Down the shale hole

October 12, 2017 08:43 AM
Daily Energy Market Analysis

While OPEC and The Energy Information Administration raising its outlook for demand and lowers its projection for global Non-OPEC production, The International Energy Agency (IEA) releases a report that shows that tries to talk down demand next year admit they underestimated demand this year. The IEA seems to want to talk down prices once again because they represent the oil consuming countries and they pay the bills. But the story behind the story may be the growing credit crunch in the shale path as lenders are showing reluctance to lend them money as they pile up billions in unmanageable debt. Maybe they think it is time to quit throwing money down the shale hole. 

Yesterday French lender BNP Paribas SA said it will no longer finance shale and oil sands projects report because of pressure from investors and top financial institutions. The bank for “a changing world” obviously think the prospects for some shale and gas firms changes of making money is not very bright. Many are in debt and show little prospects of making a profit and have only been able to make enough money to try to pay back loans.  Laura Freeman of Freeman Consulting recounted the story of the legendary Texas oilman Clint Murchison was in the middle of the Great Depression with debt ballooning to over $4 million, far more than his net worth. "Aren't you concerned about owing all this money you can't pay? Ernest Closuit asked him. "No," Murchison said with a smile. "If you're gonna owe money, owe more than you can pay, then the people can't afford to foreclose." Well after the BNP Paribas news that may be changing. They say it is for environmental reasons but the mounting debt in the shale sector may be the real reason.

Oil prices dipped after another downbeat assessment by the International Energy Agency about oil for next year. Considering how wrong they were in their mid-year outlook it is kind of funny that the market is taking them seriously especially because  OPEC and the EIA have a much more bullish outlook. Yet, in fairness to market weakness, we did see a somewhat bearish American Petroleum Institute (API). They reported Crude up 3.097 million barrels, gasoline down 1.575 million barrels and distillate up 2.029 million barrels In Cushing another 1.216-million-barrel increase.

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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.