OPEC Reaches An Agreement To Freeze Production. Sort Of.

          In the build up to the informal OPEC meeting in Algeria this week, markets made a substantial ado about the likelihood of an agreement to freeze production. We even published multiple columns over several weeks on what OPEC might do and why. We presented the facts and information supporting the possibility of an agreement to freeze and the impediments to it. And I consistently expressed my cynical side when discussing the likelihood of a freeze.

         I might have called it wrong.   In fact, to be perfectly honest, I was so wrong that I spent the better part of Wednesday morning writing what would have been a great column on the lead up to the meeting, what we knew, why it failed and what we learned. Scratch that hard work…

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What Effect Do Low Oil Prices Have On The U.S. Economy?

One of the more interesting parts of the downturn has been what, if any, effect low oil have had on the U.S. economy. On October 01, 2014, WTI closed the day at $90.73. By January 2, 2015, oil was pricing at $52.27. From October 01, 2014 until September 28, 2016, oil reached a low of $26.05, averaged $49.09 and was down $66.91 (-%49.33).

Historically, low oil prices have had a positive effect on the U.S. economy. Such venerable names as Moody Analytics were quick to argue that low oil prices are a boon to the U.S. economy.   Here is just one such quote explaining why, historically, low oil prices are so beneficial:

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The Week In Numbers for the Week Ending 09-16-2016

         Each week, 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 Genspace, API, and EIA on Inventory Data. And we also throw in the rig count for good measure.

WTI Open on September 12, 2016$45.57Brent Open on September 12, 2016$42.96  Brent as on September 16, 2016$47.81Natural Gas Open on September 12, 2016$45.81  Natural Gas Open on September 12, 2016$2.820NG as of 12:00 PM on September 16, 2016$2.917


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Ty's Take For Week Ending September 16, 2016

          First, I’m happy to be back from visiting our supply chain and writing The Five Star Standard. Thank you to several of our readers who were kind enough to email me while I was away and tell me how much they missed reading our Newsletter. This takes a lot of work each week, but your support makes it worth it.

As you all probably saw, Oil markets while I was away were a bit of a wild ride. Last week, API reported a massive draw of 12 million barrels from U.S. stockpiles which sent oil dramatically higher. However, markets quickly retreated after traders figured out that the draw had more to do with import tanker delays as a result of a storm rather than increased demand.

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Short Takes For the Week Ending 09-16-2016

 Short Takes may or may not be a continued weekly column. However, I felt that since I have been gone for two weeks and we have not published a Five Star Standard, I would update you all on some of the major news items that occurred while I was gone.

Recent Hedge Fund Activities

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OPEC Output Freezes Update

While I was gone visiting our supply chain, we received quite a bit of news that may give us some indication on the probability of OPEC agreeing to freeze production at their much anticipated informal meeting in Algeria on September 26-28, 2016.

As we all recall with gut-wrenching pain, OPEC made the surprise decision in November 2014 to allow oil prices to tumble by refusing to curtail production. You may also recall that in our August 19, 2016 edition of The Five Star Standard, we discussed in-depth our current thoughts on the probability of an output freeze and those factors weighing both for and against. (See OPEC Flirts with Production Freeze). And again in our August 26, 2016 Edition (See OPEC Production Freeze? Don’t Get Your Hopes Up). Obviously, the price of oil could see a dramatic impact should OPEC members agree to a production freeze, and an even more dramatic impact if they actually adhere to any agreement (which is at best a dubious proposition). Obviously, as previously discussed there are many incentives for OPEC producers to at last freeze production (Saudi Aramco IPO will boast the value if oil prices are higher, Saudi and other OPEC members are quickly burning through their reserves and running deficits, etc), and many factors weighing against a change in current OPEC policy.

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Major Forecast Revisions By EIA, OPEC, And IEA

The major international agencies that monitor, advise, or seek to control oil release monthly reports. Below is a summary of the major changes noted by each. I would encourage you to skim this summary and then for a synopsis, make sure to read this weeks Ty’s Take where I will distill the critical information for you into a few key points and tell you the basis for the negative revisions.

EIA Updated Short Term Energy Outlook

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The Week In Numbers for the Week Ending 8-26-2016

 Each week, 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 Genspace, API, and EIA on Inventory Data. And we also throw in the rig count for good measure.

WTI Open on August 22, 2016:$48.40 WTI as of 12:00 PM on August 26, 2016:$47.58  Brent Open on August 22, 2016:$50.70Brent as of 12:00 PM August 26, 2016:$49.74  Natural Gas Open on August 22, 2016:$2.893NG as of 12:00 PM on August 26, 2016:$2.598


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CONTEST: Win a Yeti Cooler!

We still have to have some fun during the downturn, and Five Star needs your help! We have already given away two Yeti Coolers for leaving us a review promotion, and now we want to have some more fun and give you one last chance to get in on the action.

So, here’s the contest. Predict the price of WTI at close of market on December 29, 2016, without going over the actual price and the person closest can win a Yeti cooler. As a tie breaker, predict the price of Natural Gas, without going over. Entries must be submitted by close of business Friday, September 2, 2016.

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Just How Much More Efficient Are those New Wells?

crude oil rig count
new well oil
us crude oil rig
natural gas rig count

One question that we keep going back to is how efficient are the new wells being drilled? This question is critical to determining the profitability of a well and what price of oil will support increased drilling activity (the more a well producers, the marginal cost per barrel goes down and so does the price at which the barrel must sell for the oil company to make money).

It has largely shocked experts just how little production has been lost in the United States since the downturn began. During peak U.S. drilling, 1800 rigs were operating in the U.S. That number appears to have reached a low in May of 2016 and we appear to be slowly adding rigs back.

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