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It was a week littered with words like “record,” “unprecedented,” and “historic” – and here’s why.
After more than 9 hours of video conferencing on Thursday, top oil producers drew up a historic deal to slash production
The coronavirus pandemic has hammered demand for fuel, causing the price of oil to collapse.
- Price check: Last month, oil fell by as much as 65%, relative to the start of the year. This week it was down about half.
But there's relief in sight.
A coalition of oil-producing countries known as OPEC Plus - which has actually increased supply since demand crashed - met on Thursday by video call and reached a tentative deal to curb production.
- By how much? 10 million barrels per day (bpd) from May to June. The cuts step down incrementally thereafter.
- Is that a lot? Yeah. It's about 10% of global supply, and the largest coordinated cut in history.
- Why tentative? Mexico has yet to agree. Without the country's consent, the deal might not go through.
In case you need a refresher: OPEC stands for the Organization of the Petroleum Exporting Countries, which currently includes 13 nations. Saudi Arabia is the de facto leader. OPEC Plus typically includes OPEC countries, plus Russia and a handful of other nations that agreed to cuts back in 2016.
That doesn't mean the oil price will bounce back
In fact, it's likely to slip even further, unless other countries like the US and Canada also agree to deep cuts.
That's according to Goldman Sachs.
- In a note Thursday, it said that a 10-million-barrel cut isn't enough to reverse the price meltdown.
- "While the prospect of a deal can support prices near current levels in coming days, we believe this support will soon give way to lower prices," the bank's analysts wrote.
- Why? Because of an epic demand collapse. It's on the scale of 22-35 million bpd - a far cry from 10 million bpd.
The million-dollar question
When will prices rebound?
- Goldman says they'll first fall below current levels, and then gradually recover to about $40 a barrel in October "as inventories start to wind down."
But: There's still a ton of uncertainty.
- G20 energy ministers are meeting as I write this on Friday to discuss restabilizing the oil market.
- Bloomberg reports that this meeting could lead to an additional supply cut of as much as 5 million bpd.
Measuring shadows from space to track the oil glut
It sounds like the last bullet in a long list of ideas for how to measure the world's oil supply. But it's what the startup Orbital Insight is doing - and it apparently works. Or at least well-enough to have Wall Street analysts as clients and Alphabet's GV, Goldman Sachs, and Chevron as investors.
Here's how:
- The firm enlists computer vision to measure the shadows cast over oil tanks, as seen in satellite imagery.
- Those shadows can tell you the amount of oil in each tank - if you know what to look for.
- Orbital also bounces pulses of radar from satellites off the surface of the tanks, which is another way to tell how full they are.
What they've found: Barrels and barrels of oil.
- The data show an increase of a stunning 130 million barrels in oil storage in just the past 30 days.
- You can see more results and learn more about the firm's unique approach here.
Layoffs and spending cuts continue to mount
It was another rough week across the energy industry, with oil and gas taking the biggest blow.
- Exxon slashed capital spending by a whopping $10 billion, or 30%, the largest cut among majors.
- Halliburton, a large oilfield service and product company, laid off at least 350 employees.
- Click here to see all layoffs, furloughs, and spending cuts in the oil and gas industry
We also learned more about the situation at the leading rooftop solar company, Sunrun.
- The firm's CEO, Lynn Jurich, and cofounder, Ed Fenster, gave up their pay temporarily.
- The company has also furloughed hundreds of employees, including the sales team that generates leads in Costco and Home Depot.
- "As the public health responses ease, we plan to bring back as many impacted employees as quickly as possible," the company told us.
How has the coronavirus pandemic impacted your work in the energy industry? Let us know.
On a lighter note, check out these bizarre photos that reveal what crude oil actually looks like
Some of it literally looks like the kale juice that I definitely always regret ordering.
Other types of crude are super waxy. (This actually reminds me of the wax inside a lava lamp, which I got to play with back in my producer days).
You can see a dozen more images here (no paywall).
Finally, here are 4 top stories we didn't cover
- The US is set to become a net importer of oil once again, according to the US Energy Information Administration, our markets team reported.
- The research firm Wood Mackenzie cut its global solar deployment projections by 18%, or a little more than 20 gigawatts, Greentech Media reports.
- Electricity demand is falling as a result of the pandemic, as you might expect. In New York City: "Electricity demand fell 14 percent from its recent average, as restaurants, theaters and offices closed their doors," the New York Times reports.
- "Global sales of electric vehicles are projected to drop by 43% this year as the technology faces a series of overlapping problems," Axios reports, citing Wood Mackenzie research.
That's it! Have a great weekend.
- Benji