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Crude oil benchmarks ended a volatile quarter with their biggest losses in history, as both U.S. and Brent futures were hammered throughout March on the global economic freeze due to the coronavirus pandemic and the eruption of a price war between Russia and Saudi Arabia.
Both benchmarks lost roughly two-thirds of their value in the quarter, with March’s declines of about 55% accounting for the lion’s share of the losses.
U.S. West Texas Intermediate crude salvaged the end of the month with a modest 2% gain on Tuesday, while Brent ended slightly lower.
Global fuel demand has been destroyed by travel restrictions due to the coronavirus pandemic. Forecasters at major merchants and banks see demand slumping by 20% to 30% in April, and for weak consumption to linger as economic activity is severely curtailed for the next several months.
WTI CLc1 settled 39 cents higher at $20.48 per barrel. The U.S. benchmark plunged 54% during March and 66% for the first quarter, the worst declines since the contract’s inception in 1983.
May Brent crude futures LCOc1 ended the session 2 cents lower at $22.74 a barrel ahead of expiration. The international benchmark fell 66% in the first quarter and 55% in March, the worst quarterly and monthly percentage declines on record.
The more-active June contract LCOM0 settled 7 cents lower at $26.35 a barrel.
Oil drew in some buyers after U.S. President Donald Trump and Russian counterpart Vladimir Putin agreed to talks on stabilizing energy markets. Markets have been in turmoil for more than three weeks after Saudi Arabia and Russia were unable to come to an agreement to curb supply to combat the growing COVID-19 coronavirus pandemic.
That took prices down sharply earlier in the month, but markets dropped even more as the pandemic worsened. More than 800,000 people have been infected and more than 39,000 have died.
So far it is unclear if Trump and Putin’s efforts will come to fruition. Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries were unable to come to an agreement on Tuesday to meet in April.
Saudi Arabia, the de facto leader of OPEC, and Russia, which had allied with OPEC to curb output for more than three years beginning in late 2016, remain at loggerheads. The Saudis plan to boost oil exports to 10.6 million barrels per day (bpd) from May on lower domestic consumption.
The weakness in futures markets has been surpassed by the physical markets, where cargoes are selling at single digits in key markets like Canada, Mexico and Europe, reflecting expectations for the coming collapse in demand that will strand barrels of oil.
“COVID has taken the oil market hostage,†said Michael Tran, managing director of energy strategy at RBC Capital Markets in New York.
“The unprecedented pace of demand destruction has forced the hand of refineries, on a global level, to issue run cuts, leaving barrels from the U.S. to the North Sea, to Asia searching, often unsuccessfully, for homes.â€
Fuel demand is expected to fall sharply in coming months, with Trafigura’s chief economist predicting a 30% falloff in demand. Worldwide aviation is basically shut down, and motorists are staying off the roads.
“It’s just a matter of time before we see the producers be forced by the crude gatherers to cut as one cannot ‘gather’ crude when there are no buyers or tanks to store it in,†said Scott Shelton, energy specialist at United ICAP.
U.S. crude output fell to 12.7 million bpd in January from 12.8 million bpd in December, the U.S. Energy Information Administration (EIA) said in a monthly report on Tuesday.
That was the first time since July 2019 that U.S. crude output has declined two months in a row. Goldman Sachs anticipates that U.S. supply will fall by roughly 1.4 million bpd by the third quarter of 2021 to deal with falling demand.
A Reuters survey of 40 analysts forecast Brent crude prices LCOc1 would average $38.76 a barrel in 2020, 36% lower than the $60.63 forecast in a February survey.
Source: Reuters
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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