It’s been a busy few days at CERAWeek in Houston, where The Wall Street Journal has a team of editors and reporters covering the most influential annual oil conference in the U.S. Saudi Arabia’s oil minister spoke, OPEC’s secretary general broke bread with rival American producers and U.S. shale-oil companies are finally getting some recognition as a permanent fixture in the global industry.
Here’s a rundown of the major news from Houston.
SAUDI OIL MINISTER: OPEC REMAINS A STABILIZING FORCE
Saudi Arabia delivered a message at CERAWeek: Don’t expect the Saudi’s to save the oil market alone.The kingdom has shouldered the brunt of production cuts agreed to last year among the 13 nation OPEC cartel and 11 other producers, designed associated with a deal by OPEC and external oil producers to eliminate about 2% of global supply. The output deal helped send crude prices up 20%. Saudi energy minister Khalid al-Falih said OPEC will look at inventory levels in May as it evaluates whether to extend the production cut into the second half of the year. In reference to recent shale oil developments, Mr. Falih He warned an audience full of American producers who have benefited from the production cuts to not fall prey to “wishful thinking that OPEC or the kingdom will underwrite the investments of others.”
“Saudi Arabia will not allow itself to be used by others,” said Mr. Falih.
PRODUCTION CUTTERS DEFEND THEIR COMMITMENTS
Ministers from countries including Russia, Iraq and Saudi Arabia said they were following through on production-cut commitments amid signs the coalition is fraying at the edges, writes Sarah Kent. For instance, Russia has only fulfilled about a third of its pledge to reduce supply, but the country’s energy minister said Tuesday that Moscow is “fully committed” to slashing all 300,000 barrels a day it promised.
OPEC: U.S. SHALE IS HERE TO STAY
OPEC’s chief said the global economy could have been worse off without shale-oil output in the U.S., report Lynn Cook and Miguel Bustillo.
The flood of supplies from American producers over the past sent the oil market into a tailspin, but it also provided new production that was needed to meet demand, said Mohammad Barkindo, the secretary-general of OPEC at CeraWeek. “We only wish it was done in an orderly fashion that did not trigger this severe cycle that we’re still battling to come out of,” said Mr. Barkindo.
OPEC RECONCILING WITH AMERICA
OPEC’S message in Houston has been conciliatory toward U.S producers that it once counted as upstart rivals. Energy scholar Daniel Yergin, who is vice chairman of energy research at IHS Markit, told the Journal that OPEC is accepting shale producers as a major source of oil now much like it came around to the discovery of new supplies from the North Sea in the 1970s. “It’s not so much ‘us-versus-them’ any more, but a watchful but peaceful coexistence,” he said. For OPEC’s part, Mr. Barkindo said: “For the record, we didn’t have any war” with shale producers.
OPEC BREAKS BREAD WITH SHALE PRODUCERS
Mr. Barkindo took his rapprochement with shale producers to the next level, bonding with them over dinners on Sunday and Monday nights in Houston.
“Mr. Barkindo held forth about the Organization of the Petroleum Exporting Countries’ sometimes tense negotiations to hammer out an agreement to cut oil production, according to people at the meeting,” the Journal reported. “Mr. Barkindo assured shale executives that OPEC didn’t want to put them out of business. And OPEC’s top official had an admission for his audience.” “We did confess that we do not have sufficient understanding of how they operate and their impact on us,” he said later.
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This winter, natural gas prices have been at their lowest levels in decades. On Monday, February 10, the near-month natural gas futures price at the New York Mercantile Exchange (NYMEX) closed at $1.77 per million British thermal units (MMBtu). This price was the lowest February closing price for the near-month contract since at least 2001, in real terms, and the lowest near-month futures price in any month since March 8, 2016, according to Bloomberg, L.P. and FRED data.
In addition, according to Natural Gas Intelligence data, the daily spot price at the Henry Hub national benchmark was $1.81/MMBtu on February 10, 2020, the lowest price in real terms since March 9, 2016. Henry Hub spot prices have ranged between $1.81/MMBtu and $2.84/MMBtu this winter heating season (since November 1, 2019), generally because relatively warm winter weather has reduced demand for natural gas for heating. Natural gas production growth has outpaced demand growth, reducing the need to withdraw natural gas from underground storage.
Dry natural gas production in January 2020 averaged about 95.0 billion cubic feet per day (Bcf/d), according to IHS Markit data. IHS Markit also estimates that in January 2020 the United States saw the third-highest monthly U.S. natural gas production on record, down slightly from the previous two months.
IHS Markit estimates that U.S. natural gas consumption by residential, commercial, industrial, and electric power sectors averaged 96 Bcf/d for January, which was about 4.4 Bcf/d less than the average for January 2019, largely because of decreases in residential and commercial consumption as a result of warmer temperatures.
However, IHS Markit estimates that overall consumption of natural gas (including feed gas to liquefied natural gas (LNG) export facilities, pipeline fuel losses, and net exports by pipeline to Mexico) averaged about 117.5 Bcf/d in January 2020, an increase of about 0.2 Bcf/d from last year. This overall increase is largely a result of an almost doubling of LNG feed gas to about 8.5 Bcf/d.
Because supply growth has outpaced demand growth, less natural gas has been withdrawn from storage withdrawals this winter. Despite starting the 2019–20 heating season with the third-lowest level of natural gas inventory since 2009, by January 17, 2020, working natural gas inventories reached relatively high levels for mid-winter. The U.S. Energy Information Administration’s (EIA) data on natural gas inventories for the Lower 48 states as of February 7, 2020, reflect a 215 Bcf surplus to the five-year average. In EIA’s latest short-term forecast, more natural gas remains in storage levels than the previous five-year average through the remainder of the winter.
According to the National Oceanic and Atmospheric Administration (NOAA), January 2020 was the fifth-warmest in its 126-year climate record. Heating degree days (HDDs), a temperature-based metric for heating demand, have been relatively low this winter, which is consistent with a warmer winter. During some weeks in late December and early January, the United States saw 25% to 30% fewer HDDs than the 30-year average. This winter, through February 8, residential natural gas customers in the United States have seen 11% fewer HDDs than the 30-year average.
Source: U.S. Energy Information Administration, based on National Oceanic and Atmospheric Administration Climate Prediction Center data
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
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