The Light-Heavy Crude Oil Spread Is Narrowing -- RBN Energy -- September 21, 2017

Active rigs:

$50.51→	9/21/2017	09/21/2016	09/21/2015	09/21/2014	09/21/2013
Active Rigs	55	33	68	196	185

Peak oil: for the archives. Now that we are solidly above $50 for a bbl of oil, time to re-read this May 8, 2017, interview with Art "Peak Oil" Berman: "don't get used to today's low oil prices." For the archives.

Counterpoint: From Brad McMillan, the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan. Brad's summary:

I suspect that the next 10 years will be very similar to the later stages of the last industry consolidation, as this process continues. The economy and investors will see stable prices, which has largely been the case since the initial collapse. But we will also see prices that increase over time, which so far has also been the case. Oil will no longer be a free market, with the wild price cycles that entails, but a more managed one. In many respects, it will look much more like, say, the 1990s than the boom period (in oil prices) from 2003 to 2008 or the bust period from 2014 to recently.

Overall, the effects should be positive. Markets and the economy thrive on stability. While the collapse in oil prices was a tailwind for many sectors, the damage to the energy sector wiped out many of those gains. Moving forward, energy should be neither a significant headwind nor tailwind, but a solid foundation—which is what a sector this vital should be.

Lukoil: peak oil? What peak oil? Lukoil sees its production increasing over the next 8 - 10 years as new fields are brought on line. Lukoil is Russia's second-largest oil producer. Lukoil's new fields: in the Caspain and in Iraq. Meanwhile, Lukoil's VP expects OPEC to maintain cuts: "the deal with OPEC will be extended and in general it will become, if not perpetual, for sure a long-term deal, beyond 2018."

Bloomberg agrees with Lukooil's assessment: the oil glut will persist. 

Crude prices have rebounded to a three-month high and the world’s bloated fuel inventories are shrinking, signaling that nine months of production cuts by the alliance of the Organization of Petroleum Exporting Countries and nations including Russia are at last paying off.

Yet as U.S. shale oil continues to thrive and seasonal demand wanes, the surplus that has weighed on markets for three years looks set to come back.

US crude oil inventories: have increased significantly for each of the last three weeks. Re-balancing is back to almost a full year. Posted elsewhere.

The WTI curve: the curve is showing "some signs of shifting to backwardation. The last time this happened was in May, 2017, but it reverted back to full contango in June. Right now, the curve is not quite inthe full backwardation we had until 2014, but it's a start." -- Bloomberg.

• contango: prices collapse; traders willing to buy cheap oil, put it in storage to sell it at a higher price later
• backwardation: prices rise, as traders sense a imminent shortage of oil, paying more for it now so they can get necessary deliveries sooner

RBN Energy: the narrowing light-heavy crude oil spread and what it means for US refineries.

Markets: Dow and  S&P 500 hit new records yesterday. At 22,500, a rise of 500 points amounts to a trivial 2% "jump" in the Dow. Likewise, a 500-point drop is a 2% drop. So, when I see the Dow up another 10 - 20 points, it's not particularly exciting. Maybe I'm missing something.

AAPL: I see GoogleFinance has AAPL as one of the top ten movers in pre-market trading ... drum roll ... down 0.04%.

DAPL-gate: comes to an end. At The Bismarck Tribune, data points:

• no fine
• DAPL does not admit guilt
• DAPL will plant three trees for every alleged tree removed (industry standard is to plant two trees for every alleged tree)
• DAPL developer to provide manual on how to communicate better

Cars: it was interesting to hear that Ford will shut down "car manufacturing" for five manufacturing plants for a total of ten (10) weeks, but will continue to manufacture SUVs and pick-up trucks. No links. The story is probably easy to find if interested. Tells me all I need to know about availability of gasoline and diesel for the next year or so.

Natural gas optimism, worth re-posting from RBN Energy: natural as producers boost their already bold 2017 production outlook.

An analysis of mid-year 2017 guidance shows that the nine natural gas-focused exploration and production companies we’ve been tracking are still fully committed to the very aggressive exploration and development spending they outlined at the beginning of the year. These Gas-Weighted E&Ps slightly upped their total 2017 capital budgets to $8.87 billion, a whopping 59% boost from their 2016 investment — well above the 44% and 29% increases announced by the Oil-Weighted and Diversified E&P peer groups, respectively. The gas-focused producers also increased their 2017 production guidance by 1% to 1.046 billion barrels of oil equivalent (Bboe), in contrast to the mid-year reductions in 2017 output announced by the other two peer groups. Today, we continue our review of updated capital spending plans by 43 U.S.-based E&Ps, this time with a look at companies that focus on natural gas.

EQT is boosting its organic capex by 66% in 2017, but this significant spending is dwarfed by its merger-and-acquisition dealmaking. The company spent $1.7 billion in 2016 and early 2017 adding acreage in its core southwestern Pennsylvania/northern West Virginia production area before announcing the blockbuster $8.2 billion purchase of Rice Energy in June 2017. The EQT/Rice transaction, the largest corporate E&P deal in the U.S. since 2012, will increase EQT’s production by 59% and make it the largest U.S. natural gas producer. The Rice purchase significantly increases EQT’s contiguous acreage in its core areas, expanding opportunities for the longer lateral drilling that will boost the company’s organic output by 13% this year.