Energy Prospectus

Yesterday Dow Jones reported that SA was cutting production, starting in September. Here is what one analyst said.

We had a lot of questions come in about whether the
wire report shown left is true, but we think a post summer
cut in output will occur. The Kingdom is running
its system at virtually 100% utilization currently owing to
strong demand from Aramco customers and because of
strong internal oil use (which peaks in the summer
because of electricity needs). Additionally, the Saudis
have pushed its domestic system very hard to
compensate for the shut-in output from the Neutral Zone,
which is a story in itself. As shown below, the Kingdom
starts seasonally “resting” its oil fields after summer. The
pattern was interrupted in 2011 following the Libya shutins
and then in 2012 because of Iran’s forced export
reduction. The Kingdom signaling a cut publically,
though, speaks to others issues, in our opinion, one of
which may be related to growing internal dissention
about the wisdom of last November’s decision to let
crude prices tank. Generally, this feeds into our view that
current oil prices are at unsustainably low levels.

"OPEC Secretary General Abdalla Salem El-Badri said the organization does not expect prices to fall any lower as demand picks up in 2016 and continues to grow through the end of the decade."

Read: http://www.oilandgas360.com/opec-head-s ... b-26401157

Comments on initial post from Michael Rothman at Cornerstone Analytics:

"We had a lot of questions come in about whether the
wire report from Dow Jones is true, but we think a post summer
cut in Saudi Arabia's output will occur. The Kingdom is running
its system at virtually 100% utilization currently owing to
strong demand from Aramco customers and because of
strong internal oil use (which peaks in the summer
because of electricity needs). Additionally, the Saudis
have pushed its domestic system very hard to
compensate for the shut-in output from the Neutral Zone,
which is a story in itself. As shown below, the Kingdom
starts seasonally “resting” its oil fields after summer. The
pattern was interrupted in 2011 following the Libya shutins
and then in 2012 because of Iran’s forced export
reduction. The Kingdom signaling a cut publically,
though, speaks to others issues, in our opinion, one of
which may be related to growing internal dissention
about the wisdom of last November’s decision to let
crude prices tank. Generally, this feeds into our view that
current oil prices are at unsustainably low levels.[/color]"

"The DOEs released yesterday saw a significant amount of attention focused on the weekly inventory changes, but the “big” data points really had to do with US crude production and demand. What is notable is that the weekly figure for July 24th came in sequentially lower by 150,000 b/d. Because US production growth has been a proverbial security blanket for many market watchers, data about a change in that story has, in our estimation, become much more important."

"On demand, we’ll simply note that most all pundits missed the proverbial boat on the large gains in US oil consumption despite the fact that domestic usage is the easiest source of barrels to identify in the on-going “missing oil” problem. Volumetrically, US demand growth is up about twice what we’ve seen for China so far this year."