Truth and Consequences
For oil producing countries and oil companies the moment of truth is at hand as the consequences of crashing oil prices cannot be ignored. With the possibility that Exxon Mobil will see its debt rating downgraded and the Russia oil minister saying his open to more talks with OPEC, you know that the end may be near.
Not only did Exxon Mobil report a whopping 58% drop in fourth-quarter earnings, it also said it would cut its capital expenditures by 25% this year to $23.2 billion, following a 15% reduction in 2015. But what is worse, the ratings agency S&P put Exxon's triple AAA rating on a downgrade watch which would be the first degrade for the Exxon part of Mobil since the great depression. If Exxon Mobil, the company that put the ‘big” in “big oil”, is on downgrade watch, how can smaller companies survive?
There are more signs that Russia has had enough of the price collapse. Oil seemed to rally on comments by Russian Foreign Minister Sergei Lavrov who said if there is consensus among OPEC and non-OPEC members to meet, "then we will meet". Dow Jones is also reporting that, “Iran is in favor of closer contacts with Russia, Iraq and Venezuela on issues of oil, Ali Akbar Velayati, a top adviser to the Islamic republic's supreme leader, said Wednesday. The news come despite Iran's refusal so far to agree to a production cut and an emergency meeting between producers on how to respond to lower prices. "Russia and Iran should not experience competition in the area of energy and should work together."
This comes as the American Petroleum Institute is signaling the potential for another build in the Energy Information Administration’s supply report. The API said that crude inventories rose 3.8 million barrels last week. They also reported a big build in gasoline of 6.6 million and a slight 400,000 increase in distillate supply.
The increase in gas supply came as we saw the impact of demand destruction caused by the East Coast snow and wind storms. Also as reported by Platt’s, "Refined product futures were under pressure Tuesday after Colonial Pipeline restarted Line 2 less than 24 hours after closing it and Line 1 to investigate an integrity issue, the company said.
Colonial restarted Line 1 Monday. Lines 1 and 2 carry refined products from Pasadena, Texas, to Greensboro, North Carolina, at which point they combine with Line 3, which ends in Linden, New Jersey. In the physical market, Colonial Pipeline pricing for line space for delivery from Pasadena to Greensboro was stronger, reflecting renewed interest in shipments along 1.37 million barrel per day Line 1. Despite less refinery activity, gasoline stocks are expected to have increased 1.5 million barrels last week. "You will see the full impact of the winter storm in this report because no one could drive in New York for a couple of days and throughout the East Coast," Price Futures Group analyst Phil Flynn said. A snowstorm blanked the Atlantic Coast the weekend of Jan. 23. The U.S. Energy Information Administration said crude inventories rose to 494.92 million barrels in the week to Jan. 22, the highest since at least April 1982, the earliest data on the EIA website showed.