Where is the price of crude going? You take my answer to the bank

It’s not what you say, it’s when you don’t say it – A bit long for a bumper sticker but snappier than “conspicuous in absencia,” a phrase I just made up because it sounds thoughtful.

Both phrases apply to a situation where an important or controversial subject is made more so by ignoring it. The best and most recent example of this is in the recent State of the Union address by President Obama. Conspicuous by its absence was any referral to the Keystone (now re-named Millstone) XL pipeline.

Does this bother me? Not really. Procrastination is something the president worries about tomorrow and every day has another tomorrow. The longer this sitcom goes on, the less I see an immediate need for the pipeline to our NAFTA partners south of the border.

Much to the dismay of the oil sands deniers, this crude will, and is, making its way to market using existing approved pipelines and increasing precarious and carbon choking crude by rail as a delivery mode alternative.

The Seaway Line from Cushing to the Gulf was twinned and opened in December 2014, increasing the delivery volume from 400,000 to 850,000 bpd. The southern leg of the XL, also from Cushing to the Gulf was up and running this month with a capacity of 700,000 bpd of new volume. The Flanagan south line running from Illinois to Cushing also recently began to flow at 600,000 bpd with a design capacity of 880,000 bpd.

So tweaking existing pipelines has increased delivery capabilities by 2,030,000 bpd. Moving to the rail alternative, this volume has been projected to increase from the 200,000 bpd in 2013 to 700,000 bpd by 2016. These are all new capacities to be added to the existing flow through.

Canadian exports of crude to the U.S. are at record levels – 3,260,000 bpd; so the delivery systems are not choking with over supply at this time. The choke point will come in the fourth quarter of 2016 when Oil Sands production will increase by 912,000 bpd.

Despite the efforts of OPEC – or should I say the Saudis – existing oil sands facilities unlike shale oil operations, will not cut back on production as operating costs are in the $30 to $33/barrel range, comfortably below todays WTI $47/bbl price level. In addition, 80% of oil sands costs are fixed and projected out 30 years. Shale oil operations on the other hand, and the real Saudi target in this game of chicken, have high initial costs and a well life of four years maximum.

Shale oil operations do have an advantage over conventional and oil sands production methods. In the event that crude prices suddenly recover they are able to get back in the game very quickly – in a matter of two to five months – something I am quite sure the Saudis are aware of.

So where is the price of crude going? Here’s my go to the bank answer: “Somewhere.”

But wait. I’m no expert because I’m not a banker like those at Goldman Sachs who in October last year called for crude to average $75/bbl in the first quarter of 2015.

Umm. Today we are at $47.50/bbl. Hey! That’s almost $30/bbl below the Goldie number. What’s a bank supposed to do? Change the forecast that’s what. And that’s what they did on January 12, 2015 when their new crystal ball told them that WTI instead of $75/bbl would end up at $47.15/bbl.

It’s magic! That’s pretty well where the price is today!

It’s not what you say it’s when you shouldn’t say it.

~ The Grouch

Roger McKnight

Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.

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  • How things have changed! I wrote this 10 years ago at least when even I thought $40 barrel was ridiculous–how would that be possible? I suppose it’s no use heading out there now….

    Think I’ll go out to Alberta / Weather’s good there in the fall / Got some friends I could go to working for… from Four Strong Winds by Ian Tyson

    Go West older driver-or maybe not!

    A recent ad in the National Post tweaked my interest. An oil company in Alberta was looking for professional drivers. But what struck me was the size of the ad, in a big framed box sitting right next to others seeking vice presidents, CEOs, systems analysts, and comptrollers.

    I never thought I’d see the day when truck drivers were as valued as upper management. But that day might be upon us. The petroleum and mining industries are absolutely ravenous for trainable drivers. With oil hovering around $70, the mucky tar sands are looking mighty delicious, even if the cost of extracting the black mud is outrageous. And it’s not just the petroleum industry that needs drivers. All kinds of mining initiatives are going on throughout the go through northern Alberta, NWT, and parts of Manitoba and Saskatchewan. And that means massive spin offs to the transport service industry.

    “It’s absolutely the hottest market this side of the planet,” says Roy Craigen, president of TRANSCOM, whose company consults with companies in the oil patch. “Everything imaginable moves in the oil industry, from flat decks and pickers to vacuum trucks, multi-dimensional loads and hazardous materials.”

    Craigen mentions the excellent wages some drivers are making driving dump trucks in Ft. McMurray. There are no ordinary dump trucks, mind you, they’re the size of a three story house. But the remuneration can be truly spectacular.

    “This is a huge industry that’s in need of supervisors, safety professionals, managers and professional drivers. We see our role at TRANSCOM as helping them find talent both in the office and in the truck as well as training existing staff to achieve high operating standards. The best we heard was a guy who took our Dispatcher / Supervisor Course and landed a $125,000 a year job, complete with new pick up truck as a company vehicle.”

    So there is gold in them thar hills. Jon Summers is the owner of a small trucking company in St. John’s, Nfld that hauls frozen seafood products. He laughs into the phone when he tells me about the sign in front of the Crossroads Motel, a local St. John’s truck stop. “It says, “Help Wanted Apply Within… If you’re not going to Alberta.”

    Summers has seen the migration first hand. He tells me about Gilly Swaine from Gander who’s put a couple of trucks on with Suncor and is sending drivers out with them, and Brian Hussey from over in Spaniards Bay, who overnight packed up his tractors and flat decks, headed west, and hasn’t been heard from since.

    “If I was ten years younger, I’d go myself,” Summers says wistfully. “Just to see if it’s as good as they say it is.”

    I reach Gilbert Swain at his home in Gander and he confirms he’s sending his trucks to work for a contractor in a camp 70 km. north of Ft. McMurray. He’s found a couple of friends with oil patch experience who will be driving the International and Freightliner. “Most probably those trucks will never be back in Newfoundland,” he says almost sadly.

    Peter Nelson, president of the Atlantic Provinces Trucking Association, thinks it’s not just truckers who are in demand–all trades are getting seduced. “As far as trucking goes, we think that if may be a spin off from the downturn in the forestry sector. Folks who had trucks and dumps packed up and headed for the oil patch.”

    “We have people leaving Atlantic Canada who would be working in the trucking industry, but that’s the case in every industry. But to go beyond the trucking context, in a sense we’re losing a generation to Alberta. People who would have gone into nursing or teaching are going to Alberta for the fast buck.”

    Canadians have always gone where the work was and Alberta is no stranger to boom/bust cycles. Still off-road work isn’t for everybody. The busy time is the winter and the job can be brutal and rugged. A special exemption allows these drivers to work 15 hours a day 7 days a week and many of them do.

    It’s a completely different world from pin to pin work and cruising down the highway at 105 kph. Off-road means crawling through bush and over ice roads instead of blacktops.

    This is world of jeeps and boosters, 24 wheeled trailers and 145,000 lb. loads. And it’s not all driving. About half the time is spent loading equipment and tearing it down at the other end. The trucks are usually mean-ass Kenworths with 500 or more snorting horses.

    Mark Larson is a dispatcher for KOS in Drayton Valley, Alta. “The only way we could be busier is if we had more drivers. But they’re hard to find. The problem with a highway hauler is you have to retrain him and break him of everything he’s learnt,” he says. “Most of our drivers start as swampers working with winch lines. But this is very specialized work… and very physical, sometimes you’re up to your knees in mud.”

    A manager of another oil field transport company told me about five guys who showed up from Val D’Or, Que. who were hired immediately. “They had off-road experience,” he says.

    But before you jump in your truck and head off to Fort McMurray you should understand that it’s not all milk and honey out there. Just finding a place to live may be a huge task, and real estate values are tremendously overpriced. And one hears horror stories of several guys sharing a tiny room and getting gouged mightily.

    And what happens if oil prices drop to $30-40 per barrel? It seems unthinkable now, but when this balloon bursts, and historically it always does, that mobile home you just bought for tens of thousands is going to be worth peanuts once again.

    For my part, I’ve got a pretty good job hauling no-touch freight and a good place to live, so I won’t be uprooting any time soon. Still, if I were ten years younger…

  • NAFTA AD CLINTON Goldman Sachs Mexican Government took out a $1 an hour ad to move your company to Mexico get $1 an hour workers . To look up report go to ( public Integrity the trading game ) download go to page 105,24,25 see how many friends of Bill and Hillary Clinton got rich off Mexican Government. Truckers will be put out of work from $1 an hour workers. VOTE Trump