fundamentals

Back in the early 2010s, U.S. crude oil and NGL exports were minimal and LNG exports were non-existent, but there were omens that the U.S. would soon regain its status as an energy production juggernaut. Now the U.S. is a critically important global supplier of oil, gas and NGLs, with exports crucial to managing supply and demand as infrastructure rushes to keep up and industry players simultaneously explore alternative energy possibilities. How all these moving parts interconnect was the focus of RBN’s 18th School of Energy last week and it’s the subject of today’s RBN blog, which — fair warning! — is a blatant advertorial for School of Energy Encore, our newly available online version of the recent, action-packed conference. 

In our blogs and at our 2019 School of Energy a couple of weeks ago, we’ve spent a lot of time discussing the ins and outs and pros and cons of a multitude of proposed crude oil export terminals. What we’ve come to believe is that, with U.S. production growth appearing to slow and market players fearful of overbuilding, many of these multibillion-dollar greenfield projects are unlikely to advance to financing and construction. Odds are that the midstream sector instead will focus on ways to add new capacity to existing terminals, even if that means still relying on reverse lightering in the Gulf of Mexico to fully load Very Large Crude Carriers (VLCCs). In today’s blog, we discuss why producers, traders and midstreamers alike may be pulling back from investments in big, expensive export projects, and what it could mean down the road.

U.S. crude oil fundamentals have shifted sharply in the past few weeks; some changes were fully anticipated, and others more exaggerated than originally expected. U.S. production has risen again to another record-setting high, while a massive decline in refining activity due to turnaround season — and a number of unanticipated short-term shutdowns — has erased a lot of domestic demand for crude. Meanwhile, export volumes out of a few key Gulf Coast terminals are hitting all-time marks. U.S. crude oil imports, affected by international disruptions and refining demand, have dropped like a stone and are nearing 20-year-plus lows. With School of Energy 2019 now in session, it’s a great time to recap what’s been happening over the past month. Today, we look at the summer-to-fall shift in fundamentals, and how it’s impacted overall inventories.

The Permian Basin’s crude oil market over the last 18 months has exhibited so many dynamic changes that dedicated observers may be suffering from a bit of neck strain, if not outright whiplash. We’ve seen production rise at an unprecedented rate, followed by a period of slower growth. We’ve also watched the Permian very quickly transform from a region desperate for new long-haul pipeline capacity to a hotbed for midstream investment and infrastructure growth. While we’ve closely tracked these big-picture changes, a lot of other, smaller-scale knock-on effects have been occurring too, with potentially significant implications for the basin’s supply pricing and transportation economics. Today, we explain why the changing fortunes of Permian crude haulers may benefit producers in the basin.

Crude prices have fallen 21% since the start of 2016 and may fall further with the end to Iranian sanctions threatening to release yet more supplies into a saturated market. The U.S. benchmark West Texas Intermediate (WTI) closed at $29.42/Bbl Friday (January 15, 2016) and is now down 78% since the price rout began in June 2014. What has changed in the past two months to make crude prices fall so fast this year? Today we begin a two-part discussion of the fundamental factors underlying current weakness in the crude market. 

Yesterday  (November 19, 2015) the Energy Information Administration (EIA) published its first official weekly natural gas storage report in its new five-region format indicating an injection of 15 Bcf over the past week for a total U.S. inventory of exactly 4 Tcf. The new methodology and reporting format is a vast improvement in the granularity and clarity of government natural gas storage inventory data. But it also potentially moves the target for the slew of industry analysts who lose sleep trying to predict it each week. How the changes impact EIA inventory data and the ability of analysts to predict that data will become clearer in the coming weeks and months. But we got more clues this week as the EIA released dual versions of last week’s report on Monday showing significant differences leading up to launch of the new report on Thursday. Today we compare the results of the old versus new methodology.

CME/NYMEX Henry Hub natural gas futures prices for August delivery continue to trail $1.50/MMBtu behind year-ago levels and natural gas production volumes show little sign of softening. Gas demand is rallying to record-setting levels and the balance is tightening. But there is still a long way to go before the storage inventory surplus is reined in. Today we revisit supply/demand balance and its impact on storage this summer.

When the Apollo 13 astronauts realized their oxygen tanks were badly damaged, they famously said “Houston, we’ve had a problem.” Today, this phrase could well describe the U.S. oil and gas industry.  The issue isn’t only today’s low prices, but also the industry’s resilience and its response to low prices.  U.S. producers may have created a price ceiling for the world. Today we reflect on a new age of abundance in U.S. energy markets.

Yesterday was a swingin, Up-N-Down day for natural gas.  See the Updata ‘Candlestick-Volume’ chart for the CME/NYMEX May contract below, that shows upticks in gray, downticks in red, with the width of the bar proportional to the volume during that trading period.  So there was a big move up on the open, it was pounded down during the morning session on relatively consistent volume, then drifted back up before closing above the two dollar mark at $2.016, up 3.5 cnts.  The futures market spent 3 days below $2.00 this time around. Yes, I’m suggesting that we have not seen the last of one-handle prices.  For reference, cash markets didn’t seem so enthusiastic with the ICE prompt cash Henry Hub index languishing back at $1.88/MMbtu, up a penny.

Yesterday April Natgas rolled off the board closing with still another 10 year low, and the third official day of April bidweek wrapped up a weak trading session. Day-gas cash prices are in the dog house.  It is EIA storage day, and a higher than expected build could be on the way.  There is nothing about the natural gas market that looks bullish.  Nevertheless, there has been no price collapse.  In fact, natty has been range bound for weeks now.  Do we know any more than we did two months ago?  Let’s put the current situation in a historical perspective.