The oil drama continues as Repsol and Statoil move to pull oil workers from Venezuela as the country becomes less stable and may be on a path toward civil war. Saudi Arabia’s Saudi Aramco said it is cutting supply to its customers by at least 520,000 barrels per day (bpd) in September raising expectations that OPEC will get its compliance issues under control and start to rein in Libya and Nigerian production.
The oil companies are starting to flee Venezuela. Bloomberg News reported that Repsol SA pulled all foreign workers from its fields in Venezuela and that Norway’s Statoil ASA also removed all expat staff. The exit of oil workers is a major blow to the Maduro government as the lack of foreign expertise we lead to further drops in their oil production and raise the possibility of bond defaults as Venezuela's cash cow starts to run dry due to ignorance and stupidity.
The oil market is shaking off reports of poor compliance and instead, now is focusing on a tightening global supply situation. With more press picking up on the sharp decline rates in the Permian basin, as well as rising shale lease costs, the expectation that shale production is near a peak for the year is going to start gaining momentum. Now, if OPEC can keep it together, we should see the recent drain on global oil inventories continue into the end of the year. We expect to see oil and products fall around two million barrels and refinery runs to stay flat but still near record highs.
Record gasoline demand has helped drive gasoline costs and refiners are in high gear to meet that demand. AAA put the national average price for regular unleaded gasoline is $2.35 per gallon, which is three cents more than last week, nine cents more than one month ago, and 23 cents more than at the same time last year. Still seasonally we have peaked but this year's seasonals have been out of whack. Look for record gas demand to continue.
BP is reporting that it has found a fertile new source of shale gas in New Mexico on land it bought from a U.S. shale driller two years ago, according to the Houston Chronicle. “BP said that one of its natural gas wells in the Mancos Shale reached the region's highest production rate in 14 years, pumping 12.9 million cubic feet of gas a day in an initial 30-day period. By comparison, horizontal gas wells in the Eagle Ford Shale in South Texas produce some 8 to 12 million cubic feet of gas a day, according to energy research.
Crude oil should break out of its range to the upside soon. A big drop in oil inventories could be the trick. Vacation like trading volume is also hampering action.