Crude, which has fallen into a pattern of limited movements caught in a tug-of-war between evenly matched forces adding and subtracting supply, could be jolted by a hurricane in the US Gulf of Mexico, which was threatening major oil and gas production, refining, import andexport facilities Friday. As the market tracked the hurricane’s path towards Texas and waited to assess the short- and long-term impact of any damage and disruptions, crude was inching up, but gasoline futures had jumped, suggesting bigger worries over products supply. Meanwhile, a growing schism between Brent and WTI is paving the way for rising US crude exports — could that restore the traditional price relationships or is Brent's backwardation a precocious sign of the global oil market rebalancing?
Hurricane Harvey was barreling across the US Gulf of Mexico and towards the coast of Texas Thursday night local time, threatening major offshore oil and gas production and refining in the region, as well as imports and exports of crude and refined products.
Harvey was expected to make a landfall as a Category 3 hurricane Friday night or early Saturday local time and the US National Hurricane Center had warned of “life-threatening inundation from rising water moving inland from the coastline.”
The Gulf of Mexico offshore area pumps about 1.66 million b/d or 17% of the total US oil output. Some 8.44 million b/d or 46% of the country’s refining capacity is located in the Texas and Louisiana Gulf Coast districts.
Terminals in the region process around 3.9 million b/d of crude imports (46% of US total) and about 700,000 b/d of product imports (31%) an well as handling around 2.7 million b/d of finished petroleum product exports (82%).
Producers and refiners were scrambling to evacuate or shut down their facilities as a precautionary measure through Thursday night, while some continued to assess the situation, caught off-guard by the sudden strengthening of a storm that had disintegrated into a tropical depression as it crossed the Yucatan Peninsula earlier in the week.
The last major tropical cyclone to hit Texas was Hurricane Ike, close on the heels of Hurricane Gustav, both in September 2008. Those resulted in 1.3 million b/d of oil production and just over 7 Bcf/day of gas production in the US Gulf being shutin as a precautionary measure. About 85% of oil production and 71% of gas production had been restored in the 12 weeks after Gustav hit. Refining capacity outage peaked at 4 million b/d, but was fully restored in less than six weeks after Gustav.
Hurricanes Katrina and Rita in August and September 2005 respectively were far more destructive and caused longer outages. They shuttered up to 1.5 million b/d of oil and up to 8.8 Bcf/day of gas production. Restoration of supplies occurred gradually from November 2005 through March 2006. Twelve weeks after Katrina struck, a little over 5 Bcf/day of gas and over 1 million b/d of oil production was still shut in.
Beyond the knee-jerk rise in crude and product prices early Friday to factor in the likelihood of oil-related supply disruptions in general, Hurricane Harvey will need to be watched closely over the next 48 hours for a more detailed assessment of the precise nature and likely duration of its impact.
If the hurricane dissipates without causing any major damage to infrastructure and production and refining facilities, any capacity shut in as a precaution should be restarted fairly swiftly, enabling the crude market to return to “normal” within days. In the event of major damage to facilities, the impact could play out differently in the crude and refined products markets, depending on which infrastructure has suffered more.
A major, drawn-out oil production outage would support crude prices, but would also be mitigated by the presence of increased spare capacity available among the 22 OPEC and non-OPEC producers that have restrained supply under their agreements since January, as well as the cushion of brimming oil inventories globally.
If refineries in Texas are damaged and are forced to halt operations for a prolonged period, it would prop up refined product prices, while also pressuring crude down because of reduced demand for the feedstock, driving a rally in product cracks, or the premium of refined products over crude.
Any major disruptions in the imports and exports of crude and products will need to be analysed carefully, for they could well cancel each other out in terms of the balance between crude and refined product supply available in the country.
The market appeared more concerned about products than crude supply through the trading sessions in Asia and Europe Friday. The front-month September NYMEX RBOB gasoline contract changed hands at $1.7295/gal at 1300 GMT Friday, up 4% from Thursday’s settle, while WTI and Brent were up only 0.5% and 1% over the same period. The EIA Wednesday reported a 107,000 b/d rise in US gasoline demand to around 9.63 million b/d in the week to August 18, and a draw of 1.22 million barrels in gasoline stockpiles, supporting sentiment for the fuel amid the ongoing US summer driving demand season.
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Anthony Rizzo Players Can't Sit On Bench According to a report from the Chicago Sun-Times, the world-famous Anthony Rizzo Phrase "Zombie Rizzo" has been told to never be used again. Of course, this is not the first time that the Zombified Chicago Cubs' first baseman has made headlines this year. A year ago, "Rosebud" was the catchphrase that he coined for himself. Also, there is Anthony Rizzo Shirts that come in his name. Now that the Cubs are World Series Champions, Anthony Rizzo is on his way to superstardom. He is leading the World Series in several categories, including hits, runs, home runs, RBI's, OBP, and SLG. Also, he's on track for a staggering year in hits, RBI's, and total bases, all while being second in home runs.
The Cubs Phenom
This season the Chicago Cubs are over 3.5 million in earnings from the local broadcasts alone. The Cubs could lose a good deal of local revenue if they fail to get back to the World Series. But the local revenue is not the biggest factor in the Cub's success. A large part of their success comes from two of their most popular players, third baseman Kris Bryant and first baseman Anthony Rizzo. These two players are now the favorites to win the MVP awards this year, especially if the Cubs are able to stay on top of the wild card standings. A Look at Rizzo Anthony Rizzo is often compared to his college teammate Andrew McCutchen. Both players have performed well at the plate.
The wood pellet mill, that goes by the name of a wood pellet machine, or wood pellet press, is popular in lots of countries around the world. With all the expansion of "biomass energy", there are now various production technologies utilized to convert biomass into useable electricity and heat. The wood pellet machines are one of the typical machines that complete this task.
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What Is A Wood Pellet Mill?
Wood pellet machines are kinds of pellet machines to process raw materials including peanut shells, sawdust, leaves, straw, wood, plus more. Today the pellet mills can be purchased in different types. Both the main types include the ring die pellet mills as well as the flat die pellet mills. Wood pellet mills are designed for processing many different types of raw materials irrespective of size. The pellet size is very simple to customize with the use of a hammer mill.
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It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
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