The Daily Dose

-Oil sector players are stepping into the unknown.

-In the midst of economic collapse, Shell is still spending money.

The level of resiliency necessary to make it through the pain in the oil market is not yet clear. That was the message Friday from oilfield services company Schlumberger, which joined its producing counterparts by announcing a 30% cut to capital spending. In China, refinery runs are plummeting and the economy declined over the first three months of the year by the largest in a quarter century. Fast-moving headlines offer few silver linings, though the doors are slowly opening in economies outside the United States. And companies are still spending money, just not on oil.

Brent crude oil was up about 2% as of 8 a.m. ET after US President Donald Trump left it to state governors to decide on slowly opening the economy back up. That came, however, after another 5 million or so Americans lost their jobs in an epic shutdown. In Michigan, one of the states hardest hit by the coronavirus pandemic, the state Department of Treasury forecast a $3 billion hit to revenue this year.

Markets were upbeat early Friday on news the United States could be turning the corner. Trump in what’s becoming a regular press performance announced a slow-roll opening at governor’s discretion. And in the latest pitch to shave the shale oil patch, US Energy Secretary Dan Brouillette told Reuters he was working with Treasury Secretary Steve Mnuchin on a $250 million loan program for medium-sized energy companies in the country. The sector already has one casualty, Whiting Petroleum, and Texas minnows earlier this week spent hours making a case for government intervention. The May contract for WTI, however, is at around $18 per barrel and doesn’t see $30 until the August contract

Elsewhere, there are signs of reopening in the European economy. German Chancellor Angela Merkel said her economy would come back online in “small steps,” but acknowledged that “progress is fragile.” That offers few clues about what the economy will look like once the situation is under control. In China, the first to buckle under the strain of the coronavirus, the economy shrank by 6.8% in the first three months of the year, its biggest drop since the country started sharing data in the early 1990s. By sector, industrial output declined 8.4%. And even though China is buying up cheap oil for storage, refinery runs are at a 15-month low. There is a light at the end of the tunnel, however, with data showing refinery utilization up from 67.5% in February to 71.65% this week. In Australia, meanwhile, Royal Dutch Shell announced something unheard of in the current market; a $6.4 billion spend. The company stated Friday it would form a joint venture with PetroChina to develop coal-seam natural gas in Queensland state in Australia.

Even with signs that the worst of the pandemic may be approaching an end, the economic fallout is without precedent. Oilfield services company Schlumberger announced its global revenue stream ebbed by some 9% sequentially to $7.5 billion. Year-on-year, the drop was 5%, indicating the oil economy was on shaky ground already. Schlumberger CEO Olivier Le Peuch attributed the damage to the “double black swan” of declining oil prices resulting from the battle over market share and the massive disintegration in demand. Managing the next stage, he added, means stepping into the unknown.

“The enormity of the task ahead will require levels of response and depths of resilience that have yet to be fully realized,” he said.

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