Energy Prospectus

So the Doha mtg imploded. Last night I took a look and oil was down 8.5%, and I was expecting even worse. This morning, to my surprise, it is only down 2.5. Frankly, I don't get that, but I hope it holds.

On another note, I saw on the news this morning that Houston is flooded. Good luck to you all down there.

after the sell off all of my energy are very positive

IMO the meeting in Doha was close to a non-event. Even if they had agreed to a production freeze, the parties cannot be trusted to abide by it.

This is why oil prices are heading higher today:

After months of preparation, talks between producers in Doha failed to deliver anything to end the global oil glut. Yet, Kuwait has managed that by itself in just a few days.

A labor strike that began Sunday has slashed the Persian Gulf nation’s output by 60 percent, shuttering 1.7 million barrels a day -- slightly more than the surplus sloshing around world markets in the first half of the year. That oversupply caused prices drop to a 12-year low in January.

“If the potential loss of Kuwaiti crude supply is sustained long enough, that is roughly equivalent to current estimates for the global stockpile build in the second quarter,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. “Of course, there is a big ‘if’ in terms of how long the strike will last.”

Kuwait Petroleum Corp. is working to resume operations at two crude gathering facilities, the state-run Kuwait News Agency reported on Monday, citing oil industry spokesman Sheikh Talal Al-Khaled Al-Sabah.

Even if discussions in Qatar on April 17 had agreed to “freeze” oil production, oil analysts expected no impact on supplies as almost none of the countries involved had the capacity or plans to boost output.

While members of Kuwait’s 13,000-strong Oil & Petrochemical Industries Workers Confederation protest cuts in their wages and benefits, the Gulf nation is by no means the only supply uncertainty in the market that could eclipse the impact of a freeze agreement.

From our newest member Robert Rapier:

Oil price moves aren't a function of the real-time fundamentals of supply and demand in the oil market, but are rather based on the sentiments of oil futures traders. Over the long term, the fundamentals will win out, but expectations drive the short term. As such, I think there is immediate downside risk in the aftermath of the Doha meeting.

While the pieces are in place for the oil market to balance in the second half of this year, for the moment it remains oversupplied. Yet traders have bid up oil by 50% since the February lows in anticipation of a tipping point for inventories. Since the Doha meeting will not restrain production, prices could quickly retreat as they have following the previous three OPEC meetings.

But OPEC isn't the only factor in oil prices. U.S. production is declining in earnest, and U.S. inventories typically decline between this time of year and the end of summer. Meanwhile, force majeure has been declared by ENI (NYSE: E) and Shell (NYSE: RDS-A) on two grades of Nigerian crude, removing nearly 400,000 barrels per day of global supply.

Thus, the market may come into balance even faster than expected. Should oil retreat in the wake of the Doha meeting or the next OPEC meeting in June, investors should view those pullbacks as buying opportunities. Higher prices are on the horizon.

I think the sharp rebound in oil prices today after the initial selloff tells us how little faith this market now has in OPEC. Very few traders believed (a) an agreement would be reached in Doha and (b) even if there was an agreement that it would have been almost meaningless. The rogue nations that make up OPEC are a bunch of cheats and liars and everyone knows it (except Team Obama).

OPEC members must have all flunked math in school. All they have to do is announce a production cut of 5% and the price of oil would quickly move up 50%.

The only thing that makes any sense is that the Saudis are doing what they are doing to punish Iran for as long as they can. They know Non-OPEC production is now on decline and that the rate of decline will accelerate. They also know demand for oil is about to spike, as it does each summer.

The damage done to oilfield services firms makes it impossible for the United States and Canada to ramp up production quickly after prices do rebound.

Dan Dicker is forecasting $100/bbl WTI by the end of 2017. Dan's a rather conservative guy, so when I first saw his prediction, I thought it was a bit of a stretch. Now, baring a global economic recession, it appears to be a probability. The reason I can say that is because demand for oil will be over 98.0 million barrels per day by the end of 2017, compared to 94.8 MM BOPD in Q12016. During this same time period, Non-OPEC oil production will fall more than 1.5 MM BOPD. At this point the only thing that will stop that from happening is HUGE spike in oil prices. Mark my words, $60 oil will not stop Non-OPEC production from falling, it will only slow down the rate of decline.