Well that was certainly exciting.

After pre-meetings and the formal session today, OPEC announced that it would… leave its current output quota unchanged at 30 million barrels a day. Which is wonderful, except that OPEC is currently producing an estimated 31.5 million barrels a day, which marks the 12th straight month that OPEC has produced above its quota that everyone seems so obsessed about. Which raises an interesting question – is this actually even a quota? Or is OPEC just producing as much as it can and calling it a quota to keep up appearances.

At any rate, now that this has passed, we move on to the next June story which is the anticipated lifting of sanctions against Iran. This will of course have some impact on the energy complex as Iran has stated that it can increase production by up to 1 million barrels a day within 6 months of sanctions being lifted. It will be interesting to see how Iran’s OPEC partners accommodate this increase in production, should it come to pass. In addition, Iraq has announced that it will be adding up to 1 million barrels in production in the near future. Not to be undone by each other, both Iran and Iraq have at times indicated that they could increase production to at least 6 million barrels a day each by 2020 (if not more), roughly double their current production levels. At face value, all this near and long term potential production growth suggests continuing supply issues on a global basis and also, more ominously, suggests that the oil-based proxy battle for Middle Eastern supremacy is now fully afoot between Iran, Iraq and Saudi Arabia.

On the day, oil markets were mixed on the news from OPEC, with prices wanting to rally off the pre-meeting pull-back but being held back by a resolutely strong US dollar, which rallied on surprisingly strong job numbers.

Prices as at June 5, 2015 (May 29, 2015)

• WTI Crude: $59.13 ($60.24)
• Nymex Gas: $2.587 ($2.651)
• US/Canadian Dollar: $0.8040 ($ 0.8034)

Highlights

• The price of oil slid during the week ahead of OPEC’s meeting on June 5 and posted a slight rally on the status quo announcement and rig counts.
  • Storage declined more than expected
  • Production increased marginally during the week in Alaska and lower 48 production stayed flat
  • The rig count continued to fall
• Natural gas lost significant ground during the week on milder weather.
• As of May 29, 2015, US natural gas in storage was 2233 billion cubic feet (Bcf), which is 1.0% above the 5-year average and about 50.7% higher than last year’s level, following an implied net injection of 132 Bcf during the report week. Injection volumes from April through June are above the five-year average allowing stocks to build up faster than normal. Summer consumption is expected to be average based on a benign summer forecast, although there is a possibility that growing demand from industrial and electrical generation users will lead to higher draws.
• As at May 29, 2015, US Crude oil supplies were at 477.4 million barrels, a decrease of 2.0 million barrels from the previous week and 87.9 million barrels ahead of last year.
• The number of days oil supply in storage was 29.4, ahead of last year’s 24.5.
• Production increased to 9.586 million barrels per day from 9.566, with the increase coming from Alaska crude
• Oil rig count was down to 642 from 646 the week prior, the lowest since August 2010
• Natural gas rigs drilling in the United States decreased this past week to 222 from 225.
• As of June 1, the Canadian rig count was up to 111 (15% utilization) (65 Alberta (12%), 16 BC (19%), 30 Saskatchewan (23%)). Typical utilization for this time of year is about 25%.

Drillbits

• In the absence of exciting news – Tim Horton’s pulled an Enbridge ad from their in-store TV programming citing customer feedback – mainly an on-line petition
• The Alberta NDP government has announced that new climate change regulation will be introduced by the end of June
• The International Energy Administration has issued a report casting doubt on BC LNG happening in the near future as poor economics, regulatory hurdles and competition crowd out the benefits of these projects.
• Canadian heavy oil prices gave back some of the ground gained in the past few weeks as the wildfires in Alberta abated and production came back on-line