GILLIAN RICH03/11/2020
Oil prices fell Wednesday as Saudi Aramco said it was directed to boost its production capacity for the first time in 10 years amid the OPEC-Russia price war.
The Energy Ministry asked state-run Saudi Aramco to increase its production capacity to 13 million barrels per day, up from 12 million bpd currently.
After talks at the OPEC+ meeting collapsed without a deal Friday, current oil production limits of 2.1 million barrels per day will no longer continue, allowing producers to pump at will.
Also Wednesday, the United Arab Emirates announced that it would increase supply to refiners by 1 million bpd to 4 million bpd.
On Tuesday, Russian Energy Minister Alexander Novak said his country could increase production by 500,000 barrels a day, potentially hitting its own record of 11.8 million barrels a day. Iraq, cut its official price for Basrah Light crude for buyers in Asia by $5 a barrel for April deliveries.
The increased supply is coming just as demand is vanishing. On Wednesday, OPEC slashed its global demand growth forecast for 2020 to just 60,000 bpd from last month's view of 980,000.
Brent oil prices slid 3.4% to $35.95 per barrel. U.S. crude oil prices dropped 4% to settle at $32.98 per barrel.
Exxon Mobil (XOM) shares fell 3.3% on the stock market today. Chevron (CVX) lost 2.3%. Among top shale stocks, Continental Resources (CLR) lost 6.5%, and EOG Resources (EOG) dropped 6.6%.
U.S. Shale Scales Back Amid Falling Oil Prices
U.S. shale producers are reeling from lower oil prices. Shale oil was already grappling with lower global demand due to the coronavirus panic as airlines cancel flights and cities in Italy, Japan and South Korea are under quarantine.
On Wednesday, the Energy Information Administration reported an increase of 7.7 million barrels in U.S. crude stockpiles and a 5 million-barrel decline in gasoline stockpiles for the week ended March 6. U.S. production fell to 13 million bpd from 13.1 million bpd in the prior week.
In its monthly short-term energy outlook forecast also out Wednesday, the EIA cut its outlook for 2020 oil prices by 30%. It now sees 2020 benchmark U.S. oil prices at $38.19 per barrel and Brent at $43.30 per barrel. The EIA also sees U.S. crude oil output of 12.99 million bpd, down 1.6% from its earlier forecast.
Earlier Wednesday, Matador Resources (MTDR) said it would cut its rigs in half to just three by June 30 and its CEO is taking a 25% pay cut.
The Trump administration reportedly is considering assistance for the shale industry as producers slash capital spending.
Late Tuesday, the Washington Post reported that Continental Resources founder and Chairman Harold Hamm, who is also an adviser to Trump on energy, has asked the administration to use dumping laws to block Russia and Saudi Arabia from slashing oil prices for U.S. customers.
On Wednesday, Hamm told Bloomberg TV that he plans to file an anti-dumping complaint against Saudi Arabia with the U.S. Commerce Department.
The American Petroleum Institute also told CNBC that lobbyists for the oil and gas industry met with White House officials Wednesday morning about the coronavirus, the economy and the market.
But the trade group added that it's not seeking federal aid.
Sources told Politico, however, that the White House's National Economic Council planned to discuss possible relief for the oil industry, including low-interest loans, federal oil purchases or even trade barriers.
Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.
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