August 22, 2016: Energy Matters: Conventional

Petroleum

 - The total rig count in the US has gone up again (by one); the US oil rig count has increased in 9 of the last 10 weeks. Meanwhile, the amount of oil the Middle East contributes to the global total continues to rise; now 35 per cent, this is the greatest percentage from the region since the 1970s.

 - Although the oil market appears balanced, oil inventories are at an all-time high and continue to pose a threat to the stability of recent oil prices. Even floating storage – one of the most expensive methods of stockpiling oil – is at a record high.  

 - Oil prices are rising, in part because Saudi Arabia’s Oil Ministry mentioned that short positions on crude caused prices to fall. This led to frantic covering that pushed prices higher. Firms like Goldman Sachs and Morgan Stanley are not bullish because production fundamentals (rig counts and oil inventories) do not support recent price changes.

 Natural Gas

  - Without much fanfare, the natural gas sector has gone through a major transition. Two forces are at work: supply and demand. Supply: producing countries like Australia and especially the US have adopted new and improved production techniques, strenthening their positions. Demand: in addition to traditional markets like Japan and South Korea, new markets are emerging. The combination of increasing supply and increasing demand has created new opportunities for natural gas storage operators. The winner in this "new world market" will probably develop technologically advanced storage products and services that are flexible and cost-sensitive.

 Coal

 - In the second quarter of 2016, the top 10 coal-mining companies accounted for nearly three of every four tons of coal mined in the country - about 75% of all mined coal.

 - Global demand for coal is starting to increase, especially metallurgical coal used in steelmaking. Leading the way are China (except in regions that are dealing with pollution problems), India, and Vietnam, a recent net-importer of coal. Nearby producers, like Indonesia and Australia, are picking up the slack. (Note: Europe is still the most popular destination for US coal exports.)

 Nuclear

 The US and Mexico are planning a new nuclear power cooperation agreement. AES Premium Members have access to the White House proposal and its draft agreement.

 

Courtesy of American Energy Society and Eric Vettel.