Oil price discussion and analysis

[rederob]

US oil inventories defied pundits during the week with a 5.7mbbl build, when a 1.7mbbl decline was expected, so WTI crude prices fell away sharply on Thursday:

While it appears that COV19 has stymied US demand in particular, WTI price support is being maintained by a continued lack of new drilling activity in North America; the US LTO rig count dipped by 5 over the week according to Baker Hughes.
Bigger news globally was a weekly decline of 12% in the rig count, and as these are not the nimble rigs that operate in the North American shale patches, getting those numbers back to "normal" will take much longer.

As you can see from the EIA chart below, after massive global stock builds in the first half of this year, we are likely in a global supply shortage that will carry through well into 2021:

In that light I see oil continuing to rise steadily over the next 6 months at least based on the supply:demand situation.

 

[frugal.rock]

Some more bias confirmation...
Down another tick...100,000 barrels down. Still a steady fall.
A reminder on the data lag.

 

[rederob]

Although WTI crude dipped in early trade yesterday, it recovered itself to close slightly higher, in the +$37 range.
Below I have focussed on how trading volumes may have reflected what the market was thinking as COV19 began to physically affect demand:

The above trend channel shows the path to price recovery, and I expect the incline to become less steep over coming weeks as the market digests the interplay between OPEC+ and US LTO supply on anticipated demand increases.

 

[Smurf1976]

I kind of think the other way, if a businesses operational leverage is to the oil price, then I don't care too much whether it's an up/mid/down stream entity. Hedging caveats do apply in all cases though.

My point was more about things which don't necessarily track the spot price of crude oil. For example the OOO ETF.

I'm not saying don't buy it, just make sure you understand what it is and how it works before doing so.

 

[Smurf1976]

LNG isn't oil but it's fairly closely tied to it from a financial perspective so I'll post here that there are various reports that the Australian LNG exporters are having trouble selling it. There's media reports about ships sailing as slowly as possible, being re-directed to other countries or simply going nowhere.

https://smallcaps.com.au/global-gas-market-extraordinarily-oversupplied-hitting-australian-exports/

The main data I can add to that is that raw gas volumes going into the Queensland LNG plants, all of them collectively, are currently running about 16% below levels pre-pandemic. The drop in LNG production should be proportional to that.

Some of the gas not going into LNG is being shut-in in Queensland, a bit's going into storage at Roma (Qld) and quite a bit is going south via the pipeline to Moomba. Gas consumption varies considerably day to day but for 17th June gas from Queensland should supply just on 20% of the total volume consumed across NSW, ACT, SA, Vic & Tas combined so it's significant. That's resulting in reduced production in both SA and Vic with that gas staying in the ground for now.

I don't have any figures for LNG production in WA or NT to add.

 

[frugal.rock]

US Petroleum and Other Liquids
Weekly supply estimates.
https://www.eia.gov/dnav/pet/PET_SUM_SNDW_DCUS_NUS_W.htm

I note, the US became a net importer again (of oil) around early May. Imports have been rising slightly. If storage capacity was full, would you import? Hmm, something seems awry. Eagerly awaiting production update later today. (expecting downtrend to continue)

F.Rock

 

[frugal.rock]

Down 6 ticks from last reported period...
From 11,100 to 10,500 ( x 10,000)
This is one of the largest drops over the last few months... and from the chart, the biggest drop in production since around 1983 or chart start... bigger than Ben Hur.
If I get excited, I might chart this year's results...

 

[rederob]

Another dip in the Baker Hughes North American rig count should keep oil ticking higher:

LTO drilling rig numbers declined by 10 in the USA and 2 in Canada.
132 operating Permian Basin rigs are now one-third the number of last year, while Canadian rig numbers are down 80% on a year ago, albeit from a base of 119.

 

[Smurf1976]

Australian consumption data April 2020 compared with April 2019:

LPG (Automotive use) = -40.7%
LPG (all other uses) = -12.9%
LPG total = -20.7%

Petrol = -42.7%

Aviation turbine fuel (domestic aircraft) = -78.8%
Aviation turbine fuel (international aircraft) = -80.1%
Aviation turbine fuel total = -79.7%

Aviation gasoline = -71.2%

Diesel = -9.8%

Fuel oil = -36.5%

Lubricants = -6.9%

All other refined products (bitumen, minor fuels, solvents, chemicals etc) = -11.9%

Total all products = -30.9%

So overall a 30.9% drop in consumption but with very considerable variation between products.

Data source = Australian Government statistics available from www.energy.gov.au

 

[rederob]

US crude today hit its highest price since being floored in April:

Without the return of drilling rigs to the shale patches crude prices are likely to maintain the trend in place for over 2 months.

 

[frugal.rock]

I've changed my opinion.
If I traded oil, I'd be going short now faster than a rabbit down the hole... (rabbit down the hole is the gold safe haven analogy)
Oil inventorys are peaking. Way over estimates. India is nearly chockers as is the US.
Expecting US Weekly Production figure overnight, am expecting another big (bigger?) drop. Has to be.
Still have absolutely no idea about futures though. Not my area.
Loving the investing.com site
@Joe Blow .
Good move.
https://m.au.investing.com/news/com...ries--rose-17m-barrels--last-week-api-2144203
and
https://m.au.investing.com/news/commodities-news/oil-snaps-3day-rally-on-crude-build-worries-2144136

Reminds me of my cousin years ago, pretending with my first mobile phone (brick)...
He mashes some buttons...beep boop bip beeeep, (ringing the broker)...
"Yep, buy gold, sell oil" ... never forgotten that, was funny as.

Now, trading 23 years later, it seems like he might have made the right call...

 

[frugal.rock]

Oh no, US weekly production for the week of 19/6/2020, apparently production went UP...! by 500
to 11,000 (x 10,000)
I think the figures are getting fudged!
That just makes the "going short" conviction even stronger, in my opinion. The previous panic was a case of "much ado about nothing".
It's getting very real, storages are chockers. POO down overnight.
Who's ready to take delivery of oil and get paid for it.... again?

 

[rederob]

POO is back to its price levels 3 weeks after declining from its recent high on Tuesday:

Clearly noticeable is the loss of interest in oil trading during the week.
Price "resistance" does not appear in the above chart and is almost $15/bbl away from Friday's close.

The North American rig count did decline, but by only one LTO drilling rig in the USA and Canada respectively.
More importantly, another massive decline in the international rig count occurred during the month to end-May: down 110 units to 805 operational. It will be interesting to see if the uptick in Brent and WTI crude since then sees a return.

While its clear that COV19 continues to dampen demand, it's also likely the case that curtailed international exploration will extend the period of supply recovery beyond earlier estimates.

 

[Smurf1976]

it's also likely the case that curtailed international exploration will extend the period of supply recovery beyond earlier estimates

I haven't seen any figures but I wonder how much of the drilling is for exploration (finding new resources) versus how much is for development (putting previously discovered oil into production)?

One's about the short term and the other is about the long term. What the companies, particularly the larger ones, are doing in that regard might have some relevance.

 

[frugal.rock]

I haven't seen any figures but I wonder how much of the drilling is for exploration (finding new resources) versus how much is for development (putting previously discovered oil into production)?

One's about the short term and the other is about the long term. What the companies, particularly the larger ones, are doing in that regard might have some relevance.

The whole situation is a little uncertain to me.
The EV market is growing, even the bigger fuel companies see it and are acting.
Ampol (caltex getting rebadged iirc) are looking at strategic locations for fast chargers.
Is oil going to run out before the EV fully takes over?
It seems like the environmental push side of things means oil won't run out, which would suggest that long term isn't a great outlook.
However, short to medium term should be reasonably safe, is my guess...

 

[over9k]

Oil is not going to run out. Shale's added another century or so even at current levels.

Electric vehicles are the future in the U.S (the only market left of any size) thanks to the move to using gas to produce power for $peanuts.

I wouldn't be going anywhere near any oil producers with a bargepole for months - we had the early june bump, and that's it, we're now over the hill and heading into winter in the northern hemisphere.

 

[Dona Ferentes]

The disruption in global energy markets has claimed its biggest victim so far – Chesapeake Energy Corp filed for Chapter 11 bankruptcy protection on Sunday in the US, ending life as a fallen pioneer of the fracking boom and now bust.

Now it will try and recreate itself by cutting billions of dollars in debt and taking on $US3.1 billion in fresh debt as part of the refinancing deal and hopefully raise more than half a billion dollars in a share issue once the Chapter 11 revamp ends.

It joins other independents in Chapter 11, including Whiting Petroleum which was the first well-known listed oil fracker to collapse several months ago.

https://www.sharecafe.com.au/2020/0...peake-energy-files-for-chapter-11-bankruptcy/

 

[over9k]

The saudi's couldn't have dreamed of this.

 

[frugal.rock]

US Weekly Oil production figures are flat for the week of 26/6/2020.

Starting to indicate a bottom, however without it rising, this isn't clear cut yet.
Time to fence sit, erring on expecting a comeback.
"a report showed US crude stockpiles posted a bigger drop than expected" (Morningstar 2/6/20)

 

[frugal.rock]

@rederob @Smurf1976
Would you guys concur with a macro analysis that I think we have largely seen the bottom of the poo?
Based on;
1. Production fall now seemingly leveling out (based on US production and rig counts)
2. Storages starting to get used
3. The worst of covid19 seemingly behind us (for now)
4. Economic activity increasing
5. Poo consolidation
6. Retailers discounting automotive lubricants

Interested on thoughts as I am looking to enter ooo when funds permit or cull some underperformers and rotate.
Cheers