Energy Prospectus

Good article, thanks for posting. All of you should read this article. As I have been telling you for months in my podcasts, EIA always misses the turn in an oil price cycle because their weekly estimates are based on flawed formulas. They put too much weight on the trend (i.e. - if production went up last quarter, it will keep going up).

If you have not listened to the interview with Marshall Atkins that we sent out, PLEASE do so.
Here is the link: https://www.financialsensenewshour.com/ ... adkins.mp3

Facts:
1. U.S. shale oil production CANNOT rise fast enough to meet growing global demand. It is literally impossible unless the active rig count keeps going up at a fairly steep rate.
2. The U.S. will never be the "Swing Producer".
3. IEA says demand is going up 1.6 million barrels per day this year. My guess is that they will continue to revise demand growth higher and actual demand will probably be over 2.0 million barrels higher in 2017 than in 2016.
4. Non-OPEC + Non U.S. production is around 42 million barrels per day, but it has stalled and doubtful that it will grow unless oil goes a lot higher, like $100/bbl.

When actual U.S. production comes out for August it may be slightly higher than July, but September and October U.S. oil production will be lower because of the hurricanes impact.

All of the Sweet 16 have strong cash flow from operations at TODAY'S OIL AND GAS PRICES.

Some of them are outspending cash flow, but they have more than enough access to capital to fund their drilling programs through 2018.

At the bottom of each Sweet 16 forecast model you can see how their operating cash flows match up with their capital spending programs.

From the CEO of Schlumberger:

“Looking at the industry macro, the reduction in global oil inventories in the third quarter is clearly showing that the oil market is now in balance, which is reflected in the upward movement in oil prices over the past month. This view is supported by the following positive signs. First, the investment appetite in North America land now seems to be moderating, driven by a growing focus from E&P companies on financial return and the need to operate within cash flow rather than the pursuit of production growth. Second, comments from several of the key OPEC Gulf countries, as well as from Russia, suggest that an extension of the existing production cuts beyond the current nine-month agreement is a possibility. And third, investment levels in the production base outside North America land, OPEC Gulf, and Russia all remain at unprecedented low levels, raising the likelihood of a medium-term global supply challenge, and increasing the urgency for higher investment.

“A continuation of these market trends, combined with further steady draws in global oil inventories is now creating the required foundation for further upward movement in oil prices and subsequent growth in global E&P investment. And while there is still some level of uncertainty around the exact timing of this industry recovery, we see a number of market factors and data points now emerging that make us increasingly positive and optimistic about the outlook for our global business. It is also worth noting that the geopolitical risk premium on the oil price, which was quite significant in the past, has been replaced in many ways today by an oversupply discount. Given the visible tightening of the supply and demand balance and the current geopolitical tensions in many of the world’s key oil producing regions, a geopolitical risk premium may again become a significant factor.