CRUDE OIL INVENTORY/’000 bbls
Current: 387,641
Actual Build/(Withdrawal): (1,233)
Economist Average Estimate: 1,082
Previous: 388,874
Click here for the chart with five year averages.
IN CASE YOU MISSED IT
*VIDEO: U.S. Need for Oil Is `Shrinking,’ Petrie Says – Bloomberg
Thomas Petrie, chairman of Petrie Partners, talks about U.S. energy independence and the outlook oil prices and refineries. Petrie speaks with Tom Keene and Sara Eisen on Bloomberg Television’s Surveillance. – Watch the Interview Here
*VIDEO: Energy XXI’s John Schiller on CNBC’s Mad Money with Jim Cramer – CNBC
John Schiller, chairman and chief executive at Energy XXI, talks about the disconnect between WTI and Brent crude oil prices, EXXI’s joint venture with Apache to explore the Gulf of Mexico shelf, and the company’s strategy for 2013. – Watch the Interview Here
CRUDE OIL IN THE MEDIA
*Ohio’s $500 Billion Oil Dream Fades as Utica Turns Gassy – Businessweek
U.S. drillers that set up rigs amid the rolling farmland of eastern Ohio on projections underground shale held $500 billion of oil are packing up. Four of the biggest stakeholders in untapped deposits known as the Utica Shale have put up all or part of their acreage for sale, as prices fall by a third in some cases. Chesapeake Energy Corp. (CHK) of Oklahoma City, the biggest U.S. shale lease owner, last week offered up 94,200 acres (38,121 hectares). EnerVest Ltd. and Devon Energy Corp. (DVN) are selling as early results show lower production than their predictions. “The results were somewhat disappointing,” said Philip Weiss, an analyst with Argus Research in New York. Early data show “it’s not as good as we thought it was going to be.” The flip-flop underscores the difficulties faced by even experienced drillers around the world in tapping the sedimentary rock. In California, Occidental Petroleum Corp. was stymied by the Monterey Shale’s fault-riddled terrain. In Poland, Exxon Mobil Corp. (XOM) stopped drilling because shale output was minimal. China’s failures with shale gas drove producers Cnooc Ltd. and China Petrochemical Corp. to seek expertise in North America. In Ohio’s Utica formation, which runs eastward as far as New York, drillers frequently found the rock too dense and underground pressures insufficient to produce oil. The rush to buy acreage has reversed. The Utica saw one deal valued at more than $50 million in the fourth quarter of 2012, compared with seven in North Dakota’s more productive Bakken Shale and six in Texas’ Eagle Ford Shale, according to the accounting firm PricewaterhouseCoopers LLP. – Read More
*WTI Crude Trades Near Four-Month Low Before Supply Data – Bloomberg
West Texas Intermediate fell for the fourth time in five days, trading near the lowest level in almost four months before government data forecast to show U.S. crude inventories rose last week. WTI dropped as much as 1.7 percent. An Energy Department report today may show crude supplies rose 1.2 million barrels to the highest level in 22 years, according to a Bloomberg survey. That’s contrary to a report yesterday from the American Petroleum Institute, which showed stockpiles slid 6.7 million barrels last week, the most since the seven days ended Dec. 28. “The oil market is looking quite weak and there’s a comfortable supply-demand situation in the short term,” said Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, who predicts the European benchmark, Brent, may tumble to $80 a barrel in the first half. “The fundamental reason for the bearish situation is the cautious outlook worldwide.” WTI for May delivery declined as much as $1.50 to $87.22 a barrel, and was at $87.27 in electronic trading on the New York Mercantile Exchange at 1:03 p.m. London time. The volume of all futures traded was 47 percent above the 100-day average. The contract closed at $88.71 on April 15, the lowest since Dec. 24. Prices are down 4.8 percent this year. Brent for June settlement slipped $1.15 cents to $98.76 a barrel on the London-based ICE Futures Europe exchange. The contract fell to $99.91 yesterday, the lowest close since July 10. The front-month contract’s premium to WTI shrank to as little as $10.53, the narrowest since April 12. – Read More
*Arab Countries Openly Discuss Peak Oil for the First Time – OilPrice
I was fortunate to be among the few westerners invited to attend and speak at this first-of-its kind “peak oil” (PO) conference in a Middle East. The fact that a major Middle East oil exporter would hold such a conference on what has long been a verboten subject was quite remarkable and a dramatic change from decades of PO denial. The two and a half day meeting was well attended by people from the GCC as well as other regional countries. The going-in assumption was that “peak oil” will occur in the near future. The timing of the impending onset of world oil decline was not an issue at the conference, rather the main focus was what the GCC countries should do soon to ensure a prosperous, long-term future. To many of us who have long suffered the vociferous denial of PO by Gulf Cooperation Council (GCC) and OPEC countries, this conference represented a major change. In the words of Kjell Aleklett (Professor of Physics at Uppsala University, Sweden), who summarized highlights of the conference, the meeting was “an historic event.” While many PO aficionados have been focused on the impacts and the mitigation of “peak oil” in the importing countries, most attendees at this conference were concerned with the impact that finite oil and gas reserves will have on the long-term future of their own exporting countries. They see the depletion of their large-but-limited reserves as affording their countries a period of time in which they either develop their countries into sustainable entities able to continue into the long term future or they lapse back into the poor, nomadic circumstances that existed prior to the discovery of oil/gas. Accordingly, much of the conference focus was on how the GCC countries might use their current and near-term largesse to build sustainable economic and government futures. – Read More
*What’s Behind the Big Selloff in Crude Oil – Businessweek
If you want to know where the global economy is headed, check the oil markets. Sentiments about growth and inflation are baked into the price of oil as much as they are in anything else one can trade. Which is why the recent selloff is troubling for what it says about the state of the global economy. On April 16 the price of Brent crude fell below $100 for the first time since July 2012. In the last two months, Brent is down 17 percent. Its U.S. equivalent, West Texas Intermediate, has lost $10 a barrel since the end of March, to $88. The latest dip comes as the International Monetary Fund lowered its global growth forecast, to 3.3 percent from 3.5 percent. Recent data from China have also sparked concerns that growth there is slowing, and along with it, the demand for crude oil. After spending much of the year buying up oil contracts, speculators are now running for the exits. In the week ended April 9, money managers unloaded the equivalent of about 20 million barrels of oil in U.S. petroleum contracts, according to the Commitments of Traders data released that week by the Commodity Futures Trading Commission. Now that we’re seeing weaker global growth numbers, that selloff has gathered steam. According to data compiled by Bloomberg, hedge funds and other money managers cut their bullish bets on Brent to their lowest level in four months. There’s also a supply issue at work: Analysts surveyed by Bloomberg expect U.S. crude supplies will have hit 390.1 million barrels this week, the highest in 23 years. The government is scheduled to report inventories on April 17. Today we learned that North Dakota produced 715,000 barrels of crude per day in February, a 6 percent increase from January, and about 40 percent more oil than it pumped just one year ago. – Read More
*Sliding Oil’s Silver Lining: Lower Gas Prices – CNBC
U.S. drivers could see a further decline in gas prices at the pump, courtesy of world oil markets. Crude oil on Monday hit its lowest level for the year. The tumble in black gold is leading to lower gas prices that may provide modest pocketbook relief just as the summer driving season arrives. Halting economic growth in both the U.S. and China – the world’s top two energy consumers – has sparked a deep sell-off that has driven Brent crude to a nine month low near $100 a barrel, with U.S. crude hitting its lowest since late December below $89. Analysts are concerned that sluggish global growth will undermine demand for oil. At the beginning of the year, gas prices climbed steadily for 32 consecutive days, which coincided with a peak in the price of crude. Now, both are on the way down. As crude has fallen steadily since late January, prices at the pump have followed suit. “You’re already seeing in lower gas prices,” said Paul Hickey, co-founder of Bespoke Investment Group, who said the average price of gasoline has shed nearly 30 cents since February, to about $3.52 on Monday. “Over the coming weeks you’ll see a decline, erasing about half the increase that we’ve seen since December,” he said. Customarily, it takes anywhere between 1-2 weeks for falling crude prices to filter their way downstream to retail gasoline. If the drop in crude is sustained, it could mean gas prices could see some relief by early May. Yet some market watchers say that crude’s tumble comes at an odd time — when gasoline retailers are switching from winter-grade fuel to summertime gasoline. That conversion may delay a fall in retail prices longer than normal, analysts say. – Read More
*Route Change Forces Keystone Foes to Shift Focus – Bloomberg
Opponents of the Keystone XL pipeline used to have a simple argument: the project would endanger Nebraska’s delicate Sand Hills region, a vast network of dunes and wetlands that have been designated a National Natural Landmark. State leaders, including Republican Governor David Heineman, opposed the project on those grounds. President Barack Obama cited the threat to water in the state before denying TransCanada Corp. (TRP) a permit last year to build the pipeline, which would carry Canadian tar sands oil to refineries on the U.S. Gulf Coast. Then TransCanada offered a new route that largely avoids the Sand Hills and won the support of Heineman. While oil spills remain a concern, environmental groups opposed to the pipeline have shifted their emphasis to the more complex charge that mining Canadian tar sands will result in more greenhouse gases and exacerbate global warming. “The initial opposition was framed heavily in terms of its impact on water and the risks to the aquifer,” Phil Sharp, a former Democratic House member from Indiana and president of Resources for the Future, a Washington-based research group, said in an interview. “They kind of downplayed the greenhouse gas issue. Now I think they’re coming up short in the public argument because there either isn’t the public foundation on this issue or the same intensity of interest.” – Read More
*North Dakota February oil production sets record – Associated Press
The Department of Mineral Resources says North Dakota pumped a record number of barrels of oil daily in February. Preliminary figures show the state produced an average of about 779,000 barrels per day in February. That’s up from about 738,000 barrels daily in January and about 20,000 more barrels daily than the previous record set in December. The agency says the number of production wells increased from 8,342 in January to 8,492 in February. The February tally is the latest figure available because oil production numbers typically lag at least two months. – Read More
*Iraqi Kurdistan poised to pipe oil to world via Turkey – Reuters
Iraqi Kurdistan will be ready to export its crude oil directly to world markets via Turkey within months after a new pipeline is completed, a move likely to deepen a row with Baghdad over the distribution of Iraq’s hydrocarbon revenues. The Kurdistan Regional Government (KRG) is on track to finish the pipeline in the third quarter, linking Genel Energy’s Taq Taq oilfield with an existing Iraq-Turkey crude pipeline, four Turkey-based industry sources told Reuters. Turkey has given the green light to the plan, under which oil from Taq Taq will enter the Kirkuk-Ceyhan pipeline at Fishkhabur pumping station near the Turkish border, from where it will flow directly to Turkey’s southern port of Ceyhan for shipping to international markets, the sources said. The move will help Kurdistan significantly increase its oil exports but could upset the Iraqi central government, which sees independent exports from the north as illegal and says growing trade between the KRG and Turkey threatens to split Iraq. Oil is at the heart of the fight between the Arab-led central government in Baghdad and the ethnic Kurdish-run northern enclave, which dispute control over oilfields, territory and crude revenues shared between the two regions. Washington, wary of the divisions between Baghdad and the autonomous region, has urged passage of a long-delayed national oil law to resolve the standoff, which has intensified since the last U.S. troops left in December 2011. “The new pipeline will be linked to the Kirkuk-Ceyhan line, said one Ankara-based industry source familiar with the matter. “Naturally, once they can export via a pipeline and no longer have to truck their oil to the border, the volumes will rise.” The new pipeline was originally designed as a gas pipeline but KRG Energy Minister Ashti Hawrami said it was to be converted to carry oil, a move which had helped Genel Energy to bring its plans of pipeline exports by 2014 forward, sources said. Genel declined to comment on the issue. – Read More
*EU to allow purchases of Syrian oil from opposition – Reuters
European Union governments are expected to ease a Syrian oil embargo next week to allow for purchases of crude from the opposition, diplomats said on Wednesday. At a meeting on Monday, EU foreign ministers will also agree to lift restrictions on selling equipment for the oil industry to the opposition and investing in the oil sector. The EU imposed a ban on purchases of Syrian oil by European companies in 2011 in response to an uprising against President Bashar al-Assad. – Read More
RESEARCH COMMENTARY
*Wells Fargo Securities (4.17.13)
North Dakota Weather Not Impactful in February – Operators Not Expecting Flooding Into Spring
At the IPAA conference this week, consensus from management of Bakken focused E&Ps was that weather certainly had an impact on operations, but no more than anticipated. OAS made the point that the winter has been ”normal” so far, but was quick to point out that operating in a normal winter in North Dakota is not fun. Also on Tuesday, the NDIC released the monthly Director’s Cut. According to the report, February basin wide production increased from 738,000 to 779,000 Boe/d, an increase of 6% month over month. The increase in production was boosted by the addition of 150 new wells in the basin. The rig count has remained relatively flat over the past few months at around 186 rigs. The production number should put to bed weather concerns for the first quarter. Now attention turns to the break up period in 2Q, but we got the sense that most operators have planned around the weather for 2Q and should be set to go (not moving much equipment). The NDIC estimates that there are still 375 wells waiting on completion in the basin. Wells are becoming more gassy as they age which is flowing through production numbers with gas growing at a faster pace than oil.
*Raymond James Equity Research (4.14.13)
Where Are Brent-WTI Spreads Headed? Lower in 2013, Higher in 2014
Quick, what’s the problem with West Texas Intermediate (WTI) oil prices? At this point, we believe every energy investor should respond with a resounding “It’s the transportation bottleneck at Cushing!” As shown below, the WTI-Brent crude spread (as we all call it) blew out well above any transportation cost metric about two and a half years ago and has never really looked back. That is, until recently. With the recent expansion of the Seaway pipeline, more rail bypassing Cushing, and the imminent start-up of more Permian and Cushing pipelines, we are finally starting to see the bloated WTI-Brent spread begin to shrink. While pipeline start-up timing is always questionable, our most recent math now suggests that the Cushing bottleneck should mostly be alleviated by late summer or early fall of 2013. That means the WTI-Brent spread should continue to shrink though the summer of 2013. Accordingly, we are reducing our 2013 WTI-Brent spread forecast from $20 to $10 for the back half of the year. While consensus spread expectations call for this $10 spread to continue through 2014, we still think the WTI-Brent spread will widen again in 2014 as limits of Gulf Coast refining capacity drive a widening Louisiana Light Sweet (LLS) to Brent spread, as depicted below.
*Capital One Southcoast (last week 4.11.13)
Crude prices little changed to start the day. Volumes again on the light side. The Brent/WTI spread continues to narrow on the strength in WTI as it rallied yesterday with the strength in the equity markets. The IEA followed OPEC and the EIA in lowering their ’13 demand growth forecast in their monthly, by 45 Mbd to 90.58 MMbd, which is significantly above the EIA’s 90 MMbd and OPEC’s 89.66 MMbd, which was out yesterday. They too point to the weakness in European demand, a drop of 340 Mbd, as the catalyst for the cut. The crude builds last week as reported by the DOE yesterday were less than expected, but, again, the utilization rate continues to rise, hitting 86.8%, which is processing more products. Total stocks ex SPR rose 5.9 MMb, with blending components +3.1 MMb, so it appears refineries are ready for summer driving season. Cash differentials for gasoline remain quite soft, -$0.15 to -$0.20 except on the West Coast, and the Colonial Pipeline continues to run with allocations. The Keystone XL fight is heating up on the Hill. The House Energy Committee held a hearing yesterday on legislation to allow the pipeline to be built without Obama’s approval. The Senate has already voted 62 – 37 to approve the pipeline as part of its budget agreement. Nat gas continues to hold its gains with below-average temps and inventories comfortably within the 5-yr avg range, while y/y demand is +5.65, supply +2.25%.
*Raymond James Equity Research (last week 4.10.13)
This week’s petroleum inventories update was bearish overall. The build in “Big Three” inventories of 1.8 MMBbls was a mirror image of consensus expectations for a draw of almost the same magnitude. The surprise build was driven by gasoline, which unexpectedly increased for the first time in nine weeks, while the crude and distillate changes essentially offset one another. Substantial increases in residual fuel oil and unfinished oil inventories added to the “Big Three” build, resulting in a larger increase in total petroleum.
Refinery utilization is currently at the highest level since early November (86.8%), which probably prevented a larger increase in crude stocks. However, Cushing inventories surged back above 50 MMBbls for the first time in five weeks, and are currently 9.5 MMBbls higher than this time last year. The Brent-WTI differential continued to narrow, from more than $16/Bbl on March 15 to $11.42/Bbl currently. Total petroleum demand dipped 4.5% after two weeks of increases. On a four-week moving average basis, demand is up 1.3% y/y.
The rapidly shifting macroeconomic backdrop in relation to Europe, China and the U.S. fiscal situation has created persistent volatility in oil prices over the past year. Periodic bounces, as was the case in the first six weeks of 2013, have mainly been driven by improved economic data, market hopes for increased stimulus as well as intense Mid-East instability. On the flip side, the crisis in Cyprus recently reignited concerns about Europe, putting some pressure on oil as well. Despite more optimistic oil market sentiment, we envision a worsening picture for oil fundamentals in 2013, and even more so in 2014. Demand is flattish in the U.S. and broadly down in Europe, and demand growth in China and other emerging markets is slow, in part due to declining oil intensity. On the supply side, non-OPEC supply is trending up, driven largely (though not exclusively) by robust growth in the U.S. Although Saudi output was reduced at the end of 2012 in the context of weak global demand and rising North American supply, this merely pushes the oversupply scenario into 2014. Of course, the wildcard remains the possibility of geopolitical supply disruptions, including, but not limited to, the Iranian nuclear issue. Otherwise, the supply/demand balance is set to get meaningfully looser over the next 12-18 months, and with that in mind our 2013 oil price forecast remains below consensus: $85/Bbl WTI and $105/Bbl Brent.
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