• 50 mins Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 5 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 6 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 7 hours Rosneft Signs $400M Deal With Kurdistan
  • 9 hours Kinder Morgan Warns About Trans Mountain Delays
  • 16 hours India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 21 hours Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 1 day Russia, Saudis Team Up To Boost Fracking Tech
  • 1 day Conflicting News Spurs Doubt On Aramco IPO
  • 1 day Exxon Starts Production At New Refinery In Texas
  • 1 day Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 2 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 2 days China To Take 5% Of Rosneft’s Output In New Deal
  • 2 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 2 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 2 days VW Fails To Secure Critical Commodity For EVs
  • 2 days Enbridge Pipeline Expansion Finally Approved
  • 2 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 2 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 3 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 3 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 3 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 3 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 6 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 6 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 6 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 7 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 7 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 7 days India Needs Help To Boost Oil Production
Alt Text

Oil Prices Spike On Middle East Tensions

Oil prices jumped upwards on…

Alt Text

Russia And China Continue To Boost Oil Ties

The Russia-China alliance is strengthening…

Alt Text

The U.S. Shale Play To Watch In 2018

The original U.S. shale gas…

Brimming Gasoline Stockpiles Cap Oil Prices

Oil Rig

We begin by taking a quick look at some of the critical figures and data in the energy markets this week, which show that renewed concerns about the supply glut and an increasing rig count have kept oil prices in check over the last week. The latest data also suggests an increase in U.S. oil production after various weeks of declines.

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

Oil prices bounced around this week, falling back on renewed concerns over a supply glut, but at times regaining ground. The IEA struck a negative tone regarding elevated inventories of both crude oil and refined products, and the high levels of storage will likely prevent a strong price rally in the third quarter. However, at the same time, the IEA said the market is moving closer to balance, and the Paris-based energy agency even issued a seemingly contradicting warning over the sharp cutbacks in upstream investment, which it says will leave the world short on supply in several years’ time. WTI and Brent closed out the week slightly up.

But the near-term outlook has turned bearish. The rush of refinery runs around the world has created an “epic overhang” of gasoline stockpiles, as Amirta Sen, the top oil analyst at Energy Aspects, described it. And the return of production from Canada, Nigeria, and potentially from Libya could restore some disrupted supply. There has been a lot of uncertainty surrounding the political situation in Europe following the Brexit, but for oil traders, the focus is shifting back to the crude oil market. “When the macro dust settles, which might take a while, it will become apparent that oil fundamentals are weaker than many realized,” Julius Walker, senior consultant at JBC Energy in Vienna, told Bloomberg. The EIA reported another decent though not enormous decline in oil inventories, but a surprising uptick in gasoline stocks spread pessimism around the market.

China adds to refined fuel glut. China stepped up its refining activity to a record high in June, and since domestic demand continues to come in lower than analysts anticipated for China, some of that product is being dumped onto the international market. Refinery runs hit 11 million barrels per day last month, or 3.2 percent higher from a year earlier. The high levels of processing are pushing down refining margins and leading to a flood of refined products being diverted into storage. That is putting strong downward pressure on crude oil prices. Related: The Glut Is Far From Over As Offshore Oil Storage Continues To Swell

But China’s oil production is falling. China is always viewed as a massive oil importer and consumer, but it is also a sizable producer. Low oil prices are forcing cutbacks at some of China’s high-cost oil fields. China’s production fell 4.6 percent in the first half of the year. PetroChina said that production will decline this year for the first time in 17 years.

Drilling old wells could add to U.S. supply. A new report from IHS Markit concludes that U.S. shale drillers could return to old vertically-drilled wells and drill them horizontally for new production. Because these wells have already been drilled once, the costs of drilling them horizontally for the first time would be substantially lower than drilling a fresh well. The report did not put an estimate on how much additional production could result from these old wells, but IHS said there is a lot of potential in vertical wells for drillers.

Shale more competitive than deepwater. Earlier this week consulting firm Wood Mackenzie released a report that concluded that U.S. shale is now more competitive than deepwater drilling projects around the world after two years of cost declines. Shale drillers have reduced costs by as much as 40 percent since 2014 while conventional drilling projects only cut costs by about 10 to 12 percent. As a result, moving forward, the industry will likely step up investment in shale projects, which are now more economical than large-scale deepwater plays. The Eagle Ford has breakeven costs of about $48 per barrel, parts of the Permian Basin have breakevens at $39 per barrel, while deepwater often needs oil prices as high as $60 per barrel.

Cnooc could abandon oil sands. Chinese state-owned oil company Cnooc purchased Nexen Energy in Canada in 2013 for $15 billion, but because of a series of mishaps at its Long Lake oil sands processing facility in Alberta, Cnooc might abandon the project. “The deal has turned out to be a bit of a dud for them,” said Gordon Houlden, a China expert at the University of Alberta, told The Wall Street Journal. At the time, the purchase of Nexen was China’s largest overseas acquisition on record, a large bet on Canadian oil sands. Since then, they have suffered several disasters – a pipeline spill last summer and an explosion at the same Long Lake facility in January, which killed two workers. The company is weighing whether or not to spend $100 million on repairs or shutter the facility instead. Long Lake turns heavier crude into lighter crude, and shutting it down would not only be a blow to Cnooc, but it would also negatively impact other oil sands producers who depend on the processing. Related: Venezuela’s Oil Production Plunges To 13-Year Low

BP Deepwater Horizon bill rises to $61.6 billion. BP (NYSE: BP) added another $5.2 billion to its final tally for the 2010 oil spill, bringing the total to $61.6 billion. The British oil giant hopes the latest costs will be the last charge related to the disaster that will have a “material impact” on its finances.

ExxonMobil declares force majeure on Nigerian oil. The Niger Delta Avengers recently claimed a successful attack against the Qua Iboe crude pipeline, something that ExxonMobil (NYSE: XOM), the pipeline’s operator, denied. But Exxon declared force majeure on shipments of the crude export grade after a “system anomaly observed during a routine check of its loading facility.” Oil prices rose on the news. Expectations of a return of Nigerian oil production have ebbed and flowed with the news cycle – optimistic statements from Nigerian government officials talk up a return of crude production, but those sentiments are quickly dashed when the Niger Delta Avengers pull off fresh attacks. For now it is unclear how much production will come back in the short-term.

North Sea set to be hit with workers strike. Oil workers in the North Sea that provide maintenance services to Royal Dutch Shell (NYSE: RDS.A) voted to strike over pay and working conditions. The FT calls it the largest industrial dispute in the British oilfields in a decade. The strike is another blow for a region that is struggling with declining competitiveness.

By Evan Kelly of Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Smoky on July 17 2016 said:
     The age of fossil fuels is coming to an end.  When investors fully comprehend that we can't burn all the oil and gas that companies have as reserves without destroying human life, what do you think will happen to Exxon's stock value?  Peabody Coal and Arch Coal are now bankrupt.  Do you remember the tobacco era?   Tobacco companies are still alive today because they sell cigarettes overseas, but every country in the world is converting to clean, renewable fuel.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News