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In this week’s edition of the successes and failures of the oil and gas industry, regular market watchers from Rigzone take a closer look at inventory data in the United States, the important Permian deal from Shell and ConocoPhillips , Covid developments and more. Read on to find out what they had to say.
Rigzone: What were the market expectations that actually happened over the past week – and what expectations didn’t happen?
Barani Krishnan, Senior Commodities Analyst at invest.com: Some surprise is that oil markets appear to be picking US inventory data to keep an upward tilt on crude prices even as gasoline inventories rose last week. The other is that about 16% of oil production on the U.S. Gulf of Mexico coast remains shut down nearly a month after Hurricane Ida, a phenomenon no one could have really predicted at the time.
Jon Donnel, Managing Director, B. Riley Advisory Services: The first month’s WTI contract hit its highest price since July as demand remains robust and production in the Gulf of Mexico has not returned to pre-Hurricane Ida levels. Total product delivered remained above 20 million barrels per day on a rolling four-week basis during the third quarter, the first time since 1Q20. Overall US production remains below 11 million barrels per day, recovering only about a third of the drop from recent hurricanes. As a result, crude inventories fell for the sixth week in a row and are at levels below the comparable period of 2019. Overall, supply and demand fundamentals remain favorable for commodity prices as the end of the year approaches.
Michael Osina, Grant Thornton National Partner in charge of energy – Taxation: The number of rigs continues to grow slowly, as many experts predict more stable oil prices. Covid continues to be the wildcard for the energy industry, as the potential impact of vaccination warrants leaves a lot of uncertainty as to how this will affect the travel industry. However, with Biden announcing the easing of travel restrictions for vaccinated foreign passengers, it could have a positive impact on the economy and therefore the energy industry as well.
Rigzone: What were the surprises of the market?
Krishnan: U.S. crude inventories fell 3.481 million barrels in the week to September 17, the Energy Information Administration said in its weekly inventory update. Analysts tracked by Investing.com were forecasting a drop of 2.45 million barrels for the week. In the week to September 10, crude prints climbed to 6.422 million barrels, almost double expectations due to the Ida-related disruption. The larger-than-expected pullback for a second straight week puts crude prices in a better position, without a doubt. Inventories of distillates, which include diesel and heating oil, fell 2.55 million barrels last week from expectations of 1.11 million barrels, according to EIA data. The previous week, stocks of distillates fell by 1.69 million barrels. Arguably this also helps the case of oil prices.
What is confusing, however, is how the market decided to ignore gasoline inventories altogether, which showed a surprising 3.47 million barrels increase last week, compared to forecasts by a circulation of 1.47 million barrels. Gasoline is a more important weekly data point than distillates, and sometimes even crude. It constitutes the main component of the demand for oil. Demand for gasoline is declining from a summer peak of 9.4 million barrels per day to around 8.8 million barrels today. The week before, gasoline inventories fell 1.86 million. This time it has totally resisted the downtrend in the market. And what did the market do? He decided to reward rough bulls with a 2% price hike on Wednesday.
As for Ida’s impact, some 16% of crude production on the U.S. Gulf of Mexico coast, representing 294,414 barrel equivalents, remained closed on Wednesday. While the continued blackout remains somewhat surprising, it was still significantly below last week’s 25 percent shutdown levels.
Donnel: ConocoPhillips acquired acreage and production in the Permian Basin from Shell for $ 9.5 billion earlier in the week. RDS has made it clear its desire to reduce its carbon footprint over time, but it was surprising to see COP step in as the buyer of such a large transaction given its recent purchase of Concho and its goal of returning money to shareholders, as described in its ten-year plan presented in June. That said, the transaction was well received by the market as COP announced an increase in its regular dividend. The company has updated its long-term forecast and expects the deal to generate additional free cash flow and further rise in commodity prices, while reducing greenhouse gas intensity. greenhouse over the period of 10 years. The agreement highlights the relatively low supply cost of Permian Basin assets and the benefits of acreage consolidation for operators.
Osina: Industry experts have kept an interested eye on the new government tax policy as it affects the energy industry. In the most recent version of the draft tax legislation, there were a few notable omissions from the mark-up, including the expected repeal of many oil and gas tax incentives. It is unclear whether this is now off the table or if it was simply dropped because it was going to be difficult to convince enough support for these measures.
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