When oil became waste: a week of turmoil for crude, and more pain to come - msnNOW
FILE PHOTO: FILE PHOTO: An oil pump jack pumps oil in a field near Calgary
FILE PHOTO: A sticker reads crude oil on the side of a storage tank in the Permian Basin
FILE PHOTO: Pipelines run to Enbridge Inc.'s crude oil storage tanks at their tank farm in Cushing
FILE PHOTO: Oil and gas tanks are seen at an oil warehouse at a port in Zhuhai
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(Reuters) - The magnitude of how damaged the energy industry is came into full view on April 20 when the benchmark price of U.S. oil futures , which had never dropped below $10 a barrel in its nearly 40-year history, plunged to a previously unthinkable minus $38 a barrel.
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In just a few months, the coronavirus pandemic has destroyed so much fuel demand as billions of people curtail travel that it has done what financial crashes, recessions and wars had failed to ever do - leave the United States with so much oil there was nowhere to put it.
While the unusual circumstance of negative oil prices may not be repeated, many in the industry say it is a harbinger for more bleak days ahead, and that years of overinvestment will not correct in a period of weeks or even months.
"What happened in the futures contract the other day indicated things are starting to get bad earlier than expected," said Frederick Lawrence, vice president of economics and international affairs at the Independent Petroleum Association of America.
"People are getting notices from pipeline companies that say they can't take their crude anymore. That means you're shutting down the well yesterday."
Evidence of the erosion of value for a product that has been a mainstay of global society since the late 19th century abounded across the world last week.
In Russia, one of the world's top producers, the industry is considering resorting to burning its oil to take it off the market, sources told Reuters.
Norwegian oil giant Equinor slashed its quarterly dividend by two-thirds. Next week will bring earnings reports from the world's largest oil companies including Exxon Mobil Corp , BP PLC and Royal Dutch Shell PLC . They are all expected to detail additional spending cuts, and investors will be watching closely for how those companies plan to manage dividends. U.S. billionaire Harold Hamm's Continental Resources Inc sent servicers out into fields in Oklahoma and North Dakota in the middle of the week to abruptly shut wells, and the company declared it could not make crude deliveries to customers due to poor economics.
The White House briefing room is dark and empty after the coronavirus task force did not hold a briefing on April 25 in Washington.
A Walgreens employee talks with a person in line for COVID-19 testing in Dallas on April 25. The location began testing for the new coronavirus on Friday with a drive-through process and is provided to eligible individuals at no cost. Persons wanting to be tested are asked to go online to their website to determine their eligibility. The nasal swab test is self administered with directions from a store pharmacist.
Medical workers hold signs outside NYU Langone Health hospital as people applaud to show their gratitude to medical staff and essential workers on the front lines of the coronavirus pandemic on April 25 in New York City.
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People wait in line at a New York State Department of Health COVID-19 antibody testing center at Steve's 9th Street Market on April 25 in Brooklyn, New York.
Kathy Boylan receives an embrace from two strangers as she protests business closings in front of the White House in Washington on April 25.
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Despite caution tape blocking off a seating section, people still sit down to enjoy a spring afternoon at Brooklyn's Coney Island, on April 25, in New York City.
Turkish citizens stand in line as they check in for a Turkish Airlines flight during their evacuation, at Washington Dulles International Airport, on April 25.
Protestors gather outside the Louisiana state capitol during a rally against Louisiana's stay-at-home order and economic shutdown, on April 25, in Baton Rouge.
Vehicles line up to receive food during a donation drive by World Central Kitchen in the parking lot of the Camden Yards Sports Complex, on April 25, in Baltimore, Maryland. World Central Kitchen conducted its food relief operation to help relieve food insecurity faced by the city's vulnerable communities, at the request of Governor Larry Hogan.
Health care workers wearing scrubs and face masks watch as protesters hold an "Open Texas" rally at the Texas State Capitol, on April 25, in Austin.
A person in a mask walks through the glass and steel structure called the Oculus, which serves as the World Trade Center Station, a transportation hub in the heart of the 9-11 Ground Zero, in New York City, on April 25.
President Donald Trump participates in a signing ceremony for H.R.266, the Paycheck Protection Program and Health Care Enhancement Act, with members of his administration and Republican lawmakers in the White House in Washington D.C., on April 24.
A sign that reads "Ramadan Kareem" is seen near the front entrance of the Masjid Al-Salaam mosque and Dearborn Community Center on the first full day of Ramadan on April 24 in Dearborn, Michigan.
Healthcare workers react to the applause at Brooklyn's Kings County Hospital Center at a 7 o'clock ceremony during the coronavirus pandemic on April 24 in New York.
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State Assemblywoman Lorena Gonzalez, center, delivers a box of face masks to the Otay Mesa Detention Center on April 24 in San Diego, California.
Tim Bailey prepares to drive a remote-controlled model of the novel coronavirus, also known as SARS-CoV-2, during a protest against the state's extended stay-at-home order to help slow the spread of the coronavirus disease (COVID-19) at the Capitol building in Madison, Wisconsin on April 24.
A COVID-19 specimen collection kit is prepared by personnel of the District of Columbia COVID-19 testing site in United Medical Center's parking lot in Washington D.C., on April 24.
Post-it notes for first responders are posted on the wall of the Anderson Mall during the coronavirus pandemic, on April 24, in Anderson, South Carolina.
Speaker of the House Nancy Pelosi conducts a news conference in the Capitol Visitor Center shortly before President Trump signed an additional COVID-19 relief package on April 24.
Chains separating the back half of a public bus from the driver's space hang to protect MTA bus drivers from COVID-19 exposure on April 24, in New York.
Food Bank for New York City volunteers hand out packages at a mobile food pantry during the coronavirus pandemic at Barclays Center on April 24, in New York.
Marietta Theater In The Square's marquee displays "Be Safe, Stay Healthy" as the coronavirus pandemic continues on April 24, in Marietta, Georgia.
Protesters against the coronavirus shutdown rally in front of State Capitol in Madison, Wisconsin, on April 24.
NFL superstar Vernon Davis (C) and restaurateurs Sahil Rahman (L) and Rahul Vinod (R), through a partnership between the Vernon Davis Foundation and RASA Restaurant, help to prepare free meals for frontline healthcare workers battling the coronavirus pandemic at the George Washington University Hospital on April 24, in Washington, D.C.
In this image from video, the vote on approving the almost $500 billion coronavirus package is displayed on the floor of the House of Representatives at the U.S. Capitol in Washington, on April 23.
A healthcare worker waits to administer a test at a drive-thru testing site in Providence, Rhode Island, on April 23.
Raelene Critchlow, receives a visit from her granddaughter Maddie Carter, and great-grandchildren Beckett, Levi, and Camille, at Creekside Senior Living, on April 23, in Bountiful, Utah. Window visits help seniors connect to families despite coronavirus restrictions.
Empty streets are seen in front of the closed Chicago Board of Trade, in Chicago, Illinois, on April 23.
A healthcare worker writes “cute dimples” on a sign as a firefighter appears at her window during a parade of thanks at UCLA hospital, in California, on April 23.
Arfa Yousuf gives her martial arts instructors a thumbs-up during a belt test at her home in Richardson, Texas, on April 23.
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Yen Vo, the co-owner of Madam Vo, fills containers with food to donate to a hospital on April 23 in New York City.
Democratic gubernatorial candidate Dr. Woody Myers takes a COVID-19 test at Aria Diagnostics in Indianapolis, Indiana on April 23.
A sign thanking the first responders is displayed at Michigan Avenue which remains mostly dormant due to the spread of coronavirus on April 23 in Chicago, Illinois.
Rep. Alexandria Ocasio-Cortez and Rep. Max Rose wear face masks as they walk down the House steps of the Capitol before the House vote on the $483.4 billion economic relief package on April 23 in Washington D.C.
A man wearing a mask takes part in a vigil outside Queensboro Correctional Facility on April 23 in New York City.
Hotel room lights in the shape of a heart on the side of the Standard Hotel in the Meatpacking District during the pandemic on April 22, in New York City.
UNLV School of Nursing assistant professor Dr. Rhigel Jay Tan, a licensed nurse practitioner in psychiatric mental health, makes custom-made face shields called "iCareFaceShields" at his home for health care workers amid the coronavirus pandemic on April 22, in Las Vegas, Nevada.
The USNS Comfort is docked at Pier 90 on Manhattan's West Side in the Hudson River, during the outbreak of the coronavirus disease in New York City, as seen from Weehawken, New Jersey, on April 22.
Phlebotomist Sabrina Famiglietti, center, has Miami-Dade County Commissioner Xavier Suarez, left, and wife Rita, right, look over information as they prepare to donate blood aboard a OneBlood blood donation bus, on April 22, in Miami.
Damon March, Chief Operating Officer for Huamne Pennsylvania, holds a sign asking people in their cars how many cats they have, so that they can be given the appropriate amount of pet food at the Spike's Pet Pantry location in Douglassville, on April 22.
A man waves an American flag in support of all essential workers during the pandemic on April 22, in New York City.
Volunteers from the First Baptist Church of Plant City distribute food donated by the church, Feeding Tampa Bay and One More Child on April 22 in Plant City, Florida.
Nurses from Central Vermont Medical Center stand on the Statehouse lawn on April 22, 2020, in Montpelier, Vermont to counter a protest by a small group against Vermont's stay-at-home order.
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Continental's decision to declare force majeure - usually reserved for wars, accidents or natural disasters - came as a shock, bringing a sharp response from the leading refinery industry group. But some say there is a logic behind it, even if it may not pass muster in court.
"You sign contracts based on the average norms that a society has experienced over the last 100 years. If we have a new event that is not covered by those norms, it goes into force majeure. That's what Harold Hamm and others are saying - that these are circumstances outside the norm," said Anas Alhajji, an energy market expert based in Dallas.
Even the long-rumored decision by the White House to tell Chevron Corp last week it could no longer operate in Venezuela, where it has had a presence for nearly 100 years, met with a shrug.
"The global climate is terrible," said one person close to a Western oil company in Venezuela. "The license almost didn't matter anymore."
The market is forcing the hands of all producers. Across the world, governments and companies are preparing to shut down output, and many have already begun.
The Organization of the Petroleum Exporting Countries and its allies had already committed to record cuts of 10 million barrels of daily supply that have yet to take full effect. That commitment was not enough to prevent oil's fall below zero.
Saudi Arabia has said it and other OPEC members are prepared to take further measures, but made no new commitments. It is a measure of the depth of demand destruction that even if OPEC stopped producing altogether, supply may still exceed demand.
More than 600,000 barrels per day in production cuts have already been announced in the United States, along with another 300,000 bpd of shut-ins in Canada. Brazil's state-run Petrobras has reduced output by 200,000 bpd.
Azerbaijan, part of the group of nations known as OPEC+, is forcing a BP-led group to cut output for the first time ever. Oil majors in those countries have generally been excluded from government-imposed cuts.
“We have never done it before since they came to the country in 1994 and signed the contract of the century,” a senior Azeri official told Reuters.
That accommodation can no longer be made with the world running out of space to put oil. As of Thursday, energy researcher Kpler said onshore storage worldwide is now roughly 85% full.
Demand is expected to fall by 29 million bpd in April, the International Energy Agency estimated. Paris-based IEA expects consumption to pick up in May, but researchers cautioned that its expectation of a mere 12 million bpd fall in year-over-year demand may be too optimistic.
"I'm sure hearing the same numbers about demand destruction of 20 to 30 million barrels a day," said Gene McGillian, analyst at Tradition Energy, who was working at the New York Mercantile Exchange when U.S. crude futures were launched in 1983. "Until we see some kind of alleviation of that, you have to wonder what is in store."
(Reporting By David Gaffen; additional reporting by Olga Yagova in Moscow, Dmitry Zhdannikov and Ron Bousso in London, Devika Krishna Kumar in New York, Luc Cohen in Caracas and Gary McWilliams and Jennifer Hiller in Houston; Editing by Marguerita Choy)
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