July 9, 2018
After falling to its steepest discount since 2015, the spread between the U.S. benchmark WTI and the European spot Brent crude price has narrowed considerably. On Friday, the August contract for WTI traded roughly $3.50 below Brent ($77 per barrel for Brent, $73.60 for WTI), after having been discounted by as much as $10 per barrel only three weeks ago. Abundant U.S. shale production and limited U.S. pipeline capacity have helped keep WTI prices down relative to Brent. OPEC cuts, emerging market economic growth, and geopolitical unrest in a number of oil-producing countries (Libya, Nigeria, Iran, etc.), meanwhile, have put upward pressure on Brent. Regional supply and demand mismatches are frequent in the oil market and lead to periods of pronounced price and differential volatility. The WTI-Brent spread has been garnering more attention as of late due to the surge in U.S. crude exports, which recently hit a record of a whopping 3 Mbd.
June 25, 2018
OPEC’s decision on Friday to ramp up production by 1 million barrels per day (Mbd) will allow the cartel to recapture some of its lost market share and attempt to apply downward pressure on prices. Oil markets rallied after members struck a deal but Brent futures have fallen below $75 per barrel today. OPEC’s market share has always been cyclical and is a key determinant for its pricing power. The cartel’s market share throughout its history has been as high as 50 percent and as low as 30 percent. In May, OPEC controlled approximately 42 percent of the crude market, down roughly 1.5 percent from January 2017, when OPEC and its non-OPEC partners, including Russia, collectively cut production by 1.8 Mbd. Combined OPEC+ output nevertheless accounted for 54 percent of the market in May—a substantial proportion, but down 2 percentage points from January 2017 levels. OPEC’s strategy of successfully reducing commercial OECD stockpiles to 27 million barrels below the five-year average amid growing global oil demand, based on IEA’s latest data, has increased prices by about $30 in the past year. The IEA added that it “may only take a few months [for inventories] to fall to the ten-year average.” Even though OPEC as a group is set to increase output, lower production from unstable countries such as Venezuela, Libya, and Iran could potentially cause a large supply gap to form. Uncertainty about oil price direction complicates medium- and long-term investment decisions in higher-cost resources, including U.S. shale.
June 7, 2018
Consumer light truck sales continue to climb, accounting in May for 67 percent of the 17.3 million U.S. light-duty vehicle (LDV) purchases over the last twelve months. Sales of light trucks, which include sports-utility vehicles and pick-up trucks, bottomed out during the 2009 recession but rebounded when the economy recovered. The gasoline price collapse in 2014, due in part to OPEC’s overproduction, accelerated light-truck sales, which have increased market share from a 52 percent of LDV sales in November 2014 to 68 percent in April 2018, a remarkable 16 percentage point increase. “Just an astonishing shift in the complexion of the U.S. auto market,” said Sam Ori, Executive Director at the Energy Policy Institute at the University of Chicago (EPIC), on Twitter. Changing consumer preferences toward heavier and less fuel-efficient vehicles reinforce the need for robust and modern fuel economy standards to counter the rise in transportation sector oil demand.
June 1, 2018
Barrels at Risk
As the impact of OPEC’s production agreement continues to artificially inflate crude oil prices, geopolitical risk is also negatively affecting global supply. In Venezuela, hyperinflation and high unemployment are crippling the country’s economy and oil sector. Venezuela’s production is now more than 40 percent below 2015 levels at 1.5 million barrels per day (Mbd), and analysts say underinvestment in the state-run oil company PDVSA, ConocoPhillips recent victory over PDVSA in international arbitration court, and labor shortages could further reduce output—perhaps below 1.0 Mbd if Nicolas Maduro’s government collapses. Political unrest in neighboring Brazil and elections in Colombia and Mexico also threaten to destabilize output and put even more barrels at risk. Former Mexico City Mayor Andrés Manuel López Obrador has pledged to roll back Mexico’s 2014 energy reforms that opened the oil sector to private investment if he wins the presidential election in July. In Colombia, market participants worry about candidate Gustavo Petro, who has threatened similarly strident measures. Against this backdrop, questions over Iran’s nuclear program could potentially put as much as 1.0 Mbd at risk. Interruptions in Nigeria and Libya will likely remain common. As U.S. gasoline demand rises during the summer months, consumers will have to contend with price volatility due to these events.
May 22, 2018
Higher gasoline expenditures could fully offset the President’s individual tax cut, a SAFE analysis shows, if pump prices rise another 55 cents to $3.50 per gallon and are sustained at that level. The 2017 Tax Cuts and Jobs Act, which passed late last year and took effect at the beginning of 2018, will deliver approximately $122 billion back to consumers. The 32-cent per gallon rise in prices since January 1, 2018, will already eliminate more than one-third of the gains from the tax cut. Low-income families have taken the biggest hits. In a research note, analysts at Deutsche Bank added that the bottom 20 percent of the U.S. income distribution has already seen the benefits of the President’s tax cut erased. Higher gasoline prices are chiefly the result of OPEC’s sustained commitment to production cuts, alongside ongoing supply outages in Venezuela and other petro-states. Market participants and analysts see prices continuing to rise as long as OPEC curtails output.
May 11, 2018
Advanced fuel vehicles (AFV) continue to make up a larger portion of the overall light-duty vehicle (LDV) market in the United States. Through March 2018, automakers have seen steady growth in sales, and the first quarter was the best quarter on record for electric vehicles (EVs). More than 2 percent of BMW, Mini, and Volvo sales are AFVs, and with many new models coming to the market this year, the proportion should rise. BMW, whose AFV offerings continue to lead its competitors as a percentage of annual LDV sales, will introduce 12 fully electric models by 2025 in competition with other high-end brands, such as Mercedes-Benz (parent Daimler). In recent months, Mercedes has announced plans to aggressively expand its EV manufacturing capabilities, and BMW says it will boost overall AFV sales by 50 percent year-over-year in 2018. Although GM’s AFV sales lag as a proportion of overall sales, EVs, in particular, remain an important element of the company’s strategy. GM sold more than 43,000 EVs last year, second only to Tesla. As automakers increase their production of EVs, consumers are beginning to show more interest. A recent study from AAA says that 20 percent of Americans plan to purchase an EV as their next car, up from 15 percent last year. Some experts believe that rising gasoline prices will motivate even more consumers to buy EVs.
May 3, 2018
Battery capacity of new plug-in electric vehicles sold in the U.S. increased 27 percent year-on-year in 2017 to approximately 7-gigawatt hours (GWh), a recent study from Argonne National Laboratory says, amounting to a cumulative capacity of 23 GWh since 2010. Tesla sales contributed to more than half of the total additions last year. Although Tesla’s Model 3 production problems have dominated electric vehicle news, consistently high Model X and Model S sales have significantly added to total battery capacity of new EVs on U.S. roads. While Tesla has undoubtedly played a major role in this growing market, other plug-in electric vehicles are increasing in significance, with their capacity doubling in 2017. Last year, the number of models doubled, reflecting the growing popularity of EVs. Consumers purchased more than 200,000 vehicles in the U.S. in 2017, with the number expected to be higher in 2018. As sales continue to rise, battery capacity will only increase as the grid provides owners more options, including ancillary vehicle-to-grid services.
April 27, 2018
Speculative net length in NYMEX crude futures and options has risen sharply since prices bottomed out in 2016 and OPEC and its partners began discussing reducing supply to increase prices. SAFE analysis demonstrates that announcements and agreements between OPEC and other producer states such as Russia are correlated with speculators betting on higher prices. Through their meetings with hedge fund managers and other investors, Saudi Arabia and OPEC have determined how to utilize verbal statements and market signals to their benefit—intervening in global oil markets whenever prices threaten to fall below levels desired by the cartel. OPEC’s actions have received more scrutiny as of late, with households and businesses beginning to feel the effects of higher prices. Moreover, President Trump’s tweet last week blasted OPEC for artificially “inflating” oil prices. Speculative traders will continue to watch OPEC closely over the next month and a half in the run-up to its next meeting in Vienna. Market participants expect the group to hold steady on cutting supply based on comments that producers want to further reduce inventories.
April 20, 2018
As Americans prepare for the upcoming summer driving season, nationwide gasoline prices reached a multi-year high of $2.86 per gallon this week, up nearly 10 cents per gallon from one month ago. Violence in Syria, the intensifying conflict in Yemen, and the crisis in Venezuela have significantly affected oil markets, causing an uptick in prices. OPEC’s “record-breaking” compliance with coordinated cuts have continued to reduce supply. For some U.S. families, the need to cover the higher gasoline costs may be so large that it could negate the effects of President Trump’s recent tax cut, and squeeze consumers who over the past several years have grown accustomed to low prices. On Friday morning, Trump blasted OPEC in a tweet for artificially inflating oil prices, adding: “No good and will not be accepted!” Rising prices will undoubtedly affect American households, which are expected to spend an average of $400 more on gasoline than they did in 2016. Despite Trump’s warning to OPEC, officials of member countries—along with non-OPEC allies such as Russia—defended their actions and said they would continue with coordinated cuts. ICE Brent is now trading around $73 per barrel, and industry sources have reportedly said that the Saudis are targeting $100.
April 6, 2018
The performance of light-duty vehicles (LDVs) has outpaced federal fuel economy standards, National Highway Traffic Safety Administration (NHTSA) data shows. Fleetwide performance rose from 24.6 miles per gallon (mpg) in 2004 to 32.2 mpg in 2015. The gap between LDV performance and corporate average fuel economy (CAFE) standards widened during the recessionary 2009-10 period when high gasoline prices and consumer demand motivated automakers to boost the LDV fuel economy. LDV fuel economy grew as high as 3.9 mpg above the standard in 2010, but narrowed again in the 2012-15 period when the Obama Administration revised standards. LDV fuel economy fell from 32.2 mpg in 2015 to 32.1 mpg in 2016 and 31.8 mpg (estimated) in 2017, NHTSA says. NHTSA shares rulemaking authority with the Environmental Protection Agency, which said this week it would revise greenhouse gas emission standards for 2022-25.
March 28, 2018
As of now, 14 states have passed autonomous vehicle (AV) legislation, with a handful of others considering laws at this point. Without a consistent federal framework, the differences at the state level could undermine testing efforts and commercial deployment of self-driving technology. Rather than implementing a patchwork of state legislation, the U.S. is in need of a transportation system that includes comprehensive and national infrastructure standards to handle the large-scale changes that will result from the adoption of autonomous technologies. Establishing consistent laws across the country has become even more urgent after the deadly accident involving a self-driving Uber vehicle in Arizona. As federal investigations probe this incident, policymakers should develop a federal standards to hasten sensible and safe testing so that they can be brought to market and consumers can see their benefits, such as reducing the number of accidents and diversifying the transportation fleet. In September, the House passed its version of AV legislation, but it is unclear when the Senate’s version will reach the floor.
March 22, 2018
OPEC and its non-OPEC partners are reportedly shifting the target for measuring the success of their production cuts. The Vienna Group may seek further inventory reductions beyond the five-year average and, as a result, will likely continue to restrain output. OECD commercial stockpiles for crude and products are already nearing the five-year average, down from a 293 million barrel surplus in January 2017. Despite the success of their production cuts, OPEC producers and their allies are worried about the growth of U.S. shale causing a price decline. With shale’s expected increase of more than one million barrels per day (Mbd) this year, the estimated call on OPEC’s crude should drop to 32.3 million Mbd, a reduction of approximately 584,000 barrels per day year-over-year, based on the average of the three major forecasting agencies. The call on OPEC—the amount of crude the group has to produce to balance the market—increased approximately 1 Mbd between 2016 and 2017 as the group imposed strict cuts to reduce stockpiles, causing prices to rise. Even though global oil markets need less OPEC crude this year, prices will likely remain elevated due to the group’s production cut, stock declines, higher demand, and geopolitical risks.
March 12, 2018
The United States has imported more than $1.4 trillion in OPEC crude oil since 2003, U.S. customs and trade data show. This massive outflow of American spending has largely benefited petrostates that are rarely aligned with U.S. strategic or national security interests. More than $426 billion and $317 billion went to Saudi Arabia and Venezuela, respectively, two of the largest holders of crude oil reserves in the world. The dollar value of U.S. crude oil imports depends on many factors in the international oil market, including supply and demand dynamics, cartel activity, and investment cycles. OPEC countries collected more than $720 billion throughout the oil price run-up that started in 2009 and lasted until November 2014, when prices collapsed. Despite shale’s rapid growth this decade, OPEC continues to supply the U.S. with 40 percent of its crude oil imports.
March 2, 2018
U.S. shale production has surprised to the upside throughout this entire decade, and last year, it accounted for more than 50 percent of the country’s crude supply. That is in stark contrast to making up only 10 percent of production in 2008. Shale’s share of the U.S. market should continue to rise this year as it is expected to grow by more than one million barrels per day (Mbd). Before the price downturn of 2014, the Eagle Ford and the Bakken received the most attention, but now the Permian is the hottest play. Despite the sharp growth, experts are divided over the longer-term outlook for shale. At an event at the Center for Strategic and International Studies this week, speakers highlighted how differences in macroeconomic assumptions, price expectations, productivity projections, and technological prospects cause divergences in shale forecasts. While experts are split over shale’s potential, most are in agreement that it will not grow at the magnitude the market has seen since 2010.
February 23, 2018
Cumulative investments in autonomous vehicle (AV) technology continue to rise sharply. Automakers and tech companies spent more $70 billion in H1 2017, an enormous increase of 768 percent year-over-year. The growth of AV tech investment accompanies the rising number of deals and partnerships announced by companies in this space. For instance, between 2016 and 2017 General Motors acquired Cruise Automation for more than a billion dollars and then formed partnerships with ride-sharing companies Lyft and Uber to develop and test AVs in their platforms. Other automakers, tech companies, and startups have made similar deals as competition has increased. Although cumulative investment is rising dramatically, traditional automakers have fallen behind their tech competitors. Overall, the rapid growth in commercial interest and investment in AVs demonstrates intense competition among players in a rapidly changing environment. As AV technologies and business strategies mature, policy should keep pace with industry to ensure the safe and timely adoption of these new technologies.
February 16, 2018
A combination of market management among major oil producers, political violence, and geopolitical risk heightens the possibility of more supply reductions. Russia’s ongoing commitment to cooperation with Saudi Arabia and other OPEC producers continues to cast uncertainty over global oil supply levels. This week, the Kremlin announced several new bilateral energy deals with the Saudis, strengthening ties between the two oil exporters, while OPEC Secretary General Mohammed Barkindo confirmed that OPEC is seeking to institutionalize its market coordination with Russia and others, expanding the influence of the producer group. Meanwhile, failed peace talks between the Colombian government and the leftist ELN rebels has led to renewed attacks on the country’s oil pipelines. Over the past two months, guerrillas have attacked the extensive Caño Limón–Coveñas pipeline 12 times, causing that line’s largest outage in three decades. In neighboring Venezuela, economic and political unrest continues to undermine the country’s oil supply, as January output fell to 1.6 million barrels per day, its lowest level in 30 years. More than 10,000 employees left state-run oil company PDVSA last month, citing low wages and the growing risk of accidents due to poor equipment maintenance.
February 9, 2018
As consumer demand for electric vehicles picks up in 2018, GM and Tesla are nearing the 200,000-credit cap on federal EV tax incentives. GM, which last year rolled out its competitively priced Bolt EV, had used an estimated 168,000 credits by the end of 2017, nearly 32,000 short of the cap. The IRS does not provide data for credits used, thus we assume 100 percent of consumers filed for the tax credit following a vehicle sale. Tesla likely used slightly more than 162,000 credits, but consumer demand for the Model 3 EV appears to be robust this year, raising the likelihood that it will exceed the cap in the near future. The $7,500 federal EV tax credit was passed into law last decade and was retained in 2017 during tax reform. The credit remains an important incentive for consumers to purchase EVs as the technology becomes increasingly more competitive with internal combustion engine vehicles. Mitsubishi, Ford, Toyota, and Volkswagen, have all seen steady increases in sales, but remain well below the cap.
January 29, 2018
Household gasoline expenditures have risen to their highest level in this U.S. since 2014. In Q4 2017, consumers spent $296 billion on gasoline and other petroleum products, an increase of $31 billion versus Q4 2016, and nearly $30 billion higher than the previous quarter. Expenditures have continued to rise following steady increases in U.S. gasoline prices, which averaged $2.43 per gallon in Q4 (up 27 cents per gallon year-over-year). The relatively weaker prices following the dramatic 2014 global oil market decline, along with robust economic growth, have stimulated gasoline demand both in the U.S. and globally. In 2018, U.S. gasoline demand is expected to match the 2016 record average of 9.3 million barrels per day. Demand growth has been one major factor underpinning oil prices, while OPEC production cuts and rapid declines in Venezuela’s output have also lifted global oil markets to the $70 per barrel level.
January 26, 2018
The number of advanced fuel vehicle stations is climbing nationwide as governments and private companies continue to make sizable investments in infrastructure and automakers introduce a fuller range of new and affordable models. Between 2013 and 2017, the number of public and private stations increased 131 percent, a net addition of approximately 35,600 nationwide. Ninety-five percent of the new additions have been in the electric charging segment, which continues to see rapid growth compared to other advanced transportation fuels. Advanced fueling station infrastructure can be a catalyst for consumers to adopt new technologies, and can ease concerns over range and practicality. Despite the sharp rise in the past six years, more stations are needed to meet future demand growth. At a hearing Thursday before the Senate Energy and Natural Resources Committee, Center for Automotive Research President and CEO Carla Bailo echoed this point, saying “Consumers are unlikely to buy a vehicle without a developed refueling infrastructure, and the private sector is not likely to build the infrastructure before there is a critical mass of EVs in use.”
January 19, 2018
The 30-day volatility of the digital currency Bitcoin far surpasses oil, gold, and the euro, highlighting cryptocurrency instability. In Q4 2017, Bitcoin volatility averaged 96 percent—sharply higher than other financial markets—as a result of it not being backed by a physical asset. Now that oil-supported cryptocurrencies will soon be launched—the U.S.-based OilCoin and Venezuela’s petro—these digital markets will also likely be impacted by high volatility due to the nature of the underlying commodity. In early 2016, when NYMEX WTI reached its recent lows, oil market volatility was as sharp as that of Bitcoin. Since crude futures have historically seen wild fluctuations, investors in oil-backed cryptocurrencies will have to contend with this market dynamic going forward. Investors in OilCoin and other digital currencies will likely see increased risk when compared to more stable investments, such as the euro and gold. Venezuela wants to launch the petro next month to circumvent U.S. sanctions and mitigate the effects of their deep economic recession. The group launching OilCoin expects an “initial coin offering” in March and for the currency to be subject to U.S. Securities and Exchange Commission regulations.
January 12, 2018
Brent crude oil prices reached $70 per barrel this week, the highest level since 2014, as OPEC production cuts and rising global oil demand continue to draw down commercial inventories. Domestic oil prices in the United States reached a high of $64.77 on Thursday and closed the week up nearly $2. Higher prices have stimulated U.S. shale oil producers to increase production. EIA’s latest outlook now pegs U.S. production at 10.27 million barrels per day (mbd) in 2018, revised up by 250,000 barrels per day versus last month’s report. U.S. output should continue to grow next year, with EIA forecasting a record 11.16 mbd of domestic oil production by December 2019 (+2.6 mbd from its September 2016 low). The agency expects WTI to average $59 at the end of next year, but its price forecasts may be conservative given the sharp rise in oil to start 2018.
January 5, 2018
2017 was a strong year for electric vehicle (EV) sales. Nearly 200,000 new EVs were sold last year, an increase of approximately 22 percent year-over-year (y-o-y). The year was punctuated by a stellar fourth quarter as consumers were enticed by a wide range of affordable vehicle options. Consumers can now choose among nearly 40 different models. GM and Tesla led EV sales, while Toyota’s plug-in hybrid Prius Prime remained a popular choice with consumers. The outlook for EVs in 2018 is positive because of the extension of the $7,500 federal tax credit, competitive pricing among EV models, improvements in range, and rising gasoline costs. Despite the sharp growth in EV sales, light trucks still dominate the American auto market.
December 18, 2017
The Chevy Bolt, GM’s popular all-electric hatchback, has become the top-selling electric vehicle (EV) in the first twelve months of commercial availability, surpassing the introductory year growth rates of other top selling models. Since its release in December 2016, GM has sold more than 20,600 Bolts, approximately 1,500 more vehicles than the Toyota Prius Prime (released November 2017). The Bolt, which has a range of 238 miles, is listed with a retail price of approximately $37,000 before federal and state incentives. Sales of the six best-selling EV models were mostly tepid during the first six months of commercial availability, and grew at their fastest pace between months nine and ten. Reasons for this pattern of growth include initially low inventory and limited availability in certain markets. Consumer demand for EVs in general has continued to rise as automakers introduce a more extensive range of new and affordable models, making 2017 a record year for sales. Tesla has also seen particularly high demand. As Tesla overcomes its production bottlenecks, sales of the affordably priced Model 3 are expected to grow rapidly, and will compete with the Bolt in 2018.
December 1, 2017
Global upstream capital expenditures in the oil sector are beginning to show a very modest recovery after the most significant oil price collapses in recent history. As a consequence of OPEC’s 2014 decision to ramp up production and allow prices to fall sharply, some $345 billion in upstream spending projects were canceled, leading to worries about the long-term implications of diminished investment in conventional supplies. Rising global demand, alongside inadequate spending on long-cycle projects, could create a mismatch in supply and demand fundamentals and bring about a “Decade of Disorder,” when the oil market would be more vulnerable to geopolitical upheaval and price spikes. Oil companies, including Petrobras, Statoil, ExxonMobil, Total, and Royal Dutch Shell, have rolled back substantial spending plans in conventional fields, including in the offshore areas of Brazil and Norway, and in the U.S. Gulf of Mexico. At an event earlier this week, SAFE Senior Vice President for Policy Jonathan Chanis argued that prices could top $100 per barrel if these projects are not sanctioned in the coming 12 to 24 months.
November 17, 2017
U.S. crude oil and petroleum product imports fell to 9.7 million barrels per day (mbd) in Q3 2017 (-0.4 mbd year-over-year (y-o-y) on OPEC’s production cut and Venezuela’s political and economic turmoil. Imports from Saudi Arabia have fallen sharply, declining by 369,000 barrels per day (b/d) y-o-y to 800,000 b/d in Q3. Saudi Energy Minister Khalid al-Falih this week confirmed that his country is specifically targeting the American market in order to further drain U.S. commercial inventories. Venezuela’s volumes to the United States are also on the decline as the country struggles to maintain output. OPEC now accounts for over 31 percent of imports, a 2.3 percentage point decrease from last quarter. The decline in imports from OPEC is the result of the producer group’s November 2016 agreement to limit supply and increase prices. The cartel’s members, along with its non-OPEC allies, are expected to extend the cut through all of next year when they meet at the end of November.
November 3, 2017
Total U.S. commercial inventories for crude and refined producers are down 74 million barrels year-on-year, thanks in large part to OPEC cutting production to tighten the Atlantic basin market. Stocks are now below levels seen at this time in 2015. The OPEC production cut—which is likely to be extended throughout all of 2018—has also led to thinner stocks throughout the entire OECD. Against this backdrop, ICE Brent is trading above $60 per barrel and could potentially increase throughout the fourth quarter. The market has focused mostly on crude stocks falling as a result of OPEC’s actions, but refined product stocks have also seen particularly large draws, affecting consumers at the pump. For example, total U.S. gasoline inventories have declined dramatically since earlier this year and are now at the lowest level since August 2015. A combination of strong demand, a recovery in refinery runs after hurricanes hit the Gulf Coast this summer, and high exports has led to lower stockpiles. Gasoline inventories have declined by 18 percent, or 46 million barrels, since February, tightening the U.S. market. As a result, the average retail gasoline price in the U.S. is $2.49 per gallon, up by 26 cents per gallon versus this time last year.
October 27, 2017
Since January 1, 2013, shares of ITA, an exchange-traded U.S. aerospace and defense fund that includes Boeing Co., Lockheed Martin Corp, and Northrop Grumman Corp., have increased 160 percent compared to a 75 percent rise in the S&P 500. As of the close of business Thursday, shares have climbed more than 108 percent since February 2016 to $182. The ITA’s out-performance has some observers asking if geopolitical risk is underestimated by the equity and oil markets. Geopolitical hotspots—including Iran, Iraqi Kurdistan, Libya, Yemen, Sudan, and Venezuela among other places—represent ongoing threats to global security which may not be fully reflected in current oil prices. And this geopolitical risk is occurring as OPEC and some non-OPEC continues continue to cut production and oil markets are tightening. Is the ITA telling us something that the oil market is missing?
October 20, 2017
The widening of the WTI-Brent spread has stimulated a sharp increase in U.S. crude exports. In the past month, the U.S. has shipped approximately 1.64 million barrels per day (mbd) to customers overseas, according to the Energy Information Administration. U.S. benchmark WTI is trading almost $6 under European marker Brent, making it profitable for some U.S. sellers to seek buyers outside the country. With U.S. production forecast to continue to rise throughout 2018, reaching 10 mbd in the fourth quarter of next year, exports will likely keep the WTI-Brent spread in check. In September 2011, the differential between the two benchmarks widened to a massive $27 per barrel. The lifting of the U.S. crude export ban in late 2015 has since contributed to normalizing the spread. However, the differential has been distorted lately by U.S. production rebounding at a time when OPEC is cutting output and tightening the international market. Crude exports, to be sure, are critical for U.S. producers to grow their output, but it’s important to note that the U.S. is still a net importer of crude of more than 7 mbd.
October 9, 2017
The U.S. electric vehicle (EV) market hit new heights in the third quarter of 2017, growing 16.4 percent year-over-year (y-o-y) with 52,800 units sold. September alone saw a 31 percent y-o-y increase, with 64 percent of the units sold being battery electric vehicles (BEVs). As a share of total EV sales, September 2017 marked the largest monthly proportion of BEVs since December 2015. Battery electric automaker Tesla enjoyed a particularly strong month, selling 4,500 units of the Model S and 3,400 units of the Model X sedans (+400 and +800 vehicles y-o-y, respectively). The Chevy Bolt also enjoyed its best month on record as nationwide sales of the all-electric hatchback increased by more than 500 units to roughly 2,600 in September. State incentives continue to play a major role in accelerating adoption. In the three months since New York State’s $2,000 EV rebate took effect, sales grew 74 percent in the state, rising by more than 2,500 units y-o-y in the second quarter, according to the Governor’s office. Even though the EV sales numbers remain impressive, sustained increases are necessary over time to meet environmental goals. To achieve a 90 gram per mile reduction in carbon dioxide emissions, EV sales would need to rise by 46 percent y-o-y every year from 2025 to 2030, according to a white paper prepared with support from the Environmental Defense Fund. In 2030, EVs would need to make up 40 percent of total sales to reach the 90 gpm target. Currently, they make up about one percent of vehicle sales.
September 28, 2017
The EIA reference case sees U.S. oil demand reaching 20.2 million barrels per day (mbd) in 2019 and then declining to approximately 19.3 mbd by 2040. Improvements in fuel economy and the anticipation of increased efficiency in the transportation sector over time are the main drivers of the expected demand reduction. In a high oil price scenario, demand is projected to drop even more significantly, falling to 17.4 mbd by 2040. But according to the low price scenario, demand would follow a different trajectory. Not only would consumption rise at a magnitude that offsets the impact of efficiency improvements; the low oil price would undermine growth in U.S. domestic crude production, increasing dependence on imported oil. The disparity in U.S. oil consumption projections highlights the importance of commitment to efficiency and the importance of diversifying energy sources in transportation.
September 18, 2017
OPEC’s share of the global oil market will grow from 42 percent in 2015 to 48 percent in 2040, according to the Energy Information Administration’s (EIA) reference case scenario in its latest long-term outlook. In the International Energy Outlook (IEO), released last week, EIA says 87 percent of the 11.9 million barrels per day (mbd) of crude production growth will come from OPEC members. The increase in the cartel’s crude supply will far outpace growth in non-OPEC countries, including the United States and Canada. EIA’s IEO 2017 anticipates that U.S. crude oil production will peak at 10.5 mbd in 2026, and then plateau throughout the rest of the forecast period. Middle East OPEC production will grow by 4.3 mbd from 2015 to 2030, and by 8.2 mbd through 2040, reaching 33.1 mbd in 2040. EIA’s latest forecast reflects the increased relevance of OPEC in the global oil market in the coming decades.
September 8, 2017
U.S. light truck sales continue to surge as lower gasoline prices have helped turn consumers toward larger and less fuel-efficient vehicles. Some 10.3 million light truck sales accounted for 64.3 percent of the light-duty vehicle (LDV) market in August, up three percent from last year. According to the latest data from the Bureau of Economic Analysis, LDV sales—seasonally adjusted at annual rates—have fallen by one million versus August 2016, but remain high at 16 million new vehicle purchases. Relatively low gasoline prices, which averaged $2.30 per gallon nationwide last month, and a shift in consumer preferences toward less efficient SUVs are placing upward pressure on monthly light truck sales, which remain at all-time highs. The EPA and NHTSA are currently accepting comments on MY 2022-2025 fuel efficiency standards.
September 1, 2017
Hurricane Harvey wreaked havoc on the U.S. Gulf Coast this week, shutting in crude oil production and forcing the closure of several major refineries that have been impacted by significant flooding. On the New York Mercantile Exchange, the spread between crude oil and gasoline widened as traders digested the impact of ongoing refinery outages along with the shutdown of the extensive Colonial Pipeline. There is more crude in the market but less gasoline. NYMEX RBOB gasoline futures for October delivery were up eight percent Thursday as the spread to crude oil grew to $27 per barrel. Gasoline typically trades nearly in step with crude oil futures, but Hurricane Harvey has jolted the market, causing a rare sharp divergence that saw crude futures fall and gasoline prices rise. Consumers are already playing more at the pump. On Thursday, AAA reported nationwide gasoline prices rose five cents over the previous day’s closing price to $2.44 per gallon for regular gasoline. Hurricane Harvey has disrupted approximately 20 to 25 percent of U.S. refining capacity and some output in Texas’ Eagle Ford Shale Formation and offshore Gulf of Mexico.
August 22, 2017
Even though the growth rate in EV sales slowed in July, 2017 is shaping up to be a banner year for the electric vehicle market. U.S. EV sales grew six percent y-o-y in July, with more than 15,100 plug-in and battery-electric vehicles purchased. Although the growth rate dipped from 22 percent in June, certain models saw significant increases in sales. The popular Toyota Prius Prime sold 1,645 units, compared with just four units at the same time a year ago. Tesla’s Model 3, which has a range of up to 310 miles, went on sale July 28, with units primarily sold to employees. Sales of the competitively priced vehicle, which costs $35,000, are expected to pick up sharply in the coming months. Daimler models grew 98 percent y-o-y in July, driven mainly by the Mercedes S550 PHEV. There are now 37 advanced fuel vehicle models in the U.S. market, including 21 PHEVs, and 13 battery electric vehicles. Since January 2011, automakers have sold more than 661,000 EVs.
August 18, 2017
U.S. automotive traffic fatalities declined slightly throughout the first six months of the year, averaging around 40,200 on an annualized basis. The latest data from the National Safety Council shows high, but declining fatalities that are nonetheless more than 4,200 deaths above the same six-month period in 2015. The increase in vehicle miles traveled over that time—which in H1 2017 grew by more than 172 million miles per day y-o-y—is at least partially responsible for the uptick in fatalities. Lower gasoline prices have motivated more drivers to travel more, increasing the overall number of traffic accidents. Automotive safety experts warn that the proliferation of smartphone technologies—and other handheld portable devices—increase the potential for distracted driving, which could also be partially responsible for the significant uptick in traffic fatalities. The automotive industry is currently developing autonomous technology that has the potential to reduce traffic fatalities, while also providing greater fuel efficiency and transportation access to the aging and disability communities, and other disadvantaged groups.
August 11, 2017
Oil Price Forecasts from Investment Banks
Investment bank forecasts have varied considerably over the past two years. Following the late 2014 collapse in global oil prices, forecasters scaled back their initially rosy expectations that oil prices would rebound swiftly. In their latest round of price projections, Wall Street now predicts West Texas Intermediate to remain steady in between $40 and $63 per barrel, reflecting the prevailing ‘lower for longer’ sentiment. A compilation of The Wall Street Journal’s oil price forecasts in four time periods between Q1 2015 and Q2 2017 show how actual WTI prices have consistently tracked in the middle- to- low-end of the projected forecast range over the past two years. Historically high commercial inventories, resurgent U.S. shale oil production, and short sales on commodities markets have helped keep oil prices low, despite OPEC’s attempts to balance the market and steadily growing global demand over the past several years.
August 4, 2017
Through the first five months of 2017, US crude exports ramped up to unprecedented levels, with the average for April and May above one million barrels per day (mbd). Volumes to China and Canada accounted for 57 percent of the total, or 495,000 barrels per day (b/d). The nine countries that represented the largest share of U.S. exports made up 92 percent of total crude exports, but U.S. barrels went to 28 different countries from January through May. Almost 200,000 b/d was exported to China, and more volumes could go to Asia as Indian refiners are now taking in U.S. crudes. In another development, the small Caribbean island nation of Curacao has been importing U.S. crude this year for Petróleos de Venezuela to mix with its heavy crudes. With recent developments in Venezuela, cutting off exports may be included as part of a U.S. sanctions strategy to crack down on the Maduro government. Despite exports averaging 872,000 b/d for the first five months of the year, the U.S. still imports around 8 mbd.
July 28, 2017
Barrels at Risk, July 2017
Heightened geopolitical risk in Venezuela threatens to roil the global oil market. On Sunday, President Nicolas Maduro has planned a vote on whether to rewrite the country’s constitution. The outcome of the vote could inflame riots and provoke confrontations with street protesters. Venezuela is the world’s largest crude oil reserve holder and a major crude oil exporter to the U.S. The U.S., which exports large volumes of gasoline to Venezuela and imports more than 700,000 b/d of its heavy crude, recently announced targeted sanctions against Petróleos de Venezuela leadership. A U.S. response banning imports would have a significant impact on U.S. Gulf Coast refineries, which are specifically configured to process heavy crude. In a research note, Barclays says the Venezuela vote could be a catalyst for the country to default on its upcoming debt payments and may apply upward pressure on oil prices. The bank forecasts a $5 to $7 per barrel increase in crude oil prices depending on the duration of any disruption.
July 18, 2017
U.S. oil production is continuing its rebound, aided by a flurry of economic activity in oil and gas drilling operations. In June, the United States oil-rig count increased 126 percent year-over-year (y-o-y) to 747 rigs, despite downward trending domestic oil prices over the last six months. Meanwhile, the Producer Price Index (PPI)—a measure of the change in the selling prices received by domestic producers for their output—is back on the rise after it fell precipitously following the 2014-16 oil price collapse. PPI and oil-rig counts can be used to demonstrate how demand for oilfield service providers respond to changes in commodity prices. New Bureau of Labor Statistics data released last week shows that costs are 326 percent above 1985 baseline levels, but, despite the recent uptick, they remain well below pre-price collapse spending. Oilfield service providers are focusing their attention on increasing operational efficiencies to grow output and lower costs amid unpredictable fluctuations in prices.
July 3, 2017
The stock values of independent shale companies dropped roughly 30 percent in H1 2017 while West Texas Intermediate (WTI) fell 14 percent versus the beginning of the year. Indexing the relative change in six independent producers’ stock valuations against the three U.S. oil majors and the WTI price reflects how particularly difficult the environment is for shale companies. U.S. independents are more exposed to a price downturn than integrated majors, which have a more diverse asset base. The outlook for independent producers for 2H is uncertain because of questions surrounding OPEC’s strategy and the continued inventory overhang.
June 23, 2017
Federal offshore oil production grew to 1.6 million barrels per day (mbd) in 2016, an increase of 280,000 barrels per day (b/d) from 2014. In contrast with a period of declining overall domestic oil production that started in late 2014, U.S. offshore supplies have grown to represent nearly one-fifth of U.S. output. EIA’s reference case scenario projects Gulf of Mexico production to rise to 2.0 mbd in 2020 (+398,000 b/d from 2016 levels) as new offshore projects sanctioned before the 2014 price collapse come online. Dwindling shallow water reserves, in combination with new advanced drilling technologies, have enabled oil production from deepwater and ultra-deepwater wells more than 1,000 meters below the ocean surface. More than 85 percent of Gulf of Mexico production last year came from deep- and ultra-deep water wells. Offshore oil output tends to follow long-cycle capital investment patterns, which are often planned many years before the start of actual production. For instance, the Son of Bluto 2 and Horn Mountain Deep projects, discovered in 2012 and 2015, respectively, are expected to initiate production this year at depths greater than 1,600 meters.
June 16, 2017
Forecasting agencies anticipate OPEC to produce less than what the market needs throughout H2 2017. This trend is in stark contrast to 2015, when the cartel produced well more than what was needed, in an effort to weed out higher-cost shale production. The EIA and IEA’s supply projections for H2 2017 show OPEC’s call—or the amount the group has to produce to balance the market—to be 33.6 million barrels per day (mbd), roughly one mbd higher than members’ current output. OPEC, which released its latest estimates earlier this week, assumes a lower call on its crude due to a weaker global demand baseline compared to EIA and IEA. EIA’s bullish supply forecast for 2018 calls for non-OPEC liquids to rise sharply to 60.9 mbd by year end. If that comes to realization, then the call on OPEC will drop. The EIA’s forecast for OPEC crude output for next year is based on the group extending cuts through 2018 to draw down currently large inventories.
June 9, 2017
Although petroleum’s share of the U.S. trade deficit increased 2.4 percentage points year-over-year (y-o-y) in April 2017 to 11.4 percent, it remains in a structural decline. The slight uptick occurred despite resurgent U.S. oil production and growing net product exports, both of which have reduced petroleum’s share of the overall deficit throughout the past five years. Total net imports of crude oil and petroleum products fell by 119,000 b/d to 4.5 million barrels per day (mbd) y-o-y in April, continuing a three-month decline. Even though net crude oil imports increased 380,000 b/d y-o-y in April, these gains were offset by petroleum product exports rising relatively sharply to 3 mbd (+590,000 b/d y-o-y). EIA’s June 2018 forecast calls for total net imports to decline by 640,000 b/d to 3.4 mbd with imported prices averaging $50.50 per barrel. Petroleum imports have historically been a major drag on the U.S. trade deficit, linked to global oil prices and robust demand, but the shale boom this decade, along with excess refining capacity, has helped narrow it considerably.
June 2, 2017
OPEC’s November 2014 decision to keep production levels elevated stymied U.S. crude oil production, which had been on an upward trajectory until then, exceeding EIA’s expectations. Between September 2015 and December 2016, output in the Lower 48 fell below predicted supply levels by a difference of 540,000 barrels per day (b/d) in July 2016. U.S. supply had been increasing by an average of roughly 600,000 b/d beyond expectations in the 12 months leading up to OPEC’s decision. Prices, which were predicted to remain in the $90 per barrel range through 2015, abruptly plunged below $60 per barrel and dropped further to under $30 per barrel in February 2016 before the world’s major oil producers entered freeze talks. The agency’s latest six-month forecast calls for approximately 7.4 million barrels per day by year’s end, roughly 800,000 b/d more than EIA’s forecast last year. Volatile oil prices nevertheless continue to cast uncertainty over the short term.
May 26, 2017
U.S. gasoline demand is expected to match 2016’s daily average and hold steady at 9.33 million barrels per day (mbd) in 2017, with July poised to set the all-time monthly record at 9.67 mbd. U.S. motorists drove a record 267 billion miles in Q1 2017, but gasoline consumption during that time dropped by approximately 190,000 barrels per day (b/d) year-over-year (y-o-y). This decline likely reflects improved fuel economy throughout the country’s fleet. Domestic gasoline inventories have fallen for three straight weeks as demand is seeing its typical seasonal uptick. Stock draws, however, were a little over 400,000 barrels short of the expected 1.2 million barrel mark, as refiners have increased production of gasoline. Gasoline prices heading into Memorial Day weekend are about 10¢/gallon higher y-o-y, at $2.40/gal.
May 19, 2017
The 2014-16 price rout deeply cut into OPEC members’ oil export earnings, leading to significant bloc-wide year-on-year (y-o-y) revenue declines. EIA data released this week shows the 13-member OPEC cartel collectively earned $433 billion in 2016, the lowest total since 2004 and an $82 billion decline versus 2015. In 2016, Saudi Arabia, the de facto leader of OPEC, saw a $26 billion revenue loss y-o-y. This drop was much more modest in comparison to the Kingdom’s $141 billion y-o-y decline in 2015. While Saudi Arabia has relied on huge foreign reserves to fund government programs, other OPEC members do not have the same capabilities. Venezuela, which is now in the throes of a worsening economic and humanitarian crisis, is experiencing devastatingly high inflation, along with runs on banks, food shortages, and unemployment. Ahead of OPEC’s meeting next week, most members now say they are likely to extend production cuts another nine months. EIA projects OPEC export earnings to grow on the expectation of higher prices in 2017 and 2018, reaching $527 and $570 billion dollars, respectively.
May 12, 2017
Oil price volatility has fallen to remarkably low levels as shale oil production has rebounded and OECD inventories have remained at above-average levels. Volatility averaged 69 percent in Q1 2016 but dropped to an average of just 25 percent in Q1 2017. In March 2017, 30-day volatility averaged 25 percent, reflecting U.S. crude oil production’s sustained recovery. Of course, given the uncertain nature of the global oil market, increased volatility could return at any time. Right now, oil prices have found a sweet spot around $50 per barrel, but doubts about OPEC production policy, the ongoing crisis in Venezuela, speculator activity, and questions about economic growth could all boost volatility during the second half of the year.
May 4, 2017
Amid historically high U.S. oil production in Q1 2017, the Trump Administration ordered a review of offshore fields available for auction last Friday, signaling its intent to expand the areas available for oil and gas drilling in the United States. The waters targeted for new exploration and development activities include the offshore Arctic, along with the Pacific and Atlantic Oceans, together accounting for 29.6 billion barrels of undiscovered, but technically recoverable resources. The vast majority of federal lands remain off-limits to resource development. For instance, some 89 billion barrels of oil and gas reserves are currently not available under federal restrictions. While the U.S. is increasing onshore oil production from shale reserves, further expansion of offshore resources is significant for boosting long-term U.S. oil production capacity.
April 28, 2017
As Americans approach the summer driving season, the U.S. is still experiencing record levels of vehicle miles traveled (VMT), increasing 2 percent year-over-year to 267 billion seasonally adjusted miles in Q1 2017. Against this backdrop, almost 20 percent of U.S. roadways are currently listed in “poor” condition, according to an analysis by the American Society of Civil Engineers (ASCE), earning a D rating for roadway infrastructure. Some states stand out in the ASCE report card, including California, Washington, and Pennsylvania, giving them more urgency to enact legislation. ASCE estimates $4 trillion will be required to fix the nation’s infrastructure. Transportation-related spending bills have been introduced in more than 30 states over the past three years, some of which propose increasing state gasoline taxes to address these critical problems.
April 19, 2017
In March 2017, electric vehicle sales reached the second-highest monthly number ever, topping 17,000 across manufacturers, a 30 percent increase month-over-month (m-o-m). In total sales terms, Q1 2017 increased 52.7 percent year-over-year, spurred by increasing model availability across states. The sharp growth in March was propelled by higher-than-expected Tesla sales. In particular, Tesla Model X sales grew threefold to 2,500 while sales of the Tesla Model S nearly doubled m-o-m to 3,100 units. Strong BMW sales also boosted EV figures for the month, rising 47 percent m-o-m. By contrast, total vehicle sales dropped month-on-month and year-on-year in March. An uptick in EV sales was expected given the start of a the summer “driving season” as consumers return to the roads for the peak travel times of the year.
April 12, 2017
Barrels at Risk, Q1 2017
Geopolitical risk has returned to the oil market, with prices recently seeing spikes as a result of U.S. airstrikes in Syria and forced closure of several ports and facilities in Libya. After the market began tumbling in mid-2014, there was less worry about supply disruptions amid high crude stockpiles creating a buffer against unplanned outages. But now traders say the number of barrels at risk will take on more importance in coming months with OPEC having cut output and global stockpiles falling. Unplanned oil outages, totaling 2.11 million barrels per day, were relatively stable quarter-over-quarter (q-o-q) in Q1 2017, with output decreasing by 120,000 barrels per day (b/d) in Colombia, Nigeria, and Libya. Venezuela saw a second consecutive quarter of production declines, falling 80,000 barrels per day q-o-q. In Nigeria, President Muhammadu Buhari’s government has restarted negotiations with Niger Delta militants to slow attacks on infrastructure. Production levels after H1 2017 remain deeply uncertain as OPEC will convene in May to determine whether its agreement with a number non-OPEC producers to reduce production will be extended.
April 6, 2017
Short speculative positions in NYMEX WTI futures and options contracts increased to 116.7 million barrels last week as a growing number of money managers anticipate a market turnaround amid long liquidation and rising U.S. production. Nevertheless, net length remains at very high levels, an indication that traders anticipate OPEC to roll over its November 2016 output cut and fundamentals to tighten during the second half of 2017. Speculative positions tend to fluctuate week to week depending on technical data, OPEC rhetoric, and U.S. inventory data. In the U.S., commercial players have hedged aggressively along the forward curve, giving domestic producers some guaranteed financial support. Despite expectations OPEC will continue to cut for the second half of the year, large OECD commercial inventories and rampant producer hedging create tremendous uncertainty and could cause more shorts to enter the market and longs to liquidate, putting downward pressure on prices.
March 30, 2017
Large oil price swings can have a damaging effect on the U.S. economy and employment. The effects on employment can vary substantially by industry and by the direction and magnitude of the oil price swing. The recent history of oil prices is presented in the chart above. Two large swings are particularly noteworthy: the oil price spike that ended in July 2008 and the oil price crash that began in late 2014 and endured through early 2016. A factor alongside the housing crisis and ensuing Great Recession, the oil price spike severely affected the transportation industry in particular. Employment in auto and parts manufacturing, plus dealerships, fell from roughly 3 million to 2.3 million between late 2007 and late 2009, a decline of more than 20 percent (total U.S. nonfarm employment by comparison declined by approximately 6 percent). The oil price crash, by contrast, affected the energy industry most severely as more than 210,000 jobs (roughly 10 percent of the total) were lost between mid-2014 and late 2016.
March 16, 2017
Consumer demand for plug-in vehicles continues to see strong growth. Sales during the first two months in 2017 are already exceeding the comparable period in 2016, and may well set up 2017 to be another record year for plug-in vehicles. This trend is likely to continue as the Chevy Bolt becomes available across the country and the Model 3 launches later this year. At the same time, at least thirty U.S. cities are joining together with plans to buy $10 billion worth of electric cars and trucks, according to reports this week. The cities are said to be examining the feasibility of purchasing 114,000 electric vehicles, a considerable sum given cumulative EV sales stand at roughly 600,000 since January 2011. Such a plan would provide a meaningful boost to the market at a time some states are poised to roll back EV tax credits.
March 2, 2017
Gasoline Prices and Year-Over-Year Change in VMT
Total U.S. gasoline consumption increased to 9.3 million barrels per day in 2016, slightly exceeding the previous record set in 2007. Relatively low gasoline prices—averaging approximately $2.30 per gallon over 2015 to 2016 versus approximately $3.40 per gallon from 2013 to 2014—helped stimulate consistently strong growth in travel demand as total vehicle miles traveled (VMT) also reached new highs. VMT adjusted on a “per capita” basis was less than 2 percent below historic highs set in the mid-2000s, but has increased each year since 2013. Likewise, gasoline consumption adjusted on a “per capita” basis was almost 8 percent below highs set in the mid-2000s, but has increased each year since 2012.
February 23, 2017
U.S. automotive fatalities continue to mount with an estimated 40,200 lives lost in 2016—a total of 2,443, or 6.5 percent more than in 2015, the first time the number breached 40,000 in at least nine years. The rise in fatalities closely follows eleven consecutive year-over-year (y-o-y) increases in total vehicle miles traveled (VMT), but traffic deaths are occurring at a faster pace. VMT rose by 2.7 percent annually in 2015 and 2.6 percent in 2016. At the same time, automotive fatalities increased by 6.7 percent and 6.5 percent in two years, respectively. At a February 22, 2017 Capitol Hill briefing on the benefits of autonomous vehicles, industry experts including Hilary Cain of Toyota and Bob Lange, formerly of General Motors, emphasized the technology’s potential to dramatically decrease the number of fatal and serious injury crashes seen on American roads year after year.
February 17, 2017
EIA Global Oil Demand Growth Forecasts Increasingly Bullish Compared to IEA
The U.S. Energy Information Administration’s (EIA) global oil demand forecasts have grown increasingly bullish over the past year, in part a reflection of the agency’s growing confidence that demand from non-OECD countries, most notably China, will continue to rise. EIA said in its latest monthly outlook that growth would average 1.6 million barrels per day (mbd) in 2017, some 400,000 b/d higher than the forecast a year ago, and a full 200,000 b/d higher than the International Energy Agency’s 2017 global oil demand projection. A historically bullish forecaster, EIA increased its baseline estimates for 2013-16 by about 900,000 b/d to account for higher demand in some non-OECD countries. Its latest outlook for 2017 pegs world liquids consumption at 98.1 mbd, 1.7 percent higher than its current 2016 global demand estimate. Despite OPEC’s recent production cut and rising demand, high commercial inventories and increased shale output may prolong market rebalancing.
February 10, 2017
Industry Will Cautiously Boost 2017 Capital Expenditures
Oil majors are budgeting to increase capital expenditures in 2017 after two to three years of declining investments. Still, the numbers are conservative, with BP, ConocoPhillips, Exxon, Occidental, and Shell together estimating only an average increase of 9.6 percentage points over 2016 levels. Combined, the five majors spent $65.1 billion last year after having averaged yearly investments of $101.9 billion over the preceding six years. Chevron, on the other hand, will cut spending for the fourth straight year, with a 12 percent decline down to $19.8 billion from $22.4 billion in 2016. Together, all six companies plan to spend approximately $91.6 billion in 2017. Majors are for the most part sticking to capex projections that were first hinted at in early fall of 2016, notwithstanding the Organization of Petroleum Exporting Countries (OPEC) announcing production cuts in the time since and contributing to the current price of about $55/bbl.
February 3, 2017
Household Gasoline Expenditures on the Rise
U.S. gasoline and other motor fuels spending increased for the first time in nine quarters in Q4 2016, reflective of rising prices and continued high demand. Spending topped $264 billion dollars, an increase of $49 billion year-over-year (y-o-y). Following OPEC’s November 2014 decision to keep the market oversupplied, American consumers spent $262 billion on gasoline and motor fuels in Q1 2015—a massive $112 billion decline in spending y-o-y. Expenditures followed the significant collapse in the global crude oil market that precipitated a decline in domestic gasoline prices by more than $1 per gallon at the tank to a quarterly average of $2.18 per gallon. Much of those savings have now been offset by the rise in global crude prices throughout the past year.
January 26, 2017
Federal Royalties Collected From OCS Activities
Federal royalties from Outer Continental Shelf (OCS) activities fell to $2.7 billion in 2016, a steep decline from $5 billion the federal government collected in 2015 and the lowest dollar value since 1995. Royalties from oil resources—which in recent years have come to represent the largest share of U.S. OCS revenues—comprised 79 percent of OCS incomes, a reflection of declining gas royalties and declining bonus bids. Global crude oil prices entered a multi-year decline in late 2014 when OPEC decided not to constrain global production. Offshore exploration and development activities in the OCS were subsequently scaled back as imported crude oil prices fell to $38.75 per barrel in 2016. The Trump Administration has promised to expand U.S. federal lands access, but many OCS areas remain restricted by presidential withdrawals.
January 13, 2017
Wide Spread in 2017 Oil Price Predictions
Analysts hold diverging opinions on the direction of oil prices in 2017. Although OPEC recently agreed to blocwide production cuts in November 2016, some observers wonder whether the producer group will be able to enforce targets, feeding speculation that the current period of oversupply will carry into next year. In a year-end Twitter poll, SAFE asked several prominent energy reporters and oil market analysts to offer their predictions on Brent crude oil prices by the end of 2017. Ten responses were collected by @leslietron, SAFE’s Vice President of Content and Communications. Predictions ranged from a high of $72 per barrel to a low of $33 per barrel with most forecasts concentrated around the $60 per barrel mark. Observers’ predictions are higher than EIA’s year-end 2017 reference case forecast of $54 per barrel, reflecting, in part, the ongoing uncertainty over the state of the oil market and OPEC’s role in managing production policy.
January 6, 2017
Lower Gasoline Prices Support Spike in Light Truck Market Share
With nationwide gasoline prices averaging $2.25 per gallon, light truck sales reached historic highs in 2016 as consumers purchased larger and less fuel-efficient vehicles. The light truck share of the light-duty vehicle market rose to 60.6 percent in 2016, a 3.8 percentage point increase year-over-year as U.S. consumers bought 10.5 million units last year out of a total of 17.5 million light-duty vehicle sales. Light truck sales have increased markedly since global oil prices fell in late 2014, continuing an upward trend despite a recent increase in retail gasoline prices.
December 19, 2016
U.S. Shale Stock Prices, H2 2014 versus H2 2016
OPEC’s production policies have an outsized impact on U.S. oil company valuations. The cartel’s November 2014 decision to keep production high and not reduce output resulted in a collapse in global oil prices, triggering considerable market losses for U.S. shale oil companies. Continental Resources, for example, saw shares of its stock fall nearly 20 percent in one day. Prices have recovered since late-2014, however. Last month, domestic oil prices rose more than 8 percent in one day following news that OPEC would reduce output by 1.2 million barrels per day (mbd) and cap its share of global production at 32.5 mbd. U.S. companies have since seen appreciating returns as investor optimism returns to the market. Indexed oil company valuations show declining stock prices for select producers in H2 2014, but an improved outlook in H2 2016. Domestic producers’ bottom lines remain dependent on OPEC’s production signals.
October 21, 2016
Light Truck Market Share Hits a Record High
Since the sharp oil price drop in 2014, the share of light truck sales in the U.S. has soared. Light-truck sales averaged 10.7 million units throughout Q3 2016, reaching a record of 61 percent of total new light-duty vehicle sales. Total sales have reached levels not seen since the summer of 2005. Total seasonally adjusted light-duty vehicle sales are down 3.8 percent from Q3 2005, though light truck units are up by 590,000 units.
October 18, 2016
U.S. Plug-in Electric Vehicle Sales, 2011-Present
Sales of battery and plug-in hybrid electric vehicles surged in Q3 2016, increasing 63 percent year-over-year, the highest rate of quarterly growth observed in the last two years. In total sales terms, Q3 also marked the largest net addition of vehicle sales ever recorded, with automakers selling approximately 45,000 units, a 20 percent increase quarter-over-quarter. Battery electric vehicle sales were particularly strong, propelled in part by Tesla Motors, which reportedly delivered an estimated 24,500 vehicles. Tesla is on track toward meeting its second-half goal of 50,000 vehicle sales by year-end. The company hopes to meet a sales target of 500,000 vehicles per year by 2018. More than half a million EVs are currently operating on U.S. roads.
October 7, 2016
Year-Over-Year Change in U.S. Traffic Fatalities
U.S. traffic fatalities continue to increase at an alarming pace, according to preliminary data from the National Highway Traffic Safety Administration (NHTSA). Compared to the first half of 2015, roadway fatalities rose by 10.4 percent in the first half of 2016, jumping from 16,100 to 17,775, an increase that may be at least partially due to the emergence of distracted driving. NHTSA’s data shows an estimated 35,100 people died in last year, up from the 32,675 reported fatalities in 2014. Driverless vehicles, which can reduce roadway fatalities by as much as 94 percent, stand to completely upend the traditional notion of transportation and virtually eliminate on-road fatalities.
September 30, 2016
Global Upstream Capital Spending, 1985-Present
Earlier this month, Barclays released its Global Survey which presented new estimates for upstream capital spending in the oil and gas industries. After two years of decline, the bank now forecasts a 5 percent increase in global exploration and production spending for 2017. Nonetheless, in North America, spending is still estimated to fall 37 percent this year (although slightly less than the 40 percent decrease Barclays estimated in March). There have only been four periods of decline in the survey’s 30-year history: the 1986-87 OPEC Oil Crash; the 1999 Asian Crisis; the 2009 Great Recession; and the 2015-2016 Shale Glut. The current decline has coincided with the loss of more than 130,000 jobs in the U.S. oil sector and more than 350,000 globally. Although the industry is currently forecast to increase spending in 2017, the outlay is expected to be only approximately 60 percent of the roughly $662 billion spent in 2014. (Note: Barclays spending estimates assume U.S. oil prices in the $55-60 per barrel range).
September 16, 2016
Global Oil Supply and Demand Balance, 2012-Present
The oil market continues to tighten as growth in demand outpaces the increase in global oil supplies. However, it still remains in a state of oversupply. Following significant production shut-ins in the Gulf of Mexico related to the impacts of Hurricane Hermine, EIA reported a massive weekly crude draw of 14.5 million barrels in late August and early September. Globally, oil demand rose 0.9 mbd quarter-over-quarter in Q2 2016, from 94.1 mbd to 95.0 mbd. Over the same period, implied inventories increased 0.2 mbd, from 95.6 mbd to 95.8 mbd. Growing inventories show a surplus remains. As Nigerian and Libyan production come back online, EIA’s latest forecasts project continued supply growth and net inventory additions through mid-2017.
September 6, 2016
U.S. commercial crude oil inventories climbed to 525.9 million barrels in August, a 14 percent increase year-over-year, providing up to 31.5 days of forward cover. Although stocks fell, on average, throughout the summer, they did so only modestly and even saw some surprise weekly builds along the way. This year, from their peak in late April to the end of August, crude stocks drew by 17.7 million barrels or just 3.2 percent. By contrast, during the same period a year ago, the decline totaled roughly 35 million barrels, or 7.1 percent. The large global stock overhang has to be trimmed for any significant price increase to occur; however, evidence suggests that such an inventory draw is not happening. Weaker-than-expected demand, coupled with the refiners’ flexibility from having high stockpiles and robust imports, is also keeping refined product inventories at high levels.
August 26, 2016
Unplanned Crude Oil Outages, 2011-Present
Secretary of State John Kerry was in Nigeria this week, offering U.S. support for the government’s military campaign against the terrorist insurgency Boko Haram. Nigeria, West Africa’s largest oil producer, has become beset with violence as falling oil revenues drive its worst economic slump in decades. In the Niger Delta, armed crusaders have attacked key oil infrastructure as recompense for what they see as limited economic opportunities and an unfair allocation of petrodollars. In July, Nigeria’s outages increased to 700,000 barrels per day as several producers, including Shell, Chevron, ExxonMobil, and Eni have been unable to move product shipments out of the Niger Delta region.
August 19, 2016
NYMEX Speculative Positions in WTI Futures and Options Contracts
Financial actors, including hedge fund managers and other investors, can have a tremendous impact on the futures price of oil. Last week, as Saudi Arabia’s Energy Minister Khalid al-Falih indicated that the Kingdom might be open to measures to freeze production in the coming months, oil traders increased net long positions after falling sharply for about two months. NYMEX WTI and Brent crude oil prices have risen by more than 16 percent to $46 and $49, respectively, since early August. Other factors influencing the market include ongoing inventory overhang, seasonality, and the growing rig count, which so far has helped prop up U.S. production.
August 8, 2016
Investment Bank Oil Price Forecast Ranges, 2014-Present
With Brent crude oil prices continuing to hover around $40 per barrel (bbl), some investment banks are adopting an increasingly bearish short-term view of oil prices. In a research note published Wednesday, Morgan Stanley’s chief energy commodity strategy analyst Adam Longson argued that recent Saudi pricing actions, as well as improved refiner margins, will push prices toward $35/bbl over the next one to three months. Market uncertainty over commercial stockpiles continues to complicate efforts to forecast future prices. Investment bank estimates have varied widely over the past two years, and many are now anticipating 2017 prices between $45/bbl and $75/bbl. As recently as Q1 2015, some banks forecast prices above $90/bbl for early 2016. Earlier this week, Securing America’s Future Energy released its Q2 2016 Energy Security Fact Pack, which includes additional data on global supply and demand, the U.S. vehicle market, supply disruptions, and more.
August 4, 2016
U.S. Gasoline Demand Rises, But Weaker Than Originally Expected
New evidence suggests U.S. gasoline demand is not rebounding as strongly as some market observers previously believed. Between 2015 and 2016, EIA projects implied gasoline demand to grow from 9.16 million barrels per day (mbd) to 9.29 mbd, an increase of 130,000 barrels per day (b/d). Although the 2016 figure is currently expected to match 2007’s record, EIA’s weekly preliminary estimates for April and May have been downwardly revised after exports were factored in. More downward adjustments could follow. Growing gasoline stockpiles also continue to complicate life for the refining industry, which is already struggling with weaker margins.
July 27, 2016
EV Chargers Dominate Growth in Alternative Fuelling Stations
Last Thursday, the Department of Energy (DOE) announced a new nationwide loan guarantee program that is expected to spur as much as $4.5 billion in electric vehicle (EV) charging network investments. A lack of public charging infrastructure is sometimes cited as hindering EV adoption rates, despite the fact that up to 90 percent of charging occurs at home or in the workplace. The total number of EV charging plugs is up 103 percent through Q2 2016 versus three years ago, a net addition of approximately 20,000. 2016 is also turning out to be a record year for EV sales, with more than 65,000 vehicles sold through end-June. The DOE program has the potential to help accelerate the pace of EV sales, which last year represented less than 1 percent of total new light-duty vehicle sales.
July 22, 2016
Y-o-Y Change in Bakken Production and Drill Rig Efficiency
As domestic oil prices hover around $45 per barrel, many U.S. tight oil producers are finding new ways to cut costs and increase rig efficiency. The research consultancy Wood Mackenzie recently found tight oil drillers to have largely adapted to the new low oil price environment, eliminating as much as 40 percent of production-related expenses over the past two years. Nevertheless, EIA data released this week estimates that June production in North Dakota’s Bakken shale formation, for example, fell approximately 248,000 barrels per day (b/d) year-over-year (y-o-y), due in part to slowing rig efficiency in the region. Some Bakken producers are nonetheless optimistic that domestic oil prices will recover. Continental Resources’ CEO Harold Hamm, who operates one of the largest oil and gas producers in the Bakken region, spoke in Cleveland Wednesday addressing the delegates of the 2016 Republican National Convention. He told USA Today that “the fundamentals [of the oil market] are in favor of higher prices” and expects domestic prices to reach at least $60 per barrel by the end of 2016.
July 15, 2016
Brent Price and Y-o-Y Change in Employment in Oil and Gas Drilling and Support Services by Sector
According to preliminary Department of Labor figures, more than one-out-of-five American oil and gas jobs were lost from the end of 2014 to the end of 2015, down approximately 135,000 year-over-year (y-o-y) from around 367,000 to 502,000 jobs sector-wide. Domestic oil and gas producers—who incur higher operational costs than Middle East exporters—are more sensitive to changes in global oil prices. In December, a barrel of Brent crude fell to $38, less than half the 2014 average. Specific subsectors were especially hard-hit. Support services for the oil and gas industry, which includes fee-based contractors, lost 74,000 jobs y-o-y (a 22 percent decline), followed by drilling services (down roughly 44,000 jobs y-o-y, or 43 percent) and extraction (down 17,000 jobs y-o-y, or 8 percent). Job losses tend to lag behind oil price declines and continued in the support and extraction sectors into the early part of 2016 as oil prices dipped still further.
June 30, 2016
Projected U.S. Crude Production by Source, 2000-2040
Earlier this week, EIA Administrator Adam Sieminski presented the 2016 Annual Energy Outlook (AEO) Early Release, providing an overview of the agency’s updated energy projections through 2040. According to Sieminski, daily Alaskan oil production will fall by approximately 80 percent over the period to just 100,000 barrels per day, as its oilfields—most notably, Prudhoe Bay—enter states of natural decline. Conversely, onshore tight oil production in the lower 48 states is projected to increase by 31 percent (to 7.1 million barrels per day). Production from lower 48 state conventional wells, as well as the Gulf of Mexico, will remain steady versus 2015 levels. Overall, the AEO reference case sees a 1.8 mbd increase in U.S. crude oil production versus a 2015 level of 9.4 mbd, underscoring the growing relevance of tight oil in the future U.S. oil supply mix. This projected increase is supported at least in part by an assumption that domestic prices will gradually increase from $37 per barrel in 2015 to $129 per barrel in 2040.
June 24, 2016
Changes in Global Crude Oil Supply and Demand
As global oil prices hover just under $50 per barrel, non-OPEC supply continues to decline. May 2016 marked the fourth consecutive month non-OPEC liquids production fell. It has now been seven months since growth in non-OPEC production last exceeded that of global oil demand, one indication that the market continues to adjust to lower oil prices. In total, non-OPEC production fell by roughly 0.8 mbd year-over-year last month while global oil demand grew by 2.4 mbd. Production in the United States has fallen from 9.2 mbd in the first week of January to 8.7 mbd in the last week of May.
June 16, 2016
Employment Outlook in OPEC Gulf States
Low oil prices are forcing oil exporters to curtail currently high levels of public spending. In the Arab Gulf states alone, the IMF estimates that more than 570,000 new labor force entrants between 2015 and 2020 will be unable to find employment as public sector hiring stalls and fiscal deficits soar. This week, Securing America’s Future Energy released an issue brief detailing how members of OPEC, led by Saudi Arabia, are pursuing a strategy that aims to use a period of low prices to structurally rebalance the oil market to their benefit. The strategy has four main components: (1) recapture short-term market share from U.S. shale and other responsive sources of global supply; (2) undermine investment in capital-intensive, long-term, non-OPEC oil supplies such as global deepwater resources and Canadian oil sands; (3) stimulate short-term oil demand through low prices; and (4) undercut global policy to reduce oil consumption, including fuel economy standards, as well as competition to oil, such as electricity and natural gas. There is compelling evidence that all four components are already succeeding.
May 27, 2016
Hybrid and Plug-In Electric Vehicle Sales from Year of Introduction
The uptake rate for hybrid electric vehicles (HEVs) was slower than plug-in electric vehicles (EVs) in their first five years of commercial availability, a reflection of growing consumer acceptance of advanced vehicle technologies and automotive manufacturer interest. As a proportion of total light-duty vehicle (LDV) sales, the uptake rate of hybrid vehicles grew steadily from 0.05 percent in 2000 to 0.5 percent in 2004, an increase of roughly 75,000 vehicle sales that were largely comprised of the two most popular models, the Toyota Prius and Honda Civic. EV sales, meanwhile, grew from 0.14 percent of the market in 2011 to 0.73 percent in 2014. Low gasoline prices contributed to slower EV sales in 2015, and a decline in the uptake rate to 0.65 percent. There were 25 hybrid models sold last year, compared to 26 fully electric or plug-in models, according to HybridCars.com.
April 27, 2016
Fiscal Breakeven Oil Prices for Selected Middle East Exporters
Falling prices since mid-2014 have turned surpluses into deficits for many oil-exporting countries—export receipts declined by $390 billion in 2015. This has severely weakened the capacity of governments to spend, and forced them to not only reduce spending and subsidies (including those attached to local gasoline sales), but also seek new sources of revenue. Saudi Arabia’s recently announced economic reform program is just one such example of proposed adjustments. The possibility of the GCC introducing a value added tax (VAT) is another.
April 8, 2016
U.S. Plug-In Electric Vehicle Sales, 2011-Present
March was a near-record month for electric vehicle sales. The U.S. market has now had seven consecutive months of EV sales exceeding the comparable period last year. March sales grew from 8,735 to 12,405 year-over-year (y-o-y), a 42 percent increase. Quarterly (Q1 2016) sales were up more than a quarter (25.6 percent) from 21,850 to 27,451 y-o-y. Sales for EVs grew on the strength of Tesla’s Model S and Model X, the latter of which finally enjoyed a breakout month as production increased. Tesla estimated 3,000 orders of the Model S sedan for the month, up 50 percent from 2,000 orders last year. The automaker also reportedly estimated 1,500 sales for the Model X. Not to be outdone, Chevy sold 1,865 Volts, up 192 percent from 639 last year.
- Automakers sold 27 alternative fuel vehicles in the first quarter, including 14 PHEVs, 12 EVs, and 1 CNG car.
- Since 1/2011, more than 427,000 AFVs have been sold. Of these, 423,000 were EVs.
March 25, 2016
Oil Sector Job Losses Climb
For the first time since the Great Recession, U.S. oil and gas sector employment is falling consistently (although total private sector employment continues to rise). Among the hardest hit industries, 81,000 jobs were lost in the oil and gas support services sector between October 2014 and January 2016, a 48 percent decline. Companies continue to scale back employment in response to the massive reduction in drilling activities, cutting the number of drill rigs from 1,609 in October 2014 to 387 in March 2016, a 75 percent drop.
March 1, 2016
Tight Oil Production in Select Formations
EIA currently forecasts U.S. shale oil production to fall almost 640,000 barrels year-over-year (y-o-y) from its March 2015 high of 6.1 mbd, a decline of 10 percent y-o-y. More than three-quarters of the fall is attributed to declining output in the Eagle Ford where low oil prices have forced many independent producers to reduce activity. The decline was in part offset by rising output in the Permian basin of approximately 160,000 barrels y-o-y, an 8 percent increase. Oil market dynamics and the role of U.S. shale oil was a major topic of discussion during CERAWeek in Houston this week. OPEC Secretary-General Abdullah al-Badri, for example, indicated that non-OPEC producers will become increasingly important in the rebalancing of the market. “I don’t know how we are going to live together,” Badri said of the U.S. shale oil sector. “If prices will go up in 2017 or 2018, the price rally will be capped by U.S. shale oil. That’s what is different this time.”
February 17, 2016
OPEC and Non-OPEC Oil Supply (y-o-y change)
Q4 2015 global oil production grew nearly 1.0 mbd year-over-year (y-o-y) on the back of higher U.S. and Saudi Arabia supply (+0.2 and +0.4 mbd y-o-y, respectively). Non-Saudi OPEC supply also continued its recent positive trend for the sixth consecutive quarter (+0.7 mbd y-o-y). The oversupply has contributed to a collapse in oil prices since the summer of 2014 from more than $100 per barrel to less than $30 per barrel in recent weeks. This week, several OPEC countries, along with Russia, agreed upon a potential “freeze” in production as part of efforts to stabilize the market. However, this agreement would also require the participation of Iran and Iraq which is not yet secured. Meetings take place today in Tehran.
February 10, 2016
Capital Expenditures for Selected Producers, Year-Over-Year
Lower oil prices forced producers to rapidly adjust spending plans in 2015. Capital expenditures are set to decline further for many in 2016. Independents like Occidental and Anadarko, which have extensive operations in U.S. shale basins, are experiencing greater declines than supermajors like Chevron and ExxonMobil. The declines mark a shift away from a period of increasing investment observed in recent years due in part to previously higher price levels.
February 4, 2016
Saudi Arabia and Iran: Oil Production and Unplanned Outages
Although global oil prices are already at their lowest levels in more than a decade, Iran is poised to return additional barrels to the market now that sanctions have been lifted. In part due to the lifting of sanctions, tensions between Saudi Arabia and Iran have risen in recent weeks, and were intensified by Saudi Arabia’s execution of Nimr al-Nimr. More than 3 mbd of oil remains offline globally and these rising tensions could potentially place more barrels at risk. Today, Securing America’s Future Energy (SAFE) released a report exploring in more detail rising tensions in the region.
January 27, 2016
Household spending on gasoline declined to an estimated $1,768 in 2015, $700 lower than 2014. It was the third consecutive year of decline, a streak that is forecast to continue in 2016. If realized, estimated spending of less than $1,500 per household in 2016 will be the lowest level observed since 2003. The EIA currently expects both gasoline consumption and prices to increase in 2017 (the agency released its first forecasts for 2017 earlier this month), which would result in a marginal increase in household spending year-over-year.
January 22, 2016
With oil prices (in blue) declining substantially in 2016 so far, oil price volatility (in orange) remains elevated. 30-day volatility is back above 50 percent as of yesterday, its highest level since late September. For comparison, it was approximately 16 percent in H1 2014 (a period of relatively stable, historically higher prices). On Wednesday, the price of West Texas Intermediate fell 6.7 percent to $26.55 a barrel, its lowest closing price since May 2003.