Here's a paragraph I pulled from an article summarizing the last week's API crude inventory report:
"American Petroleum Institute (API) crude oil inventories for the week to August 21 Huge decline in inventory, far above what the EIA data was hinting at Crude INVENTORIES FELL BY 7.3 MLN BARRELS CRUDE stocks at Cushing nearly unchanged." [CAPS added]
And now, this week, everyone is panicking because today's API report stated (from an Asian biz website):
"The U.S. API crude oil INVENTORIES CLIMBED 7.6 MILLION BARRELS IN THE WEEK ENDED 29 AUGUST 2015 as compared to the previous week, against the estimated rise of 32,000 barrels, the American Petroleum Institute (API) data showed." [CAPS added]
So inventories grew by a net of just 300,000 barrels over the past two weeks -- but everyone is focused on the "massive" 7.6M increase this week. EIA data coming out Wed. I've read where industry insiders apparently take API stats with a grain of salt & don't trust them all that much.
Also: we're coming into refinery maintenance season so inventories are going to build as production remains steady. Some expecting inventories to climb 1M barrels/day over the next 4-6 weeks.
This has nothing to do with the Chinese economy or the Saudis -- these build-ups happen every year like clockwork, why should WTI crash 10% like this was some horrible new revelation?
Put out by EIA today: "Effects of Removing Restrictions on U.S. Crude Oil Exports", eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf
From the Executive Summary:
"In cases where the Brent-WTI spread grows beyond $6/b–$8/b, removal of current restrictions on crude oil exports would result in higher wellhead prices for domestic producers, who would then respond with additional production."
"Refiner margins (measured as the spread between crude input costs and wholesale product prices), which tend to increase as the Brent-WTI spread widens, would be lower without current restrictions on crude oil exports than with them in high-production cases where export restrictions lead to a widening Brent-WTI spread."
It's more about China than OPEC. Recent article from today's Oilprice -- Oil-Prices-Tank-Over-Mediocre-Chinese-Economic-Data
Take a look at second chart showing sharp drop in Chinese oil imports since July. In fact, there's been a drastic drop in ALL of their imports. This won't last for long, assuming their economy is just slowing down a bit -- not collapsing. I think this is a knee-jerk reaction & largely overdone due to govt. influences & general meddling with normal free-market forces.
Was anyone expecting GOOD news?
Expected bad news is old news, already baked into stock price, IMO. However, the one thing that could drop this hard is if there's some indication of serious impending debt / financing problems. I'm more concerned about their cash position.
A related story I thought was interesting:
Debt is my one big concern here. Just finished looking at the fundamentals from a sample of nine mostly smallish-cap energy companies: TPLM, SGY, DNR, SFY, NFX, NBR, PTEN, DO, ESV big-cap (U.K. company).
TPLM's Debt / Equity ratio (2.24) ranks the 2nd highest in the group with a Current Ratio (1.05) Current Ratio (0.9) ranking 3rd lowest with only $50M cash on hand. For all but one of the other companies, the D/E ratio ranged between 0.30 and 1.79.
Our D/E has been increasing at an accelerated pace since JUL-2014. Suspect this is why shorts piled on earlier in the summer, as happened to another small-cap, Stone Energy (SGY), whose DE is 1.79.
These guys are going to have to sell something to raise cash, and very soon, IMO.
From Bloomberg 27-AUG, by Mark Shenk, "Oil surges most in six years on faster U.S. economic growth". Reprinted on World Oil site. A couple of pull-quotes of interest:
"We were due for a rebound after the huge selloff," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. "Some good economic news ands we were ready to rally. The market may have bottomed out."
"The market has fallen very quickly," Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners Inc., a futures brokerage, said by phone. "You run out of sellers, and the market goes back up. Fundamentals just don’t change that fast in commodities."
26-AUG article from Worldoil site: "Brent as low as $50/bbl isn’t sustainable beyond 2016, Rystad says". Some selected quotes:
"Due to a lack of growth in North American shale production and increased decline in mature fields, a Brent price as low as $50/bbl is not sustainable beyond 2016, shows recent oil market research undertaken by Rystad Energy."
"Our current market view is neutral to bearish in the short-term as we see a production floor at $30/bbl. At such a low price, the supply response in U.S. shale production coupled with already visible drops in infill drilling in the Gulf of Mexico and North Sea will be so severe that the price cannot remain that low for long,” says Nadia Martin, a senior analyst at Rystad Energy."
"Although the oil market is currently well-supplied and oil stocks remain high, Rystad Energy remains bullish in the longer term, with foreseeable price spikes for Brent already in 2016. The current futures curve is trading too low for marginal producers to hedge their future production."
Pardon my ignorance but can anyone explain those fairly-regular periodic spikes in the EIA gasoline "Days of Supply" chart? Supply seems to start ramping-up around the NOV-DEC area & peak in the JAN-FEB area almost every 12 months. Does it have anything to do with refineries changing over from Summer-blends to Winter-blends? It seems like a seasonal thing.
Thanks for info.! I'll take a look at that data tonight. I don't know a whole lot of inside-baseball of the oil biz, just some basics, but you sound quite knowledgeable. For example: what do you mean by "shoulder season"?
I'm more of a data / statistics person & was struck by that table showing the weekly inventory levels by certains weeks of the month (1,2,3,4,5) then rolling backwards up the column to see what the numbers looked like for the same week in past months. It grabbed my attention.
OBTW: latest run-ups are strictly short-covering IMO, looking for a pull-back, then watching more EIA inventory data over the next few weeks to see if there's any power behind this move. Shorts are running scared for a good reason, IMO, the zebras know when the lions are on the move.
Once again, more EIA data. This time it's the chart showing U.S. petroleum product consumption from 1990 to present. Fascinating stuff, here's what I'm seeing:
A continuous up-trend of demand from 1990 to mid-2007 area; followed by a decline going into 2009; followed by a slight recovery into early-2011, then range-bound (small ups & downs) until we see a solid up-trend starting in mid-2014.
Even with this zig-zaggy chart, we can see last week's number peak & exceed the prior peeks of 19-DEC-2014 and 13-DEC-2013. This week's number pulled back a bit but is still the 3rd consecutively higher-low since the low of 15-MAY-2015.
We've been above the 19M bbl. mark since mid-2014 and there's been a steady, though jerky, improvement in demand since the last low of 17.5M in FEB-2012. Now scroll down to the data table below the chart and look at the latest MONTHLY figures: Look at the week of 7-AUG (20,094,000) then move back in time & look at the numbers for the first week of each month. The last time we saw that kind of demand was a year ago; then NOV-2013; again in NOV-2011; again in AUG-2011; and, the next time was all the way back in AUG-2008.
Repeating this process for Week-2: we begin with 21.397M on 14-AUG-2015 and have to scroll all the wayback to MAY-2007 to find a larger value! For Week-3 we start with 19.423M and scroll back to FEB-2015; however, if we fudged a bit and used the July W3 figure of 21.021M instead, you'd have to scroll back to APR-2008 to find a higher demand print for that week. Anyway, you get the idea of where I'm going with this -- U.S. DEMAND IS INCREASING and the data shows it!
Of course oil trades in a global market & I don't have global demand-data at my fingertips at the moment, but I'm guessing there may be a similar trend. I think one of the Oilprice articles I posted recently has a chart showing global demand starting to catch up with supply.
Inventories remained flat or trended down slightly from 1990 - 1999 then dipped from 1999 - 2001 -- both were flat-to-weak periods of economic activity. I'd have to mapped this against GDP recession data to be sure. Never the less, we've definitely been the experiencing the worst post-recession recovery -- 6 yrs of low GDP. -- since WWII -- and look at crude inventory levels during that period -- FLAT!!!! THIS is the data used by analysts to define the "five-year-range" . (move your mouse pointer along the blue line to see weekly data)
And what's been happening over the past year? THE ECONOMY HAS GOTTEN STRONGER! Look at all the data: employment up; new unemployment applications down; GDP is about the best it's ever been since the 2008 Crash. We're FINALLY coming out of the recession (but there's still time for Obama to wreck that as well).
Yeah, the China slow-down may put a damper on things for the short-term, but it's hardly the end-of-the-world; their economy is still growing faster than ours, just not as fast as it was back in 2010. As to the Saudi's? I think they're just playing with themselves or doing Obama's bidding with respect to the games we're playing with Iran -- pick your conspiracy.
So here's my theory: the recent run-up in crude inventories is an anticipatory event and is no more shocking than past run-ups associated with a resurgence in economic growth. These pops have happened before, some happened over a few months, others took a few years. But take a long look at that chart: do you see any periods of serious crude oil inventory declines since 1982? Can you even spot the blip associated with the 2000-2001 market crash or the 2008-2009 Crash? Inventories actually GREW from August, 2008 to May, 2009 before sliding into a narrow range over the next five years.
Go over to the EIA gov website & check out "Figure 1. Stocks of Crude Oil by PAD District, January 2014 to Present". Am I seeing crude stocks peeking around early April this year? Am I seeing a well-defined down-trend since then? Yeah, @ 450M bbl. inventories are still insanely high when compared to the 5-year range but they've been on a steady decline over the past four months!
Now look at "Table 7: Imports of Crude Oil and Total Products by PAD District" Net imports (including SPR) dropped over a million barrels from the previous week. The latest total of 5,075,000 barrels is nearly-identical to the same week a year ago.
Also, take a look at some of the long-term historical charts; I'm looking at crude stock data going back to 1985. Analysts are babbling on about how current inventory figures are way out of line with respect to the 5-yr range, but that's always been the case, from what I'm seeing. The run-up that started last winter & peaked in April is no different than the run-up that occurred in the Fall of 2008 & ended in the Spring of 2009; inventories established a new plateau didn't drop until early-Summer 2011. With the exception of a brief dip during the 2nd half of 2011, inventories remained at those levels until they began rising again starting last December.
In other words, what I'm seeing on this chart are a series of quantum leaps, or a series of stair step formations showing inventories trending up for extended periods of time. I see 1980 - 1990; 2001-2008; and, 2008 to mid-2011. And what do all three of those periods have in common? STRONG U.S. ECONOMIC GROWTH!
Some articles everyone should read, no time to cut & paste details, just check 'em out for yourself:
"Did The Fed Intentionally Spark A Commodity Sell-off?" [scary conspiracy theory, solid reasoning IMO]
"OPEC Divorce And Self-Destruction Thanks To Saudi Oil Strategy?" [several here brought up this topic.]
"Oil Prices Compound Iraq’s Stability Concerns" [also discussed on this board just recently]
"Is This The Beginning Of A Longer Oil Price Rally?
Latest U.S. crude inventory report from the EIA [CAPS added]:
"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) DECREASED by 5.5 million barrels from the previous week. "
"U.S. crude oil imports averaged 7.2 million barrels per day last week, DOWN by 839,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.5 million barrels per day, 1.7% BELOW THE SAME FOUR-WEEK PERIOD LAST YEAR."
Majors & mid-caps will survive. Small caps may make it if oil gets back up to the $50 area sometime over the next year or even by 1H 2017. Otherwise, too many of them will see hedge positions expiring in 2016 - 2017 plus other debt obligations coming due. Look at what's happened to the tar-sands companies in Canada; right now their losing on average about $10 on every barrel they produce.
Small-cap producers gotta be super-smart if they're going to survive this. I just can't see how companies with under $1B enterprise value, carrying $1B in debt and negative free-cash-flow are going to make it through the next 12 mo. with sub-$40 oil.
Yeah, I see a lot of that as well. But the better authors / analysts, usually go into considerable detail as to why they hold a certain viewpoint, lots of charts & tables, etc. I pay closer attention to those articles. Here's what I'm getting:
1. The recent dive in oil is driven more by general market sentiment than global energy dynamics.
2. The Saudi's are hurting and may have really stepped in it with their forced over-production.
3. Total global oil demand has NOT declined and continues to grow.
4. 80% of all new oil supply coming on-line since 2005 has come from the U.S., primarily from frackers. Low rig counts and are going to take a toll on U.S. surplus levels. I'll be watching the surplus figures closely over the next 4 - 8 weeks. I'm thinking we'll start seeing the numbers resume downward trend.
5. The majors are cutting cap-ex spending like crazy by shelving expensive deep-water projects, placing pressure on future (+2 yrs.) supply from the U.S. It takes a long time to get a deep-water rig into production. Sales of off-shore tracts are at historical lows, hardly anyone is showing up at the auctions.
6. Most of the heavy selling in energy stocks is being driven by short-sellers, hedge funds and automated computer-driven algorithmic trading programs, not traditional long-term institutional money. The tutes lightened-up their positions six months ago or otherwise just decided to hold.
7. At some point (very soon, I suspect), bargain hunters are going to flock to the beat-up majors for the incredibly-high yields.
8. We need to be VERY careful with the smaller E&P operations and keep close tabs on their financials -- bankruptcies are coming. You gotta pick your "bargains" very carefully.
21-Aug article from Oil & Gas Journal (on-line). Search on title, can't post links anymore.
I read / hear all this doom & gloom for the oil industry and yet not seeing it on the demand side for either the U.S or China. Keeping a watch on U.S. surplus numbers over the next couple of weeks, betting last weeks numbers were an anomaly like Robert Rapier said. Gotta let this China thing burn itself out first, let XME find a bottom maybe show a little strength, THEN reevaluate getting back into TPLM, SGY & others.
Recent Yahoo article / video: "Oil has no reason to melt down: energy analyst", comments by Pavel Molchanov, energy analyst at Raymond James. Yet another interesting opinion / POV. Some interesting takeaways:
“Nothing happened in the oil market in the last 24 hours or 72 hours to cause this kind of meltdown other than just sentiment on all commodities and all equities being so negative right now, ... "
"He continues to hold his $55 per barrel price target for West Texas Intermediate crude ... "
" ... dismisses the downturn in China’s equity markets as a harbinger of things to come in the country’s economy ... Chinese oil demand ... actually doing fine ... growing modestly ... "
"Nobody was expecting ... [China oil] demand to grow 10% or even 7%. It’s growing at about 3% which is actually very fast for an extremely large economy – much faster than it’s growing in the U.S. or in Europe.”
" ... focus on are companies that can support their capital investment program and also support dividends. "
True, the guy did say back in January WTI would never go below $40 --oops --, but his reasoning seems sound to me. Especially liked his analysis of what the Saudi's are doing and how it may be blowing up in their faces even now.
So........ where does that leave the small-cap producers like TPLM? These COULD be fire-sale prices IF the company can hold out for the next 12-mo. Personally, I'm not into bottom-fishing but I will be watching to see when / where the shorts start covering, also watching XME for the larger global commodity picture.
If TPLM has the potential to climb back to $8 in a more favorable environment, I'd rather wait & jump in at around the $4- $4.50 area just to make sure. Need to see strong positive momentum, solid technicals, & lower short interest. Also looking at Stone Energy (SGY), made a bundle on that one when it moved from $6 to $18 --they eventually maxed-out at $40!
My concern with these smaller operations is their debt load and all the hedge positions unwinding over the next 6 - 12 mos. That's why I'm staying away from them for the time being.
EXCELLENT article by Robert Rapier over on OilPrice! Grabbed a few quotes:
"Last week there was a surprise build in U.S. crude oil inventories. Analysts were expecting inventories to fall — which they have been doing since April — but instead crude inventories rose by 2.6 million barrels"
"BP refinery in Whiting, Indiana — one of the largest in the country — is dealing with unexpected maintenance problems. They have 235,000 barrels per day (bpd) of crude oil refining capacity offline ... BP didn’t consume about 1.6 million barrels of crude during the week that they otherwise would have consumed. "
"... crude oil imports surged. Crude oil imports were 465,000 bpd higher than the previous week. That means 3.3 million barrels more oil came into the country than arrived in the previous week. Add that to the BP outage, and there was a surplus of oil of 4.9 million barrels relative to the previous week. This more than explains the 2.6 million barrel weekly gain in inventories. The question is “Will that continue to happen? ... In my opinion, “No.” The BP outage will continue for an indefinite period, but the import surge was an anomaly"
"U.S. crude oil production is falling because investments into shale oil production dried up as the price of crude oil fell below $60/bbl. Companies aren’t interested in putting new capital to work, and because these oil fields deplete, that means crude production is falling. Why is that significant? Because most of the world’s new oil production in the past 6 years has come from U.S. shale oil field ... Since 2008, U.S. oil production growth is equivalent to 83% of the global supply added during that time. "
He put up some interesting charts. Not enough room to print the whole thing, go over there and read the entire article -- well worth the time.