The IEA has once again increased their outlook for global oil demand.
The February IEA report supports my outlook that crude oil prices will be supported in 2011 and beyond by ever increasing demand. IEA has raised their global demand forecast for 2011 to 89.3 million barrels per day, up 120,000 bopd since the last report.
Meanwhile, 2011 non-OPEC production estimates moved up only 0.1 million bbls/day to 53.5 million bbls/day on higher North American output. With the Gulf of Mexico shut down by the Obama Administration the Bakken and other more liquid shales are the only significant sources of new production.
The 2011 “call on OPEC crude and stock change” now averages 29.9 million bbls/day, close to January’s 2-year high levels. OPEC spare capacity now stands at 4.7 million bbl/day.
I'm expecting dwindling spare OPEC capacity to be very supportive of crude prices.
Demand for oil going up
Demand for oil going up
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
Brent crude is now trading at a $15/bbl premium to WTI (the oil price you see quoted every day on the news).
Per Raymond James: It appears that this disconnect is more structural in nature than prior disconnects. In fact, we think it is a chronic, infrastructure-caused glut at Cushing that is unlikely to get resolved anytime soon. Simply put, we think transportation bottlenecks in and around Cushing will force WTI to trade at a meaningful discount to other crudes though 2011 and into 2012. That means the oil price most of us see on our screen every day is going to be virtually irrelevant in 2011 for energy companies that are not located in the central part of North America. In other words, global and U.S. coastal oil (and oil product) prices are likely to be much higher than WTI for the next 18 months. With this in mind, today we are rolling out our first-ever official forecast for Brent – the new undisputed champion of global crude price benchmarks.
An increasing amount of inbound oil from emerging horizontal plays in Canada, the Bakken, and Permian Basin has outpaced the outbound pipeline capacity from Cushing, Oklahoma, as Cushing storage has substantially increased. Earlier this month, in fact, Cushing inventories reached the highest level on record.
There are storage expansions in the works that should provide some modest incremental relief, but on the flip side, there is a brand-new source of incoming crude – a classic example of “one step forward, two steps back.” Last week’s completion of TransCanada’s Keystone Cushing extension (from Steele City, Nebraska to Cushing shown on the map below) stands to compound the bottleneck problem at Cushing in 2011. This extension added about 155,000 bpd of additional inbound capacity to Cushing with no incremental outbound capacity. Additionally, operators in the Bakken and other developing horizontal shales are now trucking and rail shipping even more crude into Cushing. In other words, the bottlenecks at
Cushing appear likely to get even worse in the coming months.
Per Raymond James: It appears that this disconnect is more structural in nature than prior disconnects. In fact, we think it is a chronic, infrastructure-caused glut at Cushing that is unlikely to get resolved anytime soon. Simply put, we think transportation bottlenecks in and around Cushing will force WTI to trade at a meaningful discount to other crudes though 2011 and into 2012. That means the oil price most of us see on our screen every day is going to be virtually irrelevant in 2011 for energy companies that are not located in the central part of North America. In other words, global and U.S. coastal oil (and oil product) prices are likely to be much higher than WTI for the next 18 months. With this in mind, today we are rolling out our first-ever official forecast for Brent – the new undisputed champion of global crude price benchmarks.
An increasing amount of inbound oil from emerging horizontal plays in Canada, the Bakken, and Permian Basin has outpaced the outbound pipeline capacity from Cushing, Oklahoma, as Cushing storage has substantially increased. Earlier this month, in fact, Cushing inventories reached the highest level on record.
There are storage expansions in the works that should provide some modest incremental relief, but on the flip side, there is a brand-new source of incoming crude – a classic example of “one step forward, two steps back.” Last week’s completion of TransCanada’s Keystone Cushing extension (from Steele City, Nebraska to Cushing shown on the map below) stands to compound the bottleneck problem at Cushing in 2011. This extension added about 155,000 bpd of additional inbound capacity to Cushing with no incremental outbound capacity. Additionally, operators in the Bakken and other developing horizontal shales are now trucking and rail shipping even more crude into Cushing. In other words, the bottlenecks at
Cushing appear likely to get even worse in the coming months.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
Remember: Brent is not as light and not as sweet as WTI, so intrinsically it should always be cheaper than WTI. So why has it been trading above WTI so much more frequently? Here’s one theory that provides a plausible explanation. North Sea oil production has been steadily declining in recent years, particularly in the U.K. sector, where the Brent benchmark is based. The U.K. sector’s oil output fell 9-10% in 2004, 2005 and 2006 – despite progressively higher oil prices in each of those years. After flatlining in 2007, it quickly resumed declines – down 6% for each of the past three years (and we project 4-5% declines in both 2011-2012). Because the U.K. is part of the Northwest European refining hub, it may be that there is now a shortage of locally produced crude in the region. It was only in 2004 that the U.K. became a net oil importer, and it has steadily become more imports-dependent since then. Because of this, it seems reasonable that local oil (i.e., Brent) might merit a transportation-related premium.
Until the situation at Cushing normalizes, keep your eyes peeled to other benchmarks, especially Brent.
To be clear, WTI’s recent record-setting discount vs. Brent
($15/Bbl) strikes us as unsustainable. For one thing, there is an
element of speculative trading (Egypt?) that seems to have led to
an abrupt widening in recent weeks. Thus, the discount will
probably diminish over the next few months. That said, we do not
expect Cushing bottlenecks to be resolved in the next 18 months.
We are projecting a full-year 2011 Brent average of $97.50/Bbl (vs. $90.00/Bbl for WTI), followed by $104.50/Bbl in 2012 (vs. $100.00/Bbl for WTI). While the current record-setting WTI discount vs. Brent should narrow over time, we doubt that WTI will revert back to its traditional premium until 2013 at the earliest.
Until the situation at Cushing normalizes, keep your eyes peeled to other benchmarks, especially Brent.
To be clear, WTI’s recent record-setting discount vs. Brent
($15/Bbl) strikes us as unsustainable. For one thing, there is an
element of speculative trading (Egypt?) that seems to have led to
an abrupt widening in recent weeks. Thus, the discount will
probably diminish over the next few months. That said, we do not
expect Cushing bottlenecks to be resolved in the next 18 months.
We are projecting a full-year 2011 Brent average of $97.50/Bbl (vs. $90.00/Bbl for WTI), followed by $104.50/Bbl in 2012 (vs. $100.00/Bbl for WTI). While the current record-setting WTI discount vs. Brent should narrow over time, we doubt that WTI will revert back to its traditional premium until 2013 at the earliest.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
Right now Brent is trading at $103/bbl and WTI is at $84.50/bbl. The $18.50/bbl premium for Brent is unbelievable to me.
I don't think the NYMEX traders know what to think of the problems at Cushing, Oklahoma. I sure don't.
I don't think the NYMEX traders know what to think of the problems at Cushing, Oklahoma. I sure don't.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
must be global warming 
actually one idea i read about on the bry IV bd this am suggests canada is "dumping" oil into cushing under mkt price.
i do think the glut in cushing is due to canada & bakken.
seems like the price shud be brent less shipping costs from cushing to gom.
actually one idea i read about on the bry IV bd this am suggests canada is "dumping" oil into cushing under mkt price.
i do think the glut in cushing is due to canada & bakken.
seems like the price shud be brent less shipping costs from cushing to gom.
Re: Demand for oil going up
I have a Raymond James report that explains why WTI is trading so low to Brent. If you want a copy send me an e-mail.
In a nutshell, too much oil coming in from the north (Bakken and Canada) and not enough takeaway capacity. RJ believes it may take two years to resolve this problem.
dmsteffens@comcast.net
In a nutshell, too much oil coming in from the north (Bakken and Canada) and not enough takeaway capacity. RJ believes it may take two years to resolve this problem.
dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
Texas oil billionaire turned wind energy and natural gas proponent T. Boone Pickens was adding to many of his top positions as 2010 closed out, while opening new bets in select energy players.
At the beginning of this year, Pickens predicted that oil will trade over $100 a barrel this year with prices averaging between $110 and $120, resulting in gasoline prices of $4 a gallon. It will be interesting to see whether Pickens' forecast is on target, and in the meantime, a look at his BP Capital Management hedge fund's top-15 U.S.-listed equity holdings from the end of 2010 show where he was placing bets in the three months ended December 31.
Pickens added new positions in EOG Resources (NYSE: EOG - News) and National Oilwell Varco (NYSE: NOV - News), while upping a large stake in BP (NYSE: BP - News) amd also increasing stakes in Chesapeake Energy (NYSE: CHK - News), Halliburton (NYSE: HAL - News), Plains Exploration & Prod (NYSE: PXP - News), QEP Resources (NYSE: QEP - News), and Weatherford International (NYSE: WFT - News).
On the other side of the ledger, Pickens was trimming his stakes in Devon Energy (NYSE: DVN - News) and Suncor Energy (NYSE: SU - News).
At the beginning of this year, Pickens predicted that oil will trade over $100 a barrel this year with prices averaging between $110 and $120, resulting in gasoline prices of $4 a gallon. It will be interesting to see whether Pickens' forecast is on target, and in the meantime, a look at his BP Capital Management hedge fund's top-15 U.S.-listed equity holdings from the end of 2010 show where he was placing bets in the three months ended December 31.
Pickens added new positions in EOG Resources (NYSE: EOG - News) and National Oilwell Varco (NYSE: NOV - News), while upping a large stake in BP (NYSE: BP - News) amd also increasing stakes in Chesapeake Energy (NYSE: CHK - News), Halliburton (NYSE: HAL - News), Plains Exploration & Prod (NYSE: PXP - News), QEP Resources (NYSE: QEP - News), and Weatherford International (NYSE: WFT - News).
On the other side of the ledger, Pickens was trimming his stakes in Devon Energy (NYSE: DVN - News) and Suncor Energy (NYSE: SU - News).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Demand for oil going up
From the BRY board @ IV. Sounds like somebody could reverse the price of WTI anytime they want to..
ConocoPhillips Not Interested in Reversing Seaway Pipeline
By Aaron Clark - Feb 15, 2011 5:06 PM ET
ConocoPhillips isn’t interested in reversing the Seaway pipeline that brings crude from the U.S. Gulf Coast to the fuel hub in Cushing, Oklahoma, where inventories of crude oil reached a record high last month.
“We don’t really think that’s in our interest because we need more crude in the area” to supply the company’s refineries in the Midcontinent, Jim Mulva, ConocoPhillips’s chief executive officer, said during a conference call hosted by ISI Group today.
Stockpiles at Cushing, the delivery point for futures traded on the New York Mercantile Exchange, rose in the week ended Jan. 28 to 38.3 million barrels, according to the Energy Department. That was the highest level in records begun in 2004. Last week TransCanada Corp. started deliveries to the hub from its Keystone pipeline, which connects Alberta and Cushing.
“A reversal would send up to 350,000 barrels a day of crude from Cushing directly to Houston, significantly releasing pressure on the Cushing complex,” said JBC Energy GmbH, a Vienna-based researcher.
The 530-mile (853-kilometer) Seaway pipeline, operated by Enterprise Products Partners LP, carries crude northbound from Freeport, Texas, to Cushing. It also supplies refineries in the Houston area and has a usable storage capacity of 3.4 million barrels, according to the company’s website.
Barclays Capital analysts said last week that the high inventories at Cushing and the new Keystone deliveries have combined to separate WTI, the U.S. benchmark, from Brent crude oil traded in London. Brent’s premium to WTI, which averaged 63 cents in 2010, surged to $15.85 Feb. 11.
Rick Rainey, a spokesman for Enterprise, said in an e-mail that ConocoPhillips and Enterprise would have to agree to reverse the pipeline. Seaway’s former operator, Teppco Partners LP, said in 2007 it would consider a reversal.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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COP needs more oil at Cushing, and the way they would prefer to obtain that oil is by paying LLS or similar prices for it at the Gulf Coast, and then transporting it via their pipeline to Cushing, rather than just using some of the surplus oil already there, paying WTI prices, and then making some extra coin transporting other companies' oil from Cushing to the Gulf Coast. Are these guys idiots or what am I missing?
ConocoPhillips Not Interested in Reversing Seaway Pipeline
By Aaron Clark - Feb 15, 2011 5:06 PM ET
ConocoPhillips isn’t interested in reversing the Seaway pipeline that brings crude from the U.S. Gulf Coast to the fuel hub in Cushing, Oklahoma, where inventories of crude oil reached a record high last month.
“We don’t really think that’s in our interest because we need more crude in the area” to supply the company’s refineries in the Midcontinent, Jim Mulva, ConocoPhillips’s chief executive officer, said during a conference call hosted by ISI Group today.
Stockpiles at Cushing, the delivery point for futures traded on the New York Mercantile Exchange, rose in the week ended Jan. 28 to 38.3 million barrels, according to the Energy Department. That was the highest level in records begun in 2004. Last week TransCanada Corp. started deliveries to the hub from its Keystone pipeline, which connects Alberta and Cushing.
“A reversal would send up to 350,000 barrels a day of crude from Cushing directly to Houston, significantly releasing pressure on the Cushing complex,” said JBC Energy GmbH, a Vienna-based researcher.
The 530-mile (853-kilometer) Seaway pipeline, operated by Enterprise Products Partners LP, carries crude northbound from Freeport, Texas, to Cushing. It also supplies refineries in the Houston area and has a usable storage capacity of 3.4 million barrels, according to the company’s website.
Barclays Capital analysts said last week that the high inventories at Cushing and the new Keystone deliveries have combined to separate WTI, the U.S. benchmark, from Brent crude oil traded in London. Brent’s premium to WTI, which averaged 63 cents in 2010, surged to $15.85 Feb. 11.
Rick Rainey, a spokesman for Enterprise, said in an e-mail that ConocoPhillips and Enterprise would have to agree to reverse the pipeline. Seaway’s former operator, Teppco Partners LP, said in 2007 it would consider a reversal.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
COP needs more oil at Cushing, and the way they would prefer to obtain that oil is by paying LLS or similar prices for it at the Gulf Coast, and then transporting it via their pipeline to Cushing, rather than just using some of the surplus oil already there, paying WTI prices, and then making some extra coin transporting other companies' oil from Cushing to the Gulf Coast. Are these guys idiots or what am I missing?
Re: Demand for oil going up
Keep in mind that the super-majors don't change quickly. It would be a major decision to reverse that pipeline.
Yes, on the surface, it sure likes like it makes sense to do so.
Yes, on the surface, it sure likes like it makes sense to do so.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group