Speedy Balance
Do they see what I see? OPEC’s Secretary General Mohammad Barkindo is telling us that the global oil market is rebalancing fast as the glut of refined products is gone as he and OPEC takes a victory lap ahead of their November OPEC meeting. The strongest global demand growth we have seen in at least the last two years, if not longer, gets some of the credit it appears that OPEC sees the glut of oil almost gone. At the same time OPEC is calling on shale oil producers to help push prices even higher and complete one of the greatest oil and product supply drains in recorded history.
Barkindo was clear. He said that "There is unmistakable evidence that the market is rebalancing. The process of global destocking continues, both onshore and offshore with positive developments in recent months showing not only a quickening of the process but a massive drainage of oil tanks across all regions." He also pointed out that the growth in U.S. shale oil output had slowed compared to the first half of 2017 and growth in global demand may show further upward revisions, giving the supply cut effort tailwind, according to Reuters.
OPEC put OECD oil stocks, as of August, had fallen to 170 million barrels above the five-year average, down from 340 million barrels in January. Barkindo said in the speech that 145 million barrels of the remaining 170 million-barrel surplus was crude, but inventories of refined products were approaching the desired level. "Just a mere 25 million barrels are products, almost converging with the five-year average."
The Energy Report has been reporting on this and we expected it. We never doubted OPEC’s resolve to reduce global supply and we do not doubt that they will extend cuts at their next meeting. We also predict that Libya and Nigeria will agree to a future production cap.
OPEC is also looking at shale producers to join into their little production cut conspiracy. Barkindo, in a speech to shale oil producers, said “We urge our friends, in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learnt from the current unique supply-driven cycle. At the moment, we (OPEC and independent U.S. producers) both agreed that we have a shared responsibility in maintaining stability because they are also not insulated from the impact of this downturn. Will congress start investigating Shale for collusion?
Shale producers do have to be smarter about production. You can’t lose money on every barrel and try to make up for it in volume. There is strong sign that U.S. shale producers are getting the message at least the smart ones are.
Bloomberg News reports in a must read “For years, investors have played Popeye to the energy industry’s Wimpy, the cartoon character famous for his “I’ll gladly pay you Tuesday for a hamburger today” motto. In return for the promise of future profits, they’ve funded loss-making energy producers and explorers through a generous mix of loans, bonds and equity.
That may be changing, according to a chorus of analysts ranging from Morgan Stanley (NYSE:MS) to Sanford C Bernstein & Co. LLC. Following Anadarko Petroleum's (NYSE:APC) pledge last month to buy back up to $2.5 billion worth of shares, they’re now discussing a new phase in the oil market, with producers far keener to reward investors and more disciplined when it comes to funding their own expansion.
“Investors are no longer rewarding ‘growth at any cost’,” said Martin Rats and Amy Sergeant at Morgan Stanley in a note published late last week. U.S. energy companies have under-performed the broader S&P 500 index this year partly because of a growing perception that the “E&P (shale growth) model is capital destructive,” according to their colleague, Evan Calio.
Securing such investments has been relatively easy in an era of low interest rates, cheap financing and eager capital markets, with major investors from short-seller Jim Chanos to DoubleLine Capital LP’s Jeffrey Gundlach drawing links between the easy monetary environment and an undisciplined boom in U.S. oil production that spurred a collapse in prices. A must read!
A report overnight that Iraq will reopen an old crude oil pipeline to Turkey, which bypasses one operated by the Kurdistan Regional Government (KRG), the oil ministry said in a statement on Tuesday. Reuter’s reports that Iraq’s oil minister, Jabar al-Luaibi, has asked state-owned North Oil Co., the operator of the Kirkuk fields, the State Company for Oil Projects and the state pipeline company to begin the process of restoring and reopening the Kirkuk Ceyhan pipeline. The Kirkuk Ceyhan pipeline crosses territory taken by Islamic State militants in 2014 and recaptured by U.S.-backed Iraqi forces over the past two years.
We believe the seasonal lows are in or close to being in. With product supply still declining at a time when they should be risng is a very good reason to be locking in your needs. Goodbye Regulations Hello responsibility. The Rollback President. Remember when Wal-Mart (NYSE:WMT) rolled back prices? Well President Donald Trump has rolled back more regulations then any President in History at this point in his presidency. Environmental Protection Agency Administrator Scott Pruitt announced in Kentucky that he would sign a proposal EPA to repeal landmark Obama climate rule that was known by politicians as a “war on coal” They will formally withdraw federal limits on carbon emissions at power plants. Stay Tuned!