Oil Prices Find Some Support
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In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on the latest oil and gas price moves, Hurricane Ian, a fire at the BP/Cenovus Toledo refinery and more. Read on for more detail.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Oil prices found some support this week on the threat of a hurricane in the U.S. Gulf of Mexico, an increase in U.S. consumer confidence and a bullish inventory report. After falling into the $70s last week on global economic concerns, WTI moved past the $80 per barrel level this week and made a run at $83 but fell short as Hurricane Ian did not cause any rig damage in the GOM. Meanwhile, Brent crude, which continued lower into this week, managed to crest $90 per barrel before also falling back to below $89. The global standard is being hurt by recessionary fears in the EU and UK along with the continuing war in Ukraine. Some of this week’s price rebounds were attributed to the unlikelihood that the EU can actually execute the proposed price cap on Russian oil. Offshore platforms in the Eastern Gulf of Mexico were evacuated ahead of Hurricane Ian, shutting-in about 11 percent of GOM production (BSEE) which fueled a temporary rally. These were quickly re-manned once the storm came ashore in Florida and there were no reports of damage. The U.S. Conference Board reported that the Consumer Confidence Index increased in September for the second consecutive month, giving hope to improving economic conditions.
This week’s EIA Weekly Petroleum Status Report indicated that inventories of commercial crude declined slightly by 215,000 barrels to 430.5 million, holding at two percent below normal for this time of year. The API reported that inventories rose by 4.2 million barrels while the WSJ survey predicted a drop of 300,000 barrels. Refinery utilization fell three percent from 93 percent to 90.6 percent the prior week. Total motor gasoline inventories decreased by 2.4 million barrels to 212 million barrels, still at six percent below average. Distillates decreased 2.9 million barrels to 114 million barrels, now at 20 percent below normal. Crude oil stocks at the key Cushing, OK, hub rose 690,000 barrels to 25.7 million barrels, or 33 percent of capacity. Imports of crude were 6.5 million barrels, up 500,000 barrels from the prior week, while exports were 4.6 million barrels per day, up from 3.54 million barrels per day. Exports of refined products were 6.2 million barrels per day. Volumes withdrawn from the Strategic Petroleum Reserve were 6.5 million barrels, which dropped the total inventory to 422.5 million barrels. U.S. oil production dropped 100,000 to 12.0 vs 11.1 million barrels per day last year at this time.
The U.S. averaged a record 6.0 million barrels per day of petroleum product exports during the first half of this year. This, no doubt, played a role in the higher domestic gasoline and diesel prices. Currently, gasoline prices in the U.S. are averaging $3.75 per gallon, down from June’s $5.02 per gallon peak peak but still above last year’s $3.19. All three major stock indexes attempted a rally this week but fell back on revised 2nd Quarter GDP that showed contraction again. The recent strength of the U.S. Dollar faded slightly adding support to oil prices.
Natural gas fell below the $7.00/MMBtu mark this week as Hurricane Ian demonstrated the dual impacts such storms cause for energy. While GOM platform shut-ins reduce supply, heavy rains and power outages curb demand for natural gas-fired generation. A storage injection that came in above forecasts and seasonally moderating temperatures also put pressure on Henry Hub natural gas prices. The EIA Weekly Natural Gas Storage Report showed an injection of 103 Bcf last week vs forecasts calling for +93 Bcf, last year’s +86 Bcf and a five-year average of +77 Bcf. Total gas in storage now stands at 2.98 Bcf, -6 percent vs last year and -9 percent vs the five-year average. In an effort to mitigate their energy crisis, German Utility RWE reached an agreement to buy LNG from the U.A.E with delivery set for December.
Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: Refinery utilization dropped last week, down 604,000 barrels per day to 91.65 utilization as fall refinery maintenance season is underway. Refinery utilization is expected to continue to decrease with peak offline totals in the second half of October, according to data from Industrial Information Resources.
Rigzone: What were some market surprises?
Seng: Hurricane Ian spun-up quickly and grew to a Category 4 by the time it slammed into Florida. What started-out as a quiet hurricane season has turned devastating with this one system. With the official season not over until November 30, will there be more activity in the coming weeks? GOM infrastructure was spared this time. Two consecutive quarters of negative GDP growth is the traditional definition of recession. Will energy prices move lower on fears of slowing growth?
Stevenson: A fire at BP/Cenovus’ 160,000 barrel per day Toledo, OH, refinery may keep refinery runs depressed past turnaround season with both crude units shut and no apparent restart timeline, according to data from Industrial Information Resources. The facility recently completed maintenance and will be fully owned by Cenovus by the end of the year. This unplanned issue, combined with planned work at BP’s 430,000 barrel per day Whiting and P66’s 356,000 barrel per day Wood River refineries leave the area short on fuel supply, which may have contributed to rising gasoline prices last week. Weekly average U.S. gasoline retail prices were up $0.06 per gallon for week ending September 23, the first full week of winter-grade gasoline. Gasoline prices normally fall after September 15 when quality standards shift, traditionally allowing more cheaper blending components like butane to be added.
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