Grain is not the only sector where CN has faced operational difficulties in recent months. With a sharp upturn in crude oil production in western Canada, rail is under pressure to provide additional capacity, and fast. According to Genscape, which monitors Canadian oil production, crude-by-rail (CBR) shipments in Canada increased from around 50,000 barrels per day in July 2017 to more than 100,000 barrels per day by the end of the year. CN says it is anticipating further CBR growth through the remainder of 2017 and it has been asking shippers to provide volume commitments and sign up to a minimum 12-month contract. CN has set its 2018 capital budget at a record $C 3.4bn and this figure includes significant investment in new equipment and infrastructure, which is intended to deliver the long-term network resiliency demanded by shippers.
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The Trump administration is cracking down on Venezuela and laying down threats of the toughest sanctions Iran has ever seen, adding to the risk premium for oil while there are signs that U.S. and global supplies are tightening. Genscape reported another 765,826 drawdowns in supply. While some are distressed with the Trump administration hard line on countries, it appears to be bearing fruit with China. Just one day after the U.S. and China declared a truce on the trade war, China lowered their quota on auto imports, reducing its tariff to 15% from 25%. That will add to the economic optimism giving hope for demand for industrial metals as well as demand prospects for oil.
The 50,000 bpd gasoline-making unit at the Point Breeze section of the Philadelphia Energy Solutions refinery was still running on Friday after a compressor issue caused flaring, according to a source familiar with the plant's operations. Energy industry intelligence service Genscape reported the unit was shut down on Friday afternoon. The company did not immediately respond to requests for comment.
Genscape Inc. analysts Vanessa Witte and Nicole McMurrer on Friday said the region lost about 120 MMcf/d of production because of an explosion last month that forced part of the Leach XPress line to be shut in. Immediately after the explosion, “impacts were uncertain, but due to the recent in-service of the pipeline path, almost all production was able to be routed onto other pipelines,” Witte and McMurrer said. Further output from Leach XPress would add to what has been a “meteoric rise” in Lower 48 dry gas production this year. At least, that’s how RBN Energy LLC analyst Sheetal Nasta described the 3 Bcf/d surge since April that has seen production reach nearly 82 Bcf/d month-to-date. That’s roughly 9 Bcf/d (12%) higher year/year (y/y), Nasta said.
"The biggest problem is we are on pace this year to have the biggest year-over-year production growth in history," said Randall Collum Jr., managing director of natural gas and upstream analytics at Genscape, Inc. "A lot of it is driven by associated gas — close to 2 billion cubic feet per day of growth out of the Permian Basin alone — so the reason prices can't get above the $3 level is because the supply growth has been tremendous." Collum said there are some projects intended to carry some of the Permian's gas into Mexico, but added those projects still need to be built on the Mexico side and that work has been delayed. Another significant pipeline project that could help the Permian and producers in Oklahoma's STACK and SCOOP fields, Cheniere's Midship Pipeline, continues to wait for final approval from the Federal Energy Regulatory Commission so construction can begin. Once operational, the line will give producers in those areas a direct pathway of export to overseas customers. While Collum said producers might be frustrated that natural gas prices remain stuck below $3, he also said current pricing would be much worse were it not for the exports growth.
While most pricing locations across the country traded in line with the Nymex futures curve, Permian Basin hubs posted substantial increases late in the week as regional production declined considerably. Genscape Inc. on Wednesday said it was seeing continued production drops in the Texas portion of the Permian Basin as well as in Oklahoma, which appeared to be related to a maintenance event on the Atmos Intrastate Pipeline at its Maryneal Compressor Station, which sits on the border of the zones that bring gas from the western area to the eastern part of the pipeline system. Early Wednesday (July 11), Permian Texas production estimate decreased around 770 MMcf/d day/day, with only about 65 MMcf/d revised upward by Thursday morning. Production along the El Paso Natural Gas Pipeline and Northern Natural Gas Pipeline was shut-in at processing plant meters near the Atmos Waha header. Deliveries to Gulf Crossing in East Texas dropped 200 MMcf/d, it said. “Atmos has not publicly stated when the maintenance will conclude, however, rumors around the market indicate a late August end date,” Genscape natural gas analyst Nicole McMurrer said.
Brent crude strengthened late on Thursday, recouping some of its losses from the previous session, as market focus returned to concerns about spare capacity following a warning from the International Energy Agency (IEA). Brent crude oil gained $1.05 a barrel to settle at $74.45, rebounding from a session low of $72.67. On Wednesday, the global benchmark slumped $5.46, or 6.9 percent, its biggest one-day fall in two years. U.S. crude settled down 5 cents at $70.33 a barrel, after losing 5 percent the previous session. The IEA cautioned the world's oil supply cushion "might be stretched to the limit" due to production losses in several different countries. Ongoing concerns about supply disruptions from OPEC member Venezuela drove crude higher, said John Kilduff, a partner at Again Capital Management. "Production issues there today were a reminder that those issues are ongoing," he said. Several countries have seen their output fall in recent weeks, including Venezuela, Norway, Canada and Libya. "Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world's spare capacity cushion, which might be stretched to the limit," the Paris-based IEA said in its monthly report. "This vulnerability currently underpins oil prices and seems likely to continue doing so," the agency said. At the same time, the U.S. has ramped up its rhetoric on sanctions against OPEC member Iran, contributing to rising prices, Kilduff said. Wednesday's sharp selloff was galvanized by worries over rising trade tensions between the United States and China and news that Libya had brought some production back online. The declines have not spurred buyers to return yet, after traders sold speculative positions on Wednesday. Libya's National Oil Corp said it would reopen four oil export terminals, ending a standoff that had shut down most of Libya's oil output; the reopening will bring back up to 850,000 barrels per day of crude production. The market also expects stockpiles at the U.S. oil delivery hub to fall, traders said, citing energy information provider Genscape. Supply to the U.S. market has also been squeezed by the loss of some Canadian oil production. Brent still may recover to above $80 a barrel by the end of the year, said Brian LaRose, a senior technical analyst at ICAP-TA. If Brent pulls to below $70 a barrel, that reduces the possibility the market will recover as quickly, he said.
Points across most regions generally saw small adjustments on day-ahead deals Thursday, with a number of regional averages finishing within a nickel of even. In Louisiana, Henry Hub finished flat at $2.84, while ANR SE added a penny to $2.73. Starting Monday (July 16) and extending until July 20, “ANR will reduce operational capacity through its ‘SWML Northbound’ location from 689 MMcf/d to 564 MMcf/d due to planned maintenance at its Havensville and Birmingham compressor stations,” according to Genscape Inc. analyst Vanessa Witte. “Maintenance on this leg has been ongoing since April of this year, and isn’t scheduled to end until September, with various capacity reductions during this time. “Average nominations through SWML have been 606 MMcf/d for the prior 30 days, however utilization has averaged 92%, indicating scheduled capacity is artificially low due to the fluctuation in operational capacity due to maintenance,” Witte said. “As the Midwest area approaches CDDs in the 16-17 range for this weekend and into the early part of next week, according to Genscape meteorologists, northbound flow restrictions could put pressure on ANR’s SEML to fulfill cooling demand.” In the Midwest and Midcontinent, prices eased slightly Thursday. ANR SW fell a penny to $2.49, while Joliet finished even at $2.72.
Production at BP Plc's 413,500 barrel-per-day capacity Whiting, Indiana refinery was normal on Thursday after a report of flaring at the plant, said sources familiar with operations. Energy industry intelligence service Genscape said flaring was observed late on Wednesday and into Thursday from a flare associated with a distillate hydrotreater, which is scheduled to be shut in the middle of this month for a planned overhaul.
Focusing on bearish factors, the market shrugged off warnings from the IEA that there is potentially a spare capacity crunch. "Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world's spare capacity cushion, which might be stretched to the limit," the Paris-based agency said in its monthly report. "This vulnerability currently underpins oil prices and seems likely to continue doing so," the IEA added. The market also brushed off bullish data from information provider Genscape, which reported that inventories at the Cushing, Oklahoma delivery hub had fallen 929,399 barrels per day from July 6 to July 10, traders said. Supply to the U.S. market, particularly Cushing, has also been squeezed by the loss of some Canadian oil production.