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Oil Prices Should Fall, Possibly Hard
Submitted by Tyler Durden on 03/13/2016 17:20 -0400
Submitted by Art Berman via ArtBerman.com,
Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.
Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.
A Production Freeze Will Not Reduce The Supply Surplus
An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today.
In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.”
Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37% from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.
The problem is that neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful.
Chart-US-RUSSIA-SAUDI Incremental Prod MAR 2016
Figure 1. Incremental liquids production since January 2014 by the United States plus Canada, Iraq, Saudi Arabia and Russia. Source: EIA & Labyrinth Consulting Services, Inc. (click image to enlarge)
Saudi Arabia and Russia are two of the world’s largest oil-producing countries. Yet in January 2016, Saudi liquids output was only ~110,000 bpdmore than in January 2014 and Russia was actually producing ~50,000 bpdless than in January 2014. The present world production surplus is more than 2 mmbpd.
By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”
Growing Storage Means Lower Oil Prices
U.S. crude oil stocks increased by a remarkable 10.4 mmb in the week ending February 26, the largest addition since early April 2015. That brought inventories to an astonishing 162 mmb more than the 2010-2014 average and 74 mmb above the bloated levels of 2015 (Figure 2).
Crude Oil Stocks_5-Year AVG MIN MAX 6 FEB 2016
Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)
The correlation between U.S. crude oil stocks and world oil prices is strong. Tank farms at Cushing, Oklahoma (PADD 2) and storage facilities in the Gulf Coast region (PADD 3) account for almost 70% of total U.S. storage and are critical in WTI price formation. When storage exceeds about 80% of capacity, oil prices generally fall hard. Current Cushing storage is at 91% of capacity, the Gulf Coast is at 87% and combined, they are at a whopping 88% of capacity (Figure 3).
Cushing & Gulf Coast Inventory & Utilization 6 Feb 2016
Figure 3. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)
Prices have fallen hard in step with growing storage throughout 2015 and early 2016. Since talk of a production freeze first surfaced, however, intoxicated investors have ignored storage builds and traders are testing new thresholds before they fall again.
The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd.
Despite extreme reductions in rig count and catastrophic financial losses by E&P companies, production decline has been painfully slow. The latest data from EIA indicates that February 2016 production will fall approximately 100,000 bpd compared to January (Figure 4).
U.S. Production Forecast MAR 2016
Figure 4. U.S. crude oil production and forecast. Source: EIA STEO, EIA This Week In Petroleum, and Labyrinth Consulting Services, Inc. (click image to enlarge)
That is an improvement over the average 60,000 bpd monthly decline since the April 2015 peak. It is not enough, however, to make a difference in storage and storage controls price.
EIA and IEA will publish updates this week on the world oil market balance and I doubt that the news will be very good. IEA indicated last month that the world over-supply had increased almost 750,000 bpd in the 4th quarter of 2015 compared with the previous quarter. EIA data corroborated those findings and showed that the surplus in January 2016 had increased 650,000 bpd from December 2015.
Oil Prices and The Value of the Dollar
Why, then, have oil prices increased? Partly, it is because of hope for an OPEC production freeze and that sentiment is expressed in the OVX crude oil-price volatility index (Figure 5).
VIX & WTI 5 MARCH 2016
Figure 5. Crude oil volatility index (OVX) and WTI price. Source: EIA, CBOE and Labyrinth Consulting Services, Inc. (click image to enlarge)
The OVX reflects how investors feel about where oil prices are going. It is sometimes called the “fear index.” That suggests that investors are feeling pretty good and less fearful about the oil markets than in the last quarter of 2015 when oil prices fell 47%. Since mid-February, prices have increased 37%.
But there is more to it than just hope and that may be found in the strength of the U.S. dollar. The negative correlation between the value of the dollar and world oil prices is well-established. The oil-price increase in February was accompanied by a decrease in the trade-weighted value of the dollar (Figure 6).
Chart_DEC-MAR USD-WTI
Figure 6. U.S. Dollar value vs. WTI NYMEX futures price. Source: EIA, U.S. Federal Reserve Bank and Labyrinth Consulting Services, Inc. (click to enlarge)
Now, that trend has reversed. The U.S. jobs report last week was positive so continued strength of the dollar is reasonable for awhile. Assuming the usual correlation, that means that oil prices should fall.
Oil Prices Should Fall Hard
It is a sign of how bad things have gotten in oil markets that we feel optimistic about $35 oil prices. It should also be a warning that the over-supply that got us here has not gone away.
Oil storage volumes continue to grow and that is the surest indication that production has not declined enough yet to make a difference. It is impossible to imagine oil prices rising much beyond present levels until storage starts to fall. In fact, it is difficult to understand $35 per barrel prices based on any measure of oil-market fundamentals.
The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing. It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous.
No terrible economic news has surfaced in recent weeks but that does not change the profound weakness of a global economy that is burdened with debt and weak demand. The announcement last week by the People’s Bank of China that it sees room for more quantitative easing may have comforted stock markets but it only added to my anxiety about reduced oil consumption and future downward shocks in oil prices.
I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.
http://www.zerohedge.com/news/2016-03-13/oil-prices-should-fall-possibly-hard
WTI stuck in the 36.15 - 36.00 range. Which way will it go?
WTI is at 36.18.
The spike has slowed and now it is starting to drop again.
Strange spike up all of a sudden.
With Russia's support from the air, the Syrian army managed to retake control of oil and gas fields near Palmyra. Three large fields have already started functioning in normal mode, the minister added. In all, 209 oil production facilities and almost 3,000 oil delivery vehicles have been destroyed by Russia's airstrikes.
9,000 sorties, 400 localities freed: What Russia has achieved during its 5-month Syria operation
Published time: 14 Mar, 2016 22:16
Edited time: 15 Mar, 2016 02:40L
As Russia’s Vladimir Putin announced the start of the withdrawal of Russian forces from Syria, Defense Minister Sergey Shoigu has reported the anti-terror operation’s achievements to the Commander-in-Chief.
"Backed by our aviation, Syrian forces have freed 400 populated areas and over 10,000 square kilometers [3,860 square miles] of territories," Shoigu said during a Kremlin meeting with Russia's President Vladimir Putin on Monday.
Terrorists have been forced out from Latakia and Aleppo, and Palmyra has been "blocked," the military official reported to Putin, saying that military actions to free the UNESCO heritage site from militants continue. Hama and Homs Provinces in central Syria have been largely mopped up, and Kuweires airbase that had been besieged by terrorists for over three years was retaken.
Saying that Russia's Air Force in Syria has conducted more than 9,000 sorties starting from September 30, 2015, the Defense Minister added that for the first time massive strikes at a range over 1,500 kilometers [930 miles] with both air and ship-launched missiles have been conducted.
With Russia's support from the air, the Syrian army managed to retake control of oil and gas fields near Palmyra. Three large fields have already started functioning in normal mode, the minister added. In all, 209 oil production facilities and almost 3,000 oil delivery vehicles have been destroyed by Russia's airstrikes.
"As a result of airstrikes, terrorists' resources' provision has been largely cut," Shoigu told Putin, saying that petroleum trade routes with Turkey, as well as main routes of weapons provisions to terrorists have been blocked.
The Russian campaign also reduced the threat posed to Russia by Islamic militants, as over 2,000 fighters from Russia have been “eliminated” in Syria, including 17 field commanders.
To strengthen the progress achieved, Russian continues the aerial monitoring of the ceasefire’s observance.
“A fairly large number of unmanned aerial vehicles – over 70 – are being used for this purpose, as are all means of gathering intelligence, including electronic intelligence and our satellite constellation,” Shoigu stated.
https://www.rt.com/news/335596-russia-syria-operation-results/
WTI now at 37.12.
Putin destroyed a large portion of ISIS/ISIL. Something the U.S could not do. Putin see the danger of having them in his backyard.
Oil retreats on weak Chinese data, Iran rejection of output freeze
By Myra P. Saefong and Dan Strumpf
Published: Mar 14, 2016 10:54 a.m. ET
Iran’s oil minister rejects production freeze until country’s output rises
Bloomberg
Oil futures fell Monday as Iran again tossed cold water on market speculation for a production cut and weak economic data from China raised worries about the outlook for energy demand.
The move pauses a rally that took crude near its highs of the year following a report from the International Energy Agency that said prices may have bottomed.
April West Texas Intermediate crude CLJ6, -4.10% fell $1.59, or 4.1%, to $36.91 a barrel on the New York Mercantile Exchange after finishing last week with a gain of more than 7%. May Brent crude LCOK6, -2.75% on London’s ICE Futures exchange lost $1.33, or 3.3%, to $39.06 a barrel.
Iran reportedly said over the weekend that it still intends to ramp its production level back up to the 4 million barrels a day it was at before sanctions were imposed from about 3 million barrels a day currently, said Colin Cieszynski, chief market strategist at CMC Markets.
Other members of the Organization of the Petroleum Exporting countries have said they’d be reluctant to agree to stabilizing production without the participation of other major oil producers.
“Even though this should not have come as a surprise to anyone who has been paying attention and is not unreasonable, it appears the rumored meeting among oil producers to try and stabilize production may be pushed off to April,” Cieszynski said in a note.
“Oil markets had been getting technically overbought so Iran appears to have been the excuse for a needed correction,” he said. “Still, with Brent hanging around $40.00 and WTI trading well above $35.00, the underlying recovery trend and Friday’s comments from the IEA about oil having turned the corner remain intact.”
Meanwhile, data from China Monday showed that industrial production grew 5.4% in January and February, compared with a year earlier. That’s down from December’s 5.9% pace. Weak data from China tend to raise concerns that demand from the world’s largest energy consumer will slow.
The latest move for oil comes on the heels of a brisk rally, which lifted prices to their highest levels of the year. The gains have been fueled by supply reductions around the world and the prospect of a coordinated supply freeze by major oil-exporting countries.
Some analysts say oil prices may have found a new equilibrium after their recent rally. U.S.-traded crude is likely to be capped in the “low-to-mid 40s,” according to analysts at Morgan Stanley. The bank said funds are closing out their short bets, putting upward pressure on prices at current levels, while oil producers are laying down fresh hedges, pushing prices lower.
“When we put it all together, it suggests WTI will struggle to break $45 in the front,” the analysts wrote in a note to clients.
Darin Newsom, DTN senior analyst, said that fundamentally nothing much has changed for oil and there’s still “plenty of supply” to meet demand.
The recent rally left prices “overbought” near the price resistance level, which is pegged at almost $38.20, he said.
The U.S. Federal Reserve’s decision on interest rates due Wednesday may also influence oil prices, depending on its impact on the U.S. dollar, according to Newsom. A stronger dollar can cut demand for dollar-denominated oil on global markets and vice versa.
Back on Nymex, April gasoline RBJ6, -1.54% traded at $1.417 a gallon, down 2.7 cents, or 4.1%, while April heating oil HOJ6, -2.05% edged down by 3.5 cents, or 2.9%, to $1.184 a gallon.
April natural gas NGJ16, +1.65% was up 1.1 cents, or 0.6%, to $1.832 per million British thermal units.
http://www.marketwatch.com/story/oil-futures-pause-in-asia-after-early-rally-2016-03-13
Oil Price Rise Could Be Its Own Undoing
Higher crude-oil prices could encourage shale producers to ramp up output again
MARKETS STOCKS ABREAST OF THE MARKET
By NICOLE FRIEDMAN and IRA IOSEBASHVILI
March 13, 2016 8:15 p.m. ET
The slide in oil prices has paused after crude fell more than 70% from its 2014 peak. Now the question is whether the recent rise itself could spark another downward spiral.
U.S. oil prices are up more than 45% from a 13-year low in February, boosted by talks among Saudi Arabia, Russia and other major producers about capping their output.
A temporary reduction in global crude supply following outages in Nigeria and Iraq also helped buoy the market.
On Friday, the International Energy Agency said that oil prices may have bottomed out, and it forecast U.S. output to decline by nearly 530,000 barrels a day this year. The report seemed to support the market’s increasingly bullish mood, pushing U.S. oil prices up 1.7% to $38.50 a barrel.
But this rally could lead to its own demise, many analysts warn. Higher prices will likely encourage shale producers to ramp up output again, muddying any forecasts for shrinking U.S. supply. Shale wells can be drilled and fracked within a matter of months, much more quickly than other types of oil wells that can take years to complete.
“My concern is if the market surges right back to $50 a barrel…we just end up with another problem six months from now,” said Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc.“You’d be taking a lot of risk entering this market early,” he said, because a rally could be self-defeating.
Stored supplies of crude oil and refined products need to fall from current elevated levels before any sustained rally can take place, Goldman said in a note on Friday.
ENLARGE
Oil’s sharp rise has been part of a broader commodities rally that has lifted everything from gold and copper to cocoa and lean hogs.
But as with oil, many investors say they are still looking for more evidence of a fundamental rise in demand for commodities or a significant drop in production to justify further price increases.
“We have moved too much on too little data,” said George Zivic,portfolio manager of the $250 million Oppenheimer Commodity Strategy Total Return Fund, who said he closed out positions in copper, aluminum and zinc last week.
Commodity rallies, from copper to cotton, often face this dilemma: Will a sudden surge in prices lead producers to crank up output and oversupply the market? Last spring’s rebound in crude prices shows how this can happen.
Crude prices rose 40% between mid-March and early May last year to as high as $60.75 a barrel after falling to as low as $43.46. Investors piled in on expectations that the plunge in prices would spur a quick decline in U.S. oil output. Retail investors tried to benefit from oil’s anticipated rebound through exchange-traded funds designed to track oil futures, as analysts called for prices to return to $70 a barrel by 2016.
But higher prices also allowed producers to lock in prices for future years and invest in new output. The number of rigs drilling for oil started rising again over the summer as companies rushed to turn on the taps and generate new cash flow.
Some producers told investors that because of cost savings, they could afford to bring new wells online with prices above $60 a barrel. By August, oil had fallen to new lows.
Cost reductions now allow companies to increase production at even lower prices. Chevron Corp. could drill 4,000 wells in the Permian basin in Texas that would make money at prices below $50 a barrel, and some of those would make money below $30, Chief Executive John Watson told analysts last week.
Chevron has 16 rigs in the region drilling wells that will come online in six to 12 months. “We think that those wells that are being drilled will be economic at the kinds of low prices that we’re seeing today,” he said.
The oil surplus may be easing compared with a year ago. U.S. production fell on a yearly basis in December for the first time since 2011, according to the Energy Information Administration. Global production dropped 0.7% in the first two months of this year, the International Energy Agency said on Friday.
But Iranian production is expected to rise this year by several hundred thousand barrels a day, analysts say, as international sanctions are lifted.
U.S. crude inventories are at their highest level in more than 80 years. Cushing, Okla., a key storage hub and the delivery point for Nymex crude futures, is holding 66.9 million barrels of oil, 92% of its estimated working capacity as of September, according to EIA data.
Traders “want to see the inventory worked down,” said Joseph Quinlan, head of market and thematic research at Bank of America Global Wealth and Investment Management, which manages $380 billion.
Write to Nicole Friedman at nicole.friedman@wsj.com and Ira Iosebashvili at ira.iosebashvili@wsj.com
http://article.wn.com/view/2016/03/14/Oil_Price_Rise_Could_Be_Its_Own_Undoing/
I'm out. Will buy back after Monday's split.
It seems stuck around the 38.48 area.
D would be around 675 at 22.50 oil.
I am holding quite a bit of D as well. I am not selling it yet as WTI will be going down soon.
WTI is at 37.78.
Why Saudi Arabia Has No Intention To End The Oil Glut
Submitted by Tyler Durden on 03/10/2016 11:55 -0500
Iran None OPEC Saudi Arabia
Submitted by Dwayne Purvis via OilPrice.com,
In the geopolitical and oligopolistic global oil market, purely financial supply and demand has often been a secondary force, acting when it is allowed to act. It is the strategic behavior of the producing titans, not their talk or the slow-motion supply-demand balance, which has the real power to move markets. That is the case in the last two years and remains the case in 2016.
The behavior of Saudi Arabia since 2014 has demonstrated the intent to increase both capacity and supply, a pattern not yet mitigated despite a distracting news feed from OPEC and the kingdom.
(Click to enlarge)
Figure 1: Rig counts in US (oil-directed) and Saudi Arabia.
Figure 1 shows the rig counts in Saudi Arabia and the United States from 2009 to last week. (footnote: The U.S. count is oil-directed rigs while it is the total rig count in Saudi Arabia which produces mainly associated gas and exports none.) The data is shown on two different scales in such a way that the curves are equivalent during 2012 and 2013 as this was a relatively stable baseline with Saudi running 80 to 85 rigs, and 1300 to 1400 were drilling for oil in the US. What is most interesting are the actions since then.
As the shale oil revolution had sustained momentum at prices near $100 /bbl, Saudi Arabia began the second most rapid rig count expansion in its history starting in late 2013. During 2014, while the potential for oversupply was clearly known and even as prices turned sharply down in the latter half of the year, Saudi continued ramping up its rig count.
In late November 2014, the semi-annual OPEC meeting turned dissentious, and the group closed without even the pretense of a target production volume. Starting in November and continuing through March, the Saudi rig count grew in its third largest expansion in history, increasing 15 percent in four months.
At the same time, U.S. rig count was falling. Slowly at first in 2014, the rig count responded modestly to reductions in price. After the November 2014 OPEC meeting, though, the U.S. rig count began its freefall, retracing the path of the 2008 downturn. The contrast shows boldly in Figure 1. As the U.S. imploded, Saudi Arabia was ramping up.
For comparison, Saudi Arabia had a couple of times in history, though not always, reduced its rig count as the U.S. rig count dropped. Most notably, Saudi Arabia reduced then stabilized its rig count following its price war of 1986. For most of the 1990s and early 2000s the Saudi rig count tracked the same kind of pattern as the oil-directed rigs in the U.S. During the collapse of 2008-2009, Saudi Arabia again curtailed its rig count.
Of course, rig count alone doesn't mean nearly as much in the Saudi command-based supply; rig count reveals more about intent and planning than current action. The real test is how the presumed increased capacity is used. Figure 2 shows that behavior, tracing Saudi production alongside oil prices. The market, presumably watching the implosion of rig count, responded by lifting WTI oil prices back into the $60s/bbl, and Saudi Arabia then responded by promptly increasing its supply, sending prices back down again. Even as prices slowly descended close to inflation-adjusted, long-term lows, the Saudi rig count slowly ramped up, and moderated its production only somewhat.
(Click to enlarge)
Figure 2: Oil production by Saudi Arabia and WTI spot market price as a proxy for world oil prices.
Talk of a consensus action to freeze production was rumored in January, and word of a partial agreement including Russia and Saudi Arabia hit the news in mid-February, marking the beginning of a rally in prices. It is ironic that news of a cap on further increases should be a signal for price increase in a widely oversupplied market with slow changes in demand and U.S. production. A cap on production would possibly shorten the extended period of oversupply, but certainly not alleviate it anytime soon.
Perhaps influenced by short-covering by financial speculators and perhaps influenced by dropping exchange rates for the dollar, the rally does not, in any event, mark a change to the outlook for either supply-demand fundamentals or strategic behavior of the titans. The behavior of all parties is likely to follow the thinking explained recently the Kuwaiti oil minister—if Iran doesn’t participate, then they plan to produce at full capacity. Iran has called the idea of a cap on increases “ridiculous,” and, even if they were to agree to a cap, the Saudi oil minister says rightly that there is little trust among OPEC members.
In the meantime, the rig count suggests that Saudi Arabia continues to plan for higher levels of supply. While Saudi Arabia and OPEC have talked intermittently about increasing demand and decreasing supply, about minute increases for use during Ramadan and even about the possibility of caps on production, their actions have not always comported with the distracting, laissez-faire attitude suggested by their commentary. The February rig count was only one rig shy of the kingdom's all-time high set in December, an increase of four rigs over its January count. And its January production was higher than December by a volume roughly equal to the downward effect of all of the forces of supply and demand on U.S. production.
http://www.zerohedge.com/news/2016-03-10/why-saudi-arabia-has-no-intention-end-oil-glut
Reverse Splits Coming for 3X Oil & Nat Gas ETNs
March 9, 2016, 1:24 P.M. ET
A pair of souped-up oil and gas exchange-traded products are so bombed out that the issuer is hitting the reset button on prices.
Credit Suisse announced this week that VelocityShares 3x Long Crude Oil ETN (UWTI) will see a 1-for-10 reverse split, meaning that holders will get one share for every ten that they own.
At the same time, the VelocityShares 3x Long Natural Gas ETN (UGAZ) will see an astounding 1-for-25 reverse split, meaning that holders will get one share for each 25 that they own. Both are effective on March 14.
Splits and reverse splits are a kind of housekeeping. Traders don’t want a fund that’s too pricey, or too cheap. In the cases of hard-hit UWTI and UGAZ, the issue that is that these were getting too cheap.
These ETNs are highly volatile and are marketed to short-term traders. That’s because leveraged products deliver more-than-market price moves each day, meaning that streaks of consecutive one-way price action will amplify the price moves well beyond what they say on the label.
Woe to anyone caught holding UWTI for longer than even a few days — it’s down 32% so far this year, even though crude oil prices have rocketed nearly 40% from their lows last month. UWTI closed Wednesday at just $2.16 a share.
And it would seem that these are pretty popular, even though nobody but short-term, keyed-in trader types should be using them. TD Ameritrade released a survey last month that showed UTWI was one of the Top 10 stocks traded by millennials in 2015.
Credit Suisse points out in its news release that the total market value of the shares outstanding will not be affected by the splits, except in the case of fractional shares, which will be swapped for cash.
While spits are generally a wash economically, it’s these fractional shares that can lead to unplanned gains (or losses) and, thus, unplanned tax events. This blogger covered the phenomenon for Barron’s a few years back.
It only took six months for these splits to materialize after the last round, announced back in early September.
ETNs
http://blogs.barrons.com/focusonfunds/2016/03/09/reverse-splits-coming-for-3x-oil-nat-gas-etns/?mod=yahoobarrons&ru=yahoo
WTI is having a difficult time going over 38.40.
It is at 37.99 right now.
Oil market comments from Barclays and Deutsche
Thu 10 Mar 2016 03:34:00 GMT Author: Eamonn Sheridan |
Category: News
Author: Eamonn Sheridan
A couple of points I noticed:
Barclays said there was no talk of a production cut during a research trip to Saudi Arabia
Says the country's goal was to maximize its oil revenue by maintaining current production levels
Said Saudi Arabia would likely keep production around 10.2 million bpd over the next five years
Deutsche Bank said that China might see lower than expected fuel demand growth from the 2020s:
"Chinese oil demand growth, the largest single contributor to world oil demand growth, may begin to flatten more quickly than some long-term projections indicate"
"This could result in world oil demand growth falling from its 2000-2016 trend of 1.1 million bpd year-on-year to only 800,000 bpd ... by 2024."
A slowdown in China's oil demand would have significant impact on global crude prices as it has accounted for 37.5 percent of world oil demand growth since 2010
Full Reuters piece is here
http://news.forexlive.com/!/oil-market-summary-for-today-via-reuters-20160310
Strong, strong demand for gasoline in the U.S. fueled today’s rise in prices of energy. (No pun intended.)
Wednesday March 09, 2016 18:04
We experienced a classic, if small-scale, risk-on day in U.S. and European markets today. Crude oil also rebounded robustly today as well, abetting the lukewarm strength in stocks.
Asia did not share in the equities and oil optimism, falling across the three major indexes. Hong Kong was just barely down while the Nikkei and Shanghai had their bell rung loud and clear. China’s economy is still suffering from the highly negative export/import data released this week.
It is also suffering from credibility problems as more international investors are doing a gut check on the world’s second largest powerhouse. Now that there is wavering in the growth pattern, transparency is drawing closer scrutiny. No one less a personage than Ben Bernanke called for enhanced openness in China. We shall see.
Strong, strong demand for gasoline in the U.S. fueled today’s rise in prices of energy. (No pun intended.) The inventory draw on gasoline was triple what the experts had predicted: 4.5 million barrels versus the forecast 1.4 million.
The obverse of that coin is that crude stockpiles rose 3.9 million barrels, an unexpectedly high figure. We are also slipping into the crease in the year when gasoline is reformulated for and refineries close briefly to refit and retool. Additionally, gas is cheap as cheap can be, even with the recent uptick. We are also in the midst of the heavy spring driving season instigated by schools’ spring breaks. Upcoming soon, too, are various religious holidays and holy days. Thus, the draw down will continue.
Even though hope springs eternal that OPEC will pull it together with its partners outside the cartel to limit production, the move is still over the horizon. Production remains unchanged, so there is a more general downward pressure on price.
http://www.kitco.com/commentaries/2016-03-09/A-Tiny-Dose-Of-Risk-Friendliness-Douses-Fire-Under-Gold-For-Now.html
Will $38.08 be the high of the day for WTI?
In at 149.44.
I held from 1.59. Sold most of mine today.
Oil futures mark highest settlement of the year
By Myra P. Saefong and Georgi Kantchev
Published: Mar 7, 2016 3:18 p.m. ET
WTI and Brent crude prices turn higher year to date
Oil futures rallied on Monday, posting their highest settlements of the year, on hopes that major producers will curtail supply and as stronger economic data fueled hopes of improving demand.
April WTI crude CLJ6, -0.21% climbed by $1.98, or 5.5%, to settle at $37.90 a barrel on the New York Mercantile Exchange. Based on the most-active contracts, prices settled at their highest since Christmas Eve and year-to-date, prices are now about 2.3% higher, according to FactSet data.
May Brent crude LCOK6, +5.45% the global oil benchmark, rose $2.12, or 5.5%, to $40.84 a barrel on London’s ICE Futures exchange, with prices also logging the highest settlement since early December.
Read: The last time oil rallied like this it didn’t end well for the bulls
“The market is getting more bullish as the damage caused by the oil price crash is becoming apparent and is forcing the market to look beyond the current glut to a world with falling production,” said Phil Flynn, senior market analyst at Price Futures Group, in a note. “The bulls have regained control of this market that is now up 40% from its 2016 lows.”
On Monday, the United Arab Emirates’ energy minister said that current prices are forcing all suppliers to freeze their production.
“It doesn’t make any sense for anyone to increase the production with the current prices,” Suhail al-Mazrouei told reporters on the sidelines of an aerospace conference in Abu Dhabi. “This is all good news for balancing the market. We just need to be patient.”
Opinion: Oil stocks’ latest big rally is no gusher
Oil futures have climbed steadily in recent weeks after Russia, Saudi Arabia, Venezuela and Qatar agreed last month to freeze their output at January levels in an effort to support prices. Brent is up more than 7% so far this year.
The agreement, however, was contingent on other Organization of the Petroleum Exporting Countries and non-OPEC members joining the plan and Iran quickly dismissed the notion.
“The big risk is that the meeting proves a disappointment and prices fall back sharply on any lack of further progress,” said Barclays analyst Kevin Norrish.
Still, oil has received support from other signs of falling supply.
On Monday, a monthly report from Energy Information Administration forecast that U.S. shale oil output will fall 106,000 barrels a day in April from March to total 4.871 million barrels a day.
Industry group Baker Hughes BHI, +0.82% on Friday reported that the number of rigs drilling for crude oil in the U.S. dropped by eight to 392, the lowest level since 2009. Rig counts are seen as a rough proxy for activity in the industry.
Read: A rally in commodities may be a sign that Wall Street has hit a bottom
The market will be taking further cues from China’s February trade data report and the EIA’s short-term energy outlook, both set for release Tuesday, the weekly U.S. report on crude inventories and production to be issued Wednesday, and the International Energy Agency’s oil report due Friday.
Back on Nymex, April gasoline RBJ6, -0.06% finished at $1.393 a gallon, up 6.1 cents, or 4.6%, while April heating oil HOJ6, +0.03% tacked on 6.1 cents, or 5.3%, to $1.223 a gallon. Both commodities saw their highest settlements of the year.
April natural gas added 2.4 cents, or 1.4%, to $1.69 per million British thermal units. Last week, prices hit their lowest levels in 17 years.
— Jenny W. Hsu and Nicolas Parasie contributed to this article.
http://www.marketwatch.com/story/crude-prices-add-to-gains-in-an-increasingly-bullish-market-2016-03-07
I sold most of my UWTI. I added more big D.
Still no bid.
If oil doesn’t do this, then watch for a steep fall
By Barbara Kollmeyer
Published: Mar 3, 2016 9:12 a.m. ET
Critical information ahead of the U.S. market’s open
There’s a distinct whiff of optimism in the air where crude prices are concerned — something that has trickled down to stocks.
There was good and bad news in Wednesday’s U.S. crude production data. First the good: Oil production fell for a sixth straight week, and is now at the lowest since Nov. 2014, notes Commerzbank. But the bad: Inventories rose 10.4 million barrels, to a new record high.
Crude’s uphill battle
“The fact that the market is taking such longer-term aspects into account rather than looking solely at near-term inventory trends suggests that sentiment is shifting on the oil market,” says Commerzbank.
Count hedge funds as among those licking their chops and loading up on energy companies, on a bet that happy days will be here soon for oil, reported The Wall Street Journal.
But not so fast, say some. Blackwell Global, in an article for Action Forex, says the recent rally above $30 is “largely a dead-cat bounce. Subsequently, expect crude to challenge the downside in the coming weeks, as the screaming hordes of market pundits stop declaring that crude oil’s bullishness is here to stay.”
Nor is range-bound volatility on crude at its bitter end, says Michael O’Rourke, chief market strategist at JonesTrading. “We suspect that when the level of DOE [Department of Energy] inventories begin to register successive weeks of declines, the bottom is likely in,” he writes.
On to our call of the day, which zeroes in on the next big level for crude. As for stocks, where crude goes matters, as the two seem unable to agree to an amicable de-coupling.
Key market gauges
Futures on the Dow YMH6, -0.07% and the S&P ESH6, -0.14% are down a little, tracking oil prices. WTI crude CLJ6, -1.21% is slipping, and hanging on above $34 a barrel, as investors chew over that inventory data.
In Asia ADOW, +1.43% , it was mostly an up day, with the Nikkei NIK, +1.28% adding 1.3%, but the Hang Seng HSI, -0.31% pulling back. Europe SXXP, -0.39% is meandering lower.
The dollar USDJPY, +0.22% has been tapping ¥114 as equities have been getting bid. Gold GCH6, +0.11% GCH6, +0.11% is barely moving.
The call
The slippery slope
$35 a barrel. That’s the number to watch for U.S. crude prices, says FXTM’s chief market analyst Jameel Ahmad, who explains why it’s so important in a note to clients.
“Make no mistake, $35 is a superior psychological level for the commodity, and if WTI manages to close trading for the day above $35 this opens up the gates for further moves higher in price, with this obviously providing a boost to any exporters of the commodity,” he says.
Oil has been trying to recapture this level for over a month. Ahmad warns that if that doesn’t happen soon, another big move to the downside could be on the way.
“This is exactly what happened in January, when WTI failed to close above $35, with the consequence being another aggressive round of selling that led to the commodity hitting another multiyear low narrowly above $26,” he says.
Earnings
Costco could be active after the warehouse chain posted an 8.7% profit slide. Kroger KR, -6.81% also reports ahead of the bell, followed by H&R Block HRB, -0.34%Hewlett-Packard HPE, -2.05% and Smith & Wesson SWHC, -0.89% after the close.
The buzz
Reuters
The late Chesapeake Energy CEO Aubrey McClendon
The death of Aubrey McClendon, the 56-year-old former chief executive of Chesapeake Energy CHK, +13.24% , is still sending shock waves throughout the industry. Known as the face of the fracking boom, he was killed in a fiery car crash on Wednesday in Oklahoma, after being indicted by a grand jury earlier in the day on antitrust charges. Tributes are pouring in:
Herbalife HLF, -7.43% is down 6% after the nutritional supplements seller said it had overstated new member growth. That’s good news for Bill Ackman.
Hong Kong-based Samsonite 1910, +0.00% is nearing a deal to buy Tumi TUMI, +31.76% in a deal that could value the New Jersey-based luxury luggage maker at nearly $2 billion, sources told The Wall Street Journal. Tumi is up about 35% on that news.
SunEdison SUNE, -12.57% could come under pressure after the solar panel maker suspended quarterly dividend payments on preferred shares.
Apple AAPL, +0.29% has formally objected to a judge’s order that the handset maker help the government unlock a terrorist’s iPhone.
Crowd-sourced estimates provider Estimize is debuting a predictive stock-ranking tool on Thursday. The Forcerank app lets people participate in contests over several sectors.
Donald Trump has released his 7-point health care plan. Point 1: repeal Obamacare.
Moody’s went negative on 38 Chinese state-owned enterprises on Thursday, listing money flows out of the country and uncertainties over economic reforms as concerns. There are big names in there, like China Mobile 0941, -0.23% CITIC 0267, -0.35% and a whole bunch of construction companies.
Smith & Wesson SWHC, -0.89% will report earnings after the close.
The chart
Deflation fears are at an extreme level, says the global asset allocation team at Société Générale in a note Thursday. And there’s a twist.
“One key difference relative to last summer’s riskoff environment is that the recent deflation fear is a story in both emerging and developed countries,” they say.
SocGen uses a range of macroeconomic indicators to model the newsflow that’s pushing either the deflation or inflation story. Right now, oil has been dominating the latest moves. Here’s their chart:
The economy
The countdown is on for Friday’s jobs report. Ahead of that today, weekly jobless claims rose 6,000 to 278,000. Fourth-quarter productivity was revised to show a 2.2% fall, and a rise in labor costs trimmed to 3.3%. The ISM nonmanufacturing survey is coming at 10 a.m. Eastern, alongside factory order data.
The quote
Reuters
BOJ’s Kuroda got grilled over negative rates last month
“If you try to run the global system with the systemically important banks all in negative territory, I can guarantee you that something will break. The system is not built to operate at negative rates throughout the world.” — Mohamed El-Erian, chief economic adviser at Allianz, tells CNBC that sooner or later, negative interest rates are going to be a “major issue.”
The stat
Reuters
Hey buddy, can you spare billions of riyals?
$10 billion — Saudi Arabia is asking the country’s banks for a loan in that ballpark as falling oil prices have hit its budget hard, reports Reuters.
http://www.marketwatch.com/story/if-oil-doesnt-do-this-
then-watch-for-a-fall-2016-03-03
Crude prices higher as U.S. production sparks risk appetite
By Jenny W. Hsu
Published: Mar 3, 2016 12:51 a.m. ET
Crude-oil prices rose in early Asian trade Thursday as a decline in U.S. production prompts more risk-taking in the market.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in April CLJ6, +0.40% traded at $34.84 a barrel, up $0.13, or 0.4%, in the Globex electronic session. May Brent crude LCOK6, +0.27% on London’s ICE Futures exchange rose $0.09 to $37.02 a barrel.
The U.S. Energy Administration on Wednesday reported the country’s crude inventories in the week ended Feb. 29 grew 10.4 million barrels, sending total stockpiles to a weekly high of 518 million barrels. Historical monthly data show inventories last surpassed 500 million barrels in 1930.
Analysts say the growth in crude stocks was mainly driven by stronger imports as refining margins remains robust given crude prices are still almost 70% lower from mid-2014 levels.
However, the market shrugged off the bigger-than-expected growth and honed in on the decline in production, which fell for the sixth week to 9.08 million barrels a day, and the drawdown in gasoline stocks, which fell by 1.5 million barrels, suggesting healthy demand.
“The message is clear, risk is on, traders are betting on a light at the end of the tunnel with regard to the global economy and hope that oil producers will somehow enforce the production freeze,” said Stuart Ive, a client manager at OM Financial.
Oil prices have been battered in the past 20 months. But tide has gradually turned recently, mostly buoyed by rising expectation of a production adjustment after the Russian energy minister said a “critical mass” of oil producing countries are on board to hold productions at January levels.
A meeting is planned later this month in which producers will discuss the details of the proposed action. Nymex and Brent were last trading up 5% and 3.5% respectively so far this week.
“Remember, the fundamentals have not changed at all because the world is still very much oversupplied. The market is mostly reacting to information and not actual changes,” said Gao Jian, an energy analyst at SCI International.
The renewed optimism in the market, however, is strengthening the argument that “the bottom in the crude oil market could now be in place for 2016,” said ANZ Research.
Nymex reformulated gasoline blendstock for April RBJ6, -0.21% — the benchmark gasoline contract — rose 2 points to $1.3109 a gallon, while April diesel traded at $1.1129, 64 points higher.
ICE gasoil for March changed hands at $328.00 a metric ton, down $3.50 from Wednesday’s settlement.
http://www.marketwatch.com/story/crude-prices-higher-as-us-production-sparks-up-risk-appetite-2016-03-03
Why OPEC will never cut production again
By Kirk Spano
Published: Mar 2, 2016 10:31 a.m. ET
Since the December OPEC meeting, I have come to one inescapable conclusion: that OPEC will never cut production again at the expense of its own market share. Based on that idea, in the past couple of months, my clients, subscribers and I have done well to trade around oil's further decline, the slow bleed out of indebted oil stocks and even bet against a few banks. In the past week, however, oil has shown some strength on the back of young traders and short covering. With huge resistance around $37 per barrel of oil, I don't see that strength lasting long.
Back in late 2011 I identified — at about the same time that several institutions did — that the U.S. shale industry was going to change the global energy dynamic and recommended buying oil stocks. By 2014, I recognized that the price of oil would collapse, suggested selling oil stocks and invested in the dollar. In 2015, I made the same mistake that T. Boone Pickens admitted to recently, in that I, too, believed the rebalancing of the oil market would happen much faster than it has. The result was that I gave back a lot of 2014's gains.
The end of Saudi subsidies
But now times have changed again. Here are my reasons for OPEC’s actions. First and foremost is a question of logic. Why should the lowest-cost producers of oil subsidize the highest cost? In what we know is the beginning of the end of the oil age, it simply doesn't make any sense to let the highest-cost producers survive when the entire oil industry is slowly gliding toward a form of long-term business run off. It is not in the interest of the low-cost producers to cut production when the market will eventually kill the high-cost producers.
The International Energy Agency also just came to the same conclusion: "In 2016, we are living in perhaps the first truly free oil market we have seen since the pioneering days of the industry." If that's the case, low-cost producers will produce as much as possible from here on out. Oil-price increases will come from lower output from higher-cost producers who can't finance questionably economic new projects going forward in most cases.
Saudi Arabia has no intent to cut production. Their freeze agreement with Russia and a few others is simply an acknowledgment that they have reached the point where they want to be. Anybody who listened to or read Crown Prince and defense minister of Saudi Arabia Muhammad bin Salman's interview in January (The Economist) should have no doubts about his resolve. He realizes the power of the kingdom's oil and is going to use it.
One clear sign that Saudi Arabia has no intention of cutting production is the likelihood that they are taking Saudi Aramco public. By doing this, Saudi Arabia can claim that they are not in control of oil production, the same way that Russia and western nations do when they point out their oil companies are privately owned. By taking Aramco public, the Saudis can take a windfall and create a cash-flow machine for the royal family and the country (presumably). I could see a small cut in Saudi oil production just ahead of taking Aramco public to goose the IPO, but not likely before then.
What about the other players?
Iran has stated that they will increase production by a million barrels per day over the next year. While they probably miss on that target, there is no doubt they are on a path to much higher production. The rest of OPEC will never cut to offset Iranian production entering the market over the next two years when higher-cost oil will die anyway.
Iraq, while they have signed off on the freeze, is only partially signing off. The Kurds in the north, who operate independently (though maybe not completely legally), are not going to stop increasing oil production short term. Longer term, Iraq is unlikely to hold the line as they need more revenue to rebuild.
Libya is over a million barrels per day below their normal production due to the civil war there. At some point, that production will come back to the market, as they too will need to rebuild.
Non-OPEC adjustments
So, over the next year or two, there is virtually no chance that OPEC cuts production. After that, they might cut production slightly to maintain pricing, but not at the expense of market share. We will continue to see the adjustments to supply come from non-OPEC higher-cost producers depleting assets and not reinvesting. OPEC will not only keep their market share, they will increase it by a couple of million barrels most likely. I've come to agree with those who think the oil market won't clear until the price of oil hits $20/barrel or lower for a day or two — likely sometime this spring, in my opinion — and trades in a range of $25 to $45 for a period as the National Bank of Abu Dhabi PJSC recently suggested.
For investors, the idea of value hunting in the oil space has become slightly more popular lately, particular betting on a rise in oil prices. The Velocity Shares 3x Long Crude Oil ETN UWTI, +1.07% has been among the most active vehicles of late. It is a very risky bet in my opinion, as the long-term trend is against it. Traders using that fund are betting on a reversal that is probably not here yet.
Disclosure: Kirk Spano and certain clients of Bluemound Asset Management do not own any security mentioned. Subscribers to Fundamental Trends have no recommendations to buy any security mentioned. Neither Spano nor Bluemound clients plan any transactions in the next three trading days. Opinions subject to change at any time without notice.
http://www.marketwatch.com/story/why-opec-will-never-cut-production-2016-03-02?siteid=yhoof2
Today should be fun!
Brent Crude Oil below $37 as U.S. inventory rise counters output freeze plan | Reuters
Markets | Wed Mar 2, 2016 6:51am EST
LONDON | BY ALEX LAWLER
Oil edged further below $37 a barrel on Wednesday as an industry report showing a rise in U.S. crude stockpiles to a new record countered support from producer efforts to tackle a supply glut.
U.S. crude inventories jumped by 9.9 million barrels last week, the American Petroleum Institute (API) said on Tuesday, much more than the 3.6-million-barrel increase analysts had forecast.
Global benchmark Brent crude LCOc1 was down 33 cents at $36.48 a barrel by 1132 GMT (06:32 a.m. EST). On Tuesday, it reached $37.25, the highest in almost two months. U.S. crude CLc1, also known as WTI, was down 71 cents at $33.69.
"The strong inventory build reported by the API would explain why WTI is falling more than Brent," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.
Traders will look closely at the U.S. government's weekly supply data on Wednesday for confirmation of the inventory build. The Energy Information Administration figures are due at 10:30 a.m. EST.
Brent has risen 35 percent from a 12-year low of $27.10 hit on Jan. 20, adding to expectations that further drops may not be on the cards. An analyst at the International Energy Agency said on Tuesday prices appeared to have bottomed.
Crude has collapsed from more than $100 in mid-2014, pressured by excess supply and a decision by the Organization of the Petroleum Exporting Countries to abandon its traditional role of cutting production by itself to boost prices.
After more than a year of failing to agree any steps, OPEC and outside producers have stepped up diplomatic activity to fix the supply glut. Saudi Arabia, Qatar, Venezuela and non-OPEC producer Russia said on Feb. 16 they would freeze output.
The four countries have agreed to meet again in mid-March, Venezuelan Oil Minister Eulogio Del Pino said last week. The location for the talks has yet to be decided, OPEC delegates say.
In an early sign that Moscow will stick to the plan, Russia reported on Wednesday its oil output was little changed in February. Saudi Arabia has yet to report its production, but a Reuters survey this week found no sign of an increase in February. <OPEC/O>
"Although the market had hoped that some of these producers would immediately cut oil production, we still see this agreement as a strong message," ABN Amro said in a report.
"By announcing a production freeze, the global oil coalition has set a floor under oil prices."
(Additional reporting by Osamu Tsukimori in Tokyo; Editing by Dale Hudson)
http://www.reuters.com/article/us-global-oil-idUSKCN0W4044
Supply problems in Iraq boost crude to $37
Published time: 1 Mar, 2016 09:41
Edited time: 1 Mar, 2016 09:43
A view of Baiji oil refinery, north of Baghdad © Thaier Al-Sudani / Reuters
Oil prices rallied as OPEC crude output fell by 280,000 barrels per day (bpd) in February, according to a Reuters survey. The main reason is an involuntary disruption of supplies from a pipeline in Iraqi Kurdistan that was recently pumping about 600,000 bpd.
The pipeline has been offline since February 17 and could stay closed until mid-March.
The cut in supply bolstered oil prices with the US crude benchmark West Texas Intermediate gaining over 11 percent since February 17 to over $34 per barrel. Brent crude gained over six percent in the same period, trading at nearly $37 per barrel.
"The interruption from Kurdistan is significant because they were a big part of the increase in exports from Iraq. It is prompt supplies and these are large volumes,” Olivier Jakob, analyst at Petromatrix told Reuters.
A spill in Nigeria and field maintenance in the United Arab Emirates has also curbed OPEC output.
However, Iran has boosted supply by 200,000 bpd since December, according to Reuters. Tehran says these figures are much higher at 500,000 bpd.
According to the survey, Saudi Arabia’s output stood at 10.20 million bpd, unaltered since January, but down from a record-high of 10.56 million bpd in June.
Currently, OPEC has no official supply target, after scrapping the output ceiling of 30 million bpd at the December meeting. The cartel had been exceeding its quota for months.
After oil prices hit 12-year lows of $27 per barrel in January, the world’s two biggest oil producers – Russia and Saudi Arabia as well as OPEC members Qatar and Venezuela agreed on an oil production freeze at January levels. This was the first crude production accord since 2001.
Ecuador, Algeria, Nigeria, Oman, Kuwait, the United Arab Emirates have said they are ready to join the pact. Iran and Iraq say they only support steps to improve the situation in the oil market, avoiding promises to join the production freeze.
https://www.rt.com/business/334065-iraq-oil-prices-brent-wti/
Art Berman Sees Oil Heading To $16, Will Lead To "Banking Bloodbath"
Submitted by Tyler Durden on 03/01/2016 20:30 -0500
Bond Crude High Yield Iran Iraq New Normal OPEC Saudi ArabiaWhiting Petroleum
As Nate Hagens noted, "people think that the economy runs on money but it runs on energy," and as Art Berman details in the following interview how the current oil price collapse represents devaluation from over-investment in unconventional oil - and most commodities - because of cheap capital, and is simply a classic bubble. "Continued oil prices of $30 per barrel or less are the only reasonable path to higher growth and a balanced oil market," Berman contends, adding that he expects $16.50/bbl - "I think we're gonna get there." Berman concludes ominously, we're not going 'back' to anything - "Normal is over, and there is no new normal yet."
Full Art Berman interview below (via Macro Voices):
Breakdown:
18:25 - OPEC will cut production in 2016
19:05 - OPEC’s objective is to kill shale drillers’ source of funding
19:30 - The idea that Iraq/Iran will cooperate with Saudi Arabia is laughable
22:30 - EIA/IEA numbers are estimates at best, and almost certainly wrong
24:00 - He doesn’t believe recent EIA figures saying consumption has fallen dramatically
24:40 - US production must drop in a more meaningful way before OPEC can affect crude price
27:00 - Baker Hughes Rig Count is only focused on by traders because it’s available data, not because it matters
29:00 - Regardless of rig count, regardless of what people think, the number of producing wells continues to increase!
31:30 - US production not necessarily in direct competition with Iranian production
33:15 - As long as storage numbers are 80% of capacity or more, prices will remain “crushed”
35:45 - Forget about the nonsense that you read in the WSJ about “the true breakeven price” for shale operators - the true breakeven price for the best operators in the 3 main US shale plays is $60-70/bbl
38:40 - These shale operators “have no money”
39:00 - If investors abandon shale company stock, their total assets decline and their debt is in trouble
40:45 - Pretty obvious to anyone who knows that this situation is going to crash in a big way, it’s just a question of when
40:55 - Similar situation to “The Big Short”
44:40 - Very few options beyond increasing Cushing storage capacity, which takes time
46:30 - Whiting Petroleum clearly out of money, made a terrible acquisition, and is stopping further drilling because they have no other option. They could care less about the shareholders and are acting out of desperation.
48:05 - Midwestern gasoline refineries cutting back on crude purchases as they don’t see sufficient demand
50:00 - $16.50/bbl - “I think we’re gonna get there”
52:35 - Capital providers clearly pulling back from investing in US tight oil projects
53:00 - Future investments in the Oil Sands are dead
54:05 - In the first half of 2016 there will be a wave of shale operator bankruptcies and defaults on bond payments, a collapse in the high yield bond market which could spill over into other markets, as well as further distress in the banking industry - “will be a bloodbath”
55:00 - 2016 shale operator bankruptcies could reach 50%
57:00 - Iran will not get back to 1970’s levels as they would like to suggest. Production levels will be far less.
58:45 - Libya is the wild card. If they ever get their civil unrest under control, they could bring 1.5MMbbl/day to market and “that would be a disaster(for oil prices)”
1:04:15 - We’re not going back to anything - “Normal is over, and there is no new normal yet”
Source: MacroVoices.com
* * *
http://www.zerohedge.com/news/2016-03-01/art-berman-sees-oil-heading-16-will-lead-banking-bloodbath
Railcars Double as Storage in Oil Glut - WSJ
BY NICOLE FRIEDMAN AND BOB TITA
02/29/16
The U.S. is so awash in crude oil that traders are experimenting with new places to store it: empty railcars.
Thousands of railcars ordered up to transport oil are now sitting idle because current ultralow crude prices have made shipping by train unprofitable. Meanwhile, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s.
Some industry participants are calling the new practice “rolling storage”—a landlocked spin on the “floating storage” producers use to hold crude on giant oil tankers when inventories run high.
The combination of cheap oil and surplus railcars has created a budding new side business for traders. J.P. Fjeld-Hansen, a managing director for trading company Musket Corp., tested using railcars for storage last year and found he could profit by putting the oil aside while locking in a higher price to deliver it in a later month.
The company built a rail terminal in Windsor, Colo., in 2012 to load oil shipments during a boom in U.S. oil production. Now, Mr. Fjeld-Hansen says, “The focus has shifted from a loading terminal to an oil-storage and railcar-storage business.”
Energy Midstream, a trading company based in The Woodlands, Texas, stored an ultralight oil known as condensate on Ohio railcars last month for about 15 days before shipping it to a buyer in Canada.
Dennis Hoskins, a managing partner at Energy Midstream, says there are so many unused tank cars that he is constantly hearing from railcar owners hoping to put them to use. “We get offers everyday for railcars,” he said.
The use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Issues range from leaky cars to the risk of collisions and fires.
Federal regulations require railroads that store cars loaded with hazardous materials like oil to comply with strict storage and security measures to keep the cars away from daily rail traffic. Railroads and users face responsibility for leaks, collisions or other mishaps.
“I don’t want the liability,” said Judy Petry, president of Oklahoma rail operator Farmrail System Inc. “We prefer not to hold a loaded car.”
Still, the oil has to go somewhere. The surge in shale-oil production has created a massive glut that the industry is struggling to absorb. BP PLC Chief Executive Bob Dudley joked in a speech this month that by midyear, “every storage tank and swimming pool in the world will be filled with oil.”
Khory Ramage, president of Ironhorse Permian Basin LLC, which operates a rail terminal in Artesia, N.M., said he hears regularly from traders looking to store crude in his railcars.
Crude-storage costs “have been accelerating, just due to the demand for it and less room,” he said. “You’ll probably start seeing this kick up more and more.”
U.S. crude inventories rose above 500 million barrels in late January for the first time since 1930, according to the Energy Information Administration.
The cheapest form of storage— underground salt caverns— can cost 25 cents a barrel each month, while storing crude on railcars costs about 50 cents a barrel and floating storage can cost 75 cents or more. The cost estimates don’t include loading and transportation.
Railcars hold between 500 and 700 barrels of oil, less than a cavern, tank or ship can store.
The use of U.S. railcars to transport large volumes of oil picked up steam a few years ago as a byproduct of the fracking boom. Fields sprung up faster than pipelines could be laid, so producers improvised and shipped their output to market by rail. Companies soon realized railroads offered greater flexibility to transfer oil to whomever offered the best price. Some pipeline companies even joined the rail business, building terminals to load and unload oil. U.S. oil settled Friday at $32.78 a barrel, down nearly 70% from mid-2014.
The plunge in oil prices brought that activity to a halt. Analysts estimate there are now as many as 20,000 tank cars—about one-third of the North American fleet for hauling oil—parked out of the way in storage yards or along unused stretches of tracks in rural areas.
Producers and shippers who signed long-term leases for the cars during the boom are stuck paying monthly rates that typically run $1,500 to $1,700 per car. Traders can pay those prices and still profit. Oil bought at the April price and sold through the futures market for delivery a year later could net a trader $8.07 a barrel, not including storage or transportation costs.
As central storage hubs fill up, oil companies are more willing to pay for expensive and remote types of storage, said Ernie Barsamian, principal of the Tank Tiger, which keeps a database of companies looking to buy and sell oil storage space.
The Tank Tiger posted an inquiry Wednesday on behalf of a client seeking 75,000 barrels of crude-oil storage or space to park 100 to 120 railcars loaded with crude.
Mr. Barsamian likened the disappearance of available storage to a coloring book where nearly all the white space has been filled in.
“You’re getting closer to the edges,” he said.
DANIEL ACKER/BLOOMBERG NEWS
Railcars sit in a yard in North Dakota. Faced with scarce storage, oil traders are turning to railcars.
Shale Sector Starts to Cut Production - WSJ
BY ERIN AILWORTH
03/01/16
Some of America’s biggest shale producers are beginning to ratchet back oil and gas production for the first time in years, bending to the reality that a global glut will keep prices depressed.
The production cuts, announced as shale companies reported dismal earnings in recent days, stand in stark contrast to the past year, when many U.S. drillers kept the taps turned on even as oil prices plunged from nearly $100 a barrel to about $30. American oil satisfies 10% of the world’s daily needs, putting U.S. production on par with output from Russia and Saudi Arabia.
The Organization of the Petroleum Exporting Countries continues to pump at full tilt, further pressuring higher-cost operators such as U.S. shale producers. Last week, Saudi Arabia oil minister Ali al-Naimi bluntly told a roomful of energy executives in Houston that the supply problem will only be resolved when low prices force companies to stop producing the oil that is most expensive to extract and sell.
So after years of boosting oil and gas flows across Oklahoma, Texas and North Dakota, Continental Resources Inc., Devon Energy Corp. andMarathon Oil Corp. say they plan to pull roughly 10% less from the ground in 2016 than they did last year. EOG Resources Inc. joined the chorus Friday, telling investors it has curbed production and expects to pump 5% less oil this year
One hurdle to throttling back production in the U.S. is that shale drillers have become more efficient, tapping wells faster, for less money, and coaxing more fuel out of each one. But other companies have been forced to keep pumping just to bring in cash so they could make interest payments on their heavy debt loads, or to satisfy lease obligations
EOG, which lost money last year for the first time, is considered by many analysts to be the most efficient shale operator in the U.S. Chief Executive Bill Thomas said the company would only pump wells that give it a high rate of return—at least 30%—when U.S. crude sells for $40 a barrel.
One way companies are trying to put a lid on production this year is by waiting to pump wells they have already drilled. That trend is creating a large inventory of oil and gas wells that will be ready to turn on when crude prices finally do rebound.
Both Continental and rival Whiting Petroleum Corp. say they won’t pump much crude from new wells in North Dakota’s Bakken Shale this year. Continental still plans to drill a few new prospects, but won’t start pumping oil from many of them this year. It expects to have a backlog of 195 drilled-but-uncompleted wells in North Dakota this year. Similarly, Whiting said it would have 73 such wells by year-end.
“We just don’t want to bring anything else on in this environment until we see a recovery happen,” Continental Chief Executive Harold Hamm told analysts and investors on a call last week.
The reduction in oil and gas output stand in stark contrast to the past year.
A well site in Oklahoma. Energy companies are dialing back spending.
NICK OXFORD/REUTERS
Once the biggest oil pro-ducer in North Dakota, Whiting lost $2.2 billion in 2015, mostly because it had to partially write down the value of a field in Texas. The company, which brought in $2 billion in revenue last year, is cutting its 2016 budget by 80%.
More than three dozen energy companies have collectively gutted their budgets by nearly 50% on average in recent weeks, dialing back spending for the year by roughly $36 billion when compared with 2015.
“They’re being forced to cut,” said David Tameron, an energy analyst at Wells Fargo Securities. “When you cut spending, naturally production goes down.”
IHS, the consulting firm that held the energy gathering in Houston last week, is forecasting that U.S. oil output could fall from more than 9 million barrels a day to as little as 8.3 million barrels a day by this summer.
If that drop does materialize, it could boost crude prices back to the $40-a-barrel range, according to IHS.
One risk, though, is that as prices move higher, some producers may be tempted to turn on the spigot once again, a move that could in turn driveprices back down.
That happened last spring when prices popped back to $60 a barrel, spurring producers to race back into oil fields and tap new wells.
If that happens, prices could collapse even below current levels, said Jamie Webster, senior director of oil markets for IHS.
“It wouldn’t surprise me if it were single digits,” Mr. Webster said of the potential for oil prices to fall below $10 a barrel if U.S. producers decide to drill more.
Some companies, particularly those that have hedged against falling prices, are bucking the trend. Pioneer Natural Resources Co., which drills in West Texas, still plans to boost production at least 10% this year thanks in part to hedging contracts that give it abovemarket prices for much of the crude it pumps.
Jim Teague, who runs Enterprise Products Partners LP, one of the biggest pipeline companies in the U.S., said he can’t predict how long the pain in the oil patch will last.
“I don’t have a clue how low crude oil is going to go, how long it’s going to stay there, or what normal’s going to look like” when things finally stabilize, he said. “People keep calling it a cycle. I call it pure hell.”
—Alison Sider and Dan Molinski contributed to this article.
Oil Prices Gain on Supply Expectations
Production levels remain elevated despite plummeting crude prices
By NICOLE FRIEDMAN
Updated Feb. 29, 2016 10:10 a.m. ET
NEW YORK—Oil prices rose Monday on news of lower Nigerian supply and a continued decline in U.S. drilling activity.
Despite plummeting oil prices in the past year and a half, global production has increased as production in the U.S. remained high and the Organization of the Petroleum Exporting Countries has opted not to cut output. The global crude-oil market is expected to remain oversupplied through the rest of the year.
Shell said Friday that it declared force majeure in a pipeline in Nigeria due to a leak. Force majeure refers to a clause often included in commodity contracts that offer companies leeway when extraordinary circumstances—such as fires, natural disasters or war—hinder their ability to fulfill obligations.
Oil exports from the pipeline are expected to be halted until April, Reuters reported, cutting Nigerian output by nearly 250,000 barrels a day. Nigeria produces about 1.8 million barrels a day, according to the International Energy Agency.
Light, sweet crude for April delivery recently rose 70 cents, or 2.1%, to $33.48 a barrel on the New York Mercantile Exchange.
Brent, the global benchmark, rose 82 cents, or 2.3%, to $35.92 a barrel on ICE Futures Europe. The April Brent contract is due to expire at settlement Monday. Brent for May delivery, the more actively traded contract, recently rose 92 cents, or 2.6%, to $36.36 a barrel.
A decline in U.S. drilling activity also boosted prices. The number of rigs drilling for oil in the U.S. fell by 13 last week to 400, the lowest level since 2009.
Oil pipelines at a facility on Khark Island, Iran. Most market participants doubt the effectiveness of a deal on an output freeze without Iran’s participation.
U.S. producers have sharply cut spending new drilling in response to low prices. But they have also cut costs and improved efficiency, so U.S. output hasn’t fallen as quickly as some market watchers had expected.
Some analysts say that at the current drilling level, production will start declining at a faster pace this year.
The oil market is stuck in a tight trading range, said Mike Nielson, a senior derivatives trader at the Copenhagen-based Global Risk Management. “At $36 we are selling and at $32 we are buying, and until this level is broken, we won’t make a decision,” he said.
Talk among large producing nations about a possible production freeze has also boosted prices in recent weeks. Saudi Arabia, Russia, Qatar and Venezuela announced that they are willing to freeze production at January levels. But market participants are skeptical that the deal would be effective without Iran’s participation. Iran is expected to increase its production this year now that international sanctions have been lifted.
Gasoline futures recently rose 0.9% to $1.0258 a gallon. Diesel futures rose 2.3% to $1.0757 a gallon.
—Miriam Malek contributed to this article.
Write to Nicole Friedman at nicole.friedman@wsj.com
?http://www.wsj.com/articles/global-oil-prices-mainly-flat-1456747867
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Contango is coming down on WTI.
You can no longer get $50 on Dec 2024 WTI. The contract is down much more than the April contract.
http://www.barchart.com/commodityfutures/Crude_Oil_WTI_Futures/CL