Oil Price - Wall Street finally starting to figure it out

[dan_s]

It is nice to see that well respected Wall Street firms are now seeing what I have been telling you for month, the U.S. CANNOT MEET GLOBAL DEMAND FOR OIL. - Dan
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From CNBC.com: Morgan Stanley has raised its forecast for oil prices through 2020, saying the world is hungry for more U.S. shale crude at a time when it's uncertain American drillers can deliver it.

The bank now sees international benchmark Brent crude fetching $62 a barrel in the final quarter of the year, up from an earlier estimate of $55. U.S. West Texas Intermediate crude is poised to average $56 for the quarter, up from Morgan Stanley's prior $48 call. < Note that it took them almost half way through the quarter to figure this out.

By the second quarter of 2018, Morgan Stanley forecasts Brent will average $63 and WTI will trade at $58 a barrel.

Demand for oil is growing at a surprisingly high rate, leading to a rapid drop in U.S. crude inventories, Morgan Stanley says. At the same time, OPEC and other oil exporters including Russia are likely to extend a deal to keep 1.8 million barrels off the market through next year.

Outside of OPEC, there is little growth in oil supplies, with the exception of the United States, where drillers can quickly tap shale wells, the bank notes. But even in the U.S. Lower 48, the number of rigs operating in oilfields has been falling. < The concept that U.S. upstream companies can "quickly tap shale wells" is nonsense. If WTI goes to $100/bbl tomorrow, it would take U.S. producers over a year to increase production by a million barrels per day.

To balance the market, U.S. shale drillers will have to grow production from about 5.9 million barrels a day this year to 7 million barrels a day in 2018, more than previously thought, Morgan Stanley analysts conclude. That would require drillers to start standing up 8 to 10 new rigs each month, but the analysts are uncertain that will happen. < I can tell you for sure, IT AIN'T GOING TO HAPPEN.

"Right when the world's reliance on shale is growing, its limits are starting to become apparent, and there seems to be two aspects to this: ability and willingness," they wrote in a research note on Monday.

Companies say bottlenecks are forming because they cannot book the crews and equipment needed to carry out hydraulic fracturing, the process of injecting water, minerals and chemicals underground to break up shale rock formations and allow oil and gas to flow to the wellhead. Costs for oilfield services are also rising.

At the same time, exploration and production companies are reining in production growth in order to put their finances in order. Drillers may be reluctant to dive deeper into the red to fund growth at a time when investors are asking for financial discipline.

[dan_s]

This will have a positive impact on proven reserves at year end.

For the 12-month period ended September 30, 2017, the oil price (WTI Cushing) used in
the SEC methodology for calculating PV 10 and Standardized Measures, and for performing
impairment tests under the full cost method, which is calculated as the unweighted arithmetic
average of the first of the month reported price for the 12-month historical period, was $49.81 per
barrel. The average natural gas price (Henry Hub) calculated in the same manner was $3.01 per
MMBtu. At these price levels, SEC prices for oil have increased approximately 17% and increased
for natural gas approximately 21% since December 31, 2016.