BNP Paribas Fortis North American energy monthly - Virtual Metals

BNP Paribas Fortis/VM Group October 2009 | BNP Paribas Fortis North American energy monthly | 9
Crude oil
Nymex light crude ($/b)
74
72
70
68
66
64
62
60
01-Sep 10-Sep 21-Sep 30-Sep
Oct-09 Nov-09
Source: Reuters Ecowin
IPE Futures Brent crude ($/b)
74
72
70
68
66
64
01-Sep 10-Sep 21-Sep 30-Sep
Oct-09 Nov-09
Source: Reuters Ecowin
US crude oil stocks (ex strategic reserve),
(million barrels)
390,000
370,000
350,000
330,000
310,000
290,000
270,000
250,000
Oct-08 Jan-09 Mar-09 Jun-09 Sep-09
2008/2009 2007/2008
2006/2007
Source: Reuters Ecowin
News
• Sept 30 th : The US Senate introduced a draft climate change bill that seeks to
cut carbon emissions by 20% by 2020 through a cap-and-trade system.
• Sept 29 th : US imports of crude oil from Canada rose 5.4% in July to hit a
record 2.11m b/d, according to the Energy Information Administration
• Sept 25 th : The number of oil and gas rigs active in the US in September rose
by 18 to 1,017, compared with 1,995 a year ago, according to Baker Hughes.
• Sept 21 st : The Libyan Investment Authority agreed a C$316m (US$291m)
takeover of Calgary-based Verenex Energy.
Analysis
• Unwelcome message from Obama
It is the sort of language no oilman wants to hear and when Barack Obama made
several references to “phasing out fossil fuel subsidies” in the run-up to the G-20
economic summit in Pittsburgh, the reaction was understandable. The American
Petroleum Institute described the proposition as a “giant tax hike on American
consumers”. What irked many in the industry was the release by the
Environmental Law Institute (ELI) of a study that claimed US fossil fuel
subsidies during 2002-08 amounted to a staggering $79bn, dwarfing the $29bn
given to renewable fuels, principally corn-based ethanol. The subsidies fall
broadly into two categories of tax breaks and direct expenditure on research and
development. ELI Senior Attorney John Pendergrass observed: “With climate
change and energy legislation pending on Capitol Hill, our research suggests that
more attention needs to be given to the existing perverse incentives for ‘dirty’
fuels in the US Tax Code.”
Rebounding stock markets and stronger oil prices have resulted in a noticeable
recovery in the value of the Alaska Permanent Fund which at the end of
September was valued at $33.1bn compared with a trough of $29bn in January
and a peak of $40bn last year. The good news has not translated into much joy
for ordinary Alaskans who were told on 23 rd September that this year’s dividend
to people living for more than 12 months in the state will be $1,305. This
compares with a payout of $2,069 for 2008, which was topped up with a further
$1,200 to cover higher energy bills.
Mexican President Felipe Calderón took the sensible step of replacing Jesus
Reyes Heroles as head of Pemex with former banker Juan Jose Suarez in early
September before the release of Pemex’s eight-month production figures. And
what a sad story those production figures have turned out to be. Production fell
during the period to 2.61m b/d from the year-ago figure of 2.82m b/d, with
output in August dropping to 2.54m b/d. Suarez has been given a mandate, and
the capital, to put the situation right but this is easier said than done.
The forecast so far: In January we projected that the price of West Texas
Intermediate would rise steadily through the year with prices expected to trade
near $70/barrel by the start of the final quarter of 2009. So far we have been
impressively accurate with WTI closing on 1 st October at $70.82. Our forecast
for an end-year price of $82.50 also looks achievable.
Outlook
Political uncertainty in the Middle East returned as a factor in supporting
higher oil prices and until the Iranian nuclear standoff is resolved this will
account for $3-$5 in the spot price. Although a stronger dollar briefly
pulled prices back under $70/barrel, an economic recovery remains the
main driving force in higher prices and as fresh data confirm an upturn,
prices will be heading towards $80/barrel before the end of the year.