There are 9 million reasons to get excited about the U.S. energy industry as U.S. oil production got back to above 9 million barrels a day last week and U.S. energy exports are at a modern record all-time high. Still, crude oil prices closed at the highest level in 19 months as the uptick in production is just a drop in the bucket to OPEC and Non-OPEC cuts. In WTI, though $55 a barrel is still the number to beat, a number that ran Oil Minister Zanganeh said might not be in OPEC’s best interest. As a close above that level should put us on a path towards $60, but we may need some help from the dollar and perhaps a pause in the rise of U.S.oil rigs.
The U.S. record export number is historic and only the beginning. U.S. crude oil exports hit 1.2 million barrels a day, a new record for since the Energy Information Administration kept records back to 1991. This is key as shale oil is light and hard for U.S. refiners to refine so instead of backing up in inventory it will start to find its way on the global market where it can be used more efficiently helping consumers of oil around the globe.
The rise of the U.S. oil exporter will change the way the market views oil inventories in the United States. We will not just be tied to U.S.refining but also to the global market. Already the exporting of U.S. crude and OPEC production cuts is shifting the market share for oil. Russian oil into China is rising and U.S. barrels are finding their way into the mix as well.
Of course, it is not fast enough to replace OPEC/NON-production cuts even as there are concerns that record compliance to cuts cannot last. The most recent read on OPEC compliance was impressive, Bloomberg News reported that compliance level for both OPEC/non-OPEC producers comes from the January technical report at 86% OPEC implemented 94% cuts; non-OPEC achieved 66%.
The EIA overall still showed that crude supple rose to a record after posting a smaller than expected 563,999-barrel increase in crude supply but it was the big 2,63 million barrel drop in gasoline and 4.92 million barrel drop in distillate supply that added the outside report. The drop-in product supply suggests that demand is probably stronger than we think and should only work higher as we move forward. With global stock markets on a tear, the demand prospects for oil should only improve.
Natural gas is trying to find its footing after being beat up with summer like temperatures in winter causing a historic drop in heat related demand. Still, the EIA reported that gas supply still fell by more than expected 89bcfs showing that even with warm weather we are still using a lot of gas. Andrew Weissman, of EBW Analytics group, is putting out a special report. He says that, “After extreme weakness this winter, natural gas is poised for a bounce back this summer. Supply/demand fundamentals will continue to tighten over the course of 2017 — and the recent steep decline in the forward curve has already set the stage for a comeback. If weather returns to seasonal norms, prices could explode later this year.” I agree. As I have said before the weakness in gas due to weather is masking larger issues.
Call or e-mail me if you want that report.