Breaking news Saudi Energy Ministry Official: The Ministry directed Saudi Aramco (SE:2222) to reduce its crude oil production, for the upcoming month of Jun., by an extra voluntary amount of 1 Mln bpd, on top of reduction already committed by the Kingdom under the OPEC+ deal.
Oil prices were locked and loaded and ready to explode last week as oil demand destruction seemed to be bottoming out. Not only have we seen evidence of gasoline demand rising in the U.S. and the U.K., but also reports that China exports were rising and their inventories were falling. Yet to start this week, oil prices are pulling back on fears of a second wave of the coronavirus that could be facing the world. Reports that China put Shulan, a city near the North Korean border, in lockdown this weekend, is giving pause to the oil demand green shoots of spring.
The Shulan lockdown is a concern to oil traders that were already buying oil on signs that China's oil demand was rising. Bloomberg News reported that "In China, the trend in April was a net withdrawal driven by higher refinery runs and lucrative margins," said Yao Li, chief executive officer of consultancy SIA Energy. Estimated inventories fell by 9.5 million barrels in April after growing by 161 million in the first quarter. China imported about 9.9 million barrels of crude a day in April, up 1.7 percent from March but below last year's average of approximately 10.2 million barrels a day, the most in the world. Imports of crude oil and refined products are likely to rise in May, which could tighten storage capacity, China Port Association said last week in a statement.
Reports of the coronavirus comeback are hurting risk on momentum. South Korea also warned of a second wave of the coronavirus on Sunday. Justin Low reports that "South Korea was initially due to reopen schools in phases starting from this week, with students in the third year of high school supposed to be able to return on May 13th, now delayed to May 20th. The reason is a rise in cases linked to the reopening of nightclubs and entertainment venues. The reopening of elementary and middle schools has now also been delayed by a week considering the circumstances. Even Vice President Michael Pence is in self-isolation after one of his staff members tested positive for COVID-19.
Meat shortage worries are rising as processing plants have been closed. Reuters reports that processors, including Smithfield Foods, owned by China's W.H. Group Ltd, Brazilian-owned JBS USA [JBS. U.L.] and Tyson Foods Inc (NYSE:TSN) temporarily closed about 20 U.S. meat plants as the virus infected thousands of employees, prompting meatpackers and grocers to warn of shortages. Some plants have resumed limited operations as workers afraid of getting sick stay home. The disruptions mean consumers could see 30% less meat in supermarkets by the end of May, at prices 20% higher than last year, according to Will Sawyer, the lead economist at agricultural lender CoBank. While pork supplies tightened as the number of pigs slaughtered each day plunged by about 40% since mid-March, shipments of American pork to China more than quadrupled over the same period, according to U.S. Department of Agriculture data.
Still, despite the setbacks, the world is going to start to reopen and for oil that means more oil demand with less production. We will see tighter supplies shortly. Anyone who filled up their gas tanks is seeing those prices rise again.
Fox Business Network reported that, “Continental Resources Inc. swung to a first-quarter loss as oil prices crashed amid an “unprecedented market environment” caused by the COVID-19 pandemic.
The Oklahoma City-based oil explorer founded by Harold Hamm lost $185.7 million, or 51 cents a share, as revenue plunged 22 percent from a year ago to $880.8 million, exceeding the $862.9 million that analysts surveyed by Reinfitiv were anticipating. The adjusted loss of 8 cents a share missed the 3-cent loss that was expected.