Energy Prospectus

The sole reliable source of revenue for the strife-torn country is oil sales. Libya has been plunged into chaos after its United Nations-recognised government was forced to urge the UN to block any sales from its main oil terminals. The key terminals in the east of the country were captured from local militias last week by the so-called Libyan National Army, headed by strongman Khalifa Haftar. But on Tuesday Haftar announced his forces would send the revenues to a rival oil corporation in the country’s east rather than the UN-recognised National Oil Corporation (NOC).

Haftar won control of the key oil terminals in the Gulf of Sirte from militia last week after 10 days of fierce fighting that left more than 300 people dead.

Read: https://www.theguardian.com/world/2018/ ... l-factions


MY TAKE: If the situation in Libya turns into a full blown Civil War ( and it is close to that now ) we may see $100/bbl Brent by year-end. Saudi Arabia & Russia cannot make up for significant supply disruptions in Venezuela, Libya and Iran. Combined, these three may take over 2,000,000 barrels per day off of the world oil market.

On Monday, June 25th Raymond James published a detailed report on how tight the global market really is. It is MUCH TIGHTER than most of the Wall Street Gang thinks it is. If you would like to read RJ's report, send me an email (dmsteffens@comcast.net).

Raymond James: "The amount of excess capacity (or supply shock buffer) in the global oil system will now approach zero in the next six months. We are modeling virtually no excess capacity within the OPEC+ coalition by 1Q19. That leaves no margin of error for any future supply reductions, for example unforeseen geopolitical outages."

The statement above was before the situation in Libya got worse. I looked into the details of RJs oil supply assumptions. They assume a steady flow of 1,000,000 barrels per day from Libya in 2018 and 2019. Obviously, that may need to be lowered.

Raymond James update on 6-27-2018: "As oil prices bounce around four-year highs, we continue to see a supportive fundamental backdrop: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC+Russia's gradual unwinding of production cuts is being offset by declines in Venezuela and, to a lesser extent, Iran; there are still supply declines in several non-OPEC geographies (e.g., Mexico); and the picture for global demand growth is broadly upbeat. Meanwhile, a combination of a Permian ''spill over,'' growth in other inland U.S. basins, and higher Canadian import volumes could drive ratable increases for Cushing inventories over the coming quarters, potentially leading to a further ''blowout'' in the Brent-WTI spread. The 12-month futures strip ($68.28/Bbl for WTI and $76.01/Bbl for Brent) shows a slightly backwardated near-term curve for both WTI and Brent. Several wild cards remain in play, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones; and 2) on the bearish side, the prospect of further strength in the U.S. dollar."


RJ is worried about a big buildup of inventory at Cushing, but I sure don't see that happening anytime soon.
See: https://www.eia.gov/dnav/pet/pet_stoc_w ... CUOK_w.htm

Total storage capacity at Cushing is ~80 million barrels (working storage is ~75 million barrels). As you can see at the link above, oil there now is less than half of capacity.