Oil Traders Try To Figure Out Recent OPEC "Trial Balloons"

OPEC floating supply and demand 'trial balloons'
Despite the pop in Natural Gas, U.S. production is soaring
Soaring U.S. stock market and global fiscal stimulus seem to be alleviating concerns of an oil
The Energy Report

The Energy Report


The Phil Flynn Energy Report 11-5-2019

Hands Up


There is the OPEC report that is discussing the outlook for lower market share for OPEC oil on one hand, and then, on the other hand, you have the OPEC Secretary-General saying that the numbers they are seeing suggest that the price of oil in 2020 may have upside potential and that a deeper OPEC cut at the December meeting might not be needed after all.


Let’s start with the OPEC outlook. Reuters reports that ”OPEC will supply a diminishing amount of oil in the next five years as the output of U.S. shale and other rival sources expand, the exporter group said, despite a growing appetite for energy fed by global economic expansion.”


Reuters says that OPEC’s production of crude oil and other liquids is expected to decline to 32.8 million barrels per day (bpd) by 2024, the group said in its 2019 World Oil Outlook published on Tuesday. That compares with 35 million bpd in 2019. The OPEC outlook is muddied because of U.S. shale and fears that the world is going away from oil. Yet despite those longer-term ‘peak demand’ fears, in the short term, the oil market is looking a light tighter.


A soaring U.S. stock market and global fiscal stimulus seem to be alleviating concerns of an oil demand crash. Even with a drop in global manufacturing, the overall drop in oil demand is still not as bad as advertised.  This is why OPEC Secretary Barkindo is suggesting that OPEC can stand pat as countries are ramping up compliance. He says he is optimistic that the oil market is going to gain stability.


In fact, based on data, he is right. The global supply of distillates is tight going into the high demand period. Refiners will start ramping up output and global inventories will start to fall. In fact, U.S. oil inventory should fall this week barring any more upward adjustment from the Energy Information Administration (EIA). The Agency that can magically find millions of previously unreported barrels of oil every week. Still, hedgers need to get hedged.


The U.S. pulls out of the Paris Climate accord and of course, there are democrats that are appalled. Of course, you realize that the Accord was just a money grab from the U.S. and an excuse for emerging nations like China and India to ramp up their greenhouse gas emissions.


Yet the one country in the Paris climate accord that actually lowered their greenhouse gas emissions was the United States. Why? Because of our increased use of cleaner-burning natural gas.


Yet many Democrats say that that is not enough and want to shut down the fuel that reduced greenhouse gas emissions. S&P Global reported that “The shift in national Democratic Party politics on energy and climate could dampen the appetite for U.S. LNG exports and future approvals of export terminals, several energy policy professionals suggested Monday at an Atlantic Council forum in Washington.”


Charles Hernick, director of policy and advocacy at Citizens for Responsible Energy Solutions, cautioned against waving off ambitious Democratic clean-energy proposals as a feature of primary politics that is likely to be moderated in the general election. "We live in an era where candidates and elected officials are being held to ... campaign promises in an unprecedented way," he said.


Already, he said, the promise to ban hydraulic fracturing or limit it on public lands by some candidates "has dampened markets, has dampened enthusiasm, and has raised questions about what is the proper U.S. role in something like liquefied natural gas and where are those exports going to be headed," said Hernick, previously a Republican candidate for the U.S. House of Representatives. Moreover, Democratic proposals that rely on a high level of federal government spending and upend states' role in determining the energy mix have the potential to "crowd in or crowd out" investment in the energy sector, he said.”


Democrats have backed themselves into an ideological climate corner. They say they expose science, yet the truth is they don’t. Because if they did, they would be pushing for more use of natural gas. Still, in the short-term natural gas futures are still being driven by weather, Janice Dean Meteorologist at the Fox News Channel says that “A series of weak storms will move across the Northern Plains, Midwest and Great Lakes bringing a mix of rain and snow. Friday we'll see measurable snow over the interior Northeast and New England. Much colder air is in the forecast next week with better chances of snowy weather.”


Still, despite the pop in gas, U.S. production is soaring. A lot of that, according to the Energy Information Administration, is “associated gas.” The EIA says that a growing share of U.S. natural gas production is associated-dissolved natural gas (natural gas produced from oil wells), which is the result of increased crude oil production from low permeability, tight rock formations—Permian, Bakken, Eagle Ford, Niobrara, and Anadarko. In 2018, associated-dissolved natural gas production in these five major crude oil-producing regions was 12.0 billion cubic feet per day (Bcf/d), or about 37% of total natural gas production in these regions and about 12% of total U.S. natural gas production.”


The EIA says that “Associated natural gas production in the United States increased from 4.3 Bcf/d in 2006 to 15.0 Bcf/d in 2018. During this period, the associated gas share grew from about 8% to 16% of total natural gas production (measured as gross withdrawals). Associated gas in the U.S. crude oil regions increased from 1.1 Bcf/d to 12.0 Bcf/d between 2006 and 2018. The share of associated gas in these regions grew from 8% to 37% of natural gas production in the major crude oil regions.”

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.