Crude Oil

Sunday, 07/25/2021

As the outlook for crude oil in 2022 came into three-dimensional view this month, the market’s steadying mechanism managed to right itself again after another wobble. The Organization of the Petroleum Exporting Countries (OPEC) took its first formal look at next year in its July Monthly Oil Market Report (OMR), becoming the third of three widely watched prognosticators to do so. Among the other two, the International Energy Agency (IEA) began projecting 2022 oil-market data in its June Oil Market Report, and the intrepid U.S. Energy Information Administration (EIA) took its first analytical shot at next year way back in January in its Short Term Energy Outlook. The important third dimension that OPEC gave to the 2022 oil-market picture arrived on July 15 after two weeks of worry about whether production restraint by most of the group’s members and cooperating countries would survive. On July 18, though, the internal squabble driving that concern ended in a compromise that will result in production quota increases for several OPEC+ members. The 2022 projections by OPEC, IEA, and EIA, not to mention worry-driven elevation of crude oil prices prior to the compromise, make clear that the market needs OPEC+ to continue the orderly unwinding of its production cuts. In today’s blog, we compare the three forecasts and look at how the latest adjustment to OPEC+ supply management will affect the market.

Sunday, 07/18/2021

In just a few months, heavy crude from Western Canada will start flowing south on the Capline pipeline from the Patoka, IL, hub to the one at St. James, LA. While the initial volumes will be modest, Capline’s long-awaited reversal will provide Louisiana refineries and export terminals with easier, lower-cost access to oil sands and other Alberta production. Flipping the pipeline’s direction of flow also means more changes for the St. James storage and distribution hub — one of the U.S.’s largest — which has already seen more than its share of evolution during the Shale Era. Today, we continue our Capline/St. James blog series with a look at St. James’s terminals and pipelines, the Louisiana refineries they supply, and the changes coming with the Capline reversal.

Monday, 07/12/2021

Crude oil is demonstrating yet again its penchant for what markets hate most: surprise. Last month, the Organization of the Petroleum Exporting Countries (OPEC) and collaborating governments were carefully easing the production cuts with which they steered the market through an oil-demand crisis caused by the COVID-19 pandemic. Demand was recovering as economies reopened after being locked down during most of 2020 and early 2021. And the near-month futures price for light, sweet crude on the New York Mercantile Exchange (NYMEX) — having closed below zero for the first time ever on April 20, 2020 — rose above $70/bbl for the first time since October 2018. Until mid-June, the market’s main concern was the potential for a supply surge if Iran escaped sanctions by agreeing with the U.S. to again suspend nuclear development. Surprise! Only days after his election as Iranian president on June 18, Ebrahim Raisi announced new limits on what his government would negotiate regarding nuclear work and said he would not meet with U.S. President Joe Biden. Suddenly, new oil supply from Iran looked less imminent than it did before Raisi’s election. Then July arrived. Surprise! OPEC members and nonmembers, collectively known as OPEC+, which had been voluntarily limiting production ended an important meeting without agreeing, as had been expected, to extend their phasedown of supply restraint. Suddenly, the market had to wonder whether the result would be too little supply or a price-crushing production spree if OPEC+ discipline collapsed. In today’s blog, we examine how these developments relate to each other in the twin contexts of a rebalancing oil market and of past oil-supply management.

Monday, 07/05/2021

After the crude oil price crash in the spring of 2020 and flat-at-$40/bbl oil last summer and early fall, prices for both WTI and Brent have been increasing steadily the past several months, and now stand at a kind-of-remarkable $75/bbl. This rise has been driven by a combination of demand recovery and supply restraint from both OPEC+ and U.S. producers — which begs the questions: what’s next on the supply and demand fronts, and how much more will oil prices increase from here? There’s been a lot of chatter lately that we might see $100/bbl crude prices sometime soon, and there are a lot of interested parties — many of whom don’t normally see eye-to-eye — who, for one reason or another, see their interests converge around the $100/bbl mark. The only problem is, it’s not showing up in the forward curve. Today, we look at the potential for “Benjamin-a-barrel” oil and how it might play out.

Wednesday, 06/30/2021

It’s been a challenging few years — some would say decades — for producers in northern Alaska. Crude oil production in the remote, frigid region peaked at just over 2 MMb/d in 1988 and has been falling ever since, dropping to about 450 Mb/d in 2020 and the first few months of 2021. It’s not that Alaska is running out of oil; far from it. Instead, the state’s energy industry has been battered by competition from shale producers in the Lower 48, thwarted by federal policies, and, more recently, ESG-related concerns and the Biden administration’s efforts to put the kibosh on new federal leases. Despite it all, the few producers still active in Alaska hold out hope for a revival. Today, we discuss the many hurdles that northern Alaska producers face.

Monday, 06/28/2021

The vast potential for permanently storing carbon dioxide underground by using it for enhanced oil recovery can only be realized if produced or captured CO2 can be economically transported long distances via pipeline. And the only way that can happen is if the CO2 is compressed into a “supercritical” or “dense-phase” fluid — a state that is somewhat compressible like a gas but flows and can be pumped like a liquid. When CO2 is in a supercritical state, much more of it can economically flow through a pipeline to the producing field. And when it gets there, the dense-phase CO2 can be injected into an oil production zone, where it has the unique ability to flow through permeable rock formations, bond with and “swell” trapped oil molecules, and free the oil to move to the production well, then up to the surface. Given that CO2-based EOR is destined to become a much more significant activity in the energy industry, it’s time for a fun-filled review of the thermodynamics of fluids as it relates to the transportation of CO2 and its use in the production of crude oil. (Wait! Don’t leave! This will be easy to follow! We promise!) Today, we continue our series on the rapidly evolving CO2 market and why it matters to crude oil producers.

Sunday, 06/20/2021

Using carbon dioxide for enhanced oil recovery offers tremendous potential for CO2 sequestration. The problem is, most the CO2 used in EOR today is produced from natural underground sources, only to be piped to EOR sites and put underground again. Realizing the full promise of CO2-for-EOR would require sourcing more and more anthropogenic CO2, or A-CO2 — in other words, “man-made” CO2 that is captured from power generation and industrial processes. In addition to the environmental benefits, there are two other drivers for making this switch from natural CO2 to A-CO2: the first is that some of the natural sources of CO2 used today for EOR are dwindling, and the second is that the push to sequester man-made CO2 is backed by tax credits and other government-backed incentives. No matter the CO2 sourcing, CO2-for-EOR requires pipelines to transport the CO2 from where it is produced to EOR sites. Today, we continue our series on the rapidly evolving CO2 market and the huge opportunities that may await those who pursue them.

Tuesday, 06/15/2021

It’s been a mantra in the energy industry for a few years now: more Canadian and Lower-48 crude oil needs to move to the Gulf Coast, with its bounty of refineries and export docks. And that’s been happening, thanks to a slew of new and expanded pipelines and new tankage. Similarly, new export capacity has been developed, and a number of refineries in Texas and Louisiana revised their crude slates to take advantage of what looked like an ever-rising supply of North American crude. Yet another piece of the puzzle will slide into place in January 2022, when crude oil — most of it heavy Western Canadian — will start flowing south on the newly reversed, large-bore Capline pipeline from the Patoka hub in Illinois to the impressive collection of terminals in St. James, LA. Today, we continue our series on the market impacts of Capline’s upcoming reversal on St. James, Louisiana refineries and crude exports.

Monday, 05/31/2021

Much like the world at large, the crude oil market has been healing from the ravages of COVID-19. Overall, market conditions are far better than they were in April 2020, when global oil consumption, crushed by pandemic-related lockdowns, slumped to 80.4 MMb/d, a 17% decline from the start of last year and a 20% drop from April 2019. Demand has been rebounding in fits and starts for a full year now — recovering from downturns is what markets do. But this recovery has gotten a big assist: 10 members of the Organization of the Petroleum Exporting Countries (OPEC), acting in concert with 10 non-members, have restrained crude oil production in a program unprecedented in scale and duration. Now, oil prices are high enough to revive activity by some producers outside the so-called OPEC+ group. For at least the rest of this year, in fact, the market looks like a steel-cage match between crude supply subject to coordinated management and supply governed only by raw market signals. Today, we look at oil-market projections from three important agencies and estimate demand for oil not supplied by the OPEC+ exporters.

Sunday, 05/23/2021

Over the next few months, a variety of market players — crude oil producers, midstreamers, refiners, and exporters — will be making preparations for one of the most anticipated infrastructure additions in recent years. Actually, it’s not technically new; it’s the long-planned reversal of the 632-mile, 40-inch-diameter Capline, which for a half-century transported crude north from St. James, LA, to Patoka, IL. Line-filling will begin this fall and Capline will start flowing south from Patoka in January 2022, providing Western Canadian and other producers with new pipeline access to Gulf Coast markets. Upstream of Patoka, the impending reversal has been spurring the development of new pipeline capacity to supply the soon-to-be-southbound Capline, and in Louisiana, refiners and exporters have been making plans for the crude that will be flowing their way into St. James. Today, we discuss the broad impacts of the “new” Patoka-to-St.-James pipeline.

Thursday, 05/20/2021

Today is a sad day for the world of oil tankers. Unless a miracle happens by 10 a.m. local time at the Hawaii Department of Transportation's Harbors Division, the last surviving iron-hulled, sail-driven oil tanker is headed to Davy Jones’ Locker. The once-proud, four-masted, 143-year-old windjammer will soon be scuttled by deliberately sinking her at sea off the shores of Honolulu. How could things have come to this? In today’s blog, we’ll take a trip down memory lane to explore how a spectacular, fully rigged oil tanker could have survived for so long, plying the oceans for this author’s former employer, only to be betrayed in her final years.

Sunday, 05/09/2021

Plains All American has an extraordinary collection of crude oil gathering systems and shuttle pipelines in the Permian Basin, as well as full or partial ownership interest in a number of long-haul takeaway pipelines to the Gulf Coast and the Cushing hub. As important as many of these individual systems and pipelines may be, it’s the interconnectivity among these assets — and especially Plains’ crude oil terminals in Midland and other West Texas locales — that gives the midstream giant’s Permian infrastructure a value far greater than the sum of its parts. Today, we’ll discuss the important role that Plains’ two terminals in Crane, TX, play in balancing the midstream company’s Permian crude oil delivery network and providing destination optionality.

Tuesday, 05/04/2021

Every day, another 4.5 million barrels of Permian crude oil begin the journey from wells in West Texas and southeastern New Mexico to refineries in the U.S. and abroad. For most of that oil, it’s no simple trek. Not only does it wend its way through gathering systems and shuttle pipelines to nearby hubs, it often needs to be directed between terminals within those hubs to reach the specific outbound, long-haul pipe that will take it to where it needs to go. We get it — you probably don’t need to know about every nook and cranny in the multi-terminal hubs at Midland, Crane, Wink, and elsewhere in the Permian, but it sure would help to understand generally how the flow of oil to market works, and why a terminal’s ability to provide destination flexibility is so crucial. Today, we continue our series on Permian hubs and terminals with a real-world example of how a barrel of Delaware Basin crude oil moves to Corpus Christi, Houston, or Cushing.

Monday, 05/03/2021

Since the long-standing ban on most exports of U.S. crude oil was lifted more than five years ago, major ports and marine terminals along the Gulf Coast have been competing fiercely for the business of crude shippers. The primary weapons in this battle for barrels have been the abilities to provide easy pipeline access to the Permian and other key production basins, ample storage near the water for blending and staging, and top-notch dock facilities for quickly, efficiently loading crude onto tankers, the bigger the better. On that last point, for many shippers the vessel of choice is a 2-MMbbl VLCC, which typically offers the lowest per-barrel cost for long-distance oil delivery. Crude-laden VLCCs are “low riders” that need deep water, though, and so far only the Louisiana Offshore Oil Port can fully load one. Within a year, though, thanks to a long-awaited Corpus Christi Ship Channel dredging project now under way, marine terminals in Ingleside, TX, will be able to do the next-best thing: loading up to 1.6 MMbbl onto VLCCs, and thereby reducing the need for offshore reverse lightering. Today, we discuss the project to deepen the channel to 54 feet and its impact on crude exports.

Sunday, 04/25/2021

Prior to COVID, crude oil and natural gas production in the U.S. had been on a tear, surging in tandem in the years following the 2014-15 price meltdown. But then the pandemic decimated domestic demand, crushing prices. Predictably, producers cut back production, particularly in crude-focused basins, and it was widely expected that associated gas from those regions would suffer in proportion. But that didn’t happen. Gas volumes have dropped somewhat, but not nearly to the extent that crude did. Said another way, the ratio of gas production to oil production has risen — and that’s been true at both the total U.S. level and in the primary unconventional basins for oil production. In today’s blog, we will look at the factors driving the trend of higher gas-to-oil ratios.