Oil rockets higher; US crude stock downturn above analyst estimates
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Alaska North Slope crude and Brent crude leapt into the upper $70s Sept. 15, while West Texas Intermediate rocketed 3.1%, or $2.15, to close at $72.61 per barrel. ANS moved up by $1.77 to close at $75.59, besting Brent’s closing price of $75.46 - up $1.86 on the day.
The gains brought the indexes near the highs of July. ANS was just 28 cents below its July 31 close, a dramatic turnaround after having suffered a 5.9% correction in August.
Sept. 15 action marked the fourth day of gains, following a downturn Sept. 9 sparked by a drawdown of strategic reserves in China designed to quell price appreciation by reducing the need for imports.
But the indexes turned sharply higher on Sept. 10, as Tropical Storm Nicholas made its way toward the U.S. Gulf coast on the heels of Hurricane Ida, which had already disrupted oil and gas production in the Gulf of Mexico.
ANS gained $1.40 Sept. 10 to close at $72.97, while WTI gained $1.58 to close at $69.72, and Brent gained $1.47 to closed at $72.92.
Based on Sept. 15 operator reports, the U.S. Bureau of Safety and Environmental Enforcement estimates that 537,193 barrels per day, representing 29.52% of the current oil production in the Gulf of Mexico is shut in, along with 39.40% of the gas production.
Prices began on an upward slope in early trading Sept. 15, turning parabolic on an announcement by the U.S Energy Information Administration that U.S. crude reserves had fallen to the lowest level since September 2019.
On Sept. 13, 2019, U.S. crude reserves fell to 417.1 million barrels. For the week ending Sept. 10, reserves stood at 417.4 million barrels, down 6.4 million barrels from a week earlier, and down 78.6 million barrels from a year earlier, the EIA said. Analysts that answered a Reuters poll had expected a draw of only 3.5 million barrels.
Total motor gasoline inventories decreased by 1.9 million barrels to 218.1 million barrels, about 4% below the five-year average for this time of year, the EIA said.
OPEC calls for higher 2022 demandThe Organization of the Petroleum Exporting Countries has revised its estimates higher for oil demand growth in 2022.
2022 oil demand is expected to “robustly grow” by some 4.2 million barrels per day, up 0.9 million bpd compared to August’s assessment, OPEC said in its September monthly oil market report.
Revisions were driven by both the Organization for Economic Co-operation and Development and non-OECD, as the recovery in various fuels is expected to be stronger than anticipated and further supported by a steady economic outlook in all regions, OPEC said.
OPEC now projects oil demand in 2022 to reach 100.8 million bpd, exceeding pre-pandemic levels.
The non-OPEC supply growth forecast for 2022 is unchanged at 2.9 million bpd, amid offsetting revisions, to average 66.8 million bpd, OPEC said, adding that the main drivers of liquids supply growth are Russia and the United States, followed by Brazil, Norway, Canada, Kazakhstan, Guyana and other countries in the Declaration of Cooperation between OPEC and allied producing countries.
The International Energy Agency and the EIA increased their own estimates of global oil demand growth in 2022, versus their August reports. Those estimates remain well below OPEC projections, with IEA calling for growth of 3.24 million bpd, and EIA calling for growth of 3.64 bpd.
Banks see likely price spikeInvestment banks are sounding the call for higher prices in the near future, and into 2022.
Goldman Sachs Group Inc. said oil will likely lead a rally in commodities next quarter, citing strong demand and “growing scarcity” of supply, according to a Bloomberg report.
Jeff Currie, Goldman Sachs global head of commodities research, said rising demand, production deficits and depleted inventories are leaving oil markets “extremely exposed” to disruptions in supply.
“The potential for oil prices to explode to the upside is increasing, particularly if you don’t get Iran,” he said.
Investors are moving away from long cycle investment because of poor returns and uncertain forward visibility, in favor of shorter cycle investment such as shale oil, Currie said in a Bloomberg TV interview. The paucity of long cycle projects could lead to a significant supply crunch.
“What are you going to invest in when the uncertainty around climate change is as high as it is, and what technology is going to be used?” he said. “We’ve discouraged investment on a five to ten-year horizon, and now we’re beginning to see the implications of that.”
Bank of America Corp. said a colder-than-expected winter could push prices up toward $100 at some point early in 2022.
A much colder than normal winter could lead global oil demand to surge by 1 million to 2 million bpd, with the winter supply shortfall easily exceeding 2 million bpd in such a scenario, the bank said in a Sept. 10 note.
“Downside risks include a new COVID-19 wave, taper tantrum, a China debt crisis, and the return of Iranian crude barrels,” the bank said. “Having said all of that, winter weather risk is quickly becoming the most important driver of energy markets.”
- STEVE SUTHERLIN