Domestic Production Cost Inches Higher

  1. Federal Reserve (Dallas) calls crude oil break-even price
  2. Tug-of-war between satisfying investors and adding to new drilling
  3. NOAA introduces a major upgrade to the U.S. weather forecast model
  4. Natural gas demand is declining

Al pic 2009_cropped

Alan Levine—Chairman, Powerhouse
(202) 333-5380

 

 

The Matrix

Analyses of petroleum prices rely on several statistics available to the trade. One tool is an analysis of break-even costs of drilling for crude oil in the United States. The Federal Reserve Bank of Dallas has reported that the break-even cost of new wells is $52 per barrel and the cost to refurbish existing wells is $31 per barrel—year-over-year increases of 6% and 3%, respectively.

Higher costs reflect the transfer of U.S. staff by oilfield services to growth opportunities overseas. Moreover, domestic drillers are eating into the inventory of wells drilled but uncompleted (DUCs), also known as the “fracklog.” The inventory is likely to fall below 5,000 by year end as demand recovers.

The closure of the Suez Canal will add to costs as well, although the impact should be shorter term. Estimates of the impact of the Suez closure come to about two million b/d of oil daily.

The most closely watched statistic in the oil business may be weather. Awareness of snow, storms and temperature is critical to meeting demand and planning for inventory. To better project weather expectations, the National Oceanic and Atmospheric Administration (NOAA) has upgraded its GFS forecast model, also known as the American model. It is designed to “lead to better predictions of hurricanes and other extreme events, ocean waves and weather systems high in the atmosphere.”

NOAA expects the new system to present improvements as far out as about two weeks in the future. The system now has replaced updated data with a greater ability to skew too cold and snowy. GFS now has greater ability to integrate more data from current sources. It also provides greater vertical detail. This provides better information about the near surface “boundary layer” and the second layer of earth’s atmosphere (stratosphere).

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended March 19, 2021, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 4.8 million barrels during the week ended March 19, 2021.

Commercial crude oil supplies in the United States increased by 1.9 million barrels from the previous report week to 502.7 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Plus 0.5 million barrels to 8.7 million barrels

PADD 2: Down 1.3 million barrels to 130.9 million barrels

PADD 3: Plus 5.4 million barrels to 293.6 million barrels

PADD 4: Down 0.8 million barrels to 22.2 million barrels

PADD 5: Down 1.9 million barrels to 47.4 million barrels

 

Cushing, Oklahoma, inventories were down 1.9 million barrels from the previous report week to 48.2 million barrels.

Domestic crude oil production was up 100,000 barrels daily from the previous report week to 11.0 million barrels daily.

Crude oil imports averaged 5.622 million barrels per day, a daily increase of 299,000 barrels. Exports decreased 39,000 barrels daily to 2.481 million barrels per day.

Refineries used 81.6% of capacity, up 5.5% from the previous report week.

Crude oil inputs to refineries increased 956,000 barrels daily; there were 14.389 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 1.5011 million barrels daily to 15.011 million barrels daily.

Total petroleum product inventories rose 2.9 million barrels from the previous report week.

Gasoline stocks rose 0.2 million barrels from the previous report week; total stocks are 232.3 million barrels.

Demand for gasoline rose 174,000 barrels per day to 8.616 million barrels per day.

Total product demand decreased 231,000 barrels daily to 18.702 million barrels per day.

Distillate fuel oil stocks rose 3.8 million barrels from the previous report week; distillate stocks are at 141.6 million barrels. EIA reported national distillate demand at 3.592 million barrels per day during the report week, a decrease of 436,000 barrels daily.

Propane stocks rose 0.2 million barrels from the previous report week; propane stocks to 41.3 million barrels. The report estimated current demand at 1.185 million barrels per day, a decrease of 241,000 barrels daily from the previous report week.

 

Natural Gas

Natural gas demand in the United States is declining as the end of the heating season reduces consumption. The use of natural gas fell by 5.6% week-on-week. Sectoral use was generally down, with residential and commercial losing 12.9% of demand. Elsewhere, power generation fell by 2.7%. A small gain in demand was found in the industrial sector where recovery from the winter storm of February 13-17 continued to grow.

According to the EIA:

The net withdrawals from [natural gas] storage totaled 36 Bcf for the week ending March 19, compared with the five-year (2016–2021) average net withdrawals of 51 Bcf and last year’s net withdrawals of 26 Bcf during the same week. Working natural gas stocks totaled 1,746 Bcf, which is 78 Bcf lower than the five-year average and 263 Bcf lower than last year at this time.

The average rate of withdrawals from storage is 15% higher than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average of 1.5 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,728 Bcf on March 31, which is 78 Bcf lower than the five-year average of 1,806 Bcf for that time of year.

 

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