Energy Prospectus

WTI opened at $68.75/bbl this morning and has flopping around that level through the time of this post (9:15 AM CT).

TPH comments on yesterday's EIA storage report:
Cushing Inventories drew 1.1mmbbls (in-line with API reported ~1.0mmbbl draw) while Gulf Coast crude inventories drew ~1.5mmbbls. For the day, WTI was up ~3.4%, benefiting from the positive print. US crude production remains tepid, up only 15mbpd w/w. Despite near-record utilizations (92.4% vs 5-yr max 92.6%), key products collectively drew ~7.2mmbbls (vs 5-yr norm: down ~1.1mmbbls): Gasoline drew ~3.0mmbbls, distillates drew ~3.1mmbbls, and residual oil drew ~1.2mmbbls. Overall light product demand now in positive territory (+0.5% on 4-wk rolling average) following three weeks of numbers in the red. Gasoline demand rose to +0.7% y/y, while distillate demand climbed to -2.0% y/y. Looking forward, while gasoline is facing headwinds of slowing vehicle miles traveled and higher prices at the pump, employment growth has picked up this year (+1.6% vs +1.0% a year ago) and the comps get much easier over the coming weeks.

My Take:
> May is just the beginning of the HIGH DEMAND months for transportation fuels. Demand for crude oil will go up AT LEAST 2,000,000 barrels per day from Q1 to Q2.
> Refiners are ramping up production, but fuel inventories are much lower than they should be for this time of year.
> Days of supply: Gasoline @ 25.1 days, Jet Fuel @ 22.2 days, Distillates (heating oil and diesel) @ 29.9 days. < All three should be over 30 days!
> More people, more SUVs and more people working = more demand for transportation fuels
> The U.S. shale plays CANNOT meet rising demand for oil. EIA and IEA keep pumping this myth because (IMHO) their goal is to hold down fuel prices as long as possible.
> Oil Price: Now that resistance at $67/bbl, WTI' s next target price is $75/bbl. There is minor resistance at $70/bbl.
> Something big (an unplanned supply disruption) like new sanctions against Iran will be needed to push WTI over $75/bbl.

This is a concern that I have about our companies that are primarily in the western half of the Permian Basin, primarily the Delaware Basin companies. Takeaway capacity for oil is getting tight and the companies that don't have capacity locked up may be forced to take deep discounts on their crude oil production. The Sweet 16 companies appear to be safe.

Is the U.S. Shale Boom Hitting a Bottleneck? Wall Street Journal.
The oil field at the heart of the U.S. shale boom appears to be choking on its own growth, a surprising development with big ramifications for energy profits and global markets. The Permian basin of West Texas and New Mexico has been one of the few growth engines for oil production world-wide. The region’s output is on track to rival that of Iran or Iraq and has lifted American production to all-time highs. Output is projected to climb from three million barrels a day to more than four million barrels a day within two years. The International Energy Agency forecasts that last year’s production level will double by 2023. But Permian producers are starting to encounter congested pipelines and shortages of materials and workers—bottlenecks that have caused some investors to sour on the region. While production is expected to continue rising, the Permian’s stumbles could ripple out to the global oil market at a time when OPEC has curtailed output and many companies have cut back on megaprojects. That could become a source of volatility that propels oil prices elsewhere higher.

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On the flip side of this issue, if EIA and IEA are forced to lower their very bullish predictions of U.S. oil production it will cause NYMEX oil prices to go higher. All of my forecast/valuations are based on $60/bbl WTI for now, so realized oil prices in my models are probably too low anyway.

OPEC's new price hawk Saudi Arabia seeks oil as high as $100. Reuters.
Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight. The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy. OPEC is closing in on the original target of the pact - reducing industrialized nations’ oil inventories to their five-year average. There is no indication yet, however, that Saudi Arabia or its allies want to wind down the supply cut. Over the past year, Saudi Arabia has emerged as OPEC’s leading supporter of measures to boost prices, a change from its more moderate stance in earlier years. Iran, once a keen OPEC price hawk, now wants lower prices than Saudi Arabia.

Read this: https://www.reuters.com/article/us-opec ... SKBN1HP1LB

Oil Supply Problem: "The decline of Venezuela’s oil production for the foreseeable future has been assumed, and to a large extent, already priced into the market. However, an acceleration in the rate of decline is possible, and a few recent developments raise the odds that such a disaster will become a reality."

READ THIS: https://www.zerohedge.com/news/2018-04- ... aster-zone