OPEC – Aug 2016 Production By OPEC Country and The Challenge to Allocate the 0.7 Million bpd Cut

Oil had a big day with the word from Algiers of the oil production cut.  There is no formal announcement from OPEC but the statements from OPEC ministers were consistent that  OPEC agreement today to cut oil production by “around 700,000 bpd” from Aug 2016 levels.   And that this would reduce OPEC output to a range of 32.5 to 33.0 million bpd.

Who produces what and who cuts what was NOT decided, rather that is supposed to be resolved at the Nov 30 OPEC meeting.  The tone today is positive, some of it was short covering undoubtedly, but some of it is the logic that you take 0.7 million b/d off the market and it can correct the oversupply quicker.  I think the burden will fall on Saudi Arabia first for the largest cut and its key traditional close friends UAE and Kuwait for smaller cuts.  Its hard to see the rest of them cutting.  The wildcard will be Iraq in that case.  We don’t think the market will doubt the Saudi Arabia cut given the comments last week that Saudi Arabia was prepared to go back to Jan 2016 levels of 10.2 million b/d if Iran froze.

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Ontario Stops Some New Renewable Projects To Avoid Future Electricity Costs Rising

Interesting announcement last night that Ontario is cancelling some future renewable energy projects to avoid some future electricity costs being added. [LINK]  This isn’t to reduce electricity costs, but to avoid some future higher cost electricity adds. It is an acknowledgement by Ontario that adding more green energy will add to home owner electricity costs.  And reminds that the future of clean energy depends even moreso today on oil and natural gas.

The National Post reported it as “Ontario’s Liberal government took steps Tuesday to take some pressure off of rising electricity rates, cancelling plans to sign contracts for up to 1,000 megawatts of power from solar, wind and other renewable energy sources.   Energy Minister Glenn Thibeault said the move will save up to $3.8 billion of the costs projected in the 2013 long-term energy plan, and will keep about $2.45 a month from being expected added to hydro bills for homeowners and small businesses”.  [LINK]

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EIA weekly oil inventory – this week’s adjustment found 1.7 million barrels

Here is a step thru of the math that shows the found barrels this week to get to the plus go the oil inventory numbers

The EIA oil inventory numbers were released today.  The key number is crude oil inventory which was down 1.9 million barrels vs last week. This week it was 502.7 million barrels vs 504.9 million barrels last week.

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Still Big Wildcard With > 4,000 Oil DUCs

There was good news/bad news for oil markets from today’s EIA Drilling Productivity Report (Sept).  This is the monthly report that provides the EIA’’s estimate for production by major shale/tight play for the next 2 months, in this case Sept and Oct.

The good news is that the EIA forecasts another month of decline in the major plays oil production from 4.465 million b/d in Sept to 4.405 million b/d in Oct.  Plus that is also down from Aug of 4.555 million b/d.   Note, the EIA made an immaterial adjustment to its Sept forecast from last month of 4.470 million b/d, down very slightly to 4.465 million b/d in this month’s forecast.  This reaffirms that US oil continue to decline.    [LINK]

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Canada Conditional Approval of Petronas LNG

I took a quick look thru the Canada decision statement on the “approval” of Petronas BC LNG project [LINK], and provide my strategic/common sense comments.

I worry that the Govt of Canada isn’t leaving a lot of wiggle room for flexibility on moving on the 190 conditions.

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