|
Whither the North Slope crude price?
ANS crude holds pricing edge on WTI and Brent prices, for now; state forecasts call ANS prices in $60 range, but Saudis seek $80 Steve Sutherlin Petroleum News
Alaska North Slope crude oil prices closed at $64.30, up 25 cents on the day Sept. 10, while other major crude indicators fell.
The Brent price was $62.38, down 21 cents, while West Texas Intermediate fell 45 cents, to $57.40. Henry Hub natural gas price at close was $2.58, off a single penny.
On the same day, Alaska North Slope production was 432,742 barrels. The extra 25 cents per barrel added $108,185.50 to the value of the day’s shipment, for a total day’s value of $27,825,310.60 at closing prices.
Alaska and its oil industry are sustained in large measure by the daily flow of oil through the trans-Alaska oil pipeline. Many Alaskans hope that oil prices will rise, which of course would make the state’s daily production all the more valuable.
The state, and other organizations attempt to forecast oil and gas prices, in order to project the state’s anticipated tax and royalty income.
Consistently, the price projections are off, sometimes by quite a lot, and assumptions must be adjusted to market realities.
ANS crude holds premium Recently, ANS crude has been selling for more than WTI and Brent, but that has not always been the case.
In 2011, in a much richer oil pricing scenario, ANS crude prices gained a premium over WTI.
The March 23, 2011, price of ANS was $117.55, a $12.35 premium over WTI at $105.20, according to the Alaska Department of Revenue Tax Division.
Someday, perhaps the price of oil will climb again to 2011 levels.
At $117.55 per barrel, the Sept. 10, 2019, day’s production would have been valued at more than $50 million, at the March 23, 2011, closing price.
In those days, ANS and WTI prices ranged much closer together, with WTI often commanding a small premium.
Pricing swings between ANS prices and WTI, or Brent, are likely attributed to fluctuations in the WTI or Brent, rather than fluctuations in ANS prices, which are held stable by a small, relatively stable market.
North Slope oil is delivered aboard tankers primarily to West Coast refineries. It competes on the spot market with other crudes that can be hauled in by water.
The market for ANS crude is very shallow; transactions are infrequent, and the few sellers are not involved in constant or frequent trading. Days go by without a spot market deal for ANS crude, the Department of Revenue told Petroleum News in 2011.
In 2011, often the light, sweet WTI crude was worth a couple of dollars per barrel more than ANS, which is a little heavier and more sour - containing more sulfur, which requires more refining.
The state looks ahead In its Spring 2019 forecast, the Alaska Department of Revenue’s Alaska North Slope oil prices were forecast to average $68.90 per barrel for FY 2019 and $66.00 for FY 2020.
Based on a review of oil market fundamentals, the department said it chose not to revise its view on long term oil price since the fall forecast, adding that long term, it expects oil prices to stabilize in the low 60s in inflation-adjusted dollars.
The Spring 2019 forecast reflects a markedly lower price than recent previous state projections.
A fall forecast by former Gov. Bill Walker foresaw an average Alaska oil price of $75 per barrel for fiscal year 2020, with prices climbing to an average of $84 per barrel by 2027.
The Department of Revenue production forecast - prepared in collaboration with the Department of Natural Resources - projected North Slope oil production averaging 511,500 barrels per day in FY 2019 and 529,500 barrels per day in FY 2020.
The update slightly adjusted production expectations for the next several years, the department said. Production is expected to remain around 500,000 barrels per day over the next decade as new developments offset production declines from existing fields.
Is OPEC in control? Oil prices are like the weather - everybody talks about them, but, it seems, nobody can do much about them. Forecasting is an art subject to constant revision.
The ability of OPEC and its kingpin nation Saudi Arabia to control prices, has been counteracted in recent years by surging unconventional production in the United States.
The Saudis, however, are looking for higher oil prices - at least $80 per barrel, to fund Crown Prince Mohammed bin Salman’s efforts to diversify the economy and create jobs. In addition, higher prices would benefit the upcoming IPO of state oil company Saudi Aramco.
The Saudis may be mounting a more aggressive stance on oil prices, based on recent shakeups.
King Salman replaced the country’s powerful energy minister, Khalid al-Falih, with one of his own sons, Prince Abdulaziz bin Salman, recently minister of state for energy affairs.
But who can say what comes next?
Roger Herrera - for many years the favorite oil price guru to Petroleum News - once in a period of oil price uncertainty may have captured the nature of oil markets best.
“It’s in the lap of the gods,” he said.
| 