Today, over at SeekingAlpha, the shale oil myth, "it is too light and no good." [The blog has talked about his often.]
Summary by Zeits:
- shale oil skeptics claim that the global crude supply is turning alarmingly light due to the growth of shale production
- the world is facing acute shortages of heavy and medium grades, the argument goes, and shale oil is of little help in meeting that demand
- market data indicate that the claim is without merit
- shale growth has been perfectly well accommodated by the global refining system
- shale oil is fully "sold out" and trades at premiums to heavy grades
Observations from Richard Zeits:
Is the shortage of heavier crude grades acute? We would argue, not more so than the shortage of all other grades. While global demand for distillates has been on the rise, demand growth for lighter products - gasoline and naphtha - has also been quite strong. Light crudes have been sold out just as much as heavier crudes.
The global refining industry has proven very capable of using all available crude grades to meet demand for products and we do not see this changing anytime soon.
Amazingly, and coincidentally, Zeits has a great graph on the very day that John Kemp noted over on twitter that the delta between WTI and Brent was narrowing, almost nil.
I'll post that graph elsewhere.
More from Zeits:
On a per degree of gravity basis, the narrowing is ~$1/barrel per 10 degrees API for the Middle East and West Africa baskets. For the Gulf of Mexico example, the narrowing was more pronounced, roughly twice as great.
In percentage terms, the differentials narrowed by ~20% for the Middle East basket and ~30% for the Gulf of Mexico basket.
This is the measure of Mr. Market's reaction to what one might think of as a "perfect storm" for the global light/heavy supply mix. In other words, the impact of the lighter global supply slate on prices has been minimal.
In our interpretation, this market data disprove the claim that the global supply mix is significantly out of balance and the world is facing acute shortages of heavier crudes.
Much, much more at the link.
If there is a shortcoming in his essay today (and far be it for me to come up with anything negative with regard to Zeits, a "shale demi-god") it would have to be that he did not mention the reason behind and the importance of the Keystone XL. Although not treasonous to have stopped it, but ... I consider "killing" the Keystone XL right up there with the Continental Congress refusing to fund George Washington's troops so they afford parkas and water-proof boots.
