2014 April 11

The Master Resource Report 2014-04-11

The US top oil producing counties

Drillinginfo posted a very interesting map and supporting data that highlights just how small the area producing half of US oil production really is.

One highlight is that Kern County California is number three and it has been producing now for over 100 years. A second illustrates just how important the very rapid growth in North Dakota production has been. If the two deep water Gulf of Mexico blocks are excluded McKenzie County in North Dakota moves up to the number three spot behind Beechey Point, Alaska and Kern County in California. Given the realities of tight oil production it will be interesting to see where McKenzie County is 100 years from now.

Top 20 counties produce half the oil - DrillingInfo

Click map for link to Drillinginfo post.

US gasoline demand

The EIA reported gasoline for the week ending April 4th reached 8.996 million barrels per day up over 500,000 barrels per day over year ago levels for the same week. The four week average which takes some of the weekly volatility out was up 370,000 barrels per day.

As pointed out last week if US gasoline demand begins to move above the 9 million barrel per day level before the peak driving season even starts it will be a sign the assumptions about where US gasoline demand is headed need to be reevaluated.


2014 April 4

The Master Resource Report 2014-04-04

Natural gas prices: Do they reflect reality?

Based on reports in the Wall Street Journal there is nothing to worry about since surging supply from shale gas will ride to the rescue before next winter.

WSJ: With forecasts now indicating the bulk of the extraordinary cold U.S. winter is over, analysts are expecting the heating-related phase of withdrawals from stored inventories to end soon. They see one or perhaps two more supply declines in weekly data released by the U.S. Energy Information Administration–and the potential for huge supply increases during the summer months thanks to robust U.S. shale production.

Next week’s report will look into this further and try to develop some scenarios based on the data and not the short-term views of futures traders. For now let us just say that we have our concerns.

US gasoline demand

After being depressed by the extreme winter weather experienced across much of the US this winter it appears gasoline demand is rebounding. The trailing four week average reported by the EIA this week has demand up 326,000 barrels per day over last year at 8.79 million barrels per day.

It will be important to see if demand continues to rebound and climb back towards the 9 million barrel per day level. If along with an improving economy US gasoline consumption begins to climb ending the 2008-09 recession induced decline it could upend projections of continued consumption declines in the US.

At the all-time peak in US demand during the 2006 and 2007 US gasoline consumption averaged 9.3 million barrels per day. Current US gasoline consumption is running about 460,000 barrels per day behind those peak years. The average since 2004 is 9.0 million barrels per day so today’s demand remains only 240,000 barrels per day below that slightly longer-term average. To move back to that average since 2004 would only require a 2.7% move up in consumption. Reaching the 2006-07 peak would require a much more robust 5.2% growth in demand.

When thinking about the peak demand volumes seen in 2006 and 2007 remember that the US economy was running on financial steroids that ultimately led to the financial crisis. Using that two year period as the benchmark to measure shifts in US demand for liquids fuels will tend to overstate the decline in fundamental consumption.



2014 March 28

The Master Resource Report 2014-03-28

Natural gas storage breaks thru 900 Bcf

Yesterday the EIA reported that natural gas storage declined to 896 Bcf for the week ending March 21st. This is over 50% below both year ago levels and the trailing 5-year average. This is the lowest level for this time of year since March of 2003.

Then there is oil storage at Cushing, Oklahoma which is down 32% year-over-year.

Here is what the EIA had to say this week on what is unfolding at this important storage facility in the middle of the US.

Crude oil inventories at Cushing, Oklahoma, the primary crude oil storage location in the United States, decreased 13 million barrels (32%) over the past two months. On March 21, Cushing inventories were less than 29 million barrels, more than 20 million barrels lower than a year ago and the lowest level since early 2012. Cushing is the delivery location for the New York Mercantile Exchange (Nymex) West Texas Intermediate (WTI) crude oil futures contract.

The recent drawdown of stocks at Cushing resulted from three factors:

The startup of TransCanada’s Cushing Marketlink pipeline, which is now moving crude oil from Cushing to the U.S. Gulf Coast

Sustained high crude oil runs at refineries in Petroleum Administration for Defense Districts (PADD) 2 (Midwest) and 3 (Gulf Coast), which are partially supplied from Cushing

Expanded pipeline infrastructure and railroad shipments that have made it possible for crude oil to bypass Cushing storage and move directly to refining centers in PADDs 1 (East Coast), 3 (Gulf Coast), and 5 (West Coast)

The result of this has been a continued narrowing of the price difference between WTI ($101/b), Brent ($106/b) and LLS ($104/b). It is important to note that the global benchmark Brent has come down from around $110/b while the US domestic benchmarks of WTI and LLS have climbed up from sub $100/b levels at the end of last year. So as the logistic of moving US crude oil production improve the price of that domestic production has moved back into closer sync with the global market. This will be good news for US domestic producers and probably won’t change the situation for US consumers as much since they were already competing on the global market for refined products like diesel as this report has pointed out many times.

Crude oil inventories at Cushing 2014-3


2014 March 21

The Master Resource Report 2014-03-21

Natural gas storage continues its decline

These two graphs by now are familiar to readers of The Master Resource Report. They clearly show just how different the situation is concerning natural gas in storage this year than during the previous years when shale gas was coming into prominence.

Storage levels are now 48% below the trailing 5 year average and 49% below year ago levels. When compared to the spring of 2012 when natural gas prices dipped below $2 million Btu the amounts are even more striking. At this point in March of 2012 storage stood 2,400 Bcf. Today it is at 953 Bcf down 1,447 Bcf. At this point the natural gas markets clearly are expressing confidence that the storage will be refilled by next winter. It will be very interesting to see how this plays out thru the rest of the year.

Natural gas storage 2014-03-21


2014 March 14

The Master Resource Report 2014-03-14

Quick look at the Bakken data just released

The North Dakota Dept. of Mineral Resources released the January production data yesterday. So here is a quick look at what it shows. Next week’s report will look at it in more detail.

The graphs below illustrate what happens when the new well additions slip. In December only 48 net new producing wells were added and in January the number only climbed back up to 92 net new wells in the Bakken. State wide the preliminary data shows a net gain of only 59 wells so the number of producing outside the Bakken declined. Production was impacted by the drop in wells and for sure by issues related to the extreme weather the state experienced. But the key point illustrated here is how vulnerable the production is to any dip in new well additions. Mother Nature has provided a glimpse of what will happen if net new well additions were to remain depressed for any period of time. It doesn’t matter whether that is caused by cold weather or a cold economy depressing capital expenditures by the companies.

Total North Dakota state wide production in January remains below the all-time high set back in November (976,453 b/d) at 933,128 b/d. This drop of 43,325 b/d or 4.5% puts the state of its anticipated pace of achieving its goal of reaching 1 million barrels per day. It will likely make the one million barrel milestone this year. However, it will require a major ramp up in net new well additions to get back on the same growth trend seen in place prior to when the weather intervened.

The first graph illustrates the number of producing wells (green) and daily oil production (red) beginning in January 2010. The second graph narrows the time period to beginning in January 2012.

North Dakota Bakken  wells-production 2014-01

Click image for larger view.