New Mexico’s oil and gas activities continued to decline last week as oil prices plummeted into negative numbers and demand for fuel shrunk due to the spread of COVID-19 and subsequent stay-at-home orders and travel restrictions.
The price of domestic crude was reported at about $16 per barrel on Monday, a week after it fell as low as -$40 per barrel, the first time in history oil was valued at less than $0 per barrel, per data from Nasdaq.
As of Friday, Baker Hughes reported New Mexico had sunk to 70 active drilling rigs, down 30 from a total of 100 at the start of the month, the lowest rig count of the year, and 14 from the prior week’s total of 84.
On the same date last year, New Mexico had 104 active rigs.
Texas dropped 107 rigs during the same time, down from 338 on April 3 to 231 on April 24.
The Permian Basin dropped 37 rigs in the last week, records show, down to 246 as of Friday from 283 a week before.
In the last year, the Permian lost 214 rigs as of Friday from a total of 460 on the same date in 2019.
Multiple oil and gas producers and midstream companies announced reductions in capital spending and operations across the country, including the Permian.
Houston-based Apache Corporation announced it would cut all of its Permian Basin drilling rigs, and Pioneer Resources cuts its rigs in the region in half, from 22 to 11.
Those announcements were followed by statements from Occidental Petroleum which cut its capital spending by about half, from $5.4 billion to $2.7 billion in response to market woes and Cimarex Energy which cut capital investments by up to 60 percent while cutting all but one of its drilling rigs.
A report from Rystad Energy pointed to widespread reductions in ground transportation, as governments attempt to stop the spread of the virus, leading a collapse in road fuel demand.
Road fuel demand makes up about half of the world’s oil demand, read the study, with the lack of gasoline demand accounting for a cut in oil demand by 3.53 million barrels per day (bpd).
Before the pandemic, the report read, global oil demand was expected to increase by 100.5 million bpd, in 2020 from 99.5 million bpd in 2019.
Following the impact of coronavirus’ spread, Rystad expected demand to drop by about 10 million bpd to 89.2 million bpd this year.
Gasoline accounted for 32 percent of the demand loss, read the report, with diesel at 18 percent of the drop and jet fuel at 21 percent of global fuel demand loss.
“As global travel restrictions will largely stay in place in May 2020, gasoline demand will remain significantly depressed,” said Rystad’s Senior Oil Market Analyst Artyom Tchen. “Everyone along the supply chain is getting hammered right now, but refiners and traders exposed to gasoline are suffering the most.”
Through the second quarter of 2020, North America could lose up to 2.2 million bpd of gasoline demand, the study read, with demand currently at only about 30 percent of normal consumption levels.
Tchen warned that if oil refineries do not reduce their oil processing operations significantly, the nation’s storage capacity could be full by mid-May, causing the price per barrel to plummet further.
“As the end-market for gasoline has only shrunk, refineries face the imminent issue of gasoline storage overflow. If refineries were to continue activity at March 2020 levels, this would result in gasoline storage reaching full capacity as soon as mid-May,” Tchen said.
“Instead, refiners are already scaling back operations in an attempt to avoid hitting the gasoline storage wall.”
Ryan Flynn, executive director of the New Mexico Oil and Gas Association said the coronavirus pandemic was the main force behind the market’s recent volatility.
“Traders were working to quickly exit positions in the context of infrastructure and storage constraints that have manifested due a sharp drop in demand,” he said. “The market is fundamentally reflecting the unique supply and demand scenario driven by the coronavirus pandemic.”
Kathleen Sgamma, president of the Western Energy Alliance said the drop off in oil and gas production already led to widespread layoffs and industry-wide bankruptcies.
“We’re seeing massive layoffs in our industry because of the low price, bankruptcies, and lots of shut-in production,” Sgamma said. “I’m not sure how this all ends, as many companies are struggling just to survive. New development is of course being curtailed, but existing production is also being shut in.”
Adrian Hedden can be reached at 575-628-5516, firstname.lastname@example.org or @AdrianHedden on Twitter.
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