Oil Price Impacts Canada

Oil Price Impacts Canada

17th April 2017

Drillers added 10 onshore rigs, increasing activity for a 13th week in a row, bringing the total to 823. This extends the recovery into an 11th month as operators, following crude price, boost spending on new production.  

Natural Gas – O Canada, what happened?

Following on from last week’s commentary on Gastech, the conference concluded with the usual upbeat messages about the growth of the natural gas sector - LNG in particular.   There was much talk about how the US is about to emerge as a major supplier to the world but, compared to the 2015 Gastech event in Singapore, mention of Canadian LNG was very muted.

Many gas people will have noticed the surprise stop-off in Alaska by Chinese President Xi on his way home after meeting President Trump, who was said to have commended the Alaska LNG project to the Chinese President according to Gov. Walker in his press briefing.   The boost for Alaskan LNG will not have gone unnoticed in neighbouring British Columbia where many of the projects have benefitted from the support of Chinese investors and potential buyers.

Suffering from multiple claims and disputes involving First Nations, environmental concerns, and major pipeline investments required to get gas to coastal liquefaction plants, Canada’s LNG projects have been held back while those in the US have secured what was left of a diminishing market.  While many of the Canadian projects remained wedded to old fashioned oil indexed take or pay, buyers quickly warmed to the diversification and (at least former) apparent lower cost of LNG tolling arrangements based on Henry Hub, and a number of these ongoing challenges were set out in our last update on Canadian LNG back in 2016

With at least one Oregon based project now planning to import gas from Canada and ship out LNG via the US into Pacific markets, and an Eastern Canadian LNG proposal to liquefy gas imports from the US to sell into Atlantic markets, British Columbia, at least, seems to be losing the strategic battle for LNG. While on a different scale, British Columbia did secure an LNG victory of its own this week.  Seaspan Ferries commissioned two new LNG-diesel-electric dual fuel hybrid vessels, which will run off homegrown Canadian LNG.  However, British Columbia’s Premier Christy Clark, who attended the commissioning ceremony, must be starting to worry.   A main plank of her election campaign in 2013 was a plan to bring much needed investment and jobs through an anticipated LNG boom.  Coming up for re-election in 2017, and with no quick wins on the horizon, the apparent lack of progress on LNG exports will be troubling. 

Slowing Crude Demand

The International Energy Agency indicated this week that global demand growth for crude is expected to slow for the second year in a row. Their outlook forecast for 2017 demand growth is 1.3 million barrels a day, which could still prove optimistic.

A fall in stockpiles in developed countries suggests the global crude market is close to balancing after being oversupplied for three years. The latest OPEC data showed members had cut March output beyond what they had promised and this is beginning to manifest itself in the stockpile data.  OPEC meets on May 25 to consider whether to extend the supply cut beyond June with most OPEC members, including Saudi Arabia and Kuwait, reported as leaning towards an extension.

While OPEC’s oil production fell by 365,000 barrels a day in March, bringing the group’s adherence to its supply cut commitments to a stunning 99%, any weakening in crude oil demand will challenge the efforts to bring supply and demand into alignment and support the upward momentum of oil prices.

US crude stockpiles fell by 2.2 million barrels to 533.4 million barrels, while gasoline stockpiles fell by 3.0 million barrels last week. Still, oil prices edged down on Thursday as data showed US crude production continues to rise on the back of increase drilling activity in onshore shale basins.

Sources: EIA Weekly Update and GCA analysis

Weekly Recaps

Oil Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 847, up 8 last week, with rigs targeting oil up 11. The horizontal rig count increased to 706, up 11 last week.

The total number of active onshore rigs increased to 823.  When compared to a November 2014 figure of 1,876 active rigs, the current level remains 56% below the 2014 high.

Across the three major unconventional oil basins, the oil rig total increased to 450 (up 12 last week), with Permian up 8, Eagle Ford up 3 and Williston up 1.

Crude Oil Price

Brent, the global benchmark for oil, rose $1.12 to US$55.99 a barrel, reflecting a gain of 2.04% on the week.

WTI crude rose $1.46 to US$53.25 a barrel, up 2.82% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA analysis

US crude oil refinery inputs averaged 16.7 million barrels per day, with refineries at 91% of their operating capacity last week. This is 68,000 barrels per day more than the previous week’s average.

US gasoline demand over past four weeks was at 9.3 million, down 1.0% from a year ago. Total commercial petroleum inventories decreased by 4.7 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 36,000 barrels to 9.235 million barrels a day. The Lower 48 crude production now stands at 8.701 million barrels per day, up 35,000 this week.

US crude imports averaged about 7.9 million barrels per day last week, a increase of 0.028 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 3.0% above the same four-week period last year.

Crude oil inventories decreased 2.2 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) was up 0.3 million barrels; total storage is 69.4 million barrels (~77.1% utilization).

Authors

Oil Price Impacts Canada

Nick Fulford

Global Head of Gas and LNG - nick.fulford@gaffney-cline.com
Oil Price Impacts Canada

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com

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