America’s Got its Unconventional Oil & Gas Groove On!

The Algerian Oil Minister Chakib Khelil, president of the LNG cartel, Gas Exporting Countries Forum, warned the group at a recent meeting in Oran, Algeria that a glut had led to a drop in prices which the cartel was trying to remedy, according to a Dow Jones news report.[1] The causes for the glut were, in part, the drop in worldwide demand caused by the recession but he also blamed “the spectacular development of non-conventional gas production…[in North America] which seems to be sustainable” due to technology. This will “generate idle capacity in regasification.”

Meanwhile, Reuters reported that U.S. crude stocks rose for the 11th week, by 1.5 million barrels to around 357.7 million barrels according to a survey of oil industry to the highest level since June of 2009.  While economists typically associate a sustained growth in U.S. crude stock levels as a signpost of a weak U.S. economic recovery with lower fuel demand.  Oil prices respond to both good news and bad news, but cartels like GECF hate weak demand.

But this is not a weak recovery story. This is a good news American domestic oil & gas production story.  Recent reports tell us the economy is recovering despite slow job creation, but that is not the story in North Dakota or elsewhere in the Bakken Formation.  The New York Times reported that unemployment in North Dakota is at a record LOW of 4% and Williston was experiencing a housing shortage because of all the workers pouring into the state for the new jobs being created in the oil and gas E&P business there.[2]

Separately, the American Petroleum Institute reported that U.S. refineries produced 9.3 million barrels per day of gasoline in March slightly higher than one year ago, but still below the all time record of 9.6 million barrels per day in July 2007. Total March refined product deliveries were up 3.5 percent from a year ago.

“Record gasoline production in March makes it abundantly clear that supply is not an issue with the higher gasoline prices we’ve seen. Sharply higher crude oil prices are driving that, and they continue to put upward pressure on the price at the pump.”    API Chief Economist John Felmy

Felmy’s assessment is confirmed by domestic crude oil production in March 2010 which hit 5.5 million barrels per day for the second month in a row, up 1.1 percent from March 2009 (and slightly up from February 2010). Baker-Hughes said U.S. rig count for March was 1,419, up 69 in February and 314 from March, 2009.

Louisiana, North Dakota[3] and Kansas saw the largest oil production increases in March over February. And as a result, total imports of crude oil and refined products fell in March from a year ago. Crude oil imports slipped 1.2 percent; product imports fell 31.0 percent.

Meanwhile, the international press reports “Brent crude oil, which serves as the main benchmark in Europe, Asia and Africa, rose 6 cents a barrel to $84.72, extending the premium Brent gained over U.S. crude on April 20th for the first time in 2010.

“While rising crude stocks in the United States are an indicator of tepid fuel demand in the world’s top consuming country,” International Energy Agency said this week that “global oil demand is still expected to rebound sharply this year, to record levels, after falling since its previous peak in 2007.”  That is accurate but it is still spin.

The REAL STORY is that US domestic production is rising faster than demand and constraining petroleum imports and slowing the export of American money to Middle East oil and gas cartels.

What’s NOT to like about that?