The En-Pro Blog

We watch, with utter amazement and a little embarrassment, the politically self-serving inquisition the CEO of BP has endured over that last 48 hours. If anyone should apply for the Maytag repairman vacancy, it would surely be this embattled oil executive. Don’t get us wrong here, BP, as the owner of the well, has a responsibility for this leak, a very big one at that, along with a duty to secure and repair other oil rigs in our oceans that it operates, but there are others who have not faced the virtual firing squad that this poor sap has – and should. Halliburton for one, (Hello Dick Cheney master duck hunter), was in charge of cementing the well; the rig owner, TransOcean, was in charge of the physical drilling operation; and the U.S. government agency, Minerals Management Service, provided permits for the operation.

So now we have a daily volume leak rate estimate from yet another government agency at 60,000 barrels per day as opposed to the original BP estimate of 5,000 bpd. So let’s take an average leakage at 32,500 bpd. The U.S. consumes 22,000,000 bpd; and let’s do the math; will it affect supply or the ultimate pricing of crude and derivatives?

By: Roger McKnight, Senior Petroleum Advisor

Find out in this week’s Energy Report. Sign up by sending your email to: info@en-pro.com. Also in this week’s Report, natural gas and electricity data across Canada.

We won’t dwell on the ongoing, will-it-ever-end mess in the Gulf of Mexico as this has been the media’s lead story for some time now. But it seems that politicians are now going to muddy the waters even more, as many of their future political lives may be hanging in the balance. Our only question is how come at the outset the estimates of the spill volume was 5,000 bpd yet at the beginning of this week this was increased to between15,000 and 28,000 bpd but lo and behold at the time of this report a “government agency” has run the number up to 40,000 bpd. The numbers keep climbing. Not to make light of the matter in any way, but we sure are happy these Masters of the Estimate aren’t weather forecasters.

We’ll comment only briefly on the U.S. inventory situation, as nothing has changed to raise any concerns. In fact, you can see that demand for distillates and jet fuel continue to be encouraging with weekly increases of 12.1% and 5.4% respectively. Inventories of all crude, distillates and gasoline remain above the 5-year average and refinery runs are creeping up to the 90% level, which all in all makes for a good supply demand balance. As a result, we do not see any major price shocks on the horizon until such time as the hurricane season begins in earnest.

On a local level, we see that the Shell refinery in Montreal is now officially history despite the last minute bids by two unnamed parties. The refusal of both offers suggests to me that the bidders were not from off-shore, but more likely existing competitors such as Irving or Husky. Off-shore bidders would have been less of a threat to the Shell downstream operations whereas selling the refinery to Irving would have been handing over all of their Quebec market share to Irving or Husky.

By: Roger McKnight, Senior Petroleum Advisor

What will happen now that the Pilot takeover of Flying J is complete and what will it mean for cardlock in Quebec? Find out in this week’s Energy Report. Sign up for the Report by sending your email to: info@en-pro.com.

Recently the media have asked us why the BP gusher in the Gulf of Mexico has not spiked crude oil prices.

ANSWER: The leak does not represent any measureable level of loss of crude oil inventories. Lately the price of crude has not been driven by physical supply and demand of crude oil or its derivatives such as gasoline and diesel, but by the stock markets and the swooning of the Euro as opposed to the strength of the U.S. dollar. I know it’s hard to empathize with BP executives, but most would be reluctant to trade places with any senior BP official at this point in time with the laser beam media attention being directed their way and the political water bucket pressure being held over their heads. Needless to say the “Top Kill” failed and now they are going to cut a pipe and fit a cover over the cut. This sounds rather easy, but it’s a 20 inch diameter pipe and the cover they want to fit over it is 21 inches. All this at a depth of 1,500 meters (or one mile) from surface to the sea bed. Over the last few days engineers have been working tirelessly to at least slow the leak; let’s hope for all involved that it doesn’t drag out much longer. Moving to a less sensational and painful subject, as the above data indicates, the demand for all petroleum products is on the rise and we draw your attention once again to the numbers for distillates, which were up an impressive 17.8% compared to the previous week’s increase o f 15.8%. Normally we would just say that we are comparing this year with the depth of recession numbers from this time last year, but double digit increases are hard to ignore and we can only reinforce our comments of last week, those being that this recession is now history. And what’s happening locally?

By: Roger McKnight, Senior Petroleum Advisor

Check out this week’s Energy Report. Sign up by sending your email to: info@en-pro.com.

But the ever darkening story of the oil and gas “spill” in the Gulf of Mexico still forces us to pose some questions. BP or who we like to refer to as BURP oil said at the outset the spill was limited to 1,000 bpd, then 5,000 bpd; both seemed at the time to be suspiciously rounded guesstimates. Looking at real time video of this spill (which BURP had not until recently released to the U.S. government), it seems to us that we should rename this to a “gusher” of untold force, and it’s certain the true volume would be at least 10 times the announced leakage rate.

The attempts to stop the leak can, at best, be termed medieval. From attempting to burn it to placing a glorified garbage can lid over it. Another thing that BURP has been rather secretive about is the type of crude that is in this gusher. If it is a sweet light crude then disbursal by chemicals, evaporation or burning may succeed. If, however, the crude is asphaltic then the problem will become a nightmare.

As the U.S government, envirionmental agencies, and BURP oil continue to search for answers to stopping the leak and cleaning up the mess, (and, they are searching for sure)… but what it all comes down to is what will it mean for crude oil pricing?

By: Roger McKnight, Senior Petroleum Advisor

Find out our thoughts in this week’s Energy Report. Sign up by sending your email to: info@en-pro.com.