20 April 2020 by jbchevrel
Drillers CDS led the move wider in CDX fair value (+6). On our London close, we see OXY wider +93, APA wider +71, OVV wider +66. Although impressive, the move in May WTI future (settled at negative -$37 just minutes ago) is more technical than anything else. It shows the (non) extent to which players want to get delivered. The rest of the curve is also down although much less, a decent steepening in the front end occurred while people rolling their longs. The June contract is above $22/bbl. as I write. Urals are also in low20s. Brent in low30s. On our end we also see a decent flattening. In the 1s5s for instance. about 100bp in OXY APA OVV. We are still in a world where supply has been but by one tenth. While demand these days is a third lower than what it was pre COVID. This is good business for tanker owners. The ‘renting’ cost of carriers more than doubled. 2mb-tankers cost more than $200k/day. This is less good business for drillers. The post OPEC+ ‘sell-the-fact’ previously discussed in here has occurred and we are still in a world where oversupply grows rapidly and concerns over storage are fair. From here, there is a possibility to see OPEC+ change the parameters of the deal (cut more). Some forward guidance has been communicated in that sense. So far, guidance only has failed to convey into price action. Maduro proposed an OPEC+ meeting on May 10. Sounds like risk premium has plenty of time to keep creeping higher, even if that happens. The oil industry’s corporate reporting season started last week with Schlumberger. Schlumberger is more an oil services provider, active in projects operated by majors. They reported qty revenue -9% qoq -5% yoy. Halliburton (HAL) reported today. They cut spending, salaries jobs, and budget, back under $1b for 1st time since 2016. In Q1, North American orders were -25%. HAL maintained their dividend contrary to Schlumberger but said won’t increase debt. While this is a zero-sum game, HAL 5y CDS is also wider +50. Baker Hughes will release results on Wednesday. Next week will be eventful for the sector, with #s of Total, Royal Dutch Shell, BP, ConocoPhillips, Exon Mobil, Chevron, CNOOC and Sinopec. HY obviously are one step further for many. Reuters had reported on Apr 9 that US big banks were setting up independent companies to take over operations from distressed oil cos. Whiting Petroleum Corp. (WLL) became the first victim of the shale bust in CDX HY s34, after it filed for Chapter 11 bankruptcy on Apr 1 with other producers such as Chesapeake Energy Corp. (CHK) also a member of CDX HY s34, reportedly has hired debt advisers as well. This is not just an issue to corps but also to sovereigns. Anecdotally, even before the Saudi-Russia price war, Kuwait’s 20/21 budget was projected at $30b deficit. The 6th straight year of deficits. Kuwait’s MOF Al-Aqeel had said at one point that the budget breakeven price was $81 per barrel. This was based on the Brent, but still.