Sunday, July 22, 2018

The US Is The Swing Producer -- I.E., The Shale Operators Are The World's Swing Producers -- July 22, 2018


July 25, 2018: Saudi Arabia suspends crude oil shipments through Red Sea after attacks on two VLCCs. Attack on this "swing producer": price of OPEC basket of crude oil rose .... 16 cents/bbl.

Original Post

For awhile there -- some months ago, one or two years ago -- there was a lot of debate whether the US was now the swing producer. The consensus at that time: Saudi Arabia remained the swing producer.

That argument has changed in the past 48 hours. Most everything below was previously posted in the last few days.

Exhibits A - E. [To prove a point, only three "exhibits" are needed, but I wanted to make sure the point was not lost on those on the east and west coasts.]

Exhibit A, July 21, 2018, from Rigzone:
U.S. production of crude oil and natural gas liquids (NGL) hit unprecedented levels in June 2018.
According to API, crude oil production hit 10.7 million barrels per day (MMbpd) in June and NGL production reached 4.2 MMbpd during the same period.
[The API] noted that domestic oil production has supplied all of the growth in global demand so far in 2018 and has helped to compensate for production losses among some OPEC member nations. [Memo to Art Berman, Jane Nielson.]
Exhibit B, July 21, 2018:
Saudi Arabia: hits "pause button" on higher oil output. For newbies, "everyone" talks about Saudi's production, not their exports. This is another article: emphasizes "production." Four points:
  • I've never thought much of Saudi's ability to significantly increase production
  • Saudi Arabia always increases production in summer to meet summer domestic consumption needs (a/c demand; electricity from oil in the Saudi Arabia)
  • Prince Salman is now adding refinery capacity in his country which increased the country's domestic consumption 
  • President Trump has asked Saudi Arabia to increase production, with a threat to release oil from the US SPR if the price of gasoline does not come down
Now, this:
Oil prices held steady on Thursday and in early trading on Friday after a top Saudi official said that oil production would remain flat in July compared to June and that Saudi Arabia does not want to oversupply the market. Previous comments suggested that Saudi Arabia would ramp up to 10.8 million barrels per day (mb/d) in July, but instead the Saudis will keep output at 10.5 mb/d.
I find it interesting that at a point in time when Saudi Arabia should be increasing production, the country is actually cutting back. I think there's more to the story we are not hearing. Drones over Riyadh can't be comforting.
Exhibit C (same link as above): Italy: needs US oil to make up for Libyan shortfall. What more proof does one need -- wouldn't a country desperately short of gasoline turns to the swing producer? So, Italy desperately needs gasoline -- where do they turn. Not to Saudi Arabia.
Libya’s oil disruptions would normally wreak havoc in Italy—one of Libya’s top oil consumers—but the United States is serving as a pinch hitter in the wake of civil unrest in the troubled African nation.
Italy’s imports of US crude spiked as Libya struggled to ship oil under force majeure in recent months.
In June, Italy imported a record 4.93 million barrels of crude oil from the United States, or 165,000 barrels per day. That represents a noteworthy increase to the 3.3 million barrels shipped from the US to Italy in May and 1.9 million barrels in April. [One analyst] predicts that 2.14 million barrels are set to ship from the US to Italy in July.
On the flip side, Libya’s shipments to Italy were 9.73 million barrels in May, followed by a drastic decrease in June to 3.45 million barrels.
Exhibit D: EPD to build massive crude oil export terminal off-shore, Houston, TX.

Exhibit E: US sets milestone -- 11 million bopd crude oil production.

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