As we head into September, which as many in the Canadian oilpatch know is a critical time for the industry given that is when budgets are set for the coming winter, many people are on edge as the volatility and uncertainty surrounding the price of oil seems to be increasing just when some much needed stability is what is required so that companies can get down to some rational planning.

Scouring the range of forecasts out there can nothing short of exasperating, as the range defies the imagination. We have seen some as low as $10 a barrel and some forecasting $75 by year end. The range is ridiculous, and depending on who you believe or who your source is, decisions get made that have real world and real life impacts on working families, corporate earnings and shareholder value.

Part of the problem in all this uncertainty is related to data – there is too much of it, some of it is wrong, some of it is misleading, some of it is irrelevant. Analysts and the media often read headline numbers and don’t delve into the story behind it – part of the problem in a hyped-up, 24 hour news cycle, twitter-centric world is that there is a tendencey to skip the boring work and just scratch the surface of everything – this why we can get a $1 drop in the price of oil when an extra service rig goes to work in Texas..

To me, there is nothing more frustrating than misleading or inaccurate data. Case in point from this week:

On August 31, the price of oil began the day at about $45 a barrel and then started to trend lower on the basis of some weaker economic data. Sometime around market opening, the Energy Information Agency (EIA) issued a news release stating they were implementing a new way to report their production numbers and that an update would come later that morning. Some background, historically the EIA assembled its data from a compilation of various inputs including tax receipts to government, voluntary producer reporting, government reporting and voodoo – going forward, the EIA will rely more on surveys done with producers across the majority of the producing regoins. So later that morning the EIA issued its release and it showed that U.S. Lower 48 production was about 100,000 barrels per day lower than what was initially estimated and made retoractive adjustments to production numbers going back to the beginning of the year. All good right? Oil prices rallied on this news before breaking south again the next day on speculation storage numbers would show an increase in inventory numbers. Subsequent to that, on Wednesday, the EIA released numbers showing the decline in production and increase in inventory, but the excitement had passed.

But hang on a sec. Lost in this noise and absent in any report I read was any discussion of the fact that the numbers that everyone was relying on to justify statements that US tight oil was resilient and that the drastic drop in rig count didn’t matter because of increased efficiency and that affected commodity and stock prices and investment decisions and people’s lives were, in fact, WRONG!!!! Um, what??

What the new and revised EIA production numnbers show is that lower 48 production has in fact been on a progressive decline since about April, just as everyone thought should happen. This matters, no?

Not surprisingly, attention has shifted to other less relevant data sets. Nothing to see here.

Prices as at September 4, 2015 (August 28, 2015)

• The price of oil spiked during the week before giving ground in the last few days
  • Storage posted a surprise increase (yay imports! Thanks again Canada)
  • Production decreased
  • Markets were intially spooked by weak Chinese economic data mid week but this was offset by continued ECB stimulus and a rumoured agreement to cut output between Venezuela and Russia
  • The rig count decreased
• Natural gas lost ground during the week primarily on weather

• WTI Crude: $46.01 ($45.28)
• Nymex Gas: $2.653 ($2.719)
• US/Canadian Dollar: $0.7537 ($ 0.7594)

Highlights

• As at August 28, 2015, US crude oil supplies were at 455.4 million barrels, an increase of 4.6 million barrels from the previous week and 95.8 million barrels ahead of last year.
• The number of days oil supply in storage was 27.3, ahead of last year’s 21.9.
• Production decreased to 9.218 million barrels per day from 9.337 with lower 48 decreasing marginally and Alaska picking up the rest. Production last year at the same time was 8.599 million barrels per day.
• As of August 28, 2015, US natural gas in storage was 3,193 billion cubic feet (Bcf), which is 4% above the 5-year average and about 18% higher than last year’s level, following an implied net injection of 94 Bcf during the report week.
• Overall U.S. gas consumption increased by 0.9% this week, with a 3% decrease in power plant use leading the way
• Oil rig count at September 4 was down to 662 from 675 the week prior.
• Natural gas rigs drilling in the United States was flat at 202.
• As of August 31, the Canadian rig count was down to 177 (24% utilization), 118 Alberta (23%), 31 BC (40%), 24 Saskatchewan (22%), 4 Manitoba (25%)). Utilization for the same week last year was 46%.

Drillbits

• Conoco Phillips, PennWest and Tervita all announced significan layoffs, adding to the total estimated layoffs of 35,000 so far. We would caution that we believe that this number significantly understates the impact in Alberta as it is based on announced layoffs and doesn’t appear to take into account the impacts in the broader energy services or engineering space.
• Nexen was slapped with a pipeline suspension order after it voluntarily self-disclosed various non-compliance issues with its pipeline network at its Long Lake facility. As a result, Nexen is shutting down operations at the plant until such time as the issues are rectified. The facility produces about 70,000 barrels per day.
• There was a fire at the Syncrude Mildred Lake upgrader. While damage is still being assessed, Syncrude expects production to resume by the end of September. In the meantime, it will have minimal production. Production in July at the plant was abput 300,000 barrels per day.
• Canada officially met the technical definition of a recession this week as Q2 GDP growth was marginally negative. All the campaigning parties were quick to jump to conclusions about this that and the other thing. Most notable about the report was the fairly robust growth in June which suggests that perhaps this very much mild recession will be shortlived.
• South of the border, Donald Drumpf remains Donald Drumpf. Probably not welcome in Toronto either given the wobbly radio tower on his condo project.