Oil Price - Jan 9

[dan_s]

Around Christmas I talk to Joe Dancy, asking him to speak at our Dallas luncheon on January 16. He predicted that the WTI oil price would top $64/Bbl sometime before the Super Bowl kickoff. I thought at the time that he was being a bit too optimistic. WTI's last trade in the after hours market (7:58 PM CT) was $63.47, so old Joe is looking like he has an accurate crystal ball. - Dan

BMO Capital Markets, after the markets closed on 1/9/2018:
WTI hasn’t been this high since November 2014, and while Brent hit an intraday high back in May 2015 that exceeded today’s high, it hasn’t settled at current levels since back in December 2014. Tight supply is obviously a contributor, and maybe the threat of oil sanction waivers for Iran ending in a few days, but perhaps also affecting this bullish run is investors seeing a bright side to the global economy.
Positive sentiment may be pushing investors to take a look at various commodity investments, and a backwardated crude curve is an obvious candidate.
At a certain point, and maybe soon, some OPEC countries, and non-OPEC countries such as Russia, may be inclined to place more barrels into the market than their agreed upon quota stipulates, as prices near $70 on a Brent index basis are going to be hard to pass up. At the same time, prices at these levels will spur additional North American production, especially in the
U.S., where we are now well beyond many producers’ break even costs. However, important to remember will be that investors in these companies are now wanting to see free cash flow generation, resulting, perhaps, in a dialing back of the aggressive drilling programs of years past. A natural cap of around $70-$75/bbl doesn’t seem unrealistic.

MY TAKE: Fears that OPEC and/or Russia will cheat are way over-blown. Why would they cheap now, when their plan is finally working? Also, fears that U.S. upstream companies will run out and do aggressive drilling are over-blown because (a) they know big investors want to see more focus on using cash flow to pay down debt, (b) there are drilling rig and completion crew limitations, and (c) it takes at least four months before an oil price spike impacts field level activity. The days of picking up the phone and finding a good idle rig waiting to go to work are long gone. All of the Tier One rigs are working.

More Good News:
Crude prices gained in Asia on Wednesday as industry estimates of US inventories showed a sharp draw last week that lifted sentiment.

On the New York Mercantile Exchange crude futures for February delivery rose 0.84% to $63.49 a barrel, while on London's Intercontinental Exchange, Brent gained 0.03% to $69.19 a barrel.

Crude oil stocks fell by 11.190 million barrels last week, the American Petroleum Institute (API) said in its estimates on Tuesday, more than expected as gasoline inventories rose by 4.338 million barrels and distillate stocks gained 4.685 million barrels. Analysts estimated that crude stocks would fall by 3.89 million barrels (who the hell are these "experts" that are off by a mile week after week?), while distillate inventories were expected to rise by 1.464 million barrels and gasoline stocks would gain 2.652 million barrels.

Supplies at the oil storage hub of Cushing, Oklahoma dipped by 2.516 million barrels.

On Wednesday, the Energy Information Administration will release official figures. < If EIA confirms the big drop in crude oil, we should see WTI move over Dr. Joe's $64 estimate.