[Yoshua]

The WTI price hasn't made any new highs since 2008, only new lower highs. And it hasn't made any new lows either after 2016, only new higher lows. At some point this trend will break down, as the WTI price is getting squeezed between lower highs and higher lows.

So what happens then? I don't know. Some kind of a breakdown?

[rockdoc123]

No. Globally supply has barely increased. Definitely demand when looking at the bigger picture in commodities.

yeah, right. Contrary to anything written by economists at IEA or by oil analysts that regularly publish on Oilprice.com, Bloomberg, CNBC etc.

Please provide us with the source of your "analysis".

The WTI price hasn't made any new highs since 2008, only new lower highs. And it hasn't made any new lows either after 2016, only new higher lows. At some point this trend will break down, as the WTI price is getting squeezed between lower highs and higher lows.

If chart analysis actually meant anything maybe. In the real world what has happened is there was a period where supply from US unconventional, Russia and Saudi Arabia outpaced demand growth. That drove down prices for some time until many of the companies in the US reduced activity and OPEC/Russia responded with production decreases resulting in decreased supply which became aligned with demand. That, in turn, resulted in prices rising but not for long since the US companies had substantial frack backlog and the turn around time from a rise in price to production in the unconventionals is extremely short (days or weeks versus months and sometimes years in the conventional side of things). The price is being driven by US production and OPEC/Russia cuts (at least threat of cuts) and to a lesser extent by worries about a contracting economy in 2020.

[wildbourgman]

No. Globally supply has barely increased. Definitely demand when looking at the bigger picture in commodities.

I think you have to define supply. If the perception is that oil is available at a moments notice, then the supply cuts make no difference to the market unless some refinery doesn't get a shipment when they need it.

In the view of the market what difference does it make if the oil is being choked back at the well head and being stored in the reservoir, being held in tanks or even tankers just as long as I can fill up my car when I pull up to the station? I have not waited in a line for fuel, I have not been rationed on the amount of fuel I purchase and I have not been concerned about either of the two prior events happening for some time.

So OPEC's decisions seems to have had had a minuscule effect at this point.

[AdamB]

The WTI price hasn't made any new highs since 2008, only new lower highs. And it hasn't made any new lows either after 2016, only new higher lows. At some point this trend will break down, as the WTI price is getting squeezed between lower highs and higher lows.

So what happens then? I don't know. Some kind of a breakdown?

Sounds like a completely illogical thought. Express it with supply demand curves and perhaps normal folks can discuss its value? There is certainly no requirement across a completely arbitrary time frame that normal ups and downs become a breakdown.

[AdamB]

No. Globally supply has barely increased. Definitely demand when looking at the bigger picture in commodities.

Peak oilers called peak back around the 72 million barrel a day level. We sit nearly 10 million barrels a day higher now. Of COURSE global supply has increased, hence no rapture event.

I've got no problem examining demand instead, Amy Jaffe was discussing peak demand in like 2015, Barclays is laying out 3 peak demand scenarios by 2030, and the Center for Strategic Studies was discussing a deceleration in structural demand like 2 months ago.

Watching a tree blow in the wind and drawing conclusions from it is quite inferior to learning some basic weather forecasting for the local forest.

[Yoshua]

It was just an observation of a trend in the WTI price.

The last high was USD 66 and the low was USD 51. If this trend continues, then it will reach its end this year as it forms its last triangle of doom...the mother of all triangles of doom.

[wildbourgman]

AdamB, one thing that isn't apparent to greater market yet is the fact that 90% of the companies producing in shale (which accounts for 6 mbpd of the 10 mbpd production increase that you speak of) can't make a profit in shale.

And oil price isn't even much of a concern due to the added operating cost they incur as the commodity price goes up. So once the investors and eventually the consumer see the writing on the wall things could change quickly. Then as opposed to what I said earlier, if the perception of abundance changes so could the price. Easy money and an investment mania allowed the shale to be something more than pure profit margins would have and that misallocation has to find its balance at some point.

[rockdoc123]

AdamB, one thing that isn't apparent to greater market yet is the fact that 90% of the companies producing in shale (which accounts for 6 mbpd of the 10 mbpd production increase that you speak of) can't make a profit in shale.

either you are a sock puppet for shortonoil or you haven't bothered to read the various posts here. The idea that companies involved in the tight oil/gas market aren't making a profit is basically incorrect. All one has to do is go and read the quarterly and/or annual reports or look at some of the industry analyses such as Ernst & Young. The blog posts (where you no doubt get your info) use accounting numbers reported by companies that include DD&A as well as invested cash for new acreage, acquisitions or new wells. DD&A is an accounting exercise that although important from the accounting side of things is not important when it comes to determining how well a company is doing. Those are paper entries and do not impact cash into the organization. When you look at cash in vs cash out based on their balance sheets not only are most of the companies making considerable money but they are able to fund all of their programs through reinvestment of the cash. Oil and gas companies are expected both by the market and their shareholders to not show much excess cash on hand other than operating cash at the end of a given reporting cycle. The reason is these are growth companies and to grow they need to reinvest all profits into the business unless they are dividending some of it back to shareholders. This is why a number of oil and gas companies last year bought back shares. They were expected to do something with their cash in order to improve company metrics and the obvious way to do that was buying back shares versus other activities such as more wells, acquisitions etc.

[wildbourgman]

Rockdoc, I've read multiple sources and seen some of the quarterly reports. I see a lot of parenthesis in areas they should not be. I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.

Let's see how it shakes out in the next year or so and then talk. I've bee wrong before, I've been right before too. the-set-up-for-a-collapse-of-oil-prices-t68469-40.html

One thing to add, I have worked with many folks in many positions from upper management to the newest roustabout that are shocked on every single downturn. I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom. I've seen it from the 1980's until now and my gut instinct has served me right fairly well after being punched a few times.

[rockdoc123]

I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.

excuse me while I call BS. I worked in the industry for 30+ years and at the senior executive level for many years at several companies. After SOX legislation there was virtually nobody out there that was a publicly traded company who could possibly pull of a "Ponzi scheme" or any other kind of scheme. Full reporting is full reporting as required by the SEC. I've laid out the results for many of the shale companies here and it is clear the only way it looks like they aren't making a profit is if you include paper accounting entries which have nothing to do with real day to day cashflow (the analogy I always give is nobody would include the depreciation of their house or car in their annual budget plans).

I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom.

I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short. That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil. They were encouraged into that position by their investors and the investment banks who wanted them to grow rapidly and secure more land which of course cost more and more due to the ever-increasing competition at high commodity prices. When it all came to a price crash in 2014 due to too much success and oversupply many were caught out overexposed on the debt side of things. From what I've seen most of the companies still around are avoiding that this time, instead paying down debt as fast as they can and the investment banks are helping out by being very, very selective to who they offer debt instruments.

[GoghGoner]

Commodity price trend is down. This isn't related to the small, incremental oil supply additions that we have seen this year. I tend to focus on metals and emerging economy exchange rates to figure out whether oil is moving independently or it is part of some larger movement in the global economy.

It is somewhat akin to sticking your finger in the wind and seeing what direction it is pointing. But cherry-picking media articles and making sweeping generalizations just to argue nonsense seems much less sensible to me. I haven't done any counts but there are plenty of media articles recently that supposed demand to be the culprit.

http://pubdocs.worldbank.org/en/169031559692506553/CMO-Pink-Sheet-June-2019.pdf

[wildbourgman]

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong.

I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short.

We are certainly not in the same circles. The people I'm around never see the next downturn and rarely financially prepare for it and always believe the industry cheerleading. They lose cars, houses and families get torn apart every single time they believe the industry BS. Also don't think that just because I'm calling for another bloodbath in the shale industry that I don't take advantage of the market as I see fit. I'm ok.

That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil.

If you were so inclined you could read where after the last downturn started I'm pretty sure I wrote that the rebound would be slower and more disciplined and it was to a certain extent, although I may have been overly optimistic. One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice.

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that. In my view some of the offshore South America, Africa, and Mediterranean look more attractive long term. Also I'm bullish natural gas very long term and that is where I could be nudged to change my mind on shale at some point. So I'm not at all an energy Perma- Bear, just shale oil (as of now).

[wildbourgman]

A ‘’Gusher Of Red Ink’’ For U.S. Shale


https://oilprice.com/Energy/Energy-Gene ... Shale.html

[rockdoc123]

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong. 

Please show me an oil and gas company that has falsified their SEC annual or 10K filings. Please show me an oil and gas company that has violated restrictions regarding disclosure.
Tesla is not an oil and gas company and, in fact, the SEC went after Musk and they eventually negotiated a settlement around his pulling a fast one with regards to disclosure in a very public manner. At this point if individuals decide to continue to invest in Tesla then they are responsible for their own outcomes, the SEC did it’s job in bringing this forward and penalizing the company. The SEC publishes the investigations and penalties each year. If you believe oil and gas companies are lying on their SEC submissions, then I really think you haven’t informed yourself regarding independent audit requirements nor enforcement and have likely not bothered to read any of the filings of the oil and gas companies you claim are running Ponzi schemes. This Ponzi Scheme claim is a classic one that generally comes from people who get all of their information from Gold Bug blogs.

One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice. 

In the downturn service companies take a hit to stay in business, to some extent that offsets the often exaggerated charges they used during the good times as a consequence of demand outpacing supply. But also during the downturn companies learn how to cut costs. They find out that zipper fracking saves a lot of logistical time and costs, they find ways of optimizing drilling fluids, trucking, drilling time etc. When the oil price rises those cost cutting measures don’t go away even though actual service costs will begin to rise. And the service companies themselves are exposed to some well needed cost optimization. I can’t count the number of drilling companies I’ve seen go under simply because when oil and gas prices are high and there is lots of work they run out and buy way too many rigs and hire way too many staff in the hopes of growing fast. Those drilling companies that operated within their means, not seeking huge equity in the market or debt, and sticking to a business model that churned out decent returns were able to survive and are there for the next rise in commodity prices

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that

As I have explained numerous times to others here the “shale plays” have break-even costs that are generally much less than any of the offshore operations. The also only have fast depletion in the first 24 to 36 months. Not sure what thread it was but I posted graphs from a study done recently which backs up the theoretical views on tight fractured production where you have hyperbolic decline and exponential decline….a period of decline where it can be 65%/annum or higher but then a very long period where wells decline at a couple of percent and produce at low rates for very long periods. That low rate decline is why the shale players are in this business, it is predictable and if you have enough wells producing in that phase it is a very nice stream of income that requires very little in the way of OPEX or intervention as opposed to the offshore. A company that has a thousand wells producing in the low decline rate at 50 bbls/day would be seeing cashflows in the $500 MM/yr range which is not chump change. Using an average EUR for those thousand wells results in 250 MMB of reserves which when valued on a normal P1 basis for A&D would be around $5 billion, again not something to sneeze at. The vast majority of the blogs posting negative things about shale have zero understanding of the science or the business, getting your information there is not value-added activity.

A ‘’Gusher Of Red Ink’’ For U.S. Shale

OK, what did I just say up thread? All of these news articles and Rystad included look at the cash flow from operations that are reported under IFRS guidelines in annual or quarterly reports. That includes DD&A which is a paper accounting exercise and doesn’t address how much actual cash is coming into the operation versus how much is being spent. Rather than read these articles why not educate yourself as to how to read an oil and gas financial report…they are all public domain documents if the company is publicly traded. If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.

[wildbourgman]

If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.

Actually I think that the folks that run these companies are pretty smart. They pay themselves first and damn the torpedoes, because they are safe regardless the outcome. The people that engineered the housing bubble were pretty smart and didn't get caught by the SEC too. I'm willing to chalk this up to lets just see how it turns out.

My prediction is that the pure shale players get mostly wiped out, or bought out by the majors for pennies on the dollar and then eventually (not too long) the majors will move on and real companies will take the stripper wells left behind and make them work in a much smaller way than a " shale miracle".

Actually my prediction isn't much of a prediction, because it happens all the time that small time oil men end up with old worn out strippers.