Crude Observations

Royal Wedding Dream Sequence

That’s right folks, there is a Royal Wedding this weekend and it is time for celebration. Thus, as dutiful servants of the Crown, most of us Canucks will be donning our fascinators and heading to the nearest Hose & Hound or Parrot & Duke or Rat & Spleen British-themed neighbourhood pub to watch the nuptials of young bonny Prince Harry and the American pretender Meghan Markle. On top of that, it’s also Victoria Day weekend, the celebration of the birth of Queen Victoria. Or as we call it here – May Long.


Ah, Royal Weddings. Was it only a mere 37 years ago that I was in London for another wedding of this type – yes, the one where Harry’s mummy and daddy were wed? It seems like a dream. What? Yes, of course I was there. Well I wasn’t really “there” there. I was in London in a common room watching it on TV like everyone else. Clearly, I didn’t get an invitation. Nor did I get an invitation to this one either.


However, the reason I bring it up, aside from general Royal obsession (not true), is that I did eat some questionable seafood last night and fell asleep in front of the television while watching the horrific Hallmark made for TV movie about Harry and Meghan. And it was during that food poisoned induced haze that I dreamt that I was in fact at the wedding. Well, not the wedding. The reception. And it was a doozy.


As with all wedding I attend, even in my dream I was relegated to a table of strangers in the back corner of the room. In fact, in dreamland, my table was so far back that the reception itself was an afterthought. Which was good because while I was unable to hear the speeches, I was instead treated to some pretty intense airing of grievances by my table mates (isn’t this always the case at a wedding). And those particular grievances were pretty entertaining given the makeup of my table.


Of course as is true with all good dreams, this particular one had some basis in reality and things I have been ruminating on as the week has progressed so it should come as no surprise that my table mates embodied these thoughts in a weird dreamlike kind of way.


So, starting on my left and going clockwise, my seven table mates were some Iranian guy who I assumed was with the government, a Permian Basin energy company CEO, a refinery general manager from PDVSA in Venezuela, a Saudi prince, a Russian spy (aren’t all Russians spies?) and, surprisingly, Justin Trudeau.

It was only after I started to participate in the conversation that things really went off the rails. What followed was such an impassioned and bizarre conversation that the whole wedding reception dream sequence kind of faded away, leaving just a table of poorly matched, angry dinner guests. Or were they poorly matched? Might there have been method to the seating madness? I say let’s find out.


When I sat down the Iranian guy and the Permian CEO were in a pretty agitated argument about the impact of the newly announced re-imposition of sanctions on Iran and the implications for the energy market. Everyone around the table appeared to be listening rather intently so I kept quiet and elected to see where things would go, secure in the knowledge that if it went tragically sideways, I would probably just wake up.


From what I recall, the conversation went something like the following.


Iran: “You crazy great Satan United States, re-imposing sanctions and breaking an agreement we all signed in good faith. This is going to bring nothing but unnecessary hardship to my nation, volatility to energy markets and instability to a region that is already unstable. Now we will have no choice but to restart our nuclear program to achieve security, much like our cousins in North Korea! This geopolitical instability will drive up oil prices.” At which point he inexplicably winked at the Saudi prince.


CEO “Cousins? I knew you crazy people were somehow related! Look pal, that agreement was flawed and useless from the moment it was signed. I mean, we sent you money! And that non-nuclear thing for ten years? That’s just crazy, because then you would have atomic weapons basically the next day!”


Iran “But no weapons for 10 years.”


CEO: “What? That doesn’t matter. It’s important that you never have weapons ever, you are a scary country. You might fire those weapons! You can’t have them!”


Iran: “So what about North Korea and Pakistan. You are OK with that geopolitical instability but not ours?”


CEO “Well they already have weapons, so we’re going to let them keep them. Anyway, never mind that. On the energy front, we should be fine. I am told there will be no real impact on prices since the mighty Permian is now the swing producer to the world. After all, look at all the oil we produce and export. We’re growing production like a raging river and even our own Energy Information Agency is calling us the next Saudi Arabia. Last week we exported something like 2.5 million barrels per day! Banks literally throw money at us – it is a never-ending source of capital. My CFO tells me we probably don’t even have to pay it back! We are unstoppable! It’s awesome.


Saudi Arabia: “Well that is most interesting and impressive. Why just last week I was remarking to Mohammed Bin Salman that it was nice to no longer have the pressure of being the swing producer, allowing us to safely take 2.5 million barrels of oil per day offline while still exporting just under 10 million barrels per day, including 1 million barrels to America.”


CEO: “Umm, what?


PDVSA: “Yes, we all export to America. Surely you knew that? Although admittedly it’s a bit trickier for us right now, what with being broke and all and a source of declining supply to the world. And geopolitical instability.” Inexplicably, the Venezuelan winked at Trudeau, who touched the tip of his nose and lifted his pant leg to show socks with a Venezuelan flag on them.


Russian Spy: “Russia does not export oil to America. Occasionally we export geopolitical instability to other countries. Da. Like United States, Crimea, Bosnia-Herzegovina. We are many places.” Followed by a wink to Iran.


CEO: “Wait, so what you’re saying is that my 2 million barrels a day of exports doesn’t make me all that and a bag of chips?”


At this point I felt the urge to butt in, being so knowledgeable and all.


Me: “No, not really. Your exports matter, don’t get me wrong – I mean we take them into Canada too, for our East Coast refineries. Actually, if you want to talk countries that are “energy independent” you kind of have to look at the ones that “export more than they consume”. You know, like Canada, Russia, Iran, Saudi Arabia, Venezuela when it wasn’t bankrupt – I could go on.”


CEO: “So where do our exports go? I was told they are meeting a great global demand and will serve to replace Iranian supply?”


Iran: “No. This is where the sanctions are so silly. Most of our exports will still go to China as they have for decades. And India. They want them. And they can pay in whatever currency we want and clear directly. We could even use Bitcoin! Plus, they seem to want the nice heavy oil we produce, same as much of the oil from Venezuela and Saudi Arabia and, yes, Canada. Not so much that lighter stuff of yours.” With a knowing nod to the Saudi prince.


Saudi: “Most of the excess American exports end up in Europe. A large volume was going to China, but we will put a stop to that. No, for now your biggest markets are Europe and Canada. In the case of Europe, you are just replacing oil from other places, not meeting demand growth, which is why your prices are bad. In the case of Canada, it’s a market for you because the Canadians are too lazy and self-centred to realize they are an energy powerhouse and haven’t managed to build the pipelines they need. Really you should be producing less. In fact, our whole global oil domination model with Russia is based on you Americans blowing your brains out over-producing this tight oil so we can completely command the market in five to ten years.”


At this point all the exporters glared at Saudi Arabia like it had two heads. However, at an imperceptible nod from the Saudi prince, Russia chimed in.


Russia: “Fine. Da. By cutting supply and keeping prices artificially high, we make tight oil players to pursue a produce at all costs model, using up all good spots and accelerating exhaustion of plays. We meet next month to renew strategy as it is very effective.”


CEO: “But that’s impossible. The EIA says that we will continue growing production for decades!”


Iran: “Yes, but they are basing that on a resource that even they acknowledge hasn’t even been found yet. Hope is not an energy strategy.”


PDVSA: “Yes, when Saudi Arabia first proposed this plan, we were very skeptical, but they were able to convince all of us in OPEC and the non-OPEC but aligned countries that by cutting our own supply marginally, we could raise prices, make more money and feed the US drilling frenzy. But the real coup de grace was when Trudeau over here suggested we try and mix in a little “geopolitical risk” to get everyone even more nervous and goose prices a little more.”


Me: “What?”


All eyes now turned to Trudeau, who by this point had changed into a gender and colour neutral suit and a pair of Harry and Meghan socks.


Trudeau: “Yes, we realized early on that we would never get oilsands investment back to prior levels without a sustained rise in the price of oil and the taming of tight oil, so we made some strategic calls to foes and friends alike. After all, you don’t just leave 180 billion barrels of oil in the ground.”


Saudi: “It was an intriguing concept, initially met with skepticism, but when Iran pointed out to us that we would reap even more proceeds from our IPO with a little sabre rattling, the path was clear.”


Russia: “Yes, and the Americans never realized it. All it took was tweet from bot to Fox & Friends about “energy independence” and “dominance” and your President was like putty in hands. More American production. Sanctions on Venezuelan oil, sanctions on Iranian oil, drill baby drill. Rig count up.”


CEO: “Wait, so you’re telling me that this whole rise in oil prices is some kind of grand conspiracy from all of you oil producing countries to make us spend and leverage ourselves into the same kind of over-production of a resource that doesn’t appear to be in high demand, all while you hold back the marginal extra barrel of heavy and medium grade oil everyone actually wants? All to maximize some IPO proceeds and establish your dominion over the energy market ten years from now? Isn’t that illegal?”


Saudi: “Something like that, yes. And illegal? We are a cartel my friend, laws need not apply.” Followed by hysterical laughter around the table.


CEO: “I think I’m going to be sick.”


Me: “So where does this leave Canada?”


Trudeau: “Interesting you should ask. I did have some demands to let them use my genius plan.”


Russia: “Yes, he drive hard bargain.”


Me: “What, this guy? I thought he had the depth of a finger bowl”


Russia: “Yes… but finger bowl in Russia is deep.”


Trudeau: “Ahem, yes, I had some very specific requests. I wanted open and ready markets for Canadian oil and gas markets into the rest of the world…”


Me: “Aha – but there’s the flaw in your plan! Markets are one thing, but you have to be able to reach them! What’s your plan for that hot shot? You can’t even get a pipeline built – I just saw a meme on Twitter that said as much! And what are you even doing here at this wedding? You weren’t invited!”


Trudeau: “I assumed the lack of an invite was merely an oversight and snuck in through the kitchen. As far as pipelines, we have a plan. I can’t share that plan with you, but I can assure you that we are actively planning and acting. We just choose to not do it in public.”


Me: “Is this the plan where you risk taxpayer money and provide an open-ended indemnity to some American company to get a pipeline built? Jason Kenney said you were dumb, but surely that can’t be the plan.”


Trudeau: “No, Jason Kenney said I couldn’t read a policy paper longer than a cocktail napkin. That’s a totally different insult. Fortunately, no napkins were harmed in the preparation of this plan. If you must know, it’s a great plan that combines some of our favourite things – massive spending, picking favourites, government interference in private industry and, best of all, kicking sand in a premier’s face that dared to oppose me!”


Me: “But Kenney hasn’t been elected yet.”


Trudeau: “Not him, his time will come.”


Me: “You’re not going to reveal the plan, are you?”


Trudeau: “Not a chance. But this pipeline will be built. As will the others.”


Me: “You’ve been saying that for months.”


Trudeau: “Just watch me”


Me: “I’ve heard that before. And we have been. Watching that is.”


Trudeau: “Watch a bit longer. It’ll happen. I bought new socks!”


At that point I woke up in a cold sweat. Trudeau conspiring with OPEC and Russia? Actual pipelines? Just watch him? Special socks? It’ll happen? Cats and dogs living together? What did it all mean? Like with all dreams, it was an intricately woven tapestry of hidden meaning and sub-text.


Let’s see if I can sort out what my brain was telling me.


Supplies are being held tight by OPEC and Saudi Arabia. The Iran sanctions will have little effect.


There is no real conspiracy, but all of OPEC and others are assuming that the spending frenzy in the United States will end sooner than anyone thinks, collapsing in a tangled mass of skyrocketing service and finding costs, high decline rates, widening differentials, pipeline constraints and massive levels of debt in a rising interest rate environment. Only this time, their plan is hold back their production even longer and not contribute to the mess.


The other part of the high price leg encouraging US production is all the geopolitical tension which adds dollars and volatility to the market. Not sure how Canada fits in there.


In the meantime, the pendulum slowly swings back to the OPEC and non-OPEC producer group that in this dream seems to bizarrely also include Canada.


And this whole “will be built” exchange must mean something. I just can’t figure out what. Clearly that we will get our pipelines – at some point and under some circumstance. And apparently with some new socks. Even for a dream that’s a decent outcome right? And I can tell you that outcome would mean a lot. It’s veritable jolt. A shot in the arm. An over-caffeinated Red Bull like adrenaline rush for a province and an industry that can sure use it.


As I said at a presentation last week (and this one was most assuredly not a dream), with our resource base, Alberta doesn’t have a commodity problem. It doesn’t have a people problem. It doesn’t have a business problem. In many ways it may not even have a pipeline problem. What Alberta has is a confidence problem. We’ve lost our mojo and need to get our swagger back. This pipeline project is a major step towards that. It really is that simple.


And if it needs bad seafood, a crazy dream about a global conspiracy and pair of new socks to make it happen? Well, I can live with that. Can you?


Prices as at May 18, 2018 (May 11, 2018)

  • The price of oil held rose during the week as concerns mounted about supply and the Iranian agreement
    • Storage posted a decrease
    • Production was up marginally
    • The rig count in the US was mixed
  • After a larger than expected injection, natural gas gave up some ground then rallied thru the end of the week…


  • WTI Crude: $71.23 ($69.72)
  • Nymex Gas: $2.836 ($2.711)
  • US/Canadian Dollar: $0.7769 ($ 0.7780)


  • As at May 11, 2018, US crude oil supplies were at 432.4 million barrels, a decrease of 1.4 million barrels from the previous week and 88.4 million barrels below last year.
    • The number of days oil supply in storage was 26.1 behind last year’s 31.5.
    • Production was up for the week by 20,000 barrels a day at 10.723 million barrels per day. Production last year at the same time was 9.305 million barrels per day. The change in production this week came from no change in Alaska deliveries and a increase in Lower 48 production.
    • Imports rose from 7.323 million barrels a day to 7.601 compared to 8.590 million barrels per day last year.
    • Exports from the US rose to 2.566 million barrels a day from 1.877 last week and 1.086 a year ago
    • Canadian exports to the US were 3.474 million barrels a day, down from 3.650
    • Refinery inputs were up during the week at 16.635 million barrels a day
  • As at May 11, 2018, US natural gas in storage was 1.538 billion cubic feet (Bcf), which is 25% lower than the 5-year average and about 35% less than last year’s level, following an implied net injection of 106 Bcf during the report week
    • Overall U.S. natural gas consumption was up 4% during the report week
    • Production for the week was flat. Imports from Canada were up 1% compared to the week before. Exports to Mexico were flat.
    • LNG exports totalled 25.8 Bcf.
  • Can you say “Break-up”? As of May 15 the Canadian rig count was 65 – 59 Alberta, 2 BC, 3 Saskatchewan, 0 Manitoba and 1 elsewhere. Rig count for the same period last year was actually higher.
  • US Onshore Oil rig count at May 18, 2018 was at 844, unchanged from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was unchanged at 199.
    • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
  • Offshore rig count was down 2 at 18
    • Offshore rig count at January 1, 2015 was 55
  • US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 70%/30%



  • Nothing really happened on the pipeline file. Oh, Bill C-12 was passed by the Alberta legislature and NDP government. This will allow the government to restrict exports of crude oil and refined product by requiring export permits.
  • Keyera Corp. announced the development of a crude oil storage and blending terminal in Cushing, Oklahoma. The Wildhorse Terminal will include 12 above ground tanks with 4.5 million barrels of working storage capacity.
  • The chief executive of the LNG Canada project said on Tuesday that the company was committed to starting construction on the C$40 billion LNG project this year. So clearly, some clarity on the FID would be beneficial right about now.
  • Trump Watch: It was a mixed week for Donald. The US Embassy officially relocated to Jerusalem. It was confirmed the FBI had an informant in his campaign. He recorded a clever Laurel/Yanny video.
Crude Observations
Sign up for the Stormont take on the latest industry news »

Recent Posts