CRUDE OIL INVENTORY/’000 bbls (Week Ended 10/5/12)
Current: 366,370
Actual Build/(Withdrawal): 1,672
Economist Average Estimate: 773
Previous: 364,698
Click here for the chart with five year averages.
CRUDE OIL IN THE MEDIA
*Continental Resources says Oklahoma discovery may add 1.8 billion barrels – Tulsa World
Continental Resources Inc. says a shale-oil discovery in Oklahoma may add the equivalent of 1.8 billion barrels of crude to the company’s reserves as it drills more than 2,000 wells in coming years. The South Central Oklahoma Oil Province, or SCOOP, lies beneath oilfields that began producing crude as early as 1905, Oklahoma City-based Continental said in a slide presentation prepared for a meeting with analysts Tuesday. The geology of the discovery is similar to the Bakken Shale region in North Dakota and Montana, where Continental is the largest holder of drilling rights, according to the presentation. The company has been quietly amassing drilling leases in the SCOOP since at least 2010 and now holds 170,600 acres. The wells Continental has so far drilled in the SCOOP have cost about $9 million apiece. Continental is exploring for crude in two other “stealth” prospects in the U.S., company President Rick Bott said during the presentation. He declined to identify the location or estimated size of the fields. – Read More
*BP to Sell Texas City Refinery to Marathon Petroleum – New York Times
BP said on Monday that it would sell its refinery in Texas City, Tex., and other assets to Marathon Petroleum for as much as $2.5 billion, as BP neared the completion of an aggressive plan to pare back assets. The company embarked on a $38 billion divestiture program after the Deepwater Horizon drilling disaster in the Gulf of Mexico in 2010, selling off a slew of properties like offshore holdings in the gulf and tracts of shale in Wyoming. With the closing of the Texas City sale, BP will have sold $35 billion worth of assets. Under the terms of the deal, Marathon Petroleum will pay $598 million and include inventories worth about $1.2 billion. An “earn-out” provision could lead to an additional $700 million over six years if the facility meets certain performance targets. – Read More
*Tribes seeking larger cut of ND oil tax money – Houston Chronicle
North Dakota’s Three Affiliated Tribes will press for a bigger slice of the tax revenue from the oil pumped on its reservation, the tribe’s tax director said. Production on the Fort Berthold reservation, in the heart of western North Dakota’s oil country, has been responsible for $346 million in tax revenues over four years, the state Tax Department says. The tribe has collected $129 million, or 37 percent, of that sum. North Dakota and the tribe have an agreement that details how the money is split. Last year, the tribe requested what its members thought was a more equitable share, but the Legislature rejected the proposal. On Monday, a legislative committee that oversees state and tribal relations unanimously approved a resolution supporting the tribe’s effort to get a larger share of oil revenues. However, the panel turned down a separate proposal to give the tribe 80 percent of the tax collections from tribal land. – Read More
*Billionaire Catsimatidis Buys Long Island Oil Terminal From Phillips 66 – Forbes
John Catsimatidis, the New York City billionaire behind the Gristedes grocery store chain, announced on Tuesday that United Refining, which he controls, had agreed to buy a petroleum terminal with 5 million barrels of storage capacity from Phillips 66 (NYSE:PSX). It’s an interesting asset. Located in Riverhead, on the northern shore of Long Island, the terminal comprises 280 acres of storage tanks and an offshore docking platform for giant crude oil tankers, the only one on the East Coast. What’s unclear for now is how the terminal fits in with United Refining’s other big asset, a 65,000 bbl per day refinery in Warren, Pa. that makes the gasoline which the company sells at nearly 400 filling stations in New York, Pennsylvania and Ohio. “We’re not making public what we intend to do with the terminal,” Catsimatidis reportedly said on Tuesday. Naturally, you start to wonder whether there’s any connection between this deal and the Trainer, Pa. refinery that ConocoPhillips sold to Delta Air Lines a few months ago before it spun off Phillips 66. Delta’s plan was to make jet fuel at that refinery to offset its fuel costs at New York airports. – Read More
*Obama Versus Romney On Energy — In Depth This Time – Forbes
Presidential debates are as much about style as they are about substance. But at a debate on energy at MIT on Friday, representatives from the Romney and Obama campaigns discussed the candidates’ views on energy in detail and drew clear differences between them on this issue. On paper both candidates support an “all of the above” energy strategy that includes expanded domestic oil and gas production as well as government funding for research in energy innovation. But the similarities end there. Romney’s priority is to give states more control to accelerate drilling and coal mining in order to create jobs, said his domestic policy director Oren Cass during the debate. Obama supports more oil and gas drilling as well but his agenda also includes government support for renewable energy and efficiency, said Obama surrogate Joseph Aldy, professor of public policy at Harvard University. Here’s how the debate played out on the specific issues. You can see the first several minutes of the debate here and MIT Tech TV is expected to air the full debate later. – Read More
*OPEC Raises Demand Forecast for Its Crude, Trims Other Suppliers – Bloomberg
OPEC boosted estimates of the amount of crude it will need to supply next year after trimming forecasts for oil production from outside the group. The Organization of Petroleum Exporting Countries said in a monthly report that its 12 members will need to provide an average of 29.8 million barrels a day in 2013, about 200,000 more than estimated last month. The group reduced its forecast for output from outside the group for next year by the same amount, to 53.89 million barrels because of lower-than-expected growth in emerging nations. Still, world markets will remain “characterized by high volumes of crude supply and increasing production capacity,” the organization said. “The outlook for production from India and other Africa in 2013 were revised down on the back of updated data in 2012, which provided an insight into the expectations for 2013,” OPEC’s Vienna-based secretariat said today in its Monthly Oil Market Report. Brent crude futures have advanced 6 percent this year, as concern that tensions with Iran and violence in Syria may lead to wider supply losses counter signs that the economic recovery is faltering. Saudi Arabian Oil Minister Ali al-Naimi said yesterday that prices for Brent, trading near $114 a barrel today, are “still high” and that the kingdom would prefer a level of $100. – Read More
*New Sanctions to Further Challenge Iranian Oil Sales – Wall Street Journal
Iran’s oil-export decline may have bottomed out for now, but the trouble isn’t over for the country’s crude sales. Recently enacted sanctions and further proposed restrictions are set to tighten the noose at both ends, by hindering the Islamic republic’s ability to ship the commodity and to be paid for it. Mohammad-Reza Bahonar, Iran’s deputy speaker of parliament, recently said that oil exports stood at one million barrels a day in September, a slight rebound from 800,000 barrels in the summer. The numbers are confirmed by independent shipping trackers and are set to further stabilize this month after South Korea resumed importing Iranian crude oil after a three-month interruption. But this is little relief for Iran, whose currency slumped 25% last week before recovering, but only after the government imposed fixed-currency rates. This came after an escalation of sanctions from a European Union embargo on its crude that were put in place July 1. Separately, the U.S. introduced restrictions in June on dealings with the Central Bank of Iran that sharply hit oil revenue. Yet, with no end in sight in the deadlock over Iran’s nuclear program, the EU and the U.S. are preparing new measures that could dent its oil sales again. The West suspects Tehran is attempting to build an atomic bomb, which it denies. – Read More
*Occidental Dispute Marks Ecuador-Colombia Oil Divergence – Bloomberg
Ecuador has seen its oil output stagnate since 2006. That’s when the country began increasing state control of reserves. Next door, Colombia has invited international drillers, and production has boomed. The two Latin American countries are diverging even more on their separate paths. Yesterday Ecuador decided to fight an order to pay $1.77 billion to Occidental Petroleum Corp. (OXY) in compensation for ousting the U.S. company in 2006. Ejecting Los Angeles-based Occidental “was a bad deal because production began to fall,” said Vicente Albornoz, dean of the Universidad de las Americas business school in Quito. “Production fell all over the country because they created an adverse climate for investment.” Ecuador is moving further into the camp of OPEC members that spurn foreign ownership of resources. The country with South America’s third-largest oil reserves is aligning itself closer to producers Venezuela and Iran in rejecting agreements that give global oil companies equity stakes in fossil fuels. – Read More
*Brent Hovers Above $114 on Middle East Tensions – CNBC
Brent crude oil fell towards $114 a barrel but remained close to a three-week high on Wednesday, as worries over the security of Middle East supplies outweighed increasing evidence of slowing global economic growth. Weak risk sentiment coursed through financial markets, pulling down stock markets and boosting the dollar after the International Monetary Fund said a deepening euro zone debt crisis was threatening the global economy. The IMF said in its semi-annual check on the world’s financial health that risks to global financial stability had risen in the past six months, leaving confidence “very fragile.” But shelling along the Turkey-Syria border, hostility between Iran and the West, and an impending Israeli election, have raised worries over the risks to oil supplies from the Middle East Gulf, keeping a floor under prices. – Read More
*China’s Sinopec to build $850m oil storage in Indonesia – Reuters
Asia’s top refiner, China’s Sinopec, has started work to build Southeast Asia’s largest oil storage terminal at the Batam free trade zone in Indonesia, the company and industry sources said, in an $850-million investment aimed to boost petroleum trading. Sinopec Kantons Holdings, a unit of the Sinopec Group, will hold a stake of 95 percent in the PT West Point Terminal project covering the construction of storage for up to 16 million barrels of crude and refined fuels, the company told the Hong Kong Exchange in a filing on Tuesday. This would be Sinopec’s first facility of such a size near Singapore, Asia’s oil trading hub, where the Chinese refiner has established its presence over the past 15 years, trading refined products with a team of 50. “It should boost Sinopec’s trading opportunities…and Singapore has run out of space to build such facilities,” said a crude oil trader based in Beijing who deals with Sinopec. Sinopec’s Asia crude teams are based in Beijing and Hong Kong. – Read More
*Saudi oil minister says additional demand can and will be met – Reuters
Saudi Oil Minister Ali al-Naimi said on Thursday Saudi Arabia and OPEC were ensuring the international market remains well supplied and that the oil price does not get out of control, adding that additional demand can and will be met. “I hope the total sum of these efforts will result in further market stability,” he said at a conference in the Turkish capital Ankara. – Read More
RESEARCH COMMENTARY
*Tudor Pickering Holt & Co. (10.10.12)
Interesting read of IEA’s work (WTI $92/bbl, Brent $114/bbl) – Link. Worth staying on top of Iraq because one of the few areas with such meaningful potential production growth. That growth in the IEA’s eyes is much more weighted to back half of this decade and interestingly they attribute most to southern Iraq. What’s required to achieve the growth? Money first and foremost. Rigs, infrastructure and lots and lots water (for water floods), not to mention a stable government and favorable investment terms round out the gating items.
IEA’s production cases (WTI $92/bbl, Brent $114/bbl) – Current production 3mmbpd (2.4mmbpd exported), 2.25mmbpd form the south and 0.75mmbpd from the north – prior peak 3.5mmbpd in 1979. High Case – 5.5mmbpd by 2015, 9.0mmbpd by 2020. Base Case – 4.0mmbpd by 2015, 6.0mmbpd by 2020. Low (Delayed) Case – 3.5mmbpd by 2015, 4.0mmbpd by 2020. Seems to us low case is flat with current, not slow growth (bullish IEA bias about Iraqi production). High case characterized as “can’t possibly exceed”. Growth dependent on 4 existing Southern fields (2/3 of future production)
*SunTrust Robinson Humphrey (10.8.12)
Strong Bakken Oil Prices Appear Durable
We believe Bakken prices could continue to improve relative to other grades. Recently, we have seen Bakken crude priced in Clearbrook, Minnesota sell at a ~$2.50/Bbl premium to NYMEX prices. Versus Light Louisiana Sweet oil prices, the discount has improved to ~$17.50 currently from $20-25 in August (and a peak of $47 in February). Our channel checks suggest it costs $10-12.50/Bbl to move oil from Clearbrook to St. James, Louisiana, so we believe the discount could narrow further. The Clearbrook versus St. James differential is illustrated below.
Why haven’t prices already risen? Railroad capacity growth looks impressive on paper, with facility expansions expected to increase rail loading capacity by 100-150 Mbpd within the next few months. Yet the bottleneck appears to have moved from the rail facilities to the railcars. We expect the Bakken differential to improve upon delivery of the hundreds of railcars on back order. Additionally, refineries with the ability to receive rail shipments should double to ~20 within the next few months, leading to greater competition for Bakken barrels and perhaps tilting negotiating power toward producers.
Our forecasts assume Bakken differentials remain near current levels. While we believe Bakken prices may have further room to run, we conservatively model a mere continuation of the current premium relative to West Texas Intermediate. Note Bakken producers generally receive $5-7.50 less than the Clearbrook price given the gathering, trucking and shipping costs incurred to move oil from the wellhead to the Minnesota hub.
*Bank of America Merill Lynch (last week 8.3.12)
Oil Inventory Monitor #122
Distillate tightness persists
Distillate stocks drew a larger than expected 3.7mmbbls and now stand at a 10-year seasonal low when adjusted for demand. The tightness is focused almost exclusively in PADD I, where the majority of recent refinery closures have occurred and stocks stand some 22mmbbls below the 5-year average. The return of the Trainer refinery to full rates by the weekend should begin to help alleviate the situation but we expect the East Coast to remain tight for the foreseeable future. Crude drew 0.48mm on the week but remains in ample supply while gasoline saw a small build as demand begins to taper off post summer – down 1.5% on the week to 8.6mmb/d.
Earnings upside but risk to spot cracks is lower from here
Given the recent strength in crack and crude spreads, we continue to see upside to 3Q and 4Q earnings from here. However, with spot cracks at $40 and WTI-Brent at $20, the next move in our view is likely lower as we shift to easier to produce winter grade gasoline and the North Sea returns from maintenance (loadings +510kb/d in Oct. vs. Sept.). Thus we remain on the sidelines on most names within the sector. With organic catalysts beyond just a macro call and leverage to the Gulf Coast, which we see as the beneficiary of the next stage of advantaged crude dynamics in the lower 48, VLO (B-1-7;$31.86) remains our favored name.
*Global Hunter Securities (8.3.12)
The EIA’s Weekly Petroleum Status Report (WPSR) for the week ended September 28, 2012 indicated another week of favorable demand signals with a 2.2% week-over-week increase to 18.720 MM bpd. Imports surged again, this week by 511,000 bpd, helping total inputs to overwhelm demand by a 3.7% to 2.2% week-over-week growth rate differential. Ending inventories of commercial crude oil were lower by 482,000 bbls, but on a percentage basis the decrease was negligible. Cushing stocks were a bit higher at 43.9 MM bbls, pushing the Cushing-to-total oil stocks ratio back above 12%. Imports were a bit on the heavy side increasing 6.8% on the week, at 8.065 MM bpd. Although the market sold West Texas oil on the data, there were other factors pressuring prices including media reports indicating riots in Iran were spreading in response to the damaging effects of sanctions on the Iranian rial and a collapse in Iran’s oil export revenues. These data points seemed to take oil prices closer to the important $88 p/b level, but we believe there is a bit more price in the WPSR today than $88 would suggest. A quieter Iranian situation would very likely be temporary, in our view, since there is no evidence that Iran would abandon its nuclear ambitions. WTI oil prices in the near-term should trend in a range between $88 to $92 until a new catalyst pushes prices outside of this area of developing price consolidation, in our view.
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