bitumen news new rate of bitumen in 2016 Why oil prices fall and how long they fall? - Bitumen price is going down?Asian Aframax supplies squeezed as bitumen blend cargoes
LOW OIL & BITUMEN PRICES & VOLATILE STOCK MARKETS:
Nobody really knows where oil prices are headed in 2016 (and for the record, neither do we) but here are 10 important correlations between energy prices and equity markets that should factor into your 2016 investment decisions.
The reality is that bitumen is a very complicated product,” said Schmidt. “Very sophisticated equipment is required to transport, store and distribute bitumen from source to end-user. “There is a huge supply chain with many complications as bitumen is a difficult product to handle...refineries, terminal owners, ship owners, ship brokers, container carriers, packaging companies, importers, distributors, modifying companies and many others. And doing business across borders requires an understanding of the cultural and technical issues involved.”
Schmidt does not see buying direct from refineries as a viable option for many contractors. “In the short- and medium-term, most of the contractors will not be able to buy the bitumen themselves and bring it to their destination in the right form and to the right specification. And they don’t want to take the risk of transportation and cash flow.”
Another result of the changing bitumen supply landscape has seen shifts to more flexible pricing during some periods, according to the Argus Asphalt Report. “Refineries have been less willing to provide long-term fixed prices for bitumen,” said Tasker. “So they have been switching from longer periods of time, say six months down to one month. Or even daily pricing, with a few refineries using the ‘price date of shipment’.”
Daily pricing could reappear should demand pick up again and production costs for bitumen continue to fluctuate, said Tasker. The standard period for refineries to fix prices is now a month, said Schmidt, with that period unlikely to change unless bitumen prices rise very dramatically.
With so many influencing factors, it is difficult to see what will happen next. Companies must be able to adapt fast to survive, said Schmidt. “Today markets are changing very fast. A successful bitumen company is the one that is the most flexible.”
Oil from Canada’s tar sands has skidded towards $20 a barrel, a level not seen for international crude prices in 12 years, tightening the screws on energy companies and the economy of the world’s fourth biggest supplier.
This week, Western Canada Select, a marker for heavy, diluted bitumen from Alberta’s oil sands region, fell to $23. It was less than half the price of Brent, the global oil benchmark listed in London.
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“Western Canada Select is the world’s cheapest crude oil in a world where we already have low prices,” said Jackie Forrest, vice-president of energy research at ARC Financial in Calgary.
A combination of steadily rising production, pipeline constraints and a surprise outage at a US refinery explain the 50 per cent fall in Canadian oil since July 1. The results have spilled beyond the oil market into Canada’s economy, forcing the central bank to twice cut interest rates, driving the Canadian dollar to a decade low and colouring the debate ahead of an October federal election.
Supply from the oil sands, where producers use mining equipment and steam to extract sticky bitumen from the ground, is expected to increase by 6 per cent to 2.3m barrels per day this year, the Canadian Association of Petroleum Producers estimated. The plunge in crude prices has done little to curb output because oil sands projects require years to plan, construct and pay back, insulating them from short-term price fluctuations.
Imperial Oil recently doubled production capacity at its Kearl oil sands project to 220,000 b/d. Canadian Natural Resources, another oil company, last week reassured analysts that it was “built to withstand low commodity prices” even as it swung to a C$405m loss in the second quarter.
At current oil prices, typical oil sands producers are just covering their operating costs, Ms Forrest said, while companies with higher operating costs are “losing money with each barrel they’re producing”.
The average “in situ” project, which often uses steam to loosen bitumen from oil sands buried deep underground, has operating costs of C$15 (US$11) a barrel, while royalties, transportation and the “diluent” blended with bitumen to allow it to flow on pipelines tack on additional costs.
Canadian oil producers enjoyed relatively strong oil prices in the second quarter after forest fires shut down some northern Alberta operations, new pipeline capacity opened in the US and North American refiners ran hard to meet summer fuel demand.
The blazes have since burnt out and this week producers got the unwelcome news that a 250,000 b/d crude processing unit at BP’s Whiting refinery near Chicago suffered an unplanned shutdown. The refinery is a large consumer of Canadian heavy oil.