10W30 and Super Unleaded Update:
Care of canaccord.com .. borrowed from pete meyer #reply-5804636
...a long read
============================
Crude Awakenings by Canacord Capital
A MONTHLY OIL AND GAS REVIEW
September 1998
Crude Oil Prices Then and Now
>It's d‚j… vu as 1998 bears some resemblance to 1986 in terms of oil
>prices. If history were to repeat itself, we would be in store for a
>steady recovery in 1999. However, slower growth in economies around
>the world may make for a slower recovery this time around.
>
>
>OVERVIEW
>
>OPEC member countries are expected to generate only US$101B in export
>revenue in 1998, down nearly one-third from 1997, as the price of the
>OPEC basket of crudes averaged only US$12.37/bbl through the first six
>months of the year. On an inflation adjusted basis, OPEC revenue
>would be less than 1972, the year of the first oil price shock.
>Reduced revenue will strain the economies of those countries and
>inhibit their ability to invest in new productive capacity, which
>should benefit oil prices in the long term.
>
>OPEC is estimated to have achieved 85% of the reductions in oil
>production (2.6 mmbbls/day) that were targeted at its June meeting.
>However, worldwide inventories of crude oil stood at 15.7 days of
>forward demand cover at the end of July, up 3.5 days from a year
>earlier. The Canadian Energy Research Institute now estimates that
>stocks could be drawn down by 1.8 mmbbls/day in the fourth quarter of
>1998 and 0.7 mmbbls/day in the first quarter of 1999, assuming that
>OPEC reaches 70% compliance. But CERI cautions that economic
>slowdowns in Asia and Russia, combined with floods in China, could
>further dampen world demand for crude oil.
>
>West Texas Intermediate (WTI) crude oil prices averaged only
>US$14.88/bbl through the first eight months of the year, but there are
>a couple of bright spots for Canadian producers. First, the plunge in
>the Canadian dollar has allowed the price of benchmark Canadian crude
>to hover right around C$20.00/bbl. Second, the heavy oil differential
>has shrunk to its lowest level in a couple of years. Early in
>September, Imperial Oil was paying $16.84/bbl for Bow River Blend (25o
>API), a discount of only $3.42/bbl from the Canadian par price. The
>price of condensate (which is used for blending with heavy oil) has
>also declined.
>
>The petroleum industry completed only 630 wells in August compared to
>1,096 completions in August 1997. The total number of wells completed
>through the first eight months of 1998 was 6,936 compared to 9,046.
>Included in the total were 2,512 oil wells and 2,885 gas wells. In
>most years the number of oil wells drilled exceeds the number of gas
>wells by a wide margin, but 1998 looks like it will be an exception.
>
>At the end of August, only 225 drilling rigs were active in Western
>Canada while 353 others were down. The rig utilization rate fell to
>39% from 91% a year earlier, and day rates for rig rentals were said
>to be coming down. We anticipate some improvement in drilling
>activity beginning in November, in northern areas where access is
>limited to the winter months, but it could be pretty quiet after
>breakup next spring.
>
>Alberta's September 2 land sale attracted $24.6M in bonus spending for
>140,288 hectare of leases, representing an average price of
>176/hectare. Total spending on crown land in Alberta was $476M
>through the first eight months of the year, down from a record of
>836M during the same period last year, but there is no discernable
>decline in the average price of a parcel.
>
>
>OUTLOOK
>
>Table 1: WTI Oil (US$/bbl)
>Table 2: Assumptions
>(These tables are unavailable in email version. Please check the
>website at canaccord.com .
>
>With high-cost oil production shut in around the world and new
>projects delayed until oil prices improve, supply and demand for crude
>oil will eventually come back into balance, but both the timing and
>the new equilibrium price remain uncertain. Canadian oil and gas
>producers have curtailed second half spending and will soon begin
>budgeting for 1999. New budgets will be based on expectations of
>lower cash flow, limited borrowing capacity, and no new equity. We
>anticipate that a typical producer will show no growth in oil
>production in 1999 after taking into account natural declines, and
>growth in natural gas production will be constrained by spending
>limits.
>
>We are adjusting our estimates of 1998 and 1998 earnings and cash flow
>once again to reflect the prevailing commodity price environment.
>West Texas Intermediate crude oil averaged US$14.88/bbl through the
>first eight months of the year and now looks likely to average only
>about US$14.50/bbl for the full year. For next year, we have based
>our estimates on flat prices of US$15.00/bbl on the principle that we
>do not like to incorporate commodity price increases into our
>forecasts. The fundamentals support a view that natural gas prices
>will rise from $2.00/mcf in 1998 to $2.35/mcf in 1999, and many
>producers have already taken advantage of an active forward market to
>lock in higher prices on a portion of their production. We are now
>assuming that the Canadian dollar will average US$0.65 next year.
>Interest rates will be higher following the Bank of Canada's move to
>raise its lending rate by one full percentage point.
>Crude Awakenings
>
>A MONTHLY OIL AND GAS REVIEW
>
>September 1998
>
>
>Crude Oil Prices Then and Now
>
>It's d‚j… vu as 1998 bears some resemblance to 1986 in terms of oil
>prices. If history were to repeat itself, we would be in store for a
>steady recovery in 1999. However, slower growth in economies around
>the world may make for a slower recovery this time around.
>
>
>OVERVIEW
>
>OPEC member countries are expected to generate only US$101B in export
>revenue in 1998, down nearly one-third from 1997, as the price of the
>OPEC basket of crudes averaged only US$12.37/bbl through the first six
>months of the year. On an inflation adjusted basis, OPEC revenue
>would be less than 1972, the year of the first oil price shock.
>Reduced revenue will strain the economies of those countries and
>inhibit their ability to invest in new productive capacity, which
>should benefit oil prices in the long term.
>
>OPEC is estimated to have achieved 85% of the reductions in oil
>production (2.6 mmbbls/day) that were targeted at its June meeting.
>However, worldwide inventories of crude oil stood at 15.7 days of
>forward demand cover at the end of July, up 3.5 days from a year
>earlier. The Canadian Energy Research Institute now estimates that
>stocks could be drawn down by 1.8 mmbbls/day in the fourth quarter of
>1998 and 0.7 mmbbls/day in the first quarter of 1999, assuming that
>OPEC reaches 70% compliance. But CERI cautions that economic
>slowdowns in Asia and Russia, combined with floods in China, could
>further dampen world demand for crude oil.
>
>West Texas Intermediate (WTI) crude oil prices averaged only
>US$14.88/bbl through the first eight months of the year, but there are
>a couple of bright spots for Canadian producers. First, the plunge in
>the Canadian dollar has allowed the price of benchmark Canadian crude
>to hover right around C$20.00/bbl. Second, the heavy oil differential
>has shrunk to its lowest level in a couple of years. Early in
>September, Imperial Oil was paying $16.84/bbl for Bow River Blend (25o
>API), a discount of only $3.42/bbl from the Canadian par price. The
>price of condensate (which is used for blending with heavy oil) has
>also declined.
>
>The petroleum industry completed only 630 wells in August compared to
>1,096 completions in August 1997. The total number of wells completed
>through the first eight months of 1998 was 6,936 compared to 9,046.
>Included in the total were 2,512 oil wells and 2,885 gas wells. In
>most years the number of oil wells drilled exceeds the number of gas
>wells by a wide margin, but 1998 looks like it will be an exception.
>
>At the end of August, only 225 drilling rigs were active in Western
>Canada while 353 others were down. The rig utilization rate fell to
>39% from 91% a year earlier, and day rates for rig rentals were said
>to be coming down. We anticipate some improvement in drilling
>activity beginning in November, in northern areas where access is
>limited to the winter months, but it could be pretty quiet after
>breakup next spring.
>
>Alberta's September 2 land sale attracted $24.6M in bonus spending for
>140,288 hectare of leases, representing an average price of
>176/hectare. Total spending on crown land in Alberta was $476M
>through the first eight months of the year, down from a record of
>836M during the same period last year, but there is no discernable
>decline in the average price of a parcel.
>
>
>OUTLOOK
>
>Table 1: WTI Oil (US$/bbl)
>Table 2: Assumptions
>(These tables are unavailable in email version. Please check the
>website at canaccord.com .
>
>With high-cost oil production shut in around the world and new
>projects delayed until oil prices improve, supply and demand for crude
>oil will eventually come back into balance, but both the timing and
>the new equilibrium price remain uncertain. Canadian oil and gas
>producers have curtailed second half spending and will soon begin
>budgeting for 1999. New budgets will be based on expectations of
>lower cash flow, limited borrowing capacity, and no new equity. We
>anticipate that a typical producer will show no growth in oil
>production in 1999 after taking into account natural declines, and
>growth in natural gas production will be constrained by spending
>limits.
>
>We are adjusting our estimates of 1998 and 1998 earnings and cash flow
>once again to reflect the prevailing commodity price environment.
>West Texas Intermediate crude oil averaged US$14.88/bbl through the
>first eight months of the year and now looks likely to average only
>about US$14.50/bbl for the full year. For next year, we have based
>our estimates on flat prices of US$15.00/bbl on the principle that we
>do not like to incorporate commodity price increases into our
>forecasts. The fundamentals support a view that natural gas prices
>will rise from $2.00/mcf in 1998 to $2.35/mcf in 1999, and many
>producers have already taken advantage of an active forward market to
>lock in higher prices on a portion of their production. We are now
>assuming that the Canadian dollar will average US$0.65 next year.
>Interest rates will be higher following the Bank of Canada's move to
>raise its lending rate by one full percentage point.
>
>
>RECOMMENDATIONS
>
>In the prevailing commodity price environment it is very difficult to
>find stocks to recommend as buys over the short term. We continue to
>favour natural gas producers and would upgrade existing portfolios by
>retaining shares in companies that look like they can weather the
>downturn, switching out of companies which look like they will
>struggle, i.e energy stocks with debt-heavy balance sheets should be
>avoided.
>
>
>RECOMMENDATIONS
>
>In the prevailing commodity price environment it is very difficult to
>find stocks to recommend as buys over the short term. We continue to
>favour natural gas producers and would upgrade existing portfolios by
>retaining shares in companies that look like they can weather the
>downturn, switching out of companies which look like they will
>struggle, i.e energy stocks with debt-heavy balance sheets should be
>avoided. |
