Author: Robert Boslego

World Oil Supply-Demand Balance in 2017 Depends on Limited OPEC Production Increase

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


The Energy Information Administration (EIA) recently released its September Short-Term Energy Outlook (STEO) and its projects that world supply and demand will finally balance by late 2017. However, that depends on OPEC production rising a very small amount.

Base Case Scenario

Specifically, the EIA reported that OPEC crude production averaged 32.7 million barrels per day (mmbd) in August, and it projects OPEC production to average 32.95 mmbd in 2017. Under that scenario, world supply meets demand of 97.8 million barrels per day, and total inventories end 2017 at 3.062 billion barrels, about 350 million barrels higher than normal.

OECD Commercial Oil Inventory

The 2017 demand figure represents a gain of 1.5% from estimated demand in 2016 of 95.88 mmbd, which is a gain of 1.6% over 2015. This assumes a healthy macroeconomic environment. For example, the EIA is projecting that US GDP gains 2.6% in 2017, much better than the 1.5% GDP gain EIA assumes in 2016. Continue reading "World Oil Supply-Demand Balance in 2017 Depends on Limited OPEC Production Increase" →

Energy-Focused Master Limited Partnerships (MLPs) Require Risk Management

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Energy-focused master limited partnerships (MLPs) have provided investors good returns over time, much better than owning crude oil futures. For example, from January 200 through July 2016, the Alerian Total Return Index (PACF:AMZX), a leading gauge of energy MLPs, provided a return of 867%, far exceeded the return from crude futures of about 63%.

However, there is reasonably strong correlation between AMZX and crude futures prices. As a result, AMZX has suffered some large drawdowns. It maximum drop from peak-to-valley (P2V) was 58% over the period mentioned above. I use P2V as my primary risk measurement because it shows how large a loss one may experience in a buy-and-hold strategy.

I tested hedging AMZX by maintaining a short position in crude futures. The risk-minimizing hedge ratio for crude futures was -17% but it only reduced the maximum P2V to 50% (see Hedged return in graph below).

Chart of AMZX, Crude Futures and Hedged

I therefore applied the risk management process I developed to determine when to be invested in AMZX and when to go to cash. I provide the citations for the mathematical formulae and back-tested results for anyone interested in utilizing this process below. Continue reading "Energy-Focused Master Limited Partnerships (MLPs) Require Risk Management" →

How The Natural Gas Storage Glut Has Been Cut This Summer

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


The National Oceanic and Atmospheric Administration (NOAA) reports cooling degree day (CDD) data for every seven-day period by state. From that data, they construct a populated-weighted national total.

CDDs are the difference between the daily temperature mean (high temperature plus low temperature divided by two) and 65°F. If the temperature mean is above 65°F, we subtract 65 from the mean.

Example: The high temperature for a particular day was 90°F and the low temperature was 66°F. The temperature mean for that day was: Continue reading "How The Natural Gas Storage Glut Has Been Cut This Summer" →

OPEC Oil Export Revenues Lowest Since 2003

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


But No Agreement To Cut Production Likely

OPEC President, H.E. Dr. Mohammed Bin Saleh Al-Sada, Qatar's Minister of Energy and Industry, issued a press release August 8th announcing that an informal meeting of OPEC member countries would take place on the sidelines of the 15th International Energy Forum in Algeria from 26 to 28 September 2016. There was an initial price rise, but that faded on Tuesday and Wednesday. Continue reading "OPEC Oil Export Revenues Lowest Since 2003" →

Natural Gas Producers Pressuring Futures Prices Lower

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Natural gas futures prices rose by 2.0% last week (ending August 2nd to correspond to the data below) then dropped back to close the week 10 cents lower at $2.77.

NYMEX Nat Gas Futures Nearby Month

Prices rose in advance of the Energy Information Administration’s (EIA) Thursday storage report in anticipation of a draw in inventory, which was confirmed in the data release. As a result, the year-over-year storage glut was cut to 13.4%. Continue reading "Natural Gas Producers Pressuring Futures Prices Lower" →