Strengthening dollar overpowers bullish oil report
A bullish report by the EIA showing declines in inventories of crude oil, gasoline, and distillates was not enough to buck the downward trend in oil prices due to a strengthening dollar and continued weak demand picture. The dollar rose to its highest this year at ~$1.435 per euro, 10.5% stronger than the July high of $1.6038 per euro. Next week’s report will show the impact of Hurricane Gustav. Since most refineries and crude production facilities are still offline, I guestimate that the numbers will come out very bullish with losses that bring crude, gasoline, distillates and propane near record lows for this time of year. The fact that oil rigs are not as damaged as post-Katrina and Rita is very fortunate, but the 20% reduction in domestic crude production and refinery runs will be tough to make up via imports over the next few weeks. Thus, we will probably get behind in our fuel storage for the winter, which should send prices up — especially if the major Hurricane Ike decides to visit the Gulf of Mexico next week.
One other bearish bit of news today was the reported beginning of production from Saudi Arabia’s delayed Khursaniyah field. It has the potential to make a strong contribution to the global market with ~500,000 barrels per day to help keep any decline in Ghawar from lowering Saudi production over the next several months. But two field delays were disclosed elsewhere in the world, with Kazakhstan’s Kashagan reportedly shifting its initial production even further back, to late 2013 to early 2014, and Russia’s Arctic Vankor field pushing its date back as well.
The natural gas market report continued to be more bearish, with supplies rising 50% faster than they usually do at this time. Increased domestic production has people guessing that this year’s buildup through early November may rival last year’s record numbers. Hurricane Gustav’s disruption will probably slow next week’s buildup toward normal levels, but it has been nice to see this lower-carbon fuel enjoy a massive fall in prices over the last several weeks. We’ll see if production can continue to provide ample gas for the winter heating season and electricity generation.