It is impressive how quickly an oil company chief executive is able to turn from arguing his company was the most able of its peers to exploit high oil prices to arguing that his company was best placed to weather the economic downturn and oil prices that have shrunk by more than $100 a barrel.
Although the big oil companies say they will maintain investment (Total is one of the latest to join the club), there have for some time been fears that smaller companies will not survive the downturn and falling oil prices. A few signs of this have emerged in the past 24 hours:
Parallel Petroleum will sell more than half its interest in a natural-gas field to Chesapeake, the WSJ reports, “rather than pay to drill wells”. They quote analyst David Heikknen with Tudor Pickering Holt & Co in Houston as saying “This is the first fire-sale of assets we’ve seen.” Parallel, with a market capitalisation of just under $100m (down almost 85% in the past year) is small fry but as noted here, it’s the smaller
Platts also reports today that Equistar, a petrochemicals company, will idle its Chocolate Bayou, Texas, olefins plant indefinitely.
And US Steel is closing indefinitely a plant that produces pipe mainly for the oil & gas industries, probably laying off all its 1,200 staff and contractors.
Meanwhile, the big companies aren’t completely immune: Reuters is reporting an internal Shell memo suggesting it will reduce headcount by leaving vacancies unfilled and “ruthlessly” reviewing contractors. And as the FT reported earlier this week, BP is already setting up meetings with suppliers to push for cost cuts on new contracts and those not yet finalised.
Are the world’s governments, policymakers and economic forecasters getting the wrong signals on oil markets because of distortions inherent in the benchmark, WTI? It’s been said for weeks that WTI may not be the best indicator of crude oil supply and demand, and now the International Energy Agency, which represents western oil-consuming countries, has confirmed it thinks so too.
The problem? WTI typically trades at a higher price than other benchmarks such as Brent crude, because it is easier to refine. But in recent weeks it has consistently traded lower than heavier blends.
This week it was the IEA’s turn. In a two-page breakout box titled “WTI Benchmark: Past Imperfect, Future Tense” in its latest monthly outlook, it took aim at problems around the physical delivery point for WTI, which is in Cushing, Oklahoma:
Crack spread turnround: Gasoline holds steady as oil flounders – not what the consumer needs right now
Stimulus bill: A breakdown of energy-related spending from Grist; another from CNet
Climate change and resources: Resource modellers and climate modellers “haven’t interacted very much so far” – here’s what happens when they do
Wind turbines: 10 megawatt turbines developed for UK offshore market
Cars: Iran claims to have made the world’s most powerful natural-gas powered vehicle
Monbiot tackles some climate change myths at length
- China considers fuel price stabilising fund, sources say (Reuters)
- Chesapeake strikes deal with driller in a bind (WSJ)
- Details scarce in new Alberta oil sands plan (Reuters)
Energy news from the FT:
- Rio Tinto fights back over Chinalco deal
Criticism intensifies from UK investors
- Total promises to maintain investment
French energy group to keep capex at $18bn