Phil Flynn on Monday, April 24
Oil prices are creeping back as global markets breathe a sigh of relief in the aftermath of the French elections. Crude oil sold off hard on geo-political risk and the perception that U.S. oil production is going to offset OPEC production cuts even if it's not true. Of course the market believes it, at least right now, because if you say something long and hard enough, even if it is not true, the market will react. [Phil is right. There is zero chance that the U.S. can increase oil production enough to offset the OPEC cuts much less keep up with rising oil demand. - Dan]
Baker Hughes reported that drillers added 5 oil rigs for a 14th week in a row, now to 688 rigs. Shale production will increase to the highest level in 2 years as warmer weather makes it easier to produce. Shale drillers better hope that prices do not collapse because most of these firms adding rigs are in debt up to their eyeballs. [Not true, but some do have a lot of debt.] Many are leveraged to the hilt and banks may run for cover if there is any pullback in price.
Yet as OPEC is widely expected to extend its production cuts, the full impact of those cuts will start to be felt as demand starts to ramp up in the summer. OPEC and non-OPEC producers start to work towards better compliance. Reports that Iran's crude oil exports hit 14-month low in March is a sign that the country is falling in line with other OPEC members or that they are having a tough time raising output do to years of underinvestment. Russian energy minister Alexander Novak said a decision on extending a global pact to cut oil production had not yet been taken, but would be discussed with OPEC on May 24, according to Reuters. Still most believe that Russia will join the cuts because they will start to see the global oversupply drain.
The other side of oil is the demand side that we believe will exceed expectations. Take China for example. Reuters is reporting, “Policymakers in China are pushing a bullish message on the world's second-biggest economy after a solid first quarter, pointing to a slow-down in capital outflows and a stable yuan after a selloff last year stoked fears of instability.
China’s finance minister Xiao Jie said an increasing number of positive signs were seen in the Chinese economy in the first quarter gross domestic product report. China is confident of reaching the government's 6.5 percent GDP growth target this year. Separately, People's Bank of China (PBOC) adviser Sheng Songcheng said the improving economy has been matched by a stable yuan, with signs that capital is starting to return to China. "After breaking and even reversing expectations for yuan depreciation, there are signs of a trend of capital returning to China," Sheng wrote.
India imported about 33 million tons of oil products over April 2016 to February 2017, up nearly 24 percent from the same period a year ago, government data showed. Most of the imports compromise petroleum coke and LPG according to Reuters. Energy consumption in India, the world's third-biggest oil consumer, is expected to grow as it targets between 8 to 9 percent economic growth this fiscal year from around 7 percent in 2016/17. Even as India tries to wean itself off oil, this trend of strong demand growth is not going to change overnight.
We believe the global oil market is tightening. While traders can’t see through the current short term data, a major sea change of global supply changes are underway. I am not alone with this thought as others like Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) are agreeing with my call for higher prices. Hedgers must use price weakness to protect themselves from upside risk which could become frantic once the market sees inventory start to tighten. Overall products, not just crude, have fallen for nine weeks in a row. Crude will be the next to fall. Geo-political risk may become more of a factor as tightening supply increases the chances for upside price spikes.
Usually shoulder season is a quiet time for the natural gas market but not this year. Reuters is reporting that hedge fund managers have accumulated a near-record bullish position in U.S. natural gas futures and options as gas stocks have remained at a modest level despite an exceptionally mild winter. They say that hedge funds and other money managers have boosted their net long position in the two main futures and options contracts for seven consecutive weeks by a total of 1,313 billion cubic feet. By April 18, fund managers had accumulated a net position equivalent to 3,511 billion cubic feet, the highest for three years, according to data published by U.S. Commodity Futures Trading Commission.
Fund managers show a strong bullish bias for the natural gas market, with long positions outnumbering short positions by 4.3:1, up from a recent low of 2.2:1, and the highest ratio since February 2014. Funds have reacted to signs of tightness in the gas market because of sluggish production, strong exports and a structural increase in gas demand from new combined-cycle power plants. Working gas stocks have finished the winter around 380 billion cubic feet, or 15 percent, below the same point last year even though temperatures have been slightly warmer. But the concentration of long positions has increased the risk of a sharp correction if funds try to take profits following the recent increase in prices according to Reuters.
Global Oil Market - April 24
Global Oil Market - April 24
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Global Oil Market - April 24
Crude Oil-Macro
An OPEC and non-OPEC technical committee recommended that producers extend a global deal to cut oil supplies for another six months from June, Reuters reported on 4/22/2017, citing a source familiar with the matter, in an effort to clear a glut of crude that has weighed on prices. Compliance numbers were also reviewed at the meeting in Vienna on Friday that comprised officials from countries monitoring adherence to agreed output levels, namely OPEC members Kuwait, Venezuela, Algeria and non-OPEC Russia and Oman. Overall compliance with pledged cutbacks stood at 98% in March, a source said. Two sources said the rate in March represented an increase from February's level. Russian Energy Minister Alexander Novak said on Friday a decision on extending the pact had not yet been taken, but would be discussed with OPEC on May 24. OPEC ministers plus their non-OPEC counterparts are scheduled to meet on 5/25/2017.
On 4/17/2017 Reuters reported that China’s March crude throughput jumped 5.9%, a touch off the record to 11.19 million b/d, according figures released by the National Bureau of Statistics. For the first quarter, crude throughput was up 4.5% from the same period a year earlier at about 11.21 million b/d. "Both state-run and independent oil plants were raising production last month to capture robust margins," said Li Yan, analyst of Shandong-based consultancy Zibo Longzhong Information Group. "There were also signs of the broad economy rebounding, which is also supporting refinery production." The increases came as China raised its crude oil imports to a record of nearly 9.2 million b/d, way above market expectations. Meanwhile China's domestic crude output last month fell 4.6% versus a year earlier to 3.902 million b/d, the lowest since November 2016. First quarter production dropped 6.85% year on year to 3.89 million b/d.
U.S. shale production in May is set for its biggest monthly increase in more than two years, government data showed on Monday, as producers stepped up their drilling activity with oil prices hovering at over $50 a barrel, Reuters reported on 4/17/2017, citing EIA data. May shale output is set to rise by 123,000 b/d to 5.19 million b/d; that would be the biggest monthly increase since February 2015 and the highest monthly production level since November 2015. In the prolific Permian play, shale production is forecast to rise by nearly 76,000 b/d to 2.36 million b/d, a new record for the largest U.S. shale play. In the Eagle Ford region, output is set to rise by 39,000 b/d to 1.22 million b/d, the third monthly increase. Production in the Bakken is forecast to drop 1,400 b/d to 1.02 million b/d, the third consecutive monthly decline.
Reuters reported on 4/19/2017 that China is creating a consortium, including state-owned oil giants and banks and its sovereign wealth fund that will act as a cornerstone investor in the initial public offering of Saudi Aramco. Saudi Aramco, a key exporter to China along with Russia's Rosneft (ROSN-NC), is due to list next year, with a potential $100 billion equity sale that is expected to be the world's largest to date. The planned Chinese investment makes it more likely that the national energy giant would seek a listing in Asia, with Hong Kong currently the frontrunner among bourses in the region, the same people said. Reuters reported earlier this month that Saudi Aramco's board would meet in Shanghai in May, its first meeting in China in seven years, as Chinese and Asian investors eye the share offering from the world's biggest oil exporter.
John M. White
Senior Research Analyst at Roth Capital
An OPEC and non-OPEC technical committee recommended that producers extend a global deal to cut oil supplies for another six months from June, Reuters reported on 4/22/2017, citing a source familiar with the matter, in an effort to clear a glut of crude that has weighed on prices. Compliance numbers were also reviewed at the meeting in Vienna on Friday that comprised officials from countries monitoring adherence to agreed output levels, namely OPEC members Kuwait, Venezuela, Algeria and non-OPEC Russia and Oman. Overall compliance with pledged cutbacks stood at 98% in March, a source said. Two sources said the rate in March represented an increase from February's level. Russian Energy Minister Alexander Novak said on Friday a decision on extending the pact had not yet been taken, but would be discussed with OPEC on May 24. OPEC ministers plus their non-OPEC counterparts are scheduled to meet on 5/25/2017.
On 4/17/2017 Reuters reported that China’s March crude throughput jumped 5.9%, a touch off the record to 11.19 million b/d, according figures released by the National Bureau of Statistics. For the first quarter, crude throughput was up 4.5% from the same period a year earlier at about 11.21 million b/d. "Both state-run and independent oil plants were raising production last month to capture robust margins," said Li Yan, analyst of Shandong-based consultancy Zibo Longzhong Information Group. "There were also signs of the broad economy rebounding, which is also supporting refinery production." The increases came as China raised its crude oil imports to a record of nearly 9.2 million b/d, way above market expectations. Meanwhile China's domestic crude output last month fell 4.6% versus a year earlier to 3.902 million b/d, the lowest since November 2016. First quarter production dropped 6.85% year on year to 3.89 million b/d.
U.S. shale production in May is set for its biggest monthly increase in more than two years, government data showed on Monday, as producers stepped up their drilling activity with oil prices hovering at over $50 a barrel, Reuters reported on 4/17/2017, citing EIA data. May shale output is set to rise by 123,000 b/d to 5.19 million b/d; that would be the biggest monthly increase since February 2015 and the highest monthly production level since November 2015. In the prolific Permian play, shale production is forecast to rise by nearly 76,000 b/d to 2.36 million b/d, a new record for the largest U.S. shale play. In the Eagle Ford region, output is set to rise by 39,000 b/d to 1.22 million b/d, the third monthly increase. Production in the Bakken is forecast to drop 1,400 b/d to 1.02 million b/d, the third consecutive monthly decline.
Reuters reported on 4/19/2017 that China is creating a consortium, including state-owned oil giants and banks and its sovereign wealth fund that will act as a cornerstone investor in the initial public offering of Saudi Aramco. Saudi Aramco, a key exporter to China along with Russia's Rosneft (ROSN-NC), is due to list next year, with a potential $100 billion equity sale that is expected to be the world's largest to date. The planned Chinese investment makes it more likely that the national energy giant would seek a listing in Asia, with Hong Kong currently the frontrunner among bourses in the region, the same people said. Reuters reported earlier this month that Saudi Aramco's board would meet in Shanghai in May, its first meeting in China in seven years, as Chinese and Asian investors eye the share offering from the world's biggest oil exporter.
John M. White
Senior Research Analyst at Roth Capital
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group