Oil Ends Week Above $50 – Oil and Gas Market Summary – 10/14/16

Oil Prices Daily

Oil prices daily podcast discusses all of the news, events, and trends influencing oil prices each day.

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Oil Prices Daily Newsletter for 10/14/16

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Transcript:

Hello, and welcome to the Oil Prices Daily podcast.

Doug Stetzer here bringing you your daily recap of all the latest news, events, and trends influencing oil prices.

Oil Prices Daily is hosted on the EKT Interactive Oil and Gas Podcast Network and sponsored by Oil 101 a free online introduction to the oil and gas industry.

Join over 3500 members of the Oil 101 learning community today at www.ektinteractive.com.

Let’s take a look at what happened for today, Friday, October 14 in oil prices.

November crude traded down just 9 cents or .2% to settle at 50.35.

2 days in a row now of not too much change in the settlement price, able to stay above 50 but each day the $50 level was tested.

Again, as we spoke about yesterday intraday chart really told the tale. There was a big volatile spike after the EIA data that showed a larger than expected crude oil inventory build.

Today, market started off higher, above 51, and just steadily traded down through the day. The 51 level was really even in pre-trading overnight and then hit a low of 49.90, managed to rally back so not much panic or anything there, and was pretty steady throughout the afternoon between 50 and $50.20.

A little pop at the end of the day.

Volume actually pretty good, even though there wasn’t too much price action today, 1.1 million contracts trading. Again, we saw the same thing yesterday, in a volatile day really good volume.

It seems to me that just a lot going back and forth right here at $50. I’m sure there’s nervousness that one of these breakdowns will continue lower if a lot of length starts to get out.

At the same time the market seems to be well supported for now and so the evidence is that there are buyers below and that people aren’t really looking to get short at these levels.

We are starting to form a bit of a consolidation here between 49 and 51 which, of course, could play out until the next bit of news which is either another EIA data point or the OPEC meeting which doesn’t happen until November 30.

No planned meetings in between now and then for OPEC at this point but, of course, all eyes are on any tidbits of information and headlines coming out of the key players there.

That’s a bit of a summary of what happened today.

Taking a look at the news: rig count from Baker Hughes showed a gain of 4 oil rigs in operation making the sixteenth straight week of gains.

Incidentally, the headline number was 15 rigs with 11 of those being gas rigs. Natural gas prices if you have been following that, we’ve mentioned it lightly over the last week or so, natural gas prices have seen a really nice a rally.

Perhaps some response there to the price action seeing gas rigs really gaining.

Now, as we pointed out in the Oil Prices Daily newsletter in our little section we’re calling the Permian Spotlight due to a couple of articles popping up there, this gas price rally may really be self-defeating and questionable in the long run due to what is known as associated gas.

A lot of you probably know what associated gas is but, again, for our Oil 101 listeners and our learning community listeners associated gas is gas that comes out of the well intended for oil production.

You drill down, you hit a reservoir, there’s oil and gas mixed in there, and a lot of it. Particularly in the Permian Basin which, as we all know, has been really the success story of the US shale operation with low oil prices.

The Permian Basin has just been prolific in its oil production and has, probably, the lowest break even point of oil production in the US. They have been producing strongly.

If you look at the rig count data you’ll see there’s hundreds of wells operating still on the Permian Basin but what they don’t talk about too much is that the reservoirs there have significant amounts of associated gas.

There’s a good Bloomberg story which is in the newsletter titled ‘Oil Rebounds Dirty Little Secret Threatens US Gas Bulls.’ An interesting quote from that article saying, “Permian drillers, led by Occidental and Pioneer, are pumping more oil as prices rise pushing natural gas extracted as a byproduct from the West Texas play to almost 7 billion cubic feet a day which is about 8% of the US supply.”

Again, 8 percent of the US natural gas production is coming as associated gas due to oil production in the Permian Basin. It’s unbelievable and I thought it was really interesting.

If you’re looking at natural gas prices, if you’re looking at this rally maybe these are couple of things to consider as far as how far it goes.

There was another article, if you’re interested, in that Permian Basin Spotlight section called ‘The Truth about Permian Shale Break even Prices,’ and this is an oilprice.com article worth taking a look if you want to read a little more about the Permian Basin.

The second topic that I found a couple of articles that looked interesting was Russia. Of course, all eyes are on Russia in terms of their ability to cooperate with OPEC as the largest non-OPEC producer that is involved in supply management.

Russia’s in the news with a couple of interesting articles, the first saying Russia is planning for low oil prices for years.

This is a CNN Money article and there’s 2 ways to look at it either first they do not believe that this deal will raise oil prices in the long run, perhaps because they don’t believe that anyone will stick to it.

Secondly, this quote I think is pretty interesting they said, he, meaning Putin, may have also learned a painful lesson. In 2015 the Russian government originally based its budget on an average price of $100 per barrel, double what it actually was.

Maybe there’s some lessons going on over there in terms of being conservative in your budgetary estimates.

An interesting take, I’m sure the Russian economy definitely suffered due to the depressed oil prices and there was also some interesting information about how Russia taxes its companies which I thought was really interesting.

The Russian government taxes on revenues not on profits so they actually suffer worse. Your tax bills really decline and with a decline in revenues even though profitability perhaps did okay.

Interesting article, again, the link of course in the newsletter and the second article there under the Russian heading is that Russia’s Rosneft is reportedly making a big play for India’s oil and gas sector.

This is a Quartz article, I really like their articles, long form talking about a Russian acquisition of Essar oil an Indian refiner. They are doing this in a partnership with Trafigura and a couple of other people but really making a play in India.

This refiner Essar oil, in which they will acquire a 49% stake, operates a 400,000 barrel per day oil refinery in the Western Indian state of Gujarat.

It sells fuel across the country through its 2470 filling stations so an interesting downstream play.

The article also goes to point out that there have been really troublesome acquisitions and some large companies really failing to integrate well in the Indian market but often those focused on upstream EMP type operations.

Perhaps an interesting play for Russia going after the downstream segment and also going after a segment that’s closer to the consumer.

They’re talking about really amazing growth in India’s oil and gas demand and so maybe they feel that this segment is the way to go. As opposed to a historically troublesome upstream environment.

Those are the main trends and news stories that I saw.

Interesting, of course, that the market was able to withstand a few really solid dips below $50 this week and able to rally back, stay above 50, get the settlements above that key level which might have triggered some covering and might have triggered some, maybe, even shorts getting into the market.

As it stood today the price action did not reward people who sold when the market dipped down and tested the $50 level. People are going to remember that, see how many times you get burned shorting oil before you just give up on that.

It will be interesting going into next week and a time in which we may start hearing a little less out of OPEC.

A little void in information may make this market difficult or stagnant around this level with no one really looking to make huge position changes until we learn more out of OPEC in November.

That’s going to do it for this week.

I really appreciate you all listening to the Oil Prices Daily podcast.

Of course, if you’re interested in finding any of the news stories that we mentioned here the links are in the Oil Prices Daily newsletter.

If you are interested in getting that to your inbox each day go to oilpricesdaily.com and sign up.

Of course, you can also subscribe to the Oil Prices Daily podcast on iTunes.

Thanks a lot, have a great weekend, and we will see you next week.

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