‘Mum’s the word’ for new Saudi oil minister

After a fact finding trip to Houston, Texas, the Oilholic finds himself back in Vienna, Austria for the 169th OPEC Ministers’ meeting. Based on initial soundbites, the 13 member oil producers’ collective is in a rather content mood. Well if you exclude the Venezuelans that is, who are decidedly grumpy by virtue of their own circumstances.

Recent production outages in Canada, Colombia, and OPEC members Venezuela and Nigeria have served to support the oil price which has lurked around the $50 per barrel level for a while now. It is also now manifestly apparent that non-OPEC oil producers are suffering in an era of lower for longer oil prices. 

The Oilholic recently penned his thought on troubles of US shale players – flag bearers of non-OPEC production – in a Forbes piece, and that’s not where the trouble ends. Non-OPEC production as a whole remains in a precarious spot. Nonetheless, interpretation of the market situation differs from OPEC member to member, with the Venezuelans correctly querying where the oil price would go once outages end. 

There’s plenty of chatter here ahead of the meeting, but one man has largely kept mum – that’s none other than Saudi Oil Minister Khalid Al-Falih, who replaced Ali Al-Naimi, one of OPEC’s most colourful characters last month.

It is doubtful that a new minister would alter an old Saudi policy. But the new man in charge has stayed away from the media since his arrival on Tuesday. Much to the disappointment of the world’s scribes, there was no Al-Naimi style power walk on Vienna’s Ring Road by new man either.

As for the analyst community, none of us expect any movement on the production quota front, although the rumour mill suggests OPEC might well be on the verge of finally appointing a new Secretary General. For an OPEC preview, check out the Oilholic’s submission to the International Business Times.

Finally, just before one takes your leave, here are two Forbes posts – on Mexico’s upcoming offshore round and US exports respectively – to keep you busy. That’s all for the moment from Vienna folks, plenty more to follow over the coming days! Keep reading, keep it crude! 

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© Gaurav Sharma 2016. Photo: OPEC flag © Gaurav Sharma.

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!

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© 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.

ExxonMobil's Ghost Building in Houston

On the way to business meetings on Louisiana and Bagby Street in downtown Houston, Texas, earlier this week, the Oilholic cut across Bell Street passing by number 800, which of course was once ExxonMobil’s downtown office, with the top two floors being the dining space for the Petroleum Club of Houston (PCOH).

Alas no more, as all former occupants of the building have moved to the oil giant's sprawling campus in Spring, TX close to The Woodlands north of George Bush Intercontinental Airport. That’s excluding the PCOH which is now at the nearby Total Plaza.

According to the Houston Chronicle’s archives, Shorenstein Properties closed on the property for anundisclosed amount in the first quarter of 2013 with plans for making changes and improvements following ExxonMobil’s departure.

However, the oil giant has since leased back the entire building and not much has happened. Plans to move local government agencies into the building or other private tenants for that matter haven’t quite worked out either.

Shame the city and the building’s owners can’t work out what to do with the historic offices built in 1963 which ExxonMobil occupied until recently (see right). Downtown area of the oil and gas capital of the world could well do without another ghost building, having had one nearby left behind by Enron's collapse until Chevron moved in years later. That’s all for the moment from Houston folks; keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo 1: 800 Bell Street, Houston, Texas, USA in 2016. Photo 2: The building's exterior in 2010. © Gaurav Sharma.

It’s about the ‘crude’ bid/ask differential stupid!

That there are distressed oil and gas assets stateside is pretty obvious. The damage was done, or rather the distress was caused, long before the crude oil price started lurking in its current $40-50 per barrel range, with no guarantees and only calculated guesses on where it is going next.

Actually, nowhere but the current range, as some, including the Oilholic, say. We’d agree that the high yield debt market is in the doldrums, and pretty much since the oil price slump began in 2014 we are told private equity players are sizing up the level of distress and waiting for a timely swoop for assets armed with billions of dollars. 

There is only one problem – the bid/ask differential. Some, not all, sellers of distressed assets are still in denial and holding out for a better price. Buyers themselves, to be read as private equity buyers, are no mugs either and won’t buy any old asset at any old price. It then bottles down to the buying the right asset at the right price in a high stakes game, to quote not one but several of this blogger’s friends who addressed the Baker & McKenzie Oil & Gas Institute.

Then again other industry contacts, whom yours truly interacted with at the Mergermarket Energy Forum, say there is evidence of the bid/ask differential narrowing considerably relative to last May because some sellers literally have no choice and are desperate.

But now the PE guys want ‘quality’ distressed assets and some, as has become apparent in the Oilholic’s discussions with no less than 20 industry contacts and having participated in three oil and gas events (and counting) since Monday.

Anecdotes go something like this – some PE firms no longer want to buy an asset from a distressed oil and gas firm in Chapter 11 bankruptcy proceedings, but rather wait for it to actually go bust and then go for the target asset on much better terms, despite the obvious risk of losing out on the deal should another suitor emerge during the game of brinkmanship.

The debate will rumble on for much of 2016 with close to 70 US oil and gas firms having filed for bankruptcy this year alone! You get a sense in Houston that PE firms have the upper hand, but aren’t having it quite their own way, just as plenty of zombie small to mid-sized oil and gas companies that do not deserve to survive continue to muddle along. That’s all for the moment from Houston folks; keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo: Oil pump jacks in Texas, USA © National Geographic Society.

Gauging crude sentiments in Houston Town

The Oilholic is back in Houston, Texas for a plethora of events and another round of crude meetings. The weather in the oil and gas capital of the world at the moment seems to be mirroring what’s afoot in the wider industry, for there's rain, clouds, thunderstorms and the occasional ray of sunshine.

The industry’s mood hasn’t progressively darkened though; in fact it’s a bit better compared to when yours truly was last here exactly 12 months ago. Dire forecasts of $20 per barrel have not materialised, and forecasts of shale players in mature viable plays surviving at $35+ per barrel are appearing to be true. Additionally, the oil price is sticking in the $40-50 range.

That’s not to say another round of hedging will save everyone; bankruptcies within the sector continue to rise stateside. On the plus side US oil exports are now permitted and the speed with which President Barack Obama did away with a decades old embargo came as a pleasant surprise to much of the industry both within and beyond Houston. 

Finally, the US Energy Information Administration's recently released International Energy Outlook 2016 (IEO2016) projects that world energy consumption will grow by 48% between 2012 and 2040.

Most of this growth will come from countries that are not in the Organization for Economic Cooperation and Development (OECD), including countries where demand is driven by strong economic growth, particularly in Asia, says the Department of Energy’s statistics arm. Non-OECD Asia, including China and India, account for more than half of the world's total increase in energy consumption over the projection period. 

Plenty of exporting potential for US oil then! That’s all for the moment from Houston folks; keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo: Downtown Houston, Texas, US © Gaurav Sharma.

Adios Ali: Saudi oil minister retires

Alas all 'crude' things in life come to an end, with King Salman replacing Ali Al-Naimi – Saudi Arabia’s oil minister who has been a regular feature at OPEC for over 20 years – with Khalid Al-Falih, chairman of state-owned oil giant Saudi Aramco.

It seems Al-Naimi’s outing to OPEC in December 2015 was the eighty-year old industry veteran’s last. For over two decades as oil minister, and a professional career extending well beyond that, Al-Naimi witnessed the oil price soar to $147 per barrel and plummet as low as $2, and by his own admission everything that needed to be seen in the oil markets in his service to Riyadh.

Every single OPEC minister’s summit the Oilholic has attended since 2006 has almost exclusively revolved around what Al-Naimi had to say, and with good reason. For the mere utterance of a quip or two from the man, given the Saudi spare capacity, was enough to move global oil markets. 

Since 2014, he doggedly defended the Saudi policy of maintaining oil production for the sake of holding on to the Kingdom’s market share in face of crude oversupply. Both under, King Fahd and King Abdullah, Al-Naimi near single-handedly conjured up the Saudi oil policy stance. But King Salman has gone down a different route.

The new oil minister Al-Falih will undoubtedly draw the biggest crowd of journalists yet again at OPEC given the Saudi clout in this crude world. However, Al-Naimi leaves behind some big running shoes to fill, and perhaps his predecessor’s signature pre-OPEC power walk (or was it a jog) on Vienna’s ring road with half of the world’s energy journalists in tow chasing him around the Austrian capital!

For the Oilholic it has been an absolute joy interacting with Al-Naimi at OPEC. Somehow things will never be the same again at future oil ministers' meetings, and that’s just for the scribes to begin with. That’s all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2016. File photo: Ali Al-Naimi, former oil minister of Saudi Arabia © Gaurav Sharma.

Refreshing take on tackling a downturn

Does the thought of a recession spook you? Are memories of the last economic downturn in the wake of the US subprime mortgage crisis fairly raw? It might well be hard to avoid an economic downturn, but your chances of escaping unscathed and managing the situation depend on your tenacity and desire to rethink life as you know it, according to economist Jason Schenker.

Hammering home this central theme is his book – Recession-Proof: How to Survive and Thrive in an Economic Downturn released earlier this year by Lioncrest Publishing – which makes you sit up and take notice of both the obvious and the not so obvious when it comes to your career, investment and lifestyle choices versus the evolving macroeconomic climate.

The engaging tone of Schenker’s work spread out over 200 pages split by 11 chapters stands out. The book is full of practical suggestions, a pragmatic dose of stating of what’s evident (which some of us tend to ignore at our peril), a gentle nudge towards constructive soul searching and last, but not the least, one of the most refreshing elucidation of SWOT (strengths, weaknesses, opportunities, and threats) analysis that the Oilholic has read in recent years.

To quote the author, “a recession is partly a self-fulfilling prophecy. It happens partly because we think it’s going to happen. But that doesn’t make it any less real, or any less inevitable…It’s like that famous line in Dirty Harry: “Are you feeling lucky, punk?” When people are feeling lucky, there’s growth. When people aren’t feeling lucky, there’s contraction.”

And being prepared for all eventualities is what is required in this day and age of turbulence where fear and greed are seen to be driving markets, Schenker adds. Instead of feeling sorry in the event of a recession be bold, or better still spot economic turbulence before its hits your company, life and finances, all three of which are intertwined in more ways than one.

Schenker explains how he went about staying more than just afloat in previous downturns, and how you can too. All chapters are fascinating, but if the Oilholic was asked to pick his favourite passages, one would say Chapters Two (What does your personal recession look like?), Five (Dig In) and Seven (Run) would be among the most riveting ones.

This book is not some run-of-the-mill self-help guide. Rather parts of it might well jolt you into action. But perhaps that’s the jolt you need in life to be recession proof and the lessons Schenker learnt from challenges in his own life that form part of the subject matter strike a chord.

In the spirit of full disclosure, the Oilholic has known Schenker in a professional capacity for over ten years, since his days at Wachovia and one’s own at a CNBC Europe production team; and can personally testify that he never sits on the fence in any deliberation of any sort whether we’re discussing central banks, forex or OPEC's oil production quota.

His knack for plain-speaking is reflected in the narrative of the title. But Schenker’s book appeals to this blogger not because he’s an old friend, but because his work makes one sit up and take notice of things we often subconsciously ignore whether it comes to career or investment choices or for that matter which industry conference to attend!

The Oilholic is happy to recommend this title to the young and old alike, those starting out in professional life to those looking forward to retirement. Recession Proof, for this blogger at least, transcends a typical readership profile.

This book is not only about financial survival, it’s not only about career security, not just about investment management; rather it’s about all of the above, along with the right dosage of prudence and practical advice from an old industry pro sprinkled in for good measure. Everyone could do with that! 

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© Gaurav Sharma 2016. Photo: Front Cover - Recession-Proof: How to Survive and Thrive in an Economic Downturn By Jason Schenker © Lioncrest Publishing 2016

Kuwaiti strikers propping up crude prices

The ongoing Kuwaiti oil strike has cut the country’s output for a fourth successive session, US inventory data overnight was price supportive and Iraq is fanning talk of another oil producers’ meeting in May. 

End result is that Brent is above $45 per barrel but remains vulnerable to a correction. Non-OPEC supply declines have started to bite, but risk premium won’t kick in until excess oil falls below 1 million barrels per day (bpd). Even with ongoing refinery maintenance in certain corners of the world and the Kuwaiti oil strike - which has seen its output plummet to 1.5 million bpd from 2.8 million bpd - there is still plenty of the crude stuff on the market.

Whichever way both Brent and WTI futures go, the $40-50 per barrel range is likely to be maintained, and a drop to $35 per barrel remains a distinct possibility. Meanwhile, an uptick in crude oil futures (and iron ore) is driving forex market trends too with beleaguered commodities linked currencies getting some respite.

Mexican peso, Aussie and Canadian dollars are all up versus the greenback. Kit Juckes, head of forex at Societe Generale, said, "With BHP warning of a near-term correction (downwards) and with output of iron ore soaring, the rally should be treated with a bit of caution, but it's going to go on supporting the Australian dollar for now.

"The oil price rally by contrast has better foundations as the supply/demand imbalance is slowly being resolved and while the upside is limited, confidence that the cycle has turned is growing and that will remain a big FX driver. We're long AUD/NZD and the iron ore bounce should help, and short USD/CAD, EUR/RUB and GBP/NOK, all trades which get help from rising oil prices."

Reverting back to the oil glut story - it has some way to run yet, but for the moment Iran ought to thank Kuwaiti strikers for neutralising the Doha Talks farce. That’s all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo: Oil pipeline © Cairn Energy Plc

‘Doh-a Farce’? Brace for $35/bbl Brent?

The Oilholic is rather surprised that some people are actually surprised the Doha talks between major oil producers turned out to be a bit of a farce.

Well, in case you haven’t heard – the overhyped meeting between OPEC and non-OPEC crude producers aimed at introducing a production freeze has ended without an agreement.

Here is one’s take on the development in a Forbes column. The Iranians never turned up in the first place, and the 18 or so oil ministers who did, saw Saudi Oil Minister Ali Al-Naimi insist that there would be no coordinated oil production freeze unless the Iranians came on board. And there you have it – a predictable outcome, without the Saudis giving an inch.

So what’s next? The Oilholic deems a shot term return for Brent futures down to $35 per barrel as highly likely. If it is not achieved intraday today, we should probably get there early this week thereby wiping out some of the froth that built up ahead of the Doha non-event - unless of course breaking news of a Kuwaiti oil strike has the opposite effect. 

At the time of writing this post, both Brent and WTI front month futures contracts are trading down by over 6% and slipping towards the mid-thirties.

And here’s another prediction – one doesn’t expect OPEC to achieve anything at its next meeting in June either. Both Iran and Saudi Arabia are holding firm, and in no mood to compromise – something that is unlikely to change overnight.

Finally, cutting through all the pre and post Doha Talks hullabaloo, the Oilholic has also not altered his market forecasts – of Brent at or just below $50 per barrel by the end of 2016, supply-demand rebalancing by Q1 2017 and a medium term phase of low prices well shy of the mid-2014 highs before the price curve took a turn for the worse. That’s all for the moment folks! Keep reading, keep it crude! 

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© Gaurav Sharma 2016. Photo: Oil extraction site in Oman © Shell

Volatile yet flat-ish Q1 points to $40-50/bbl price

The first quarter of 2016 has been pretty volatile for oil benchmarks. Yet if you iron out the relative daily ups and downs in percentage terms, both global benchmarks and the OPEC basket are marginally higher than early January (see chart left, click to enlarge). 

Brent, at $37.28 per barrel back then, ended Friday trading at $41.78, while WTI ended at $39.53, up from $37.04 in early January. That’s a fairly flat outcome following the end of a three-month period, but in line with the Oilholic’s conjecture of an initial slow creep above $40 per barrel by June, followed by yet another crawl up to  $50 per barrel (or thereabout) by Christmas (as the Oilholic opined on Forbes).

Moving on from pricing matters, a new report from GlobalData suggests crude refining capacity is set to increase worldwide from 96.2 million bpd in 2015 to 118.1 million bpd by 2020, registering a total growth of 18.5%.

In line with market expectations, the research and consulting firm agrees that global growth will be led by China and Southeast Asia. A total of $170 billion is expected to be spent in Asia alone to increase capacity by around 9 million bpd over the next four years, GlobalData added.

Matthew Jurecky, Head of Oil & Gas Research at the firm said: “The global refining landscape continues its shift eastwards; 40% of global refining capacity is projected to be in Asia by 2020, up from around 30% in 2010.

“China has led this growth, and is projected to have a 15% share of global crude refining capacity by 2020. This activity is putting pressure on other regional refiners, especially now that China has become a net exporter, and will become a larger one.”

In Europe, growth is expected to occur at a substantially slower rate. Although demand is decreasing and is less competitive, older refineries in Western Europe are being closed, these factors are being countered by investment in geographically advantaged and resource-rich Russia, which sees Europe’s capacity increasing marginally from 21.7 million bpd in 2015 to 22.5 million bpd by 2020.

Away the refining world to the integrated majors, with a few noteworthy ratings actions to report – Moody’s has downgraded Royal Dutch Shell to Aa2 with a negative outlook, Chevron to Aa2 with a stable outlook, Total to Aa3 with a stable outlook and reaffirmed BP at A2 with a positive outlook. 

Separately, Fitch Ratings has affirmed Halliburton at A-, with the oilfield services firm’s outlook revised to negative. That’s all for the moment folks, keep reading, keep it crude! 

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Beyond a crude April Fool’s joke

There’s still just too much oil around, with physical traders reporting anything between 1.75 to 2.5 million barrels per day (bpd) of excess supply on the market.

Only thing that’s changed is that anecdotes of a 3 million bpd surplus have declined, particularly so in Asia. That is a positive of sorts, but unless excess supply falls to around the 1 million bpd level – geopolitical risk premium won’t kick in like it used to before the glut took hold.

In the backdrop of course, is a Saudi-Iranian spat on the level of each others oil exports that’s extending well beyond a crude April Fool’s day joke. On Thursday, Saudi Deputy Crown Prince Mohammed bin Salman told Bloomberg: “If all countries agree to freeze production, we will be among them.”

He added that Iran needed to be among those countries “without a doubt.” The comments come as Iran has decided not to attend oil producers' talks in Doha on April 17. Tehran has called the idea of such a meeting daft.

In response to the Saudi comments, Iranian oil minister Bijan Zanganeh told the Mehr News agency that the Islamic republic would “continue increasing its oil production” and exports. Meanwhile, a Reuters survey published last week indicated that OPEC’s oil production rose in March, after a period of stability in February, following higher production from Iran and near-record exports from southern Iraq.

Its 4 million bpd-plus output was second only to Saudi Arabia among all of OPEC's 13 member nations. Lest we forget, Russian output remains at Soviet era highs of 10.91 million bpd.

Simple truth of the matter is, the Iranians cannot flood the market and are highly unlikely to match their rhetoric of 1 million bpd, not least because they lack the infrastructure and means to do so in a short period of time, and were they to do so, the resulting price dip would come straight back to haunt them.

The Russians have already said they'll look for “alternative means” to curb a production rise, but not by cancelling new exploration. In any case, they lack the means to ramp up output further. As for the Saudis, who still have spare capacity and are willing to freeze were others to do so, it is purely a case of meeting client demands.

As the Oilholic has noted before, they are producing to a level that meets existing export demand for their longstanding clients. As such, they have no need to ramp up the output levels. So phoney chatter of “will they, won’t they” is purely for market consumption and has little connection with reality when it comes to net volume additions or declines, something which would be dictated by market economics!

As for what this blogger expects would come out of Doha – probably an agreement big on public relations spin than a real-terms cut. For argument sake, even if there is a cut of 1 million bpd, the reprieve would be temporary. Futures would rise over the short-term before the reality of tepid demand and considerable oil held in storage triggers another round of correction. Get used to the $40-50 per barrel range. That’s all for the moment folks, keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo: Offshore oil exploration site in India © Cairn Energy.

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’! 

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© 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.