Showing posts with label US shale. Show all posts
Showing posts with label US shale. Show all posts

Sunday, February 18, 2024

Rising shale output & oil's recovery to November levels

At the start of the year there were some doubts whether US shale oil production would remain high, having broken records in 2023 and propelled the States to the top of the global oil production leader-board

But a recent update from the Energy Information Administration (EIA) has gone some way in dispelling those doubts. 

The statistics arm of the US Department of Energy projects that production will likely  go up in March. Key basins are expected to produce around 20,000 more barrels per day (bpd) next month. This implies a total of 9.7 million bpd in shale production - a volume that hasn't been recorded since December last year. 

Conventionally, you'd think an upbeat US production forecast would knock a few dollars off crude prices. However, the market is more or less holding firm, as the Oilholic noted in an earlier blog post. After the profit-taking of last few weeks cooled, the last couple of sessions have seen oil futures return to levels not seen since November. That'd be $83+ per barrel prices for the Brent front-month contract and $79+ per barrel for the WTI.

A combination of OPEC+ cuts, Moscow's recent (and well documented) difficulties in shifting its crude owing to Western sanctions and heightened geopolitical tensions in the Middle East are keeping oil prices at elevated levels. 

However, the Oilholic reckons the price will face resistance at $85 and the upcoming week should be interesting. (And the EIA's next update - in this data series - is on March 18, and next weekly US inventory report is out on February 22). 

Elsewhere, yours truly participated in a panel discussion on TRT World's Round-table program to discuss Italy's overtures to Africa for its energy security needs whilst addressing the thorny issue (or shall we say the political hot potato) of migration. 

One guesses, that in reaching out to African heads of state ahead of the Gas Exporting Countries Forum (GECF)'s next high-level summit in Algeria in March, Italy's Prime Minister Giorgia Meloni has made a strategic and pragmatic move. (The full broadcast is available here)

And finally, remember Uniper? And it's bailout by the German government in 2022 after its options for Russian gas imports ran out? Well its back with a bang, and ready to repay (some of) the bailout money back in phases. That's just as Berlin is seemingly contemplating a share sale to recoup (some of) the money. Here's a full Forbes report. Well that's all for now folks. More soon. Keep reading, keep it here, keep it 'crude'! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.
To follow The Oilholic on Motley Fool click here.
To follow The Oilholic on Rigzone click here.

© Gaurav Sharma 2024. Photo: Oil well in Oman © Shell. 

Thursday, December 31, 2020

Oil will rally in 2021 but joy would be short-lived

Oh what a 'crude' year 2020 turned out to be as the Covid-19 pandemic ravaged the global economy and our lives, and even briefly created the aberration of negative oil prices back in April. Few would be unhappy to see the back of 2020, and the Oilholic is most certainly among them.

However, as a new trading year beckons, it is best cut out the din, and trade both the direction of the oil market as well as energy stocks with a level head. First off, all the doomsday oil demand decline scenarios from earlier in the year, of as much as 20 million barrels per day (bpd) on 2019 levels, simply did not materialise.

The actual figure is likely to be shy of 9 million bpd, which, while wiping out nearly a decade's worth of demand growth on an annualised basis, is nowhere near as catastrophic. Economic signals point to a rebound in post-pandemic demand when human mobility, consumption and core economic activity, especially in East Asia and the Indian subcontinent begin a rapid bounce back in 2021.

So what of the oil price? Using Brent as a benchmark, the Oilholic envisages a short-lived bounce to $60 per barrel before/by the midway point of the year, and on the slightest nudge that civil aviation is limping back to normal. However, yours truly firmly believes it won't last.

That's because the uptick would create a crude producers' pile-on regardless of what OPEC+ does or doesn't. Say what people might, US shale isn't dead and there remains a competitive market for American crude, especially light sweet crude, that will perk up in 2021.

Other non-OPEC producers will continue to up production on firmer oil prices as well. And finally, a Joe Biden White House would bring incremental Iranian barrels into play even if the return of the Islamic Republic's barrels is more likely to be a trickle rather than a waterfall. All of the above factors will combine to create a sub-$60/bbl median for the demand recovery year that 2021 will be. And the said price range of $50-60 will be just fine for many producers.

As for energy stocks, who can escape the battering they took in 2020. By the Oilholic's calculations, valuations on average fell by 35% on an annualised basis, and nearly 50% for some big names in the industry. 

However, based on fundamentals, where the oil price is likely to average in 2021 (~base case $55/bbl), portfolio optimisation and an uptick in demand, yours truly expects at least a third of that valuation decline to be clawed back over the next 12 months. And depending on how China and India perform, we could see a 15-20% uptick.

Of course, not all energy stocks will shine equally, and the Oilholic isn't offering investment advice. But if asked to pick out of the 'crude' lot – the horses yours truly would back in 2021 would be BP and Chevron. That's all for the moment folks! Keep reading, keep it 'crude'! Here's to 2021!

To follow The Oilholic on Twitter click here
To email: journalist_gsharma@yahoo.co.uk
© Gaurav Sharma 2020. Photo: Terry McGraw/Pixabay

Friday, April 17, 2020

OPEC+ G20 = 'Crude' potpourri + V-shaped recovery

There have been umpteen developments over the last fortnight in the crude saga of oil producers scrambling to curtail production in light of the unprecedented drop in demand triggered by the coronavirus or Covid-19 outbreak.

That oil prices would have fallen regardless was a given, but the current desperate market situation was largely of Saudi Arabia and Russia's own making following the collapse of OPEC+ on March 6. 

Marking a reversal, frantic talks over the Easter weekend saw Moscow and Riyadh underpin a 9.7 million barrels per day (bpd) production cut, with feverish diplomacy by U.S. President Donald Trump and the promise of 1.5 million bpd in cuts by G20 oil producers serving as an accompaniment. Overall, the crude potpourri smelt better than it actually was. 

For the expected near-term oil demand decline is likely to be two to three times the production cut level. The deal itself doesn't look rock solid. As the Oilholic discussed with Mary-Ann Russon of the BBC, around 2.5 million bpd of cuts have been promised by Russia, an OPEC+ participant with a very poor record of compliance with the OPEC+ framework. 

The Saudis meanwhile would be cutting 2.5 million bpd from an inflated level of 11 million bpd. Prior to OPEC+'s December meeting, their production stood at 9.744 million bpd, which means in actual fact their compromise is closer to 1.25 million bpd on average. 

Yet for all of this, if oil demand is dire, any supply cut is only likely to have a very limited impact. We are flying, consuming and driving less (despite 99c/gallon prices in some US states) - so if we aren't going out that much, it won't matter one bit what OPEC+ does or doesn't. 


The deal is supposed to run from May to July and it won't avert short-term pain. It's come too late to rescue April, and it's too little for May and June. Hopes are pinned on a V-shaped recovery in oil prices come the middle of July. But how steep that 'V' might be is the question, and in the Oilholic's opinion it'll be steeper than where we are. 

As for The Donald, here is this blogger's take in a discussion with Marco Werman on PRI / BBC joint radio production The World. Phenomenal diplomacy it was by the President but more hot air was generated than tangible results. 

Additionally, the Oilholic also discussed various other market permutations, facets and shenanigans plus direction of oil and gas stocks, fuel prices, and several other energy topics with a host of industry colleagues including Richard Hunter of Interactive InvestorFreya Cole of BBC, Juliet Mann of CGTN, Victoria Scholar of IG Markets, Auskar Surbakti of TRT World, Sean Evers of Gulf Intelligence, Garima Gayatri of Energy Dias and scribbled half a dozen Forbes missives in what can only be described as the most manic of all manic fortnights for the oil market.

Final thoughts - WTI still looks like it'll hit mid-to-late-teens and continue to lurk below $20 per barrel  till early summer because dire demands means dire prices! That's about it for the moment folks! Stay safe, keep reading, keep it 'crude'!


To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2020. Photo I: Oilfield in Oman © Shell. Photo II: Gaurav Sharma on the BBC, TRT World and CGTN broadcasts © Broadcasters as mentioned, April 2020. 

Thursday, December 19, 2019

Post OPEC quips & LatAm, Shale outlook

The Oilholic returned from the OPEC+ ministers’ summit in Vienna, Austria to a crazy few weeks of crude chatter and of course umpteen discussions on the Saudi Aramco IPO.

Here are yours truly's thoughts on the final communiquĂ© from OPEC via Forbes, and another take on the Aramco IPO via the same publication plus a ReachX podcast touching on the issue of the company's valuation kerfuffle.  

Away from it all, two pieces of research caught one's eye this month. Starting with the first of two, rating agency Moody's reckons 2020 will be a stable year for the Latin American oil and gas sector. While, global economic environment and trade disputes could become a concern to Latin America's commodity exporters, including those in the business of black gold and natural gas, Moody's opined that many regional players have indeed improved their capital structures. 

"Business conditions will vary in 2020, contributing to stable overall conditions. A shift toward exploration and production favours credit quality for Brazil's national oil company Petrobras, but 2020 production appears stable at best in Mexico as investment stalls," says Moody's Senior Vice President Nymia Almeida.

Mexico investment momentum in oil and gas is negative for 2020 as national oil company PEMEX has limited ability to increase investments and deliver on production and reserves targets, Almeida added. 

Away from Latin America, Rystad Energy predicted that even with potentially lower prices, the production outlook for North American shale "appears robust" in the years ahead.

In Norway-based analysis firm's base-case price scenario - that assumes a WTI price at $55 per barrel in 2019; $54/bbl in 2020; $54/bbl in 2021 and $57/bbl in 2022 - would see North American light tight oil supply will reach 11.6 million barrels per day (bpd) by 2022. 

This implies a compound annual growth rate (CAGR) of 10% from 2019 to 2022. In a price scenario with the WTI oil price remaining flat at $45 per barrel, supply of the same would plateau at 10.1 million bpd towards 2022.

"The flat development of US light tight oil production is also possible in lower price scenarios, but we would likely see an initial period of multi-quarter production decline, with output stabilising at a lower level," said Mladá Passos, product manager of Rystad Energy's Shale Upstream Analysis team. Plenty to ponder about as 2020 approaches, but that's all for the moment folks. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2019. Photo: Oil exploration site in Oman © Royal Dutch Shell. 

Saturday, November 09, 2019

On Aramco IPO, OPEC & a Honeywell Interview

The last few weeks in the oil market have been dominated by two key topics. First off, the Saudi Aramco IPO that is finally happening, albeit not in the way and to the international scale it and much of the market wanted. Second development has been OPEC's keen awaited global oil outlook. 

Starting with Aramco, here is the Oilholic's take via Forbes, on what the likely valuation could be. That might well be substantially below the $2 trillion level Saudi Arabia's Crown Prince Mohammed Bin Salman craves. 

As for the OPEC report, the producers' group expects a flood of US shale barrels, with American production tipped to rise to 17 million barrels per day (bpd) by 2024. Here is one's report via Forbes. That'll make for an interesting OPEC ministers meeting on December 5/6 in Vienna. Will OPEC+ keep its 1.2 million bpd of production cuts going as its price support is nothing of the magnitude it hoped for, and shale players keep plugging on. 

Finally, here's The Oilholic's interview with Jason Urso, Chief Technology Officer at Honeywell Process Solutions, the global software industrials company's automation unit, for Rigzone. In it Urso says:"Our ideal recruits would be either sector specialists deeply familiar with software based technologies or software specialists with a deep interest in the energy sector." Well worth a read here

That's all for the moment folks. Next stop ADIPEC 2019, Nov 11-14 in Abu Dhabi, UAE. More from there soon. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2019.

Monday, May 01, 2017

Of soundbites and buffer crude producers

If sounbites were the sole influencers of the oil market direction, Brent ought to be near $60 per barrel. (see chart on the left, click to enlarge

The fact that it isn’t, and couldn’t be any further from that promised level despite OPEC cuts tells you that verbal quips from oil producers matter little when the market is trying to readjust to a new normal; i.e. the impact of a buffer producer in the shape of the US of A.  

When OPEC and 11 non-OPEC producers came together last December to announce a headline production cut of 1.8 million barrels per day (bpd), it was done in the knowledge that inevitably US shale producers would benefit from higher prices too. 

However, the economic paradox of that was additional US barrels replacing barrels taken out by the OPEC and non-OPEC agreement. In March, Saudi Energy Minister Khalid Al-Falih ensured that the OPEC put unravelled by quipping that his country would not subsidise non-OPEC margin plays by supporting an extension of the OPEC and non-OPEC agreement, due to expire in June. 

The result was a near instantaneous drop in both benchmarks as the market factored in the possibility of more OPEC barrels. Soon thereafter, on witnessing the ensuing oil price slide, ministers of several OPEC member nations, including Al-Falih himself, issued soundbites claiming an extension to the cut was in fact possible. However, in the Oilholic’s humble opinion, the damage had already been done by that time. 

This blogger's interaction with the wider market – whether we are talking spot or futures traders – leads one to believe that sentiment is in favour of higher US production, with each OPEC and non-OPEC barrel taken out of the market subsidising an American barrel. Of course, it’s not as linear or simple but the market’s reasoning isn’t flawed.  

All OPEC soundbites in favour of extending the cartel’s cut further are fuelling such sentiment further. Should OPEC extend its cut, the artificial support to the oil price would again be short-lived, as US barrels will continue to flood into the market. 

Finally, the Oilholic believes the market is showing signs of rebalancing unless it is artificially tampered with, and there could be some semblance of normalcy by September-end. So as such neither is an OPEC cut needed nor are the soundbites in its favour. Perhaps the cartel might consider keeping mum for a change! That's all for the moment folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2017. Graph: Oil benchmark prices year to date © Gaurav Sharma 2017.

Thursday, December 01, 2016

The crude question of post-OPEC compliance

The ministers have left town having announced OPEC’s first real-terms headline oil production cut in eight years, sending oil futures rocketing intraday by over 8%. Now that the Oilholic has gathered his thoughts, one feels the significance of such a move cannot be understated, but overstating carries perils too.

Starting with former point first; describing the announced cut of 1.2 million barrels per day to 32.5 million bpd as ‘historic’ is about right. For starters, after many years, OPEC proved that it can get its act together, set aside political differences and come up with a cut. Admittedly, bulk of the production cut would come from Saudi Arabia, which would shoulder 486,000 bpd in cuts. 

However, willingness to participate came from across the OPEC board, with Iran also promising to temper its expectations rather than keep banging on about its stated ambition of hitting a production level of 4 million bpd. Furthermore, Indonesia, a net oil importer, unable to partake in the cut, suspended its membership, although truth be told it was farcical for it to have come back to OPEC last year. 

Additionally, at least on paper, OPEC has managed to extract concessions from non-OPEC producers as well, chiefly Russia. It seems we will see around 600,000 bpd of non-OPEC cuts, of which Russia would account for 300,000 bpd. The market awaits further details after an imminent meeting between the Russians and OPEC takes place, but it all seems positive for now. 

That said the crude world should temper its expectations. Announcing a production cut is one thing, getting OPEC and non-OPEC participants to carry it out is a different thing altogether. If one or more members fail to comply, the domino effect could be others going down the non-compliance path too. In a first of its kind, OPEC has set up a monitoring committee comprising of Algeria, Kuwait and Venezuela to keep tabs on the situation – and it has its work cut out. 

Of course, OPEC has no way of policing non-OPEC compliance and past experiences of extracting concessions from Russia haven’t really worked. We’ll know soon enough when data aggregators such as S&P Global Platts and Argus report back on cargo loadings in January and February. The events in Vienna will support the price for sure over the medium term – lifting it to the $55-60 range. However, what that does is support the US shale industry too. 

Of course, the projected price uptick is unlikely to drag US production levels to the dizzy heights of 2014, but the market should now brace itself for additional barrels from North American producers. Finally, before one takes your leave, here is some additional analysis in the Oilholic's latest Forbes post. With those crude thoughts, that’s all from Vienna folks. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2016. Photo: OPEC building exterior, Vienna, Austria © Gaurav Sharma, November 2016.

Tuesday, May 24, 2016

On non-OPEC distress & the road ahead

Having spent the entire week gauging the oil market mood in Houston, Texas, several key themes seem to be emerging. US shale oil exploration has come to symbolise non-OPEC production rises over the past three years and how it performs over the coming years would go some way towards providing an indication on when the market rebalances and where the oil price goes from here.

In that respect, the Oilholic’s third outing at the Baker & McKenzie Oil & Gas Institute provided some invaluable insight. Delegates at the Institute and various panels over the course of the event invariably touched on the subject, largely opining that many fringe shale players might well be on life support, but the industry as a whole is not dead in the water (see above left).

The problem is the paucity of high-yield debt for the oil & gas sector, where private equity (PE) firms were supposed to step into the breach vacated by big banks, but it is something which is not (currently) being meaningfully reflected in the data. 

One got a sense, both at the Institute and via other meetings across town, that PE firms are not quite having it their own way as buyers, and at the same time from sellers’ perspective there is also a fair bit of denial in a cash-strapped shale industry when it comes to relinquishing asset, acreage or corporate control.

Sooner, rather than later, some struggling players might have little choice and PE firms might get more aggressive in their pursuit of quality assets over the coming months, according to Mona Dajani, partner at Baker & McKenzie.

“You must remember that the PE market is quite cyclical. The way I view it, now would be as good a time as any for a PE firm to size-up and buy a mid-sized exploration and production (E&P) company as the oil price gradually creeps upwards. Jury is mixed on bid/ask differentials narrowing, but from what I see, it is happening already,” she added. 

William Snyder, Principal at Deloitte Transactions and Business Analytics, said, “To an extent hedge positions have protected cashflow. Going forward, PE is the answer right now, for it will be a while before high-yield comes back into the oil & gas market.”

The Deloitte expert has a point; most studies point to massive capital starvation in the lower 48 US states. So those looking to refinance or simply seeking working capital to survive currently have limited options. 

Problem is the PE community is cagey too as it is embarking on a learning curve of its own, according to John Howie, Managing Director of Parallel Resource Partners. “Energy specific funds are spending time working on their own balance sheets, while the generalists are seeking quality assets of the sort that have (so far) not materialised.”

Infrastructure funds could be another option, Dajani noted. “These (infrastructure) funds coming in at the mezzanine level are offering a very attractive cost of debt, and from a legal perspective they are very covenant light.”

Nonetheless, given the level of distress in the sector, the Oilholic got a sense having spoken to selected PE firms that they are eyeing huge opportunities but are not willing to pay barmy valuations some sellers are coming up with. The thinking is just as valid for behemoths like BlackRock PE and KKR, as it is for boutique energy PE specialists from around the US whom Houston is playing host to on a near daily basis these days. 

There are zombie E&P companies walking around that should not really be there, and it is highly unlikely that PE firms will conduct some sort of a false rescue act for them at Chapter 11 stage. Better to wait for the E&P company to go under and then swoop when there is fire-sale of assets and acreage. 

Nonetheless, while we are obsessing over the level of industry distress, one mute point is getting somewhat lost in the ruckus – process efficiencies brought about by E&P players in a era of ‘lower for longer’ oil prices, according to John England, US Oil & Gas Leader at Deloitte (see right, click to enlarge). 

Addressing the Mergermarket Energy Forum 2016, England said, “Of course, capital expenditure cuts have triggered sharp declines in rig counts globally except for the Middle East. However, production decline has not been as steep as some in the industry feared. 

“This has been a tribute to the innovations and efficiencies of scale across North America, and several other non-OPEC oil production centres. A sub-$30 per barrel oil price – which we recently saw in January – drives innovation too; for a lower oil price environment motivates producers to think differently.”

Over nearly twenty meetings spread across legal, accounting, financial and debt advisory circles as well as industry players in Texas, and attendance at three industry events gives one the vibe that many seem to think the worst is over.

Yet, the Oilholic believes things are likely worsen further before they get better. Meanwhile, Houston is trying to keep its chin up as always. That’s all from the oil & gas capital of the world on this trip, as its time for the plane home to London. Keep reading, keep it crude!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma, 2016. Photo I: Panel at the Baker & McKenzie Oil & Gas Institute 2016 © Lizzy Lozano, Baker & McKenzie. Photo II: John England of Deloitte addresses the Mergermarket Energy Forum 2016 © Gaurav Sharma.

Thursday, March 31, 2016

Preparing for an oil slump away from US pumps

The Oilholic is delighted to be back in lovely San Francisco, California, some 5350 miles west of London town. And what a 'crude' contrast it has been between two visits - when yours truly was last here little less than two years ago, the oil price was in three figures and our American cousins were (again!) bemoaning oil prices at the pump, not all that unaware about even higher prices we pay in Europe.

Not so anymore – for we’re back to under $3 per gallon (that’s 3.785 litres to Europeans). Back in January, CNBC even reported some pumps selling at rock bottom prices of as little as 46 cents per gallon in eastern US; though its doubtful you’ll find that price anywhere in California. 

Nonetheless, the Bay Area’s drivers are smiling a lot more and driving a lot more, though not necessarily honking a lot less in downtown San Francisco. By and large, you might say its happy days all around; that’s unless you run into an oil and gas industry contact. Most traders here are pretty prepared for first annual decline in global oil production since 2009, underpinned by lower US oil production this year.

Ratings agency Moody’s predicts a peak-to-trough decline in US production of at least 1.3 million barrels per day (bpd) that is about to unfold. On a related note, Genscape expects North American inventories to remain at historically high levels for 2016, and production to fall by -581,000 bpd in 2016, and -317,000 bpd in 2017, as surging blended Canadian production is expected to grow at +84,000 bpd year-over-year in 2016.

Most reckon the biggest US shale declines will occur in the Bakken followed by the Eagle Ford, with Permian showing some resilience. Genscape adds that heavy upgrader turnarounds in Spring 2016 will impact near-term US imports from Canada.

All things being even, and despite doubts about China’s take-up of black gold, most Bay Area contacts agree with the Oilholic that we are likely to end 2016 somewhere in the region of $50 per barrel or just under.

As for wider domino effects, job losses within the industry are matter of public record, as are final investment decision delays, capital and operating expenditure cuts that the Oilholic has been written about on more than one occasion in recent times. Here in the Bay Area, it seems technology firms conjuring up back office to E&P software solutions for the oil and gas business are also feeling the pinch.

Chris Wimmer, Vice President and Senior Credit Officer at Moody's, also reckons the effects of persistently low crude oil prices and slowing demand in the commodities sectors are rippling through industrial end markets, weakening growth expectations for the North American manufacturing sector.

Industry conditions are unfavourable for almost half of the 15 manufacturing segments that Moody's rates, with companies exposed to the energy and natural resource sectors at the greatest risk for weakening credit metrics.

As a result, Moody's has lowered its expectations for median industry earnings growth to a decline of 2%-4% in 2016, from its previous forecast for flat to 1% growth this year. "This prolonged period of low oil prices initially affected companies in the oil & gas and mining sectors, but is spreading to peripheral end markets," Wimmer said.

"Slackening demand and cancelled or deferred orders in the commodities sectors will constrain growth for a growing number of end markets as the fallout from commodities weakness and lackluster economic growth expands."

Everyone from Caterpillar to Dover Corp has already warned of lower profits owing to weak equipment sales to customers in the agriculture, mining, and oil and gas end markets. The likelihood of deteriorating performance will continue to increase until the supply and demand of crude oil balance and macroeconomic weakness subsides, Wimmer concluded.

Finally, as the Oilholic prepares to head home, not a single US analyst one has interacted with seems surprised by a Bloomberg report out today confirming the inevitable – that China will surpass the US as the top crude oil importer this year. As domestic shale production sees the US import less, China’s oil imports are seen rising from an average of 6.7 million bpd in 2015 to 7.5 million bpd this year.

And just before one takes your leave, Brent might well be sliding below $40 again but all the talk here of a $20 per barrel oil price seems to have subsided. Well it’s the end of circling the planet over an amazing 20 days! Next stop London Heathrow and back to the grind. That's all from San Francisco folks. Keep reading, keep it ‘crude’! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo I: Vintage Tram in Downtown San Francisco. Photo II: Gas prices in Fremont. Photo III: Golden Gate Bridge, San Francisco, California, USA © Gaurav Sharma, March 2016.

Sunday, April 19, 2015

The ostentatious & those 'crude' percentages

The Oilholic finds himself gazing at the bright lights of Las Vegas, Nevada once again after a gap of five years. This gambling hub's uniqueness is often the ostentatious and loud way it goes about itself. The oil market had its own fair share of loud and exaggerated assumptions last week.

Sample these headlines – “Brent spikes to 2015 high”, “Oil markets rally as shale production drops”, “Brent up 10%.” There is some truth in all of this, and the last one is technically correct. Brent did close last Friday up 10.03% relative to the Friday before, while WTI rose 8.41% and OPEC's basket of crude oil(s) rose 10.02% over a comparable period (see graph blow right hand corner).

Bullish yes, bull run nope! This blogger believes market fundamentals haven't materially altered. There is still too much crude oil out there. So what's afoot? Well, given that one is in a leading gambling hub of world, once 'the leading one' by revenue until Macau recently pinched the accolade, it is best to take a cue from punters of a different variety – some of the lot who've been betting on oil markets for decades out of the comfort of Nevada, but never ever turn up at the end of a pipeline to collect black gold.

Their verdict – those betting long are clutching at the straws after enduring a torrid first quarter of the year. Now who can blame the wider trading community for booking a bit of profit? But what's mildly amusing here is how percentages are interpreted by the media 'Las Vegas size', and fanned by traders "clutching at the straws", to quote one of their lot, 'Las Vegas style'.

For the moment, the Oilholic is sticking one's 2015 forecast – i.e. a mid-year equilibrium Brent price of $60 per barrel, followed by a gradual climb upwards to $75 towards the end of the year, if we are lucky and media speculation about the Chinese government buying more crude are borne out in reality. The Oilholic remains sceptical about the latter.

Since one put the forecast out there, many, especially over the last few weeks wrote back wondering if this blogger was being too pessimistic. Far from it, some of the oldest hands in the business known to the Oilholic, including our trader friends here in Las Vegas, actually opine that yours truly is being too optimistic!

The reasons are simple enough – making assumptions about the decline of US shale, as some are doing at the moment is daft! Make no mistake, Bakken is suffering, but Eagle Ford, according to very reliable anecdotal evidence and data from Drillinginfo, is doing pretty well for itself. Furthermore, in the Oilholic’s 10+ years of monitoring the industry, US shale explorers have always proved doubters wrong.

Beyond US shores – both Saudi and Russian production is still marginally above 10 million bpd. Finally, who, alas who, will tell the exaggerators to tackle the real elephant in the room – the actual demand for black gold. While the latter has shifted somewhat based on evidence of improved take-up by refiners as the so called “US driving season” approaches, emerging markets are not importing as much as they did if a quarter-on-quarter annualised conversion is carried out.

Quite frankly, all eyes are now on OPEC. Its own production is at a record high; it believes that US oil production won’t be at the level it is at now by December and its own clout as a swing producer is diminished (though not as severely as some would claim).

Meanwhile, Russian president Vladimir Putin declared the country's financial crisis to be over last week, but it seems Russia’s GDP fell between 2% to 4% over the first quarter of this year. The news caused further rumbles for the rouble which fell by around 4.5% last time one checked. The Oilholic still reckons; Russian production cannot be sustained at its current levels.

That said, giving credit where it is due – Russians have defied broader expectations of a decline so far. To a certain extent, and in a very different setting, Canada too has defied expectations, going by separate research put out by BMO Capital and the Canadian Association of Petroleum Producers. Fewer rigs in Canada have – again inserting the words 'so far' – not resulted in a dramatic reduction in Canadian production.

Finally, here's an interesting report from the Weekend FT (subscription required). It seems BP's activist shareholders have won a victory by persuading most shareholders to back a resolution obliging the oil major to set out the potential cost of climate change to its business. As if that's going to make a difference - somebody tell these activists the oil majors no longer control bulk of the world's oil – most of which is in the hands of National Oil Companies unwilling to give an inch!

That's all for the moment folks from Las Vegas folks, as the Oilholic turns his attention to the technology side of the energy business, with some fascinating insight coming up over the next few days from here. In the interim, keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2015. Photo: Paris Casino on the Las Vegas Strip, Nevada, USA © Gaurav Sharma, April 2015. Graph: Oil benchmark prices - latest Friday close © Gaurav Sharma, April 17, 2015.