• "Spreading the ideas of freedom loving people on matters regarding high finance, politics, constructionist Constitution, and mental masturbation of all types"

A Bearish Oil Revision

Scorpio

Hunter of Chin Li's Boo Hoo Flu
Founding Member
Board Elder
Site Mgr
Midas Supporter ++
Joined
Mar 25, 2010
Messages
31,950
Likes
45,272
#1
A Bearish Oil Revision
Mar. 17, 2016 6:39 AM ET
|
Includes: BNO, DBO, DNO, DTO, DWTI, OIL, OLEM, OLO, SCO, SZO, UCO, USL, USO, UWTI

Daniel Jones


Summary
The picture in the Permian is very complicated but there seems to be a reasonable chance that oil production in the area will fall this year.

This is not a guarantee but the picture is, nevertheless, looking favorable compared to where it otherwise could, given low decline rates in the region.

However, much to my chagrin, the picture is looking mostly less favorable than it was a month ago, something investors need to be cognizant of.

Recently, the EIA (Energy Information Administration) came out with its monthly Drilling Productivity Report, a comprehensive analysis of the seven major oil and gas-producing regions within the U.S. Of these, the largest from an oil perspective is the Permian Basin, which accounts for over 2 million barrels per day of crude, representing over 22% of total domestic oil output in this country. In what follows, I will dig into the data provided by the EIA in an attempt to see what the future of the Permian should look like if current trends continue.

A look back in time

In my last piece on the issue, I looked at three core assumptions that help to dictate how much oil is produced in the Permian every day. In order to conduct such an analysis, I had to figure out what the rig count should be moving forward, as well as what the rig productivity improvement rates and the decline rates in the area should be. In my last piece, I estimated that the monthly drop in rig count in the Permian, based on historical data, should be about 8 units per month. However, after seeing the rig count fall by 28 units from 199 in January to 171 in February, I've decided to revise that number up to 9 units falling each month to better reflect what has been happening.

On top of this, I also had to figure out what makes sense from a productivity perspective. In the graph below, you can see what the month-to-month rig productivity rates have been over time, adjusted compared to what the EIA estimated a month earlier. Last month, I had used their older data to figure that rigs should increase their productivity by probably 1% each month moving forward but, because of the new data that's out, I've elected to use a more liberal case whereby that number rises by 1.5% each month.

more:
http://seekingalpha.com/article/3959169-bearish-oil-revision
 

Scorpio

Hunter of Chin Li's Boo Hoo Flu
Founding Member
Board Elder
Site Mgr
Midas Supporter ++
Joined
Mar 25, 2010
Messages
31,950
Likes
45,272
#2
I am not so bullish as many at this time, for the supply reasons,

Just because producers jawbone about a 'freeze' doesn't make it so. Those rotten sob's will stab each other in the back, first chance they get. Iran, SA, etc are all going to pump to beat hell.

They are only trying to play the market with 'talk', but no real quantifiable actions of any type.

Sooner or later the market will sniff out their bs,

For now, I think the current uptrend is monetary and strictly due to global liquidity.