Wednesday, March 8, 2017

The Energy And Market Page, T+47 -- March 8, 2017

Thoughts On The Price Of Oil Today

A reader sent me a note about today's "oil action" mentioning a number of things, including DUCs; lack of CAPEX for E&P; and, comments yesterday by the CEO of Chevron. My rambling thoughts:
1. The number of DUCs will decrease, but they are decreasing for two reasons, the first reason, I missed until Lynn Helms mentioned it several months ago:
a) drilling fewer wells to begin with (naturally results in fewer of everything, including fewer DUCs, all things being equal)
b) more frack crews completing more DUCs
2. I personally don't see DUCs making all that much difference; a DUC to me is no more than just another well, and I'm not seeing very many of them being reported each day on the daily activity report.

3. I haven't been listening to talking heads today, so I don't know the reasons being stated for oil down to almost $50. I will bet that one of the biggest reasons may be one everyone has forgotten about: 500,000 bopd could be moving from ND to Chicago as early as next week through a new pipeline. Granted, this is not all new oil; much of it is simply being moved from CBR and other pipelines to the DAPL but with prices coming way down, there may be an incentive to increase Bakken production by mom-and-pop operators.

4. Also forgotten is the Enbridge Alberta Clipper, Line 67, that if approved by Trump, could be up and running "overnight." We are talking about 3 miles of pipe. Granted, again, most of this oil is already reaching the US but easy access to an 800,000 bopd pipeline might incentivize a few Canadian oil sands companies.

5. It looks like the crude oil builds just keeping building and all that talk about OPEC cuts may be just that that: "talk."  It's interesting, it's almost as if Saudi Arabia got caught with its proverbial hand in the cookie jar. When questioned about the increase in exports, they said it was in response to "unplanned" / "unexpected" cut in production from various OPEC members. But if February exports were greater than January exports, it sure doesn't sound like much of a cut in production.

6. I didn't see strength of the dollar today, but generally a $3 move on $50-oil is not going to be explained by currency changes.

7. I still think operators who poured into the Permian at $40,000/acre may be squirming.

WTI crashing. Just before the close, a reader sent me a note about price of oil today. This was my unedited response: 
I have forgotten the amount of record-setting crude oil build of two weeks ago (14 million bbls?) but last week I think it was 9 million bbls and today I see it was another 8 million barrels.

1. So, we have the third week in a row of almost double-digit million bbl crude oil builds when the change is usually measured in low-single digits, and this despite the OPEC "cut." EIA weekly report here.

2. OPEC exports actually increased in February over January, despite the OPEC "cut."

3. COP's CEO reported yesterday that things looking glum regarding pricing.

I haven't watched the news much today but everything on Fox Business News has centered on healthcare; it takes two to three days for network producers to put together the agenda for the day, so maybe the oil story was missed, and we might see it by the end of the week. We'll certainly see it by the end of the week if oil goes below $50. I just checked .. wow, oil is now down almost $3.00 and closing in on $50.

It almost looks like a panic --- dropping $3.00 in one day.

And I still don't see FBN mentioning it, though I have only watched about ten minutes.
Mid-Day Trading
WTI crashing. Down almost $2.00. Could test $50 floor. Traders must not have liked the OPEC report released today (actually exported more oil in February and January, 2017), posted earlier. And then COP/CEO yesterday suggested we will experience volatility and could see $40. This is perhaps the big story of they day -- oil slumping almost $2. Curious if the story comes up in mainstream media / business news today. Saudi Arabia is in deep doo-doo. I think even XOM has its challenges doubling down in the Permian, as do other companies who paid $40,000/acre in the Permian. 


ADP jobs report: much better than expected; 298,000 jobs added; much, much better than the 190,000 forecast. Market reacts; goes from red to green. Trump enthusiasm, Trump rally.

Not seeing the OPEC cut. From Rigzone, OPEC crude export average rises in February. The OPEC cut was announced in late 2016; the cuts were to begin in January, 2017. This is now the second month, and here's the headline: OPEC crude export average rises in February.
  • OPEC exports: 25.32 million bopd in February
  • exceeds January level by almost 2 million bopd
  • significant increases from Saudi Arabia, Iran Kuwait and the UAE
  • Qatar surged by 320,000 bpd month-on-month to 750,000 bopd
  • deliveries:
    • to Asia: an increase of 250,000 bopd; China, declined, but big increase to South Korea
    • to Europe: OPEC imports "nosedived" 
    • to US: relatively flat at 2.4 million bopd
Weatherford names former Halliburton CFO its new chief.

Anadarko expects oil sales volumes to rise 25%. Reuters.

Reality sucks: Saudi Arabia says it will reduce the amount of oil it burns this summer to run air conditioners; will switch to natural gas.

Ford's new F-650/750 announced. Ford website. Video from 2014.  Will update when I get 2017 video.

Geeee -- GE, no HA. GE and Caithness Energy (NY/East Coast power company) announced an exclusive agreement to pursue development of multiple new HA combined-cycle power plants in the US. My understanding:
  • H: H-class gas turbines -- combined-cycle (CC) power plants;  introduced by GE in the early 2000's;
  • A: air-cooled 
  • combined cycle: an assembly of heat engines working in tandem; after the first cycle in the first engine is completed, the "waste" fluid is still hot enough to drive a second heat engine; by combining multiple streams of work on a single mechanical shaft turning an electric generator, the overall net efficiency of the system may be increased by 50 - 60%.

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