(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
In this week’s edition of the successes and failures of the oil and gas industry, regular Rigzone market watchers looked at oil prices, the potential restart of Iranian nuclear talks, Shell’s pullback on breaking calls and more. Read on to find out what they had to say.
Assembly area: What were the market expectations that actually happened over the past week – and what expectations didn’t happen?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, Collins College of Business, University of Tulsa: WTI broke the $ 85 a barrel mark this week as OPEC members remain reluctant to increase production at a time of low inventories and strong global demand. Brent crude hit $ 86.70, its high for the week. However, a bearish inventory report and news that Iran could resume nuclear talks by next month pushed prices down, which could end the nine-week period of gains. If the United States lifted sanctions on Iran, up to a million barrels of additional oil per day could hit the market. On the bullish side, traders were looking at stocks at the main oil hub of Cushing, OK, which had fallen to a low of 27 million barrels in three years, 50% below first-year levels. A reported increase in stocks of PADD3 (Gulf Coast) oil has led some to speculate that the crude is being transported from Cushing to export terminals on the Gulf Coast. But, with a tighter Brent / WTI spread, that may not have been the case. WTI (18) months ago was trading in negative territory on NYMEX.
The EIA’s weekly State of Oil report said commercial crude inventories increased last week from 4.3 million barrels to 431 million barrels, 6% below the average for this period. of the year. API reported stocks rose 2.3 million barrels while WSJ analysts called for a small gain of 500,000 barrels. Refinery utilization increased to 85.1% from 84.7% the previous week. Total motor gasoline inventories have declined by two million barrels and are now 3% below the five-year average for this time of year. Distillate inventories have declined by 400,000 barrels and are now eight percent below the five-year average. Crude oil inventories at the key hub in Cushing, OK, fell from 3.9 million barrels to 27 million barrels, or about 35% of the capacity there, a three-year low. 1.1 million barrels were withdrawn from the United States Strategic Petroleum Reserve as part of the delivery of previously announced sales. US oil production was maintained at 11.3 million barrels per day against 11.1 million barrels per day at the same date last year.
AAA reports US retail gasoline continued to rise this week, hitting a new seven-year high as it climbed to $ 3.40 per gallon as November futures hit a seven-year high of $ 2.54 per gallon. In the US stock market, future energy demand was boosted as the Dow, S&P and NASDAQ all hit new highs. Meanwhile, the US dollar has recently weakened, which has contributed to the strength in oil prices.
Natural gas managed to break above the $ 6.00 / MMBtu mark this week on the forecast for colder weather in the US, but a bearish inventory pushed prices down. Global natural gas prices remain high, with Europe and Asia posting equivalents of over $ 30 / MMBtu. The EIA’s weekly natural gas storage report showed an injection of 87 billion cubic feet, which exceeded WSJ analysts’ forecasts of 85 billion cubic feet as well as the five-year average of 62 billion cubic feet. The deficit from the five-year average for this time of year fell to 3.4%. Total gas stored now stands at 3.550 billion cubic feet, ten percent less than last year. Dry production last week was 93.6 billion cubic feet, while demand was 90.4 billion cubic feet, up from 86.3 billion cubic feet, with the residential / commercial sector seeing the largest increase ( domestic heating?). Exports to Mexico were 5.9 billion cubic feet while LNG exports declined from 10.9 billion cubic feet to 10.6 billion cubic feet.
Barani Krishnan, Senior Commodities Analyst at invest.com: Well, buyers were yearning for West Texas Intermediate to hit $ 85, so it’s no surprise that we ended up with $ 85 WTI. The bears were also hopeful that there would be a significant correction after nearly 10 weeks of one-way trading. So it’s not entirely surprising that some exhaustion has taken hold at the top of the market, despite its insane momentum. The thing that came from left field was, of course, Iran’s intention to return by November to the negotiating table with Western nuclear inspectors – a gamble that might work for the Islamic Republic this time around given how hard the world is for more oil. .
Tom McNulty, Houston-based Director and Head of Energy Practice at Valuescope, Inc: I was not at all surprised that Shell reacted immediately when Dan Loeb’s Third Point fund called for Shell to split into several business units. Shell’s management team politely and firmly noted that its deep and extensive technical expertise in energy is exactly what is needed to successfully drive the energy transition. All of Shell’s capabilities will need to be applied collaboratively, not from separate and isolated business units. Financial players, like hedge funds, are generally unfamiliar with energy systems. The energy in an isolated system is constant. It can be transformed from one form to another, but it cannot be created or destroyed. Shell knows this and will play a role in developing the very processes that migrate the energy supply from older forms to newer, cleaner forms.
Rigzone: What were the surprises of the market?
Krishnan: The real surprise to me is that refining usage remains well below the 90 percent norm for this time of year, dropping to 85 percent last week, despite gasoline demand remaining surprisingly strong. . The only explanation for me is the market offset now – that is, longer term oil is cheaper than fast – which allows refiners to delay delivery of the crude they need to produce oil. ‘gasoline, diesel and other products. It is a delicate hedge. The market could continue to rise and even downgraded contracts could become more expensive than they currently are. But the refiners are always taking the gamble and that explains why you have such drawdowns especially in gasoline week after week as crude inventories have piled up 17 million net barrels over the past five weeks.
Crude prices also fell this time after nine weeks of rallying, with Iran’s top nuclear negotiator saying Tehran’s talks with six world powers, aimed at reviving its 2015 nuclear deal, would resume by the end of November. The last time the parties met was in June. But in the larger context of the oil market, all of these factors are fleeting without the promise of lasting long enough to bring about a significant correction in crude prices. For example, Iran’s radical regime under President Ebrahim Raisi has consistently reversed Western efforts to rule over the Islamic Republic’s nuclear program. And while U.S. crude inventories may have risen in the past week, inventories at the Cushing, Oklahoma storage facility, a sometimes more important metric for the market, fell to a new three-low. years.
As a perspective, over the past 10 weeks, any 1 to 2% daily correction to WTI or Brent has often been reversed by an increase of 4 to 5% by the end of the week. While the current oil talk is extremely bullish, smaller positive developments are often amplified by those on the long side of trade to blow the rally out of proportion. Of course, the mission of the OPEC + producer cartel is to keep global crude production at around one-fifth of immediate needs. In any ordinary market, this would be seen as a deliberate stifling of natural production to create an imbalanced market. But in OPEC terminology, it’s called “rebalancing”.
Mcnulty: WTI and Brent traded today [Thursday], near a two-week low, but still expensive at levels above $ 80. The “excuse” in the market for this could indicate that there may soon be a deal with Iran. I don’t think it matters because Iranian oil has always been on the market secretly. The huge inventory count of US crude oil inventories, up 4.3 million barrels, is more of a reason. There is a lot of crude oil production in the world that is increasing, and any continued acceleration will cause prices to drop rapidly.
Seng: US oil production continues to hover around 11 million barrels per day despite prices exceeding $ 70 per barrel for over a month now. The “free cash flow” mantra of publicly traded oil and gas companies continues to be the order of the day, as evidenced by earnings reports.
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