By Nick Cunningham
Posted on Thu, 02 April 2015
It appears as if oil prices could be on the verge of a rebound, with new data showing that the U.S. oil patch is hitting an inflection point. While specific shale regions – such as North Dakota’s Bakken and Texas’ Eagle Ford – have posted production declines, overall U.S. oil output managed to edge up in recent months.
But now that U.S. production has finally dipped, it may augur a new phase for oil markets in which production cutbacks could lead to higher prices. The Energy Information Administration reported on April 1 that total U.S. oil production fell for the week ending on March 27, falling 36,000 barrels per day to 9.38 million barrels per day.
Read: http://oilprice.com/Energy/Oil-Prices/T ... -Down.html
Read: http://finance.yahoo.com/news/media-spi ... soc_trk=ma
Why Oil Prices will go back up
Why Oil Prices will go back up
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Oil Prices will go back up
AS I HAVE BEEN POSTING HERE FOR MONTHS: The price of oil is tracking the same pattern it did back in 2008-2009.
> It takes 7-8 months for oil prices to bottom (July 14 to Jan 15). This phase is behind us now, but we could see one more brief dip into the $40s.
> Oil will flop around for 4-5 months near the bottom (Feb 15 to May 15). We are now half the way through this phase.
> Oil prices will begin a steady climb back to the trend line. This should start in June and take 12-18 months.
NOTE: Because the U.S. dollar has gained so much strength, the trend line is lower. My guess is $80/bbl is the normalized price for WTI. If the dollar pulls back, the price of oil goes up.
A math lesson: The U.S. now produces about 9.4 million bbls of crude oil per day. Approximately 4.0 million bbls per day comes from shale wells that have production decline rates of 30% to 50% per year. What will happen when the number of horizontal shale well completions falls off by 50%?
BTW the drop of oil from $100 to $50 causes about 800,000 BOPD of conventional oil production in the U.S. to become sub-economic. Operators will not produce wells for long once they go to negative cash flow. Lots of conventional wells in the U.S. are now being shut-in or plugged.
This is going to be a very interesting year as this unfolds. Now is when those who take the time to study upstream companies have the chance to make HUGE gains in the rebound ahead. In 2009, several of the model portfolio companies gained over 500% in share price.
> It takes 7-8 months for oil prices to bottom (July 14 to Jan 15). This phase is behind us now, but we could see one more brief dip into the $40s.
> Oil will flop around for 4-5 months near the bottom (Feb 15 to May 15). We are now half the way through this phase.
> Oil prices will begin a steady climb back to the trend line. This should start in June and take 12-18 months.
NOTE: Because the U.S. dollar has gained so much strength, the trend line is lower. My guess is $80/bbl is the normalized price for WTI. If the dollar pulls back, the price of oil goes up.
A math lesson: The U.S. now produces about 9.4 million bbls of crude oil per day. Approximately 4.0 million bbls per day comes from shale wells that have production decline rates of 30% to 50% per year. What will happen when the number of horizontal shale well completions falls off by 50%?
BTW the drop of oil from $100 to $50 causes about 800,000 BOPD of conventional oil production in the U.S. to become sub-economic. Operators will not produce wells for long once they go to negative cash flow. Lots of conventional wells in the U.S. are now being shut-in or plugged.
This is going to be a very interesting year as this unfolds. Now is when those who take the time to study upstream companies have the chance to make HUGE gains in the rebound ahead. In 2009, several of the model portfolio companies gained over 500% in share price.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Oil Prices will go back up
A math lesson: The U.S. now produces about 9.4 million bbls of crude oil per day. Approximately 4.0 million bbls per day comes from shale wells that have production decline rates of 30% to 50% per year. What will happen when the number of horizontal shale well completions falls off by 50%?
The U.S. consumes almost twice as much as it produces. So, why is the storage at Cushing a point of concern unless the refineries are obligated to purchase seemingly vast quantities?
The U.S. consumes almost twice as much as it produces. So, why is the storage at Cushing a point of concern unless the refineries are obligated to purchase seemingly vast quantities?
Re: Why Oil Prices will go back up
Why do storage levels keep going up?
Take a look at the steep contango in the NYMEX WTI Futures contracts: http://www.cmegroup.com/trading/energy/ ... crude.html
Crude oil does not go to a storage location just because it has nowhere else to go. Refiners and speculators own the oil in the commercial storage tanks and no one is holding a gun to their heads to make them buy it. [BTW the companies that make money from storage fees (i.e. Enbridge, PAA, and other midstream MLPs) are also encouraging this.]
Refiners are "manufacturers" and the direct consumers of crude oil. They take raw materials (primarily crude oil and NGLs) and make them into refined products (primarily transportation fuels).
Business 101: There are three reasons for any manufacturer to build up inventory of raw materials.
1. They expect a big increase in demand for their finished goods in the future.
2. They believe the cost of the raw materials will be higher in the future, at least higher than their storage costs.
3. They fear a coming shortage of raw materials.
All of the above are why U.S. storage is building so fast. All of the above are bullish for future crude oil prices.
Recently "speculators" (primarily hedge funds and some very rich individuals) have been taking physical ownership of crude oil. Ask yourself why they might want to do this. Crude oil and gold are the two most actively traded commodities in the world and they are hedges against inflation.
The U.S. imports over 7 million bbls per day of crude oil. In fact, despite the high storage levels, imports are drifting higher. Last week EIA reported U.S. imports near 7.4 million bbls per day. If you are a speculator that wants to horde oil, where would you store it? Before you answer, consider the elevated terrorist activity in this world.
Take a look at the steep contango in the NYMEX WTI Futures contracts: http://www.cmegroup.com/trading/energy/ ... crude.html
Crude oil does not go to a storage location just because it has nowhere else to go. Refiners and speculators own the oil in the commercial storage tanks and no one is holding a gun to their heads to make them buy it. [BTW the companies that make money from storage fees (i.e. Enbridge, PAA, and other midstream MLPs) are also encouraging this.]
Refiners are "manufacturers" and the direct consumers of crude oil. They take raw materials (primarily crude oil and NGLs) and make them into refined products (primarily transportation fuels).
Business 101: There are three reasons for any manufacturer to build up inventory of raw materials.
1. They expect a big increase in demand for their finished goods in the future.
2. They believe the cost of the raw materials will be higher in the future, at least higher than their storage costs.
3. They fear a coming shortage of raw materials.
All of the above are why U.S. storage is building so fast. All of the above are bullish for future crude oil prices.
Recently "speculators" (primarily hedge funds and some very rich individuals) have been taking physical ownership of crude oil. Ask yourself why they might want to do this. Crude oil and gold are the two most actively traded commodities in the world and they are hedges against inflation.
The U.S. imports over 7 million bbls per day of crude oil. In fact, despite the high storage levels, imports are drifting higher. Last week EIA reported U.S. imports near 7.4 million bbls per day. If you are a speculator that wants to horde oil, where would you store it? Before you answer, consider the elevated terrorist activity in this world.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Oil Prices will go back up
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Oil Prices will go back up
not to mention mideast turmoil. Iran sending warships off the coast of Yemen. Shaping up as Saudi Arabia vs. Iran.