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The Energy ReportPhil Flynn
The Energy Report 11/20/17
Oil Up Cycle
Oil traders have amassed a record long position in oil as global demand rises and supply of distillate stocks remain tight. Money managers increased their net longs by 28,297 contracts to 409,963 or equivalent of nearly 410 million barrels of oil, according to Reuters. This comes as U.S. shale producers hold off on adding oil rigs. Dow Jones reported that Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil was unchanged at 738 this week. The figure had climbed by 9 rigs last week. The total active U.S. rig count, which includes oil and natural-gas rigs, climbed by 8 to 915.
This is a sign that U.S. oil production that has been flat for the last 7 months, will not hit market expectations and there is a real possibility that the Energy Information Administration will have to lower their U.S. oil production number again in its monthly report. Year over year production growth is coming in well below expected that is driving money into the futures contracts and one of the reasons money managers are amassing record longs.
Demand growth that is already exceeding expectations should continue to rise as the U.S. get closer to a tax reform bill. OPEC, which I think has earned more credibility, pegs world oil demand growth this year at an above average 1.53 million barrels per day (mb/d) in 2017 which was an upward revision of 74,000 barrels per day (b/d) because of strong Chinese demand. Next year they peg growth at 1.51 mb/d, which was also upwardly revised. A strong global economy means more oil demand.
Venezuela oil production hit a 28-year low in October as state-owned oil giant PDVSAPDVSA.UL] struggled to find cash according to Reuters They say their oil production, which has been falling by about 20,000 barrels per day (bpd) per month since last year, is on track to fall by at least 250,000 bpd in 2017 according to numbers reported to the Organization of the Petroleum Exporting Countries (OPEC), as U.S. sanctions and a lack of capital hobble operations.
Some OPEC members expect the fall to accelerate in 2018, reaching at least 300,000 bpd, OPEC sources said. At a recent internal OPEC meeting, Venezuelan officials were asked to give a clearer picture of the country's declining output. "A lot of questions have been raised by Saudis and others to the Venezuelans to present a real picture on the production status and decline," one of the sources said. The topic could come up later this month at the group's next meeting. Saudi Arabia will not raise its output to compensate for this decline as OPEC's de facto leader is focused on reducing global oil stocks, one OPEC source familiar with Saudi oil policy told Reuters this month.
Trilby Lundberg, of the Lundberg Survey, said that the average U.S. pump price rose another 3.35 cents over two weeks, to $2.6129 for regular grade. It is up 10.63 cents over the past month, after crashing nearly 19 cents as refineries came back from Hurricane Harvey flooding effects. Trilby says that some of the price increase came from crude oil edging up. If from here oil price strength doesn't increase, we will probably see pump prices edge down a few cents as demand is entering its seasonal hibernation (with demand also frowning on the current price being a 41 cents premium to its year-ago point), while refiners have upped their capacity use rate dramatically.
Lundberg says that as of November 17 refiners have tightened their belt as to margin on gasoline, while retailers have recovered nicely from earlier gasoline margin deprivation. Wholesale prices retailers pay took a big downturn late last week, helping station operators on average, at least for now.
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