Oil prices have increased 60% since late January. Is this an oil-price recovery?
Two previous price rallies ended badly because they had little basis in market-balance fundamentals. The current rally will probably fail for the same reason.
The Oil Glut Worsens But Prices Reach 2016 Highs
Although oil prices reached the highest levels so far in 2016 during the past few days, the global over-supply of oil worsened in March.
EIA data released this week shows that the net surplus (supply minus consumption) increased to 1.45 million barrels per day. Compared to February, the surplus increased 270,000 barrels per day. That’s a bad sign for the durable price recovery that some believe is already underway.
The production freeze that OPEC plus Russia will discuss this weekend has already arrived. Supply increased only 20,000 barrels per day in March. Consumption, however, decreased by 250,000 barrels per day. That’s not good news for the world economy although first quarter consumption is commonly lower than levels during the second half of the year.
The April IEA Oil Market Report was also released this week and it largely corroborates EIA data. First quarter 2016 liquids supply surplus was 1.53 million barrels per day compared to EIA’s 1.71 million barrels per day for the quarter.
The first quarter 2016 surplus fell 220,000 barrels per day from the fourth quarter 2015. Overall supply declined 660,000 barrels per day but demand fell by 880,000 barrels per day.
IEA’s demand growth forecast for 2016 remains 1.2 million barrels per day. 2015 demand growth was a very high 1.8 million barrels per day because of low oil prices. 1.2 million barrels per day is, however, consistent with average growth from 2011 through 2014.
Oil prices have increased from $26 to $45 per barrel during the current January – April price rally. This is based partly on hope for an OPEC-plus-Russia production freeze that almost everyone agrees will do nothing to balance global oil markets.
There were two major price cycles in 2015. During the first cycle, WTI prices increased from about $44 in mid-March to more than $60 by early May over a period of about 50 days. This was based on plunging U.S. rig counts and withdrawals from storage. Prices remained around $60 per barrel for 25 days and then fell to about $38 by mid- to late August over a period of 72 days. The total trough-to-trough period of the cycle was 157 days.
During the second cycle, prices increased from $38 to more than $49 per barrel in only 7 days in late August 2015 based on good economic news about China and U.S. storage withdrawals. Prices fluctuated between $39 and $49 with an average price of almost $45 per barrel for 93 days. After falling below $40 per barrel in early December, prices dropped to $26.55 on January 20, 2016, a period of 46 days.The total trough-to-trough period of the cycle was 146 days.
At the beginning of the present cycle, prices increased from $26.55 to $33.62 in late January and then dropped to $26.21 on February 11. This “double-bottom” pattern probably tested the low-price threshold for the greater oil-price collapse that began in June 2014.
That does not mean that a price recovery is in progress. It suggests that because $26 per barrel is so far below the marginal cost of production that prices are more likely to increase going forward than to discover a lower bottom.
Following the double-bottom, prices increased to $41.45 on March 22 over a period of 40 days. Prices fell to $35.70 over the next 12 days before increasing to $42.17 on April 13. Yesterday, prices fell to $41.52. The total duration of this cycle is 63 days so far.
Aside from the global production surplus, the huge amount of oil in storage is the other key factor working against a price recovery right now.
Last week, a larger-than-anticipated 4.94 million barrel withdrawal from U.S. storage re-ignited the price rally that had stalled during the previous week. A 6.6 million barrel addition this week was largely ignored by the market as futures prices fell only $0.44 yesterday.
U.S. stocks are near record high levels of 78 million barrels more than at this time in 2015 and 138 million barrels more than the 5-year average.
OECD stocks are also at record levels of 3.13 billion barrels of liquids. That is 359 million barrels more than the 5-year average but 54% of those volumes are U.S. stocks.
Comparative inventory patterns have been mixed and unclear for the past few weeks. Cushing stocks have been decreasing but Cushing-plus-Gulf Coast and overal U.S. crude oil inventories have been alternating between decrease and increase. It is, therefore, too early to tell whether comparative inventory data supports a price increase or not.
Posted in The Petroleum Truth Report on April 14, 2016
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Pioneering technology expert tells ADIPEC Energy Dialogue up to 80 per cent of plant shutdowns could be mitigated through combination of advanced electrification, automation and digitalisation technologies
Greater use of renewables in power management processes offers oil and gas companies opportunities to create efficiencies, sustainability and affordability when modernising equipment, or planning new CAPEX projects
Abu Dhabi, UAE – XX August 2020 – Leveraging the synergies created by the convergence of electrification, automation and digitalisation, can create significant cost savings for oil and gas companies when making both operational and capital investment decisions, according to Dr Peter Terwiesch, President of Industrial Automation at ABB, a Swiss-Swedish multinational company, operating mainly in robotics, power, heavy electrical equipment, and automation technology areas.
Participating in the latest ADIPEC Energy Dialogue, Dr Terwiesch said up to 80 per cent of energy industry plant shutdowns, caused by human error, or rotating machinery or power outages, could be mitigated through a combination of electrification, automation and digitalisation.
“Savings are clearly possible not only on the operation side but also, using the same synergies between dimensions, you can bring down the cost schedule and risk of capital investment, especially in a time when making projects work economically is harder,” explained Dr Terwiesch.
A pioneering technology leader, who works closely with utility, industry, transportation and infrastructure customers, Dr Terwiesch said despite the increasing investment by oil and gas companies in renewables and the growing use of renewables to generate electricity, both for individual and industrial uses, hydrocarbons will continue to have an important role in creating energy, in the short to medium term.
“If you look at the energy density constraints, clearly electricity is gaining share but electricity is not the source of energy; it is a conduit of energy. The energy has to come from somewhere and that can be hydrocarbons, or nuclear, or renewables.” he said.
Nevertheless, he added, the greater use of renewables to generate electricity offers oil and gas companies the option of integrating a higher share of renewables into power management processes to create efficiencies, sustainability and affordability when modernising equipment, or planning new CAPEX projects.
The ADIPEC Energy Dialogue is a series of online thought leadership events created by dmg events, organisers of the annual Abu Dhabi International Exhibition and Conference. Featuring key stakeholders and decision-makers in the oil and gas industry, the dialogues focus on how the industry is evolving and transforming in response to the rapidly changing energy market.
With this year’s in person ADIPEC exhibition and conference postponed to November 2021, the ADIPEC Energy Dialogue, along with insightful webinars, podcasts and on line panels continue to connect the oil and gas industry, with the challenges and opportunities shaping energy markets in the run up to, and following, a planned three-day live stream virtual ADIPEC conference taking place from November 9-11.
An industry first of its kind, the online conference will bring together energy leaders, ministers and global oil and gas CEOs to assess the collective measures the industry needs to put in place to fast-track recovery, post COVID-19.
To watch the full ADIPEC Energy Dialogue series go to: https://www.youtube.com/watch?v=QZzUd32n3_s&t=6s
Utility-scale battery storage systems are increasingly being installed in the United States. In 2010, the United States had seven operational battery storage systems, which accounted for 59 megawatts (MW) of power capacity (the maximum amount of power output a battery can provide in any instant) and 21 megawatthours (MWh) of energy capacity (the total amount of energy that can be stored or discharged by a battery). By the end of 2018, the United States had 125 operational battery storage systems, providing a total of 869 MW of installed power capacity and 1,236 MWh of energy capacity.
Battery storage systems store electricity produced by generators or pulled directly from the electrical grid, and they redistribute the power later as needed. These systems have a wide variety of applications, including integrating renewables into the grid, peak shaving, frequency regulation, and providing backup power.
Most utility-scale battery storage capacity is installed in regions covered by independent system operators (ISOs) or regional transmission organizations (RTOs). Historically, most battery systems are in the PJM Interconnection (PJM), which manages the power grid in 13 eastern and Midwestern states as well as the District of Columbia, and in the California Independent System Operator (CAISO). Together, PJM and CAISO accounted for 55% of the total battery storage power capacity built between 2010 and 2018. However, in 2018, more than 58% (130 MW) of new storage power capacity additions, representing 69% (337 MWh) of energy capacity additions, were installed in states outside of those areas.
In 2018, many regions outside of CAISO and PJM began adding greater amounts of battery storage capacity to their power grids, including Alaska and Hawaii, the Electric Reliability Council of Texas (ERCOT), and the Midcontinent Independent System Operator (MISO). Many of the additions were the result of procurement requirements, financial incentives, and long-term planning mechanisms that promote the use of energy storage in the respective states. Alaska and Hawaii, which have isolated power grids, are expanding battery storage capacity to increase grid reliability and reduce dependence on expensive fossil fuel imports.
Source: U.S. Energy Information Administration, Form EIA-860, Annual Electric Generator Report
Note: The cost range represents cost data elements from the 25th to 75th percentiles for each year of reported cost data.
Average costs per unit of energy capacity decreased 61% between 2015 and 2017, dropping from $2,153 per kilowatthour (kWh) to $834 per kWh. The large decrease in cost makes battery storage more economical, helping accelerate capacity growth. Affordable battery storage also plays an important role in the continued integration of storage with intermittent renewable electricity sources such as wind and solar.
Additional information on these topics is available in the U.S. Energy Information Administration’s (EIA) recently updated Battery Storage in the United States: An Update on Market Trends. This report explores trends in battery storage capacity additions and describes the current state of the market, including information on applications, cost, market and policy drivers, and future project developments.