Oil Market Outlook Deteriorating With OPEC's Production Rise

Robert Boslego - INO.com Contributor - Energies


According to OPEC, global OECD oil inventories fell 22 million barrels in June to end at 3.033 billion. But that figure is 252 million barrels above its five-year average. OPEC has targeted reducing those inventories to the average level, but its own supply-demand projections imply that goal will not be met through 2018, assuming it maintains production at the July 2018 level. In fact, there will be a 45 million barrel build in 2017, and an additional 162 million barrel build in 2018, even if production does not rise after the extension ends in March 2018. This implies that oil prices will need to be below marginal production costs for some time in order to limit production growth.

July Production

OPEC reported that production rose by 173,000 b/d in July to average 32.869 million barrels per day (mmbd). OPEC’s 32.5 mmbd ceiling included Indonesia but did not in Equatorial Guinea, and so the adjusted July figure was 33.449. This implies that OPEC produced 949,000 b/d above its ceiling, a large failure, especially considering that it had been claiming to be 100% (or more) compliant with its quotas. Continue reading "Oil Market Outlook Deteriorating With OPEC's Production Rise"

Analysis Of Saudi Export Reduction For August

Robert Boslego - INO.com Contributor - Energies


On July 24th, Saudi energy minister, Khalid Al-Falih, announced that Saudi Arabia would limit its exports to 6.6 million barrels a day (mmbd) in August. He noted that other producers were still exporting larger volumes of oil than their production cuts imply.

“We are not doing this to allow other countries to free ride and undercut the agreement by overproducing,” said Mr. Al-Falih, reflecting a high level of frustration. Observers described Mr. Al-Fahil as “very nervous” over the weekend.

Saudi energy minister Khalid Al-Falih
Saudi Energy Minister Khalid Al-Falih. PHOTO: IGOR RUSSAK/ZUMA PRESS

I believe he sensed or was advised that oil prices may drop precipitously if OPEC only reported continued-high compliance. Last Friday, John Kilduff had said this was a “make or break” meeting, and “that if nothing comes out of this meeting, the cartel and Russia will be punished mightily.” Continue reading "Analysis Of Saudi Export Reduction For August"

"OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall

Robert Boslego - INO.com Contributor - Energies


Andy Hall has forsaken his bull oil market position. In an investment letter dated July 3rd, he wrote, “Whereas it once seemed positions could be held with an eye to a longer-term secular appreciation, that is no longer the case…. In short, OPEC, the market and oil bulls have run out of runway.”

Andy Hall
Source: Amanda Gordon/Bloomberg

Mr. Hall explained his reasoning this way:

“Hitherto, it had been our view that oil would trend higher as prices would need to rise to a level that would justify investment in more costly sources of supply than just the core areas of US shale. However, not only has the core shale oil resource grown significantly — above all in the prolific Permian Basin — but break-evens have dropped because of secular productivity gains outpacing cyclical cost increases, at least for now…. If the marginal cost of oil for the next 3 or 4 years is headed to the mid-$40 range, then OPEC’s attempts to push prices to $60 seem futile.” Continue reading ""OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall"

Global Seasonal Oil Stock Draw In Jeopardy

Robert Boslego - INO.com Contributor - Energies


OPEC has set as its goal to reduce global OECD oil inventories to their five-year average. In his opening address to the 172nd meeting of the OPEC conference, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, remarked, "The market is now well on its way toward rebalancing."

After the meeting, Mr. Al-Falih said in a press conference that the current production quotas will "do the trick" of rebalancing stocks to normal levels within six months. But they extended the cuts to nine months because of the seasonal decline in demand expected in the first quarter of 2018.

OPEC Khalid A. Al-Falih

In May, OPEC reported that OECD global inventories are 276 million above the 5-year average. OPEC estimated its production in the first quarter to be 31.944 million barrels per day (mmbd). Assuming April's production of 31.7 holds for the remainder of 2017, there will be a total global stock draw of just 29 million in 2017: Continue reading "Global Seasonal Oil Stock Draw In Jeopardy"

Why The U.S. Gasoline Stock Build Was Not Surprising

Robert Boslego - INO.com Contributor - Energies


The Energy Information Administration (EIA) reported that gasoline stocks had “surprisingly surged despite heavy driving on the Memorial Day weekend.” But the 3.3 million barrel build was actually not that surprising, given the development of gasoline production capacity and the relative softness of gasoline demand.

Over the past four years, the U.S. refining industry expanded its gasoline production capacity in the United States by almost one million barrels per day. In 2013, production peaked at just below 9.5 million barrels per day. Last year, production peaked at 10.3 million. And this summer production could reach 10.5 million.

Gasoline Production

Gasoline demand growth has lagged. Peak demand in 2013 was just above 9.1 million. Last summer, demand peaked at 9.6 million, an increase of about one-half million.

But in the year-to-date, gasoline demand has been 2.9% lower than over the same weeks in 2016. Retail gasoline prices dropped to low levels in the first quarter of 2016, when crude oil prices were bottoming, and that created a surge in demand that was not repeated in 2017. Continue reading "Why The U.S. Gasoline Stock Build Was Not Surprising"