Crude: Speedy balance

October 10, 2017 08:55 AM
Daily Energy Market Analysis

Bloomberg News reports in a must-read “For years, investors have played Popeye to the energy industry’s Wimpy, the cartoon character famous for his “I’ll gladly pay you Tuesday for a hamburger today” motto. In return for the promise of future profits, they’ve funded loss-making energy producers and explorers through a generous mix of loans, bonds and equity.

That may be changing, according to a chorus of analysts ranging from Morgan Stanley to Sanford C Bernstein & Co. LLC. Following Anadarko Petroleum Corp.’s pledge last month to buy back up to $2.5 billion worth of shares, they’re now discussing a new phase in the oil market, with producers far keener to reward investors and more disciplined when it comes to funding their own expansion.

“Investors are no longer rewarding ‘growth at any cost’,” said Martin Rats and Amy Sergeant at Morgan Stanley in a note published late last week. U.S. energy companies have underperformed the broader S&P 500 Index this year partly because of a growing perception that the “E&P (shale growth) model is capital destructive,” according to their colleague, Evan Calio.

Securing such investments has been relatively easy in an era of low-interest rates, cheap financing and eager capital markets, with major investors from short-seller Jim Chanos to DoubleLine Capital LP’s Jeffrey Gundlach drawing links between the easy monetary environment and an undisciplined boom in U.S. oil production that spurred a collapse in prices. A must read!

A report overnight that Iraq will reopen an old crude oil pipeline to Turkey which bypasses one operated by the Kurdistan Regional Government (KRG), the oil ministry said in a statement on Tuesday. Reuter’s reports that Iraq’s oil minister, Jabar al-Luaibi, has asked state-owned North Oil Co., the operator of the Kirkuk fields, the State Company for Oil Projects and the state pipeline company to begin the process of restoring and reopening the Kirkuk Ceyhan pipeline. The Kirkuk Ceyhan pipeline crosses territory taken by Islamic State militants in 2014 and recaptured by U.S.-backed Iraqi forces over the past two years.

We believe the seasonal lows are in or close to being in. With product supply still declining at a time when they should be rising is a very good reason to be locking in your needs.  Goodbye Regulations Hello responsibility.  The Rollback President. Remember when Wallmart rolled back prices? Well, President Donald Trump has rolled back more regulations than any President in History at this point in his presidency.  Environmental Protection Agency Administrator Scott Pruitt announced in Kentucky that he would sign a proposed EPA to repeal landmark Obama climate rule that was known by politicians as a “war on coal” They will formally withdraw federal limits on carbon emissions at power plants. Stay Tuned!

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.