Crude Whisperers. The Energy Report 10/22/19

The oil market had one of those meltdowns on Monday’s only set the stage for a turnaround Tuesday. Despite all of the doom and gloom talk and the expectations of a big oil supply build, the whisper number on the street may actually give the market a surprise, when the American Petroleum Reports (API) releases its report tonight after the close at 3.30p Central Time.

Despite low refinery runs and an expected build in the Cushing, Oklahoma delivery hub, sources are suggesting that we may get a big surge in U.S. oil exports and a drop in U.S. oil imports and could set the stage for a surprise crude oil draw. The U.S. is going to start to feel the fall-out from the massive drop in Saudi oil production from the attack last September. Because of that and the demand for U.S. light oil, our exports should break a record if the whisper numbers are right.

The whispers were right last week when they predicted that massive crude oil build. The API version put the build at 10.451 million barrels. The Energy Information Administration (EIA) put it at 9.3 million barrels.

Of course, that build came with significant product ramifications. The API reported that distillate supply fell by 2.862 million barrels and the EIA by 3.8 million barrels putting supply about 11% below the five-year average. Gasoline,  according to API, fell by 934,000 barrels and EIA put the drop at a hefty 3.8 million barrels. Refiners will have to step up or products will most likely fall well below average and could cause price spikes on the retail level.

The bigger picture shows there is more concern about the ability of shale oil to continue to grow at these lofty levels. Low oil prices have made it hard for many shale companies to make money and bankruptcies and falling rig counts could suggest that lofty predictions of growing U.S. output might be overstated. Even the Russian oil minister is weighing in. Alexander Novak is saying that the slowdown in U.S. oil production is a trend. He is calling for U.S. oil production to peak in just a few years. He says that U.S. oil production is unlikely to grow at the same pace at current oil prices.

Investors are reflecting that sentiment. The Wall Street Journal wrote, “Existing shale investors have all but cut off new influxes of cash after producers burned through more than $100 billion beyond what they earned since the beginning of 2014. Shale equity and bond issuances are at their lowest level in years, and the vast majority of companies expect banks to lower their revolving lines of credit in the coming months, according to a survey by law firm Haynes and Boone LLP.”

Reuters is reporting, “Halliburton Co on Monday promised more cost cuts after reporting a bigger-than-expected drop in quarterly revenue as the oilfield services look to counter weak demand from North American shale producers, sending its shares up about 7%. The biggest hydraulic fracking services provider, which earlier this month cut 650 jobs in North America, said it would take steps over the next few quarters that will lead to $300 million in annualized cost savings. Oilfield service providers are struggling with reduced spending by oil and gas producers as investors push for higher buybacks and dividends rather than growth in a weak oil price environment. Larger rival Schlumberger NV said on Friday it had recorded a $1.58 billion goodwill impairment charge related to its pressure pumping business in North America. “HAL is taking costs out more aggressively than the Street forecast, which it expects to lead to strong Q4 operating margin improvement in the Drilling & Evaluation segments despite falling revenue,” said Anish Kapadia, founder of London-based oil and gas consultancy firm AKap Energy. Halliburton warned of further activity declines in North America, with fourth-quarter revenue for its hydraulic fracturing business declining by low double digits and margins by 125 basis points to 175 basis points.

Reuters reports that, “the U.S. Treasury Department on Monday renewed a license allowing Chevron, the last U.S. operating energy company in Venezuela, to continue drilling in the country for another three months through Jan. 22. That’s probably a good thing and probably is more proof that President Trump may not be a Russian agent. You see, Russia would have the most to gain if Chevron pulled out. Already the Maduro Government deep in debt to the Putin government and is giving away its oil fields to Russia and the Venezuelan people’s future to pay off its Russian debt. No word on whether Congresswoman Tulsi Gabbard was for the Chevron extension but I am sure that Hillary Clinton would tell you, by her silence, she is admitting that she is a Russian agent.

Maybe it won’t be that cold. Natural gas fell as the winter blast for October might not be as wintery! Yes, the natural gas changing weather forecasts for the season have just begun!
Phil Flynn

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In case you missed it! Phil’s guest appearance on the McKeany-Flavell Hot Commodity Podcast last Friday, September 20th talking about current energy market dynamics. LISTEN HERE!