• 2 days The Shroom Boom Is Here To Stay
  • 3 days Biden Will Be A Boon For Solar Stocks
  • 5 days The Gold Rally Has Finally Run Out Of Steam
  • 5 days Citibank Analyst Predicts $300k Bitcoin By End Of 2021
  • 8 days Bitcoin Lives Up To Its Safe Haven Status In A Big Way
  • 8 days 14 Million People Will Lose Unemployment Benefits On December 31st
  • 10 days Why 12 Million American Millionaires Isn’t Good News
  • 11 days Big Oil Is Paying The Price For Investing In Renewables
  • 12 days The Banking Industry’s $35 Billion Gravy Train Could Disappear
  • 13 days Did Amazon Just Democratize Prescription Drugs?
  • 14 days The Private Space Race Just Got Very Real
  • 16 days Short Sellers Are Willing Big In This Turbulent Market
  • 17 days SpaceX Gets Go-Ahead To Send Humans Into Space
  • 18 days Saudi Arabia Lost $27 Billion In Oil Crash
  • 19 days China’s Big Tech Takes A Hit As Regulators Crack Down
  • 20 days Black Friday Could Be Retailers’ Only Hope
  • 21 days Why You Should Not Dump Your Stay At Home Stocks Just Yet
  • 22 days The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%
  • 24 days Bitcoin Heads Towards $16,000 And No One’s Cashing In
  • 25 days Elon Musk’s $250 Tesla Tequila Is Already Sold Out
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Frank Holmes

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing…

Contact Author

  1. Home
  2. Markets
  3. Other

Canada Wildfires Still Not Reflected in Official Oil Inventories

Alberta Wildfires

A month and a half after they began, the Fort McMurray wildfires in Alberta, Canada still blaze on in contained patches. Already estimated to be the most expensive disaster in Canadian history, costing the Albertan economy $70 million per day, the fires are now believed to be the work of humans, according to the Royal Canadian Mounted Police (RCMP).

Regardless of how it started, "the beast," as some call it, has been a major disruptor to oil sands operations north of the fires. Affected exploration companies are looking at a collective loss of more than $1.4 billion. The U.S. Energy Information Administration (EIA) estimates that an average of 800,000 barrels per day in production were taken offline last month, contributing greatly to May's having the highest monthly level of unplanned global oil supply disruptions since the agency began tracking such data in 2011.

Altogether, 3.6 million barrels per day were lost in May around the world, nudging crude prices up to levels we haven't seen since July of last year.

Month-over-Month Change in Global Oil Supply Disruptions

This month, disruptions caused by the fires are expected to average 400,000 barrels per day. Many companies such as Suncor Energy, ConocoPhillips Canada, Syncrude Canada and Athabasca Oil have returned to the oil sands and are now beginning to pump crude again, but it will be weeks before they resume full production.

Similarly, it will be days before the disruptions "show up" in the official inventories at Cushing, Oklahoma, the largest commercial storage hub in the U.S. When this happens, it might prompt investors to buy crude based on lower inventories, even if only in the short term, helping to lift prices even more.


All Pipes Lead to Cushing

A lot of Canadian oil -- not to mention crude from North Dakota and gas from Pennsylvania -- bottlenecks in Cushing, Oklahoma, where it's all stored and blended. From there it's dispatched by rail and pipelines to refineries in the Gulf of Mexico and elsewhere.

Major US Crude Oil Pipelines

Every week, the EIA releases a report detailing crude flows and oil stock levels in each of the nation's Petroleum Administration for Defense Districts, or PADDs, of which there are five: New England (PADD 1), Midwest (2), Gulf Coast (3), Rocky Mountain (4) and West Coast (5). Many analysts and investors pay special attention to PADD 2 because, among other reasons, the overwhelming majority of Canada's crude exports to the U.S. enter through the Midwest district, usually through Chicago, before ending up in Cushing.

Looking at PADD 2, then, gives you a good idea of what percentage of inventory change at Cushing is a reflection of fluctuations in Canada's output.


Good Things Come to Those Who Wait

Below, you can see that storage levels in PADD 2 are still above their five-year range, though with a narrower margin than the same time last year. At the tail end of the weekly amount, the line is clearly tapering down -- maybe not dramatically, but it's a good sign that supply and demand could be starting to rebalance, as I discussed in an earlier post.

PADD 2 Crude Oil Stocks

You might infer that at least some of this drawdown is a result of the production outages in Alberta. But the truth is that we probably won't see a meaningful decline until later this month. That's mainly because oil moves at only three to five miles per hour through the Keystone Pipeline, creating a delay of between five and six weeks from the time it leaves Calgary to the time it arrives in Cushing. The other reason is that Canada might have initially exported some of its local inventories to make up for the supply disruption.

Sophisticated investors have already accounted for this time delay. They will also be first to act when the disruption is fully reflected in the EIA's weekly reports.

In any case, lower inventories in the short-term should temporarily help supply and demand rebalance, along with the drop in the North American rig count.

 


All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/2016: Suncor Energy Inc.

 

Back to homepage

Leave a comment

Leave a comment