Complacency Ends

  1. Saudi Arabia may no longer be a predictable supplier
  2. Uncertainties invade development plans
  3. Cross-currents include bullish tendencies in Saudi Arabia and slowing demand in China
  4. Natural gas breaks resistance; $3.32 objective.  

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse

The Matrix

Powerhouse’s Matrix seeks to identify broad changes and trends that help shape the energy sector. Last week, we may have seen a change in the broad matrix of the oil industry that could introduce a generational culture shift in the oil and gas industry not seen perhaps since Muammar Khaddafi gained political control of Libya in 1969.

Saudi Arabian crown prince, Mohammed bin Salman, arrested several prominent businessmen (including 11 cousins.) Charges included corruption and were seen as continuing to centralize power in the prince. Mohammed’s stated goal is modernization of the Kingdom. Changes are expected in the role of women, the role of religion and the importance of petroleum in Saudi Arabia’s economy. The intent is to sell part of the Aramco oil company to reduce reliance on the oil sector for economic stability.

Saudi Arabia has underpinned global petroleum supply for many years. It has provided the volume needed to provide global oil balances from a generally stable and reliable government. These most recent events raise questions about whether this role as global petroleum balance wheel will continue, or will they create uncertainty or even internal unrest, casting reliability of supply into question.

Ironically, the arrests came just after the kingdom hosted over 3,500 business executives to a conference pushing business opportunities in the country. Uncertainty had existed in the business community anyway because of earlier plans to diversify beyond oil.

So many cross-currents inhibit investment and Saudi Arabia is experiencing the impact of such uncertainty on its efforts to attract foreign investors. Current global market conditions are balancing bullish tensions in Saudi Arabia and elsewhere in the region against apparent slowing demand from China. And while the United States is currently experiencing strong demand and recovering production, it cannot be indifferent to events elsewhere in the world.


Supply/Demand Balances

Supply/demand data in the United States for the week ending November 3, 2017 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 9.1 million barrels during the week ending November 3, 2017.

Draws were reported in stocks of gasoline, fuel ethanol, K-jet fuel, distillates, residual fuel oil, propane and other oils.

Commercial crude oil supplies in the United States increased to 457.1 million barrels, a build of 2.2 million barrels.

Crude oil supplies increased in three of the five PAD Districts. PAD District 3 (Gulf Coast) crude oil stocks rose 1.7 million barrels, PADD 4 (Rockies) stocks advanced 0.7 million barrels, PADD 5 (West Coast) stocks grew 0.9 million barrels. PADD 1 (East Coast) stocks decreased 0.7 million barrels and PAD District 2 (Midwest) crude oil stocks fell 0.2 million barrels.

Cushing, Oklahoma inventories increased 0.8 million barrels from the previous report week to 64.6 million barrels.

Domestic crude oil production increased 67,000 barrels daily to 9.620 million barrels per day from the previous report week.

Crude oil imports averaged 7.377 million barrels per day, a daily decrease of 194,000 barrels. Exports fell 1.264 million barrels daily to 869,000 barrels per day.

Refineries used 89.6 per cent of capacity, an increase of 1.5 percentage points from the previous report week.

Crude oil inputs to refineries increased 290,000 barrels daily; there were 16.305 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 295,000 barrels daily to 16.645 million barrels daily.

Total petroleum product inventories saw a decrease of 11.3 million barrels from the previous report week.

Gasoline stocks fell 3.3 million barrels from the previous report week; total stocks are 209.5 million barrels.

Demand for gasoline increased 35,000 barrels per day to 9.496 million barrels daily.

Total product demand increased 2.118 million barrels daily to 21.301 million barrels per day.

Distillate fuel oil supply fell 3.4 million barrels from the previous report week to 125.6 million barrels. National distillate demand was reported at 4.486 million barrels per day during the report week. This was a weekly increase of 952,000 barrels daily.

Propane stocks decreased 1.1 million barrels from the previous report week to 77.2 million barrels. Current demand is estimated at 1.322 million barrels per day, an increase of 542,000 barrels daily from the previous report week.


Natural Gas

According to the Energy Information Administration:

Working gas deficit to five-year average grows to largest level since January 2017. Net injections into storage totaled 15 Bcf for the week ending November 3, compared with the five-year (2012–16) average net injection of 45 Bcf and last year’s net injections of 54 Bcf during the same week. Working gas stocks total 3,790 Bcf, which is 71 Bcf less than the five-year average and 219 Bcf less than last year at this time. This is the largest that the deficit to the five-year average has been since it totaled 77 Bcf for the report week ending January 13, 2017.

Natural gas prices topped out at $3.78 as the year turned to 2017. Within two months, prices had fallen by a third, to $2.52. This has been the range of natural gas values through 2017.

In recent months, price volatility has collapsed. Prices have moved between $2.85 and $3.05, a range of less than seven per cent. There was a single day low of $2.72 in that period, and prices moved higher, back into the range. In all, prices rallied 27.5 cents. Technically, this had little importance because prices remained in the range.

That changed on Monday, October 6, 2017 when prices had a daily low of $3.05. This created a five cent “gap” in the price series. Prices have since moved steadily higher. If prices could add 27.5 cents and then gap higher, it is possible to assert that prices could travel another 27.5 cents to reach an objective of $3.32.


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