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When the price of oil rises to the point of pain, just remember the handy-dandy discount mechanism: a much stronger US dollar.

Glance at this chart of the trade-weighted U.S. dollar, and note the swing highs and lows in the price of oil per barrel around each peak and trough. You can look up historical inflation-adjusted prices of oil in USD on this handy chart: Crude Oil Prices – 70 Year Historical Chart (macrotrends.net)

The correlation isn’t perfect, of course. Oil was relatively cheap between 1986 and 2003, due to a relative abundance of supply as Saudi Arabia and new fields ramped up production, with two periods of extreme price action: a brief spike higher in 1990 preceding the First Gulf War, and a collapse to $17 in the 1998 Asian Contagion financial crisis.

Geopolitical crises, wars and supply shocks will move oil prices regardless of the value of the USD. That said, it’s clear that absent such shocks, there is a strong correlation between a stronger USD and lower oil prices (in USD of course) and a weaker dollar and higher oil prices.

The reason why is straightforward: if the dollar gains purchasing power against other currencies, it buys more oil for each dollar.

Conversely, when the USD weakens, its purchasing power declines and it takes more USD to buy an imported barrel of oil.

(Note that the price of domestically produced oil is largely set on the global marketplace. West Texas crude oil may be a few dollars less per barrel than Brent crude oil, but if the global price skyrockets, so does the price of US-produced crude.)

Since oil and gas are the essential resources of the industrial economy, the price paid by consumers and commercial users matter.

…click on the above link to read the rest of the article…

First Glimpse Of Harvey Impact Shows Biggest Crude Build In 5 Months, Smaller Gasoline Draw Than Expected

September 6, 2017

First Glimpse Of Harvey Impact Shows Biggest Crude Build In 5 Months, Smaller Gasoline Draw Than Expected

Amid all the chaos of Harvey’s outages and Irma’s expectations, tonight’s API inventory seems relatively irrelevant but we are sure the machines will be all over it – no matter that it will be guesstimated more than normal. WTI was at one-month highs above $49 as API printed and kneejerked lower despite a smaller than expected crude build (still the biggest build since March) and a smaller than expected draw in gasoline.

API

Crude +2.79mm (+4mm exp) – biggest build in 5 months
Cushing +669k (+1mm exp)
Gasoline -2.544mm (-5.2mm exp) – biggest draw in 6 weeks
Distillates -610k

Last week’s modest builds in products and big draw in crude occurred before Harvey hit. This week’s data shows the initial effects with a major build in crude (though less than expected) and major draw in gasoline stocks (though also less than expected).

Heading into the print, WTI was around $49 and RBOB had been bouncing back after falling intraday… The initial reaction was a kneejerk lower in WTI and RBOB…

China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

September 3, 2017

China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.

The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.

Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the launch by the end of this year. ?

“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.

The yuan-denominated futures contract has been in the works for years, and after several delays, it looks like it may be launched this year. Some potential foreign traders have been worried that the contract would be priced in yuan.

But according to analysts who spoke to Nikkei Asian Review, backing the yuan-priced futures with gold would be appealing to oil exporters, especially to those that would rather avoid U.S. dollars in trade.

“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Alasdair Macleod, head of research at Goldmoney, told Nikkei.

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

July 3, 2016

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

When it comes to “real-time” measurements of crude demand and supply, the data is notoriously bad (and perhaps, according to some, intentionally manipulated). We pointed this out most recently in early March when we that according to IEA data, crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of this 1 billion barrels which the IEA said was produced but not consumer, some 420 million are said to be stored on land in OECD member countries and another 75 million can be found stored at sea or in transit by tanker somewhere from the oil fields to the refineries. This means that as of this moment, about 550 million “missing barrels” are unaccounted for “apparently produced but not consumed and not visible in the inventory statistics.”

However, it is not only data at the annual level that is flawed: monthly, and especially weekly data is just as, if not even more distorted. In fact, as Bloomberg’s oil energy analyst Julian Lee asks, “could it be that the U.S. demand that’s helped drive a near doubling of oil prices since mid-February was illusory?”

Lee is referring to a major discrepancy in DoE reporting which through the Energy Information Administration, produces two sets of U.S. demand data that drive sentiment and influence trading. The first shows monthly figures. They’re two months out of date, but they give the most accurate assessment of what’s going on in the world’s largest oil-consuming country.

The second set of numbers come out each Wednesday, giving preliminary estimates for the previous week. For crude markets these weekly figures – though less reliable – are arguably more important, largely because they’re bang up to date.

…click on the above link to read the rest of the article…

Peak Oil: Are We Not Better Than This? Pt 7

May 14, 2016

Peak Oil: Are We Not Better Than This? Pt 7

091110 088

I began last week’s post with a variation of these questions:

How do optimistic projections from ExxonMobil’s “The Outlook for Energy: A View to 2040” report—which I highlighted in that post—square themselves in the face of the oil production challenges suggested by the news excerpts which were also included in that piece? How long do those opposed to climate change and peak oil implications dance away from the unpleasant truths?

What is the benefit beyond avoiding painful discussions today? At what point do those contrarian viewpoints give way to a recognition that there is more than enough evidence already in play to make those challenges both very real and quite formidable now?

How does postponing not just acknowledgment but any and all efforts to come to mutual understandings and a commitment to work cooperatively in addressing these matters make it any easier or better for anyone?

At what point does the single-minded pursuit of any and all efforts to oppose, deny, or obstruct the efforts of one’s political opponents give way to a recognition that repeatedly shooting oneself in the foot has limited benefits? A question I’ve raised numerous times in the past is just as relevant today: if you have to mislead, misinform, distract, omit, or even lie outright to support your opposing viewpoints or policy proposals, how valid are they to begin with?

What’s the point? What happens if you “succeed”?

Today’s reality about fossil fuels—oil in particular—and production thereof is no different than it was several months ago and no different than it will be in the days ahead: it is still a finite resource. Production of conventional crude oil, responsible for most of our technological marvels and economic progress over the course of a century-plus, peaked a decade ago.

…click on the above link to read the rest of the article…

Why Saudi Arabia Will Not Win The Oil Price War

April 27, 2016

Why Saudi Arabia Will Not Win The Oil Price War

Crude oil prices continued to surprise on Tuesday, with the U.S. benchmark adding another 4 percent to $44.60 a barrel. West Texas Intermediate is now up 65 percent since hitting 13-year lows below $27 a barrel February 11. It’s a performance only bettered by the globe’s second most traded bulk commodity – iron ore.

But like analysts of the steelmaking raw material, many in the industry have been surprised by the extent of the rally, consistently calling the oil price lower. The blame for the cloudy outlook for crude is mostly being laid at the door of Saudi-Arabia.

After the collapse of the Doha talks to freeze production and amid a spat with the U.S. over terrorism, the world’s top producer has threatened a scorched earth policy when it comes to maintaining and growing its market share.

But there is an alternative view out there that argues that the U.S., more than the Saudis, will control the direction of the market and in the event of an all-out price war holds the commanding position.

That’s thanks to astonishing technological improvements in the U.S. The shale revolution that drove natural gas production between 2010 and 2015, found its way into the oil field, resulting in a 57 percent jump in U.S. crude production in just three short years to peak at 9.7 million barrels per day in April 2015.

(Click to enlarge)

Source: Platts Analytics NG Market Call Long Term, NGL Market Call, and Crude Oil Market Call

And it’s not just a crude story: In the last decade, the U.S. has introduced 8.3 MMBoe/d (million barrels of energy equivalent per day) into the global market when one considers production of crude, natural gas and natural gas liquids according to research by Platts Analytics.

…click on the above link to read the rest of the article…

“China Is Hoarding Crude At The Fastest Pace On Record”

April 25, 2016

“China Is Hoarding Crude At The Fastest Pace On Record”

In the aftermath of China’s gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up.

We now know where most of it went: soaring imports of crude oil.

We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs.

As Energy Aspects pointed out in a report last week, “Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports.”

And sure enough, this kind of record surge in imports should promptly lead to another tanker “parking lot” by China’s most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show.

As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

So what caused this surge in demand? The answer is China’s “teapot” refineries.

According to Oilchem.net, the operating rate at small refineries in eastern Shandong province rose to 51.84% of capacity as of the week ended Apr. 22. The utilization rates climbed as various teapot refiners completed maintenance and restarted production.

…click on the above link to read the rest of the article…

“We Haven’t Seen This Is In Our Lifetimes” – CEO Says “Alberta Is In A Depression”

April 25, 2016

“We Haven’t Seen This Is In Our Lifetimes” – CEO Says “Alberta Is In A Depression”

Regular readers know that we’ve covered Alberta’s decline at length (refresher here), so there is no need to give much of a backstory other than to say that the situation seems to get worse for the Canadian province as each day passes even as oil has rebounded in the past two months.

Toronto’s “Condo King” Brad Lamb tried to put things into context when he said the situation is “worse than 2008.” However, on Friday we received an even more gloomy (albeit realistic) description of the economic situation in Canada’s energy hub, Alberta. In a very blunt interview with BNN, Murray Mullen the CEO of trucking company Mullen Group, said that the situation has moved well past recession, and should be described as a depression.

“Well, if you’re involved in the oil patch directly, drilling activity or anything like that I think we’ve gone beyond recession and it’s more a depression. The facts are that this latest round of commodity price collapse that happened the first part of this year I think really put the nail in the coffin for the industry.”

“The damage has already been done basically for this year. Even though it seems like the oil price and even natural gas is starting to recover, there was no room for error because commodity prices had fallen so low in 2015, and then when it happened in 2016, and it’s not just crude oil, it’s natural gas also. We’re just kind of trapped in a difficult market dynamic that we haven’t seen in probably most of our lifetimes.”

“There’s no investment activity going on below $40, it just goes to zero.”

…click on the above link to read the rest of the article…

China Stockpiling Oil At Highest Rate In Over A Decade

April 25, 2016

China Stockpiling Oil At Highest Rate In Over A Decade

China might be in the midst of another round of stockpiling, stepping up crude oil imports to fill its strategic petroleum reserve (SPR).

The slowdown in oil demand in China is one of the chief concerns regarding the state of oversupply in global oil markets. Excess production has driven down prices, but soft demand in China over the past year or so has led to a protracted recovery.

After a period of softness, oil imports could be rising once again. Bloomberg reports that the number of oil supertankers docking at Chinese ports is at a 16-month high. And there are 83 supertankers currently on their way to China, with a capacity of 166 million barrels of crude, the highest number in four months.

In the first quarter of this year China diverted about 787,000 barrels per day into its strategic stockpile, the highest rate since Bloomberg has been tracking the data in 2004. Overall, as of March, China was importing around 7.7 million barrels per day.

The activity makes sense – China needs to fill up its strategic reserve and has had several facilities come online last year, with more storage sites under construction. The timing is fortuitous since China can fill its storage reserves with oil at incredibly low prices.

Another source of additional demand comes from a policy change in the downstream sector. The central government recently loosened the rules on oil imports, allowing smaller refineries to import more crude oil. These so-called “teapot refineries,” with capacities of around 20,000 to 100,000 barrels of production per day, struggled under the old restrictions, producing at only 30 to 40 percent of capacity because of an inability to import oil. That has changed, and domestic refining production is set to rise, and with it, so are imports.

…click on the above link to read the rest of the article…

“China Is Hoarding Crude At The Fastest Pace On Record”

April 25, 2016

“China Is Hoarding Crude At The Fastest Pace On Record”

We now know where most of it went: soaring imports of crude oil.

As Energy Aspects pointed out in a report last week, “Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports.”

So what caused this surge in demand? The answer is China’s “teapot” refineries.

…click on the above link to read the rest of the article…

OPEC Update

April 21, 2016

OPEC Update

All charts are updated through March 2016

The latest OPEC Monthly Oil Market Report is out out. The charts are “Crude Only”production and do not reflect condensate production.

Also the charts, except for Libya, are not zero based. I chose to amplify the change rather than the total. OPEC is now 13 nations with the the addition of Indonesia.

All Data is in thousand barrels per day.

OPEC 13

OPEC production was up 15,000 barrels per day in March. But there has really been very little change since June of 2015.

Secondary Sources

OPEC uses secondary sources such as Platts and other agencies to report their production numbers. These numbers are pretty accurate and usually have only slight revisions month to month. The big gainer in March was Iran while the biggest loser was the UAE. Notice that the UAE says their production recovered in March, from their big drop in February. But OPEC’s “Secondary Sources” says they did not, they fell another 100,000 barrels per day.

…click on the above link to read the rest of the article…

Peak Oil: Time To Get Serious Pt 2

April 19, 2016

Peak Oil: Time To Get Serious Pt 2

If nothing else, we’ll need to recognize that, like climate change, Peak Oil is not some event looming on a distant horizon. Peak Oil is happening now.

We must guard against the notion that Peak Oil’s impact (like climate change) is just a one-time, cataclysmic episode “scheduled” to happen but only at some random time at an indefinite point sometime long into the future. That thinking suggest we can put off dealing with it until “later.” Conventional crude oil production peaked a decade ago. The short-term bump from tight oil production in recent years changed the totals for a brief period, but the the main issue is unchanged.

Media and industry spin may alter the perceptions of reality, but the efforts won’t change the reality. Peak Oil is already here! It’s not just about barrels of production totals. It’s what happens to a modern society powered by a finite fossil fuel resource drawn down every day to provide energy for a nearly-infinite number of needs, products, and demands.

The B team cannot match what conventional crude oil has provided all of us for more than a century. We’re now cruising along atop a somewhat steady (?) plateau of crude oil supply while feverish exploration continues, but a finite resource is still finite.

And inferior substitutes with their assorted financial and production challenges are still inferior substitutes.

The fact that peak oil’s impact won’t be obvious to all but the most rigidly delusional by next week, or next month, or next year, or for several years thereafter won’t alter the fact that what has powered modern society over these many decades will not be as available, affordable, or plentiful to power modern society in the years ahead. If we’re all waiting for a one-time collapse, then we’ve got a long wait ahead.

…click on the above link to read the rest of the article…

Supply Outages in OPEC Countries Push Up Oil Prices

March 21, 2016

Supply Outages in OPEC Countries Push Up Oil Prices

Much of the current oil price rally – up about 50 percent in less than two months – is due to the growing optimism in the markets. That is, the price surge is driven by speculative movements, bets that oil prices will rise.

However, the speculators are not entirely off base. While the underlying fundamentals still look pretty grim, there are some tangible impacts taking place in the world of oil supply and demand that are contributing to that bullish sentiment. First, probably the most closely watched stream of data comes from U.S. shale, which is posting steady declines each week.

But more recent data shows unexpected supply outages from several OPEC members, disruptions that have trimmed the group’s collective output by nearly 200,000 barrels per day.

Iraq lost somewhere between 260,000 and 320,000 barrels per day in February, according to OPEC data. The IEA estimated that Iraqi oil production fell by a more modest 210,000 barrels per day in February compared to a month earlier. To be sure, Iraq hit an all-time high in January at 4.43 million barrels per day (mb/d), and still is producing nearly 900,000 barrels per day more than a year ago. But the outage is not trivial.

(Click to enlarge)

A pipeline outage in Kurdistan temporarily knocked off 600,000 barrels per day beginning on February 17, a pipeline that runs from Iraq to the Mediterranean port of Ceyhan in Turkey. According to Reuters, Turkey’s energy minister said that the pipeline was originally shuttered on February 17 due to security concerns, and that the pipeline was subsequently damaged by an attack from PKK rebels on February 25. However, the PKK denies it participated in any attack. In any event, Turkey began repairs on the pipeline, which it estimated would take a few weeks.

…click on the above link to read the rest of the article…

OPEC Declines in February Despite Huge Iran Increase

March 16, 2016

OPEC Declines in February Despite Huge Iran Increase

All charts are through February 2016

The OPEC Monthly Oil Market Report just came out. The charts are “Crude Only”production and do not reflect condensate production.

Also the charts, except for Libya, are not zero based. I chose to amplify the change rather than the total. OPEC is now 13 nations with the the addition of Indonesia.

All Data is in thousand barrels per day.

OPEC 13

OPEC production was down 174,800 barrels per day in February

Secondary Sources

Algeria

Algeria peaked in November 2007 and has been in a steady decline since that point.

Angola

Angola has been holding steady since peaking in 2008 and 2010.

…click on the above link to read the rest of the article…

“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher

March 13, 2016

“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher

On Tuesday, Kuwait’s oil minister Anas al-Saleh delivered a rather stark warning to the rest of OPEC when he said the following about the much ballyhooed crude output freeze: “I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell.”

That was a response to a question about what Kuwait would do if all major producers failed to agree to the freeze. Of course “all major producers” includes Iran and having just now begun to enjoy the financial benefits of being free to sell its oil without the overhang of crippling international sanctions, Tehran isn’t exactly thrilled about the idea of capping production at the current run rate of around 3 million b/d.

As soon as sanctions were lifted, Iran immediately committed to boosting production by 500,000 b/d and said that by the end of the year, it would bring an additional 500,000 b/d of supply online. That would put Iranian production at around 4 million b/d total and, as we noted back in January, would mean the country will be raking in between $3 and $5 billion every month by the end of 2016.

Whether or not those numbers are ultimately achievable is debatable, but the point is, Iran came back to market at a rather inauspicious time. President Hassan Rouhani is attempting to rebuild his country’s economy and Tehran is attempting to attract tens of billions in investments. Taking the foot off the pedal now would be a bitter pill to swallow.

On Sunday, we got the latest from Iranian Oil Minister Bijan Zanganeh and the message was unequivocal: “They should leave us alone as long as Iran’s crude oil has not reached 4 million. We will accompany them afterwards.”

…click on the above link to read the rest of the article…

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