Oil & Gas Market Update - Aug 1
Posted: Mon Aug 01, 2016 10:07 am
From Roth Capital's John White
Crude Oil:
On 7/29/2016, Reuters reported U.S. total oil demand increased by 0.4% in May from a year earlier, the fourth straight monthly increase, as continued strength at the gasoline pump offset falling distillate sales, according to data released by the U.S. EIA on Friday, 7/29/2016. The volume increase was 85,000 b/d from a year ago to 19.02 million b/d.
WTI crude oil had another tough week and was down 5.7%, closing at $41.60/bbl. In our view WTI may well touch $40/bbl as significant Canadian volumes will return from being off line due to the massive wildfires and some of the Nigerian production is coming back on line from recent sabotage events. Also, weak refining crack spreads are causing, in our opinion, the market to anticipate the refiners will lower utilization until petroleum product inventories draw lower, thus lower demand for crude from the refiners. In our view, WTI crude in the low $40s is a short term event, likely persisting for +/- 60 days. We see a stronger market in 4Q 2016 as we believe U.S. crude production continues to decline and recently several LatAm countries, Colombia and Venezuela, have reported lower crude production.
Militants stormed Iraq's AB2 gas compressor station, about 10 miles northwest of Kirkuk, when four gunmen with hand grenades broke through an external door in an attack that left two guards in critical condition, as reported by Reuters on 7/31/2016. They then shot dead four employees in a control room inside and planted explosives charges, around five of which went off, the sources said.
Forces from the elite Peshmerga counter-terrorism service stormed the facility, regained control and freed 15 other employees who had hidden in a separate room. Security sources believe the attackers escaped and then attacked the Bai Hassan oil station, further northwest, the sources said. There they launched a similar attack, one detonating his explosive vest at an external gate to allow the others to enter. Once inside the facility, two more assailants set off their explosive vests, destroying an oil storage tank. The attack forced the suspension of activity at an oil station which had been pumping 55,000 barrels per day to the northern Kurdish region, oil sources said.
Natural gas in storage:
The EIA reported a build of 17 Bcf, below the forecast build of 26 Bcf and below last year's build of 49 Bcf. U.S. working gas in storage is now at 3,294 Bcf, which is 18.9% above the five-year average of 2,770 Bcf, and 15.3% above last year's level of 2,858 Bcf. Weather forecasts for the U.S. over the next six to 10 days, continuing the trend of a hotter than normal summer, call for above-average temperatures across the majority of the Lower 48. Storage remains at record levels but the level of injections is below last year and points to a rebalancing over the course of the summer. We believe that U.S. working gas in storage could exit the summer season at five-year average levels, assuming normal weather. < If this happens, I expect natural gas to trade for more than $4.00/mcf within six months.
We are adjusting our Henry Hub natural gas forecast for 3Q and 4Q, from $2.00/MMBtu and $2.25/MMBtu, respectively, to $2.50/MMBtu for both 3Q and 4Q. A number of factors continue to support natural gas prices. Wellhead production declines, planned and unplanned gas processing plants offline, hotter than normal weather and nuclear generation outages.
John M. White
Senior Research Analyst, Roth Capital
Crude Oil:
On 7/29/2016, Reuters reported U.S. total oil demand increased by 0.4% in May from a year earlier, the fourth straight monthly increase, as continued strength at the gasoline pump offset falling distillate sales, according to data released by the U.S. EIA on Friday, 7/29/2016. The volume increase was 85,000 b/d from a year ago to 19.02 million b/d.
WTI crude oil had another tough week and was down 5.7%, closing at $41.60/bbl. In our view WTI may well touch $40/bbl as significant Canadian volumes will return from being off line due to the massive wildfires and some of the Nigerian production is coming back on line from recent sabotage events. Also, weak refining crack spreads are causing, in our opinion, the market to anticipate the refiners will lower utilization until petroleum product inventories draw lower, thus lower demand for crude from the refiners. In our view, WTI crude in the low $40s is a short term event, likely persisting for +/- 60 days. We see a stronger market in 4Q 2016 as we believe U.S. crude production continues to decline and recently several LatAm countries, Colombia and Venezuela, have reported lower crude production.
Militants stormed Iraq's AB2 gas compressor station, about 10 miles northwest of Kirkuk, when four gunmen with hand grenades broke through an external door in an attack that left two guards in critical condition, as reported by Reuters on 7/31/2016. They then shot dead four employees in a control room inside and planted explosives charges, around five of which went off, the sources said.
Forces from the elite Peshmerga counter-terrorism service stormed the facility, regained control and freed 15 other employees who had hidden in a separate room. Security sources believe the attackers escaped and then attacked the Bai Hassan oil station, further northwest, the sources said. There they launched a similar attack, one detonating his explosive vest at an external gate to allow the others to enter. Once inside the facility, two more assailants set off their explosive vests, destroying an oil storage tank. The attack forced the suspension of activity at an oil station which had been pumping 55,000 barrels per day to the northern Kurdish region, oil sources said.
Natural gas in storage:
The EIA reported a build of 17 Bcf, below the forecast build of 26 Bcf and below last year's build of 49 Bcf. U.S. working gas in storage is now at 3,294 Bcf, which is 18.9% above the five-year average of 2,770 Bcf, and 15.3% above last year's level of 2,858 Bcf. Weather forecasts for the U.S. over the next six to 10 days, continuing the trend of a hotter than normal summer, call for above-average temperatures across the majority of the Lower 48. Storage remains at record levels but the level of injections is below last year and points to a rebalancing over the course of the summer. We believe that U.S. working gas in storage could exit the summer season at five-year average levels, assuming normal weather. < If this happens, I expect natural gas to trade for more than $4.00/mcf within six months.
We are adjusting our Henry Hub natural gas forecast for 3Q and 4Q, from $2.00/MMBtu and $2.25/MMBtu, respectively, to $2.50/MMBtu for both 3Q and 4Q. A number of factors continue to support natural gas prices. Wellhead production declines, planned and unplanned gas processing plants offline, hotter than normal weather and nuclear generation outages.
John M. White
Senior Research Analyst, Roth Capital