Oil – The Global Commodity
Every Wednesday, EnerCom’s Oil & Gas 360® will deliver media stories, company updates, and research commentary covering the crude oil spectrum. The theme for this week: Oil – The Global Commodity.
CRUDE OIL INVENTORY/000 BBLs (Week Ended 9/07/12)
Current: 359,092
Actual Injection/(Withdrawal): 1,994
Economist Average Estimate: (2,268)
Previous: 357,098
Click here for the chart with five year averages.
CRUDE OIL IN THE MEDIA
*Royal Dutch Shell acquires liquids-rich shale acreage in Texas – Shell
Royal Dutch Shell plc (“Shell”) today said it acquired acreage in Texas from Chesapeake Energy in a further step to build a leading portfolio of shale assets rich in oil and natural gas liquids. The $1.935 billion transaction is expected to close within 30 days. This announcement supports Shell’s strategy of further building an industry-leading liquids-rich shale resource. The acquisition provides both existing production and near-term growth potential from a proven resource, as well as promising opportunities for expansion. The acquisition covers 618,000 net acres in the Permian Basin in West Texas that currently produces some 26,000 barrels of oil equivalent per day and has significant growth potential. – Read More
*Oil gains on euro zone bailout, Libya killing – Reuters
Brent crude oil rose on Wednesday, lifted by a German court decision backing a euro zone bailout fund, hopes the Federal Reserve will ease monetary policy and on growing geopolitical risk after militants killed the U.S. ambassador to Libya. Brent crude for October delivery, which expires on Thursday, rose for a fifth straight session, gaining 55 cents to reach $115.95 a barrel by 8:10 a.m. EDT (1210 GMT). It earlier hit $116.67, its highest point since Aug 16. U.S. crude for October delivery rose 53 cents to $97.70 a barrel. Germany’s Constitutional Court said on Wednesday the country could ratify the euro zone’s new rescue fund and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliament’s approval. – Read More
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*Oil Trades Near Three-Week High on Outlook for Economic Stimulus – Bloomberg
Oil traded near the highest close in almost three weeks in New York amid speculation the U.S. will add to measures to revive its economy, countering concern that Europe’s bailout plan will falter. U.S. crude inventories probably dropped to the lowest level since March as more than a third of Gulf of Mexico output remained shut 10 days because of Hurricane Isaac, a Bloomberg survey showed. The Federal Reserve starts a two-day meeting tomorrow where it may announce stimulus measures. Goldman Sachs Group Inc. said West Texas Intermediate oil may rise to narrow the gap between the benchmark grade and other regional crudes. – Read More
*Release of Oil Stocks to Lower Prices Is Crude Idea – Wall Street Journal
Oil has returned to the political agenda as Western governments grapple with soaring energy prices, but observers say a release of emergency oil stockpiles would have only a limited effect. Prices of both U.S. benchmark West Texas Intermediate and Brent crude have soared around 15% since the start of July, turbo-charged by expectations of more monetary easing from the Federal Reserve this Thursday and geopolitical tension in the Middle East. And in the U.S. over the past month, gasoline prices have risen uncomfortably near $4 a gallon—a level last reached in 2008 just before the recession hit and prices crashed. The level is generally viewed as a pinch point for consumers and has been accompanied by widely publicized comments from White House officials that the U.S. is again considering tapping its oil stocks. – Read More
*U.S. sees tighter oil market; OPEC disagrees – CNBC
The U.S. government and OPEC offered differing outlooks for global oil markets on Tuesday, with Washington ratcheting up price forecasts for oil on stronger demand while OPEC highlighted rising output from the exporter group. In separate monthly reports, both emphasized the possibility that a worsening European crisis could still drag down oil prices, warnings that may complicate deliberations over whether to tap into strategic oil reserves again. The Organization of the Petroleum Exporting Countries, which pumps around a third of the world’s oil, said it was supplying the market with enough crude. A day earlier, top producer Saudi Arabia made similar remarks. Those comments were seen as cautioning consumer nations against a release of emergency reserves. – Read More
*OPEC Oil Output Climbs In August: Platts Survey – Fox Business
Oil production from the Organization of the Petroleum Exporting Countries climbed by 90,000 barrels per day in August from a month earlier to 31.54 million barrels per day, according to a Platts survey of OPEC and oil industry officials and analysts released Tuesday. “Just when there was considerable talk of tighter markets and OPEC’s limited ability to sustain those prior levels of output after a decline in output in July, the group turns around and produces more, even as Iranian output dropped even further,” said John Kingston, Platts global director of news. Iranian output fell by 150,000 barrels per day to 2.75 million. “European sanctions targeting Tehran’s oil revenues continued to bite,” the survey said. Ahead of the close, October crude oil added 66 cents to $97.20 a barrel. – Read more
*Boone Pickens: US Doesn’t Need OPEC Oil – CNBC
The U.S. has the natural resources to one day stop importing OPEC crude oil, Boone Pickens, founder of BP Capital, told CNBC’s “Street Signs” on Monday. “There are 30 U.S. states producing oil and gas, the highest we’ve ever had,” Pickens said. Interestingly, many of these are the very swing states that could help decide the upcoming presidential election, he noted. Pickens’ BP Capital is a major investor both energy futures and the publicly traded stock of oil and gas companies. While many U.S. politicians on both sides of the aisle have talked about energy independence, “you’ve never had leadership from either party,” Pickens said. He expects Republican presidential nominee Mitt Romney to step up with a plan to develop U.S. energy resources – particularly natural gas. – Read More
*Canadian firm proposes new Neb. oil pipeline route – Sacramento Bee
The company that wants to build a pipeline to transport crude oil from Canada to Gulf Coast refineries has proposed a new route through Nebraska to avoid environmentally sensitive areas. TransCanada said Wednesday that its new proposal minimizes the potential impact on the sensitive Sandhills region and now goes around two small city well fields. Opponents of the project say they’re still concerned. Bold Nebraska’s Jane Kleeb says state and federal officials should block the Keystone XL pipeline if the new route would still crosses the Sandhills and the Ogallala aquifer. – Read More
*Expect Crude prices to remain firm: Nirmal Bang – Money Control
Nirmal Bang has come out with its report on crude oil. According to the research firm, crude oil prices are trading higher on NYMEX today. Prices are expected to remain firm on account of overall optimism of liquidity in the financial markets. Crude oil futures inched up in choppy trade yesterday, ahead of a European Central Bank meeting and a U.S. August payrolls report and as investors await central bank action in the face of slowing economic growth. U.S. crude stocks fell sharply last week as Hurricane Isaac’s passage through the Gulf of Mexico shut in production and closed ports, data from the industry’s American Petroleum Institute showed on Wednesday. International commodity trading firm Glencore International Plc has agreed to supply gasoline, diesel and other oil products to Western Refining’s WNR.N subsidiary York River Fuels LLC, expanding its footprint into the U.S. products market. – Read More
*Shell to construct world’s first oil sands carbon capture and storage (CCS) project – Shell
Shell today announced that it will go ahead with the first carbon capture and storage (CCS) project for an oil sands operation in Canada. The Quest project will be built on behalf of the Athabasca Oil Sands Project joint venture owners (Shell, Chevron and Marathon Oil*) and with support from the Governments of Canada and Alberta. CCS is critical to meeting the huge projected increase in global energy demand while reducing carbon dioxide (CO2) emissions, explained Peter Voser, Chief Executive Officer of Royal Dutch Shell plc. “If you want to achieve climate change goals, CCS has to be part of the solution. We are helping to advance CCS technology on a number of fronts around the world, but Quest will be our flagship project.” – Read More
RESEARCH COMMENTARY
*Howard Weil (9.12.12)
Oil Commentary: Monthly IEA Report
Quick Take: Mildly bullish report as FY13 “Call on OPEC” increased by 100MBbl/d. That said, current OPEC production is 400MBbl/d above this level. Next year’s demand forecast was increased by 100MBbl/d but was a function of prior year revisions so Y/Y growth remains at 800MBbl/d. Non-OPEC supply in ’13 remains flat with the previous forecast while OPEC production increased 50MBbl/d in August versus July. Key OPEC volume movements were Saudi -100MBbl/d, Iran -50MBbl/d offset by Angola, Nigeria and Iraq. From a broader perspective, we see the market as well supplied based on pure supply/demand fundamentals. Clearly, speculation of a strike on Iran has embedded a risk premium into the current crude price with Brent in the $116/Bbl range.
*Tudor Pickering Holt & Co. (9.12.12)
IEA Oil Market Report takeaways (Brent $116, WTI $98) – Slightly positive. OECD total inventory builds in July were half 5 yr. avg and prelim August data suggest counter-seasonal draw due to higher refinery runs and Hurricane Isaac disruptions to US production/imports. Call on OPEC was tweaked +0.1 mmbpd in 2012 and 2013 driven by demand revisions (non-OPEC supply estimates unchanged). Aug’12 OPEC production up slightly. Saudi drifting lower from June highs (9.6mmbpd vs. 9.8mmbpd), Iran down to ~2.9mmbpd vs. 3.1mmbpd in the 2Q, and Iraq over 3mmbpd for 2nd straight month.
IEA OMR inventory takeaways (Brent $116, WTI $98) – OECD inventory trends YTD point to ~balanced market (not oversupplied). Inventories not a “tell-all” indicator but end Dec’11 OECD inventories ~10mmbbls above normal (+0.4%) and end Jul’12 were ~30mmbbls above normal (+1%)…even with Saudi production near 10mmbpd, Iraq growing to 3mmbpd, Libya and Egypt supply back on-line, US production growing and real global demand concerns. Not sure where oil goes in the next few months/quarters (China, global demand etc.) but 2012 inventory trends supportive of $100+/bbl long term price.
*Bank of America Merrill Lynch (9.6.12)
Feeling the impact of Isaac
Crude stocks saw a larger than expected draw of 7.4mmbbls, driven by the impact of Hurricane Isaac last week that drove a 5% decline in refinery utilization and 15% drop in crude imports. Gasoline saw a smaller than expected draw of 2.3mm while distillate added 1.0mm. While some refineries have already returned to normal, it will likely be a few weeks before utilization returns to pre-Isaac levels which may help keep inventories taught. At the same time, PDVSA expects the Amuay refinery to resume ‘normal’ operations within a week; but after a swathe of supportive news flow incremental momentum behind sector earnings likely slows from here. While 3Q earnings expectations need to move higher given margin strength to date, we remain wary of chasing the sector into seasonal weakness.
Watch Bakken/Canadian spreads: VLO remains preferred
WTI-Brent remains well above our expectations at $18/bbl and will remain a key driver behind positive 3Q earnings momentum. However, other grades of crude remain volatile; critically we note Bakken crude has now moved to a $6 premium vs. WTI with the next slug of incremental transportation capacity onstream namely start up of TSO’s unit train. Alongside N Sea production that looks set to move higher again in Oct we maintain our view that inland advantaged crude differentials are skewed lower, presenting key risks to HFC and TSO. Conversely as incremental transportation capacity shifts inland crude to the US Gulf Coast, we believe Valero stands out as the primary beneficiary of the ‘next’ move in relative crude advantage. VLO and recently initiated NTI are our only Buy ratings.
*Global Hunter Securities (9.6.12)
Summary: The EIA’s Weekly Petroleum Status Report (WPSR) for the week ended August 31, 2012 revealed the extent of Hurricane Isaac’s substantial Gulf Coast and Gulf of Mexico disruptions – some of which continue one week later. Total inputs, or the combination of imports and domestic production, declined a whopping 14.2% on a week-over-week basis to 13.48 MMbpd. With implied midstream demand at about 18.942 MMbpd, this left the deficit for crude oil about 60% higher than last week. Commercial crude oil stocks declined 2% against last week, while the Cushing bottleneck showed a slight increase of 0.2%. Lower 48 crude oil production contracted by 13.3% and imports declined by 15.4% against last week. According to DOE updates on Hurricane Isaac disruptions, 43% of Gulf of Mexico crude oil production was still shut-in as of Sept. 6, reflecting lag times to complete inspections. Next week’s crude oil inventory data should continue to reflect some of these effects, while imports should begin to show improvement.
