RBN has documented many fundamental influences on crude oil prices including supply, demand and inventory levels as well as infrastructure constraints. One that we don’t often mention is the strength or weakness of the U.S. dollar. As with most international commodities - oil is bought and sold priced in U.S. dollars. As a result, a change in the value of the dollar relative to other currencies has an impact on oil prices. Likewise the dramatic fall in oil prices since June of 2014 has been mirrored by the dollar rising to levels not seen since 2003. Today we look at how oil prices are impacted by the value of the dollar.
Posts from Sandy Fielden
In spite of a brief respite provided last week by increased geopolitical risk in Saudi Arabia, crude oil prices are still in the $50/Bbl range – down more than 50% since last Summer - and inventories at Cushing and on the Gulf Coast continue at record levels. The fall in crude prices was initially consistent across markets with international benchmark Brent trading within $1/Bbl of U.S. benchmark West Texas Intermediate (WTI) and Gulf Coast marker Light Louisiana Sweet (LLS) in January 2015. But since February the relationship between Brent, WTI and LLS has changed as the build up of Cushing inventories weighs on prices in the Midwest. Today we provide an update on crude price differentials at The Gulf Coast.
Ever since crude oil prices began their precipitous fall in June 2014 market watchers have picked through the tealeaves of every OPEC statement - particularly those of Saudi Arabia - for signs of a change in policy. One widely watched signal comes every month when the Saudi’s publish differentials that determine the price customers pay for their crudes. Today we explain how Saudi pricing formulas work.
Last year was a banner year for the sand mining companies that cater to the U.S. shale drilling services industry. That’s because in 2014 well operators significantly increased the amount of sand used to complete fracturing operations in shale plays – from an average of about 5 MMlb for a single well to 15 MMlb (7,500 tons) or more.
Newfield Exploration - the largest crude oil producer in Utah’s Uinta basin - has temporarily suspended new drilling operations there in response to lower prices. Other producers in the region have reduced their drilling and capex budgets as well. The cutbacks stem in part from the extra logistics expense required to deliver and process the thick yellow and black “waxy” Uinta crudes that do not flow at room temperature.
In the past 10 years Marcellus and Utica shale drilling has transformed the U.S. Northeast from a sleepy backwater of gas production into a powerhouse that (according to the Energy Information Administration) supplied 22% of total U.S. gas production in December 2014. NGL production from the region is already 8% of the U.S. total and likely headed toward 20% by 2020. These vast shale formations cover most of Pennsylvania, West Virginia and Eastern Ohio, but it turns out that most of the production comes from only 20 or so counties across those three states. Such geographic concentration has significant implications for regional infrastructure development and capacity. Today we describe where producers have found success in the region.
The proposed 400 Mb/d Shell Pipeline Company Westward Ho pipeline from St. James, LA to Nederland, TX was first touted in 2011 and initially expected to be in service by Q3 2015 but is now delayed at least until the end of 2017. The project is designed to replace the Shell Ho-Ho pipeline that used to ship crude from Louisiana to refineries on the Texas Gulf Coast until it was reversed in 2013. Westward Ho has struggled to attract shipper commitments to bring additional crude into the saturated Texas Gulf Coast market. Today we review the project’s rationale.
U.S. crude stocks are at their highest level in over 30 years and the contango market pricing structure continues to encourage increases in the stockpile. No one knows exactly how much storage space remains. The surplus is keeping U.S. crude prices low compared to international rivals but petroleum product prices (gasoline and diesel) are climbing higher, having bounced back from recent lows. Refining margins are sky high as bad weather and outages hamper operations. But as we describe today, the crude surplus remains a dark cloud on the horizon.
In the five years since gas production began to take off in the Marcellus, gas processing capacity in the northeast has expanded nearly 13 times over from 600 MMcf/d to 7,600 MMcf/d. Natural gas liquids (NGL) production from those plants began to expand significantly in 2011 and is now over 245 Mb/d. Midstream companies have developed gas processing infrastructure from a small group of stand-alone plants into a fully integrated system designed to operate without the luxury of significant NGL storage capacity. Today we begin a new series describing how the innovative infrastructure build=out has overcome regional constraints.
Last week (February 19, 2015) Enterprise Product Partners announced the start of line fill on their 780 Mb/d ECHO to Beaumont/Port Arthur pipeline. The new route will open access for Canadian heavy crude shippers on the recently completed Seaway Twin pipeline from Cushing to Houston to 1.5 MMb/d of refining capacity in Beaumont/Port Arthur including 0.3 MMb/d of heavy crude coker processing. These refineries were a key target of the Keystone-XL pipeline from Canada to the Gulf Coast that still awaits approval. Today we look at demand and competition for Canadian heavy crude on the Texas Gulf Coast.
Freezing weather along the Atlantic Coast has disrupted refinery operations threatening supplies of refined products – in particular distillates – in an already tightly balanced market. The resultant spike in heating oil prices has encouraged European traders to ship cargoes to New York – a reversal of flow patterns seen in recent years. Today we look at northeast distillate fundamentals and explain why European imports are headed across the pond.
While producers are licking their wounds after a more than 50% oil price crash, refiners have continued to enjoy healthy margins – even in the face of the largest refinery strike since 1980. Strong refining margins, supported by an ongoing boom in refined product exports, continue to encourage high levels of refinery utilization in the Gulf Coast region – home to more than 50% of U.S. refining capacity. Today we look at how Gulf Coast refiners are faring after the oil price crash.
While many companies in the energy sector – particularly in the producer community – are licking their wounds and reporting lower profits and reduced capital expenditure to their stockholders this quarter, refiners have continued to thrive. Lower refined product prices have begun to increase domestic consumption of gasoline and diesel in the face of longer-term decline trends. And strong refining margins continue to encourage high levels of refinery utilization. Today we start a two-part look at how U.S. refiners are faring after the oil price crash.
Since December the first significant volume of Canadian heavy crude - an average of 240 Mb/d - has flowed to the Gulf Coast on the Seaway Twin pipeline. It’s been a rocky road to the Gulf Coast for Canadian heavy crude producers – beset with delays and congestion that they probably never envisioned when they planned their oil sands projects (including the wider political battle over Keystone – currently back in the President’s hands.) And Canadian crude that does make it to Gulf Coast refineries faces stiff competition from incumbent suppliers. Today we chart the progress of the Seaway Twin and Flanagan South pipelines and look at price competition for heavy crude at the Gulf.
A new light sweet crude oil trading market is developing in Houston at the Magellan Midstream Partners East Houston terminal – delivery point for that company’s Longhorn and BridgeTex (50/50 owned with Plains All American) pipelines delivering crude from the Permian Basin. Light sweet crude from the Permian is also known as West Texas Intermediate (WTI) the domestic U.S. benchmark crude - widely traded at Cushing, OK where it underpins the CME NYMEX futures contract. Today we review the developing market and the price relationships that underpin it.