US Production Growth Could Falter Post-Harvey

  1. Competition for recovery capex could take funds from exploration/production
  2. Crude oil price volatility diminishing
  3. Propane stocks rose 6.3 million barrels
  4. Natural gas could end injection season around 3.8 Bcf

 

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
 
 
 

The Matrix

Fallout from H. Harvey includes an emerging concern among analysts that domestic crude oil production growth could be inhibited going forward. Data for the week ending September 1, 2017 showed a loss of 783,000 barrels daily of lower-48 state production. This is understandable given the circumstances of H. Harvey. The cost of repairing damage to other components of the production/refining sector offers competition to spending for oil well costs.

Damage to refining has reduced demand for crude oil – at least until the system is repaired. And some experts believe full restoration of refineries and distribution systems could take many months. In response to these situations, the U.S. authorized release of 4.5 million barrels from the SPR.

The loss of production will add to the industry’s financial strains, reflected already in lower crude oil prices. Moreover, the EIA has revised June production estimates, estimating that output fell about one per cent during the month. Taken together, loss of refining demand and reducing new budgets for exploration and production are expected to push the objective of putting out ten million barrels daily back by about two years.

Volatility is a measure of market risk. It is a high number in a robust and fearful market. It is lower in calmer circumstances. As the reality of significant and long-term U.S. crude oil production takes hold, concerns for foreign geopolitical events have lessened, warranted or not. This relaxation of concern can be seen in lowering volatility and reduced price ranges for crude oil.

 

Here is a chart of monthly WTI crude oil prices since 2009. The Volatility Index (VI) is superimposed on the price candlesticks. VI topped out in November, 2011, coincident with the end of the recovery from the 2008-9 oil market collapse. It continues to make new lows since then, standing now at 36.6.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending September 1, 2017 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 7.0 million barrels during the week ending September 01, 2017.

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

Commercial crude oil supplies in the United States increased to 462.4 million barrels, a build of 4.6 million barrels.

Crude oil supplies increased in all five PAD Districts. PAD District 1 (East Coast) crude oils stocks rose 1.3 million barrels, PADD 2 (Midwest) crude oil stocks grew 0.6 million barrels, PADD 3 (Gulf Coast) stocks expanded 1.8 million barrels, and PADD 4 (Rockies) stocks increased 0.3 million barrels, and PAD District 5 (West Coast) crude oil stocks grew 0.8 million barrels.

Cushing, Oklahoma inventories increased 0.8 million barrels from the previous report week at to 58.0 million barrels.

Domestic crude oil production decreased 749,000 barrels daily to 8.781 million barrels per day from the previous report week.

Crude oil imports averaged 7.083 million barrels per day, a daily decrease of 822,000 barrels. Exports fell 749,000 barrels daily to 153,000 barrels per day.

Refineries used 79.7 per cent of capacity, a decrease of 16.9 percentage points from the previous report week.

Crude oil inputs to refineries decreased 3.253 million barrels daily; there were 14.472 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 3.142 barrels daily to 14.782 million barrels daily.

Total petroleum product inventories saw an increase of 2.7 million barrels from the previous report week.

Gasoline stocks fell 3.2 million barrels from the previous report week; total stocks are 226.7 million barrels.

Demand for gasoline declined 683,000 barrels per day to 9.163 million barrels daily.

Total product demand decreased 1.473 million barrels daily to 19.957 million barrels per day.

Distillate fuel oil supply declined 1.4 million barrels from the previous report week to 147.8 million barrels. National distillate demand was reported at 4.063 million barrels per day during the report week. This was a weekly increase of 153,000 barrels daily.

Propane stocks rose 6.3 million barrels from the previous report week to 79.9 million barrels. Current demand is estimated at 520,000 barrels per day, a decrease of 693,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

Net injections into storage for the week ending September 1 totaled 65 Bcf, compared with the five-year (2012–16) average net injection of 58 Bcf and last year’s net injections of 38 Bcf during the same week.

Working gas stocks total 3,220 Bcf, which is 15 Bcf more than the five-year average and 212 Bcf less than last year at this time.

The difference between working gas levels and the five-year average rose to 15 Bcf, after reaching its lowest level during the 2017 refill season the previous storage week. The storage surplus relative to the five-year average last peaked at 395 Bcf on March 10 and has posted declines in most weeks since then. Working gas stocks will end the refill season on October 31 slightly above the five-year average of 3,842 Bcf, if net injections match the five-year average for the remainder of the season. However, if net injections continue at their current rate, compared to the five-year average so far in the refill season, working gas stocks will end the refill season at 3,746 Bcf, or 96 Bcf lower than five-year average.

Natural gas prices traded down after release of the EIA inventory data. But the low at $2.905 remained within the range that has supported prices since mid-August. A break of that support would introduce a lower target of $2.75.

 

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