Energy Prospectus

The price of oil that you see in the news is the price of the front month (Oct) NYMEX futures contracts. Futures contracts are traded aggressively by speculators and hedge funds. A high volume of the trades are made by computers. At 10:40 AM CT the price of the October WTI contract dropped about 90 cents within a minute. My guess is that one large hedge fund decided to take profits on its position and they hit the SELL button. The drop in price triggered many more computer generated SELLS because hedge funds and Day Traders had set tight Stop Loss orders. The selling continued for seven minutes until the October WTI contract found BUYERS at $56/bbl, which tells us that $56 is now a key support level.

$56 may or may not hold, but if you look at a 30-day chart for the October contract there is clearly lots of support/resistance at that level. There is a strong support level at $54.

The "Talking Heads" think they have to come up with Macro Reasons for the movements in oil prices when sometimes it is just "trading strategies". The world did not suddenly have more or less supply at 10:40 AM.

Here are some comments:

“The U.S. crude draw is continuing and doing so even as fall approaches,” Investing.com analyst Barani Krishnan said. “This is almost similar to last year when we had a stretch of draws late into the summer. There’s no certainty yet how long this will last.”

Gasoline inventories slipped by 0.68 million barrels, compared with expectations for a drop of about 0.85 million. Distillate stockpiles rose 2.7 million barrels, compared with forecasts for a slight rise of 0.07 million.

In a monthly report, OPEC said oil demand worldwide would expand by 1.08 million barrels per day in 2020, 60,000 bpd less than previously estimated, and indicated the market would be in surplus.

“With OPEC slashing its demand outlook again and John Bolton’s ouster (as National Security Advisor) raising the possibility of an Iranian deal that could bring an additional 1 million bpd to the market, the oil bulls are going to need all the positive numbers they can get,” Krishnan said. < My take is that the chance of Trump lifting the sanctions on Iran are 0.001%. Pompeo has the lead with regards to Iran. See his comments with regards to Iran here: https://www.theguardian.com/us-news/vid ... ring-video - Dan.

OPEC, in the report, lowered its forecast for world economic growth in 2020 to 3.1% from 3.2% and said next year’s increase in oil demand would be outpaced by “strong growth” in supply from rival producers such as the United States.

U.S. crude production remained at 12.4 million barrels last week, the same as the week before, the EIA said. < This is a pure wild ass guess ("WAG") and EIA's weekly estimates of U.S. oil production have been too high all year.

“The (EIA) numbers look good across the board,” Krishnan added. “Imports are down again, Cushing stockpiles are down by 800,000, production is steady at just under the record high at 12.4 million bpd and exports are up nearly quarter million bpd and staying nicely above the 3 million bpd mark.”

“The gasoline came in just under expectations. The only disappointment is in distillates, where we have a build of nearly 3 million bpd versus the flat forecast.”

-- Reuters contributed to this report.

Last Trade:
WTI prompt month (OCT 19) was down $1.65 on the day, to settle at $55.75/Bbl. In after-hours trading the price moved quickly back to $56.00.

Also, NG prompt month (OCT 19) was down $0.028 on the day, to settle at $2.552/MMBtu.

I send notes to John Kemp on a regular basis. He finally is starting to understand that U.S. oil production growth has stopped. I don't blame John for being slow to get it because he relies heavily on EIA reports that have grossly over-estimated U.S. oil production until recently. Plus, John is based in London where the "gloom and doom" view of the economy is worse.

COLUMN-U.S. oil and gas jobs fall as shale boom cools: Kemp - Reuters News
11-Sep-2019 16:04:43
John Kemp is a Reuters market analyst. The views expressed are his own

By John Kemp
LONDON, Sept 11 (Reuters) - U.S. oil and gas employment has started to fall as producers and service companies respond to the sharp decline in prices since the fourth quarter of 2018.

The number of jobs in "mining support activities", a category that includes oil and gas drilling, as well as site preparation and well completion services, has been drifting gently lower since October 2018.

In August, employment was 2% lower than in the same month a year earlier, and down by 4% from its recent peak, according to preliminary estimates published by the U.S. Bureau of Labor Statistics on Friday.

Employment in the sub-category for "oil and gas support activities", mostly covering site work and completion services, had fallen by around 11,000 jobs or 4% between October and July.

Oil and gas employment is trending lower as the industry adjusts to lower petroleum and natural gas prices and lower levels of activity (https://tmsnrt.rs/2A7nRGw).

The number of rigs drilling for oil and gas has fallen by 185 or 17% since the end of last year, according to weekly rig counts from oilfield services company Baker Hughes.

And the number of new oil and gas wells drilled across seven major shale plays monitored by U.S. Energy Information Administration (EIA) had declined by 14% in July from its peak in October.

OUTPUT SLOWDOWN

So far, the number of wells fractured and completed each month has held up, despite the drilling downturn, which has kept oil and gas production near record levels.

But as the inventory of drilled but uncompleted wells falls, it is likely completions will also turn down in the second half of 2019 and into 2020.

Fewer well completions should translate into decelerating growth in oil production, marking the end of the second frenzied U.S. shale oil boom.

The first shale oil boom lasted from 2012 until the middle of 2014. The second boom began in late 2016 or early 2017 and lasted through 2018.

Experience suggests it takes around 3-4 months for a fall in oil prices to translate into a lower rig count and around 9-12 months to turn into lower production.

The downturn in oil prices since October 2018 should start to translate into much slower, or even negative, growth in oil production in the third or fourth quarter of 2019 and beyond into 2020.

The Energy Information Administration's latest forecast has year-on-year growth in oil output slowing to around 5% by the end of 2020 from more than 20% in October 2018 ("Short-Term Energy Outlook", EIA, Sept. 10).

First signs of this adjustment are already evident, with output flat between the end of 2018 and May 2019. Slower growth in U.S. shale output will be an essential part of the rebalancing in the global oil market.

The adjustment is already well advanced and should continue to play out over the next 12 months — unless there is a global recession or OPEC tries to push prices higher prematurely.