Impact Of Changes To Mexican Heavy Crude Benchmark -- RBN Energy; Fracking Sand Update -- January 27, 2017

Updates

Later, 11:25 a.m. Central Time: that "canceled' meeting between POTUS and POMEX? Not so fast. They had an hour-long telephone call earlier this morning. I think folks need to put this whole North American "family" spat in context. One wonders who initiated the phone call.

Original Post

 

Futures: again, this has been quite fascinating, watching futures go from "red" to "green" but not by much; and, then all of a sudden, at 7:01 a.m. Central Time, futures jump from 4 to 29 points in early trading (CNBC). After GDP report comes out, Dow 30 goes "red."

CVX earnings: wow, huge miss. 22 cents forecast vs 64-cent estimate; shares down 3% on news;

First estimate 4Q16 GDP: 1.9% --  source here --  after report Dow 30 futures went negative. MSBNC: "tepid." On January 3, 2017, the "GDPNow" forecast:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.9 percent on January 3, up from 2.5 percent on December 22.

Mexican stand-off: stories to follow --

• Trump's favorability ratings
• effect on the market
• is the "war of words" really needed?
• who blinks first?
• Vicente Fox: on CNBC, the reason US automakers almost collapsed -- "US workers make high-cost cars of mediocre quality" -- Vicente Fox will help move the discussion
• the "wall" -- deploy the drones 
• by the way: Trump's 20% on imported goods echoed GOP plan; chairman of House Ways and Means supports it; 

North Dakota reservations hope Trump's presidency makes a difference -- article over at Reuters. 

Proppacalypse: frack sand demand on fire in 2017 -- Rigzone. Mike Filloon predicted this at least a year ago. Data points:

• rig counts plummeted almost 75% during the last two years
• sand demand dropped off about 40%
• proppant use in the US will reach above 2014 levels despite diminished activity of 60% fewer rigs
• proppant intensity has increased more than 50% in the Permian, Eagle Ford, the Bakken, since 2014
• 2016 forecast: demand would be up to 200 billion pounds; that cap was met by the beginning of December; now, forecast for 240 billion pounds for 2018, double the annual peak of 108 billion barrels
• demand could drive sand prices at least 60% higher: to ~ $40 per ton range

Proppants 101: for newbies -- a primer on sand.

Fracking sand, some data points from linked posts above:

• when you see a 100-unit train carrying sand, that amount of sand will frack one Permian well, maybe five Bakken wells at most
• there are about 900 DUCs in the Bakken: wells drilled to depth; waiting to be fracked
• Harold Hamm (on CNBC yesterday -- January 27, 2017) said there was no shortage of sand 

New player in the oil patch: Bloomberg's take on the GE-Baker Hughes merger.

Baker Hughes: "only higher oil prices will spur international spending." Baker Hughes suggests oil prices must go up 15% to drive new investment. $53 x 1.15 = $61.

***********************************

Back to the Bakken

Active rigs:

	1/27/2017	01/27/2016	01/27/2015	01/27/2014	01/27/2013
Active Rigs	38	47	154	187	190

RBN Energy: impact of changes to the Mexican heavy crude benchmark -- part 2.

A major component of the formula used to set the price of Maya—Mexico’s flagship heavy crude, and a key staple in the diet of many U.S. Gulf Coast refiners—was changed earlier this month, raising new questions about this important price benchmark for nearly all heavy sour crude oil traded along the U.S. Gulf, and points beyond. The change came as Maya production volumes continue to fall, and as Maya is facing increasing competition from Western Canadian Select (diluted bitumen) from Western Canada. Today we conclude a two-part series on Maya crude oil, the new price formula and its potential effects.

As we said, in Part 1, Mexico currently produces about 2.2 million barrels a day (MMb/d) of crude oil, about half of which (~1.1 MMb/d) is exported—three-fifths of which goes to the U.S.  P.M.I. Comercio Internacional S.A. de C.V. (PMI) is the crude oil marketing entity of state-controlled Petróleos Mexicanos (PEMEX) and manages the export of four distinct quality grades of crude oil, ranging from Altamira (an asphalt grade) and Maya on the lower end of the quality spectrum, to Isthmus in the middle, and Olmeca at the higher end. Most of Mexico’s crude oil exports to the U.S. Gulf Coast are Maya blends, as Mexico tends to retain most of its lighter grades (Isthmus and Olmeca) for domestic refinery consumption. However, the share of Maya exports headed for the U.S. has been falling fast—from 78% in 2013 to only 44% through the first nine months of 2016; the share of Maya bound for Europe has more than doubled over the same period and the share shipped to the Far East has more than tripled.

Canadian heavy sour crude oils such as WCS and Cold Lake are similar in quality to Maya but have historically been priced at significant discounts due to transportation constraints to reach the U.S. Gulf Coast. Should the Keystone XL Pipeline or other similar pipeline projects be constructed, the availability of these heavy sour crude oils in the Gulf Coast region could increase significantly, leading to more competition for Maya, more downward K factor adjustments, and higher volatility in the Maya price—all to the benefit of heavy-sour crude refiners. As previously discussed, PMI seems to be anticipating this eventuality and has been diversifying its Maya export destinations. Stay tuned for how these and other future events could impact the Maya pricing formula.