Category Archives: Macro Trends

The Surprising Discovery Of One Oil Executive

the-surprising-dicovery-of-one-oil-executive

Reporting Bill Moist, MS, CPA

This Surprising Story is about a man I’ve known for many years.  We have worked on several projects together.  So this is a true story.

As with all those in oil & gas development they have:

  • Big discoveries
  • Small discoveries
  • Some that are not productive

So, he started asking how do we have these benefits of O&G in a more stable reliable environment.  What he wanted included the following:

  • Return of capital in months
  • High cash flow
  • Tax benefits of O&G
  • Steady long-term cash flow
  • Residual value in the property
  • Loyal locked in customers
  • Low maintenance costs
  • Not dependent on new oil and gas exploration
  • If regulators get stupid and limit fracking, it is still ok
  • The best of oil & gas development without the downside

What he found is generally not available to purchase because it is a cash cow for those how already own it.  However, some current economic events are creating the availability (for a time) to purchase existing properties at deep discounts.

Click here to watch video The Surprising Discovery…

Also, regulation makes it difficult and slow to develop new properties which restricts supply.

So, who is this mysterious oil and gas executive who discovered a better more stable way to participate?

What did he discover?

Email or text me your contact information and I’d be happy to share more on a private basis.

This has been Bill Moist, MS, CPA reporting today The Surprising Discovery Of One Oil Executive.

Gigantic U.S. Crude Oil Inventory Plunge

cushingoilinventory

Cushing, OK Inventory 

Oil inventories plunge…more than 14.5 million barrels for week ended September 2nd.  This was the greatest weekly plunge in 17 years attributed to Tropical Storm Hermine.  The U.S. Energy Information Administration said expectations were for an increase of 225,000 barrels.

The price of oil jumped $1 to $47.25 a barrel from the news.  “I think you need to see more than one week of this to get worries about oversupply out of the market,” said Gene McGillian, senior analyst at Tradition Energy of Stamford, Connecticut.

Tropical Storm Hermine interrupted shipping routes and production last week, even though the storm eventually turned to the northeast and did not harm key facilities in the Gulf.

In conclusion…this report is a minor tremor in oil supply and pricing contrasted to the impact of oil inventory shortfall due to  the $1 trillion slash in new oil field investments from 2015 to 2026.  This was reported last week in the Oil And Gas Insider article Oil Price Spike Inescapable. Click here to read last weeks report.  

Reference: UPDATE 1: Biggest weekly U.S. Crude Inventory Drop, By David Gaffen, Reuters, September 8, 2016; Oil Price Spike Inescapable, By Bill Moist, Oil And Gas Insider, September 5, 2016

Serious Oil Field Worker Shortage…Soon?

oil-workers

Goldman Sachs believes the American oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply.  A projected 100,000 oil jobs could be coming back.

The estimate is based on Goldman’s forecast for U.S. oil production to resume growing next year after the recent drop to two-year lows. That growth would require some 700 oil rigs to be added — and each one supports an average of 120 to 150 employees.

As more oil fields come on line and America’s oil boom gets back on track, there simply won’t be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy. This downturn was far worse than the 87,000 jobs wiped out during the last downturn in the middle of the Great Recession.

Jeff Bush, president of oil and gas recruiting firm CSI Recruiting, agrees that a “worker shortage” is coming.

“When we get back to a reasonable level of activity, there’s going to be a supply crisis of experienced personnel. I just don’t see any way around that,” said Bush.

In conclusion…Last week in this publication we discussed  “U.S. Now The Largest Global Oil Reserve.”  Somehow the industry will need to take better care of those skilled workers if they want to keep them over the long-term. The drastic swing in oil prices has extremely painful for those workers who grow accustomed to the high salaries.  Every downturn flushes out a large number of highly skilled workers.

Oil Price Spike Close?

WTI Crude Pricing

We are beginning to see the first real signs of the global oil markets moving rapidly back into balance. OPEC, which produces approximately 40 percent of the world’s oil supply, cannot meet future oil demand on their own.

Supporting data follows that supports the analysis that oil price spike may be close:

  • On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016.
  • U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016
  • Gasoline inventories declined by 1.231 million barrels’=
  • Distillate stockpiles fell by 1.647 million barrels
  • The International Energy Agency (IEA) say the annual summer spike in demand for transportation fuels has begun.
  • On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa’s biggest oil producer
  • Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more production of crude. Nigeria’s oil production was already down 600,000 barrels per day before these two incidents, primarily the result of militant attacks.
  • Latin American oil production is now down close to 500,000 bpd from year ago levels.

In conclusion…If history repeats itself, the demand spike will be even larger. In 2010, the final year of the last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010 was that IEA’s formula for calculating demand, did not consider the impact of lower fuel prices on demand. IEA may have made the same mistake this time around.

Oil Is Still In Demand

oildemand-forecasts Everything about the oil market – 2015 and 2016 – is peculiar.  Oil prices have plummeted, yet production has not.  This is defying textbook economics.  In some big oil producing regions, output is actually rising.  Demand is up too, yet prices keep falling.

How to make sense for this?  This particular price collapse is unlike the others, so history is not an accurate guide.

The variable that seems to apply to this particular price collapse is supply and lots of it.  Supply has been outpacing demand, which is why any rally since the downturn is short-lived.  Prices are down 35% in the last year and about 70% in the last year and a half.

Much of the theory for weak demand is blamed for oil pricing collapsing.  It is far more sensible to blame rising supplies.  As supply glut builds, oil prices could fall even if global demand stays or rises.  On last Tuesday, the World Bank sliced its 2016 forecast from and average crude prices of $37 a barrel, from its previous forecast of $52.

Almost $400 billion of crude oil projects have been suspended.  The IEA says energy-project spending fell 20% last year and is on similar course this year.

The best cure for low oil prices is low oil prices as economists say.

Source: Oil is still in demand -it’s the glut that is hurting price by Eric Reguly, The Globe And Mail, January 29, 2016

Crude Oil Pricing Cycles

humanforecastingmodel  H.S. Dent’s Hunan Model of Forecasting

No matter how many economic cycles we live through; the tendency is to assume where we are will continue as pointed out by H.S. Dent above.

Economic Cycle is defined as:  The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

We are definitely in a contraction, i.e. recession for the oil and gas industry.  This is well displayed by the Crude Oil Price History Chart from Macrotrentds.  The chart starts from January 1946 going to the present day pricing.

Crude Oil Price History Chart

It’s interesting to note that it was March of 1980 before the pricing topped $100 a barrel.  Then the pricing trended downward to below $20 by November 1998.

The price then proceeded to bounce around $100 from October 2007 to June 2014.  Since then the trend had been primarily down.  This week oil is trading at less than $40.

In conclusion…History shows us that our Human Model of Forecasting is normally incorrect.  Do, I expect oil pricing to increase as the supply decreases.  Yes, I do.  When?  I’d be wrong if I predicted when.  The good news is the cycle hasn’t been broken for seventy years.  So, there is no apparent reason it should stop now.