Wednesday, October 25, 2017

Oil: No Rally to $70/Bbl This Year, Says Global Risk Management -Interview

Yeah, despite what's going on in China the market is not yet balanced. Maybe 2018, if the world sees econ growth equal to 2017.
As soon as I hit send on this post we'll probably have dual meteors hit both Ghawar and the Permian and the futures go $250 bid/no offer.
Or something. Sometimes I hate hitting send.

WTI most active December's $52.12  -0.35.

From Bloomberg via gCaptain:
Michael Poulsen, senior oil risk manager at Global Risk Management, says U.S. shale producers have demonstrated self-control over the past year, with more concern for revenue rather than just output, although he doesn’t expect breakevens to fall much further. He also said even if the market hits $60 a barrel, it won’t spark a rally to $70. Poulsen was interviewed on Oct. 24. Comments have been edited and condensed.

What will it take for oil to shift out of this range?
If we are talking the $55-$60 a barrel range, then we will probably need some sort of geopolitical trigger for the upside. For the downside, it’s a little bit more tricky. It would have to be a failed OPEC agreement in November or demand dropping.

Why did the unrest in Kirkuk fail to move the price that much?
Prices started rising as the situation in northern Iraq — and the potential loss of 560,000 barrels a day — coincided with the U.S. making a lot of headlines that the Iran nuclear deal may be up for review, thereby implying sanctions could be re-instated and potentially removing another 1 to 1.5 million barrels a day from the market. This potentially “missing” 2 million barrels a day initially drove Brent towards $60 a barrel.

However, as the worst fears regarding that scenario eased out and people had a chance to review the options for the U.S. suddenly pulling the plug on the nuclear deal, prices started slipping from the $60-ish level.

Do you still see U.S. shale as the main driver of price?
I would say they are still the marginal producer given how fast they can bring product online. It’s not like a switch, but it is definitely faster than shutting a 30-year oil field and then restarting it.
But, we have also seen self-control in the past year, with producers looking to maximize revenue for shareholders and not just pumping as many barrels as possible. Harold Hamm recently said shale is nowhere near full-throttle, and that seems logical. There are also rumors that shale and OPEC will meet again like they did last year in Houston. Obviously there will be nothing official, but they are on the same page to maximize the dollar and not the barrels.

As long as the supply is there it is irrelevant if you are pumping 10 barrels or 20 million barrels. If you are going to make less money pumping 20, you’d rather pump 10.

Can shale get much cheaper?
It is dependent on well location. But it is also noticeable that we are seeing some suppliers looking to raise their prices now Brent has moved away from the $30 a barrel mark which caused difficulties for producers. Now they are making a lot of money, suppliers are looking to renegotiate costs. It will be difficult to see breakevens go much lower from here. You can always find a dollar or two, but to bring costs much lower will be tricky. Every time you improve an element, demand picks up on those parts and it gets more difficult to improve things. The greatest leaps forward in lowering costs are behind us.

What outcome do you expect from the OPEC meeting in November?
I would say if they can keep this stew brewing for 1.5 to 2.5-ish years they have come a long way to letting demand catch up with shale supply, which is probably the only way of finding equilibrium between OPEC and shale. The technology is out there, it isn’t going to go away, even if you have to make some of the companies go bust as we saw previously. Someone will come in, buy their technology and won’t have as high breakeven cost as the previous company. The only way to live together is to allow demand to catch up with this extra supply that has been added.