Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

From Kuala Lumpur To Oklahoma, Oil’s Bloodbath May Spare Few

By (Barani Krishnan/ 10, 2020 09:49
From Kuala Lumpur To Oklahoma, Oil’s Bloodbath May Spare Few
By (Barani Krishnan/   |  Mar 10, 2020 09:49
Saved. See Saved Items.
This article has already been saved in your Saved Items

Malaysia’s new ruling party has just announced its cabinet and might face a vote of no-confidence in two months. But Prime Minister Muhyiddin Yassin has bigger worries before that: an annual 45% drop in oil prices spells serious financial trouble for the nation of 32 million.

From the gleaming 88-storey twin towers in central Kuala Lumpur that’s home to Malaysia’s national oil corporation Petronas, to downtown Oklahoma City where America’s premier shale driller Continental Resources (NYSE:CLR) resides, executives of the world’s oil industry are asking the same thing: when will this mayhem end?

Monday’s 25% price drop in crude prices — the biggest in three decades, engendered by a production-and-price war between OPEC+ titans Saudi Arabia and Russia — brought fears all too familiar to economies overly dependent on hydrocarbons: chronic fiscal tightness, budget overruns and financial upending.

New Layer of Uncertainty: Coronavirus

While those anxieties have been there for the better part of the last decade, what’s different is the threats are a lot worse this time from the added layer of uncertainty posed by the coronavirus epidemic.

“It’s the perfect storm for oil that no one could have imagined — an OPEC bust-up, followed by a Saudi-Russian fight for market share and city lockdowns in Italy and elsewhere from the coronavirus,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

And as the popular saying goes, it might get worse before it gets better.

But how much worse is worse? Well, Goldman Sachs, Wall Street’s leading voice in energy trading, is predicting oil prices as low as $20 per barrel. That’s a level unseen in 18 years. U.S. crude bottomed on Monday at $27.34 on the heels of the Goldman call, while Brent struck a trough of $31.02. Those were only four-year lows though, leaving room for a lot more demand destruction.

WTI Futures Weekly Chart
WTI Futures Weekly Chart

While it’s debatable how long the Saudi and Russian economies themselves can weather these prices — the popular theory is Riyadh needs $80 oil and Moscow at least $40 per barrel to balance their budgets — such ultra-low yields from crude could kill the most politically vulnerable states and debt-strapped companies within months.

In Malaysia’s case, for instance, it’s been estimated that every dollar lost on a barrel would knock off up to 300 million ringgit ($71 million) from the federal budget.

Lower oil and gas prices had already resulted in slower mining and quarrying sector contribution to Malaysia last year, partly contributed to the more moderate GDP growth of 4.3% in 4Q19 year-on-year versus 4.7% in the year-ago corresponding period.

In Kuala Lumpur, the previous administration budgeted for oil at $62 per barrel in 2020 — just about the point where Brent closed 2019.

Brent Futures Weekly Price Chart
Brent Futures Weekly Price Chart

“The newly formed government will likely revise the Budget 2020 and we may see a reduction in government expenditure and investment,” local bank MIDF Amanah Investment said in a research note, anticipating the path ahead for Muhyiddin’s administration.

Worse Than Malaysia: Nigeria, Libya and Iran

Still, Malaysia is in a much better state than economies like Nigeria, Libya and Iran.

Before this year’s meltdown in oil, Nigeria's parliament passed a record 10.59 trillion naira ($35bn) budget for 2020, paving the way for what it hoped would be a return to the international debt market to shake off the impact of a recession. Such aspirations can be forgotten for now.

In Libya, the head of Libya's internationally recognized government, Fayez al-Sarraj, warned as early as a month ago of a looming financial crisis and budget crisis from a blockade of oil terminals and fields by groups loyal to renegade general Khalifa Haftar.

"Losses from the oil shutdowns have exceeded $1.4bn,” al-Sarraj said. “The figure is increasing every day."

In Iran, the government of President Hassan Rouhani appears set to face a fourth crisis this year alone from the oil price crash, after earlier disruptions caused by civil unrest, U.S. sanctions on its crude exports and a major outbreak of coronavirus infections.

U.S. Shale Bankruptcies Seen Rising

In the United States, energy company and related services bankruptcies that were estimated to rise in 2020 will likely accelerate a few notches at least with the oil price crash, Forbes reported on Tuesday.

Quoting data from the Haynes and Boone’s Oilfield Services Bankruptcy Tracker, Forbes said there were six new bankruptcies in the oilfield services area in Q4 2019. So far in 2020, Pioneer Energy Services (OTC: PESX) has been the only major oilfield services company to enter Chapter 11 bankruptcy, it added.

In Monday’s market rout, ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), two of the world’s biggest oil companies that have also expanded deeply into the U.S. shale patch, saw their shares drop 12% and 15%, respectively.

Rosneft (LON:ROSNq), (OTC:OJSCY), the leading Russian energy company, slid 21% in London trading, while Riyadh’s state oil company Saudi Aramco (SE:2222) lost just 5.5% in controlled trading on its local bourse.

But shares of medium-to-smaller sized U.S. shale drillers, especially those that carry heavy debt and earn just a fraction of what the multinationals do, took a real socking.

Continental Resources plunged 52.5%. EOG Resources (NYSE:EOG) lost 32%, while Parsley Energy (NYSE:PE) tumbled 39% and Diamondback Energy (NASDAQ:FANG) dived 44.7%.

Some companies immediately announced cutbacks in spending, effective right away, to reduce capital expenditure. 

Diamondback Energy cut its activity from nine completion crews to six, dropping two more completion crews than scheduled. The shale producer said it will also cut capital spending, though it didn't specify an amount.

Parsley Energy said it has slashed its 2020 free-cash-flow outlook to at least $85 million, from a prior view of at least $200 million and announced a general activity slowdown as well.

EOG Resources also plans to curb spending to protect return to its shareholder dividend and will release details later.

“Some shale producers will bounce back from this, and some may even end up winning more market share,” said Fred Kempe, chief executive and president of the Atlantic Council, a Washington-based think-tank.

“But they're all going to lose revenue. That's what every one of these oil price wars has shown. You can win some market share, but you're going to lose more on the revenue side over time.”
From Kuala Lumpur To Oklahoma, Oil’s Bloodbath May Spare Few

Related Articles

Andey Goilov
The Crude Oil Market is Optimistic By Andey Goilov - May 23, 2022

By Andrey Goilov, analyst at RoboForex Early in another week of May, the commodity market is steadily rising. Brent is looking good and trading towards $113.30. Positive factors...

Ipek Ozkardeskaya
Gold Rallies, As US Dollar Falls By Ipek Ozkardeskaya - May 23, 2022 1

The week starts with an improved sentiment. The S&P 500 just avoided to close in the bear market last Friday, but the index sank its teeth into the bear zone for the first time...

From Kuala Lumpur To Oklahoma, Oil’s Bloodbath May Spare Few

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email