Feb 14, 2021

Thomas Thornton


The big news this weekend is the ice and snowstorms across the South, Midwest, and East Coast, along with record cold, persistent temperatures. The Permian is suffering extremely low temperatures, with the worse expected the night of Sun-to-Mon with -3 F (-19 C). Oil gathering lines may freeze, also freezing can occur when water in the NGL’s stream mixes with temps below 32°F, clogging pipelines. The oil trucking industry will also be affected. Loss of US production looks substantial, perhaps 10M barrels of light sweet crude. Then add extra refiner/other oil demand to replace natural gas and you have a market impacting event. All this is before extra heating fuel demand in the Northeast is factored in. Already natural gas prices are soaring, up over 10,000% this weekend.

Final weekend natural gas prices:

Waha: $153.62

HSC: $180.66

Katy: $149.05

NGPL TxOk: $13.61   

Enable: $375.81

OneOk: $368.33

Star: $329.60 ANR

OK: $213.90 NGPL

MidCont: $206.11

Likely Natural Gas futures open gap up tonight, but this is a monthly contract, so I so not expect it to get anywhere close to spot prices, or stay elevated for long, unless storage becomes an issue in March.

The weather is expected to continue into Monday.


Last week I pointed out that we were coming up on some overhead resistance and were likely to take a pause. We hit the 88.6% resistance I mentioned last week and we paused all week until Friday. Friday we saw a surge as snow and ice storms were affecting the US, and freezing hit the Permian Basin, causing the whole complex to surge. Overall, chart is still bullish. We may take a pause after the colder weather subsides.


The WTI curve is firmly in backwardation and is effectively yielding about 8% on an annualized basis for investors who keep rolling their positions from one month into the next. It compares with 1.15% for a 10-year U.S. Treasury, and U.S. junk bonds below 4% for the first time ever.

The Brent forward curve is also firmly in steep backwardation, providing a nice positive roll yield as well.

Source: Bloomberg


LIBYA: It would not be a proper week without some news from Libya! The workers strike finally ended on Wednesday with an emergency $2B of stopgap funding to cover wage bills. However, another production setback arose due to a halt in crude exports from the 230,000 b/d Marsa el-Hariga terminal. State-owned National Oil Corporation’s subsidiary, the Arabian Gulf Oil Company, which operates the fields that feed into export-grade Sarir/Mesla, have shut in almost 120,000 b/d of production in the last week. Shipping data showed that no Libyan crude was exported from the terminal since Jan. 21, almost three weeks ago.

Libya produced 1.14 million b/d in January, according to the Platts OPEC survey, a fall of 40,000 b/d, marking its first month-on-month production fall since May.

I think we will see continued declines for February and over the next few months.

IRAN: Iran news this week was a non-event in my opinion. As, Iranian oil has been on the black and grey markets since sanctions first began, and they have been shipping more than what is being reported. That said here was the news from Platts:

“Preliminary estimates suggest that Iran many have shipped somewhere between 800,000 b/d to 1 million b/d of crude and condensate last month, largely to China. That is a sharp rise from last year when tough US sanctions enforcement pushed volumes as low as 500,000 b/d in some months, according to industry and shipping sources.”

Again, Tanker Trackers (highly recommend if you like following tanker movements) has consistently covered Iranian oil, and they are sneaky, sneaky at their exports!

US: Vehicle miles driven continues to improve as does refinery utilization.

Source: Bloomberg

INDIA: India’s energy demand is on course to increase by more than any other country in the next 20 years.

“India will experience the largest increase in energy demand of any country worldwide over the next 20 years driven by a combination of an industrializing economy and an expanding urban population,” the IEA said.

India’s oil demand rises by over 40pc to 7.1mn b/d in 2030 from 5mn b/d in 2019, and then gains further to 8.7mn b/d by 2040, the IEA said. The increase is driven by road fuel use, which doubles to 3.8mn b/d in 2040 from 1.9mn b/d in 2019 as the total vehicle fleet increases by 300mn over the period.

The rise in demand comes despite a continued fall in domestic crude production, which declines to 600,000 b/d in 2030 from 800,000 b/d in 2019, and then stagnates at this level until 2040.

The IEA sees Indian refining capacity increasing to just 6.4mn b/d in 2030 and 7.7mn b/d in 2040, from 5.2mn b/d now — well below the government’s 7mn-10mn b/d capacity targets for 2025-30. -Energy Intelligence

I believe there is tremendous opportunity in India in the oil and gas industry. With the rising demand in Asia, and declining global production, long term oil prices should remain firm, and those companies such as XOM (Exxon-Mobile) that have chosen to not stray from their core business should do extremely well.


NIGERIA: IOCs’ massive losses threaten oil and gas projects in Nigeria

International oil companies have started reporting their 2020 results, and three of those operating in Nigeria posted record losses, a development that poses further threats to major projects in the country. Some multibillion-dollar projects in the country have not been sanctioned by the IOCs several years after they were announced. The slump in oil prices last year as a result of the coronavirus pandemic forced many companies, including the IOCs, to slash their capital budgets and suspend some projects.

The Lagos Chamber of Commerce and Industry said in January that despite having the largest oil reserves in Africa, Nigeria only received four percent ($3bn) of $75bn invested in Africa between 2015and 2019.

Long/short Although they are now a huge producer, Nigeria’s oil production is threatened over the medium/long term.

CHINA: China’s air traffic shrank sharply in recent weeks as coronavirus restrictions bite into Lunar  New Year holiday travel for the second year in a row. Road use remains well below pre‐pandemic levels in many parts of the world.  Scheduled airline capacity in China dropped just below 9 million seats for the week ended Feb. 8, down from 13 million two weeks earlier, according to OAG.  Year over year change for Feb. 8 was a 47% gain, but the figures were almost certainly heavily distorted by last year’s travel restrictions and the timings of holidays. The pattern for scheduled flights is the same. 

Source: Bloomberg

TOTAL: On the Total earnings call this week, they stated “What’s clear on the other hand, is that there is a risk of a supply crunch in the mid-term and that’s the message of this chart. We have seen in 2020, how OPEC manage to bring back market discipline. We’ve seen the cracks in the US shale model and we’ve seen continued under investments in the oil industry as a whole. Given that the natural declines in existing oil fields that are shown here, the message is simple. We need new oil projects. And that’s true, even if you take a very cautious view on short-term demand recovery and on future demand levels. What’s shown here is cautious outlook 2025, but the 10 million barrel per day gap in supply between now and 2025 that’s a massive shortfall of supply to cover in just a very few number of years”.

Oil: risk of medium-term supply crunch.

EXXON MOBILE: The Exxon CEO wrote this week “Our outlook projects oil demand to grow at 0.6 percent a year and gas demand to grow by 1.3 percent. With depletion rates, new oil production needs to increase by nearly 8 percent per year and natural gas by 6 percent. Under any demand scenario, depletion supports the need for significant investments.”

Due to lack of CAPEX globally, more investment will be needed to support this kind of growth.

SHELL:  Shell expects 1%-2% annual cut in their oil output as energy transition prioritized.

In a strategy update, Europe’s largest oil and gas company said it was likely that its oil production had already peaked in 2019 and its CO2 emissions in 2018. The further decline in oil production would result from asset sales and natural decline, it said.

Sketching out its near-term investment plans, it said it expects spending in the traditional upstream segment to fall behind spending in “transition pillar” areas, comprised of the LNG-focused Integrated Gas division, as well as chemicals and oil products.

In the near term, it expects annual upstream capital expenditures of $8 billion, with CAPEX in the transition pillar businesses of $8 billion-$9 billion, and $5 billion-$6 billion of CAPEX in the “growth” business of marketing, renewables and energy solutions. -PLATTS

In other words, less will be coming from Shell in the future and they transition from their core business.

TRAIFIGURA: This week Trafigura’s co-head of trading, Ben Luckock, stated that he expects oil prices to continue to rally as refiners boost runs to meet product demand and physical crude stocks remain tight.  “The refiners will come for the oil,” Ben Luckock, Trafigura’s co-head of oil trading, said in an interview Friday. “Let’s see how much is there. We’re shifting significant volumes of crude oil at the moment at really quite strong numbers and we’ve got people coming for it everywhere”. Luckock also stated “If we can get through March and Easter without any serious difficulties, this market is seriously going to perform” and “Come summer, we will be through $60 a barrel for sure, the question is whether we make it to $70” -BBG


EXAS: On numerous occasions, I have pointed out that natural gas is the best alternative to help support renewables on the grid. Texas provides the best example of this week. The Texas grid operator warned of “potential tight grid conditions” with record-breaking winter electric demand on Monday morning. The price of electricity delivered in the state surged past $2,000 per megawatt-hour on Friday, far above prices that averaged $25 last year.

As wind farms’ turbines froze, power slipped from 42% to 8%. Naturals gas-fired plants were able to make up for the shortfall with their share of the market rising to more than 50% from 20%. Energy traders said Texas was working to avoid the kinds of problems that beset California last summer when a heatwave and unexpected generator outages led to embarrassing blackouts in the state. -FT

BLOOMBERG: February Natural Gas Report

Severe tightness ahead.

EIA: US natural gas projections

RUSSIA: Russia is set to step up its LNG game as well. Currently Novatek, the country’s largest gas independent, currently enjoys generous tax concessions and state-wide backing.

However, draft proposals could see Rosneft becoming a major competitor in LNG exports if the oil producer can commission its Taymyr LNG and Kara LNG projects in the Russian Arctic.

The blueprint drafted by Russian authorities envisages a steady increase in Russian LNG production to 2035 as Rosneft and private investor A-Property realizes plans to commercialize gas reserves in remote locations in the Arctic region, East Siberia, and the country’s far east. Rosneft’s Taymyr LNG scheme is part of the company’s expensive move into remote onshore assets in East Siberia, known as the Vostok Oil project.

Yet-to-be confirmed gas reserves in these assets may underpin Taymyr LNG’s capacity of 35 million to 50 million tonnes per annum, according to the proposals.

In the Russian Arctic, authorities expect Rosneft will have no option other than to build an LNG plant to export gas from its three large East Prinovozemelsky offshore blocks in the Kara Sea.

With Rosneft assessing recoverable reserves of more than 1.3 trillion cubic meters at its two recent Kara Sea gas discoveries in December, the three blocks together could potentially support a separate 30 million tpa LNG plant.

Should this draft proposal go through, I am extremely bullish Rosneft (ROSN:MICEX) (RNFTF:NASDAQ) In addition, XOM is its major partner in the East, another reason I like it.


GERMANY: Interesting article from Foreign Policy this week.

The transition of Europes biggest economy is running up against questions with no easy answers.

“Yet Germany’s move to a power system largely reliant on weather-dependent renewables is quickly running up against limits—issues that all countries exchanging conventional fuels for wind and solar will eventually face. What happens when the sun doesn’t shine and the wind doesn’t blow for hours or even days at a time? And what about the short, dark, cold days of midwinter when renewables of Germany’s power demand?

And it’s not only shortages that are problematic but also surpluses: Stormy days can be so windy that the power flows from wind parks on- and offshore overwhelm the power grid, even triggering its collapse. These electricity tsunamis can threaten the stability of neighboring countries’ energy systems, a brickbat the Poles and Czechs wield. Moreover, when there’s excess power in the grid, prices can go negative, forcing grid operators to pay customers to take the electricity”

Despite their insistence on not using fossil fuel. Watch what they say not what they do. There is a reason they are pushing for NordStream2 so hard. Cheap gas from Russia.

SENATOR MANCHIN: For the second time this week, U.S. Sen. Joe Manchin, D-W.Va., has reached out to President Joe Biden on energy policy.

Manchin, the chairman of the Senate Energy and Natural Resources Committee, wrote to the president Friday in support of natural gas production, stressing the related impact on the economy and energy security.

“Responsible production of natural gas and practices like hydraulic fracturing have improved our nation’s energy security while supporting the nearly 1.5 million hard-working Americans the industry employs, including in rural communities across our great nation,” Manchin said. “It is my hope that you will consider these benefits as you evaluate the federal oil and gas leasing program and consider other policies and regulations related to the energy industry.”

ELON MUSK: Elon was on the Joe Rogin podcast this week. Oil and gas came up!! Here is what he said:

At 2hr 43: 50 min mark: Musk “by the way, I am actually not in favor of like demonizing the oil and gas industry. Because we can’t just like stop instantaneously and not have oil and gas. We’ll like die of starvation basically.” “we’re going need to burn fossil fuels for a long time. the question is just at what rate do we move to a sustainable energy future. So we should probably move there faster than slower. but the current approach is basically just to demonize oil and gas and I’m like, okay, well there are people here who have spent their whole career in oil and gas and they started out in their career when it didn’t seem like that bad of a thing to do, so then they’re like hey man, I just spent my whole career working hard to do useful things and now you’re telling me I’m the devil. That’s going to make them pretty upset. So I say instead of demonizing oil and gas, and also they should stop lobbying against the carbon tax by the way. then just, honestly the smartest thing the oil and gas industry could do is say let’s do a carbon tax. we’ll just do a carbon tax and make us not the devil.“

Aside from the fact that he says “like” a lot, nice bit of support for the oil and gas industry.

OKLAHOMA AND KENTUCKY: Both of these states introduced legislation this week to add annual fees to electric and hybrid vehicles.

In Kentucky: “We’re looking at the end of the gas engine. We’re so bad about waiting until we have a problem to fix it,” he said. “And what we’re seeing is more and more EVs are on the road. More and more hybrid vehicles are on the road, and they’re using the roads but not paying for the roads.”

The bill, Duplessis said, would make drivers of those cars “pay their fair share.”

The fees would be due when drivers register their vehicles every year. Owners of electric cars weighing less than 10,000 pounds would owe $150, while it would cost $300 if the car is heavier. Annual fees of $75 would be charged to owners of plug-in hybrid cars weighing less than 10,000 pounds, and $150 for hybrids above that weight limit.”

In Oklahoma: The way policymakers look at it, electric vehicles are getting a free ride on the state’s highways because they don’t pay fuel taxes. And with sales of those vehicles growing, that’s becoming a problem.

“This year, the revenue would be pretty minimal,” said state Rep. Kyle Hilbert, R-Bristow. “It’s the long-term future we’re looking at. Ten years from now, it will be impossible to do this.”

“This” is legislation that would impose a tax on electric vehicles proponents say would roughly equal the fuel taxes paid by owners of internal combustion engines.

I expect many states to adopt similar legislation.



Demand: In 2021, global oil demand is forecast to grow by around 5.8 mb/d, recovering some of the losses seen in 2020. At the same time, global GDP growth is projected to rebound based on positive developments, particularly in the US, China, and India in 4Q20. With regard to oil demand, the negative impact of the containment measures on transportation fuels is expected to carry over, particularly into 1Q21, with a stronger rebound in oil demand growth, especially for industrial fuels, forecast in 2H21. In the OECD, oil demand is projected to grow by 2.5 mb/d in 2021, led by OECD Americas and driven by a steady partial recovery in the transportation fuels and healthy petrochemical feedstock requirements. Oil demand in OECD Europe is projected to grow by 0.6 mb/d, supported by economic developments. OECD Asia Pacific oil demand is forecast to increase by 0.2 mb/d on improvements in the transportation and petrochemical sectors. In the non-OECD, 2021 oil demand growth is forecast at around 3.3 mb/d, led by China. Recovery is also projected in other regions, particularly Other Asia, the Middle East, and Latin America. Light and middle distillates will be key to fuelling the growing petrochemical sector and supporting industrial activities, as well as gasoline for transportation.

Supply: The forecast for non-OPEC supply growth in 2021 has been revised down by about 0.2 mb/d to show an increase of 0.7 mb/d, to average 63.3 mb/d. Supply from the US and Other Asia has been revised lower, whereas supply from Canada has been adjusted higher. US supply is expected to be 0.2 mb/d lower in 2021 from last month’s assessment, to increase by about 0.2 mb/d to average 17.8 mb/d. The key contributors to non-OPEC supply growth in 2021 are expected to be Canada, Brazil, the US, Norway, Ecuador, Qatar, and Guyana, while declines are seen coming from Russia, Sudan, Malaysia, and the UK. OPEC NGLs are forecast to grow by about 0.1 mb/d y-o-y in 2021 to an average 5.2 mb/d, following an estimated contraction of 0.1 mb/d in 2020. OPEC crude oil production in January increased by 0.18 mb/d m-o-m to average 25.50 mb/d, according to secondary sources.

Source: OPEC


Demand: World oil demand is set to grow by 5.4 mb/d in 2021 to reach 96.4 mb/d, recovering around  60% of the volume lost to the pandemic in 2020. While oil demand is expected to fall by 1  mb/d in 1Q21 from already low 4Q20 levels, a more favorable economic outlook underpins stronger demand in the second half of the year. The incorporation of new data lowered the  2019 baseline by 330 kb/

Supply: Global oil supply rose 590 kb/d in January, to 93.6 mb/d, as OPEC+ cuts eased and non‐OPEC+ pumped more. In February, global output is set to fall as Saudi Arabia implements a sizeable voluntary cut. The outlook is improving for countries outside the OPEC+ alliance, with an 830  kb/d gain expected in 2021 versus a 2020 loss of 1.3 mb/d.

world oil supply and demand forecasts from the International Energy Agency in  Paris:



Weekly inventory for Feb 5. Draw, 9.4M barrels, crude drew 1M and products by 8.4M. Large build in Japan crude of 5.8M, but it basically offset prior week draw of 5M (month was flat in Jan).

Source: Open Square Capital


Stocks of oil products hit 2-month low as all categories shrink.

Oil products stockpiles at the Port of Fujairah outside of the Strait of Hormuz in the Persian Gulf dropped to a two-month low, with some traders forced to buy marine bunkers after holding off because of escalating prices.

Total inventory was 21.183 million barrels on Feb. 8, down 9% from a week earlier and the lowest since Nov. 30, according to Fujairah Oil Industry Zone, or FOIZ, data released Feb. 10 exclusively to S&P Global Platts. It was the biggest percentage weekly decline since Oct. 26.

Middle distillates led the way with a 15% decline over the week to Feb. 8, the highest drop in six months. The inventories came to 4.404 million barrels, a three-week low. The category includes gas oil, diesel, and jet fuel. -PLATTS

Beautiful after last weeks build. This is exactly what I wanted to see.


Crude stocks continue to draw nicely.

Gasoline stocks climbed again this week, but again, it is not out of the ordinary for this time of year and we are inline with this same week for the last 5 prior years.

After two weeks of basically flat on distillate draws, we have a decent draw, which is exactly what I wanted to see.

Propane continues to be the beast. This is again, great news for NGL producers.