if production continues to grow here (as is forecast for next months at least) and storage does fill up, thus removing one source of demand, the price of WTI should fall, all else the same. If so, the spread between Brent (which trades on global supply/demand) and WTI (which trades also on domestic supply/demand) could increase further, in the absence of US oil exports. Indeed, that spread has widened markedly recently, thus refiners are rallying (i.e., crack spreads widen as the Brent-WTI spread widens)
BUT there are lots of moving parts to the domestic supply/demand issue. Sure Cushing (which has 85 m barrel of storage) may be filling, but the gulf coast (210 million barrels storage capacity) isn't nearly so EPD's underutilized seaway twin pipeline could start filling up and deliver crude to Gulf Coast storage sites. Plus, only 1.4 m barrels of storage was added to cushing last week. And Overall refinery capacity utilization in the US is down right now with the strike etc, once those issues are resolved, Refiners could ramp up their throughput (and export more gasoline etc?) thus Raising domestic demand. And the US still imports a lot of oil, some of that oil could be displaced by domestic crude (although the light sweet US shale oil is different in nature than the heavy sour imported from, for example, Vz so there is a limit to displacement; that's why Mexico and US are talking about trading oil- out sweet for their sour)??
many moving parts
if you had any clue about that kind of thing, you would guess I am smoking Blue Dream of course, a Colorado staple... but Please let me remind you, A nuclear deal with Iran could add 1 mbpd of oil to the market in short order. And Reuters reported today that China's January crude oil throughput climbed 0.6 percent YOY to 9.27 mbpd. That is an increase of 0.06 mbpd, in case you are foolishly fooling yourself into believing that increasing China oil demand is going to rapidly drive oil price higher. ANd also remember, CHina is filling its strategic petroleum reserve. Oncve its full, that removes a current source of Chinese demand.
I would consider it foolish to guess future oil prices, considering the uncertain pace of increase in demand, the uncertain path of the USD, and the uncertain pace of oil supply dropping. But perhaps you have some useful insights you'd like to share, instead of just rudely presenting your opinion?
although I do note that Genscape reporting a smaller-than-expected crude inventory build in Cushing last week , rising only 1.4 m barrels
I think your math is a little fuzzy but Its really LINE who forgot the hedges- at least, to hedge more thoroughly, like MEMP
So ya LINE's high leverage and large debt load makes their interest payment consume a relatively high percent of their cash flow and makes accretive acquisitions difficult to move the dial, good reason to consider other MLP's with less debt/cash flow
and the potential Blackstone affiliate deal strikes me akin as a deep sea driller taking a dayrate that just covers costs, i.e. make squat on your resources hoping price recovers, but at least you stay alive
agreed midcon refiners are benefiting actually as crack spreads and the brent-WTI spread have significantly widened recently, could widen more as cushong storage fills up, alI would add CVRR to your list
although I think there is still quite a bit of unfilled straage on the Gulf coast, no? that could be a stumulus to fill up seaway's unused capacity?
Seadrill saying 1/4 of floating rigs will come available for hire this year, Financial Times reporting Rates for deepwater rigs have fallen from the peak of ~$650,000/day two years ago to $350,000-$400,000 now and dayrates could hit breakeven levels, Transocean just wrote down the value of its rigs and sees 18 months of fierce "competition for the limited tendering opportunities available” , Moody's cut RIG's credit rating to junk on Wednesday citing the rising numbers of idled rigs and falling contract rates... lots of negative headlines
Good thing SDLP has no deepwater rigs up for contract until 2017, while competitors will be scrapping their older rigs, leaving SDLP's modern fleet in strong position as the drililng industry consolidates. I also like managements confidence and prudence- distribution coverage at 1.45x after RAISING the dist Q4, stating future acquisitions will be assessed for ability to raise distribution coverage and reduce contract rollover risk (West Vela a good example, dayrates cut from contracted $565,000/day to $525,000 to "reduce the risk of re-pricing the unit at a lower rate in 2020 when the current contract ends"), negotiating delays on new rig construction until they are contracted, etc helping to secure stability of distribution
But SDLP's 3.5x debt/adj EBITDA Q4 risk of rising if dayrates or contracts renegotiated? And Hedges against interest rates increases on its debt- while prudent- is costly (europe starting QE, weak global economic growth and threat of deflation, no wage infaltion in US means rates not likely to rise much soon). And who knows how changes in USD will affect things
So I would like to see more weakness before buying given risks, SDLP bottomed in January near 13, a retest of that would be a good add point IMO., but I may start a small position now as SDLP's short term chart looking oversold on all the recent bad news, option premiums looking attractive for put sellers
agreed, those crack spreads are sky high, if that persists and no more FIFO disasters or unscheduled downtime etc , next distribution could be over a buck . Glad I bought more this morning
I hope cvrr is looking to add hedges now that brent -wti spread is $11 (although that may continue to widen as storage continues to fill up). CVRR's latest (2/24) investor presentation states they have ~38,600 bpd hedged in 2015 (so 20% of 2014's throughput) at an average crack spread of $22/bbl for 2015.
hey wcsg, do you know what project the ~$70 m of growth capex slated in 2015 for coffeeyville refinerly (p.16 of latest IP) is for?
new dist more or less expected just by comparing to upstream MLP peers, ARP now yields 12.4%, BBEP 13.4%, MEMP 12.6%, EROC 11.4%, LNCO 10.7%, MCEP 8.2% .
interesting there was not much sghare price reaction; LINE and BBEP popped after their cuts; volatility is calming down, the broad market VIX is at 14.5, its low for the year
nat gas in storage is above the 5 year average, thanks to production growth in the Marcellus. And remember speculation helps determine price, and Open interest in the futures market is low right now, speculators keeping out withdraws a price support?
MLPL (2x leveraged NOTE issued by UBS yielding 11.9% now, raised distribution 9 straight quarters, top three holdings are EPD, PAA, MMP 25% plus 22 other holdings so diversified)
agreed this gives LINE flexibilty in case they have liquidity needs (they are already cutting capex and production so distribution coverage could become a pressing issue if oil prices remain low) or think they can make an accretive acquisition (i.e. a bolt-on property near existing infrastructure, at a fire sale price?)
but this deal doesn't give the lenders the right to force LINE to issues shares, does it?
wouldn't it be like any dividend- lowers price of stick by dollar value of dividend? Some oil trusts allow DRIP by srock or cash, but change in stock price ex-div same, regardless of participation rate in stock DRIP, so I presume the same would apply to NEWT?
ps hi JRAD happy to see you posting here. I started a small position in my ROTH IRA here recently, I like NEWT's internal management, plans to apply for SBIC license 2016, conservative approach to managing credit risk in their SBA loan portfolio, and the differentiation of their subsidies from the typical BDC (the mobile payments could be a winner) but like you taking a "wait and see" approach, as they issued a lot of shares well under NAV recently, and mentioned plans to do another secondary (separate from the special dividend) later this year, so I am guessing there could be good buying opportunities later ? Although I would definitely consider adding under 15
the last time 3:2:1 crack spread was higher, according to my records anyway, was April 2013 (for WTI (cushing) and gulf coast gasoline and diesel). that was a great Q for CVRR but not nearly so for NTI. I don't recall if NTI had downtime that Q but crack spreads can vary significantly from region to region
look at the details, not just the top line number is my thought
if its a big fall and shares bounce sharply, I will be looking to sell some trading shares
thanks for the constructive corrections on my citing of analyst horizontal rig count numbers. These high paid "analysts" are kind of a joke, your analysis is as good as theirs IMO. SO thanks for clarifying my main idea, that a rig count % drop may not linearly translate into reduced production % drop , but must eventually lead to reduced production. I'm still thinking its gonna to be 2016 before supply falls significatnlygiven that the likes of Cabot (who reported today) announced capex cuts of over 40% but still forecasting 10% production growth 2015 as they "expect to see continued operational improvements and cost savings in 2015"
quite a few other producers with big capex cuts also forecasting flat/rising production, even EOG (who thinks production will fall faster than most) with its 40% capex cut still forecasting 2015 production higher than 2014, as are Noble, Marathon and Devon.
LINE with its 65% cut to 2014 capex is at least forecasting lower production in 2015 (1090-1200 mcfepd) than current levels of 1358 mcfepd
p-47 and gpd counseling patience and to listen to cc's etc also are wise
time to tune in
the baker hughes data tells us that vertical rigs are the main type getting cancelled, with horizontal rig counts only down ~16% as of 2/6, according to Morgan S. Old, underused and less efficient rigs working unproductive areas are the ones getting cancelled.. Indeed, "the rig count for the horizontal rigs often used in the Eagle Ford region of Texas has not changed much in four years, despite a tenfold increase in oil production," according to financial times as one rig can now drill longer laterals and multiple wells etc from one pad.
Thus quite a few shale drillers are still forecasting production growth in 2015 over 2014, even with cutting back capex and rig counts. and nat gas rig count fell like 100% back in 2009 but production didn't fall even near that much . so as a leading indicator of EXTENT of production falling, rig count may not be reliable? until more newer horizontal rigs start going unused? So I continue to believe it will be a long road to supply/demand balance, as the inventory of drilled but uncompleted wells is growing, oil in storage is growing, and daily US production is (still) growing
meanwhile Saudi's are ramping their production back up to 10 mbpd from 9.7 recently, middle east raised rig count in last baker hughes report, and dollar still looking strong IMO so could keep Brent price from rising short term (although just my guess, as speculation and geoplitics can swing prices fast and far independent of long term fundamentals)? If so, and once storage in cushing gets filled up- I suspect will pressure WTI price,- we may see a wider Brent-WTI spread? If so, refiners like CVRR (which I added to yesterday on cash from recently sold upstreams) will benefit
ok back to fracking insomnia good night
and to the extent tha the build in inventories at cushing could lead to full storage capacity and local discounts, the spread bewteen what CVRR pays for its WTI and Brent could widen this Q, helping crack spreads widen - at least to the extent thta gasoline follows brent more than WTI in CVRR's market