The U.S. Energy Department said on Thursday it
would release 500,000 barrels of crude oil from the Strategic Petroleum
Reserve as Tropical Storm Harvey’s disruption of the petroleum industry
has spiked motor fuel prices.
The oil will be delivered to the Phillips 66 (PSX.N)
refinery in Lake Charles, Louisiana, according to a department
statement. That plant has not been affected by the storm, which has
hammered the Gulf Coast for several days.
Arkema's CEO said Wednesday that there is "no way to prevent" a possible
explosion at the company's Crosby, Texas, facility, which has been
heavily flooded as a result of Hurricane Harvey.
“We have an unprecedented 6 feet of water at the plant,” Arkema President and CEO Rich Rowe said in comments made Wednesday. “We have lost primary power and two sources of emergency backup power.
"As a result, we have lost critical refrigeration of the materials on
site that could now explode and cause a subsequent intense fire. The
high water and lack of power leave us with no way to prevent it," he
said.
Rowe added: "We have evacuated our personnel for their own safety. The
federal, state and local authorities were contacted a few days ago, and
we are working very closely with them to manage this matter. They have
ordered the surrounding community to be evacuated, too."
Residents within a 1.5-mile radius of the facility, which is near
Houston, have been told to leave, according to the Harris County Fire
Marshal's Office.
Rep. Ted Poe, R-Texas, who represents the district that includes the chemical plant, called the situation "very dangerous."
"The worst-case scenario is that this chemical plant could explode," he told ABC News.
The site has experienced torrential rains from Harvey, "receiving
approximately 40 inches by Monday afternoon," the company said in a
statement Tuesday evening.
Brendan Smialowski/AFP/Getty Images
Trucks
make their way through flood waters on a main road leading to the
Arkema Inc. chemical plant that was in crisis during the aftermath of
Hurricane Harvey, Aug. 30, 2017, in Crosby, Texas
On Tuesday, the company said it didn't believe there was any "imminent
danger" but stressed that "the potential for a chemical reaction leading
to a fire and/or explosion within the site confines is real."
"We are aware of the situation and are working with TCEQ, who is the
lead in this situation, to support them and other state and local
officials to mitigate risk to human health or the environment," an EPA
spokesperson said in a statement.
The U.S. Chemical Safety Board -- the federal agency that investigates
and helps clean up chemical accidents -- also said it was aware of the
situation.
"The CSB is aware of the situation through news reports. We don’t have
any other information other than what we are gathering from news
reports. We are prepared to deploy to any incident that might result
from Hurricane Harvey."
ABC News' Anna Maria Gibson, Clayton Sandell and Lauren Pearle contributed to this report.
The
Exxon Mobil Beaumont Polyethylene Plant is seen during tropical storm
Harvey in Beaumont, Texas, U.S. August 28, 2017. REUTERS/Jonathan
Bachman/File Photo
Gasoline futures surged on Wednesday to another
two-year high and crude oil fell, as flooding and damage from Tropical
Storm Harvey shut nearly a quarter of U.S. refinery capacity, curbing
demand for crude while raising the risk of fuel shortages.
Refineries
with output of 4.2 million barrels per day (bpd) were offline on
Tuesday, representing nearly 23 percent of U.S. production, according to
Reuters estimates and company reports. Restarting plants even under the
best conditions can take a week or more.
“It
will be a while before operations can return to normal and the U.S.
refining industry is bracing itself for an extended shutdown,” Stephen
Brennock of oil broker PVM said.
U.S. gasoline
futures RBc1 were up 6.5 percent at $1.8993 a gallon, having hit
$1.9140, highest since July 2015. Diesel futures HOc1 advanced by 1.7
percent to $1.6945 a gallon, having touched their highest since January
at $1.7161.
Brent
oil LCOc1, the international crude benchmark, was down 48 cents at
$51.52 a barrel at 10:54 a.m. EDT. U.S. crude CLc1 fell 39 cents to
$46.05.
The spread between Brent and U.S. crude hit its widest in more than two years, and was lately at $5.39 a barrel.
“Certainly
the spread widening out between WTI/Brent is Harvey-driven. You’ve
pretty much sapped a major chunk of Gulf Coast refining demand,” said
Anthony Scott, managing director of analytics at BTU Analytics in
Denver.
Gains intensified for refined products
after sources on Wednesday said Total’s Port Arthur, Texas, refinery had
been shut by a power outage resulting from the storm.
Gasoline
margins RBc1-Clc1 jumped, as the gasoline crack spread jumped 12.5
percent to $23.45 a barrel, highest on a seasonal basis since 2012.
“Crude
is always easier to replace than products,” said Olivier Jakob, analyst
at Petromatrix. “If the refineries stay shut for more than a week or 10
days, it’s going to be very problematic.”
Harvey
made landfall on Friday as the most powerful hurricane to hit Texas in
more than 50 years, resulting in the death of at least 17 people.
In
addition to shutting oil refineries, about 1.4 million bpd of U.S.
crude production has been disrupted, equivalent to 15 percent of total
output, Goldman Sachs said.
Effects of the
damages and shutdowns are expected to ripple for weeks. Explorer shut
two main lines carrying fuel to the Chicago market Tuesday, and the main
Colonial Pipeline to the U.S. East Coast was running at reduced rates.
The
market shrugged off weekly inventory figures from the U.S. Energy
Department, which reflect stocks prior to the storm. Crude inventories
USOILC=ECI fell by 5.4 million barrels in the latest week, far more than
the decrease of 1.9 million barrels analysts had expected. Refining
capacity utilization rose to 96.6 percent, highest since 2005, a figure
that will fall sharply due to massive shutins on the Gulf.
Additional reporting by Alex Lawler and Henning Gloystein; Editing by Dale Hudson and David Gregorio
Oil
and gas companies on the Texas Gulf Coast were dealing Saturday with
the impact of Hurricane Harvey, which made landfall near Corpus Christi,
Texas, and was expected to produce torrential rains and flooding over
the next few days.
As of 1 PM CDT (1700 GMT), Harvey, now listed as a tropical
storm, was about 45 miles west-northwest of Victoria, Texas, with
maximum sustained winds of 70 mph, according to the US National
Hurricane Center. The current path shows Harvey impacting primarily the
Corpus Christi area, weakening to a tropical depression by Monday, and
moving to the northwest of Houston.
Refiners shut nearly 900,000 b/d of capacity, primarily in the Corpus
Christi area, while area ports and terminals were closed to vessel
traffic.
Some offshore oil and gas operators evacuated platforms
and rigs, while onshore operators were shutting in what may amount to
hundreds of wells in the Eagle Ford Shale in South Texas.
Ports and Terminals
* Corpus Christi area ports remained closed Saturday, and so far
there are no reported oil spills or damages to storage tanks. The port
of Brownsville, located further south on the Texas/Mexico border,
reopened.
* All ports in the Galveston Bay port complex will remain closed for
the next 24 to 48 hours, but initial steps are being worked out to open
some parts of the upper Houston Ship Channel with Hurricane Harvey
showing signs of a slowdown, the Greater Houston Port Bureau said
Saturday.
* The US Coast Guard set Zulu condition Friday for four major ports
in the Houston-Galveston area complex, closing ports to all inbound and
outbound traffic, including crude oil tankers, at the Port of Houston,
Port of Texas City, Port of Galveston and Port of Freeport.
* Further north along the Texas coast, pilots on the Sabine Pass and
at Port Neches had normal traffic flows. Lake Charles, Louisiana, also
had normal traffic flows Friday morning, but service was expected to be
interrupted at some point Friday as the weather worsened, a port report
said.
* Phillips 66 suspended operations at its Freeport, Texas, terminal
after Port Freeport was closed, which will impact LPG exports and crude
imports at the facility. The Freeport Liquefied Petroleum Gas Export
Terminal started operations in December and can export 150,000 b/d of
LPG to Europe, Latin America and Asia. The LPG export project was an
expansion of the existing marine terminal in Freeport which also serves
Phillips 66's nearby 247,000 b/d Sweeny, Texas, refinery. The refinery
is said to be still operating, but crude imports will be curtailed
because of the port closure.
* NuStar Energy said it had completed fully shutting down its crude
and refined products terminal in Corpus Christi. NuStar's North Beach
Terminal at Corpus Christi includes a 1.6 million-barrel crude facility,
and 10 storage tanks with a combined capacity of 327,000 barrels for
gasoline, distillates, xylene and toluene, and a 72-mile, 15,000 b/d
pipeline that carries refined products and chemicals.
* Magellan suspended operations at its crude terminal and condensate
splitter in Corpus Christi. The midstream player operates a 3.5
million-barrel crude and condensate storage storage and a 50,000 b/d
condensate splitter at the facility. The company's refined products and
crude oil pipelines in the Houston Ship Channel area are operating
normally.
* Buckeye Texas Partners has suspended all marine terminal operations
in Corpus Christi and also initiated a full shutdown of its crude,
condensate, fuel oil and naphtha storage facilities in the area, a
company official said. The company's facilities at Corpus Christi
include 2.3 million barrels of storage for crude, condensate, fuel oil
and naphtha and three deepwater docks of a maximum draft of 45 feet that
can load Aframax vessels.
Early this month, Reuters data proved that China was the world’s largest importer of crude oil ahead of the US.
Figures showed that for the first time, China averaged 8.55 mill
barrels per day of crude oil imports in the first half of 2017, compared
with 8.12 mill barrels per day imported by the US.
This trend looks set to continue as China develops its refining
industry and builds strategic petroleum reserves. However, other factors
play a role, Gibson Shipbrokers said in a report.
First, one of the biggest differences between China and the US is
domestic oil production. China’s crude production has been in gradual
decline. According to data provided by Reuters, domestic production fell
by 5.1% in the first six months of 2017, averaging 3.89 mill barrels
per.
This is in contrast to growing US production on the back of the
revitalised shale industry in recent months and highlights a growing
trend in China of increased crude imports to replace declining domestic
production.
Perhaps more significantly, another factor driving imports has been the
continuing effort to build strategic petroleum reserves (SPR). Finding
accurate data on SPR levels increase can be difficult. However, by
adding crude imports to domestic production, minus refinery throughput,
an idea of surplus oil used to build SPR can be identified.
According to data from Reuters, when comparing the first half of 2016
to 2017, the increase between available crude and refinery throughput
was 510,000 barrels per day. Not all of this would necessarily go into
filling the SPR, however, a large percentage of overall crude import
growth can potentially be attributed to the SPR build, Gibson said.
Data released for July, shows refinery throughput was the lowest since
September, 2016. This slowdown, coupled with rising oil demand further
highlights the role of SPR builds in crude demand and invariably raises
the question of how long can this continue.
It is assumed that China will continue to build tits SPR for years. The
IEA has highlighted 2020 as a tentative completion date, with 182 mill
barrels of storage space yet to be commissioned - according to the
latest reports. However, unless further investment is made into building
new storage facilities it is possible to assume that this artificial
source of import demand will gradually decline.
According to a recent Sinopec presentation, China plans to add 2.5 mill
barrels per day of refining capacity by 2020, supporting growth in
Chinese oil imports into the future. In recent years, China’s refining
capacity expansion has pressured regional refining margins, as the
country’s refined product exports rise.
Politics may impact this in the future, but expanding capacity does
look set to place China in a more dominant position within the refined
products market.
Evidently, China will continue to have an ever greater role in the
global oil market and continue to cement its position as the world’s
largest crude importer. Due to declining domestic production and
refinery expansions, this should prove positive to tanker demand in
years to come, Gibson concluded.
Harvey, which has already shut energy platforms in the Gulf of
Mexico, scattered tankers and disrupted pipeline operations,
strengthened into a hurricane on a path that’ll have it slamming into
Texas’s coast Friday.
Harvey’s top winds reached 80 miles (129
kilometers) per hour as it bears down on the Texas coast about 340 miles
southeast of Corpus Christi, Texas, according to an update from the
National Hurricane Center. It is on track to become a Category 3 storm,
the first major hurricane to hit the U.S. since Wilma in 2005.
“The
primary impacts will be from widespread and potentially catastrophic
flooding, with total rainfall amounts over the next week exceeding a
foot in a large area from Corpus Christi to the Louisiana coast and then
up to 100 miles inland from there,” said Todd Crawford, chief
meteorologist at The Weather Company in Andover, Massachusetts. “Many
locations in those areas may exceed two feet. Clearly Houston is at risk
for historic rainfall amounts over the next week.”
Texas Governor Greg Abbott declared a state of disaster for
30 Texas counties. In addition to the potential loss of life, flooding
can close roads and knock out power to homes, businesses and refineries.
The five refineries in the Corpus Christi area can process about
868,000 barrels a day, or 4.2 percent of total U.S. capacity, according
to Lipow Oil Associates. A further 11 refineries in Houston, Texas City
and Baytown have a capacity of about 2.7 million barrels a day.
“Biggest
impact of this storm will be a significant reduction of crude oil
imports into the Texas Gulf Coast, resulting in refineries cutting crude
rates,” Andy Lipow, president of Lipow Oil Associates in Houston, said
by email Wednesday. “There will also be a significant impact on
petroleum product exports impacting supplies into Mexico.”
Workers prepare sandbags ahead of Tropical Storm Harvey in Brownsville, Texas, on Tuesday, Aug. 22, 2017.
Photographer: Miguel Roberts/The Brownsville Herald via AP
Corpus
Christi ship pilots suspended incoming boardings, according to the
port. All foreign ships, except for one, are leaving the port to steer
clear of the storm, the U.S. Coast Guard said. Magellan Midstream
suspended operations at its Corpus Christi marine terminal and
condensate splitter early Thursday.
The storm will bring heavy
rains. The U.S. Weather Prediction Center is calling for more than 20
inches (51 centimeters) of rain from Corpus Christi to Houston in the
next seven days.
“It is rapidly intensifying mainly due to the
fact the Gulf is so warm,” said Shunondo Basu, a meteorologist and
natural gas analyst at Bloomberg New Energy Finance. “It is definitely
going to be an issue for the ship channels in the Gulf.”
While
oil supplies could be disrupted, natural gas demand could fall, said
Matt Rogers, president of the Commodity Weather Group LLC in Bethesda,
Maryland. When hurricane Ike hit Texas in 2008, power outages cut
electricity demand, reducing the need for gas and depressing prices.
Ike,
a Category 2 storm when it struck near the mouth of the Houston Ship
Channel, killed 103 people across the Caribbean and the U.S., including
at least 21 in Texas, Louisiana and Arkansas. It caused about $29.5
billion in damage, according to a 2009 National Hurricane Center report.
Anadarko Petroleum Corp. shut
in production and evacuated its Boomvang, Gunnison, Lucius and Nansen
oil and gas production platforms in Gulf of Mexico ahead of Harvey,
according to statement on the company website Wednesday. Noble Corp Plc.
evacuated its Noble Paul Romano rig, Jeff Chastain, a company
spokesman, said Thursday by email.
Kinder Morgan Inc.’s Tennessee
gas pipeline declared force majeure for stations in south Texas on
Friday and also plans to evacuate some staff.
Storm Surge
Exxon Mobil Corp.
had said it’s cutting output at its Hoover production platform in the
Gulf of Mexico ahead of the storm. The company’s also working on plans
to evacuate staff in stages from offshore facilities, Suann Guthrie, a
spokeswoman, said by email Wednesday. Royal Dutch Shell Plc shut production at its Perdido platform and evacuated the facility.
Along the coastline, seas could rise 5 to 7 feet (1.5 to 2.1 meters) above ground level.
American
Airlines Group Inc. is allowing people traveling through Houston and
nine other cities on certain dates to re-book their flights without a
fee because of the storm. United Continental Holdings Inc. is offering
the same in eight cities, while Delta Air Lines Inc. is offering a
similar waiver for Houston flights.
Policyholder-owned State Farm
Mutual Automobile Insurance Co. has the largest share in the market for
home coverage in Texas, followed by Allstate Corp., Farmers Insurance
and United Services Automobile Association, according to data compiled
by A.M. Best Co.
— With assistance by Amy Stillman, Sheela
Tobben, Marvin G Perez, Naureen S Malik, Barbara J Powell, Mary
Schlangenstein, Sonali Basak, Ryan Collins, Laura Blewitt, Jim Polson,
Sebastian Tong, Alex Tribou, Alex Longley, Melissa Cheok, and David
Wethe
Oil pared gains after the American Petroleum Institute unexpectedly
reported higher inventories of U.S. gasoline and diesel last week, even
as crude supplies declined.
The API estimated
Tuesday that stockpiles of gasoline rose 1.4 million barrels last week
and diesel expanded 2.05 million, according to people familiar with the
data, which is only disclosed to members. That would be a third straight
increase for gasoline at a time when supplies typically shrink because
of summer demand. Analysts surveyed by Bloomberg before the government’s
weekly tally on Wednesday estimated a decline of 1.3 million barrels.
“Typically,
the builds start in September,” James Williams, an economist at London,
Arkansas-based energy researcher WTRG Economics, said by telephone.
Yet, the gasoline increase is “not that unusual, particularly because
refineries have been running pretty much full out,” but if the
government confirms it, oil prices could face downward pressure.
Oil in New York has floundered below $50 a barrel this month
as the Organization of Petroleum Exporting Countries and its allies work
to curb a worldwide surplus fed largely by American shale. Even as U.S.
drillers withdraw rigs from fields, output from shale regions are
forecast to reach a record next month. A committee set up to monitor OPEC-led cuts saw compliance with the agreement at 94 percent in July, down from 98 percent in June.
West
Texas Intermediate for October delivery traded at $47.64 a barrel at
4:40 p.m. after settling at $47.83 a barrel on the New York Mercantile
Exchange. WTI for September delivery expired Tuesday at $47.64 a barrel.
Brent
for October settlement added 21 cents to settle at $51.87 a barrel on
the London-based ICE Futures Europe exchange. The global benchmark crude
traded at a premium of $4.04 to October WTI.
Waiting for Clarity
A ministerial committee that reviews cuts
by OPEC and its allies has a proposal to meet on Sept. 22 in Vienna,
according to delegates familiar with the matter. Another panel, composed
of technical experts, plans to meet to review compliance with the
agreed cuts two days earlier, the delegates said.
The market needs
clarity on whether OPEC will extend its production-cut agreement
further into 2018 before moving substantially higher, Bart Melek, head
of global commodity strategy at TD Securities in Toronto, said by
telephone.
Oil-market news:
A pipeline linking Libya’s Sharara field to the Zawiya port has reopened Tuesday after an earlier shutdown.
The Energy Department is accepting bids for 14 million barrels of sour crude oil from the U.S. oil reserve until Aug. 30, according to a notice of sale posted Tuesday.
WTI will continue to trade at a discount to Brent but its relative weakness to the global benchmark will abate in the coming months, according to BNP Paribas SA.
— With assistance by Ben Sharples, Grant Smith, Lucia Kassai, and Salma El Wardany
U.S. gas prices are slightly lower than last week because of factors
like lower oil prices, though the national scene masks regional
volatility, AAA reported.
The motor club reports a national average retail price for a gallon
of gas at $2.34 for Tuesday, a fraction of a percent higher than the
previous day, but about a half percent lower than last week.
The price at the pump mirrors crude oil prices, which have been trading
in a relatively narrow range near the $50 per barrel mark.
The official summer driving season draws to a close in September, though AAA said in its weekly retail market report that markets may get tighter "as demand continues full steam ahead."
Summer demand pressures usually push gasoline prices higher, though
the market is balanced somewhat by strong U.S. gasoline and crude oil
production. A report from S&P Global Platts, which provides
information and benchmark prices for the energy market, said crude oil
and gasoline inventories from last week are both expected to show
declines, however.
By region, the West Coast is the most expensive market in the country
and prices at the pump were likely skewed higher by the demand
pressures from tourists hitting the area to move into the path of
totality for Monday's solar eclipse. Oregon prices jumped 10 cents per
gallon and the regional market overall was strained by a decline in
gasoline inventory levels for the third week in a row.
The Great Lakes market is the most volatile in the nation, with
Indiana leading the pack with a 10 cent decline in retail gasoline
prices. That trend could reverse, however, because AAA said inventory
levels usually follow gasoline prices lower. The drain on regional
gasoline inventory levels last week was the largest in the country.
A federal market report said the national average price for gas is
about 2 cents less per gallon than the forecast for the summer driving
season. The full-year average price is expected to be $2.33 per gallon
for both 2017 and 2018.
Crude oil prices spiked Friday on signs of a slowdown in U.S.
exploration and production activity, though forward-looking seasonal
issues suggest prices could moderate and bring relief to drivers.
Freight rates for very large crude
carriers (VLCCs) on Asian routes will remain under pressure for at least
the next month, facing strong headwinds from a glut of tonnage, brokers
said.
“There are around 80 to 90 ships
available for charter in the first 10 days in September – that’s about
three ships for every cargo,” a Singapore-based supertanker broker said
on Friday.
“That’s a bit of a car crash.”
“There are about six or seven VLCCs free
for charter now, but the earliest they’ll see any cargo is early
September,” he said.That came as owners were attempting to resist moves
by Chinese oil trading house Unipec to push rates lower on its latest
charter.
Brokers said Unipec was aiming to fix at
below 40 on the Worldscale measure for its fixtures on Friday, but
owners were trying to hold a line at W43.
Even so, VLCC earnings from the Middle
East to Asia fell to around $8,800 this week, a similar level to
operating expenses but less than half of average daily break even costs
of $22,000.
Rates from the Middle East to Asia are
now lower than the low point last year. New York-based ship broker
McQuilling Services forecast charter rates this year for a VLCC voyage
from the Middle East to Japan would average $26,300 a day in a report on
Wednesday.
That compared with $40,700 per day in 2016 and $66,700 in 2015.
“Apart for 2015 and last year it’s been a
miserable decade so far for tanker owners,” said Ashok Sharma, managing
director of ship broker BRS Baxi Far East in Singapore.
Sharma said average earnings are $24,000 per day so far this year for VLCCs from the Middle East to Asia.
While oil and tonne-mile demand have risen, tanker markets have been hit by a raft of new vessel deliveries.
The International Energy Agency forecast
oil demand would rise to 1.5 million barrels per day (bpd) this year,
up from an earlier forecast of 1.4 million bpd.
VLCC tonne-mile demand has also risen by 2.5 percent this year compared with last year, McQuilling said.
But the number of VLCCs actively trading is expected to rise 6 percent to 707 ships, McQuilling said.
“There is a huge mismatch between the
supply of ships and cargo demand that the market can’t take. This
situation is going to repeat itself next year with around 50
newbuildings which is actually quite alarming,” Sharma said.
“The only positive sign is demolition
prices which have risen to $400 per light tonne, which would put the
price of a vintage VLCC close to $17 million,” Sharma added.
“But there needs to be a great deal of
ships sold for demolition – 25 to 30 ships – before vessel scraping
makes an impact on charter rates and the tanker market,” Sharma added.
VLCC rates on the Middle East-to-Japan route dropped to W41.50 on Thursday from W42.50 last week.
Rates on the West Africa-to-China route fell to W48.50 on Thursday from W50 last week.
Charter rates for an 80,000-deadweight
tonnes Aframax tanker from Southeast Asia to East Coast Australia was at
W84.25 on Thursday, compared with around W84.75 last week.
Global oil consumption ebbs and flows from one season to the next. So
the current months of higher demand will be scrutinized closely for
signs of whether production cuts from the Organization of Petroleum
Exporting Countries and its allies are bearing fruit. The group is
struggling to clear the glut that’s kept prices close to $50 a barrel --
half the level three years ago. The annual rhythms of refiners, U.S.
motorists and the weather will play a big part in determining whether
the cartel’s effort to boost prices is successful.
1. Why are the next few months so important?
Demand
for oil tends to increase during the summer as U.S. households hit the
road for their vacations. Consumption tails off in September as the
driving season ends and refineries halt for maintenance, before rising
again at the start of winter as people burn oil for heating. Periods of higher demand
offer OPEC an opportunity to make a significant dent in swollen crude
stockpiles, while the lulls carry the risk that the surplus will grow
again.
2. Shouldn’t OPEC’s cuts have eliminated the glut already?
OPEC
and allies including Russia agreed to curb output by as much as 1.8
million barrels a day for six months starting in January. Initial confidence from Saudi Arabia -- OPEC’s de-facto leader -- that this would do the job quickly turned into the realization that a longer reduction
was required. The extension was deemed necessary because a rally in the
price of oil revived investment in the U.S. shale industry, causing
production there to boom again.
3. What are analysts watching for?
Data showing how many miles were driven by U.S. vacationers
will be released over the next few months, but there are already signs
that summer demand is helping OPEC achieve its goals. The nation’s
refiners were gulping down a record 17.6 million barrels a day earlier
in August, well above the summer averages for the last two years. Crude
inventories have dropped almost every week since the start of April and
now stand at their lowest since January 2016.
4. What are the wild cards?
Weather
plays a big part. Hurricanes could disrupt oil production in the Gulf
of Mexico as well as the operations of coastal refineries. An unusually
cold Northern Hemisphere winter could cause boost demand and increase
prices. The pace of the recovery in U.S. shale production -- which
caught OPEC by surprise this year -- remains hard to predict.
5. Will the global surplus of fuel stockpiles finally disappear?
That’s
still a matter of considerable debate. OPEC and Russia have already
extended their cuts for nine months longer than originally expected and
now plan to wrap them up next spring. Even that may prove to be
inadequate, with data from the International Energy Agency showing
inventories in industrialized nations could remain oversupplied even
after the end of 2018. Without deeper supply reductions -- which so far
haven’t found enough support within OPEC -- it could take years for the surplus to be eliminated.
6. What does this mean for OPEC’s effort to boost prices?
OPEC’s
goal of rebalancing the oil market, ending three years of oversupply,
keeps slipping out of reach. In the first half its efforts were
undermined by recovering output from Libya and Nigeria -- members exempt
from the deal -- and increases in U.S. shale production. The situation
should improve in the second half, when both Goldman Sachs Group Inc.
and the International Energy Agency expect demand to significantly
exceed production.
7. What could spoil OPEC’s plan?
There are three main risks. Disappointing global economic growth could damp demand. OPEC members could backtrack
on their promises and exceed their quotas. Or U.S. shale could continue
to grow faster than expected. By the group’s next meeting on Nov. 30,
it will have September stockpile data that will show whether the summer
demand bump put inventories on track to fall back in line with the
five-year average. If inventories haven’t fallen enough, the cartel may
need to consider cutting output even further beyond spring 2018. With
compliance with the curbs already weakening, that may not be an easy agreement.
8. Could this -- finally -- be the end of OPEC?
Probably not. OPEC’s obituary has been written again and
again, but the group tends to come bouncing back. There’s little
question the shale revolution has weakened the cartel’s grip on the
global market, at least for now, but it maintains some key advantages.
OPEC’s heartland in the Middle East still holds the world’s most
profitable fields -- simply put, it costs far less to drill into the
Saudi desert than the bottom of the Atlantic Ocean or even the shale
fields of Texas. In the long-run, we’re likely to rely more on OPEC’s
crude than on expensive barrels drilled in countries outside the group.
Saudi Arabia's crude oil exports in June fell
slightly to 6.889 million barrels per day (bpd), 35,000 bpd lower than
the May level, official data showed.
OPEC's
biggest producer also pumped 10.070 million bpd in June, up 190,000 bpd
from May, according to a posting on the Joint Organizations Data
Initiative (JODI) website.
The kingdom
increased direct-burn crude used for power generation in June as demand for electricity increases during the hot summer months. It used 680,000
bpd of crude oil to generate power in June, up 76,000 bpd from May.
The Muslim fasting month of Ramadan, when the use of electricity surges, ran from May 27 to June 25 this year.
Saudi demand for oil products rose to 2.634 million bpd in June, up from 2.535 million bpd in May.
The
kingdom also continued to draw crude oil from its inventories, which
fell by 2.253 million barrels to 256.55 million barrels in June. Saudi
oil stocks peaked in October 2015 at a record 329.430 million barrels.
Riyadh
is leading an effort by the Organization of the Petroleum Exporting
Countries (OPEC) and other producers to curb output and drain a global
supply glut. OPEC's share of the cuts, which will run to March 2018,
amount to about 1.2 million bpd. Non-OPEC producers agreed to cut half
as much as that.
Saudi Arabia's production in June is only 12,000 bpd above its output target - 10.058 million bpd - under the OPEC deal.
Saudi's
local refineries processed 2.577 million bpd in June, up from 2.517
million bpd in May. Its refined products exports rose to 1.362 million
bpd in June from 1.279 million bpd in May.
Monthly figures are
provided by Riyadh and other OPEC members to the Joint Organizations
Data Initiative (JODI), which published them on its website.
Reporting by Reem Shamseddine; Editing by Tom Hogue
Oil settled lower Wednesday after the Energy Information
Administration report revealed a weekly climb in domestic production to
the highest level in over two years.
The government data also
showed the largest weekly decline in U.S. crude supplies since September
of last year and they have now fallen seven weeks in a row, but those
figures failed to offer any lasting price support for oil during the
session.
September West Texas Intermediate crude
CLU7, +0.26%
shed 77 cents, or 1.6%, to
settle at $46.78 a barrel on the New York Mercantile Exchange. The
decline marked the third-consecutive loss for WTI, which stands at its
lowest finish since July 24, according to FactSet data. October Brent
crude
LCOV7, +0.44%
on London’s ICE Futures fell 53 cents, or 1%, to $50.27 a barrel.
U.S. production “increased
at a pretty good clip,” and demand for gasoline and distillates was also
down, said Tariq Zahir, a managing member at Tyche Capital Advisors.
“A
combination of record refinery runs for the time of year and strong
exports have encouraged the largest draw to crude inventories in eleven
months,” said Matt Smith, director of commodity research at ClipperData.
Troy
Vincent, an oil analyst at ClipperData, said that his outlook for
significant supply draws throughout August “points to a continuation of
this expanding year-on-year deficit in the coming weeks.”
Gasoline
stockpiles were unchanged for the week, while distillate stockpiles
lost 700,000 barrels last week, according to the EIA. The S&P Global
Platts survey showed expectations for declines of 400,000 barrels for
gasoline stockpiles and 700,000 barrels for distillates, which include
heating oil.
Looking ahead, “the peak of summer driving season
has now passed, and demand for crude will also wane as refinery runs
drop,” said Smith. “Gasoline demand will ebb as summer road trips are
mostly over and children head back to school.”
On Nymex, gasoline for September
RBU7, +0.31%
fell 1.6 cents, or 1%, to $1.564 a gallon, while September heating oil
HOU7, +0.19%
ended at $1.574 a gallon, down 2.5 cents, or 1.6%.
September natural gas
NGU17, +0.10%
fell 4.5 cents, or 1.5%, to
$2.89 per million British thermal units ahead of its own U.S. supply
update due Thursday from the EIA.
In related news, the U.S. Energy Department announced
Tuesday that it will put 14 million barrels of crude oil from the
Strategic Petroleum Reserve up for sale later this month under the
crude-oil sales offer programs announced in 2015 and 2016.
The U.S. Department of Energy said it plans to sell some of the oil
from the Strategic Petroleum Reserve, the world's largest emergency
supply of oil.
The department's Office of Fossil Energy said the sale from the
federally-owned stockpile was scheduled for late August. The office aims
to draw down and sell 14 million barrels of oil in order to meet the
requirements of bipartisan legislation, most recently enshrined in the
21 Century Cures Act.
Under the measure, signed in January, the government aims to sell off
25 million barrels of oil over the next three years, with 9 million on
tap for sales next year.
"Revenues from the sale will go to the general fund of the United
States Department of the Treasury, to carry out the National Institutes
of Health's innovation projects," the department reported.
This would be the second release from the SPR this year and would
come at a time when analysts and investors are watching for data
indicating the degree to which the market is balanced between supply and
demand. Members of the Organization of Petroleum Exporting Countries in
late November agreed to trim production to counter a glut of oil
brought on in part by the rise in U.S. shale oil production a few years
ago. That agreement went into force in January and expires in March.
A report from S&P Global Platts that followed the first SPR release,
indicated the volume of crude oil injected into the market from the SPR
would be relatively negligible and the long-term impact on the price
for oil should be relatively minor. To put it in perspective, total U.S.
crude oil production per day is around 9 million barrels.
Phil Flynn,
senior market analyst for the PRICE Futures Group in Chicago, told UPI
that "based on what we have seen lately, it will only replace two weeks'
worth of draws" from U.S. crude oil stockpiles.
OPEC's balancing effort aims to bring inventories down near the
five-year average. According to OPEC, commercial oil stocks for the
developed countries in the Organization for Economic Cooperation and
Development in June were still above the latest-five year average by
about 252 million barrels.
The amount of crude oil in the SPR was 678.9 million barrels as of Aug. 4, a decline of 16.2 million barrels from one year ago.
The SPR was designed as an emergency reserve and any release of oil
from there usually coincided with international crises like the outbreak
of the civil war in Libya in 2011. The International Energy Agency
requires member states to hold the equivalent of 90 days of the previous
year's imports in reserve.
A budget proposal put forward by U.S. President Donald Trumpin March relied in part on additional SPR sales.
Sherry Vargson ignites the tap water in her kitchen in Granville Summit,
Pennsylvania, in 2012. Her family’s farm is in the Marcellus Shale
region, where the fracking rigs have contributed to increased methane in
the water supply.
Shell has launched a methane detector pilot at one of its shale gas sites in Alberta, Canada.
The pilot test is part of a wider initiative called the Methane
Detectors Challenge, a collaboration between the Environmental Defence
Fund (EDF), oil and gas companies, US government agencies and technology
developers to develop a next generation methane detection system. It is
hoped that the initiative will result in earlier detection and repair
of methane links, in turn reducing emissions.
“This pilot shows we’re serious about reducing the methane emissions
associated with natural gas production to support the overall climate
benefit of this fuel,” said Greg Guidry, Executive Vice President
Unconventionals, Shell. “Shell is looking at all aspects of its
operations, from equipment to processes, to assess and identify emission
reduction opportunities.”
34 times more potent as a heat trapping gas than carbon dioxide,
methane is a greenhouse gas which proves a costly challenge for the
energy industry. It is a common byproduct of shale gas extraction,
making detecting the presence of the gas hugely important.
Shell already has leak detection and repair programmes in operation
across all of its shale gas sites, however, the Quanta3 sensing system
used in the pilot is a new technology that can continuously monitor
methane emissions, unlike handheld optical gas imaging (OGI) cameras.
“A new frontier of methane detection is coming, and Shell is helping
to give us a glimpse of that future,” said Ben Ratner, Director, EDF.
“The ultimate test will be whether the industry scales new tools and
approaches to minimize wasteful methane emissions in North America and
across the world.”
Depending on the outcome of the pilot, next generation detection
technologies could be used to complement OGI cameras and other
monitoring tools. These technologies could also have broader
applications across the natural gas value chain.
In addition to the Methane Detectors Challenge, Shell is involved in
other partnerships, including the Oil and Gas Climate Initiative (OGCI),
to understand the gaps in methane data and detection technology to help
both companies and policy-makers act more effectively.
OPEC's oil output rises to the highest level since December, the month before the cartel started cutting output.
A production recovery in Libya and Nigeria drives the gains last month.
OPEC raised its collective oil output for a
fourth-straight month in July, another sign that it is struggling to
stick to a deal to pump less.
OPEC output jumped by 173,000
barrels a day to nearly 32.9 million barrels, according to independent
sources cited by the group Thursday in a monthly report. That was the
highest level since December, the month before the cartel began
enforcing an agreement to limit its output in a bid to rebalance the
market after three years of oversupply.
OPEC officials met earlier this
week in Abu Dhabi to discuss how to improve compliance with the deal but
didn't announce any clear steps.
The producer group has partnered with
nonmembers, including Russia, since January to keep 1.8 million barrels a
day off the market in order to shrink global crude stockpiles and boost
prices. Rising output from U.S. drillers and OPEC members Libya and
Nigeria, which are exempt from the deal, has frustrated that effort.
The oproduction recovery in Libya and Nigeria
continued in July as the African nations restored output sidelined by
civil conflicts.
Libya's daily output rose above 1 million barrels last month, up more than 150,000 barrels a day.
Nigeria hiked daily production
by about 34,000 barrels, reaching about 1.75 million barrels a day.
Nigerian officials agreed last month to consider production limits once
the country hits 1.8 million barrels a day.
Saudi Arabia, the group's top
producer and de facto boss, pumped above the limit it agreed to last
winter, producing 10.07 million barrels a day. The kingdom has cut
production well below its quota throughout much of the year, helping to
offset weak compliance from other members. The rise is likely due in
part to seasonal factors, as the Saudis burn crude to meet higher
electricity demand in the summer.
Still, Saudi Arabia and Russia last month warned they would not tolerate cheating and took a tough line with producers.
Two of the laggards, Iraq and the United Arab Emirates, reduced output in July, but were still pumping above their quotas.
The world's appetite for oil
will reach 96.5 million barrels a day this year and 97.8 million barrels
a day in 2018, according to OPEC's latest assessment.
OPEC believes interest rates in
developed nations will rise gradually from current low levels,
supporting borrowing and economic growth in developing countries. The
cartel also sees a reduction in geopolitical tensions in some pockets of
the world boosting growth.
"Taken together, this will allow
the global economy to enter the coming year with a firm basis to
support better-than-projected growth in 2018," OPEC said in the report.
Oil prices fell on Friday after the International
Energy Agency said weak OPEC compliance with production cuts was
prolonging a rebalancing of the market despite strong demand growth.
Brent
crude LCOc1, the global benchmark, was at $51.83 a barrel at 1220 GMT,
down 7 cents, having earlier fallen 50 cents or around 1 percent to its
lowest since Aug. 1.
U.S. West Texas
Intermediate crude CLc1 was down 10 cents at $48.49 per barrel, having
earlier dropped 1 percent to its lowest since July 26.
Oil
touched 2-1/2-month highs on Thursday but closed down around 1.5
percent, with U.S. prices slipping back below $50 amid oversupply
concerns.
"There would be more confidence that
rebalancing is here to stay if some producers party to the output
agreements were not, just as they are gaining the upper hand, showing
signs of weakening their resolve," the IEA said in its monthly report.
The
IEA said OPEC's compliance with the cuts in July had fallen to 75
percent, the lowest since those curbs began in January. It cited weak
compliance by Algeria, Iraq and the United Arab Emirates.
In addition, OPEC member Libya, which is exempt from the cuts, steeply increased output.
"Crude
oil prices failed to hold recent gains, with a nervous market starting
to doubt recent falls in inventories," ANZ bank said in a note.
"Supply-side issues also weighed on prices."
The
IEA also said it had revised historic demand data for 2015-2016,
meaning a lower demand base in 2017-2018 combined with unchanged high
supply numbers could lead to lower stock draws than initially
anticipated.
Saudi Arabian Energy Minister
Khalid al-Falih said the kingdom did not rule out additional oil
production cuts, the Saudi-owned Al Sharq Al Awsat newspaper reported.
Meanwhile,
U.S. President Donald Trump stepped up his rhetoric against North Korea
again, saying his earlier threat to unleash "fire and fury" on
Pyongyang if it launched an attack may not have been tough enough.
"I
think the issue that is affecting the market is the general risk
sentiment of sabre-rattling between Washington and Pyongyang," said
Michael McCarthy, chief market strategist at CMC Markets.
Reporting by Dmitry Zhdannikov; Editing by Dale Hudson and Jason Neely
With
storage terminals becoming more and more efficient in loading and
unloading operations, a lot can happen within a week. For instance, at
Texas International Terminals in Galveston, Texas, the terminal has
20,000 feet of unit train landing track and designed to discharge via
rail at 15,000 barrels per hour. The terminal’s loading docks are also
capable of loading onto vessels at a rate of 11,500 barrels per hour with potential for expansion.
Genscape began measuring ethanol storage at Texas International
Terminals on July 7, 2017. Between the initial and following week’s
measurements, total ethanol storage differed by only 6,246 barrels
suggesting very little change from one week to the next. Over this same
period, daily measurements were collected as well. It was discovered
that while weekly measurements indicated a lack of storage movement,
there was actually more to the story.
Figure 1: Week-over-week ethanol storage measurements at Texas International-Galveston. Click to enlargeFigure 2: Daily storage levels taken at Texas International Terminals. Click to enlarge
Over the course of the week, roughly 57,000 barrels of ethanol were
delivered to the terminal. However, on July 12, there was a withdrawal
of 63,000 barrels of ethanol resulting in a net change of only 6,246
barrels from July 7 to July 14.
The Nordic Mari, a chemical oil products tanker, was moored at the
time of the withdrawal indicating that roughly 63,000 barrels of ethanol
was loaded onto the vessel. This was confirmed by visual imagery and
data collected through Genscape Vesseltracker™. Brazil port data at Itaqui later validated that the Nordic Mari delivered roughly 62,000 barrels at the end of the July.
Figure
3: The Nordic Mari arrived at Texas International Terminals on July 12
corresponding to the large ethanol withdrawal from the facility. Click
to enlarge
In addition to Texas International Terminals, Genscape is performing
the same daily tank level measurements at four other terminals in the
Houston and New Orleans area focusing on terminals that store and export
ethanol. Genscape flies over these terminals once a week to collect
detailed tank level measurements using infrared imagery.
In review of these terminals, it is apparent that daily storage
information can provide greater insight into ethanol movement into and
out of the Gulf Coast. Major events that occur at storage terminals,
such as vessel loading, cannot slip under the radar with this level of
granularity.
Beginning next month, Genscape plans to expand on this intra-week
storage analysis. By pairing daily tank measurements with vessel
monitoring, it can be detected when ethanol is loaded onto vessels.
Furthermore, this information can provide timely information and
transparency into ethanol exports well ahead of the ITC or EIA.
