Oil Price - Oct 23

[dan_s]

Investing.com - Oil bears have a rather unlikely ally: Saudi Arabia.

The world’s top oil exporter, facing global outrage over suspicions it engineered the murder of a journalist critical of the kingdom’s heir, offered on Tuesday to pump more crude and at a faster rate amid jitters of a supply squeeze from export sanctions against Iran beginning in two weeks.

The new Saudi stance on supply, along with a fifth-weekly build in U.S. crude stockpiles anticipated for last week and a global stock market rout, hammered oil prices down nearly 5% on the day.

U.S. West Texas Intermediate (WTI) crude settled at $66.43 a barrel, down $2.93, or 4.2%, for its biggest daily loss in three months. It had earlier hit a session low of $65.97, less than a dollar from oil bears' target of $65.

Brent, the global benchmark for oil, was at $76.61 a barrel by 2:59 PM ET (18:59 GMT), down $3.22, or 4%.

Just three weeks ago, WTI hit November 2014 highs of $76.47 while Brent soared to four-year highs of $86.73.

In early September, OPEC and industry sources said Saudi Arabia was trying to keep oil at between $70 and $80 per barrel, partly to maximize revenue.

But on Tuesday, the kingdom seemed more concerned about providing the market as much oil as necessary and repairing its battered image in the eyes of the world.

Saudi Arabia was a nation "in crisis" after the "abhorrent" killing of journalist Jamal Khashoggi, Energy Minister Khalid al-Falih told the Future Investment Initiative conference in the kingdom that many Western business leaders and officials had skipped to show their displeasure with Riyadh and Crown Prince Mohammad bin Salman.

Falih later told reporters that Saudi Arabia “will decide if there are any disruptions from supply, especially with the Iran sanctions looming.”

"Then we will continue with the mindset we have now, which is to meet any demand that materializes to ensure customers are satisfied,” he added.

It was a remarkable about-turn by a minister who exactly a month ago had rebuffed U.S. President Donald Trump’s calls for more Saudi output to cool crude prices rallying then to four-year highs on fears of a supply squeeze from the Iranian sanctions.

“I do not influence prices,” Falih said then.
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So...what happens when it sinks in that this world has no remaining production capacity in reserve?

[dave_n]

Keep an eye on VLCC tanker rates. That market could start to improve with increased shipping.

[dan_s]

Let this sink in. Range Resources just reported Q3 results that crushed the First Call estimates.

They did it with actual realized commodity prices (including cash settlements on their hedges of -$34.9 million) of $2.82/mcf for natural gas, $52.33/bbl for crude oil and $24.43/bbl for NGLs.

Wall Street's "Paradigm" that upstream companies need $100/bbl oil and $3.50/mcf gas prices to make money is total BS. Range now has operating cash flow per share of $4.25 locked in for 2018. A company that is generating free cash flow from operations and growing production at double digit rates with over a decade of high quality drilling inventory, should be trading for more than 10X CFPS. RRC closed at less than 4X CFPS today.

50% of RRC's natural gas for 2019 is already hedged at $2.83/mcf.

[ChuckGeb]

My take on the Saudi announcement was an effort to appease Trump by lowering oil prices thru the midterm elections. I am confident the Pompeio brought this up in his recent visit to investigate the Khashoggi murder with the Saudi royalty. I would be surprised if they have the ability to mitigate much the loss of Iranian barrels if the sanctions are heavily enforced.

[dan_s]

I have seen reports that Saudi Arabia "produced" 12.0 million barrels per day recently. That is NOT TRUE. They may have "exported" 12.0 MMBOPD, but they are just draining storage. Saudi Arabia CANNOT ramp up production by 2 MMBOPD without a lot of drilling and more infrastructure.

I agree with the previous post. Saudi Arabia is trying to "smooth over" a rough patch with Trump and help the GOP retain control of the U.S. government. They may not like Trump, but he is better than the Democrats who Saudi believes will not be hard on Iran.

[ChuckGeb]

I was thinking more along the lines that they are attempting to avoid/minimize the penalties that Trump could impose on them for the murder of Khashoggi. They seem to have cleaned up their “story” considerably in the last few days. We’ll never know what is going on behind the scenes but it seems that the Prince has received a considerable amount of coaching. I am sure everyone would like to get this unfortunate matter behind them. Sure hope a lesson has been learned.

Two things that really appeal to Trump are the arms sale and the price of oil that he believes the Saudis control. His understanding of the oil business seems to be a bit naive.

Will be happy if the fundamentals of the demand/ supply situation become more in focus soon.