Vol. 27, No.32 Week of August 07, 2022
Providing coverage of Alaska and northern Canada's oil and gas industry

ANS still +$100

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Prices tumble as US crude stock builds, GDP falls 2 consecutive quarters

Steve Sutherlin

Petroleum News

Alaska North Slope crude hung precariously on the edge of $100 per barrel Aug. 3, as a price swoon continued to dominate worldwide trading of the commodity.

ANS slid $3.96 to close at $100.34 per barrel. West Texas Intermediate flirted with the $90 line, closing $3.76 lower at $90.66. Brent also fell by $3.76, closing at $96.78.

A surprise swelling of U.S. inventory weighed on the markets.

For the week ending July 29, U.S. commercial crude oil inventories - excluding the Strategic Petroleum Reserve - jumped 4.5 million barrels from the previous week, the U.S. Energy Information Administration said in its Aug. 3 report. At 426.6 million barrels, inventories are 7% below the five-year average for the time of year.

The SPR, in contrast, was drawn down by 4.6 million barrels on the week, taking its level from 474.5 million barrels on July 22 to 469.9 million barrels on July 29, the EIA said.

Total motor gasoline inventories increased by 0.2 million barrels on the week and are 3% below the five-year average for the time of year, it said.

Prices rose initially Aug. 3 with the announcement by the Organization of the Petroleum Exporting Counties and its allied oil exporting nations that the group would add only 100,000 barrels per day of production starting in September, just 25% of the 400,000 bpd the group has added routinely to the market as it unwinds supply constrictions put in place when prices tanked due to the COVID-19 pandemic in April 2020.

Aug. 2 saw the indexes modestly higher: ANS was up 33 cents to close at $104.30, while WTI jumped 53 cents to $94.42 and Brent gained 51 cents to close at $100.54.

But the gains came one day after ANS jolted downward by $4.80 Aug. 1 to close at $104.30, WTI dropped $4.73 to close at $93.89 and Brent plummeted $9.98 to close at $100.03.

The red ink may have been set up by the release of the latest U.S. Gross Domestic Product estimate from the Bureau of Economic Analysis July 28, which showed that GDP declined at an annual rate of 0.9% during the second quarter after declining at an annualized rate of 1.6% in the first quarter.

The GDP shrank for two quarters in a row - meeting the unofficial definition of a recession - which likely led traders to conclude that the economy has been slowing down.

And despite the economic slowdown, the U.S. Federal Reserve moved forward with its expected interest rate increase of 0.75%, which threw additional water on the economy.

The BEA said the decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending and nonresidential fixed investment which were partially offset by increases in exports and personal consumption expenditures imports, which are a subtraction in the calculation of GDP.

The decrease in federal government spending reflected a decrease in nondefense spending which was partially offset by an increase in defense spending, it said.

The strategy of the Biden administration to lower gasoline prices by flooding government oil reserves into the market added to the malaise.

“The decrease in nondefense spending reflected the sale of crude oil from the Strategic Petroleum Reserve, which results in a corresponding decrease in consumption expenditures,” the BEA said. “Because the oil sold by the government enters private inventories, there is no direct net effect on GDP.”

The national average for regular gasoline fell 3 cents to $4.16 per gallon Aug. 3, according to AAA. It was the 50th consecutive day of falling prices.

Gasoline prices have shed 86 cents since hitting a record average high of $5.02 on June 14, and the national average is down by 65 cents over the past month.

Soaring prices in July put a chill on demand as Americans entered the second half of the busy summer driving season.

ANS rose $1.57 July 29 to close at $108.77, as WTI jumped $2.20 to close at $98.62, and Brent leapt $2.87 to close at $110.01.

Prices were mixed July 28, ANS fell 41 cents to close at $107.20, WTI fell 84 cents to close at $96.42, and Brent rose 52 cents to close at $107.14.

From Wednesday to Wednesday the ANS price fell by $6.86, taking it from $107.20 July 28 to $100.34 Aug. 3.

Spending bill may preserve federal lease sales

The U.S. Senate Democrat-proposed $430 billion spending bill, if it passes, would effectively guarantee continued drilling rights auctions on federal lands and waters for at least another decade, according to an Aug. 1 Hart Energy report.

The bill was agreed on after more than a year of intense negotiations between Senate Majority Leader Chuck Schumer and fellow Democrat Sen. Joe Manchin. It would be a win for President Biden and fellow Democrats hoping to retain control of Congress after midterm elections in November.

The bill would defang Biden’s vows during his 2020 election campaign to end federal oil and gas drilling - a key component of his strategy to fight climate change.

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