It seems not a month can go by where we don’t have to suffer through the annoyance of another massively important, game-changing, era-defining OPEC meeting.

The next one, for those of us who follow such things, is June 2. Betcha didn’t know that.

This meeting is the follow-up to the disastrous “freeze” meeting in Doha where Saudi Arabia scuttled any prospect of a freeze without Iran’s participation in a move clearly designed more for political reasons than economic ones.

Since then, OPEC members have not been idle, to highlight just a few of the more interesting developments:

• Saudi Arabia may have been the busiest what with the roll-out of its “plan” to wean the Kingdom off of dependence on fossil fuel revenues, diversify its economy, leap tall buildings in a single bound and outrun a speeding bullet. In addition to this, the industrial sector is bleeding, with massive layoffs, wage rollbacks and social unrest. In the oil sector, production is stable despite record numbers of rigs working and word is that some contractors are proposed to be paid by the issuance of government bonds. What does all this mean? Basically the sins coming home to roost. The low prices created by Saudi Arabia in its market share battle have clearly created a liquidity crisis in the kingdom. Odds of supporting a freeze at the next OPEC meeting? Less than zero.
• In Iran, the dash for cash continues as production continues to ramp up to pre-sanction levels. How they are doing it no one knows given the lack of capital, but I suppose it’s easier to recover from a low base created by artificial sanctions than to continually squeeze energy molecules from peak production in a downward market (see Saudi Arabia above). Odds of supporting a freeze? Probably zero, but may give lip service to the idea just to expose Saudi Arabia as a manipulative fraud and continue to poke the prince in the eye.
• In Nigeria, militants and criminal gangs continue to target on-shore and off-shore energy infrastructure, knocking production off by some 800,000 bpd at last count. While not as much as is shut-in by Fort McMurray wildfires in Canada, this production is likely to be off-line much longer. The lawlessness in Nigeria is nothing new and pipelines have long been targets as have been offshore platforms. The difference this time is that the militants seem way more organized while the government has chosen this moment to be incredibly inept. Odds of supporting a freeze? High.
• The tragedy that is unfolding in Venezuela is truly epic. Once the richest country in South America, Venezuela now ranks near the bottom in almost any statistical category that analysts use to rank countries including infant mortality, crime rate, livability, corruption, employment, economic growth, inflation and a currency that has lost 99% of its value in the last four years. Health care is reverting back to the 19th century. And the country’s lifeblood export, oil, after being starved of capital to fund ever more expensive social programs is in almost terminal decline. The biggest tragedy is that the failure of Venezuela has been completely self-inflicted by the actions of the ruling Chavista party. The declines in economic performance and industrial performance in Venezuela may be irreversible for generations. Odds of supporting a freeze? Guaranteed. But Venezuela needs more, they need a freeze, a cut and a massive bailout.
• Libya appears to finally have reached some extremely flimsy agreement between its competing factions to finally restart oil exports to generate some much needed foreign currency. Odds of supporting a freeze? Really? You have to ask?

So there you have it. The split on the freeze/no freeze is decidedly weighted towards no freeze. So it isn’t going to happen. And the super important OPEC meeting that everyione was obsessed about a month or so ago will, in the great scheme of things, prove to be largely irrelevant as the “chickens” unleashed by this ill-advised price and production war finally come home to roost.

Sheesh! What a downer – but there it is. It is my view that post OPEC meeting, attention will turn to the biggest issue facing the oilpatch – future supply and where is it going to come from now that spending has been decimated and what to do about Venezuela. Go figure!

Drumpf Talks Energy!

In a widely talked-up and promoted media event, Donald Drumpf, the now official presumptive nominee of the Republican Party gave a speech on Thursday to supposedly outline his energy policy. The speech was given at the Williston Basin Energy Conference in Bismarck, North Dakota on Thursday and it was… how shall I say this… bizarre.

While any presidential candidate should have an energy policy, what made this so bizarre was that pretty much right up until the time he opened his mouth, Mr. Drumpf had expressed nothing remotely resembling a policy on energy and such statements as he had made were often contradictory, as so much of what he says in fact is. Then he started speaking and the journey began.

Some of the so-called “highlights” and things he will do:

• Donald Drumpf likes energy, all kinds of energy
• He’s going to rescind all Obama executive actions relating to the environment
• Donald Drumpf is going to “Save” the coal industry – I’m gonna save it, I love those coal miners in West Virginia! But I won’t help them settle black lung cases.
• Cancel the Paris Climate agreement and the Obama Climate Action Plan
• He will approve the Keystone XL but ask TCPL for some of the profits (after all, why not?) – yo, Drumpf – it’s called taxes.
• Lift moratoriums on drilling on federal lands (presumably this includes National Parks?)
• “Liberate” new drilling technologies – umm, what?
• Stop spending US $ abroad – I can only assume this means no oil from the Middle East but since he didn’t say OPEC, who knows. Maybe he is going to ban tourism?
• Take care of resources – again, what? WHat resoruces? Forests? Mineral resources? Human resources?
• Scrap NAFTA – best of luck with that (note that in post-speech scrum he said he would tax Canadian oil imports – that won’t lead to problems will it?)
• Return Law and Order to America – I can only assume he means the TV show, but he should know that Michael Moriarty and Jill Hennessey are Canadian so it will be problematic if he scraps NAFTA
• The rest was even more drivelly than the above.
• Oh, yeah – he’s going to build a wall. And who’s gonna pay for it? “Mexico” chants the crowd

Overall, given its billing and pre-hype by CNN and others, I think it is important to emphasize that this was one of the most completely incoherent policy speeches, or speeches even, that I have heard and completely unbecoming for someone who purports to want to be the leader of the free world. His lack of knowledge for the subject matter was open for all to see, his mugging for the cameras disgraceful and the pandering was offensive.

I don’t know if the Drumpf experience is different live, but watching the full replay on line was like being subjected to a convoluted mish-mash of disassociated sound bites strung together in no apparent order and for no conceivable purpose except to appeal to, and bamboozle, the broadest cross-section of click-baiters, haters and complainers. It was eerily reminiscent of the scene in Clockwork Orange where the main character has his eyes held open forcing him to watch endless scenes of escalating violence in order to brainwash him. I wouldn’t have been surprised to see him take a half-full bottle of bourbon out and guzzle it down.

The absurdity of the whole speech is easily summed up in one excruciating moment where Drumpf, for some unfathomable reason, decides to wax poetic about, of all things, Libyan crude oil in flowery prose that can only be described as being lifted straight from a 1970s porn movie.

Final point on this, on the Youtube feed I was watching there was a running commentary on a sidebar consisting of a never-ending stream of shrill, pro-Drumpf anger and sloganeering.

Were they watching the same thing I was? Apparently. Maybe I’m wrong, there seemed so many people that agreed, and that Libyan crude, it sure is sweet, it’s so sweet…

Prices as at May 27, 2016 (May 20, 2016)

• The price of oil ended the week up
  • Storage posted a surprise increase
  • Production was down again
  • The rig count was flat and appears to be bottoming out
  • Conitnued production declines in the US are helping keep prices up as are the production shut-ins around the world, but negative noise out of Saudi Arabia and Iran is capping any rally
  • Oil above $50 is not sustainable in the short term given OPEC meeting and production returns in Canada. Expect a pull-back for a period of time until the realities of the supply situation in Nigeria and Venezuela become clearer
• Natural gas rose during the week on marginally bullish storage and weather

• WTI Crude: $49.50 ($48.48)
• Nymex Gas: $2.169 ($2.062)
• US/Canadian Dollar: $0.7688 ($ 0.7612)

Highlights

• As at May 20, 2016, US crude oil supplies were at 537.1 million barrels, a decrease of 4.2 million barrels from the previous week and 57.7 million barrels ahead of last year.
  • The number of days oil supply in storage was 33.1, ahead of last year’s 29.5.
  • Production was down again for the week at 8.767 million barrels per day. Production last year at the same time was 9.393 million barrels per day. The decrease in production this week came from a small decrease in Alaska deliveries was and a drop in lower 48 production.
  • Imports fell from 7.677 million barrels per day to 7.315 million barrels a day
  • Refinery inputs were down marginally during the week but strong for this time of year
  • The effect of the Fort McMurray shut downs are beginning to be reflected in the import numbers
• As at May 20, 2016, US natural gas in storage was 2,825 billion cubic feet (Bcf), which is 37% above the 5-year average and about 37% higher than last year’s level, following an implied net injection of 71 Bcf during the report week.
  • Overall U.S. natural gas consumption was down during the week by about 4% led by residential consumption
  • Cumulative net injections so far in the 2016 refill season total 345 Bcf, compared with the five-year average of 450 Bcf and last year’s tally of 597 Bcf during the same period. This is reflective of higher consumption, a month over month decline in production and increased exports
• Oil rig count at May 27 was at 316, down 2 from the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was up 2 at 87.
  • Rig count at January 1, 2015 was 328
• The collapse in the US rig count is likely over with most of the damage already being done
• As of May 23, with break up in full force, the Canadian rig count was at 38 (6% utilization), 26 Alberta (5%), 6 BC (8%), 6 Saskatchewan (5%), 0 Manitoba (0%)). Utilization for the same period last year was about 10%.
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 20%/80%
• Offshore rig count was at 24
  • Offshore rig count at January 1, 2015 was 55

Drillbits

• Fire crews continue to battle the Fort McMurray wildfire which now covers an area the size of Prince Edward Island or, for our American friends, all of Delaware
  • Residents will soon be selectively allowed to return to the city and their homes to assess damage and restart their lives where possible
  • A phased re-entry and restart for many oilsands facilities is under way, however it will take some time until all is up and running again
• The Alberta Provincial Government introduced Bill 20 in the legislature which is the government’s carbon tax plan.
• Drumpf Watch – See above