Author: Robert Boslego

U.S. Crude Oil Production Slowed in May

Posted on by Robert Boslego

The Energy Information Administration reported that May U.S. crude oil production averaged 10.442 million barrels per day (mmbd), off 30,000 b/d from April’s all-time record high of 10.472 mmbd.

However, May’s production was also lower than 10.461 mmbd posted for March. From December through March, production had spiked by 423,000 b/d.

Part of the explanation for the lack of continued growth is the unplanned maintenance in the Gulf of Mexico. Last month, GOM production dropped by 75,000 b/d. In April, it had declined by 99,000 b/d. In EIA’s Short-Term Energy Outlook, May’s GOM production was forecast to increase by 200,000 b/d from April.

Otherwise, increases in North Dakota (25,000 b/d) and in Texas (20,000 b/d) were also relatively modest.

U.S. Crude Oil Production

The EIA-914 Petroleum Supply Monthly (PSM) figure was 304,000 b/d lower than the weekly data reported by EIA in the Weekly Petroleum Supply Report (WPSR), averaged over the month, of 10.706 mmbd. EIA’s most recent weekly estimate for the week ending July 27th was 11.0 mmbd. Continue reading "U.S. Crude Oil Production Slowed in May" →

Hedging Energy Sector Oil Price Risk

Posted on by Robert Boslego

Volatility in oil prices makes investing in the energy sector a risky proposition. The collapse in oil prices following the OPEC meeting in November 2014, at which Saudi Arabia announced its intent to flood the market to put American shale oil producers out-of-business, resulted in a rout in energy equities prices.

The Energy Select SPDR ETF (XLE) fell by 37 percent from November 26, 2014, to January 20, 2016. For many investors, the drop had become too large to sustain, and they closed their positions, locking-in a substantial loss.

XLE has recovered its loss, and as of July 27th, the price was nearly identical to its value on November 26th, 2014. But the recovery in oil prices, due to heightened geopolitical risks, also makes them vulnerable to another downward correction.

Citicorp, for example, issued a forecast proclaiming that “the bull argument is based on a faulty analysis,” and that oil prices “will fall back into a band between US$45 and US$65 in just over a year.”This raises the question of whether investing in the energy sector represents an attractive risk-reward opportunity. Continue reading "Hedging Energy Sector Oil Price Risk" →

Oil Market Scenarios And Risks: 4Q18

Posted on by Robert Boslego

Major uncertainties loom toward the end of the year when sanctions are currently scheduled to go into effect by the U.S. regarding Iran. The range of potential outcomes is large, as it is possible that a deal may be reached with Iran which avoids sanctions (Iranian President Hassan Rouhani in a speech Sunday did not rule out peace between the U.S. and Iran), or Iran increases its exports to China and India, offsetting decreases to European countries. But the base case should assume some loss, on the order of 600,000 b/d.

President Trump has a few policy options to manage the size of the loss:

  • Pressuring the Saudis and other Gulf producers to maximize their output
  • Granting waivers so that more exports can flow
  • Ordering drawdowns of the Strategic Petroleum Reserve, potentially coordinated with the International Energy Agency

But Iran’s production is not the only risk. Venezuela’s production is in a meltdown and production may drop to just one million barrels per day by the end of the year. Whether it could stabilize at that level is an open question and is sure to provide a risk premium to oil futures prices.

I created three scenarios to develop a range of likely global inventory levels and future oil prices. The base case “demand for OPEC crude” is from OPEC’s own July Monthly Oil Market Report. In all three scenarios, I assume production in Venezuela drops to one million barrels per day (mmbd) by 1Q19 and stabilizes there. I also assume that Saudi production rises to 11 mmbd and remains at that level and production increases in the UAE and Kuwait. Continue reading "Oil Market Scenarios And Risks: 4Q18" →

U.S. Crude Production Growth Stalled In April

Posted on by Robert Boslego

The Energy Information Administration reported that April crude oil production averaged 10.467 million barrels per day (mmbd), off 2,000 b/d from March’s all-time record high for the U.S. The small but unexpected decline was due to unplanned maintenance in the Gulf of Mexico (GOM), which reduced production there by 98,000 b/d. Otherwise, healthy increases were recorded in North Dakota (61,000 b/d) and Texas + New Mexico (55,000 b/d).

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The EIA-914 Petroleum Supply Monthly (PSM) figure was 115,000 b/d lower than the weekly data reported by EIA in the Weekly Petroleum Supply Report (WPSR), averaged over the month, of 10.582 mmbd. EIA’s most recent weekly estimate for the week ending June 22nd was 10.900 mmbd. Continue reading "U.S. Crude Production Growth Stalled In April" →

Oil Price Implications Of OPEC's New Oil Deal

Posted on by Robert Boslego

OPEC concluded its meeting on June 22nd with a vaguely-worded communique about its oil deal:

“Accordingly, the Conference hereby decided that countries will strive to adhere to the overall conformity level of OPEC-12, down to 100%, as of 1 July 2018 for the remaining duration of the above-mentioned resolution and for the JMMC to monitor and report back to the President of the Conference.”

At the press conference afterward, OPEC president HE Suhail Mohamed Al Mazrouei, UAE Minister of Energy and Industry, struggled to explain exactly what it meant. When asked how many barrels would be added, he remarked that “you can do the math” between current output and the 100 percent conformity level, although he later said it was about one million barrels per day.

However, at the press conference of the 4th OPEC and non-OPEC Ministerial Meeting on June 23rd, oil ministers Khalid al-Falih of Saudi Arabia and Alexander Novak of Russia, responded to questions, explaining the new deal and how it would be implemented.

But Iran’s oil minister later said that OPEC’s oil output agreement did not specify a production increase, which probably explains why the agreement was left vague. It also explains Mr. Al-Falih’s unusual remark at the press conference: Continue reading "Oil Price Implications Of OPEC's New Oil Deal" →