Energy Prospectus

Wrap up of what happened yesterday:
BMO Commodity Markets Summary for January 2: "WTI welcomed in the new year with a choppy start. Opening with a low of $44.48, prices quickly reached a high of $47.72 by 11:30 am ET. This movement could be caused by the news from OPEC that Saudi December output had the largest decrease in almost 2 years with production down by 420,000 bpd. Saudi Arabia’s deliberate cutbacks were compounded by unplanned losses in Iran, which is being targeted by U.S. sanctions, and in Libya, where protests halted the biggest oil field. As a result, oil output from OPEC fell 530,000 bpd to 32.6MMbpd last month. It’s the sharpest pullback since January 2017, when the group first embarked on its strategy to clear the glut created by rising supplies of U.S. shale oil. Also just as a reminder, because of the Tuesday holiday, the U.S. oil inventory numbers will be released Friday at 11am ET. On average, analysts are expecting a decline in overall crude oil inventories of 2.1MM barrels."

The View from Europe:
LONDON (Reuters) - Oil prices rebounded on Thursday in London after an early slide, helped by U.S. dollar weakness and signs of output cuts by the world's top crude exporter Saudi Arabia that eased concerns about a glut.

International Brent crude futures (LCOc1) were up 94 cents at $55.85 a barrel by 1340 GMT. U.S. West Texas Intermediate oil futures (CLc1) rose 65 cents to $47.19 a barrel.

"The feeling is that OPEC is delivering on cuts," SEB head of commodities Bjarne Schieldrop said, citing a Bloomberg survey showing Saudi Arabia had cut production significantly.

The dollar (DXY) added support as it slipped against a basket of currencies, making dollar-denominated oil cheaper for holders of other currencies.

The Organization of the Petroleum Exporting Countries led by Saudi Arabia, alongside other producers led by Russia, agreed in early December to rein in supplies starting from January after oil tumbled from above $86 (Brent) on worries about surging output.

In physical oil markets, Riyadh is expected to cut February prices for heavier crude grades sold to Asia by up to 50 cents a barrel due to weaker fuel oil margins, respondents to a Reuters survey said on Thursday.

Thursday's swing in the oil price, which fell as much as 2 percent in earlier trade, mirrored volatility in other markets after tech giant Apple (O:AAPL) cut its sales forecast, citing a slowdown in China.

This has added to concerns about a slowing global economy, which weighs on prospects for oil demand.

"This is a continuation of the volatility afflicting commodities and oil with the last 24 hours marked by the release of various weak economic data points, particularly manufacturing PMIs, for major economies," consultancy JBC Energy said.

More broadly, oil markets have been sliding with rising production from top producers, the United States and Russia.

Supply from Iraq, the second biggest producer in OPEC, has also climbed, with December exports at 3.73 million bpd versus 3.37 million bpd in November.

This is a BIG DEAL: EIA 914: U.S. Oil Production Increase In October Was Less Than Expected

We all know that horizontal well completions have slowed because of capex budget exhaustion and many companies pushing out completions until oil prices move higher. Permian Basin pipeline takeaway capacity limitations is also a reason.

Read this: https://seekingalpha.com/article/423114 ... s-expected

Summary by HFI Research:

•US oil production was less than expected vs. the EIA's weekly reports + adjustment figure of 11.778 mb/d.

•US oil production in October reached an all-time high of 11.537 mb/d.

•Texas is showing decelerating growth year-over-year and we expect it to be in the 15% to 20% range going forward.

•The impact of even a stalled growth trajectory in US oil production is very meaningful for the global oil market balance in 2019. The delta could be as large as ~500k b/d.

•Combine this with understanding the Saudi incentives and we see Brent reaching as high as $90/bbl in Q4 2019.

HFIR is the same outfit that you told me to ignore when they panned Parsley. You said they just want to sell clicks on SA. Can't have it both ways Dan.

I could be wrong, but I think it was some other article on Seeking Alpha or another article that claimed recoverable reserves were being overstated by PE and PXD. Lots of different people publish on Seeking Alpha. You have to take each article with "a grain of salt".

I do not believe Brent is heading to $90, but I do think $70 is realistic.

The "Big Deal" is that EIA's 914 report shows a slower growth of U.S. production than what EIA has been estimating each week. The EIA 914 report is "actual production" based on state reports. What EIA reports each week is an "estimate". They really do not know what U.S. production is each week.

U.S. West Texas Intermediate and U.K. Brent crude both rose for a second-straight day Thursday, but not before another volatile session where equities had as much as say in the direction of oil as the production cuts that OPEC was trying so hard to impress the market with.

Oil prices flipped from a near 2% drop in European trade to rally as much as 2% each in New York's midmorning session before ending off the day's highs. The positive finish was helped by a Bloomberg survey that suggested OPEC's December production had the largest month-on-month drop in almost two years. A similar Reuters survey said the cartel's November output had the biggest fall since January 2017.

But oil gain's were checked through the day by U.S. stock markets diving on news from late Wednesday that Apple (NASDAQ:AAPL) was lowering its revenue forecast blaming weakness in China.

U.S. WTI settled up 55 cents, or 1.2%, at $47.09 per barrel, after a session peak at $47.47.

Brent, the global crude benchmark, was up by 94 cents, or 1.7%, at $55.85 per barrel by 3:12 PM ET (20:12 GMT) after rallying as high as $56.30 earlier.