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A London-based trading house bought 250,000 barrels of oil during the historic plunge below $0, and likely made a fortune

https://markets.businessinsider.com/commodities/news/negative-oil-prices-caused-trader-buying-25000-oil-barrels-2020-5-1029201266

• London-based oil trading house BB Energy bought 250,0000 barrels of oil when US prices turned negative on April 20, raking in a huge profit in the process, Bloomberg reported Wednesday. 
• BB Energy was one of the few trading houses that had storage capacity at a time when other traders were scrambling for options, allowing it to buy up the historically cheap oil, an unnamed source told Bloomberg.
• The Commodity Futures Trading Commission warned on Wednesday that the West Texas Intermediate for delivery in June could also turn negative upon expiry.

One trader bought 250,000 barrels of oil and secured a rare payout at a time when oil prices turned negative, causing jitters in markets and leaving most other traders scrambling to find storage options across both sides of the Atlantic, Bloomberg reported on Wednesday.

But for BB Energy, a London-based trading house,the historic oil market crash was golden opportunity owed to its competitive advantage of having storage capacity over other firms, a source who was not authorized to speak on the topic, told Bloomberg. 

BB Energy bought around 10% of all barrels of WTI crude futures for delivery in May.

US oil prices hit an all-time low of -$37.63 on April 20 due to an extreme shortage in storage options for oil, meaning most traders apart from BB Energy had to effectively pay traders to take the oil off their hands. 

It remains unknown whether BB Energy is still holding on to the barrels it bought and how much the trading-house paid (or indeed was paid) for them as well as how much it made.

BB Energy trades 20 million metric tonnes of crude and petroleum products annually. 

Lack of storage options, particularly at a key storage facility in Cushing, Oklahoma, and the reduction in demand for the commodity during the ongoing coronavirus pandemic, have both contributed to WTI 's historic price crash.

Oil has been ravaged by the coronavirus pandemic which has all but shut down international travel, and greatly reduced manufacturing output, in turn torpedoing demand for oil.

Concerns are mounting that the June contract for oil could follow the same pattern as May, with demand for storage outweighing supply at the expiry of the contract, pushing oil below zero again.

The US Commodities regulator issued a rare warning on Wednesday urging market participants to prepare for a repeat-case scenario of negative prices for the June WTI contract.

"We note that we are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI), Light Sweet Crude Oil Futures contract on April 20 (the penultimate day of trading and expiration of the contract," the Commodity Futures Trading Commission said in a notice.

On Wednesday, OPEC has downgraded its demand forecast by a third, saying it expects demand to fall by just over 9 million barrels per day in 2020. OPEC had previously forecast a slump of of 6.84 million barrels per day. 

The price of US oil is currently trading around $26.62, up 4.3%. Brent, the international benchmark is at $30.36 a barrel, up 2.9%, as of 6:20 a.m. ET, according to Markets Insider data.

Occidental offering voluntary job buyouts, citing need for spending cuts: document

https://www.reuters.com/article/us-occidental-buyouts-exclusive/occidental-offering-voluntary-job-buyouts-citing-need-for-spending-cuts-document-idUSKBN22P01K

(Reuters) - Occidental Petroleum Corp (OXY.N) is offering its employees voluntary buyouts over the next two weeks, according to a document seen by Reuters on Tuesday, citing the sharp decline in oil prices and the coronavirus pandemic for “severe dislocations” in its business.

Occidental bet heavily on the continued growth in U.S. shale oil, taking on heavy debts for its controversial purchase of Anadarko Petroleum last year for $38 billion. That bet has proved ill-timed following the coronavirus outbreak, which has cut fuel demand worldwide by about 30% and is responsible for the worst oil-and-gas-industry downturn in 40 years. 

Energy companies worldwide, including Exxon Mobil Corp (XOM.N) and Royal Dutch Shell PLC (RDSa.L), have slashed capital expenditures and oil output to reckon with the pandemic. 

Houston-based Occidental last week posted a $2 billion quarterly loss and has slashed capital spending drastically to shore up its balance sheet. The company said that if spending cuts are not met, it will have “serious potential consequences” to the company, the document said. 

Interested employees can submit a resignation offer to Occidental through May 26, specifying the number of months of base salary that they will accept for voluntary separation, according to the document. Employees can amend or withdraw offers unless the company has already accepted them by then, the document said. Offers not accepted will expire automatically on June 12.

Occidental declined to comment. 

The company's shares are down 64% on the year, making it one of the worst-performing stocks in the Standard & Poor's 500 stock index .SPX. 

Occidental has been cutting expenses to deal with its debt-laden balance sheet and had been laying off workers and selling assets to pare down debt even before the fall in oil prices.

The company said last week it is considering raising new cash, swapping debt for stock or refinancing existing debt due to shrinking oil demand. It withdrew its outlook for 2020. 

It cut its 2020 capex budget on three separate occasions this year, most recently to $2.5 billion from an original plan of $5.3 billion. 

Reporting by Devika Krishna Kumar in New York and additional reporting by Shariq Khan in Bangalore; Writing by David Gaffen; Editing by Sandra Maler and Leslie Adler

Our Standards:The Thomson Reuters Trust Principles.

A day trader who bought hundreds of oil contracts was told he owed $9 million after a trading-platform issue meant it failed to show oil's historic plunge below $0

Mario Tama/Getty Images

https://markets.businessinsider.com/commodities/news/oil-trader-loses-millions-on-brokerage-glitch-2020-5-1029186688

• A day trader who bought hundreds of oil futures contracts during its historic price crash last month was told he owed $9 million after a technology issue prevented his trading platform from displaying negative oil prices, Bloomberg reported on Friday.
• On April 20, Syed Shah, a day trader in Canada, bought 212 futures contracts for what he thought was $0.01 each, not knowing that oil was actually trading at -$3.70 per barrel at the time, according to Bloomberg.
• The platform he used, Interactive Brokers, could not display negative prices, so Shah and other traders were oblivious to the huge drop.
• "It's a $113 million mistake on our part," Thomas Peterffy, the founder and chairman of Interactive Brokers, told Bloomberg, adding that customers who suffered losses as a result of the issue would get their money back.

As oil crashed, Shah bought 212 futures contracts for what he thought was $0.01 per barrel, not realizing that oil was actually trading at negative $3.70 per barrel, Bloomberg said.

Shah couldn't see the price in real time, as Interactive Brokers' system was unable to display a price below zero.

"I was in shock," Shah told Bloomberg. "I felt like everything was going to be taken from me, all my assets." Shah added that he didn't sleep for three days after the incident.

As oil crashed, Shah bought 212 futures contracts for what he thought was $0.01 per barrel, not realizing that oil was actually trading at negative $3.70 per barrel, Bloomberg said.

Shah couldn't see the price in real time, as Interactive Brokers' system was unable to display a price below zero.

"I was in shock," Shah told Bloomberg. "I felt like everything was going to be taken from me, all my assets." Shah added that he didn't sleep for three days after the incident.

Thomas Peterffy, the founder and chairman of Interactive Brokers, told Bloomberg that oil turning negative revealed bugs in the company's software.

"It's a $113 million mistake on our part," Peterffy told Bloomberg. (That estimate was later revised down to $109 million, Bloomberg said.)

"We will rebate from our own funds to our customers who were locked in with a long position during the time the price was negative any losses they suffered below zero."

Meanwhile, in Europe, another Interactive Brokers customer, Manfred Koller, faced a similar situation as Shah on April 20, according to the report.

Koller, who lives near Frankfurt, Germany, purchased oil contracts for his friends at $11 and between $4 and $5 on the platform. His trading screen froze just after 2 p.m. ET.

"The price feed went black, there were no bids or offers anymore," Koller told Bloomberg, adding that his trading account didn't indicate any problems.

Later, Koller received a notification from the brokerage that he owed $110,000.

It was widely known that the derivatives exchange CME Group's benchmark oil contracts could go negative, and it had alerted its clearing-member firms that they should test negative prices on their systems, Bloomberg said.

An alert sent on April 8 said: "If major energy prices continue to fall towards zero in the coming months, CME Clearing has a tested plan to support the possibility of a negative options underlying and enable markets to continue to function normally." There was another alert on April 15.

While Peterffy acknowledged that Interactive Brokers received this notification, he told Bloomberg it needed more time to upgrade its software.

"Five days, including the weekend, with the coronavirus going on and a complex system where we have to make many changes, was not a sufficient amount of time," he said.

Aruba Offering Oil Storage After PDVH Exit

The Dutch Caribbean island of Aruba is offering to lease oil storage after terminating an ill-fated refining project with PdV Holding (PDVH), the opposition-controlled US subsidiary of Venezuela’s national oil company PdV.

The lease offer comes at a time of severe tightness in onshore and floating oil storage owing to a historic supply glut and a collapse in demand caused by the Covid-19 pandemic.

Aruba has 10 available storage tanks with capacity for 665,000 bl of clean products, 5.224mn bl of crude and 518,000 bl of naphtha, according to promotional material obtained by Argus. Another seven tanks currently awaiting repairs have capacity for 4.224mn bl of crude.

Aruba’s prime minister Evelyn Wever-Croes noted strong interest in the storage lease. “It will take us at least a month to get the best offer for Aruba, do the inspections of the tanks and start sending crude so we can receive the lease payment, which is being estimated to net at least 5mn florins ($2.8mn per month).”

The storage became available after Delaware-based PDVH signed an agreement with the government of Aruba and Refineria di Aruba (RdA) that puts a definitive end to a $1.1bn refinery project spearheaded by PdV in Caracas in 2016 and inherited by Venezuela’s political opposition last year when it took over PdV’s US assets.

After the long-term lease was signed in 2016, the project manager, Houston-based Citgo Petroleum, conducted preliminary work to refurbish Valero’s former 235,000 b/d San Nicolas refinery into a heavy crude upgrader. In addition to logistical advantages for PdV, the Aruba project would have helped to absorb Venezuelan crude production that could no longer be processed at mostly inoperable upgraders at PdV’s Jose complex in Venezuela.

PDVH and the government of Aruba and RdA started negotiations in April 2019 to end the project. A memorandum of understanding that suspended the project and laid the groundwork for an operational transition was signed in October 2019. On 28 February 2020, PDVH through its subsidiary Citgo Aruba Holding (CAH) signed a transfer of operatorship agreement with RdA. The withdrawal included labor severance packages.

Tax Obligation

Under the new agreement that received final signatures on 1 May, PDVH agreed to pay $17mn in back taxes to Aruba. The funds already earmarked to comply with the tax obligation will come from PDVH, the holding company told Argus.

The “amicable” agreement “will potentially save PDV Holding’s shareholder up to US$150 million” and does not impact Citgo Petroleum’s fuel supply contracts with Fuels Marketing and Supply Aruba, and with Queen Beatrix International Airport for jet fuel, PDVH said. The firm added it will continue to cooperate “with investigations into irregularities in the Aruba Project under the prior management’s control.”

For Aruba, the termination agreement marks the end of “long and intense” negotiations. “There were times that we thought that we would not be able to finalize this because of the unstable situation in Venezuela,” Wever-Croes said after the signing last week.

https://tankterminals.com/news/aruba-offering-oil-storage-after-pdvh-exit/?utm_medium=email&utm_campaign=Newsletter%20Other%20-%20Week%2020&utm_content=Newsletter%20Other%20-%20Week%2020+CID_06c008bf81891c3257a2c5e55650d761&utm_source=weekly&utm_term=Read%20more 

Oxy gets the OK to Maintain Anadarko contract in Algeria

https://www.petroleumafrica.com/oxy-gets-the-ok-to-maintain-anadarko-contract-in-algeria/

Algerian authorities have given Occidental Petroleum Corp. (OXY) the go-ahead to maintain Anadarko’s contract in the North African country, according to a release on state firm Sonatrach’s website.

Algeria had previously blocked Occidental Petroleum’s deal to sell Anadarko assets in the country to France’s Total following Occidental’s acquisition of the US-independent.

“The energy ministry agreed for the maintenance of Anadarko Algeria Corporation in the association contract with Sonatrach and other companies,” the Ministry said in a statement.

Occidental Petroleum has informed the Ministry of its new strategic approach and its “commitment to continuing Anadarko Algeria Corporation activities in Algeria,” and it will seek new partnership opportunities, the statement said.

North American oil producers slash output faster than OPEC skeptics expected

 

https://www.vox.com/2014/4/14/18076690/fracking 

https://www.reuters.com/article/us-global-oil-north-america-production/north-american-oil-producers-slash-output-faster-than-opec-skeptics-expected-idUSKBN22J2VA

NEW YORK (Reuters) - North American oil companies have slashed production faster than skeptical OPEC officials and industry analysts expected, on course to cut roughly 1.7 million barrels per day by the end of June, according to a Reuters analysis of U.S. state and company data. 

The Organization of the Petroleum Exporting Countries and allies led by Russia struck a deal last month to contain a worsening supply glut as the coronavirus pandemic cratered global fuel demand by about 30%, sending prices plunging. 

The group, known as OPEC+, agreed to cut output by 9.7 million barrels per day (bpd) for May and June. They also pushed for non-OPEC+ members, including North American countries, to contribute another 10 million in output cuts, for total cuts of about 20% of world supply. 

During talks last month, some OPEC members raised concerns that nations like the United States and Canada couldn’t muster that magnitude of cuts from private companies without state mandates. 

That hasn’t turned out to be the case. Numerous producers in North America announced sizeable cuts, including ConocoPhillips, Exxon Mobil, Chevron Corp and Canada’s Cenovus Energy. The United States and Canada, which produce more than 17 million barrels per day, have already cut output by about 10%, according to Reuters estimates. 

U.S. Energy Secretary Dan Brouillette said in April that the department expected U.S. production to drop by 2 to 3 million bpd by year-end. He and other U.S. officials said there was no need to mandate cuts because low prices would cause companies to shut production. Regulators in top oil states, including Texas and North Dakota, considered forced cuts, but none have limited production. 

“The power of the market can be ferocious sometimes,” said a senior OPEC source, adding he was surprised at the speed of U.S. and Canadian supply reductions. 

Some energy ministers wanted formal commitments for cuts from non-OPEC nations prior to holding a meeting, emphasizing their countries have ceded market share for years. 

Iran’s oil minister, Bijan Zanganeh, said in early April that cuts from countries such as the United States and Canada should be resolved before OPEC even held a meeting. Russian government spokesman Dmitry Peskov said economically-induced cuts were not equal to more drastic, forced cuts from state oil producers designed to stabilize markets. 

They were concerned because U.S. producers have benefited from previous cuts by OPEC and Russia. While OPEC+ producers have been cutting production to raise prices since 2016, shale producers took advantage of those higher prices to pump more - effectively stealing market share. The United States has become the world’s largest crude producer while OPEC and Russia kept output constrained. 

As of February, the latest month for which data is available, the Energy Information Administration said U.S. crude output was 12.8 million bpd. Weekly figures show output has dropped to 11.9 million bpd, but that data is considered less reliable than monthly figures.

In recent days, prices in physical markets have rebounded. Analysts revised their outlook for production shut-ins due to the swift response from operators. 

“When prices went negative it really accelerated some of the cuts,” said Allyson Cutright, director at Rapidan Energy Group in Bethesda, Maryland. The consultancy recently increased its forecast for U.S. and Canada cuts to 2.3 million bpd in June. 

The heaviest reductions are coming from Texas, the largest U.S. producing-state, with 5 million bpd of output. Texas output is likely to drop by 20%, or 1 million barrels, by the end of May, said Karr Ingham, executive vice president of the Texas Alliance of Energy Producers. 

“Operators are shutting in anywhere from 20% to 50%, and some more than that, based on what they think they can get to market,” Ingham said.

 

In North Dakota, output has dropped by at least 400,000 bpd since March 1, nearly a third of the state’s around 1.4 million bpd output before the crisis. State officials expect the volume shut to rise further.[L1N2CM16O] 

“This is worse than anything that any of us have ever seen,” said Pete Miller, former CEO of Houston-based National Oilwell Varco, speaking on a call with investors Monday. 

ConocoPhillips has cut the most, saying it will reduce 460,000 bpd across the United States and Canada. Exxon Mobil announced worldwide cuts of roughly 400,000 bpd, with two-thirds of that from the two countries.

Trump, on Tuesday, tweeted that the rise in oil prices was due to increased demand, but the rebound in consumption has so far been tepid. “The fierce response from the U.S. producers is what has turned the market around,” said John Kilduff, a partner at Again Capital in New York. On Tuesday, Brent crude futures closed at nearly $31 a barrel, the highest in three weeks. 

Billions of barrels have gushed into storage during the glut. The oversupply will weigh on the market for years if demand does not pick up. 

“There’s just so much crude oil,” said Bob Yawger, director of energy futures at Mizuho in New York. 

Reporting by Jessica Resnick-Ault, additional reporting by Jennifer Hiller in Houston and Dmitry Zhdannikov in London; Editing by David Gaffen, Simon Webb and Aurora Ellis

Our Standards:The Thomson Reuters Trust Principles.