Last updateThu, 04 Jun 2020 6pm

Dallas Fed: Grim Outlook for Oil Industry

Activity in the oil and gas sector declined significantly in first quarter 2020, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions—plunged from -4.2 in the fourth quarter to -50.9 in the first, the lowest reading in the survey’s four-year history and indicative of significant contraction. Exploration and production (E&P) and oilfield services firms both saw large decreases.

The oil production index plunged 51 points to -26.4, according to E&P executives. It posted its first negative reading since third quarter 2016. The natural gas production index also turned negative, from 15.6 to -21.2. Both indexes suggest that oil and gas production fell relative to the previous quarter.

World Bank Report Highlights Wastewater Issues, Opportunities

A new report from the World Bank, Wastewater: From Waste to Resource, calls for efficiently investing in wastewater and other sanitation infrastructure to achieve public health benefits, improve the environment, and enhance quality of life. Safely managed water, sanitation and hygiene (WASH) services are an essential part of preventing disease and protecting human health during infectious disease outbreaks, including the current COVID-19 pandemic. Right now, 80% of wastewater is released into the environment without adequate treatment.

“At a time when 36% of the world’s population lives in water-scarce regions, wastewater treatment for reuse is part of the solution to water scarcity and pollution problems,” said Jennifer Sara, Global Director, World Bank Water Global Practice. “Once treated, it can be used to replace freshwater for irrigation, industrial processes, or recreational purposes. It can also be used to maintain the environmental flow and by-products from its treatment can generate energy and nutrients.”

U.S. Imports Less Oil, but More from Canada

In 2005, U.S. refineries relied heavily on foreign crude oil, importing a record volume of more than 10.1 million barrels per day (b/d). About 60% of the imported crude oil came from four countries: Canada, Mexico, Saudi Arabia, and Venezuela, and each was responsible for between 12% and 16% of total U.S. crude oil imports that year. By 2019, U.S. crude oil import trading patterns had changed significantly. In total, U.S. crude oil imports have fallen sharply, but imports from Canada have risen steadily to 3.8 million b/d, more than twice the imports from Canada in 2005. U.S. crude oil imports from Canada accounted for 56% of all U.S. crude oil imports in 2019, according to the U.S. Energy Information Administration’s (EIA) Petroleum Supply Monthly.

Fuel Prices Continually Drop Amid Coronavirus Fallout

“U.S. ultra-low sulfur diesel was the latest product refined from crude oil to take a hit in its cash market last week, after refiners boosted production in a bid to flee poorer margins for other products more affected by coronavirus fallout.”

Hydrocarbon Processing reports that “refiners’ moves to divert production capacity previously devoted to other fuels to diesel is starting to cause oversupply in some regions, leading to a drop in cash prices.”

February Data Shows Early Coronavirus Impact on Energy Markets

The American Petroleum Institute (API) released its February 2020 Monthly Statistical Report, providing an early indication of the impact of the coronavirus pandemic on energy markets. Data from the report reflect the onset of the virus with downturns in demand for diesel (-9.9% y/y) and jet fuel (-5.2% y/y), but a slight increase in gasoline (+0.3% y/y), suggesting many consumers chose to drive instead of fly in February.

“February data reflect the onset of the coronavirus and serve as an early indicator of the impact this global pandemic has had on energy markets,” API Chief Economist Dean Foreman said. “The demand destruction resulting from the coronavirus combined with Saudi Arabia and Russia increasing supply has left global energy markets in unchartered territory.”

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