Oil Markets in Crisis

BP warned April 28 of "exceptional" uncertainty over oil and gas demand and a risk of long-term consequences from the current market turmoil as it wrote down the value of its own inventories by $3.7 billion and cut its output expectations for this year.

In a Q2 results statement, the UK oil and gas major said it expected its previously announced 25% cut in capital expenditure to reduce its upstream oil and gas output by 70,000 b/d of oil equivalent this year as it curtails developments in lower-margin areas and rephrases projects in the early stages of development.

Crude oil futures were lower in mid-morning trade in Asia Tuesday, April 28, extending the recent selloff, amid concerns of the lack of storage capacity.

At 10:18 am Singapore time (0218 GMT), ICE Brent June crude futures were down 87 cents/b (4.35%) from Monday's settle at $19.12/b, while the NYMEX June light sweet crude contract was $1.82/b (14.24%) lower at $10.96/b.

"WTI June futures can be seen slipping once again past $12/b into Tuesday Asia hours amid the more immediate concern with storage," IG market strategist Pan Jingyi said in a note.

"[But] watch for any further pullback of prices towards support seen just above $10/bbl, particularly with US inventory reports due into the week serving as event risks for further downward pressure," Pan added.

US crude futures settled sharply lower on Monday after the world's largest energy exchange-traded fund said it would exit its NYMEX June WTI contracts this week.

Whiting Petroleum, a major oil and gas producer in the Bakken Shale and Denver-Julesburg Basin, announced Monday it had filed a Chapter 11 plan, as the decimated global demand for crude draws more blood.

"Through the proposed terms of the plan of reorganization, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment," Whiting CEO Bradley Holly said in a statement.

Industry group Oil & Gas UK warned April 28 of an "increasingly grim" outlook for the North Sea sector and called for a system of government backing for those willing to invest in the country's "increasingly fragile" supply chain.

Following a survey of its members, Oil & Gas UK said two-thirds of UK upstream oil and gas companies expected lower oil and gas production in 2020 than previously anticipated due to collapsing oil and gas prices and the coronavirus pandemic, and a quarter of upstream companies acknowledged being financially "challenged."

This article provides a deep-dive analysis on the credit risk impact of the European Oil and Gas industry which takes into account the consequences of the COVID-19 pandemic, causing oil prices to plummet on oversupply and weakened demand. The analysis covers European public companies in the Oil and Gas sector between January 2, 2020 and April 16, 2020 and utilises S&P Global Market Intelligence’s Probability of Default Model Market Signals (PDMS) which captures equity market sentiment, providing signs of potential default for 71,000+ public companies. We have also highlighted where negative ratings actions were taken by S&P Global Ratings.

The global coronavirus pandemic has hit global demand for oil products with transport fuels such as diesel, gasoline and jet fuel seeing extreme contango structures, leading to companies looking at any way to store product.

Typically in a contango structure, participants would opt to purchase product on the prompt, store in land storage, or in extreme cases floating storage, and hold the fuel until demand and, in turn, value increases.