The situation in Libya changes every day from good to bad. Haftar and Turkey are still very much in opposition and Egypt is considering getting involved as they see the Turks who support the « Muslim Brothers» as a big threat to Egypt security. Venezuela production is 10% of what it was pre Chavez. Venezuela would now be ready to auction blocks to foreign producers but it so far remains wishful thinking. Whereas OPEC + has to decide on new quota for August, President PUTIN has advised its oil companies to hedge part of their productions. Is it a first step towards harsh discussion between OPEC and Russia? We shall see. In the meantime, good PMI indicators in Europe, the $ 860 Billion recovery plan for Europe and a heavy season of hurricanes in the GUM have so far counter balanced the resurgence of Covid 19 cases. Oil throughput at Chinese refineries rose 9% YOY. However, US/CHINA relationships, a pre requisite for oil stability are deteriorating with the closure of the Chinese HOUSTON consulate. TRUMP is again trying all nonsense decisions to try to be re elected as COVID cases are going up in Florida and California jeopardising its re election.
Oil production is stabilising in the US as fracking teams number goes up. Although the rig count is at record lows, there are 7600 drilled but uncompleted wells which could act as a buffershort term to maintain production around 11 million barrels for the US. However, the lay off plans announced for North America by SCHLUMBERGER and others do not bode well for the future of the shale oil industry. About 400 wells will be fracked in July up from a low of 300 but normally over 1400 are fracked monthly. With less than 250 horizontal rigs in action vs 880 in January and a minimum of 400 to maintain the production capacity even, once the DUCs inventory is finished, oil production shall fall much more than what the EIA forecasts. CHEVRON is buying NOBLE ENERGY for 5 billion $. There is hardly any premium to the last trading value of 4.88 bil$$ down 60% ytd and down 75% on 2016 values. The good assets are the Leviathan gas field off Israel but we do not understand the increased exposure in shale oil as NOBLE has a lot of Permian assets. We believe Shale oil is dead for a while. We are short XOP in the Green L/S. SCHLUMBERGER after Halliburton announced – 48% of activity in North America vs – 19% internationally and is cutting 25% of its workforce. We remain very bearish on shale oil production for the next three years given the drop in horizontal rigs to a historically low level of 215 ( 350/400 are needed to maintain production) and the collapse in the number of fracking teams. VALLOUREC the activity of which depends vastly on shale oil is facing difficulties as its 800 million $ capital increase decided pre Covid cannot take place and as the RCF of 1.8 billion euros becomes due next year. The CEO has been seen with the Finance Minister and the BPI but so far, no plans are announced. The debt yield 29% to 2022 .2022 is a Presidential election year in France so it is hard to imagine that the French government would let down one of the very last steel company in France. In this context, the debt could be worth a risky try. Oil on water is decreasing with 13 less VLCC used for storage wow. Robert Bugbee, the flamboyant Chairman of Scorpio tanker bought 2.1 million $ of premium on call options Jan 2021 at 15 strike and Jan 2022 at 18 strike. We are of the opinion that a tanker trade can be tempted for Q4 rally as the market normalizes.