Oil prices continued to climb last week with US futures closing at $50.66 and London at $56.90. The $6 spread between NY and London is mostly due to the aftermath of the US hurricanes which have resulted in the growth of US crude inventories while elsewhere they have declined. Market sentiment has changed in the last few weeks with many now convinced that oil prices will be moving higher due to the OPEC production cuts and strong demand for oil products brought on by the relatively low prices. The IEA just upgraded its demand growth estimate for 2017 to 1.6 million b/d. If growth like this continues, it will eat through the global surplus rather quickly.
[In commenting on India forcing ExxonMobil to renegotiate LNG prices] “This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets. The risk of price renegotiations will become more acute over the next couple years as spot LNG prices remain depressed, even if oil-linked prices rise. The elephant in the room will be how negotiations play out with traditional markets in Japan and Korea, and especially the Chinese national oil companies.”
Saul Kavonic, analyst with Wood Mackenzie
Oil prices rose steadily last week with US crude futures briefly topping the psychological barrier of $50 a barrel and with London futures closing at $55.62. Most analysts are talking about higher prices ahead. The IEA’s monthly report says that the global oil supply contracted in the past month and that demand remains strong. These judgments came despite the US hurricanes that shut down over 25 percent of US refining capacity and took a good, but as yet unknown, bite out US demand in the Southeastern US and along the Gulf Coast.
“…The US is deluding itself when it comes to energy abundance (generally) and oil (specifically). Yet that’s not what we hear from the cheerleaders in the industry or in our media. From them, we hear a silver-tongued narrative of coming riches — a narrative that contains some truth, some myth, and a lot of fantasy. It’s those last two parts — the myths and fantasies — that are going to seriously hurt many investors, as well cause a lot of extremely poor policy and investment decisions.”
Chris Martenson, commentator at www.peakprosperity.com, former investments manager
Oil prices rose some $3 a barrel for the first three days last week and then collapsed on Thursday and Friday as Beijing announced its plans to reduce the capacity of its small “teapot” refineries, and Hurricane Irma closed in on Florida reducing demand for oil products in the state. Recovery from the Texas hurricane, Harvey, continues with 8 of 20 refineries that were closed by the hurricane now back to normal operations. The ports of Corpus Christi and Houston are returning to normal, and several other refineries report they will be back in operation in the next week or two. Gasoline prices in the US are starting to retreat from storm-induced spikes as refineries and pipelines return to normal. The unusually large crude and product reserves in stockpiles have helped cushion price increases.
“Any changes that disrupt energy trade across our North American borders, reduce investment protection or revert to high tariffs and trade barriers that preceded NAFTA could put at risk tens of millions of jobs.”
From top oil and gas trade groups from the US, Canada. and Mexico, in a joint position paper released last month prior to new NAFTA-related talks.
As the severe flooding spread further east last week, closing down numerous refineries and causing widespread devastation, it is becoming apparent that it will be several weeks before the full impact on the US oil industry and indeed global oil markets can be assessed. At one point last week the hurricane shut down a quarter of US refining capacity, some 4.0-4.4 million b/d, but oil production outages mostly from Gulf production came to less than 1 million b/d. With a lot of oil going into storage and refinery demand well below normal, US oil prices have moved very little in the past week, while Brent has remained stronger in anticipation that Europe will be called on to replace the missing US barrels in the next few weeks.
“It will likely be years before the oil and gas industry can start drilling off the Atlantic coast, even in the best-case scenario. But even then, it is unclear if there will be any interest. The Atlantic has not been explored very much, and as a result, the exact nature of the oil and gas reserves in place is unknown. That likely means that development costs will be high. If oil prices fail to rise much from current levels, it is not at all clear that the Atlantic will be very competitive.”
Nick Cunningham, Oilprice.com
It likely will take several weeks to assess the impact that Hurricane Harvey will have on the US oil industry. As of Monday morning, the storm is still dumping large amounts of rain on Houston and its refineries. Weather forecasts are predicting that the storm will continue to cause heavy flooding along the Gulf Coast and will move further east, possibly closing or damaging additional oil production facilities in Louisiana.
“When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse…Falling interest rates between 1981 and 2014 are one of the things that allowed Peak Oil to be postponed for many years…. Peak Economy is likely not very far away. We do not need to encourage it, by raising interest rates and selling securities held by the Federal Reserve. We badly need more people to understand the connection between interest rates and oil prices, and how important it is that interest rates not rise.”
Gail Tverberg, actuary and commentator (8/16)
Oil continues to trade in one of the narrowest ranges seen in the last decade as the efficacy of the OPEC production cap weighs against increasing US and other production increases and slowing Chinese demand. Last week saw oil prices falling for three days and then rebounding sharply on Friday to close at $48.50 in New York as a combination of a large drop in US crude stocks, a weaker US dollar, and a falling rig count supported prices.
[After two nuclear plants in South Carolina were cancelled:] “We continue to believe that the problem with new nuclear (small modular units excepted) power plants is not that they generate electricity with nuclear fission. The difficulty is economic. The nuclear units are expensive, base load generating units in a world where production of electricity is becoming less expensive and increasingly decentralized. Base load power plants (and especially nuclear ones) are, in general, must-run, inflexible price takers. Going forward there will be less need for those facilities regardless of how they are fueled. Furthermore, the builder of a nuclear plant must bet an enormous sum on the need for electricity a decade hence, when the plant is completed. Given the uncertainty in power demand and prices, that is a gamble uncompensated in the regulatory process.
By Leonard Hyman and William Tilles for Oilprice.com
It has been two weeks of mixed signals as to the course of oil prices. Last week prices fell around 1.5 percent, closing at $48.82 in New York on concerns that the OPEC/NOPEC collation was not following through on its pledge to cap production. Even though US stocks continue to fall, much of this is due to increasing exports of light oils and finished oil products and not to increased domestic demand. On Friday, the IEA said that although the oil markets were slowly balancing, it is not going quickly. OPEC and other friends of higher oil prices continue to release optimistic reports, but the consensus seems to be that oil prices will stay around their current levels for the rest of the year unless there is a major geopolitical upheaval.
“Even if the UK, France and the Western world, in general, will all go to 100 percent electric vehicles, that would be great, but that wouldn’t be enough…We still have less advanced economic economies that cannot do that switch.”
Ben van Beurden, CEO of Royal Dutch Shell (7/28)
Oil prices were strong last week with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in US stockpiles of 7.2 million barrels. This decline was brought about by a high level of US refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016. A reduction in Saudi shipments to the US was also seen as responsible for the unusually large decline in inventories.
“The fact is, oil at $50 a barrel makes Arctic oil uncompetitive. In terms of what’s going to happen down the road, I saw a World Bank report placed the oil in nominal dollars at $80 a barrel in 2030. That’s still way below break the price for Arctic oil.”
Stephen M. Carmel, senior vice president of Maritime Services at Maersk Line Ltd. (7/21)
The markets remain confused about the future of oil prices as analysts attempt to interpret alternating bullish and bearish signals. Last week prices rose on Tuesday and Wednesday while falling on Monday, Thursday, and Friday leaving US futures at $45.77 or about $1 below where they started the week. With the US now exporting circa 1 million barrels of oil each day and imports up only about 300,000 b/d over last year, US stocks have been falling of late. There has been some increase in US consumption, but a rapid rise in US oil product exports is clouding the picture as to whether the high levels of US refinery output are being consumed domestically or being shipped abroad.
“What oil companies and car companies are saying [about future sales of plug-in vehicles] is diverging. This is a trillion-dollar question, and someone is going to be wrong.”
Colin McKerracher, head of advanced transport analysis for Bloomberg New Energy Finance
Oil prices climbed steadily last week, ending up Friday about $5 a barrel higher in New York at $46.54 with London the usual $2.50 or so higher. Although market concerns about oversupply have not gone away, a 7.6-million-barrel decline in US crude stocks and better demand from Europe and China was enough to keep the markets climbing higher. Rising prices were kept in check, however, by the continuing increases in oil production in the US, Canada, Libya and Nigeria. There are also concerns that adherence to the OPEC production cut is slipping and many traders are losing confidence in OPEC’s ability to balance the markets with the current level of effort.
“Here’s a little economics lesson, supply and demand: You put the supply [more coal] out there and the demand will follow that.”
US Energy Secretary Rick Perry, who was criticised by economists who point out that, typically, supply follows demand
Last Monday, oil prices rose for the eighth consecutive session closing in New York at $47 a barrel and setting a record for the longest gaining streak in nearly eight years. This surge came on speculator concerns that increases in US shale oil production were starting to slow. The rest of the week was mostly downhill with NY futures closing at $44.23. The slide came among reports that OPEC was not interested in further price cuts; a resumption of the increase in the US oil-rig count of seven rigs, adding to the run of 23 weeks of steady gains before the count fell by one the week before last; US crude production and exports continuing to gain; and OPEC exports increasing by 220,000 b/d in June to 32.49 million b/d.
“We will be dominant. We will export American energy all over the world, all around the globe. These energy exports will create countless jobs for our people, and provide true energy security to our friends, partners, and allies across the globe.”
U.S. President Donald Trump, in a speech [Ed. Note: possible hyperbole?]
After a decline of nearly $10 a barrel since mid-May, oil prices rebounded sharply last week with New York futures climbing from below $43 to close at $46 a barrel. Although many are still worried about excess oil inventories, most traders are optimistic that the worst is over and that higher oil prices stemming from the OPEC production cut are ahead. Many see the recent surge in US shale oil production slowing due to oil prices being in the $40s.
“Shale oil is too expensive. Let’s concentrate on low-cost oil. Don’t tell me I need to invest in the highest technology barrels because low-cost oil is the answer to volatility and peak oil.”
Patrick Pouyanne, CEO of Paris-based Total, explaining why he isn’t expanding assets in the hot US shale oil market.
Oil prices continued to slide last week with Brent falling below $45 on Thursday and WTI falling below $43. Prices have now dropped by more than 20 percent since the start of the year, and Brent crude will likely post its worst first half since 1997. As normal of late, prices fell on increasing production in the US, Canada, Nigeria and Libya with little solid indication that the OPEC/NOPEC consortium is yet willing to make further production cuts. While the sharp production gains in Libya and Nigeria are recoveries from geopolitical production outages, some are forecasting that the surge in US shale oil production could run on into 2018 provided oil prices remain high enough to support additional growth.