CRUDE OIL INVENTORY/’000 bbls (Week Ended 3/8/13)

Current: 383,975
Actual Build/(Withdrawal): 2,624
Economist Average Estimate: 2,236
Previous: 381,351

Click here for the chart with five year averages.


*EnerCom’s Monthly Energy Industry Data and Trends Reports

U.S. oil consumption in December 2012 was 18.1 MMBOPD, down ‐2.5% compared to the prior month and ‐3.6% lower than the same month last year. The average near‐term futures price for WTI in February 2013 increased to $95.32 per barrel or 0.5% higher than the prior month, but ‐6.8% lower than the same month last year. The five‐year strip at February 28, 2013 was $87.72 per barrel. The average price of gasoline (all grades, all formulations) in February 2013 was $3.74 per gallon, 10.1% higher than the previous month and 1.7% higher than the same month last year. Brent crude continued to trade at a premium to WTI, as it has since Q3’10. In February 2013, the average near term futures price for Brent was $116.07 per barrel, 3.3% higher than the prior month and 21.8% higher than the WTI near‐month futures price. Brent in February 2013 was ‐2.5% lower than the same month last year. The median analyst estimate at the beginning of March for 2013 NYMEX oil was $90.50 per barrel with a high of $108.00 per barrel and a low of $85.00 per barrel. – See Chart

*Highlights of the latest Oil Market Report (OMR) – IEA

Oil futures prices reversed their upward course in mid-February. By early-March, prices for benchmark Brent crude had fallen to nine-week lows and were last trading around $110/bbl, while WTI was pegged at $93/bbl. Sluggish economic signals spanning several key economies underpin our projection of 0.9% or 820 kb/d annual growth in global oil demand for 2013, to 90.6 mb/d. This contrasts with a 1.4 mb/d growth average for non-recessionary years. Global oil supply inched up in February by 90 kb/d, to 90.8 mb/d, led by a 150 kb/d hike in OPEC crude, to 30.49 mb/d. Increased Iraqi supply was the main factor behind the OPEC gain. Heavy spring refinery maintenance cut the ‘call on OPEC crude and stock change’ for 2013 by 100 kb/d from last month’s estimate, to 29.7 mb/d. Non-OPEC output slipped by 60 kb/d in February to 54.1 mb/d but remained 0.6 mb/d higher than last year, as North American output growth offset lower European and Latin American supply. Non-OPEC supply is forecast to grow by 1.1 mb/d in 2013, to 54.5 mb/d. OECD commercial oil holdings rebounded by 22.5 mb to 2 689 mb at end-January. Total product stocks covered 30.7 days of forward demand, 0.1 day higher than last month. Preliminary data show OECD stocks fell by 12.9 mb in February, as a 20.2 mb draw in refined products outweighed a build in crude. – Read More

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*Oil Drillers Boost Efforts to Coax More From Shale – WSJ

The oil industry is increasing spending on research that it hopes will make it cheaper and easier to coax more crude and natural gas from shale formations and deep-sea oil fields, extending and accelerating the U.S. energy boom. The largest oil-field-service firms—Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc.—have raised their research and development budgets by 24% from 2010 to a combined $2.1 billion in 2012. In recent years these companies, which provide a range of services for energy exploration, have become the primary R&D engines of the oil industry, surpassing spending by oil-and-gas companies such as Chevron Corp. and Royal Dutch Shell. The hunt for new sources of fossil fuels has led energy companies into deeper offshore regions and into dense shale formations, both of which are expensive to develop. Much of the oil-field companies’ research is focused on understanding shale rocks better and developing improved tools to get more oil and gas from these formations. A decade after large-scale exploitation of shales began, the industry is drilling thousands of wells every year in Pennsylvania, Texas, Louisiana, Ohio, Oklahoma and North Dakota, and is testing other shale rocks in California and Mississippi. – Read More

*Production on Federal and Non-Federal Leases – Behind the Political Rhetoric – Oil & Gas 360®

It was only a few short months ago when our presidential candidates were bantering on the political stage about oil and natural gas production growth in the U.S. After all, from 2009 to 2012, U.S. crude oil production increased 29% to 6.2 MMBOPD and natural gas production increased 11% to 65.5 Bcf/d. But – was the growth because of, or despite of, the current administration? On February 28, 2013, a reported titled “U.S. Crude Oil and Natural Gas Production in Federal and Non-Federal Areas” written by Marc Humphries, Specialist in Energy Policy, was published by the Congressional Research Service. We provide a few bullet points sourced from the report for thoughts on the matter. All date ranges sourced are from 2009 to 2012 unless otherwise noted. – Read More

*Energy Journal: OPEC Acknowledges U.S. Oil Threat – WSJ

The Organization of the Petroleum Exporting Countries, the key influencing factor in the oil market since the 1970s, could be set to have its lowest share of the global oil market in more than a decade.The Wall Street Journal’s Sarah Kent explains that, having initially played down the threat from U.S. production growth, OPEC now expects increases in supply from countries not in the cartel to grow by more than 1 million barrels a day. This could be the start of a quantum shift in oil-market dynamics. A study from the International Energy Agency last year predicted that by 2020, U.S. oil production will outstrip that of OPEC’s de facto leader, Saudi Arabia. As Platts notes, the biggest growth in production outside OPEC will come from the U.S., which is due this year to pump more oil than in any year since 1985. Other growth regions are Latin America and the former Soviet Union, with incremental gains elsewhere all adding up. In Brazil, for example, a giant oil and gas region may have the potential to triple the country’s recoverable reserves, Reuters reports. Platts says it could be very expensive to retrieve, however. On the incremental side, Sudan and South Sudan have (again) reached an agreement allowing the restart of some 350,000 barrels a day of oil that has been shut in pretty much since the country divided in 2011. – Read More

*Midland WTI at First Premium to Cushing Since 2010 – Bloomberg

West Texas Intermediate crude on the spot market in Midland, Texas, rose to its first premium since 2010 to oil in Cushing, Oklahoma, as a pipeline connecting the Permian Basin to the Gulf Coast prepares to start. Magellan Midstream Partners LP (MMP) expects in mid-March to begin filling its reversed Longhorn pipeline system, which will carry crude to the Houston area from Crane, Texas, said Bruce Heine, a Tulsa, Oklahoma-based spokesman for the company. The pipeline will begin deliveries of about 75,000 barrels a day in mid-April and expand to 225,000 in the third quarter. “When the Longhorn starts up, that’s the important one for the Permian, and I expect line fill is currently going on now,” said Amrita Sen, chief oil market analyst for Energy Aspects Ltd. in London. “Essentially, the Permian is starting to clear up as these phase-one pipelines come online.” WTI in Midland strengthened by 45 cents to a premium of 10 cents a barrel to crude in Cushing at 12:14 p.m. New York time, according to data compiled by Bloomberg. It’s the first premium since May 21, 2010. West Texas Sour in Midland strengthened by 60 cents to 25 cents a barrel below WTI in Cushing, the smallest discount since April 21, 2009. – Read More

*EIA Expects U.S. Oil Output To Top Net Imports, Trims Demand Estimates – WSJ

Rising U.S. crude-oil output will top net imports for the first time in more than 17 years this autumn, according to government projections released Tuesday. Surging output from shale-oil fields is likely to lift U.S. crude output to 7.5 million barrels a day in October, according to the Energy Information Administration, the highest level since January 1989. The rising output would reduce the volume of foreign crude that U.S. refiners need to produce gasoline, heating oil, diesel fuel and other products. In October, domestic crude output is expected to top net crude imports of 7.2 million barrels a day by 300,000 barrels a day. That would mark the first time output topped net crude imports on a monthly basis since February 1996. For all of 2013, the EIA expects output of 7.31 million barrels a day trailing net crude oil imports of 7.58 million barrels a day. But in 2014, output of 7.88 million barrels a day would top net crude imports by 840,000 barrels a day, the EIA projects. That would be the first time annual output topped net crude-oil imports since 1993. The EIA said 2012 crude output averaged 6.5 million barrels a day, but November and December flows topped 7 million barrels a day for the first time since December 1992. Elsewhere, in its latest Short-Term Energy Outlook, the EIA scaled back estimates for oil demand in the world’s biggest oil consumer. The EIA said U.S. demand in 2012 fell 400,000 barrels a day, or 2.1%, to a 16-year low of 18.55 million barrels a day. EIA expects 2013 demand to inch up a slim 0.2%, to 18.58 million barrels a day. That is 70,000 barrels a day less than the EIA had projected in its February outlook. – Read More

*Oil Riding Rails Creates Jobs as Buffett Puffs Chest: Freight – Bloomberg

For all the debate over building the Keystone XL pipeline, the oil is moving without it. Railroads such as Warren Buffett’s Burlington Northern Santa Fe LLC are the rolling alternative, keeping oil flowing from the Bakken in North Dakota to refineries along the Texas Gulf Coast, as the White House deliberates on the fate of TransCanada Corp. (TRP)’s petroleum artery. They’re boosting employment in the process: Rail transportation payrolls have climbed by 9.1 percent, a pace more than twice as fast as total job growth, since the end of 2009. “Its having a ripple effect that’s really creating jobs and wealth and investment opportunities,” said Charles Clowdis, the managing director for transportation advisory services at IHS Global Insight Inc. (2172) in Lexington, Massachusetts. “There’s so much crude being produced that can’t be piped. These guys are putting real dollars in the bank each week and railroads are making a darn good profit on hauling this in tank cars.” Crude oil shipments by rail jumped 256 percent in 2012 to a record 233,811 carloads, or 167 million barrels, the Association of American Railroads said Feb. 21. That’s equivalent to more than 7 percent of U.S. production, up from 2.3 percent in 2011, according to AAR and Energy Department data compiled by Bloomberg. The U.S. expanded oil production last year by 766,000 barrels a day last year, the biggest jump since the first commercial well was drilled in 1859 in Titusville, Pennsylvania, according to the Energy Department. – Read More

*Hunt for energy dives deep below the ice – Brisbane Times

Japan and India, Asia’s biggest energy consumers after China, are closer to unlocking natural gas deposits trapped in ice below the seabed that may prove bigger than the world’s known fossil-fuel reserves. Japan Oil, Gas & Metals National Corp. said yesterday it produced gas in the world’s first offshore test to extract the fuel from the frozen depths. A team including Oil & Natural Gas Corp., India’s biggest energy explorer, will drill off the east coast this year and try to produce the fuel, according to two officials at the regulator Directorate General of Hydrocarbons. They asked to not be named before the official announcement. The nations are trying to catch up with North America, where discoveries of gas in shale rock and tar sands herald an energy revolution carrying the U.S. and Canada toward energy independence. While shale is found in only certain parts of the globe, carbon frozen with water — called methane hydrates or burnable ice — is found under most sea beds. The catch: There’s no technology yet to commercially extract that gas. “Methane hydrates are everywhere, including in some of the fastest-growing economies,” said Will Pearson, director for global energy & natural resources at Eurasia Group in London. “If the technology is developed, it’ll alter the gas market. What is already the golden age of gas will last much longer.” Natural gas, the fuel burned to make heat and electricity, is predominantly methane. A methane hydrate is a crystal of methane molecules surrounded by a cage of water molecules, according to the U.S. Geological Survey. – Read More

*Saudi Arabia’s shale plans may be slowed by lack of water – Bloomberg

Saudi Arabia may need at least a decade to develop shale-gas production to a scale comparable to the U.S. because of the desert kingdom’s short supplies of water, state oil company officials said. Shale gas is produced by a technique known as hydraulic fracturing, or fracking, in which massive amounts of water, chemicals and sand are blasted underground to free trapped hydrocarbons. Finding the necessary amount of water in the regions where Saudi Arabian Oil Co. is exploring for shale gas will be difficult, according to Amin Nasser, senior vice president of upstream at the company known as Saudi Aramco. “The infrastructure cost will go down with time,” he said March 10 at an oil and gas conference in Manama, Bahrain. “But water is going to remain a challenge.” Saudi Arabia may hold as much as 645 trillion cubic feet of technically recoverable shale gas, the world’s fifth-largest deposits, behind China, the U.S., Argentina and Mexico, according to estimates by Baker Hughes Inc. (BHI) The kingdom also has about 282.6 trillion cubic feet of proven conventional gas reserves, according to Aramco’s 2011 annual report. Shale gas production in the U.S., which has about 862 trillion cubic feet of recoverable shale gas, is forecast to grow to 16.7 trillion cubic feet in 2040 from 7.8 trillion cubic feet in 2011, according to the U.S. Energy Information Administration. That increase will account for almost all of the growth in total U.S. natural gas production to 33.1 trillion cubic feet from 23 trillion during that period, the EIA said in its Annual Energy Outlook 2013. – Read More

*Weak Economy to Depress Oil Demand Throughout 2013: IEA – Reuters

Global oil demand is set to be depressed by weak economic growth throughout 2013 while soaring U.S. oil production gives consumers a perfect cushion to withstand most supply outages, the International Energy Agency (IEA) said on Wednesday. “The oil producing world today is in the midst of a once in a generation transition of farreaching consequences,” the IEA, which coordinates energy policies of major consuming nations, said. “Rarely has the market’s ability to withstand crisis been so tested as in the two years since the start of the so-called Arab Spring.Yet the market seems to have taken it all – civil uprisings, terrorist attacks, natural disasters, production outages, trade embargoes – in its stride,” it added. The IEA expects non-OPEC supply to grow by 1.1 million barrels per day (bpd) in 2013 to 54.5 million bpd led by North American booming shale oil output It said that a year-on-year gain of 1.1 million bpd in U.S. oil supply in the fourth quarter of 2012 was a record not only for that country but also for any nonOPEC producer since at least 1994. – Read More

*Venezuela Oil Spending May Extend Decline Under Maduro, IEA Says – Bloomberg

Venezuela’s investment in oil exploration and production may extend a long-term decline if President Hugo Chavez’s “anointed successor” is elected, according to the International Energy Agency. Crude output from Venezuela, the fourth-largest oil producer in the Organization of Petroleum Exporting Countries, fell 22 percent in the 14 years since the election of Chavez, who died March 5, according to figures in today’s monthly report from the Paris-based IEA. A victory by Vice President Nicolas Maduro, Chavez’s handpicked successor, may continue the policy of using profits from state-owned oil company Petroleos de Venezuela SA to fund social welfare projects, the IEA said. “A Maduro presidency could see a further degradation of the state oil company and the country’s oil prospects,” the agency said in in the report. “PDVSA has long been the cash cow that fueled President Chavez’s expensive social programs to the detriment of investment in the country’s oil sector.” Venezuela’s daily crude production was 2.5 million barrels in 2012, down by 700,000 barrels from when Chavez was elected in 1998, the IEA said. The nation will hold a special presidential election on April 14. South America’s largest oil producer will continue to use the industry’s profits to feed and house the poor, Oil Minister Rafael Ramirez said on state TV this month. – Read More

*India Said to Line Up OPEC Alternatives to Iranian Supply – Bloomberg

OPEC’s biggest oil producers are in talks to supply extra crude to India as the nation prepares to halt purchases from Iran because of global sanctions, four people with knowledge of the matter said. Indian refiners, which are waiting for an order from the oil ministry on whether to stop buying Iranian cargoes, are discussing annual term contracts with Saudi Arabia, Iraq and Kuwait for the year starting April 1, the people said this week, asking not to be identified because the information is confidential. While the volume hasn’t been set, the Indian companies have been told there is enough supply to cover the loss of Iranian crude, the people said. The assurances reduce the risk of disruptions to oil supplies for Asia’s third-largest economy as it seeks to cut fuel subsidies and narrow its budget deficit. They are also evidence of how global penalties against Iran because of its nuclear program are squeezing the nation’s revenues. At current prices, Iran stands to lose about $11.5 billion in sales annually if India stops buying its oil. “This shows how pressure on Iran is increasing, and why Iran’s tone is much more conciliatory in recent times,” said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. “Iran might be willing to accept a few more conditions now because otherwise it will find it difficult to meet its budget obligations.” – Read More

*Falklands Votes With $167 Billion in Oil Revenue at Stake – CNBC

As the inhabitants of the Falklands Islands prepare to vote in a referendum on their sovereignty on Sunday, Argentina has already declared the vote illegal and vowed to disrupt the nascent oil industry in the region that it sees as a theft of its natural resources.  The majority of the eligible voters among the 2,800 inhabitants of the Falkland Islands – or Las Malvinas as Argentina calls them – are expected to choose to remain an overseas British territory when they vote on March 10 and 11.  Though Argentina has already said that it will ignore the outcome, the vote is expected to ramp up the already heated war of words between the U.K. and Argentina, whose relationship has deteriorated since the discovery of oil reserves in the region. There are an estimated 60 billion barrels of oil around the Falklands basin worth $167 billion dollars in royalties and taxes for the Falklands’ government which will receive 26 percent of the profits from companies drilling for oil and nine percent royalties on every barrel sold, according to U.K.-based Edison Investment Research. – Read More


*Wells Fargo Securities (3.13.13)

Key Takeaway. The IEA made no substantive changes to its near-term global supply/demand outlooks month’s Oil Market Report (OMR). Instead, the IEA’s commentary focused on how resilient the oil market and prices have been in the face of so much upheaval over the last several years and potential risks in Venezuela. In our opinion, there is little direction for oil prices to be taken from March’s OMR.

Summary. The IEA trimmed its 2013 global demand forecast by 20 Mbopd to 0.9%, or 820 Mbopd. Looking into 2013, the IEA cited below par growth in China and Europe and the risk of reduced government spending in the U.S. as key risks to its 2013 outlook. Otherwise, the IEA expect global demand growth to be supported by the developing world. The IEA’s estimated ”call on OPEC” increased somewhat in February, but is actually expected to shrink slightly in 2013 as its forecast of global supply growth of approximately 1.1 MMbopd outpaces its global demand estimate of 0.8 MMbopd. Regarding future supply disruption possibilities, the IEA focused on Venezuela and its upcoming presidential election on April 14. We agree with the IEA that whoever wins the election will face challenging decisions on reinvesting in the neglected oil infrastructure versus directing the petrodollars to social programs the citizens have come to depend upon and will likely resist losing.

*Baird Equity Research (3.13.13)

IEA OMR: trimmed demand forecasts on slowing growth, cautions on Venezuela production, calls US-Iran stalemate “unsustainable.” The IEA released its monthly oil market report this morning with a cautious tone. The headline is a reduction in demand growth estimate, as the IEA now expects 2013 demand to increase by +820 Mbbl/d Y/Y to 90,600 Mbbl/d versus previous estimate of +880 Mbbl/d; this reduction attributed to slowing economic growth and broader-than-expected refinery maintenance. The agency cautioned on further degradation of the Venezuelan state oil company if Vice President Nicolas Maduro is elected to succeed Hugo Chavez. The IEA also believes that Iranian oil shipments increased +13% M/M in February to 1,280 Mbbl/d, as the country has purchased secondhand tankers to ship its own oil and bypass tightening sanctions. The report described the current stalemate between Iran and the West “unsustainable” and said that “something has to give.”

*Howard Weil (3.13.13)

Quick Take: Minimal changes from last month’s report but we would highlight that the IEA continues to decrease its FY13 demand forecast by cutting the estimate by 60MBbl/d versus the February report. Offsetting this move, Non-OPEC supply was increased by 70MBbl/d. OPEC supply increased by 150MBbl/d from the previous month bringing total output to 30.49MMBbl/d. At this level OPEC is producing 790MBbl/d above the calculated “Call on OPEC” of 29.7MMBbl/d. Globally we are in the midst of a heavy refinery maintenance period as US and European refiners are currently in turnarounds with Asian refiners set to undergo planned downtime. This will lead to decreased crude demand near-term which should equate to sloppy inventories until refiners fully ramp up to capture elevated refining margins.

*Wells Fargo Securities (3.11.13)

Commodities: Front month gas was up 5.0% on the week, aided by colder weather in the northeast and a withdrawal that exceeded estimates and the five year average. Contracts closed at $3.63/MMBtu on Friday. The strip rose 3.7% w/w, finishing at $3.89/MMBtu. WTI rose 1.0% on the week to close at $91.60/Bbl. Factors driving the improvement include bullish jobs numbers, lower than expected unemployment, and a firming market.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable.  This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note.  This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results.  EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services.  In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies.  As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note.  The company or companies covered in this note did not review the note prior to publication.

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