Oil, product stock levels… This Week in Petroleum

by Jim Colburn • Thursday, May 18, 2017

From This Week in Petroleum we see seasonal draws in crude stocks to levels that are are still above the 5-year range:

But from a days supply measure, and due to extremely high refinery runs, crude supplies are “tight” relative to last year…

The seasonal draw in gasoline stocks seems to have flattened out:

And, days supply of gasoline is still above last year…

Distillate stocks have drawn sharply and are below high of the the 5-year range:

Distilate days supply is still below last year:

Bottom line is we could still see a balancing or tightening of the supply/demand situation even if stock levels could remain at current levels as long as expected demand increases are realized…

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Oil output in Brazil, Canada still rising… WSJ

by Jim Colburn • Thursday, May 18, 2017

From today’s Wall Street Journal:

 

“Rising output from Canada and Brazil, along with smaller gains in the U.K. and Norway, represents an under-the-radar concern for some oil traders ahead of next week’s meeting between members of the Organization of the Petroleum Exporting Countries.”

 

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Daniel Yergin writes about production efficiencies.. WSJ

by Jim Colburn • Wednesday, May 17, 2017

Daniel Yergin (vice chairman of IHS Markit, is author of “The Prize” and “The Quest.”) discusses efficiencies in oil production that have reduced costs around the world in today’s Wall Street Journal (holds are mine):

“… The collapse in revenues, along with heavy debt burdens, led to multiple bankruptcies and the expectation that prices would be “lower for longer.” Shale producers had no choice but to slash costs if they wanted to survive. In the process, they became more efficient, focused and innovative. A new well that might have cost $14 million in 2014 now costs $7 million. The gain in efficiency is so great that a dollar invested in U.S. shale today will produce about 2.5 times as much oil as a dollar invested in 2014, according to IHS Markit .

In 2014, many thought a drop in price to $70 a barrel from $100 would shut down U.S. production. It didn’t. Today, new shale oil wells can be profitable at $40 to $50 a barrel, and some companies claim even lower. That makes possible a new surge in U.S. production—as much as 900,000 additional barrels a day over the course of this year. By next year, the U.S. is likely to hit the highest level of oil production in its entire history.
This cost recalibration is happening everywhere, as a new analysis by IHS Markit shows. Canada’s oil sands have always been among the highest-cost, yet some new projects can produce near $50 a barrel. In Russia, costs have come down more than 50%. Even deep waters offshore can now produce at less than $50. In March the CEO of the Norwegian company Statoil told the CERAWeek conference that owing to a wholesale redesign, a project in the North Sea that had originally required $75 a barrel to be economical now needs just $27 a barrel.

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Rebalancing is here… IEA

by Jim Colburn • Tuesday, May 16, 2017

The IEA’s monthly Oil Market Report is out… Here are some highlights:

“It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market. In 1Q17, we might not have seen a resounding return to deficits but this Report confirms our recent message that re-balancing is essentially here and, in the short term at least, is accelerating.”

In 2Q17…. “there is an implied stock draw of 0.7 mb/d. Adopting the same scenario approach for the second half of 2017, the stock draws are likely to be even greater.”

“…we need to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably.”

“As for demand, we have left unchanged our headline growth number for 2017 at 1.3 mb/d. Growth was weaker than expected in 1Q17, however, with notable downward revisions seen in the US (where demand is essentially flat), Germany, Turkey and India (where the effect of the currency reform lingers on).”

 

 

 

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Global Oil Prices Jump, June OTM Calls still alive…

by Jim Colburn • Monday, May 15, 2017

Oil prices are moving sharply higher… Here is the chart from barchart.com:

And from the WSJ, here is why:

“In a joint statement Monday, Saudi Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak said a pact by the Organization of the Petroleum Exporting Countries and external producers such as Russia to cut output and bring down global oil inventories should be extended to the end of March 2018.”

Expiring on May 17th, some June out of the money calls given up for dead are now very alive… June 50 calls which have 47,576 contracts open should be very active today… June $55 calls have a whopping 109,775 contracts open!  While it’s a long shot that these go in the money before Wednesday afternoon’s expiration, this is oil… And from a risk perspective, something that measures almost zero risk switches into a futures contract, making life difficult for the option seller…

 

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Libyan Oil Output Creeps Higher… Bloomberg

by Jim Colburn • Sunday, May 14, 2017

From Bloomberg:

“The OPEC member with Africa’s largest crude reserves is pumping more than 814,000 barrels a day, thanks partly to rising output from two fields that re-started last month, Jadalla Alaokali, a board member at the National Oil Corp., said Sunday by phone. Libya was producing about 700,000 barrels a day at the end of April, he said at that time. Output from the politically divided country is at its highest since October 2014 when it pumped 850,000 barrels a day, data compiled by Bloomberg show.”

“Libya pumped as much as 1.6 million barrels a day before an uprising in 2011, and it was exempted from OPEC’s cuts due to internal strife. It’s targeting production of 1.32 million barrels a day by the end of this year, the NOC said last week in a statement.”

 

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A contrarian view on oil…

by Jim Colburn • Friday, May 12, 2017

In an otherwise bullish article from Bloomberg, “For Some, There’s Never Been a Better Time to Buy Oil“, there is this one opposite view:

“There’s little chance of OPEC cutting any deeper than they have already and demand growth this year will be lower than the IEA forecasts, said Fareed Mohamedi, chief economist of The Rapidan Group, a consultant based in Bethesda, Maryland. Prices could drop back as low as $30 a barrel by the first quarter of 2018, he said.”

 

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Hedge Funds Run Out of Investment Ideas… Bloomberg

by Jim Colburn • Friday, May 12, 2017

Stephen Gandel at Bloomberg Gadfly suggests that hedge funds have run out of ideas:

“Wall Street’s biggest loudmouths are apparently out of things to say.”

And, they are having trouble keeping up with the S&P 500:

 

 

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June 55 calls, WTI

by Jim Colburn • Thursday, May 11, 2017

The CME shows June $55 calls having 109,078 open interest!  This is a huge number!  These expire on May 17th and settled at $.02… Yesterday, 8,817 traded raising open interest by 8,325 to the number above… Are they dead?  There will be one heck of a “gamma rush” should we near $55  before the 17th…

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Some highlights from the EIA’s Short Term Energy Outlook…

by Jim Colburn • Thursday, May 11, 2017

Here are some highlights from the EIA’s monthly Short Term Energy Outlook

This chart shows supply/demand balance expectations:

Note that stocks aren’t expected to decline… Here is the EIA:

“Implied global petroleum and liquid fuels inventories are estimated to have increased by 0.4 million barrels per day (b/d) in 2016. EIA forecasts inventory builds to average 0.2 million b/d in 2017 and then increase to an average of 0.5 million b/d in 2018.”

The EIA raised supply estimates from last month:

“Growth in global liquid fuels supply is expected to limit upward price pressure over the next year. World liquid fuels supply is projected to grow by 1.4 million b/d in 2017 and by 1.9 million b/d in 2018. Compared with the April STEO forecast, those growth estimates are higher by about by 0.2 million b/d in 2017 and 0.1 million b/d in 2018. The upward revision to expected supply growth is based on higher expected crude oil production growth from the United States, Brazil, and Canada and more OPEC non-crude liquid production growth. Expected world liquid fuels consumption growth is largely unchanged from the previous STEO, with growth forecast at 1.6 million b/d in both 2017 and 2018.”

They include Q2 and Q3 estimates for gasoline demand, which seem very optimistic:

The recent Weekly Petroleum Status Report shows 4 week average gasoline demand running at 9.248, or 2.4% below last year!  Note that the EIA estimates gasoline demand to be up 0.9% and 0.5% for Q2 and Q3 (year over year)… These numbers will be difficult to make even with revisions…

 

 

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