Will Trump Open Up New Oil And Gas Reserves?

Friday November 11, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Oil price crash drains billionaires

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- Oil prices retreated sharply last week after the EIA reported a massive buildup in crude oil inventories, a record high gain of over 14 million barrels.
- WTI and Brent crashed from around $50 down to below $45 per barrel.
- The 10 percent loss on the week was the steepest weekly drop since the beginning of the year.
- The price drop erased $4.6 billion in wealth from the world’s top oil billionaires, according to Bloomberg, which include Harold Hamm (potential name for Energy Secretary under a Trump administration), Kelcy Warren and Jeffery Hilldebrand.

2. New oil reserves could be opened up

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- President-elect Donald Trump has not made oil and gas a priority, but when he has talked about the subject he sounds as if he will be a friend to upstream producers.
- Trump could move to open up new territories for oil and gas drilling. The U.S. holds about 232 billion barrels of undiscovered technically recoverable oil and gas reserves on federal lands and along the continental shelf.
- However nearly two-thirds of that is off limits, including some major offshore regions – the Atlantic Ocean, the Arctic Ocean, the Pacific Ocean, and the Eastern Gulf of Mexico.
- Offshore Alaska alone is thought to hold 50 billion barrels of oil reserves.

3. OPEC steps up oil exports

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- A few weeks away from the key November meeting in Vienna, OPEC is increasing oil production and exports.
- Output jumped to 33.5 million barrels per day in October, according to S&P Global Platts. The IEA says OPEC’s production actually reached 33.8 mb/d.
- ClipperData, reported on by the WSJ, finds that oil ships moved a record 48.4 mb/d by sea in October, which is 13 percent higher than a year earlier.
- Rising output makes agreement on cuts even more difficult. OPEC promised to agree to cut to a range between 32.5 and 33.0 mb/d, which was only 200,000 to 700,000 barrels per day lower than its September production levels. Now it might need to cut more than 1 mb/d if it wants to get down into that range.
- But there is little sign that OPEC members are willing to shoulder that burden.

4. OPEC overproducing

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- The IEA says that the “call on OPEC,” or demand for OPEC oil, is hovering just above 33 mb/d right now. But because OPEC ramped up output to 33.8 mb/d in October, they are overproducing.
- That has led to excess barrels on the market, barrels that have found their way to the U.S. in recent weeks. U.S. crude imports jumped to 9 mb/d in the last week of October, a four-year high.
- The IEA does not see the call on OPEC rising to 33.8 mb/d until the end of 2017.
- OPEC will either have to cut output at the upcoming meeting, or crude oil storage levels could begin rising again, pushing down oil prices. The IEA warns about prices “falling back” if OPEC fails to reach an agreement at the end of the month.

5. EV sales stall in U.S., skyrocket in China

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- EV sales in the U.S. rose at just one-third the growth rate between 2008 and 2013.
- Low oil prices have made EV sales relatively more expensive compared to conventional vehicles.
- Globally, EV sales are rising quickly, hitting 550,000 units in 2015. China is now leading the way on EV sales.
- They are growing from a small share, however. The estimated impact on oil demand from all the EVs sold in 2015 is equivalent to displacing about 0.01 mb/d of oil.
- One large uncertainty is the upcoming administration of President Donald Trump in the U.S. He has promised to roll back spending on clean energy, which could include cuts to tax credits for EVs. That would have a negative impact on sales.

6. Oil inventories falling

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- Oil stocks fell across the OECD for the second consecutive month in September, signaling a firmer tightening of global supply surplus.
- Oil inventories dropped by 34 million barrels in August and September, the largest two-month drop in almost three years, according to the IEA.
- The IEA says that “it is too early to get excited about lower stocks as preliminary data for October point to renewed crude stock builds in the U.S. and Japan.”
- There is still a long way to go to get back to the running five-year average, but the oil markets are very slowly moving closer to balance.

7. U.S. refineries running at low pace

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- Aside from September, which showed the first year-on-year growth in refinery runs since March, the U.S. refinery complex is working at a much slower rate than last year.
- Refining margins have shrunk amid global oversupply, forcing refiners to cut back.
- October saw refinery runs in the U.S. 1 mb/d lower than the same month a year earlier. The 15.4 mb/d run rate is the lowest in two years.
- Maintenance season is also underway, with refineries going offline for some upkeep.
- The IEA also issued some unusual downward revisions in the refining run data from previous months.
- All in all, much of 2016 has been a bad one for refiners. But the IEA forecasts increases in the months ahead.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.