Houston reported its earliest snowfall ever, beating places like New York City and Boston as a cold snap descended over Texas. George Bush Intercontinental Airport in Houston set a new record for the first observed snowfall, breaking one set on Nov. 23, 1979, according to a Twitter post from the National Weather Service. Near record-breaking cold has swept into the South, with temperatures in the state 25 degrees Fahrenheit (14 Celsius) or more below average, according to the U.S. Weather Prediction Center in College Park, Maryland. “You can’t find any temperatures in Texas this morning that you could say are warm,” said Bob Oravec, a senior forecaster at the prediction center. “A pretty cold air mass sunk south over the weekend. We have gone right into a winter weather pattern across the central U.S.” Wholesale day-ahead electricity prices in North Texas surged to the highest level in more than three months for the 7 p.m. hour on Wednesday, as commuters are forecast to crank up the heat once they return home as the mercury drops. Power in Ercot North jumped 84 percent to $79.46 a megawatt-hour, according to Genscape data. As U.S. residents turned up their thermostats in response to the frigid temperatures, natural gas exports to Mexico fell to a five-month low Monday.
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New York (CNN Business)Crude oil prices are in free-fall as fears of a supply glut mount. US oil prices plummeted 7% to a one-year low of $55.69 a barrel on Tuesday. It was crude's worst day since September 2015. The losses in the oil world have been staggering as worries deepen about excess supply. Crude is down 12 straight days, the longest losing streak since futures trading began in March 1983. "Bearish sentiment has seized control of the oil markets," said Clay Seigle, managing director of oil at Genscape. It's been a huge reversal considering oil spiked to a four-year high of $76 a barrel as recently as early October. Crude crashed into a bear market last week and the selling has only accelerated since then. Not even efforts by Saudi Arabia calmed nervous oil traders down. The kingdom announced plans on Monday to cut shipments by 500,000 barrels per day. Saudi Arabia also threw its weight behind potential OPEC production cuts at next month's meeting in Vienna.
U.S. oil producers ramped up production in the nation’s third-largest oilpatch, boosting crude output to a record 1.3 million barrels per day (bpd) in October, overwhelming pipelines and rail cars. The region’s pipeline capacity is just 1.25 million bpd, per market intelligence firm Genscape, forcing producers in North Dakota to rely on less efficient rail, which could face difficulties operating in the winter. In addition, nearby Canadian producers also grappling with bottlenecks are pushing more oil into the United States, worsening the constraints.
Check out this an AIS animation below showing Thursday’s collision between an oil tanker and a Norwegian frigate taking place in the Hjeltefjorden fjord on the west coast of Norway. As you can see, the tanker Sola TS had just departed a terminal with an escort tug alongside when it collided with the KNM Helge Ingstad, identified in the video as NATO WARSHIP F313, at around 0400 local time. You can see the warship pop up in the video around the 20-second mark, indicating that it was not transmitting AIS at the time of the accident and likely switched on its AIS shortly following the collision. The collision resulted in a large gash on the starboard side of the warship, causing it to take on water. Due to the damage and water ingress, the ship was intentionally grounded and crew evacuated. The tanker, meanwhile, only suffered only minor damage to its bow. Only 8 minor injuries have been reported.
While oil is probably close to the bottom, short-term supply data is weighing on price. Genscape, the private forecaster, reported that supply in Cushing Oklahoma continue to build. Reportedly they showed that supply increased by 2,046,402 from last Friday and by 758,093 barrels since Tuesday. That is raising concerns about another crude oil supply increase this week. Yet, really it is going to be close as we see another uptick in refinery runs and another stellar week of global demand. While the selloff in oil has been crazy, we will still see oil rebound big in the next 2 months. With distillate supply is tight and winter weather coming early, we will see the stress in supply once again. In the coming weeks we will start to see big drawdowns in U.S. crude supply and another upward surge in demand. Use weakness to put on long-term bullish strategies and buy some calls. Yes, we still see $84 this year and a v shaped recovery, still the selloff is testing us. There has been a lot of smoke and some mirrors to extend the selling but if the barrels are not there they just are not there. Natural gas still getting a boost on weather. Bracket the market with puts and calls. With the potential for record demand, record production, record exports, and inventories at the lowest level going into winter since 2005, it is going to be a wild ride!
Right now, pipeline capacity out of the Permian is constrained, and consequently some producers have cut back on well completions, more gas is getting flared, and ethane recovery is being driven more by bottlenecks than by gas plant economics. But even with these issues, there are still 487 rigs drilling for oil in the basin (according to Baker Hughes), and all will come along with sizable quantities of natural gas. Not only does this production need to be moved out of the Permian, the volumes need to find a home — either in the domestic market or overseas. These were all issues that were considered by our speakers, panelists and RBN analysts last month at PermiCon, our industry conference designed to bridge the gap between fundamentals analysis and boots-on-the-ground market intelligence. In today’s blog, we continue our review of some of the key points discussed during the conference proceedings. PermiCon was held on October 10 and about 750 industry leaders joined us for the conference. Our content combined six presentations by RBN alongside the views of 14 CEOs and senior executives with significant operations in the Permian. In Part 1 of this series, we discussed the driver of all action in the Permian — production growth, with crude oil growing from 900 Mb/d ten years ago, doubling by 2014, never dropping off after the crude price crash that year, and now up by double again, to 3.5 MMb/d (left graph, Figure 1). We covered the implications of this growth for current crude oil pipeline takeaway capacity (regularly maxed out), Permian crude price differentials (wide, though a little narrower in the near term due to the rush to bring on new capacity), new crude oil pipeline projects designed to relieve the bottlenecks, and the strategies that infrastructure companies are taking to position themselves to be able to ride out any possible overbuild cycle in the crude pipeline capacity market.
Shell and its partners this month approved the C$40 billion ($31 billion) LNG Canada mega project, promising 14 million tonnes per annum of new capacity before 2025, with the option to double that output. “My instinct would tell me that the larger companies have the resources and relationships to get these things approved, because they’re just enormous projects,” said Charlie Cone, an LNG analyst with energy data firm Genscape. LNG Canada’s chief executive, Andy Calitz, said last week that U.S. rivals could end up “dead in the water” as long as China keeps its tariff on U.S. imports. That could be a boon for Canada’s tiny Woodfibre LNG on the west coast and Pieridae Energy Ltd’s Goldboro LNG on the east coast. Non-Chinese buyers are also cautious about long-term deals due to changing trade policy, said IHS’s Ineson. “This conflict could lead to many developers of U.S.-based projects missing this window,” he said.
While OPEC has tried to manage pricing through quotas, Alberta and other producing economies allow the invisible hand of the market to solve such issues. In this case, a market response would mean unprofitable oil being shut in, although that usually takes time. Mike Walls, a crude markets analyst with research firm Genscape Inc., said if current oil-price discounts are sustained, some Western Canadian producers will naturally reduce their output. Large integrated producers that use oil in their refineries benefit from lower feedstock costs in their downstream operations, and many already have committed pipeline space or rail capacity that avoids the steep price discounts. These are the least likely to reduce output.
Before the shale boom, many U.S. Gulf Coast refiners configured their plants to run Latin American and Middle Eastern crudes, with Venezuela and Mexico as top suppliers. As those shipments dwindled, refiners turned to shale and Canadian oil. But pipeline constraints in Canada are shifting imports again, at least in the short term. U.S. refiners want more Canadian crude “because it’s cheap,” one trader said, but “unless someone builds a new pipeline,” it will be difficult boost imports further. U.S. imports of Canadian crude by pipeline rose to 3.6 million bpd in the week ending Oct. 12, hitting 98 percent of capacity. Crude-by-rail shipments also are up, to a record 284,000 bpd in the week ended Oct. 12 from 85,000 bpd in October 2017, according to data provider Genscape. “These pipelines are absolutely full,” said Dylan White, an oil markets analyst at Genscape. “There’s no room for growth.”