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Oil Turnaround: Timing The US Production Peak

Summary Analysis points to US production peaking in late April. Oil rig reduction is accelerating. Current two week decline in EIA estimates not too unusual. Canadian rig count down 66% year over year. Current oil rig count 1482. Estimated production breakeven rigs required: 1267. Shale oil wells deplete much faster than traditional wells. This article attempts to determine the number of rigs that need to be deployed in order to neither increase nor decrease the US production of oil. To estimate a ballpark peak date and ballpark breakeven number of rigs in this cycle, one needs to: 1. Estimate the number of barrels that are produced in a given week, given a known number of oil rigs in operation. 2. Estimate the rate of depletion (that is, to estimate the amount of additional depletion expressed as a percentage of peak production as a function of time that occurs as […]

Posted On : Published By : Tom Whipple
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Mounting debt for energy firms as oil prices plummet

Mounting debt for energy firms as oil prices plummet thumbnail Energy firms have been financing new oil production by taking on large amounts of debt. When oil prices averaged over $100, that strategy made sense. But with oil at $50, most indebted firms are suddenly in crisis. In recent years oil exploration companies have taken on more debt in order to finance their operations. The level of debt in the upstream sector – excluding integrated oil companies like ExxonMobil – hit $199 billion at the end of 2014, a 55 percent increase since 2010, according to the  Wall Street Journal . Loading up on debt made sense when oil prices were high. Fracking new shale wells can be an expensive process, but when oil was averaging over $100 per barrel, the debt load for many firms didn’t seem so burdensome. Now with oil prices falling by more than half […]

Posted On : Published By : Tom Whipple
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US Gasoline Demand Is Surging

As oil prices have plunged, US gas demand has soared, something that seemed unlikely just a few years ago. According to Morgan Downey, CEO of  Money.net , “A few years ago people were saying that US oil demand had peaked and would never recover — some called it ‘peak demand.’” In an email to Business Insider, Downey said the recent surge in demand is unusual because oil has a low price elasticity of demand, meaning demand is not very sensitive to changes in price. “Now with gasoline at almost $2/gallon on average nationwide, US gasoline demand has not only recovered, but is at all-time seasonal highs and likely to be at a record high throughout 2015,” he wrote. “This 2014 demand rally is a little unexpected and shows that oil consumer behavior changes during 2008-2013 were temporary and not permanent like many claimed they would be.” Here is Downey’s chart […]

Posted On : Published By : Tom Whipple
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Euro at lowest level in more than nine years

LONDON, ENGLAND – NOVEMBER 26: In this photo illustration Euro notes are displayed in a pyramid, on November 26, 2010 in London, England. Concerns over the Euro zone debts have caused shares to retreat today by 1.3 percent, as speculation continues over other countries seeking financial help. According to reports, a 85 billion euro (112.7 billion USD) rescue package from the EU and International Monetary Fund (IMF) will be announced for Ireland on Sunday. (Photo illustration by Dan Kitwood/Getty Images) The euro extended its longest uninterrupted losing streak since its creation and fell below the $1.18 mark for the first time in more than nine years, to trade at about the same level as when it was introduced in January 1999. The common currency was first launched at an exchange rate of $1.1789 on January 4 1999 and fell below that level before recovering in the early 2000s. The […]

Posted On : Published By : Tom Whipple
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Robert Rapier: My 2015 Energy Predictions

Happy New Year to readers around the world! For the past 5 or 6 years, I have begun the year by making predictions for the upcoming year in the energy markets. I am generally happy if I can hit on 60-80% of them. In 2014 I went 5 for 5 , but I can say with a fair amount of confidence that this is a feat that’s unlikely to be repeated for 2015. The reason for this is that I see a lot of uncertainty in the energy markets at this point. There are many changing variables right now, and the direction on several fronts is unclear. And if you look at some of the predictions others have made, that becomes obvious. I have seen predictions of $30 per barrel (bbl) oil and $100/bbl oil, and some suggesting that we would see both extremes. I have also seen people […]

Posted On : Published By : Tom Whipple
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Oil Prices Remain Volatile

ENLARGE Analysts say the fundamentals haven’t changed significantly enough to mark an end to the slide in oil prices. Reuters LONDON—Oil prices remained volatile Thursday after breaking a four-session losing streak when weekly U.S. crude inventories experienced a bigger-than-expected drop. While the relatively bullish data might be an indication that U.S. oil production is stabilizing, analysts say the fundamentals haven’t changed significantly enough to mark an end to oil’s relentless slide. Crude prices have fallen more than 50% since their peak last June as a global oversupply, fueled by the booming U.S. shale industry, met tepid demand for the commodity. Brent crude for February delivery fell 0.5% to under $51 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures traded broadly flat at $48.60 a barrel. Global oil market fundamentals and sentiment remained weak and Wednesday’s mixed U.S. inventory data won’t […]

Posted On : Published By : Tom Whipple
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Oil Steady After U.S. Supply Data Spur Biggest Gain in Two Weeks

Oil was steady in New York after an unexpected drop in U.S. stockpiles spurred the biggest gain in two weeks yesterday. Prices fell in London . Futures gained 0.2 percent in New York after rising 1.5 percent yesterday. U.S. crude stockpiles shrank by 3.06 million barrels to 382.4 million in the week ended Jan. 2, the Energy Information Administration said yesterday. A median increase of 700,000 barrels was projected in a Bloomberg survey. Credit Suisse Group AG cut its forecast for this year’s increase in U.S. crude output by 500,000 barrels a day. “We were due for a minor correction upwards,” Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark , said by e-mail. “On an isolated basis crude draws were mildly bullish. Intraday fluctuations of 3 percent seem to be the temporary new normal.” Oil’s collapse has been so rapid and so driven by sentiment […]

Posted On : Published By : Tom Whipple
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Oil halts four-day drop, U.S. stockpile data supports

SINGAPORE (Reuters) – Brent crude extended gains on Thursday to hold above $51 a barrel, after an unexpected fall in U.S. crude stocks snapped a 4-session decline the previous day. Data showing the U.S. economy remained resilient amid slowing global growth helped bolster oil, which was also supported by Chinese crude imports likely hitting a record high in December. Brent crude marked an intraday high of $51.91 a barrel and was at $51.30 by 0543 GMT, up 15 cents. U.S. crude had risen 25 cents to $48.90 after touching a peak of $49.65. But pressure on prices that have plunged more than half since June highs remains strong, with key producers such as OPEC and Russia showing no signs of cutting output despite a supply glut and as major economies in Europe and Asia struggle with slowing growth. "Sentiment towards the oil market remains negative but the lack of […]

Posted On : Published By : Tom Whipple
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Oil Investors Pour Most Money Into Funds in 4 Years

Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude. The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5. Investors are piling into oil ETFs even after West Texas Intermediate crude, the U.S. benchmark, tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009. “Commodity investors can be contrarian investors,” said Matt Hougan, president of San Francisco-based research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, […]

Posted On : Published By : Tom Whipple
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Analysts Say There’s No Telling How Low Oil Prices Could Go

Oil’s drop has been so rapid and so driven by sentiment that forecasters from Bank of America Corp. to UBS AG say there are no clear signs for when the rout will end. Brent crude slumped below $50 a barrel yesterday, 57 percent less than the peak of $115.71 reached in June. UBS analysts say investors should avoid oil until the “free fall” ends. Traders are ignoring supply disruptions that would normally boost prices, ABN Amro Bank NV analysts said. Oil’s slump accelerated after Saudi Arabia and other members of the Organization of Petroleum Exporting Countries decided Nov. 27 to maintain their production ceiling. The 12-member group is seeking to protect market share rather than prices, challenging U.S. shale drillers and other rivals to pare their output instead. “It’s not clear that anyone can answer how low it will go,” Ed Morse , global head of commodities research for […]

Posted On : Published By : Tom Whipple