Peak oil notes – Sept 18

After a $2 a barrel jump on Tuesday, NY futures slid back a bit on bit on Wednesday after an unexpected jump in US crude inventories of 3.7 million barrels which was 5 million higher than analysts had been expecting. There was some concern about the Federal Reserve’s policy meeting yesterday, but fears were quelled when it was made clear that there would be no sudden moves that might strengthen the dollar.  New York crude closed at $93.93 a dollar and London at $98.97.
 
The weekly stocks report shows that the US is still refining over 16 million b/d for the 12th straight week. Refiners normally cut back in September for fall maintenance, but seem to delaying this year as refining margins are unusually high.  There was another decline in stocks at Cushing, Okla. reviving fears that the depot is approaching a level where it may be difficult to make deliveries on futures contracts.
 
The stocks report shows a jump in US crude production of 248,000 b/d last week, but most of this came from the reopening of an Alaskan pipeline and much of the rest from a reevaluation of Gulf oil production due to the lack of hurricanes so far this year. Shale oil growth was only a small part of the total.
 
A rocket attack on Libya’s Zawiya refinery which supplies the oil to Tripoli forced it to close as well as the 250,000 b/d Sharara oil field. There has been much hype about the return of Libyan oil production of late with government spokesmen talking about production of 800,000 plus b/d. There is still no information that more than the occasional tanker is hauling away exports.
 
US natural gas prices have been climbing this week on short-term forecasts that much of the northern US may need some night-time heating in the next couple of weeks. Although natural gas inventories are still about 14 percent lower than normal for this time of year, most analysts believe there will be adequate gas for next winter, unless it turns out to be abnormally cold. Natural gas has been trading for around $4 per million BTU’s this week.
 
The US continues to bomb IS targets in Iraq and reports good progress in forming a large coalition to confront the IS in Iraq and Syria, but there is not much progress on forming an inclusive government in Iraq. The parliament rejected the Prime Minister’s candidates for the critical Interior and Defense posts. Concerns are increasing about the radical Shiite militias that have emerged from Baghdad with Iranian support to confront the IS.
 
Baghdad has had a multi-billion dollar project underway for some time to inject some 5.2 million b/d of sea water into its aging southern oil fields in order to increase production. Delays in this project which was supposed to be completed last year and is running 4-5 years behind schedule are starting to harm production. In one field, run by Exxon, shortages of water have cut production by 40 percent or 300,000 b/d from last year. Once the seawater injection is started, new equipment must be installed to separate it from the oil as they both come to the surface.
 
There has been little movement in the Ukrainian situation this week. With the collapse of the ruble, Russian banks are concerned that weak oil prices could harm the economy.  Russian oil exports are now expected to decline by 6 percent in the last quarter.