At the close of each quarter, I joyfully (or sometimes not so joyfully) read through the major OEMs earnings conference calls in hopes of finding gyms. I don’t really focus on how much money a company made or lost, I look rather to see if I can discern the Company’s attitude towards the market and its future. This week, we will feature several companies, with more companies to follow in the next edition of the Standard. As usual, I have tried to bold the most important points so you can skim the rest.
One of the frequent discussion in the Five Star Standard is about worldwide production numbers and the relative difficulty in measuring data. Indeed, in past editions, we have spoken at great lengths about how data is measured, why there are often huge discrepancies, and the fact that the U.S. is one of the most transparent countries in terms of measuring production and inventory. But even in the U.S., the differences between reserve estimates by API and the EIA can be radically different in any given week.
One of the interesting topics of conversation lately (particularly in light of continuing increases in U.S. storage and oil imports over the past few weeks), is OPEC compliance with their agreed production cuts. In the last edition, we gave you some estimates. But what is interesting is that over the past several weeks, I have read many articles (from very reliable sources that I will cite to below) that have radically different numbers for OPEC compliance.
In one of our articles in the previous edition of The Five Star Standard, we noted that North Sea crude was rushing to fill demand created by Asia’s oil refiners. Crude exports to Asia from the North Sea are poised to reach a record 12 million barrels in January according to Bloomberg.
Apparently, those crazy Europeans are not the only ones trying to cash in on the Asian Market. According to an article published by Reuters, 3 major oil companies and trading houses are set to ship large volumes of U.S. crude oil to Asia in the coming weeks. Traders have estimated that some 700,000 to 900,000 barrels per day is set to leave the United States in February, with the majority of the cargoes headed to Asia.That volume would be the highest monthly level on record, according to the U.S. Energy Information Administration, helping reduce a U.S. inventory glut that has continued to pressure prices. The U.S. crude cargoes are bound for China, Japan, and Singapore.
This week I’m traveling so please do not expect long prose or an overly complicated analysis. I will save that for two weeks from now, once I have had an opportunity to review all of the major OEMs and Big Oil’s final 2016 reports. And while I have been monitoring some of the news surrounding the release of these reports, I have not personally dove into them in detail or read the transcripts from the various CEOs earnings calls.
Things are rocking along. Almost all of our customers are reporting significant increases in activity. And what we have noticed at FSM is that we are not only seeing an increase in the number of quotes and order conversion, we are also seeing bigger and bigger orders – an indication that for the first time in a long time people may be ordering for stock. Steel pricing has stabilized and is increasing as input costs are increasing (scrap, Nat Gas, and various alloying elements). Mills are starting to build backlog again (we are ordering now for May delivery). Major OEMs are reporting service price increasing. And at least for us, for the first time in over two years, we are developing holes in our inventory that we cannot fix in the short-term as we can’t find the material (on one order for a good customer, we had to call 10 different places to source it, and ended up having to source out of state). In short, we appear to be entering recovery.
President Trump announced on Tuesday, January 24, 2017, that he had signed Executive Orders designed to promote construction of the Keystone XL and Dakota Access pipelines which were long blocked by the Obama Administration. According to Mr. Trump, construction of the pipeline could mean 28,000 jobs.
The Keystone XL pipeline would carry oil from the tar sands area of Canada into the United States. As mentioned in the last edition of the Five Star Standard, this could be beneficial to WTI pricing as condensate is needed to refine those dirty crude products and thereby increases demand for light, sweet crude.
Well folks, less than a month into the OPEC / non-OPEC production cuts and we already have good news: various oil ministers are reporting that 1.5 million barrels per day have been taken out of the market place already of the total 1.8 mpd planned.
Russian oil Minister Alexander Novak stated that he anticipates a total of 1.7 million bpd could leave the supply side by the end of the month.
Each year, our friends at BP release a new energy outlook for the coming years. This energy outlook, which was released on January 25, 2017, is very well respected. At the very least, it gives us insight into how one of the largest oil companies in the world is thinking, and therefore, what they are planning for in the near and long term.
This year, the Energy Outlook largely corresponds to the predictions by the EIA in its updated outlook that we wrote about in the last edition of The Five Star Standard. And while I wish I could tell you that I was planning for 2035 when little Ty takes over Five Star (or little Tiffany depending on God’s plan), I am not that astute of a businessman – but it is something I keep in the back of my mind (as an aside – we will know if my lovely fiancé Gabi reads this as I will get a pretty quick text telling me we are not naming our children, should we be lucky enough to have them Little Ty and Tiffany – LOL).
In each edition of the Standard, we strive to provide you a bare bones summary of what happened to the price of WTI, Natural Gas, and Brent Crude. In addition, we summarize the major reports from API and EIA on Inventory Data. And we also throw in the rig count for good measure.
Since we have not sent the Newsletter in about a month, I will give you the prior numbers from the last Newsletter followed by current:
We are starting the New Year off with a Bang!!! While sales have come nowhere close to the volume we need, we at Five Star are definitely seeing a nice uptick. We think we started seeing it in November, but the holiday months make it difficult because we traditionally slow a bit. And while the uptick may not be enough to make us jump for joy, we are incredibly appreciative of the business we are getting from all of our friends!
So, as we start the New Year, it seems we have every indication that the downturn is, for at least the moment, abating and we will start down the road of restoring normalcy to our industry. Because the good news is aplenty. I’m going to summarize all that I have learned over the past few weeks – most of these topics are discussed in substantially more detail in the articles this week. If you want to know more about any given topic, it is in the other articles.
As we have seen the lift in the export ban on U.S. petroleum, one interesting question arises: with Saudi Arabia and others already flooding Asian markets, and Russia flooding European markets, where can U.S. products go? For those of you that read this week’s article about the Updated EIA Annual outlook, you know that at some point, the U.S. is predicted to be a net energy exporter. But to where?
Interestingly, Canada offers one solution. As many of you know, Canada is a large exporter of low grade crude referred to as heavy crude oil as it comes primarily from Canada’s Oil Sands deposit. The consistency is incredibly thick (even thicker than heavy crude – which has a consistency of syrup). Heavy oil makes up about 56% of Canada’s convention oil exports. To deal with the issue, some oil production is made into synthetic crude, while other heavy oil is blended with lighter oil to increase the flow of the bended product. Condensates are commonly used.