The Numbers Don't Add Up -- September 17, 2019

WTI:

• pre-attack: $55
• post-attack, once futures started trading: $59, possibly more
• yesterday: $62
• today, 10:53 a.m., plunged 5%; down $3.16; trading at $59.74;

Earlier this morning I posted this:

Post attack: there are two stories percolating under the surface -- now that WTI is "sort of" back where it started and still way, way below what some thought would happen, there are two stories to follow. The two stories:

• the numbers don't add up; all this hysteria over 5% of the world's total production?
• US shale is is the swing producer

Now, less than three hours later, it appears my thoughts were right on target.

The numbers don't add up. I'm not talking "numbers," per se, but rather the sentiment/emotion associated with the numbers.

First of all, 5% of anything does not cause panic in the street like it did yesterday, Monday.

The weekly government-provided global supply / demand numbers suggest a deficit of oil production / supply has been on-going for the past several months, if not longer. And yet the US has 24 days of supply in inventory. That's way down from 35 days not long ago, but it's still above the long-term historical norm I like to see: 18 days, maybe 20 days max.

Twenty-four days of supply is a week longer than the US needs. I'm not going to look for it now but I believe I saw elsewhere that the EU has aan much longer supply requirement -- it was just posted a few days with regard to BREXIT. In other words, there's a lot of oil sloshing around. The US figure does not include the SPR.

OPEC+ has a self-imposed quota limiting production / export. Some are cheating. If push comes to shove, there's always Venezuela. And Iran. Bottom line, if there's any "shortage" it's pretty much politically/economically/administratively inflicted. The global industry can ramp up easily. Am I sure? I don't know. How much is OPEC holding back? My hunch OPEC+ alone could ratchet up a significant portion of the 5-million-bbl shortfall.

Enough of that.

Now the second part. Had WTI stayed above $60 and continued to trend upwards to $70, we would get a chance to see if the US shale sector was the new swing producer. In my mind, there is no question that had WTI trended toward $70 and the tea leaves suggested the new floor would be $75 in the not-too-distant future, the US shale producers could ramp up significantly.

We haven't had a chance to see how fast the US shale sector can respond. How fast can Bakken operators bring on 2,500 wells that are currently off-line for operational reasons (DUCs, and inactive but completed-and-previously-producing wells [ICPPW])? By the way, 2,500 wells is about the number of wells drilled every three years in North Dakota.

Disclaimer: I am inappropriately exuberant about the Bakken. Comments above are of a general nature, not to be taken out of context. I may not articulate it well, but it is what it is.

And apparently the market is seeing the same thing.

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The Political Page

September 17, 2019, T+9a: most recent polling data; the first data released after the third debate, Thursday, September 12, 2019. It's important to note that only one new poll has been added (Politico). This is the average of five polls; only one poll (the Politico poll) was taken during and after the debate. Data from RealClearlPolitics:

• Biden: before the debate, 26.8%; now 26.2%; Reuters before the debate had Biden at 22%;
• Bernie: 16.8%, unchanged, third, behind Pocahontas
• Pocahontas: 17%, up from 16.8% -- surging ... LOL
• Harris: falls a bit, from 6.5% to 6.2%
• Buttigieg: up from 4.8% to 5%
• Beto: up to 3% from 2.8% (but probably lost Texas for the Democrats)
• Yang: unchanged at 3%
• interestingly, the outlier is the most recent poll (Politico) which has Biden at 32%; everyone else has Biden in the mid-20s. Will the rest follow suit once they show their polls taken after the third debate?

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Taking A Break

Sophia and I used to go to McDonald's once a week or thereabouts; she really enjoys/enjoyed PlayPlace.

But then, starting about two weeks ago, she said she was never going to go to McDonald's again because it did not have healthy food. I think she has said that almost every day for the past two weeks.

Yesterday, Sophia said she wanted a treat. She said she wanted to go to McDonald's but she said she would have no Dr Pepper (her catch-all for soda drinks) but only a few French fries.

We went and true to her word, she only had water. She said she would have only a few French fries. It was really Corky, she says, who wanted to go to McDonald's.

Sophia also had a vanilla ice cream cone -- but only a small portion.