The oil market is once again in the grasp of global central bankers as currency fluctuations and not so much supply and demand seem to be the factors that are driving recent momentum. Sure the failure to break $95 dollars on the downside was significant and there is an expectation of rising demand, OPEC raising demand expectations and the energy Information Energy Administrations Short Term Energy Outlook, but at the end of the day as far as oil goes the market is well supplied.
Still a surprise drawdown in the American Petroleum Institute supply report seems to suggest that despite the reduced runs from Seaway to flow of oil as small as it is still acting as a relief valve for that landlocked supply. Not only did the API report that crude stocks fell by 2.3 million barrels they also reported that crude supply fell in Cushing, Oklahoma by a hefty 1.21 million barrels. Now some of this may be playing catch up with last week’s Energy Information Administration report or it could be a sign of what is to come when the Seaway expansion gets back to its 400,000 barrel a day. It will be earth shattering when they finish the new pipeline, which is designed to parallel the existing right-of-way from Cushing to the Gulf Coast, and is expected to more than double Seaway's capacity to 850,000 BPD by first quarter 2014.
In the meantime the market is waiting for today’s Energy Information Administration supply report, the key whether oil continues the advance may be the amount of oil in Cushing Oklahoma. Despite the build on API the market is still looking for an increase in supply. Bloomberg said oil should rise by 2.3 million barrels, or 0.6%, to 374 million in the seven days ended Feb. 8, according to the median of nine analyst estimates before an Energy Information Administration report tomorrow. A gain of this size would leave inventories at the highest level since the week ended Nov. 23.
OPEC called for 800,000 barrels a day increase in global demand to 89.7 million a day. China is the biggest driver and will account for 400,000 barrels a day of this year’s growth. The EIA in their Short Term Energy Outlook says that they expects that the Brent crude oil spot price, which averaged $112 per barrel in 2012 and rose to $119 per barrel in early February 2013, will average $109 per barrel in 2013 and $101 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which averaged $18 per barrel in 2012, averages $9 per barrel in 2014 as planned new pipeline capacity lowers the cost of moving midcontinent crude oil to the Gulf Coast refining centers.
They also expect that falling crude prices will contribute to a decline in the national annual average regular gasoline retail price from $3.63 per gallon in 2012 to $3.55 per gallon in 2013 and $3.39 per gallon in 2014, about 11 cents per gallon and 4 cents per gallon higher than forecast in last month's STEO, respectively. Diesel fuel retail prices averaged $3.97 per gallon during 2012 and are forecast to fall to $3.92 per gallon in 2013 and to $3.82 per gallon in 2014. EIA estimates U.S. total crude oil production averaged 6.4 million barrels per day (bbl/d) in 2012, an increase of 0.8 million bbl/d from the previous year. Projected domestic crude oil production continues to increase to 7.3 million bbl/d in 2013 and 7.8 million bbl/d in 2014.
Are you looking for more reasons to start building a long term bullish position in natural gas? How about this Reuters report that U.S. power companies have announced plans to shut or convert about 40,000 MW of smaller, older coal-fired plants over the next few years as cheap natural gas prices and strict environmental rules have made coal the more expensive option in some areas. Eventually, the switch away from coal may shut 60,000 MW to 100,000 MW of power generation across the country, according to industry estimates.
Low natural gas prices have depressed power prices to at least 10-year lows in several regions, making it uneconomic for generators to install new environmental controls on their oldest and smallest coal plants. Those controls are needed to keep the units compliant with the latest flurry of federal and state environmental rules.
There are about 316 gigawatts (GW) of coal-fired power plants in the United States, about 30% of the nation's 1,039-GW generation fleet. The share of generation fueled by coal in 2013 will rise to about 39% from nearly 38% in 2012, then hold at 39% in 2014, the U.S. Energy Information Administration (EIA) said in its short-term energy outlook in February. Coal produced over half of the nation's power as recently as 2003. EIA projected the share of generation fueled by gas in 2013 will average about 28%, down from 2012's average of about 30% on forecasts that higher gas prices will prompt generators to burn more coal. In 2014, EIA projects gas used in power generation will slip to slightly below 28%.
Also by Reuters it seems that New York will still be behind the curve on the jobs and advantages of fracking. Reuters reports that New York State's decision to lift a four-year ban on natural gas drilling faced further delay on Tuesday after officials conducting a key health impact study asked for more time to form their conclusions on the divisive issue. The New York Department of Health, which has been commissioned to study how the drilling process known as fracking affects public health, said the review is ongoing but that a few more weeks are needed because of the "complexity of the issues."