1) Another Sharp Retreat For Crude and Products. 8% drop on the week but a $23 drop in the last 30 days. This seems like an overreaction to Europe, China, and US data. Yes Saudi is producing full tilt in an effort to knock prices down in preparation for further restricted volumes from Iran and seasonally stronger global liquids demand in 2H12. Well Mission Accomplished on that account. Motivations for wildly over producing the Kingdom's quota range beyond aiding the world's ailing economies via cheaper energy costs however including dealing a blow to Iran's economy. One other side effect that may not be accidental is curbing U.S. production growth. Get below $80 WTI and the list of plays that exceed 20% IRRs in the States shrinks rapidly. The "Lite" play shale areas go sub-economic and the oily rig count flattens and starts to decline as the impact of a 200+% increase in service costs over the last three years makes itself more obvious. Go to $70 WTI and parts of Core play shale areas start to become highly questionable. An America the oil addict who has begun to make progress with recent domestic production breaching 6 mm bopd flattens and stays un-weaned.
1a) Note that while domestic inventories of crude have grown recently largely on the back of domestic production and lower refiner utilization and not on strong imports, U.S. product inventories are well below average for this time of year. So this past week as oil fell, products retreated by similar amounts yielding strong, stable margins for refiners. Given still quiet strong (near record) export demand the refining crowd is likely to see increased interest from me in coming weeks.
1b) Note also that while oil may have tumbled, non commercial (speculator) lack of interest can't be blamed for the decline as the numbers really haven't budged. I guess they only get blamed when oil prices rise.
2/3) Natural Gas Retreated With Everything Else. Positive data for supply and another lower than five year average injection report was largely ignored this week as the markets were in tumble mode. But "Flatter Slope" still very much applies to the injection pattern this summer and the storage overhang from last summer continues to slowly erode. More importantly, supply data is showing an acceleration to the decline of natural gas coming from LA (expected but welcome to see it happen along with negative revisions to the prior month's data) and even "Other States" production faltered (for the first time in over a year) last month. It's a not a big dip but this amalgam of areas has been a big driver of YoY gas supply growth for the last several years now. See Friday's post for the Natural Gas Supply Slide Show here.
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