The En-Pro Blog

The highly anticipated OPEC meeting has come and gone and with it, the big question, post-meeting, “What did we meet about again?” They really had no choice but to leave production at current levels. Any further cuts would have flushed, what hope of economic recovery is left, down the proverbial toilet.

Their current cuts still seem to be gaining momentum with another 571,000 bpd decrease of crude imports into the U.S. compared to last year as reported for the week ending March 13, 2009. Despite the decrease in crude imports and the refining sector lowering their runs by 0.6% to an extremely low capacity of 82.1% (approximately 5% below the norm for this time of year), inventories of crude, gasoline and distillates increased.

To further confound our friends at OPEC, the inventory levels of crude and distillates are basically overflowing while gasoline levels are now in the upper half of the five year average for this time of year.

Many more questions remain, like, where’s the comfort zone here in terms of crude oil prices? What about the inventory tanks, diesel racks, distillates, and where will the price of oil per barrel go? And the biggest question of them all, when the heck will we see some recovery after the Federal Reserve’s token one trillion dollar injection?

By: Roger McKnight, Senior Petroleum Advisor

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With gasoline demand increasing for the sixth consecutive week, and refinery utilization staying stubbornly at 4% below last year’s levels, we are seeing that inventory levels are down compared to previous years at this time. This is especially a concern when you consider the heating season is basically over and refineries should be ramping up for the looming high gasoline demand driving season. All this combined with the weakened Canadian dollar; could it be gasoline prices will begin to spike over the next six weeks? And that can only mean an upward pressure on both crude and diesel prices.

By: Roger McKnight, Senior Petroleum Advisor

Over a three month period OPEC have cut production by 4.2 million barrels per day or 12% of their capacity. This 4.2 million barrel reduction equates to an 80% compliance by all OPEC members. Reports indicate Saudi Arabia, the world’s largest oil exporter, will reduce drilling activity by 20% this year.

Many analysts are predicting that OPEC will agree to an additional one million per day reduction. Crude production in Mexico will likely fall by 14% compared to last year, despite Mexico’s efforts to reverse this down fall in production.

The IEA predicts that global oil demand will fall this year by 980,000 bbl/day but increase by 1,000,000 bbl/day in 2010. The current economy and low energy prices have resulted in the postponement or cancellation of over $100 billion worth of oil projects in the past six months.

To the chagrin of both oil companies and oil producing countries their efforts to stabilize energy prices are being thwarted by numerous destabilizing economic factors.

By John Voros and Roger McKnight

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As the media continues to deliver more spine chilling reports of more layoffs, decline in GDP, employment, prosperity, and economic trade lasting from six months to a year; it’s clear we are in the early stages, and may expect the pain to continue through 2009. The world economy has checked into critical care and most government financial doctors have prescribed astronomical financial stimulus packages to revive employment, generate demand and nurture a hope for better times. By now, we all know U.S. President Obama signed a stimulus package of $US 878 billion, but even that received a negative reception from the stock markets. We suspect the market and investors are skeptical that the financial infusion will be enough to turn the economy around before the Fourth Quarter of this year. With crude trading below $40 US/barrel, 2009 has the oil industry facing a major challenge in repeating last year’s financial success. In 2008, the industry generated huge profits from high $160 crude, gasoline and diesel crack spreads. This year the industry is making marginal profits on crude.

By: Roger McKnight, Senior Petroleum Advisor