The Energy ReportPhil Flynn
The Energy Report 08/30/16
Revolution Number Nine
The National Hurricane Center says that tropical depression number nine is expected to strengthen soon but is already impacting oil and gas production. The Bureau of Safety and Environmental Enforcement (BSEE) says that tropical depression number 9 in the Gulf of Mexico is causing precautionary shut downs of offshore oil and gas operations that is in the path of the storm. The BSEE says that as of yesterday from operator reports, it is estimated that approximately 11.48 percent of the current oil production in the Gulf of Mexico has been shut-in. It is also estimated that approximately 5.51 percent of the natural gas production in the Gulf of Mexico has been shut-in. The shut-ins are one reason oil and natural gas are staying strong despite the strength in the dollar today.
The BSEE says that as of yesterday, "personnel have been evacuated from a total of six production platforms, equivalent to less than one percent of the 781 manned platforms in the Gulf of Mexico. They explain that production platforms are the structures located offshore from which oil and natural gas are produced. Unlike drilling rigs, which typically move from location to location, production facilities remain in the same location throughout a project's duration." The BSEE says that, "personnel have been evacuated from one rig (non-dynamically positioned (DP) rig), equivalent to 6.25 percent of the 16 rigs of this type currently operating in the Gulf. Rigs can include several types of offshore drilling facilities including jackup rigs, platform rigs, all submersibles and moored semi-submersibles.
The BSEE says that, "A total of five DP rigs have moved off location out of the storm's path as a precaution. This number represents 20.00 percent of the 25 DP rigs currently operating in the Gulf. DP rigs maintain their location while conducting well operations by using thrusters and propellers, the rigs are not moored to the seafloor; therefore, they can move off location in a relatively short time-frame. Personnel remain on-board and return to the location once the storm has passed. "As part of the evacuation process, personnel activate the applicable shut-in procedure, which can frequently be accomplished from a remote location. This involves closing the sub-surface safety valves located below the surface of the ocean floor to prevent the release of oil or gas. During previous hurricane seasons, the shut-in valves functioned 100 percent of the time, efficiently shutting in production from wells on the Outer Continental Shelf and protecting the marine and coastal environments. Shutting-in oil and gas production is a standard procedure conducted by industry for safety and environmental reasons."
The BSEE says that after the storm has passed, facilities will be inspected. Once all standard checks have been completed, production from undamaged facilities will be brought back on line immediately. Facilities sustaining damage may take longer to bring back on line. BSEE will continue to update the evacuation and shut-in statistics at 1:00 p.m. CDT each day as appropriate.
The storm will also impact oil imports and exports out of the gulf making it more difficult to get demand and supply trends. What is worse is we have another tropical storm number 8 that is developing into a major storm that could allow a big demand hit as it could impact demand as it is tracking to scorch the coast of North Carolina.
Oil may also get support from a report from Genscape that showed a drawdown of 287,444 barrels at the Cushing, Oklahoma delivery point. The draw may increase the odds that overall supply will fall. We are predicting crude oil down 2 million barrels, gasoline up 1 million and distillates down 1 million barrels. Refining runs will be steady.
We continue to believe that a generational bottom in oil is in for the long term and oil is now up over 22% this year. One of the reasons is the build of massive debt by big oil companies as they lack any new investment. Bloomberg reports that new finds of oil is at the lowest levels since 1947 and is headed even lower. On top of that oil explorers are replacing just 6% of resources they drill, this comes at a time when global oil demand is expected to smash all-time records. Bloomberg says that, "Just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947, according to figures from Edinburgh-based consulting firm Wood Mackenzie Ltd. This year, drillers found just 736 million barrels of conventional crude as of the end of last month. That's a concern for the industry at a time when the U.S. Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there."
So in other words, if we don't see a drop in demand due to economic fallout, we are on the path to a historically tight market in the coming years. Oil could see a major price rally in the next few years. Since the beginning of the year we have maintained that massive oil drop to start the year made things more bullish for the long term. We are seeing the impact of that price crash in the form of barrels of oil that won't be there when we need them.
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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
Phil is one of the world's leading energy 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. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.
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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
Contact Phil at 800-935-6487 or pflynn&pricegroup.com.
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August 30th, 2016
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