Energy Prospectus

http://info.gorozen.com/enjoy-the-webin ... automation

A few days ago Adam Rozencwajg made a presentation in Zurich on why the world is on the verge of a strong bull market for commodities and especially oil prices. My opinion is that Good Friday, April 10 marked the bottom of the bear market and the beginning of the bull market for oil & gas. The unprecedented travel restrictions in response to COVID-19 pushed oil demand and prices down over 80% and the FEAR caused the capital available to upstream companies to dry up. As Adam points out at the end of his presentation during Q&A, it was the U.S. shale boom that was funded by easy access to capital that has generated almost all global oil supply growth this decade. Even when oil averaged $100/bbl for almost five years, there was almost zero oil production growth outside of the U.S.

U.S. oil production is now on steep decline and it will continue declining unless the price of oil goes a lot higher (A LOT HIGHER). Plus, the technology gains in horizontal drilling and fracking are maxed out, so U.S. oil production many never get back to the peak of 12,860,000 BOPD reached in November, 2019. From the November peak, U.S. oil production will decline by 4,000,000 BOPD before even $60/bbl WTI can slow the decline. If WTI goes to $100/bbl next week, U.S. oil production will continue to decline through year-end.

Because the natural gas market is much different than the oil market, with prices set by supply/demand fundamentals within regional markets, it is giving us a preview of what will happen to oil prices when the global market figures out that in the "Post Covid World" demand for oil will exceed the world's supply capacity. As a result, oil will be rationed by price. The "lower for a bit longer" oil price is actually very bullish for the U.S. natural gas price. Declining associated gas production will cause a gas supply shortage within six months and the high ngas storage level we have today will be wiped out by a normal winter.

Adam's presentation is about an hour long but well worth the time.
If the link above won't work for you, send me an email and I will forward a direct link to you. dmsteffens@comcast.net

<<Despite the global overhang in oil inventories and reduced production levels from OPEC+ members, American oil production is on the upswing. Falling from a high of 13.1 million bpd in March prior to the pandemic to an average of 12.7 million bpd for the whole first quarter and then to 10 million bpd in May, U.S. oil production actually rose in August to 10.8 million bpd.

And the market has taken notice. >>

(Editorial: Oilprice.com)


Comments?

U.S. oil production is down from 12.9 million BOPD in November to 10.0 million BOPD in the first week of September. How is that an "upswing". The small rebound from week to week is just restoring some of the Hurricane Laura shutdowns.

Fact: WE ARE NOT COMPLETING ENOUGH NEW WELLS TO OFFSET NATURAL DECLINE. From November to March we had ~325 frac crews running and U.S. oil production declined each month from December to April. Today there are less than 100 frac crews running. From April to May U.S. oil production dropped 2.0 million barrels per day because of shut-ins and pipeline restrictions. Most of the economic and forced shut-ins have been restored but they cannot offset the RELENTLESS natural declines from the hundreds of thousands of high decline rate horizontal wells. It is simple math. If you have over 200,000 horizontal wells declining by over 10% each year. How many new wells must be completed to hold production flat. Answer: A heck of a lot more than we are completing today. We need at least 600 rigs drilling for oil and over 300 frac crews completing new wells to stop U.S. oil production from falling.

Most of the Wall Street Gang doesn't know how the upstream oil & gas industry works. They see a one month rebound from May to June and they think all we have to do is run out and open a few valves. They think restoring hurricane related shut-ins is easy; not when a lot of offshore workers lost their homes.

Demand for oil does slow down in September and October each year as refineries have to do semi-annual maintenance projects. Plus, Hurricane Laure shut in and damaged several refineries.

Hard to believe that the oil price editors are so naïve. Maybe it's also, to use your term, "Clickbait" (?)

Sometimes I think oil and gas prices go down just because their are more sellers than buyers. Nothing has really changed in the last two weeks other than Hurricane Laura, which actually tightened supply & demand.

Yes, there is a lot of "Click Bait" going around these days.