Just back from vacation so it is going to be brief this week, apologies to all who are used to these missives being the long, verbose rantings of a sometime gasbag.

Speaking of gas, there is the strangest sound I am hearing and I can’t quite figure out what it is, but it is awfully familiar to anyone old enough to remember the world before people were able to light their taps on fire in West Virginia.

Yes, it is indeed a strange noise but in many ways it resembles the soft thump, thump, thump of the exceedingly rare and fleeting North American gas bull, which, it is rumoured, comes out of hiding every 6 or 7 years only to be ruthlessly slaughtered by rapacious gas drillers and conniving landmen.

At this point, we think it may only be a mystery sighting, as the bull may or may not have been accompanied by either a sasquatch or the Loch Ness monster. That said, the bull’s appearance is a welcome sight for the massive herd of oil bulls (at least those that didn’t wind up plunging over a cliff).

What do I mean by all this?

I think I like to call it a glimmer of hope, but I am not too excited by it, as I don’t want to be caught unawares. In the Natural Gas Weekly Update, the EIA revealed that in the week ending July 29, 2016 there was a net withdrawal of natural gas from storage of 6 billion cubic feet as a heat wave caused a massive spike in natural gas usage for power.

This is notable for several reasons, most particularly because a withdrawal almost never happens during this time of year (first time since 2006!!!) which is the traditional “injection” season, since typical maximum usage is in the winter for heating. Second factor is that while we entered this injection season at the highest storage on record, that gap has been narrowing on an accelerating pace ever since, albeit with a slow start in an unusually mild early spring. Third, there are a number of factors that are taking supply away or using more of it that aren’t part of the traditional model, namely: the new export pipeline to Mexico that is expected to provide offtake of up to 3 Bcf per day; the newly opened Sabine Pass LNG plant is providing additional offtake capacity as will several other newly planned facilities; and, the ongoing switch from coal to natural gas will accelerate as new EPA rules continue to bite. Finally, the massive collapse in rig count is finally starting to take its toll on production as reductions take hold in all the major basins.

So is gas going to $6 any time soon? Not likely, but the green shoots are there and are likely to have some staying power. $3 is around the corner!!!!

Stay tuned.

Prices as at August 5, 2016 (July 29, 2016)

• The price of oil ended the week marginally up after dipping below $40
  • Storage posted a surprise increase
  • Production was up as an Alaska anomaly was corrected
  • The rig count was up
  • The market reacted to high levels of gasoline inventory
• Natural gas fell during the week, but finished up..

• WTI Crude: $41.97 ($41.42)
• Nymex Gas: $2.772 ($2.876)
• US/Canadian Dollar: $0.7600 ($ 0.7670)

Highlights

• As at July 29, 2016, US crude oil supplies were at 522.5 million barrels, an increase of 1.4 million barrels from the previous week and 67.2 million barrels ahead of last year.
  • The number of days oil supply in storage was 31.3, ahead of last year’s 27.0.
  • Production was up for the week at 8.460 million barrels per day. Production last year at the same time was 9.465 million barrels per day. The change in production this week came from a decline in Alaska deliveries and flat lower 48 production.
  • Imports continue to spike and rose during the week to 8.738 million barrels a day, compared to 7.180 million barrels per day last year.
  • Refinery inputs were down up during the week at 16.852 million barrels a day
• As at July 29, 2016, US natural gas in storage was 3,288 billion cubic feet (Bcf), which is 16% above the 5-year average and about 13% higher than last year’s level, following an implied net withdrawal of 6 Bcf during the report week.
  • Overall U.S. natural gas consumption fell by 3% during the week as record power consumption was offset by other market weakness
  • Production for the week was flat and imports from Canada fell 9%
• As of August 2, the Canadian rig count was at 105 (16% utilization), 67 Alberta (14%), 12 BC (16%), 24 Saskatchewan (21%), 2 Manitoba (13%)). Utilization for the same period last year was about 20%.
• Oil rig count at August 5 was at 381, up 7 from the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was down 5 at 81.
  • Rig count at January 1, 2015 was 328
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 20%/80%
• Offshore rig count was down 2 at 17
  • Offshore rig count at January 1, 2015 was 55

Drillbits

• Hurricane Earl is formong in the Gulf of Mexico, the first hurricane to approach landfall in the US in the last 4000 days (10 years).
• Husky Energy’s pipeline spilll cleanup is ongoing. While a preliminary report is scheduled to be released in the next few weeks, ongoing calls for increased oversight continue
• First Energy Capital has sold to GMP in a deal valued at $99 million. The deal, made up largely of contingent consideration, leaves Peters & Co as the last major Calgary formed investment bank. My money says Peters stays independent, but likely suitors are many, including AltaCorp, PPHB and TPH out of the US, Sprott…
• Drumpf Watch – Attacks on veterans, doesn’t want to sup[port his own party, hates babies and firemen… Oy