Page 7 - LatAmOil Week 16 2020

LatAmOil COMMENTARY LatAmOil
 Brent was still trading above $25 per barrel on April 20 despite losing 8.9%. As a Brent is a sea- borne crude, it is less immediately vulnerable to storage issues and can be easily sent to areas of higher demand. Nonetheless, the interna- tional benchmark fell to levels not seen in over 20 years, dipping below $16 per barrel in Asian trade on April 22 before stabilising above $21 per barrel later in the day.
The WTI June contract had clawed its way back to above $14 per barrel on April 22 after US trading opened, but its value had almost halved the previous day, and there are mounting con- cerns about what the coming weeks will bring.
“The realisation of negative prices has clearly spooked the market, with worries that we could see the same for the WTI June contract and pos- sibly even in the Brent market,” ING’s head of commodities strategy, Warren Patterson, was quoted by the Financial Times as saying.
What next?
The concern now is that time is running out until available storage capacity fills up. Mor- gan Stanley estimates that storage in Cushing is currently on a trajectory to fill in around three weeks, with all available US storage capacity
filling within about six weeks.
Consultancy Rystad Energy, for its part,
anticipates that onshore storage could run out either in the first week of May, or – if all remain- ing storage with 100% utilisation is included – the end of May. The consultancy noted that its models suggest this to be the case, even with the OPEC+ cuts that will take effect from May 1.
“Time to throw old perceptions of physical laws to the side and be prepared for more sur- prises in this broken oil market,” commented Rystad’s head of oil markets, Bjornar Tonhau- gen. “Prices can go to unprecedented low levels even for Brent as, unless there are further cuts announced, storage capacity will just not be enough.”
More supply cuts are undoubtedly looming as producers reel from this week’s oil price vol- atility so far. But Morgan Stanley has warned that the US supply cuts announced to date are only a fraction of the roughly 1.0-1.5mn bpd of reductions – equating to 8-12% of US supply – necessary in order to avoid “tank tops” in the second quarter.
Similar trends are playing out elsewhere in the world. Production cuts are coming, but not fast enough. ™
MEXICO
CNH head says Pemex may pursue new JVs despite farm-out freeze
THE head of Mexico’s National Hydrocarbons Commission (CNH) has given state-owned Pemex a green light to seek new joint venture partnerships in spite of the government’s deci- sion to freeze farm-out deals.
Rogelio Hernandez, the president of CNH, told Reuters in an interview last week that he expected the national oil company (NOC) to move forward on this front before President Andres Manuel Lopez Obrador’s term ends in 2024. Indeed, he said he believed Pemex would take action sooner rather than later.
The NOC might resume farm-outs very quickly because it cannot develop many of the assets in its portfolio alone, said Hernandez, who assumed his post late last year.
Pemex’s portfolio includes more than 350 projects, and around 100 are farm-out can- didates because they are not producing yet and will be returned to the state if Pemex does not meet minimum work commitments, he explained.
He also emphasised, though, that Pemex would not be under any pressure to set up joint ventures for these projects. The company will have the final say on any new tie-ups, he said.
Mexico froze farm-outs during the first year
of Lopez Obrador’s administration, revers-
ing the previous president’s efforts to open the energy sector up to private investors. 
CNH head Rogelio Hernandez (Photo: El Norte)
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