One hundred and thirty-one years after the birth of the mighty Jelly Roll Morton, the crude complex has got the blues once more. Prices are moving lower today, led by gasoline as the Colonial pipeline panic eases, and as the ebb and flow of OPEC expectations wane once more - after wax-on action yesterday. Hark, here are six things to consider in crude oil and natural gas markets today:
1) The current situation in the U.S. gasoline market caused by the Colonial pipeline spill has been described by our fearless leader (Abudi Zein) as 'pushing down on a balloon': as one side is pressured lower, the other side swells up. This is exactly what is underway regarding regional gasoline supply and inventory.
East Coast gasoline stocks are being drawn down strongly amid a starvation of supply, while at the other end of the pipe, inventories on the Gulf Coast are swelling, as gasoline is stranded.
Gasoline imports into the East Coast last week were helped by a rebound in flows from both Northwest and Southern Europe, but a lack of cargoes from Canada mean there will be no blowout in terms of total imports from tomorrow's weekly EIA inventory report.
As for the flip-side, Gulf Coast gasoline exports have been averaging around 700,000 barrels per day in the past few months, as exhibited by our ClipperData (hark, right). Nearly forty percent of these exports head to Mexico, while Latin America as a whole takes the overwhelming majority - with Venezuela, Colombia, Panama and Brazil the leading recipients.
2) If Abudi Zein is the Oracle of Oil (he is), then Eric Rosenfeldt (@energyrosen) is the Guru of Gasoline. Via the Wall Street Journal today, he expects fuel-supply problems in the Southeast to last for five or six weeks. Even once the Colonial pipeline is repaired 'you have to replenish everything at the retail level and everything at the wholesale level, and that’s a significant amount of barrels.'
3) The latest JODI data show Saudi crude exports for July were at 7.5mn bpd. Our ClipperData show crude loadings have held at this level for August, and are currently at the same pace thus far in September.
We discussed recently how the start up of a new gas development, Wasit, in Saudi Arabia has boosted domestic natural gas production and crimped the need for the direct burn of crude by ~100,000 bpd this year (hark, it is usually at ~900,000 bpd at the peak of summer, summer, summertime). The latest JODI data show direct burn is down 151,000 bpd for this July compared to year-ago levels:
4) After starting the injection season at a whopping surplus to last year of over 1 trillion cubic feet (or 69 percent), this year's natural gas build has been at about half the pace of that seen in recent years (see below).
This has not only been due to a lack of urgency, but also due to falling production, as well as a record power burn this summer - as cheap, cleaner-burning natural gas has continued to displace coal-fired generation.
Given this backdrop of rebalancing, prices have accordingly responded. Prices have clambered into three dollardom today...for the first time in 16 months.
5) The chart below shows the price per day to lease a floating rig, which cost about $500 million to purchase outright. The lease price has dropped by 60 percent in the last two years, as demand has vanished amid the lower oil price environment.
Transocean has a number of these rigs sat 12 miles offshore Trinidad and Tobago. They are cold-stacked, which means the engines have been switched off, as opposed to warm-stacking, where the motors are kept running despite them not being in use. The cost savings betwixt the two is significant: $15,000 a day, compared to $40,000.
Cold-stacking these floating rigs has helped Transocean make a surprise profit in Q2, but what is more telling is the the fact they have cold-stacked them in the first place. It indicates an expectation that demand won't be returning any time soon.
6) Finally, here is a link to an interview I did with Brown Brothers Harriman, with insights into the global oil market based on our data.