Renewed Geopolitical Effects on Oil Markets

  1. U.S. crude oil production drops
  2. Kurds vote to sever link to Iraq
  3. Iranian sanctions under review
  4. Natural gas injection season likely to end at 3.8 Tcf 


Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse



The Matrix

A long quiet period in petroleum pricing many be coming to an end. In the past year, WTI crude oil futures have traded in a range from roughly $42 to $54. And within that range, there have been lengthy periods of flat, seemingly risk-avoidant trading. This occurred while OPEC was working hard to secure a production cut agreement and seeking to bring non-OPEC producers like Russia into the agreement.

In the past, these events would likely have been reflected in expanded price volatility. Instead, the growth in U.S. crude oil production provided an alternative source of supply that eased refiners’ concerns over crude oil availability.  On October 18, 2016 domestic crude oil output was 8.5 million barrels daily. And two weeks ago, EIA put production at 9.5 million barrels daily.



Last week’s domestic crude oil output, however, was reportedly 8.4 million barrels per day. The week-on-week drop could reflect no more than the industry’s reaction to Hurricane Nate. It is not necessarily an indicator of long-term problems for U.S. supply. It reminds us, however, how tenuous our expectations can be and how easily they can be changed by circumstances.

International events tended to fade into the background as U.S. production growth became the big story. As U.S. supply demonstrated some uncertainty, Kurdish Iraq and Iran became the focus on new concerns.

Kurdistan, a politically-devised part of post-Saddam Iraq, voted to separate from Iraq late in September. If successful, such a break would have included the Kirkuk field producing about 520,000 barrels daily. In all, Kurdish Iraq is estimated to control 750,000 barrels per day of crude oil. An attempt to shut production in was foiled by Iraqi federal forces. Nonetheless, the incident has raised questions about Turkey which opposes Kurdish independence within Turkey and controls a pipeline carrying Iraqi crude. The potential threat to regional stability could ultimately be reflected in global prices.

Iran has become another geopolitical uncertainty. Certification of the Iranian nuclear deal has been plunged into doubt but the arrangement’s status has been delegated to the Congress. Sanctions have not been re-imposed. Some estimate that new sanctions, if imposed, could take one million barrels of crude oil from the market.


Supply/Demand Balances

Supply/demand data in the United States for the week ending October 13, 2017 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 8.7 million barrels during the week ending October 13, 2017.

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

Commercial crude oil supplies in the United States decreased to 456.5 million barrels, a draw of 5.7 million barrels.

Crude oil supplies increased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks rose 1.3 million barrels, PADD 2 (Midwest) stocks advanced 1.8 million barrels, and PADD 5 (West Coast) stocks increased 0.1 million barrels.

PADD 3 (Gulf Coast) crude oil stocks declined 8.9 million barrels. PAD District 4 (Rockies) stocks were unchanged from the previous report week.

Cushing, Oklahoma inventories increased 0.2 million barrels from the previous report week to 64.0 million barrels.

Domestic crude oil production decreased 1.074 million barrels daily to 8.406 million barrels per day from the previous report week.

Crude oil imports averaged 7.483 million barrels per day, a daily decrease of 134,000 barrels. Exports rose 528,000 barrels daily to 1.798 barrels per day.

Refineries used 84.5 per cent of capacity, a decrease of 4.7 percentage points from the previous report week.

Crude oil inputs to refineries decreased 819,000 barrels daily; there were 15.439 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 865,000 barrels daily to 15.697 million barrels daily.

Total petroleum product inventories saw a decrease of 3.0 million barrels from the previous report week.

Gasoline stocks rose 0.9 million barrels from the previous report week; total stocks are 222.3 million barrels.

Demand for gasoline decreased 344,000 barrels per day to 9.136 million barrels daily.

Total product demand decreased 574,000 barrels daily to 19.142 million barrels per day.

Distillate fuel oil supply rose 0.5 million barrels from the previous report week to 134.5 million barrels. National distillate demand was reported at 3.477 million barrels per day during the report week. This was a weekly decrease of 172,000 barrels daily.

Propane stocks declined 0.1 million barrels from the previous report week to 78.8 million barrels. Current demand is estimated at 935,000 barrels per day, an increase of 4,000 barrels daily from the previous report week.


Natural Gas

According to the Energy Information Administration:

Weekly net injections fall short of the five-year average. Net injections into storage totaled 51 Bcf for the week ending October 13, 2017, compared with the five-year (2012–16) average net injection of 78 Bcf and last year’s net injections of 77 Bcf during the same week. Increased power demand for natural gas contributed to decreased net injections compared with the previous report week.

Working gas stocks are poised to end the refill season lower than the five-year average. So far during the 2017 refill season, net injections into storage are 16% lower than the comparable five-year average—1,595 Bcf during the 2017 refill season compared with the five-year average increase of 1,895 Bcf. If net injections continue at 16% lower than the five-year average for the remaining three weeks, working gas stocks will reach 3,781 Bcf by the end of the refill season. Working gas stocks will total 3,807 Bcf if net injections into working gas match the five-year average for the remainder of the refill season.


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