2020 has proved to be a cataclysmic year for crude oil so far, with the commodity price declining over 70% and now trading in the range of 20-year low levels. Lower oil demand coupled with the oil price war has declined the price to extreme levels.
End of Oil Price War to Fuel Recovery in Upcoming Months
When the OPEC nations are calling out an end to the oil price spat between Saudi Arabia and Russia, a significant oil supply cut of around 9.7 million barrels per day has been announced by OPEC and other oil producing nations, which is expected to help recover oil prices over the upcoming months. As a result, the global crude oil supply is anticipated to be reduced by ~19 million barrels per day. The decision was taken in the purview of lower demand due to travel ban and wide-scale quarantine being practised, globally.
The situation is similar almost across the globe but may be beneficial for countries that import majority of their oil supply from overseas. Australia is one such country, with production accounting for ~22% of the refinery feedstock domestically. Crude oil is traded globally on derived prices based on the benchmark oil prices such as Brent Sweet Crude Oil.
Domestic Oil Producers May Win the Streak
With the decline in crude oil prices, imported oil may not compete with domestic crude oil producers due to large shipping expenses associated with them. So, this situation can be good for an oil producer based in Australia.
Perth-based Triangle Energy (Global) Limited (ASX:TEG) is an experienced and domestic oil producer, which had announced operating cost reduction measures and growth strategy amidst the current extraordinarily low oil price situation.
Triangle Energy Achieves Stable Production of 970 bpd, Taking Cost-Cutting Measures: Must Read
Recently, the Company also responded to a media article published on 15 April 2020, discussing its stance on the current low oil price environment on its flagship project.
The established oil producer from the Perth Basin stated that Triangle Energy is well positioned to tackle the lower crude oil situation through its latest investments, strong production and cost reduction measures, which the Company already unveiled to the market on 3 April 2020.
Cost Remediation Measures, 3 April 2020
Cost reduction measures announced previously by TEG are as follows-
- Reduction of lifting costs to around US$15.40 per barrel for the remaining part of FY20
- Temporary 30% salary deferment in respect of executive salaries, effective from May 2020
- Cost reduction through improved contracts with suppliers, to lead to immediate savings
- Deferment of non-essential planned and proposed capital expenditure ($2.5 million) for the year
The recent investment by the Company allows TEG to operate with a strong production while bringing down the operating cost significantly.
Triangle Energy: One of the Highest Quality Crude Oil Producers in Australia
Triangle Energy operates the flagship Cliff Head operations, producing light and sweet crude oil, the most desired crude variant. The crude oil from the Arrowsmith plant is sent to BP’s Kwinana refinery and has earnt significant premiums for the Company over the sweet crude oil benchmark due to the crude oil quality, allowing it to be blended further and refined.
The IMO 2020 regulation led to a higher demand for sweet crude oil, benefitting TEG during the tenure.
Following the lifting up of quarantine and travel restrictions in the upcoming months, higher supply of oil is expected to feed the higher demand. The shipping fuel demand is also anticipated to further boost the demand for sweet crude oil.
TEG through the Highs and Lows of Crude Oil Market
It is to be noted that the flagship Cliff Alpha platform and Arrowsmith Stabilisation plant are the only operating onshore and offshore crude oil facilities across the Perth Basin.
Also, the Company is an established and experienced oil producer with strong cash flow and asset bank to support its fundamentals. The strong management and leadership team believes that the Company is well positioned even during the extreme low crude oil prices, boasting economically viable operations.
On 16 April 2020, TEG last traded at $0.030, delivering a one-month return of 22.22%.