— This is the script of CNBC's news report for China's CCTV on April 22, 2020, Wednesday.
The steep fall in the June contract, rather than the May contract, highlights the severe challenges in storage space. Storage space is expected to be completely depleted by late May or early JUNE; If we run out of space on land, we'll have to store it underground. What does that mean? That means stop mining oil. With storage space in short supply and demand uncertain, deeper cuts may be the only solution.
Edward Morse, global head of commodities at Citigroup, said "We have more than 50% less drilling than was going on at the beginning of the year and on fracking, there's two-thirds less than there was at the beginning of the year". Refiners have already cut back fuel production by 25% and they could pull back even more to about 60%. In the process of accelerating production cuts or closures, a number of bankruptcies will inevitably occur. There will also be further consolidation in the US energy sector. There are about 140 refineries in the US and more than 5,000 producers.10% of them is just small business with output of less than 15 barrels a day. If bankruptcy were to become inevitable, there would be a direct threat to the already fragile job market in the United States. Together, the U.S. oil and gas industry has about 2.5 million jobs.
Earlier, some consultants predicted that the U.S. energy industry could lose 400,000 jobs this year. That forced President Donald trump, who is seeking re-election, to bail out. On Tuesday, he said the department of energy would work with the Treasury on a rescue plan. But the specific plans are unknown yet. In an interview with CNBC, the energy secretary said they would ensure liquidity in the energy sector and ease lending pressure.
US ENERGY SECRETARY
So, we want to make sure that we can get these guys some availability to this liquidity that's been provided by the congress, by the treasury department. We've already heard some stories about banks who don't want to uh, lend to fossil fuel industry players, we want make sure this doesn't happen, this entire industry needs to come back, energy underpinned everything that we do in the economics, and is such an important component to our national economy, and we want to make these guys strong and amid this pandemic.
He also revealed that he was in talks with Australia and the international energy agency's Paris headquarters to find further storage space to help ease the oil glut. He also responded to concerns about whether U.S. states could coordinate production cuts, he said, there are state laws in the United States that give states these rights, so if Texas, America's energy-rich state, wants to limit production, it has a lot of freedom, but if Texas wants to co-operate with other states, it is a grey area.
While America's energy industry is suffering, Saudi Arabia and Russia are thought to be winners for now, but it is a painful victory.
global head of pricing and market insight at S&P Global Platts
Saudi Arabia and Russia have got one here, but it's a very pyrrhic victory
They need to look over their shoulder because Brent is not far behind. Other crude benchmarks are not far behind and the world is running out of storage. You can leave it in the ground. But then what do you do with your cash flow? And they don't have the reserves of course we all know, of cash i mean.
OPEC + is scheduled to meet again on June 10. At present, the market does not rule out that they may meet earlier to discuss the possibility of further production cuts. The United States also said it has been in communication with OPEC.
The actions of these major oil producers will be our focus in the near future. We will keep an eye on this issue.