Category Archives: Oil Pricing

How Will 2018 Oil Supply Growth Impact Pricing

Issue 133 – Shale oil boom

Introduction…OPEC said last Monday it sees a surge in oil supply driven by rising U.S. output. However, it also sees demand in 2018 to grow faster than expected.

Production growth…The cartel sees non-OPEC production growing by 1.4 million barrels per day, up 250,000 BPD from its earlier estimate.  The United States accounts for more than half of the revision increase.  The U.S. supply growth now expected to be 150,000 barrels per day.

Demand Growth…OPEC now expects the world’s oil demand to grow by 1.59 million barrels per day, up 60,000 BPD from last month.  The total global oil consumption would be 98.6 million BPD.

OPEC sees the drivers of this demand growth as the steady rising economic activity around the world.  This creates a strong demand for transportation fuels like gasoline and jet fuel.  Also, contributing is the growing petrochemical industry which turns byproducts from oil and natural gas into chemicals.

Conclusion… The global economic growth is creating more demand for oil and gas consumption.   If this demand growth will keep up with the supply growth is yet to be seen.  However, OPEC is painting a scenario where oil profits and pricing will remain high in 2018.

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Source: Tom Christopher, “OPEC hikes its 2018 forecast for oil supply growth on a flood of US crude,” USA Today, 12 Feb 2018

Gasoline Exports Continue To Rise In 2018

  Issue 131 – Gasoline Exports On The Rise

Introduction…The increasing gasoline exports have been supporting, in part, the recent oil price increase.  And that increase is expected to continue throughout the remainder of 2018.

Gasoline exports…”[Gasoline exports have] been, really, I think, one of the most important fundamentals of the refining industry over the last five, six years,” Marathon Petroleum Corporation CEO, Gary Heminger told “Mad Money” host Jim Cramer in an interview. “We exported 314,000 barrels per day in the fourth quarter. Exported. That’s about 17 percent of what we make. So that is very important, to be able to hit the foreign markets.”

“We’re expecting 2018, globally, to be up about 1.5 million barrels per day,” the CEO said. “That’s going to require more and more exports from the U.S. And the U.S. Gulf Coast refineries, they’re the best engines in the world.”

In summary…Since much of the U.S. refineries are in the Gulf Coast, these increased gasoline exports are expected to drive additional infrastructure development which may benefit from President Trump’s push for deregulation.

Source: Jim Cramer, “With gasoline exports on the rise, refinery CEO sees global demand going higher in 2018,” CNBC, 1 Feb 2018

IEA Warns Oil Demand Peaks After 2040

 Issue 121 – Oil Demand Still Peaking

Introduction…Reuters- The Paris Climate Change Agreement is not expected to reduce long-term oil demand according to The International Energy Agency (IEA,)

Oil demand peak…The IEA expects oil demand to peak sometime after 2040. The Paris accord attempts to wean the world off fossil fuels in the second half of the century.  The demand for automobile fuel may drop, but other uses may rise in offset.

“The difficulty of finding alternatives to oil in road freight, aviation and petrochemicals means that, up to 2040, the growth in these three sectors alone is greater than the growth in global oil demand,” the IEA said in its annual World Energy Outlook.

Oil price to rise…“In the New Policies Scenario, balancing supply and demand requires an oil price approaching $80 a barrel in 2020 and further gradual increases thereafter,” the IEA said, leaving its price forecast under this scenario unchanged from last year’s World Energy Outlook.

In conclusion…The IEA is expecting the oil age still has many years to grow.

What Impact Will Hurricane Harvey Have On Gasoline And Crude Pricing?

 Issue 108 – Harvey Rainfall In Texas Beyond Anything Experienced

Introduction…Hopes for an immediate relief from Hurricane Harvey’s wrath in Houston and along Gulf Coast seem unlikely. The National Weather Service calls the flooding “unprecedented” and warns things may become more dire if a record-breaking 50 inches of rain falls on parts of Texas in coming days.  How will Harvey disrupt gasoline and crude supplies and pricing?

Impact on Texas refining capacity…So far 10 refiners close as Harvey brings havoc to the hub of Texas energy.  Here is the short list of the top refineries closed:

By late afternoon Sunday, refineries run by Exxon, Citgo, Petobras, Flint Hills, Magellan, Buckeye, Shell, Phillips 66, and two plants run by Valero Energy were closed according to S&P Global Platts and the companies.  Total refining shut down estimated to be 2.2 million barrels per day or one-third of the nation’s capacity to refine oil into gasoline, diesel and other products.

Also 22% of the oil and 26% of the natural gas produced in the gulf was closed.

Bull and Bear response to Harvey...”It’s a gasoline story more than a crude oil story at the moment,” Ed Morse, Citi’s global head of commodities research, told CNBC’s “Squawk on the Street” on Friday.

Gulf Coast gasoline for spot delivery was at $1.73 per gallon, up 23 cents from Tuesday, according to Oil Price Information Service. Nymex gasoline was up about 5 cents over the same period.

“If we get rapid accumulation in 24 hours the refineries simply can’t pump the water fast enough out of the location,” he told CNBC’s “Squawk Box.” That could lead to damage to electric pumps in refineries, potentially requiring repairs that could take weeks or months, he added.

As the consensus estimate begins forming around a weeks-long outage, the picture for crude demand just becomes worse and worse, said John Kilduff, founding partner at energy hedge fund Again Capital due to deduction in demand by the refineries.

In summary…The full impact of Harvey on gasoline and crude inventories and pricing will be determined in the next three or four days until the storm damage to the refineries is fully determined.

More than 6.5 million people live in the region impacted by Harvey and several deaths have been reported.  The flooding impact is “unprecedented.”  Our thoughts and prayers go out to those suffering.

Oil Markets Rebalance On Strong Demand

 Issue 106 – Oil Demand Strong

Introduction…World oil demand will grow more than expected this year, helping to ease a global glut despite rising production from North America and weak OPEC compliance with output cuts, the International Energy Agency said on Friday.

The 2017 demand growth forecast to 1.5 million barrels per day (bpd) from previous month report of 1.4 million bpd.  The report said it expected demand to expand further next year.

OPEC is cutting output by 1.2 million bpd. while Russia and other non-OPEC producers are cutting production by 600,000 bpd until Mach 2018.

Compliance by OPEC cuts in July fell by 75%, the lowest level since cuts began in January according to the IEA.

The net result is the overall oil supply in July rose by 520,000 bpd which is 500,000 bpd abovet last year’s levels.

The strain on oil producers to support oil prices as the non-OPEC output is expected to expand by 0.7 million bpd in 2017 and by 1.4 million bpd in 2018.  There are strong gains in U.S. production as we are not participating in the output caps.

In conclusion…Strong oil demand growth is helping to clear the excess oil inventories in industrialized nations in both June and July.

Source: Dmitry Zhdannikov, “IEA Says strong oil demand growth helping market rebalance,” Reuters, 11 Aug 2017.

Oil Shortage, Price Spike Predicted

Oil Price Spike Predicted

Introduction — Rising Canadian and U.S. production will not be enough to make up for tepid global investment, leading to a supply shortage in oil markets in a few years, a International Energy Admisitration report published last Monday said.

In its annual five-year forecast released in Houston Monday, energy watchdog Paris-based International Energy Agency said “it is far from clear that enough projects will enter the pipeline in the next few years to avoid a potentially tight market by 2020 and with it, the possibility of a price spike.”

The report comes as major oil and gas producers continue to slash their exploration budgets amid lower oil prices. Years of sharply growing oil supply have put the market into a state of oversupply in recent years, depressing prices. That led to widespread retrenchment on the part of debt-laden major oil producers. Late in 2016, OPEC and its non-OPEC allies agreed to curb supplies in an attempt to put oil markets closer into balance.

In Summary…$25 trillion investment in new oil-producing capacity over the next 25 years needed to meet the growing demand as reported here in this newsletter.

Source: “IEA predicts oil supply shortage and price spike within three years,” Financial Post, Jesse Snyder, 6 Mar 2017; “$25 Trillion Investment Needed, Oil And Gas Insider, Bill Moist, 22 Jan 2017

Oil Sold Out Of Asia Tanker Storage As Market Tightens

Oil Tankers Stationed Eastern Coast Of Singapore 

Introduction…Traders are selling oil held in tankers anchored off Malaysia, Singapore and Indonesia in a sign that the production cut led by OPEC is starting to have the desired effect of drawing down bloated inventories.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers outside the group, including Russia, announced late last year that they would cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017, looking to drain a glut that pulled down prices from over $100 per barrel in 2014 to around $56.50 currently LCOc1.

“OPEC’s strategy is targeting inventories – given the scale of the overhang, the market won’t rebalance in six months – we expect an extension into (the second half of 2017),” said Energy Aspects analyst Virendra Chauhan.

As OPEC’s cuts start to leave some demand unmet, a hefty 6.8 million barrels of crude has been taken out of tanker storage from Linggi, off Malaysia’s west coast, in February, shipping data in Thomson Reuters Eikon shows.

An additional 4.1 million barrels and another 1.2 million barrels have been taken out of storage on tankers in Singaporean and Indonesian waters, the data shows

In the short-term, the flood of crude from floating storage will add to supplies coming into Asia from as far away as the Americas and Europe.

In the longer-term, however, clearing oil out of inventories like tankers is part of OPEC’s goal to rebalance markets.

In conclusion…”Inventories will continue to decline driven by the combination of production cuts and the strong demand growth,” U.S. bank Goldman Sachs said this week in a note to clients, adding that it expected Brent prices to rise slightly in the second quarter, to $59 per barrel.

Source: Mark Tay | Singapore, “Oil sold out of tanker storage in Asia as merkt slowly tightens,” Retuers Commodities, 23 Feb 2017

Recovery For Texas Energy

740_energy_oil_and_gas_image_7914 West Texas Oil Boom

In the midst of the shale boom in 2013, Texas added more than 19,000 new jobs in the oil and gas production sector, leading the U.S. job increase in the industry by a wide margin. But back then, global oil prices were stable all year around at US$100 and slightly more.

Crude prices have crashed since 2014—now barely clinging on to above US$50—effectively stagnating drilling activity and oil jobs growth.

Texas, for its part, has shed over 91,000 jobs in oil and gas industry since the end of 2014, with the Houston area economy on the cusp of a recession, according to an article in The Wall Street Journal.

The Dallas Fed has said that signs of recovery have emerged in the U.S. oil market, most notably in the Permian. The Dallas Fed also noted that Texas’s oil and gas employment increased in August—a first since 2014—suggesting that the worst of the energy crisis may be over.

“Increased activity in the Permian Basin and elsewhere has affected employment in the Texas mining sector, which rose slightly in August—its first increase since late 2014,” the Fed statement said.

The Dallas Fed issued probably the most bullish comment on the Texas oil economy so far this year, when Fed economist Pia Orrenius said that encouraging employment growth in Texas suggests that “the worst of the energy crisis may be over”.

In summary...So the latest numbers show that Texas has been overcoming this energy downturn – as it has done with many other lows – to continue to be the mainstay for America’s superpower status.

Reference:  Tsvetama Paraskova, October 14, 2016, Texas Is Making An Energy Recover, OilPrice, OilPrice.com

New Shale Boom On Horizon?

w-texas-oil-boom Oil Shale Boom?

OPEC surprised the markets when for the first time in eight years’ oil production limits will be put in place at its November meeting. The September 29th announcement from OPEC sent markets up by almost $3 per barrel.   The rally continued with the WTI week closing at $48.24.

Hundreds of oil and gas bankruptcies are an ugly background for recent predictions for continued records inventory levels.

The projected changes would be caused by an unprecedented agreement between arch-rivals Saudi Arabia and Iran.

In its announcement, OPEC stated:

“In the last two years, the global oil market has witnessed many challenges, originating mainly from the supply side. As a result, prices have more than halved, while volatility has increased. Oil-exporting countries’ and oil companies’ revenues have dramatically declined, putting strains on their fiscal position and hindering their economic growth. The oil industry faced deep cuts in investment and massive layoffs, leading to a potential risk that oil supply may not meet demand in the future, with a detrimental effect on security of supply.”

“The Conference opted for an OPEC-14 production target ranging between 32.5 and 33.0 mb/d, in order to accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward.”

“What we are looking at here at the very least is a freeze,” Paul Sankey host of the conference call said. “We were looking for more OPEC production growth but now we no longer think so.”

Why did OPEC do it?

“With weaker demand predicted through 2017 they could see a rough market coming,” the analyst theorized. “Being a cartel the economics were overpowering: a 10 percent cut could give as much as a 30 percent rise in oil prices.

In conclusion...If a 30% oil price rise is realized, then oil shale could boom again.

Reference:  September 30, 2016, Will The OPEC Deal Lead To A New Shale Boom? Oil & Gas 360, www.oilandgas360.com

Gigantic U.S. Crude Oil Inventory Plunge

cushingoilinventory

Cushing, OK Inventory 

Oil inventories plunge…more than 14.5 million barrels for week ended September 2nd.  This was the greatest weekly plunge in 17 years attributed to Tropical Storm Hermine.  The U.S. Energy Information Administration said expectations were for an increase of 225,000 barrels.

The price of oil jumped $1 to $47.25 a barrel from the news.  “I think you need to see more than one week of this to get worries about oversupply out of the market,” said Gene McGillian, senior analyst at Tradition Energy of Stamford, Connecticut.

Tropical Storm Hermine interrupted shipping routes and production last week, even though the storm eventually turned to the northeast and did not harm key facilities in the Gulf.

In conclusion…this report is a minor tremor in oil supply and pricing contrasted to the impact of oil inventory shortfall due to  the $1 trillion slash in new oil field investments from 2015 to 2026.  This was reported last week in the Oil And Gas Insider article Oil Price Spike Inescapable. Click here to read last weeks report.  

Reference: UPDATE 1: Biggest weekly U.S. Crude Inventory Drop, By David Gaffen, Reuters, September 8, 2016; Oil Price Spike Inescapable, By Bill Moist, Oil And Gas Insider, September 5, 2016