Sweet 16 Selloff

[dan_s]

There isn't much on the fundamental side to justify Wednesday's selloff of the Sweet 16 upstream companies. I think they just got swept up in an overall selloff, which looks like it was centered on the tech stocks. Oil prices did pull back a bit, maybe because Hurricane Michael moved quickly through the Gulf of Mexico and does not appear to have done any lasting damage to oil & gas production facilities. Nothing has changed on the global oil market. It is still extremely tight. Maybe it was time for a little dip.

Q3 results for the Sweet 16 are going to be VERY GOOD and the outlook for natural gas is MUCH BETTER than it was just three weeks ago..

Helima Croft is one of the smartest people on the planet and she knows more about the global oil market than everyone in Washington put together. See her comments below.

From Reuters:

President Donald Trump has looked to other oil producers to pick up the slack ahead of midterm elections, but output disruptions in key OPEC countries present limits. Helima Croft, a former CIA analyst who is now head of commodities research at RBC, said plummeting production in Venezuela and Angola leaves little room to balance other supply risks in Libya, Nigeria and Iraq.

"The countries that can increase (oil production) are very small in number," she said, adding that there are questions about how long Russia can keep raising output. "It's really only Saudi Arabia at this point."

Following requests from the White House, Riyadh said earlier this year it could increase output by a "measurable amount." While Saudi Arabia accounts for the lion's share of OPEC production, some analysts are skeptical it has enough spare capacity to fill the gap while maintaining adequate reserves. < My take is that even if they can increase production in their fields, Saudi Arabia does not have the facilities to handle enough more oil to offset the declines in Iran's exports. It takes a lot of "logistics" to handle an additional 1.5 million barrels per day. - Dan.

Trump has repeatedly taken aim at OPEC for rising energy prices, even after it came to a rare agreement to ease production restrictions in June. The 15-member group has been coordinating output levels since 2016 in efforts to tackle a global oil glut.

"We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!" the president said in a recent tweet. "We will remember. The OPEC monopoly must get prices down now!" < This is just political noise from Trump. He doesn't want voters to blame him for higher gasoline prices right before the mid-term elections. - Dan.

That strategy may have encouraged member countries to increase production in the past, Croft said, but will likely become less effective as the global oil cushion shrinks. Output from the 12 countries bound by the supply-cutting agreement actually fell by 70,000 barrels per day in September, a Reuters survey found. < This tells me that OPEC is close to being maxed out on production. - Dan.

"With Trump and these tweets, I think there are diminishing returns," she said. "In terms of going forward, we're looking at an ever-shrinking pool of OPEC barrels. You can yell at them. But if they don't have the barrels, they don't have the barrels."

While the administration has said it may grant sanction waivers to avoid supply shocks, a tactic used in the Obama era, it has still maintained an objective of sending Iranian oil exports to zero. The White House did not respond to an email requesting comment.

At $100 a barrel, the Bank of America economists said oil costs would dampen consumer demand not only for gasoline but also for other goods and services. That level of energy prices is expected to shave two basis points from global growth in 2019. < You may think you want $100 oil, but we really don't. It would be a short-term positive, but in the long-term it would lower demand. WTI in the $70 to $80 range is the "Right Price" for now. - Dan.

[dan_s]

Hurricane Michael has knocked out 42% of U.S. Gulf of Mexico daily crude oil production and nearly a third of natural gas production, the largest reductions in a year, according to the Bureau of Safety and Environmental Enforcement.

Companies halted output of nearly 719K bbl/day of oil and 812M cf/day of natural gas by midday, but U.S. crude futures settled 2.4% lower at $73.17/bbl, tracking the weaker U.S. stock market and reflecting the declining importance of Gulf of Mexico production due to growth from onshore shale fields.

Oil producers including Anadarko (NYSE:APC), BHP Billiton (NYSE:BHP), BP, Chevron (NYSE:CVX) and Exxon (NYSE:XOM) evacuated workers from 89 Gulf production platforms earlier this week.

Kinder Morgan (NYSE:KMI) says its fuel and natural gas lines serving the Southeast are unaffected; construction at its Elba Island, Ga., liquefied natural gas project has been suspended for now.