Oil Supply / Demand

[dan_s]

Total US crude oil production declined 100,000 b/d in July compared with June, and is expected to continue decreasing through mid-2016 before growth resumes late in 2016, according to the US Energy Information Administration’s most recent Short-Term Energy Outlook (STEO).

Read: http://www.ogj.com/articles/2015/08/eia ... id=1149633

I believe EIA continues to over estimate oil inventory builds and under-estimates demand. IEA increased their demand forecast (again) and I expect them to keep doing so.

If U.S. oil production declined by 100,000 bbls per day in July (a total wild ass guess by EIA) then it will accelerate to a decline of 200,000 bbls per day in the 4th quarter. There is no way we are completing enough wells today to offset the decline in wells completed during 2014. 37,000 wells were completed in the U.S. last year. Over half of those wells were high decline rate horizontal wells. We are now completing about 1,000 per month.

[dan_s]

Study the chart at this link: https://www.iea.org/oilmarketreport/omrpublic/

[dan_s]

Light at the end of the tunnel: A recent note from Wells Fargo Equity Research highlights the continued unresponsiveness of production in the face of low oil prices, but the analysts say they expect the market to rebalance in 2016.

Read: http://www.oilandgas360.com/will-an-oil ... a-26401157

I believe that month after month we will see IEA raise their global demand forecast. Today's low fuel prices are creating a lot more demand. Same thing happened in 2009. Demand forecasts started at 1.0 and ended the year at 3.3 million bbls per day.

[jb2257]

I wish I knew who was controlling these oil prices as it looks like we are in a recession. I think we're at a critical level.

[dan_s]

Oppenheimer’s Fadel Gheit and Luis Amadeo explain why some oil producers could be in trouble even if fair value for oil is somewhere between $65 and $75: "We believe the new normal for oil prices is somewhere in the $65-75 range and significantly higher or significantly lower prices are not supported by market fundamentals. Oil cycles usually go through five phases; shock, denial, panic, capitulation and finally consolidation. The vast majority of oil companies are living beyond their means, with operating cash flow falling short of capital investments and dividend…Continued deficit spending in a low oil price environment, especially for financially constrained and high-cost producers, amounts to self-liquidation and destruction of shareholder value. Unless oil prices rebound significantly above future strip prices, oil stocks could sink further, as takeover premiums shrink with potential sellers significantly outnumbering potential buyers. The shale revolution driven by horizontal drilling and hydraulic fracturing technology has unlocked tens of billions of barrels of unconventional resources in rock formations onshore the US and has forever changed the oil industry."


My take is that today's oil price us unsustainable for everyone, including Saudi Arabia. High quality companies, like those in our Sweet 16 can survive an extended period of low oil prices and they will be just fine if WTI moves back to $60/bbl.