Oil prices are mixed after reports last week that China is booking a lot of U.S. crude and stories that the U.S. seized a lot of Iranian oil. Fox News reported that the Justice Department (DOJ) announced the U.S. government’s “largest-ever” seizure of fuel shipments from Iran.
The U.S. confiscated the cargo from four Iranian vessels, totaling around 1.116 million barrels of oil petroleum products. This came on the same day that China was looking to beef up its purchases of U.S. crude. Reuters reported that China’s state-owned oil companies tentatively booked tankers to transport at least 20 million barrels of U.S. crude for August and September. These two conflicting bullish and bearish stories are keeping the oil trade on edge.
Yet the bulls should have an edge once we get past some of the seasonal weakness. The trend with falling imports and production, along with improving demand, should help the U.S. oil market tighten significantly. We see that pain continuing in the falling rig count and reports of more bankruptcies in the shale patch. On Friday, Baker Hughes reported that the number of active U.S. rigs drilling for oil fell by 4 to 172 this week. According to Marketwatch, that marked a third weekly decline in a row. The total active U.S. rig count, meanwhile, was down 3 to 244, according to Baker Hughes.
While there are some stories that U.S. energy producers will rise from the COVID 19 ashes, the truth is that there will be more pain ahead for U.S. producers. Bloomberg News reports:
“Chaparral Energy Inc.’s filed for bankruptcy protection for the second time in four years, paving the way for bondholders to take control of the Oklahoma driller in the aftermath of sluggish oil prices. The company filed for Chapter 11 in U.S. Bankruptcy Court in Delaware as it seeks to restructure its balance sheet and raise new money. Almost 80% of first-lien lenders and bondholders gave their support for a proposal to swap $300 million of unsecured notes into equity, raise a $175 million reserves-based exit facility and issue $35 million of convertible notes, Chaparral said in a statement on Monday."
Crude oil supply in the U.S. should draw by at least 4 million barrels. OPEC plus cuts are taking its toll and demand, foreign and domestic, is on the rise. U.S. production is cratering, and there is not a lot of capital around to raise output. The outlook for oil prices is robust.