Tag: the energy report

Forget OPEC, North American Energy Plays Bring Profits Home

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The Energy Report: Byron, welcome. You recently attended the Platts Conference in London, which addressed shifting energy trade patterns in light of growing U.S. export prospects and dwindling exports from South America and Africa. Has OPEC's role diminished?

Byron King: The short answer is yes. OPEC is struggling right now. The Middle East, the West African producers and Venezuela are struggling. The West African players and Venezuela have seen exports to the U.S. decline dramatically. In countries like Algeria, oil exports to the U.S. are essentially zero, while Nigeria's exports to the U.S. are way down. The oil these countries export tends to be the lighter, sweeter crude, which happens to be the product that is increasing in production in the U.S. through fracking.

The east-to-west trade pattern for oil imports to the U.S. has essentially gone away. This does not mean that the oil goes away. It means these countries have to find new markets for their oil which they are doing, in India and the Far East. But that disrupts trade patterns as well. Imports from the Middle East to the U.S. are falling as well. These barrels tend to be the heavier, sourer crude that U.S. refineries are geared to process. Continue reading "Forget OPEC, North American Energy Plays Bring Profits Home" →

Potential Oil Glut! Raymond James Analyst's Contrarian Forecast

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The Energy Report: Why are you expecting an oil glut in 2014?

Andrew Coleman: Because of the evolution of North American shale oil plays, we are on track to add about 3 million barrels (3 MMbbl) of new supply over the next five years. Yet we know oil demand has been falling across the developed nations and is still weak coming out of the global financial crisis. Those developments point toward a glut.

TER: Saudi Arabia surprised you last year by cutting production when oil was more than $110 per barrel ($110/bbl). Why would Saudi or other suppliers not do that again?

AC: What hurt production outside the U.S. last year and helped keep the demand side a little more in balance was that Saudi cut 800,000 barrels a day (800 Mbbl/d) in Q4/12, sanctions in Iran reduced exports by about 800 Mbbl/d as well, conflict in Sudan took 300 Mbbl/d offline and the North Sea average was lower by about 130 Mbbl/d. These reductions kept last year's supply more balanced than we thought it would be. Going forward, Saudi's ability or willingness to cut is certainly going to be tested, because by our model the country may need to cut 1.5 million barrels a day (1.5 MMbbl/d), about double what it cut last year. It would have to do that for a longer period of time, given the amount of excess storage that could show up on the global markets.

TER: But, as you just pointed out, Saudi Arabia's cut came in the context of actions by other players. The other players are going to be as unpredictable as they were last year, aren't they? Continue reading "Potential Oil Glut! Raymond James Analyst's Contrarian Forecast" →

Investors Versus Traders: A Battle for Oil & Gas Profits

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The Energy Report: Looking back to your last interview with The Energy Report in November, you seem to have called the bottom in gas prices correctly. What's your view of where things are headed now?

Robert Cooper: We expect a reasonably robust pricing scenario ahead. Here's why: In 2013, we will likely see flat natural gas supply growth; this will be the first year in the last several that this will be the case. The natural gas rig count is at 350, the lowest since 1995. The declining rig count has taken its toll on almost every U.S. shale basin; the only basin that's growing is the Marcellus, and it is growing partly because infrastructure constraints are being alleviated. Unless productivity undergoes another massive step higher, or drilling time is cut in half again, rig count matters as a predictor of natural gas production levels. Natural gas liquids (NGL) prices are weak, and this impacts the ability of explorers and producers (EPs) to reinvest at the same level as even a year ago. This further reduces the probability that capital will be redeployed to dry gas plays.

TER: Your May 9 report shows gas storage 28% lower year over year and 5% below the five-year average. What are the implications of that? Continue reading "Investors Versus Traders: A Battle for Oil & Gas Profits" →

U.S. Energy Self-Sufficiency Nothing But 'Feel-Good BS'

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The Energy Report: In September 2012, you described $100/barrel (bbl) as the new normal. What market factors are behind today's price of $93/bbl?

Bob Moriarty: If the new normal is $100/bbl in any given market, the price should be as high as $115/bbl and as low as $85/bbl. The price will continue to swing around that. Even with the Bakken coming on-line and other domestic U.S. production occurring in the U.S., cheap oil is gone.

TER: So when you look at oil consumption, do you look just at the U.S. or do you look globally? For example, what role does China play?

BM: I am concerned with U.S. consumption as a measure of how the economy is doing. Oil use in the U.S. has been declining since 2008 because economic activity has been declining since then. I think oil consumption in the U.S. is the best indicator of economic activity because there is direct correlation between the two. [See first chart below]

China is an indicator of global consumption. I am not concerned with global consumption. But if you want to measure what is happening in China, look at the spot price of copper, which is hitting new lows. China is slowing down. [See second chart below] Continue reading "U.S. Energy Self-Sufficiency Nothing But 'Feel-Good BS'" →

Bullish on Oil Prices? Two Reasons You Might Change Your Mind

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The Energy Report: Marshall, before the Great Recession hit, we appeared to be on target for $150 per barrel ($150/bbl) Brent in mid-2008, and we were hearing forecasts of $200/bbl before the end of that year. But things have changed. I'd really like to get your fix on how you perceive energy markets have been altered over the past five years.

Marshall Adkins: For the oil market specifically, two massive structural changes have occurred since 2008. First, U.S. oil supply from horizontal drilling in tight shale formations has created a reversal of the four decade-long decline we've seen in U.S. oil production. When I say reversal, I'm not just talking a minor blip; I'm talking about erasing a 40-year decline within five years. This truly is a massive structural change to U.S. oil markets.

On top of that, in conjunction with the Great Recession, the world has figured out that there's too much debt, and most of the developed world is going through a deleveraging period. Historically, whenever you deleverage, you get subpar economic growth, and subpar oil demand growth. For the past five years, we've seen significantly lower demand growth for oil compared to the prior two decades. I expect that to continue, and I expect U.S. oil production to continue marching higher. Continue reading "Bullish on Oil Prices? Two Reasons You Might Change Your Mind" →