US crude oil inventories are currently at the forefront of short-term price swings, but traders should take these reports with a pinch of salt. Every Tuesday, the API releases its estimates of crude oil, gasoline, distillate, and Cushing inventory changes. The next day, the EIA does the same. There are other sources, too, including Tanker Trackers, which uses exports and production to calculate how much inventory has shifted. The US is largely considered the most transparent oil market to follow inventory moves, but all three sources differ, and many do not trust the data. This week should serve as a cautionary tale for those who do. The API this week supplied their inventory figures (which they charge a pretty penny for) at 4:30pm EDT. Within a few minutes, Twitter was awash with the figures. But some time later, the API sent out a second, corrected and contradicting set of figures. Some media outlets and analysts had already reported the first set and were unaware of another set released later. Latecomers to the Twitter party, on the other hand, reported the second set.
Meanwhile, the API was silent, and markets were confused. A day later, the EIA reported its inventory figures as well, which were different still, as they often are. TT had their own set of data. Again, different. While the data is readily available for tracking US crude inventories, it should not be assumed that this transparency is synonymous with accuracy. The API provides estimates. And the EIA provides estimates of inventories based on production forecasts (so an estimate of an estimate). Neither is perfect, and weekly moves are often used merely as a bellwether to predict oil price direction simply because traders know that traders react to this data, as imperfect as it may be.
Is Apache Having Trouble in Suriname?
There’s nothing more promising right now than the Suriname side of the Guyana-Suriname Basin. One one side, Exxon has amazed us with a string of 14 discoveries and fast-track development. In fact, until this week, first production at Exxon/Hess’s Liza play in Guyana was impressively slated for early next year. This week, they bumped that up to this December.
That also puts a lot more pressure on Apache, which has started its first drill right across the maritime border in Suriname, which investors are hoping is going to be a direct extension of the massive Guyana finds. The only update we got on the drill in October 30th earnings highlights was that the well will be drilled to depth sometime in November.
Instead, it’s been a dramatic week for Apache for another reason that’s sent shares tumbling at a time when they should be seriously banking on this drill. Apache’s high-profile geologist, Steven Keenan, has resigned. For the Suriname gamble, he was an incredibly important figure as senior VP of worldwide exploration.
That’s left investors wondering whether Apache can pull off this difficult deepwater drill in a geologically challenging basin. While the company has said that Keenan’s resignation had nothing to do with the Suriname drill, a lack of reasonable detail leaves a lot of room for mystery here. Their only comment as that “the drill bit is still above the first target zone in the Suriname well”.
In the meantime, shares have tumbled, and the cost to insure against default has surged.
That makes it even more important for Apache to hit oil in Suriname at the Maka Central #1.
An announcement that it plans to launch first production from its North Sea Storr project in November isn’t moving the needle at all. Nor has the fact that it drilled multiple successful exploration wells in Egypt this quarter.
The Lithium Rethink
Lithium giants have been over-producing to the point that it’s rendering predictions that global demand for the battery metal will more than triple by 2025 irrelevant. Shareholders are applying a great amount of pressure for producers to scale back and focus on profitability now that global supply is a dangerous 5% higher than demand. Anything else would be a perfect repeat of the mistakes made during the US shale boom.
With that in mind, Albemarle Corp has said it would delay construction plans for 125,000 in new lithium processing capacity after cutting sales and profit forecasts for the year. Likewise, Chile’s state-run SQM, the second-largest lithium producer in the world, came out with dismal quarterly earnings that showed a profit purge of nearly 50% in Q2. In Q2 2018, SQM enjoyed profits of $133.9 million. In Q2 2019, those profits were $70.2 million. FOr SQM, the scaling back will delay the expansion of its Atacama salt flat operations until late 2021.
Other lithium projects are being negatively affected, as well. Chinese Tianqi Lithium’s plant in Western Australia launched in September, but the second phase of the project will be postponed. Nemaska Lithium’s Whabouchi mine in Quebec, Canada, is also in trouble and having a hard time keeping the project afloat with cash, forcing recent layoffs.
A massive demand boost is coming, but producers jumped the gun here. The only saving grace is that scale-backs now help ensure this doesn’t become another boom-and-bust story like US shale when oil prices plunged in 2014.
We are also not expecting great things in terms of prices of cobalt – another key battery metal – even in the aftermath of the closure of a major cobalt mine in DRC that took some 15% of supply off the market. Prices are now down around 60% from their peak in the Spring of 2018, but supply is set to remain hearty due to the fact that most cobalt is mined as a byproduct of nickel and copper.