Now that the Brexit fears are waning a little let’s look at what is happening to oil and NatGas prices.
Oil which dipped to $46 and change on Friday traded over $50 yesterday before settling in at $49.51. Here are some of the reasons for oil’s quick return to $50.
- One has to be the Brexit fears are subsiding a little.
- The Saudi’s are saying that the glut is over.
- Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports.
Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported.
For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country’s crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom’s population has increased 17% since 2005, faster than most developed countries.
Other analysts are doubtful Saudi Arabia would need to import oil. But in a country where subsidized crude still powers most homes and businesses, and a gallon of gasoline costs less than a bottle of water, Saudi Arabia’s ravenous energy appetite is starting to strain the kingdom’s oil infrastructure and hamper its capability to throttle up exports. In order to tap into reserves, the kingdom will need to extract more heavy crude, which requires large investments to sustain.
A Saudi Electricity Co. power plant near Riyadh, Saudi Arabia.
The kingdom burned nearly 900,000 barrels of oil for electricity in July 2014, when the bulk of Ramadan fell, nearly 63% higher than that year’s monthly average.
Ramadan—the month when observant Muslims observe the revelation of the Quran to the Prophet Muhammad—has seen heavy electricity usage, as families break the daylight fast with late-night feasts that strain the power grid in the summer months. Blackouts have become a regular feature of the holy time.
“When it comes to outages, they deliver every year,” said Ibrahim al-Qahtani, a 37-year-old chemical company worker in eastern Saudi Arabia.
Mr. Qahtani’s Ramadan celebrations are typical of Saudi families: long afternoon naps, evenings watching soap operas and long meals that go into the wee hours. The air conditioner is generally on full blast. Ramadan began this year on June 18 and ends July 17.
Officials at Saudi Aramco, Saudi Electricity Co. and the Ministry of Petroleum and Mineral Resources didn’t respond to requests for comment. Ministry of Water and Electricity officials told Saudi media in March that more outages may occur this summer.
- There is oil disruption in Venezuela. As I have said many times on this blog, I’m waiting for the civil war to begin. Venezuela’s oil industry is facing major infrastructure problems.
- The oil workers in Norway are poised to strike. Who knows how a strike like this may last.
In looking at NatGas, no one seems to know the rise in its price. Tuesday, it reached $2.91. Yesterday, it settled at $2.86. This price has lead a number of rumors to fly in the Marcellus and Utica that drill may pick up and E&P Companies are bringing rigs.
As always, we’ll be monitoring this for you.