Oil Price: Why this world need higher oil prices

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Oil Price: Why this world need higher oil prices

Post by dan_s »

The two primary reason the price of oil will be much higher in six months [Raymond James' forecasts that WTI will average $85/bbl in Q1 2020].
> U.S. shale oil production growTH is clearly slowing.
> IMO 2020 regulations will reduce usable oil supply by 1.5 million barrels per day in just 4.5 months.

"Its quite clear that Permian horizontal well productivity improvements have largely stalled since Q2/16, with productivity increasing by a mere 6.7% in the 2.5 years time span since then."

"Fitch Ratings is expecting a pronounced slowdown in US shale growth in the coming years as the YoY growth rate slows down from 15% in 2018 to around 6% in 2020."


Read more proof of slowing U.S. oil production growth here: https://finance.yahoo.com/news/permian- ... 00268.html

At our Houston luncheon on Friday, August 16 we will be covering the impact of the IMO 2020 Regulations that require all ships to use low sulfur fuels after 1-1-2020. We are going to be in the Hess Club's San Jacinto room, so seating is limited. PLEASE REGISTER IF YOU PLAN TO ATTEND.
Dan Steffens
Energy Prospectus Group
dan_s
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Re: Oil Price: Why this world need higher oil prices

Post by dan_s »

A recent article on Fitch Solutions, provides more color on Fitch’s outlook:

"Shale producers have racked up major gains in well productivity and operational efficiency since oil prices collapsed in 2014, reviving profits in the face of substantially lower prices. That said, these gains are not inexhaustible and there are signs that well productivity is trending downwards, reflecting growing issues with well interference, as the number of child wells eclipses parent wells in the Permian, the main engine of US growth. Further cost savings can be made, such as through consolidation of contiguous assets and the industrialisation of shale production processes, and the growing role for the majors and the larger independents is a positive sign in this regard. Nevertheless, we believe prices will be a constraining factor for growth over H219 and 2020."

In other words, the "Right Price" for oil is much higher than where it sits today. If the price of oil doesn't move higher soon, U.S. oil production growth will STOP.
Dan Steffens
Energy Prospectus Group
dan_s
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Re: Oil Price: Why this world need higher oil prices

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"A slowdown in a single oil field in a single country may not seem material to some, but when one learns that the US has been the source of almost 100% of the growth in non-OPEC production since 2015 and that the lionshare of that growth is coming from the Permian, a material slowdown in the Permian will have a disproportionate impact on global oil prices in the upcoming decade." - Nawar Alsaadi for Oilprice.com
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Re: Oil Price: Why this world need higher oil prices

Post by ChuckGeb »

Both of Exxon and Chevron have announced Permian goals of 1 million BOE daily in 5 years from a current level of 300-400,000 per day. The media reports I have seen indicate that this is an achievable goal and their well results and productivity are unmatched.

Seems like a lot if new production to me. How does this factor in to the RJ/EPG equation?
dave_n
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Re: Oil Price: Why this world need higher oil prices

Post by dave_n »

Chuck, I think you just highlighted the underlying issue. Until the majors pull back on their supply growth forecasts, scarcity will not be a concern. And given that the Majors drilling program expansion continues regardless of price, it sure feels a lot like what OPEC was doing to flood the market just a short time ago. Maybe their objective is to drive competition out and pick up a lot of assets on the cheap? It sure is the result whether that's their intention or not. In reality, the majors are building scale so they can compete globally. But that means supply scarcity is no longer a concern because planned supply keeps growing. Sure with OPECs support, the ying and yang of oil price will float around the proverbial $60, but that's a modest profit for most E&Ps. The only solution is consolidation. It's the only way E&P's can compete on scale with the majors. Until that happens, I won't be deploying any more capital into E&P companies.

Just one investor's observations...
bobs
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Re: Oil Price: Why this world need higher oil prices

Post by bobs »

this explanation makes total sense to me so higher prices are not likely for some time except that stuff always happens that no one expects at again some of the time
dan_s
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Re: Oil Price: Why this world need higher oil prices

Post by dan_s »

The active rig count is a pretty good indication of where U.S. production is heading. You should listen the PXD Q2 conference call.
Dan Steffens
Energy Prospectus Group
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