Specious Argument

I attended many meetings at McDougall School, at 412 – 7 Street SW, Calgary, when the oilsands industry and provincial and federal government representatives were negotiating fiscal terms during the mid to late 1990s. Because it is one of the oldest buildings in Calgary’s downtown core with a unique architecture and history, I always found the school interesting.

When it was constructed during 1906 to 1908, life in Calgary was very different. It was originally used as a school for training teachers, although it now contains offices and meeting rooms primarily used, I believe, by the Alberta government. After its construction it was likely one of the prominent buildings in Calgary. Today it is dwarfed by the many skyscrapers that occupy the downtown core. Then, horses transported people from place to place. Now, vehicles and a transit system move people about Calgary. Then, Calgary was an important hub for agricultural and ranching communities. Now, while Calgary hasn’t forgotten its agricultural and ranching roots, it is, perhaps, most popularly known as the location for the head offices for Canadian and Canadian subsidiaries of international oil and gas companies. So much has changed during the past century.

I took the above photograph at about 6:24 a.m., approximately 20 minutes before sunrise, on August 28, 2016.

For those interested in learning more about its history, please visit Canada’s Historic Places: “McDougall School.”

Last month I was concerned about Brexit and its implications for the oil market. At present, Brexit doesn’t seem to be playing an important role in the markets.

Oil recently has softened as there is a glut of refined products. With too much inventory, refineries are likely to cut back on their crude purchases. Making matters worse, according to Reuters, “OPEC oil output set to reach record high in July: survey.” Furthermore, as we enter into August, refinery utilization rates typically begin to slow as we approach the shoulder season between summer driving and winter heating. The U.S. Energy Information Administration provides a graph showing last year’s and this year’s “Crude oil refinery inputs.” Looking at the graph, we see that crude oil inputs begin to slow sometime in early August and reach their low points in late October or early November.

Now that oil prices have softened to the low $40s, we are left wondering will prices continue to fall or stabilize before heading higher again?

I am still trying to wrap my head around Brexit and what implications it might have for oil. As a consequence, I have nothing meaningful to add for June. Let’s see what the next few weeks bring.

I am surprised by the strength of oil prices. As I type this post, West Texas Intermediate is flirting with $50, skirting a few pennies above or below.

Of course, the recent turmoil Africa, especially Nigeria, and the wildfires in northern Alberta have hampered oil supply. With forest fire no longer a serious threat to Fort McMurray or oilsands production facilities, companies are in the process of restarting their production, so this shortfall shouldn’t last much longer.

The next shoe to drop might be Venezuela. As we know, the country is experiencing severe difficulties, and that’s putting it mildly. Many are wondering if the country will completely collapse, and, if so, what that development might mean to its production.

OPEC has its next meeting this week on June 2. Given the rivalry between Iran and Saudi Arabia, I don’t expect any changes in OPEC’s position.

I am waiting and watching to see how some developments play themselves out. Does Nigeria continue to get worse? How long until Alberta production resumes normal levels? Will Venezuela be the next crisis? Does OPEC do anything unexpected? And how does the oil industry react to these higher price levels? Wrapping up, there’s just more continued uncertainty.