What You Should Know About Oil and Gas Today
The Big Story
The dramatic recent drops in U.S. crude oil inventories over the past three weeks is starting to make news. U.S. demand has now picked up to such an extent that companies that were desperate to rent space in the U.S. Strategic Petroleum Reserve to store their oil back in April and May are now starting to pull the volumes back out in order to satisfy contractual obligations.
Since the start of August, nine companies including ExxonMobil have pulled about 2.2 million barrels out of the SPR. Companies have until next March to fully withdraw their crude.
Increasing demand is not the only factor impacting inventories. Saudi Arabia has dramatically reduced its exports to the U.S. since early July after flooding the market during March through June. U.S. domestic production continues to drop as companies are simply not drilling enough new wells to replace production declines in the nation’s shale plays. With the rig count sitting at record low levels and no sign that they will rise anytime soon, the U.S., which has already seen a drop of 2 million barrels per day in overall production, could lose another 2 million bopd before 2020 ends.
All of this helps to explain why crude prices have remained extraordinarily stable for the past 8 weeks, as West Texas Intermediate has traded within a range of $39 per barrel to $42 per barrel throughout that time. It also explains why oil prices continue to slowly rise.
It’s slow progress, but the industry is coming back.
Now, on to other news….
Good piece here from Sergio Chapa in today’s Houston Chronicle about the fact that Kinder Morgan’s Permian Highway pipeline project continues its progress despite the opposition of noted energy experts Willie Nelson and Paul Simon. The editors at the Chronicle chose to run a silly op/ed piece written by those two entertainers for inexplicable reasons on Tuesday.
You don’t sayyyyy… a new CBS/Yougov poll finds that a slight majority of Pennsylvanians oppose fracking, by a 52/48 margin. Given all the rank and intentional disinformation that runs every day about this safe and well-regulated industrial process, it is stunning that that margin of disapproval is not far higher. That it remains so close after a 12 year-long campaign of demonization by the national news and entertainment industries, such a tight marging speaks well to the common sense of the average Pennsylivanian.
In a real sign of the times we are in, ExxonMobil has announced that it plans to halt its matching program for its employees’ 401(K) funds. The company said the elimination of the employee match is a part of its overall cost-cutting program in the new, lower price environment. The move comes days after the company reported a loss of $1.1 billion for the 2nd quarter of the year.
In another sign of the times, Motiva, the nation’s largest refinery operation that is based in Port Arthur, Texas, announced that it plans to lay off 10% of its employees in the coming days. “The financials in our 2020 business plan were predicated on very attractive product margins that did not materialize,” Motiva spokeswoman Amy Cole said in an email. “Instead, 2020 began with an unprecedented economic downturn that quickly grew to encompass both health and social crises as well. Motiva is undergoing a rigorous exercise to capture synergies and optimize processes across the entire organization, which includes both of our Port Arthur manufacturing facilities – the refinery and chemical plant.”
Getting the bureaucrats out of Washington is a great idea, and the Department of Interior announced on Monday that it is keeping a promise made by former DOI Secretary Ryan Zinke and moving the headquarters of the Bureau of Land Management to Grand Junction, Colorado. The BLM is the agency that regulates the management of federal lands, including oil and gas leasing and drilling. This is an effort to move the regulators closer to the people and lands they regulate, a concept that has been long-discussed but never executed.
With that bit of great news, that’s all for today.