IBD Interview With Chevron CEO -- May 29, 2015

It's one-thirty a.m. (1:30 a.m.) central time, Friday morning. I was just getting ready to head for bed when a reader sent me a 3-page article from Investor's Business Daily: Q&A: Chevron CEO Talks Oil Prices and Energy Independence.

It's a very, very good article. I am amazed how calmly these CEOs can talk about these things; they are very, very good at keeping things in perspective.

Some observations (data points from the article and then my comments, or vice versa). Again, I am inappropriately exuberant about almost everything when it comes to the oil and gas industry and an eternal optimist.

Before I get to the article: back in the 70's it appeared to me there was going to be a real shortage of oil, if not energy in general. Now, there is so much energy available that wind farms are being paid not to produce electricity in the US Pacific Northwest.

Perhaps for investors in select sectors, and perhaps for workers in select sectors, things look "bad" in the oil patch. For consumers, things could not look brighter in the US (except in California, as you will see in the article).

So, now the article, and how I read it. 

Question: is the low price of oil "normal" for the US?
Answer: at $60 now, it's going to take somewhat higher prices to justify a lot of incremental drilling activity.

Question: are we running out of oil?
Answer: no.

Question: did the Saudis intentionally drive down the price of oil to put shale oil producers out of business?
Answer: he never really answered the question, but he had a great historical perspective -- 

If you go back 30 years ago, at one point the Saudis cut production from 9 million barrels a day to 2 million. OPEC opened up surplus capacity of 15 million barrels a day that took 20 years to work off. Right now we're not in that situation. We have perhaps 2 million to 3 million barrels a day of surplus capacity.

Question: what does the US need to do to become energy independent?
Answer: "oil, gas, nuclear energy, and the right policies" is what he said; this is what I "heard": "yada, yada, yada." I think the whole issue of the US becoming energy independent is over-rated; a distraction.

Question: how important is it to lift the crude oil export ban?
Answer: we need to export light crude oil and import heavy crude oil. Regular readers of the blog already knew this.

Question: what about pipelines?
Answer: yada, yada, yada.

Question: the climate change issue? 
Answer: some data points --

• US accounts for just 15% of the world's greenhouse gas emissions
• the US has a very energy-efficient economy
• California has an aggressive set of laws (AB 32 and the Low Carbon Fuel Standard)
• California's laws that just went into effect could add $1/gallon to the price of gasoline
• California accounts for less than 1% of global greenhouse gas emissions
• data centers (very energy intense) are not being built in California
• Apple has moved data centers to North Carolina
• Microsoft has moved data centers to San Antonio (Texas)

Question: income inequality?
Answer: yada, yada, yada

Question: EVs?
Answer: ain't gonna happen. 

Miscellaneous comments:

• the words "renewable, wind, solar, hydroelectric, Biden, Pocahontas, or Michelle" were not mentioned by either IBD or by the Chevron CEO
• California, accounting for 1% of global greenhouse gas emissions is enacting legislation like the state accounts for 99% of GGGE
• both Microsoft and Apple are moving data centers out of California
• the Chevron CEO doesn't think the crude oil export issue is worth discussing, which is about how I feel

In the big scheme of things, this interview should be reassuring to everyone in the US -- except those who live in California. If Californians like $5 gasoline, they can look forward to $6 gasoline. And the state will still vote for the wrong party.

"Katy, Bar The Door!" Alice In Wonderland: US Economy Likely Shrank 1Q15 But Fundamentals Strong -- Reuters -- May 28, 2015

Friday morning, we can look forward to: the second estimate of Q1 GDP will be released at 8:30 ET (Briefing.com consensus -0.7%) while Chicago PMI for May (consensus 53.0) and the final reading of the Michigan Sentiment Index for May (consensus 89.0) will be reported at 9:45 ET and 10:00 ET, respectively.

Okay, is that a minus 0.7%? Have to check. Meanwhile, back in April, the revised estimate was a paltry 0.2%.

Back in December, consensus was that 1Q15 US GDP would be 2.9%. This was gradually revised down to 1-1.25%.

Wall Street is forecasting a big downward revision to -0.9% from 0.2%.   

I suppose if the revised GDP comes in 0.00% or anything above 0.00%, the market will surge. Otherwise, flat to huge sell-off. If there is no huge sell-off with a negative GDP reading, it means that the "movers and shakers" already anticipated the negative reading and that accounts for the down days we've had this month. 

Whatever.  

The third (and last) estimate is released June 24 for those looking that far ahead.  

From almost 3% back in December's estimate to a minus 0.7% now. Pretty fascinating.  

[Update, 2: 14 a.m. May 29, 2015: I just love the spin. 1Q15 GDP is likely to be revised downward. By a lot. And now only down, but into negative territory. And Reuters' assessment: fundamentals strong. This is so bizarre, I had to take a screenshot: I can't make this stuff up:

Reuters = President Obama's speech writer.

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Tea Leaves Couldn't Be Any Clearer: Obama Is Suffering From Iraq Fatigue

Iraq is on its own. We've done all we can. 

My hunch is he has the same thoughts about Israel. 

Setting Us Up For $200 Oil? -- May 28, 2015

This is a most interesting story coming out of Bloomberg via Rigzone today. Note the bit in bold in red:

China’s lead over the U.S. as the world’s biggest buyer of crude oil is poised to get bigger, and it’s largely thanks to teapots.

Dozens of small refiners, known as teapots to those in the industry, account for a third of the Asian nation’s processing capacity. They are now expanding as new rules will almost double the amount of crude the refiners, including Shandong Yongxin Energy Group, can import.

America, the world’s largest economy, is now the least reliant on foreign oil since 1994, while China is taking advantage of the slump in prices to expand its strategic stockpiles -- a strategy that help it overtake the U.S. as the biggest buyer last month.

The flow of oil to Asia will help create a global supply deficit by the end of the year, according to Sanford C. Bernstein Ltd.

“The expected new crude import quota for teapot refineries will help bolster China’s appetite for foreign oil,” said Gao Jian, an analyst at SCI International, a Shandong-based consultant. “Crude imports this year will exceed 2014’s level.”

China bought a record 7.4 million barrels a day in April, up almost 17 percent from March and 3.1 percent from the previous high in December, customs data show. The U.S. imported about 7.3 million barrels a day, according to government figures.

That "7.3 million" figure bought by the US is interesting. Compare that with other data points in the linked article:

The Energy Information Administration forecasts the country will import an average 6.54 million barrels a day next year, down from 6.69 million in 2015. It received 6.99 million last year.

And finally: 

China’s record purchases are adding to signs of increasing demand that will create a global shortfall of 1.5 million barrels a day in the fourth quarter, Bernstein said in a May 27 report. That will drive up Brent crude prices to $80 a barrel, the researcher predicts. The European benchmark oil closed at $62.58 on the London-based ICE Futures Europe Exchange on Thursday.

Even if Iraq was able to "flood the market with oil," a 800,000 bopd increase will hardly meet the 1.5 million bopd shortfall, and I seriously doubt Iraq can do much to increase its production of oil by as much as they say.

I also have trouble reconciling $80-oil with a global shortfall of 1.5 million bopd. If there's a 1.5 million bopd global shortfall in oil, the price of oil will go a lot higher than $80. That's my two cents worth.

In addition to increasing Chinese consumption, note the record gasoline consumption being reported in the US. 

One Minute Apart -- This Is The Country That Says It Will Flood The Market With Crude Oil -- Mary 28, 2015

The only flood I see is blood in the Tigris.

Runaway, Del Shannon

Coolest Post Of The Day: Breaking All Kinds Of Records -- May 28, 2015

It took awhile for the EIA to massage the data, I guess, but the report was finally released, and what a report it was. Look at the increase in gasoline demand for the most recent reporting period. It looks like about 150,000 bbls per day more than last year:

Then this data. For all that talk about less gasoline demand in this country, this is the data from 2000 to most recent reporting period, March, 2015. U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels):

The columns across are monthly, January to December. Source.

A couple of observations:

• I may have missed it, but I don't believe "280,000 or more" was seen prior to the year 2000
• greater than 280 million bbls of finished motor gasoline per month is seldom reached
• greater than 290 million bbls has been reached a few times, but it is rare
• we came close to 300 million bbls in the summer of 2007, just before the great recession
• 280,708 in March, 2015, from 269,207 in March, 2014 represents a 4% increase
• the high last summer was 287,911,000 bbls in August; a 4% increase would be 299,427,000 -- about as close to 300 million bbls as one can get without going over

My hunch is that we will go over 300 million bbls of gasoline in the month of August, 2015.

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Back on , January 19, 2015, I wrote:

Has the US ever gone over 9.5 million bpd gasoline demand? Yes, starting back in 2003 there were many periods in which demand for gasoline in the US fluctuated around 9.5 million bopd.

• fourth week in August, 2003: 9.668 bpd
• second week in August, 2004: 9.521 bpd
• third week in August, 2005: 9.471
• first week in August, 2006: 9.697
• third week in August, 2007: 9.762
• the last week of August, 2014: 9.480 million bpd

I am unaware of any weekly period in which gasoline demand went over 9.5 million bpd over the Memorial Day Weekend, but it certainly looks like we could do that later this spring. 

Wow, that was back on January 15, 2015, when I wrote that. How did we do? We won't know for another week, but we went over 9.7 million bopd in the most recent reporting week:

Weekly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day):

I think that's an all-time record for the fourth week in May; if not an all-time record for the fourth week in May, awfully close.

So, back in January, I predicted that we would go over 9.5 million bpd this past Memorial Day weekend which would be a record. We won't know for another week or so, but at 9,734,000 bbls / day last week, that came close to hitting an all-time record. I think the record is 9,762,000 bbls / day, set in the third week of August, 2007.

Wow, wow, wow.

Wow.

By the way, the record for number of US drivers driving on Memorial Day was set in 2005; the AAA prediction is that 2015 will set a new record. That number has not yet been posted. 

Note: I often make typographical and factual errors in my exuberance. There may be many typographical and factual errors on this page. If this information is important to you, go to the source. Let me know if CNBC talking heads are talking about these records. Based on what little I hear on the radio or television, I get the feeling that most folks think gasoline consumption is dropping in the US.


Living Next Door To Alice, Smokie
Be sure to read this week's EIA "Week in Petroleum," released May 28, 2015.

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Flashback: From 2010

Do you realize 25% of all married men kiss their wife good-bye when they leave the house?

Of these same men, 90% will kiss their house good-bye when their wife leaves.

I don't remember who sent me that. Probably Don.