Oil Price Surge May Become OPEC's Worst Enemy

Robert Boslego - INO.com Contributor - Energies


Crude prices bottomed in the current price cycle during the third week of June. Subsequently, there has been a surge to the highest crude prices in two years. My theory is that the market has priced-in a geopolitical risk premium given the de-certification of the Iran nuclear deal by President Trump as signaled by the White House on October 5th.

Another factor has emerged. It has become increasingly clear that the DOE’s estimates of weekly U.S. crude production have overestimated the actual monthly figures, as reported two months in arrears. The errors since April have been large. Some have concluded that American shale oil production is not as big of a countermeasure to rising oil prices as had been believed.
Continue reading "Oil Price Surge May Become OPEC's Worst Enemy"

Analysis Of Hurricane Harvey Impacts On The U.S. Oil Industry

Robert Boslego - INO.com Contributor - Energies


Information from the Gulf of Mexico is developing each day, and the extent of damage from Harvey to the energy industry’s infrastructure is still largely unknown as of September 5th. I detail below the potential impacts on supply and demand for crude and petroleum products. I have also contrasted them to supply/demand responses to Hurricane Katrina (2005) followed by Hurricane Rita.

Crude Production

The best data show that about 324,000 b/d is shut down in the Gulf of Mexico (GOM). Also, up to 300,000 b/d of inland production may be affected in Eagle Ford.

Hurricane Katrina made its landfall on August 29, 2005, in Southeast Louisiana, not Texas, as a Category 3 hurricane. It caused significant damage to oil and gas industry infrastructure. It was followed by Hurricane Rita, which made landfall on September 24th, also as a Category 3 hurricane.

The initial impact on crude production was about 1.2 million barrels per day (mmbd). GOM production at that time was about 400,000 b/d lower than the most recent estimates.

U.S. Crude Production
Continue reading "Analysis Of Hurricane Harvey Impacts On The U.S. Oil Industry"

Peak Oil Demand Season is Coming To A Close

Robert Boslego - INO.com Contributor - Energies


Peak demand for crude at refineries and for products to consumers is drawing to a close this season. Together, they caused total U.S. oil inventories to drop by 49 million barrels from their peak in the week ending June 9th. Total U.S. oil inventories stand at 1.304 billion barrels in the week ending August 11th, 58 million barrels lower than a year ago.

Refinery demand for crude oil set a new record high this summer, as the 4-week trend reached 17.458 million barrels per day, 4.4% higher than last year. As depicted in the graph below, refiners will soon be dialing back their operations for maintenance, and this will reduce the demand for crude at U.S. refineries by about 1.5 mmbd.

U.S. Crude Input to Refineries

Domestic demand was relatively strong this summer, up about 2.0% from last year. Gasoline demand was somewhat disappointing, but distillate demand spiked. As shown in the graph below, seasonal demand has likely peaked and will be headed lower in the weeks and months ahead. Continue reading "Peak Oil Demand Season is Coming To A Close"

Refinery Acquisitions Reduce Saudi Risks, Increase U.S. Energy Security Risks

Robert Boslego - INO.com Contributor - Energies


A recent article noted that Saudi Arabia Is Buying Up America's Oil Assets. Saudi Aramco is buying U.S. refining and petrochemical assets as well as energy and technology companies through its Saudi Aramco Energy Ventures LLC fund.
Congress has recently received a Long-Term Strategic Review (LTSR) of the Strategic Petroleum Reserve. The SPR's mission is to protect the U.S. from severe petroleum interruptions. The LTSR was intended to identify the key challenges that could impact the ability of the SPR to accomplish its mission.

I submit that it ignores a key challenge, the foreign ownership of refineries and petrochemical plants, that could render the SPR crude supplies meaningless.

The existence of the SPR is a key factor determining oil prices because the market does not have to factor in large interruptions of crude supply into prices because it knows the government has the SPR and will use it. Continue reading "Refinery Acquisitions Reduce Saudi Risks, Increase U.S. Energy Security Risks"

Why Oil Is At $50 With An Inventory Glut

Robert Boslego - INO.com Contributor - Energies


According to the Energy Information Administration (EIA), world oil inventories are about 425 million barrels higher than their “normal” levels. In the U.S., inventories stand a 1.368 billion barrels, a few million off their recent peak. Given that supply glut, how could oil futures prices be at $50 after falling below $30?

U.S. Crude and Product Stocks

One answer is that the futures market assesses future developments. As discussed below, the peak of the glut appears behind us and the U.S. oil market is tightening, as rising demand narrows the supply-demand gap. This is best observed by looking at the trends in inventory storage changes for both petroleum products and crude oil. Continue reading "Why Oil Is At $50 With An Inventory Glut"