Oil finds support in Libya export problems

The Libya Leap!

Oil prices (NYMEX:CLU13) started to break until the Libya Leap. No, this is not anything like the Lambeau Leap, thank goodness, but a leap in oil because of another disruption in Libyan oil exports. Oil, led by Brent crude, soared as the reliability of Libya's oil becomes more suspect in what some say is the most serious threat to their industry since the ousting of Gadhafi in 2011. Labor disputes closed Libya's two main crude oil export terminals. The ports of Es Sider and Ras Lanuf have an export capacity of around 600,000 barrels per day. The closures of those ports shut in 70% of Libyan oil exports last week, cutting Libyan oil production to around 30%.

On top of that, reports of some production issues in the North Sea helped support Brent. There was a report that a compressor problem at the Ula platform had reduced production of Ekofisk crude oil, tightening supply. Ekofisk Blend is a light, low sulfur North Sea crude oil that European refiners covet and competes with Libyan blends.

WTI got a kick on the run up and products got a boost on increased export potential for U.S. product and the possibility of reduced product imports as well. Gulf Coast products bounced concerns over a fire at Venezuela's 187,000 bpd Puerto la Cruz oil refinery on Aug. 11 after the facility was struck by lightning. Another refinery was also impacted by heavy storms yet they claim that exports and operations would not be impacted.

Mexico is making a historic overdo change in their constitution in an attempt to save their energy industry. In a desperate attempt to reverse declining production, Mexican President Enrique Peña Nieto is proposing to change Mexico's constitution and open up the country's energy sector to foreign investors for the first time in 75 years.

Mexico, which has a holiday for the day they nationalized the oil industry or stole the technology from the industry depending on your point of view, squandered the recent run up in oil prices as it failed to make adequate investment or take advantage of technologies that would have forced them to give up some control. According the FT "Mr. Peña Nieto said the reform would reverse that decline, and ‘provide cheaper energy for all Mexicans.’ He said the changes would allow Mexico to boost oil production to 3m bpd by 2018 and to 3.5m bpd by 2025. Gas production would also increase from 5.8bn cubic feet currently, to 8bn cubic feet by 2018 and 10.4bn cUic feet by 2025.

In speaking of the boom in U.S. production, crude oil production in the Bakken increased 54 Mb/d May–June, the largest month over month increase on record according to a press release from  Genscap. It is predicting the North Dakota Industrial Commission's monthly crude oil production report, slated to be released Thursday August 15, will show an increase in production of 54 Mb/d from May to June. This month-over-month increase would be the largest reported on record by 13 Mb/d. From January to February this year, production grew 41 Mb/d and was the largest month-over-month increase reported. Only one other time, from June to July 2011, has production grown over 40 Mb/d in a month. Genscape's Bakken Data Service clients (http://info.genscape.com/bakken-august) have tracked production throughout the month of June and received a final production forecast on June 30, nearly two months in advance of the scheduled release of the Commission's report.

The month of June brought favorable weather to North Dakota and producers were able to accelerate completion activity. The backlog of uncompleted wells accrued during April and May, when weather was less favorable, was worked off and production was able to grow significantly as a result.

Genscape has expanded its network of proprietary real-time energy monitors to track Bakken production/transportation from 12 rail terminals and two pipelines. Of the monitored flows, 70% of crude in June from the Bakken was transported by rail, while the other 30% was transported by pipe. This is in-line with volumes reported in May, but in contrast to April when 84% was carried by rail and 16% was transported by pipeline. The continued tightness in the spread between WTI and the coast markets is keeping pipeline transportation elevated when compared to other months when the spread was wider. Genscape is predicting crude production in the Bakken will continue its growth trend with 68 Mb/d added between June and the end of the year.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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