predicted).
Gasoline Prices
Last Week: Gasoline prices creep up 2 cents nationally as crude prices and road traffic increase.
The national average is up another 9 cents to $2.03, a total of 27 cents higher than the end-of-April low. Again, this ascent could be a continued weekly theme for a while until road activity and crude prices stabilize again.
Fun fact: Texas has the second least expensive gasoline average this week at $1.69/gal, with only Mississippi beating it at $1.66/gas.
Energy Prices
Last week: crude oil jumps 7% after reports roll in from OPEC+ that Russia and Saudi Arabia will extend production cuts at least through July.
Crude oil prices continued to rise through the week as OPEC+ agreed at their June 6th meeting to maintain production cuts through at least July. West Texas Intermediate (the main US benchmark price for oil) is currently trading at $38.28 (as of today’s market close).
Why is OPEC helping oil prices by reducing production? Weren’t they TRYING to crash oil prices a few years ago to reduce US production? The countries in OPEC+ rely on certain oil prices (like $76/bbl for Saudi Arabia) to fund their country budgets.
Natural gas, which previously had seen a relatively small impact from COVID-19, may start feeling the effects more as power usage is expected to reduce nearly 5% versus last summer thanks to more employees working from home (which means more empty office buildings not drawing on the power grid). Over 36% of the US natural gas usage is in the electric power sector.
US Shut-In Wells begin reopening
Last Week: North Dakota reports a 7% increase week-over-week in production, a canary in the coalmine that other states with slower reporting are likely also seeing production increases.
US Shale companies continue to report opening of shut in wells as crude prices approach $40/bbl, apparently catching the market off guard as the API reported a large build in supply when a small draw was expected by analysts.
Even with US producers opening up production, OPEC+ still plans on maintaining their own production cuts as they count on the fast decline of shale production to reduced production volume by the end of of the year regardless of what the US does with existing wells. The reduced rig activity in the US is a much greater impact than the shut-in volumes, and is a much slower turnaround than bringing back on a producing well. Many basins may take years to see the same production rates again (if ever).
Industry employment worsens
Last week: Chevron reports a 10-15% planned workforce reduction along with other large industry players.
To add on to the list of companies reporting reductions, BP announced this week a 14% cut of its workforce by the end of the year, a reduction of 10,000 jobs (most of which are expected to be office jobs).
