Newsletters

The Week In Numbers for the Week Ending March 10, 2017

In each edition of the Standard, we strive to provide you a bare bones summary of what happened to the price of WTI, Natural Gas, and Brent Crude. In addition, we summarize the major reports from API and EIA on Inventory Data. And we also throw in the rig count for good measure.

Since we have not sent the Newsletter in about a month, I will give you the prior numbers from the last Newsletter followed by current:

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Oil Production Costs Increasing?

As we have discussed numerous times, the higher cost producers in the oil industry has been making systematic and systemic changes aimed at reducing the cost to produce a barrel of oil to make themselves more competitive with cheap supply sources such as Saudi Arabia.

The start of recovery from a recent two-year industry downturn offers a "unique opportunity" for companies to transform and reset the cost base, Statoil CEO Eldar Saetre said during a panel discussion with the president of Petrobras on the first day of IHS CERAWeek. Statoil has brought down its breakeven price of what it calls its next-generation portfolio of emerging and current projects, which hold more than 3 billion barrels of oil equivalent, from around $70/b-plus to well below $30/b, Saetre told the annual gathering.

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Ty's Take 3-10-2017

Well, the last few weeks in oil have been interesting to say the least!

Until recently, oil spreads traded in a very narrow range from the beginning of the year forward, indicating price stability and overall price volatility has been limited. That was true until Wednesday of this week, when EIA reports showed a tremendously larger than expected inventory build. At which point, WTI broke the key resistance point of $50.00 per barrel. And while markets had experienced some volatility, futures spread curves all indicated a market in which the vast majority of traders (or at least their money) indicated a move from contango to backwardation this year (i.e. – surplus supply to balance/deficit). The only question was when. For a long time, most seemed to be betting on second half of this year. Over time, that seemed to move out.

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The OPEC Quandary

CERAWeek, the annual industry conference held here in Houston which is discussed more in detail in another article, marked a new level of friendliness and openness between OPEC and U.S. producers after bitterness caused by OPEC’s abandoning its role as market stabilizer in favor of maintaining market share which caused a bitter price war between the two.

OPEC has apparently realized that U.S. producers are here to stay while simultaneously feeling the pain associated with lower oil prices on their budgets. U.S. producers, who cannot by law coordinate production, seem to realize the necessity of OPEC as a market stabilizing force that insures more long-term stability in pricing.

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Suppy Deficit 2021?

What a difference a year makes.  Or for that matter, a few months.

For the last two years, everything we have seen and read has been about how the world is awash in oil.  Too much oil.  Too much production.  And for the short-term, that may be true.

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U.S Shale Production is Back

U.S. oil production forecasts for 2017 and 2018 have been significantly revised upwards due to rising prices and increased production efficiency. The EIA now expects U.S. production to reach 9.53 million barrels per day in December 2017, as opposed to prior forecasts of 8.29 million barrels per day when the Agency released its predictions in March of last year, according to the most recent Short Term Energy Outlook, which the Agency publishes monthly.

While the Agency has been continuously revising U.S. production figures upwards, this is a rather large jump. Most of the production growth is centered in the lower-48, with the Permian being a hotbed of activity.

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Notes From CERAweek Conference

IHS CERAWEEK

Every year, major oil execs meet in Houston to discuss market conditions, the future, and to hob-nob with each other in rich fashion. Last year, the focus was the tension between U.S. Shale producers and OPEC. This year, we got a few key points:

OPEC Warns Shale

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Steel Pricing

As the oil industry has come back up so has steel pricing. Although the two have very little connection on a global scale. In fact, steel pricing has varied recently more in line with most other commodities: that is, it crashed.

And being in the energy sector, we tend to forget how little steel is consumed by our industry as compared to the world as a whole. Everything from automotive to aerospace, heavy industry to construction demand impact one side of steel pricing. And that’s just the demand side: we will talk about the supply side below.

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OPEC Complies – But Why Are U.S. Inventories Building?

One of the frequent discussion in the Five Star Standard is about worldwide production numbers and the relative difficulty in measuring data.  Indeed, in past editions, we have spoken at great lengths about how data is measured, why there are often huge discrepancies, and the fact that the U.S. is one of the most transparent countries in terms of measuring production and inventory.  But even in the U.S., the differences between reserve estimates by API and the EIA can be radically different in any given week.

One of the interesting topics of conversation lately (particularly in light of continuing increases in U.S. storage and oil imports over the past few weeks), is OPEC compliance with their agreed production cuts.  In the last edition, we gave you some estimates.  But what is interesting is that over the past several weeks, I have read many articles (from very reliable sources that I will cite to below) that have radically different numbers for OPEC compliance.

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Earnings Report Q4 2016

At the close of each quarter, I joyfully (or sometimes not so joyfully) read through the major OEMs earnings conference calls in hopes of finding gyms. I don’t really focus on how much money a company made or lost, I look rather to see if I can discern the Company’s attitude towards the market and its future. This week, we will feature several companies, with more companies to follow in the next edition of the Standard. As usual, I have tried to bold the most important points so you can skim the rest.

Schlumberger

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