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: Look Out Below! Crude Oil Plunges.
CRUDE OIL INVENTORY/000 bbls (Week Ended 9/14/12)
Current: 367,626
Actual Injection/(Withdrawal): 8,534
Economist Average Estimate: 433
Previous: 359,092
Click here for the chart with five year averages.
CRUDE OIL IN THE MEDIA
*Was A Hedge Fund Unwind Responsible For The Sudden Drop In Oil Prices? – Forbes
A mysterious and violent movement in crude oil prices has traders scratching their heads in disbelief. Over the course of a few minutes, WTI and Brent crude, the two main global price benchmarks, dropped more than $3 per barrel each, the most in eight weeks, as volumes surged in what had been a slow, low liquidity session. Talk of a “fat finger” or an impending release of petroleum reserves from the Obama Administration has been thrown around, but traders suspect there’s more to this move. Several factors seemed to conspire to make Monday’s violent plunge in crude oil more difficult to decipher. October WTI contracts plunged from $97.88 to $94.83 in one minute, exactly at 1:54 PM in New York, according to data from Bloomberg. Brent followed a similar trajectory, falling from above $115 a barrel to as low as $111.50 in a matter of minutes. Incredibly, there wasn’t a single headline the move could be pegged to. – Read More
*How Mexico’s Oil Industry May Benefit US Investors – CNBC
The political agenda of incoming Mexican president Enrique Pena Nieto has profound implications for Latin America’s second largest economy, including new labor laws, fiscal restructuring to broaden the tax base, and a take-no-prisoners stance against the drug cartels. But no industry, arguably, stands to be potentially transformed the way the energy sector does. Pena Nieto, who takes office Dec. 1, vowed during his campaign to push for further private sector participation in the state-owned oil and gas monopoly, Petroleos Mexicanos, or Pemex. Pemex, a major source of revenue for the Mexican government, was partially deregulated in 2008, allowing private and foreign companies to bid on projects for the exploration and production of natural gas and oil refining. It still limits their ability to share risk, however, or share in the potential upside of any oil finds. – Read More
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*Oil falls on Saudi pressure to keep prices down – Reuters
Brent crude oil futures fell to a six-week low on Wednesday, as the market digested comments from the world’s largest oil exporter Saudi Arabia that it would take action to keep prices in check, raising expectations of increased supply. On Tuesday an OPEC Gulf source said Saudi Arabia was pumping around 10 million barrels per day (bpd) and working to keep oil prices down. “People are thinking that maybe the Saudis are going to produce more, and some funds are taking the opportunity to liquidate positions,” said Christopher Bellew at Jefferies Bache. Market participants said earlier worries about the perilous state of Spain’s finances had snuffed out gains made by oil prices after Japan’s central bank became the latest to further open its monetary taps. – Read More
*Crude Oil’s Quick Fall Leaves Trail of Queries – Wall Street Journal
A plunge in crude-oil prices rippled through financial markets, leaving traders confused and regulators seeking answers. Oil prices dropped more than $3 in less than a minute late in the trading day on Monday, just as trading volume spiked. The move also dragged down prices of gold, copper and even the euro. “Traders were looking like deer in the headlights,” said Peter Donovan, a floor trader at Vantage Trading on the New York Mercantile Exchange. “I called four different desks, and they all said, ‘we don’t know.’ “The move came at about 1:54 p.m. EDT. West Texas Intermediate crude for October delivery plummeted to $94.83 a barrel on the Nymex, from more than $98. Some 12,500 contracts changed hands in a minute, compared with less than 500 a minute previously. The move sparked talk of an erroneous trade—called a “fat-finger” error in industry parlance—or a computer algorithm gone awry. Traders and regulators have been on alert in recent months after a series of technology glitches roiled financial markets. Commodity Futures Trading Commission member Bart Chilton said the CFTC is seeking more information. “Superfast price moves, like we saw in oil, put us on high alert,” Mr. Chilton said in an email. – Read More
*Iran’s Oil Minister Says Crude Exports Rebounding – Associated Press
Iran’s oil minister says the country’s crude oil exports are rebounding after being hit by a European embargo in July. Rostam Qassemi says Iran has found ways to provide insurance on tankers carrying Iranian crude to Asian customers and others as part of efforts to offset Western sanctions. He spoke Wednesday before parliament on Iran’s strategies to counter punitive measures imposed by the West over Tehran’s nuclear program. The International Energy Agency say Iran’s oil exports plunged to 1 million barrels a day in July from 1.74 million barrels a day in June after the embargo by the European Union, which accounted for around 18 percent of Iran’s exports. – Read More
*Rail Companies in Mad Rush to Meet Demand for Domestic Crude Oil – Daily Finance
Investors in U.S. railway companies are in for a treat as demand for domestic crude oil transportation increases exponentially against the backdrop of an unprecedented surge in shale oil production. While the huge increase in supply of shale oil from the Bakken formation (spanning across the states of North Dakota, South Dakota, Montana, and Saskatchewen) has hurt oil producers as prices adjust downwards, railway companies have benefited as refiners on the East Coast and the Gulf Coast replace relatively pricier imported crude oil with domestic supply. Traditionally, U.S. refineries have largely relied on imported crude oil pegged to internationally traded crude oil prices. The largest concentration of refineries in the U.S. are based in the Gulf Coast, and the typical product chain has always been to import foreign crude oil as raw materials and subsequently transport the processed oil products by pipeline to customers in the North. – Read More
*Keystone XL pipeline raises tribal concerns – Washington Post
In energy circles, the town of Cushing is well known as the hub used by New York oil traders to set the benchmark price for all U.S. crude oil. Row after row of giant oil storage tanks are lined up around a moribund downtown and a shopping strip. At the edge of town stands a sign made of white pipes declaring: “Pipeline Crossroads of the World.” This is also where TransCanada’s existing Keystone pipeline ends and the southern leg of its new Keystone XL pipeline will begin. Less well known is the fact that Cushing sits in the Sac and Fox Nation, part of a patchwork of land belonging to Oklahoma’s 38 tribes, each with sovereignty over its own affairs and land. TransCanada’s plan to dig a trench and bury part of its $7 billion, 1,700-mile Keystone XL pipeline right through this land has unearthed a host of Native American opposition, resentments and ghosts of the past. Winning support in Indian country is one of the last hurdles for the project, which is touted as a key to North American energy security. The question is whether gaining tribal support is a courtesy, as the company puts it, or a legal obligation. – Read More
*US renews waivers of Iran sanctions for Japan, EU nations – Reuters
The US has renewed waivers on Iran sanctions for Japan and 10 European countries because they cut their purchases of the Opec nation’s crude oil, Secretary of State Hillary Clinton said. The renewal means banks in the 11 countries have been given a second 180-day reprieve from the threat of being cut off from the US financial system under the sanctions designed to choke funding to Iran’s nuclear programme. The West suspects Iran is trying to develop nuclear weapons. Tehran insists the programme is for civilian purposes. The sanctions law President Barack Obama signed in 2011 requires a review every six months of the waivers, which were given to all of Iran’s major buyers throughout 2012. Japan, the world’s third largest oil consumer, had taken significant steps to reduce purchases of Iranian crude, Clinton said. – Read More
*Does OPEC really have 80 percent of the world’s oil? Maybe not. – CS Monitor
Has OPEC misled us about the size of its oil reserves? The short answer is probably. The long answer is that currently, there is no way to know for sure. The next question we should ask is: Does it matter? The answer is most definitely yes. OPEC, short for the Organization of Petroleum Exporting Countries, currently claims that its 12 members hold 81.3 percent of the world’s oil reserves. And, with few exceptions the world believes them. Trouble is these reserves “are not verified by independent auditors,” according to a study (PDF) done by the U.S. Government Accountability Office, the nonpartisan investigative arm of the U.S. Congress. OPEC reserves are simply self-reported by each country. Essentially, OPEC’s members are asking us to take their word for it. But should we? – Read More
*Crude oil ought to be $150 per bbl: Iran – Business Recorder
Crude oil should be at least $150 per barrel, Iran’s oil minister was quoted as saying on Sunday, and the sanctions-hit country’s OPEC governor said current oil prices were not high enough to threaten the world economy. Benchmark Brent crude prices rose to nearly $118 a barrel on Friday, stoking fears that surging energy costs could harm fragile economic growth. Days earlier, Saudi Oil Minister Ali al-Naimi said he was worried by high prices and the kingdom would take steps to moderate them. Iranian oil officials say oil prices are still fairly low and deny there is any danger of current prices hampering growth. Iranian oil minister Rostam Qasemi said on Sunday crude oil ought to be at least $150 per barrel, the Iranian Students’ News Agency (ISNA) reported. – Read More
*Asia Fuel Oil-China keeps fuel oil supported – Reuters
Recovering Chinese demand kept the Asia fuel oil market supported on Thursday, with traders eyeing a potential supply crunch in the first-half of the next quarter. Supply disruptions are expected following a fire at Venezuela’s largest refinery in late August. The OPEC member is a leading supplier of fuel oil into Asia through Chinese trader PetroChina. Demand has been picking up in China, particularly among the smaller teapot refiners as inventories start to ease. Another boost to demand has been the healthy refining margins for gas oil. “At the moment demand is picking up, but it could be better,” a Singapore-based fuel oil trader said. “As always the Chinese buyer is extremely price sensitive, if we had a slightly softer flat price we would have seen a quicker take up, so buyer and seller are still haggling over the price point.” – Read More
RESEARCH COMMENTARY
*Tudor Pickering Holt & Co. (9.18.12)
Crude oil (WTI $96.62/bbl, Brent $114.23/bbl) – Holy air-pocket! Crude oil prices gapped down nearly $3/bbl yesterday in less than a minute towards the end of the session. Either commodity traders ate bad enchiladas, someone started talking about a potential SPR release, or a fat finger on a low volume day. Is SPR the reason? Our view is an SPR release not needed as Post Isaac GOM returning to normal. That said, politicians may be tempted to “do something” to alleviate high gasoline prices as November elections looming. We’d remind these same politicos that last year’s SPR release (due to Libya etc.) only impacted prices for a few days.
*Howard Weil (last week 9.13.12)
Recap API/DOE Actuals for the week ended 9/7/12
Quick Take: Demand figures appear weak on the surface, -2.7% Y/Y 4-wk trailing average driven by distillate demand -11.9% and jet fuel demand -4.4%. However, this may be partially impacted by lingering Hurricane Isaac effects. Large crude build is a function of depressed refinery utilization (-1.4% wk/wk), higher imports (+530MBbl/d) and slightly higher domestic production (+40MBbl/d mostly from Alaska). Note: Cushing inventories feel 800MBbls from last week’s levels.
A separate but interesting dynamic as of late has been the shift in Bakken crude differentials moving to a premium over WTI (see graph below). Clearly, this will benefit upstream players at the detriment of Bakken refiners. While hard to pinpoint a specific catalyst driving this phenomenon, we hear rumblings of lower rail costs, higher rail capacity, incremental demand from local refineries such as Mandan and lower Syncrude production placing fewer Bbls into the market. At the end of the day its largely possible that Bakken supply/demand fundamentals may disconnect from WTI as incremental rail and infrastructure drive economics from that play separately from transportation issues out of Cushing. Before placing sell TSO orders (given their leverage to Bakken refining), we would quickly point out the Bakken discount to LLS & ANS hoovers in the $10 – $13/Bbl range currently providing decent returns given that TSO’s Bakken crude purchases trend ~$3/Bbl below Clearbrook pricing and the Company gets a $3-4/Bbl yield uplift for processing lighter Bakken crude at their facilities.
*Bank of America Merrill Lynch (last week 9.12.12)
Impact of Isaac lingers; Demand weakens
Crude and distillate stocks both saw larger than expected builds while gasoline drew less than expected. Utilization declined to 84.7% as refineries remain slow to restart post Hurricane Isaac. Critically, while product stocks look tight on an absolute basis, we focus this week on demand that on a weekly basis stands at a 5-year low and brings demand adjusted inventories into the middle of the ‘normal’ range for both gasoline and distillate. While some of this could be due to the impact of Isaac, we also caution that Labor Day tends to mark the end of the summer driving season; weakness could linger in the coming weeks.
Bakken above WTI – and Seaway expansion still ahead!
Crude spreads remain the great equalizer for the refining sector and with consensus earnings for 3Q likely to move higher, positive earnings momentum very likely proves a source of incremental support. However, with North Sea crude loadings set to rise 240kb/d in October, we caution that spreads could narrow. While there is a focus on downtime in the Mid Con, significant European refinery maintenance leaves risks to spreads skewed lower in our view. Additionally, Bakken has moved above WTI for 7 days, perhaps signaling more than just a temporary issue as rail capacity continues to come online – and with the expansion of Seaway still ahead. VLO remains our top pick in the refining sector; we remain wary of chasing mid con strength and on a separate note, highlight the relative benefit of Bakken E&P’s to rising regional crude pricing.
*Global Hunter Securities (last week 9.12.12)
The EIA’s Weekly Petroleum Status Report (WPSR) for the week ended September 7, 2012 indicated a measurable contraction in midstream demand, with implied demand across all types of petroleum products down by 5%, to 17,999,000 bpd. This was also 4% lower than four weeks ago and 3.5% lower than the same week last year. Seasonal factors were minimally influential, in our view. Within the major classes of petroleum products, demand for gasoline was lower by 5.3% week-over-week (WoW), offset by strong demand for jet kerosene (higher by 6.1%), with significant weakness coming from pentanes, ethanol and oxygenates. Overall, field production increased by about 0.7% to 5.53 MM bpd, as Lower 48 production slowly came on board post-Isaac. Imports also rebounded as conditions in the Gulf of Mexico stabilized for tankers. Total commercial crude stocks increased about 0.6% WoW to 359.1 MM bbls, with total crude oil stocks just slightly higher to 1,054 MM bbls. Looking forward, we should expect to see a more measurable rebound in commercial crude stocks in the coming two weeks, post-Isaac’s GOM disruptions. This could lead to slight pressures on WTI crude oil prices if inventories increase due to the sudden combination of declining midstream demand and higher production. However, geopolitical tensions are quite strong right now, providing a strong point of support for higher crude oil prices. For the very near term, we could see WTI prices play with the $99 handle on any Federal Reserve bond purchases, the resulting weaker dollar, and the influence of international instability.
