Daily Commentary From OilSlick.com

OPEC Propaganda Scheme
Don't believe everything you read in the headlines. That is especially true if the source is OPEC or Saudi Arabia. Continue reading
Head Fake
Crude prices rallied +4% on Wednesday after the EIA inventory report showed a decline of -5.9 million barrels. That was the biggest decline in months but it does not represent reality. Continue reading
Worst Case Scenario
If you are an oil producer, you are facing a worst-case scenario today. Crude oil has declined to $35 and the outlook is worse than it has been in months. If you are bleeding cash at $40, you are not going to like the picture at $30. Continue reading
19 Million Barrels Missing
Energy investment bank, Tudor, Pickering, Holt & Company said the oil industry has deferred or cancelled about 150 projects that could unlock 125 billion barrels of oil over their lifetime. Continue reading
A Production Climax is Approaching
Active rigs declined -13 to 744 and the 13th consecutive weekly decline. Active oil rigs declined -9 to 555. Keeping production at the current level is going to become progressively harder as active rigs drop to a 15 year low. Continue reading
US Facing Oil Tsunami
There is a veritable wave of oil headed for America and it will push crude prices significantly lower. Middle Eastern countries are in a bidding war about who can sell oil the cheapest. Continue reading
Costs Down, Production Up
Oil producers are continuing to slash costs every quarter but they are still raising production. This has got to be OPEC's worst nightmare. Continue reading
Crude Prices Lower for Longer
Investors betting on a rebound in the price of oil better have a very long time horizon. Companies are still reporting increases in production despite slashing drilling expenses and laying off thousands of workers. Continue reading
Rusting Dinosaurs
When oil was $100 a barrel it barely made sense to spend billions of dollars to drill multiple wells and build a production platform to set on top of them. At $45 oil it makes zero sense. Continue reading
New Record Ahead
It is only a matter of time before U.S. oil inventories set a new 40-year high. Inventories increased last week by 7.8 million barrels and we are just getting started in the inventory season. Continue reading
LNG Disaster
The LNG explosion is going to cause ripples felt all around the world. Five years ago, there was a race to build LNG export facilities worldwide. Today 75% of them may never be completed. Continue reading
Trillion Dollar Disaster
The sharp decline in crude prices is on the verge of causing a trillion dollar disaster. Low prices do not just mean lower profits but in many cases higher losses and cancelled projects. Continue reading
Low Gasoline Prices Will Not Last
The price of gasoline is directly related to the price of oil and crude is cheap today and will be getting cheaper. However, this is a short-term event and the price cycle will eventually repeat. Continue reading
Goodbye Shale Producers
The U.S. shale revolution is over. Very few companies can still produce at a profit and the rest are heading into the abyss as production declines and cash burn accelerates. Continue reading
Pumping Red Ink
Shale producers drill $12 million wells with production that declines 95% over the first three years. Are they really making money? Continue reading
Running out of Cash
Several weeks ago, I wrote an article on the cash drain for Saudi Arabia. The kingdom was returning to the bond market to raise $27 billion because of falling oil revenues. Qatar has joined in that hunt for cash. Continue reading
Trouble Ahead
I am sure you have heard the saying that you can put a frog in a pot of cold water and then turn up the heat and the frog will die rather than jump out as the water warms. The change is so subtle that the frog does not realize he is in trouble. Continue reading
Walking a Tightrope
The $40 level on WTI is holding but the margins are razor thin. This is the equivalent of walking a tightrope between two skyscrapers. One misstep or one headline could lead to a fall to much lower levels. Continue reading
Rigs Up, Oil Down
Active oil rigs are up +42 rigs since the low at the end of June. Over the same period, oil prices have declined more than -30%. What is wrong with this picture? Continue reading
Saudi Arabia Going Broke?
Saudi Arabia may have declared war on U.S. shale producers in hopes of running them out of business but they may have waited too late. Continue reading
Lookout Below
With all the major oil companies warning of tough times ahead for oil prices the energy sector plunged to new lows last week. If enough credible people warn you of a coming disaster maybe we should believe them. Continue reading
Who is Winning the Oil War
OPEC is pumping at 100% of capacity and prices are still going down. They have run out of additional production capacity to bring online to offset the lower prices they are receiving. While Saudi Arabia can still make a profit at $50 oil that is not true for other producing nations. Continue reading
Offshore Drilling Crash
With the price of crude oil rapidly declining and approaching $50 again the cost of offshore drilling is forcing some companies to reconsider their programs. Some of them will pay huge penalties to reduce E&P expenses. Continue reading
World Massively Oversupplied with Oil
The IEA claims oil prices may fall further before prices firm in 2016. The IEA claims there will not be any non-OPEC production growth in 2016 for the first time since 2008. Continue reading
Expensive Decision
BP agreed to a record $18.7 billion settlement with the U.S. government, five Gulf Coast states and more than 500 local governments. That brings the total cost to BP for the Deepwater Horizon disaster to $53.8 billion and still rising. This creates an entirely new risk/reward metric to offshore drilling. Continue reading
Lifting the Oil Export Ban
The U.S. administration is coming under increasing pressure to lift the 40 year old ban on exporting U.S. oil. The ban was passed in 1970s in an effort to lower our dependence on imported oil from the Middle East. Continue reading
Missing Barrels
The International Energy Agency (IEA) has misplaced about 1.2 mbpd of crude. They claim production is one number and demand is another. The difference is about 2.0 mbpd but global inventories are only rising 800,000 bpd. Where did the oil go? Continue reading
Batten Down the Hatches
That term is a nautical term from the early 19th century. The captain of the ship would order sailors to "batten down the hatches" to avoid taking on water when heading into a severe storm. Energy investors should be taking steps to keep their portfolios from taking on water in the months ahead. Continue reading
OPEC Doubles Down
OPEC appeared to double down on the concept of gaining market share by producing more barrels at a lower price. They kept the posted speed limit at 30.0 million barrels per day but plan on producing much more in the months to come. Continue reading
OPEC Analysis
The OPEC production meeting is next Friday and there is a lot hanging on the outcome even if they do nothing. Their decision will impact oil prices and investment decisions by oil companies for the next six months. Continue reading
Goldman Turns Significantly Bearish
Back in 2008 Goldman made a market call saying crude oil would rise to $200. Prices surged in the days after the call but stopped at $150 before crashing back to $40 during the financial crisis. Now they are predicting $50 oil in 2020. You have to wonder what these guys are smoking and why anyone listens to them. Continue reading
Three Weeks
OPEC meets again on June 5th to discuss production quotas. Since they are producing about 2.0 mbpd over their existing quota they have plenty to discuss. Many of the high cost producers are pleading with Saudi Arabia to reduce production so prices will rise. Saudi refused back in November for an obvious reason. Continue reading
Light in the Tunnel
Crude inventories declined for the first time in 17 weeks and the decline in active rigs is slowing. The light at the end of the tunnel is not a train. Continue reading
Inventory Declined
While it was not much the inventory levels at Cushing Oklahoma declined by -500,000 barrels last week and the first weekly decline since November. This could be a sign of things to come. Continue reading
Production Decline Imminent
Various reporting agencies and production prognosticators claim a U.S. production decline is imminent. Production has declined in three of the last four weeks and we are already down -86,000 bpd from the 9.422 mbpd high in the week ended on March 22nd. Could that be the peak production in the U.S. for years to come? Continue reading
Half a Bakken Added to Production
Saudi Arabia increased production in March by 658,800 bpd. That is the equivalent to half the daily output of the entire Bakken shale. Saudi Arabia is clearly trying to grab market share at the expense of other OPEC members. Their output does not really impact the U.S. except that it can lower the price for Brent crude. Continue reading
$10 Billion in Savings
I reported a couple weeks ago about the growing "fraclog" and the trend not to complete wells is accelerating. U.S. producers may have saved as much as $10 billion in the last few months by not completing wells. Continue reading
$30 Oil is a Reality
You read every day where some analyst or talking head on TV is predicting oil at $30 because of whatever excuse they are using that day for the drop in oil prices. The next day oil rebounds a buck and analysts are forecasting $65 to $75 before the summer is over. The truth is nobody knows but the bears are closer then they realize. Continue reading
Wars and Rumors of War
Saudi's war against Yemeni rebels last week helped to boost oil prices but the lift was only temporary. As the Sunni/Shia conflicts in the Middle East play out we could see much higher prices. However, our more immediate fate is based on the war between the shale producers in the USA. Continue reading
Fracklog is Building
The "fracklog" is a new term coined to represent the backlog of wells that have already been drilled but not yet fractured and completed for production. The recent admissions by numerous E&P companies that they were only drilling and not fracking in order to cut costs has created a new problem for future production. Continue reading
Production Rising
Despite a -42% drop in active rigs the production in the U.S. continues to rise. The U.S. produced 9.366 million barrels per day in the week ended on March 6th. This came despite a drop of -806 rigs since September. Continue reading
Cushing Approaching Record Storage
Cushing Oklahoma is the delivery point for WTI futures and inventories there have risen to 49.2 million barrels and only 3 million below the record from April 2013. Continue reading
House of Cards About to Collapse
Exploration companies drill through miles of rock but it appears their foundations are on shifting sands. Companies are slashing expenses to the bone in an effort to survive and there are probably going to be a few that don't make it until oil prices rise again. Continue reading
Rigs Down -32%, Oil Production Up
The active rig count declined by -48 rigs last week to 1,310 and a -32.2% decline from the 1,931 high back in September. Oil production rose to a new post 1972 record at 9.28 mbpd. What is wrong with this picture? Continue reading
100,000 Energy Jobs Lost
Bloomberg is reporting that more than 100,000 jobs have already been lost in the energy sector. Previously bustling energy hot spots like the U.S. shale plays, Scotland, Brazil and Australia and others have lost well over 100,000 jobs with no letup in sight. Continue reading
Where Can I store My Oil?
The EIA reported crude inventories in the U.S. rose to 413 million barrels last week and the highest level since the EIA began keeping records in 1982. I have seen other reports based off older and less reliable inventory records that this is the highest level for January in 80 years. Continue reading
Friday Was a Preview
The +7% spike in oil prices on Friday was a short squeeze triggered by a news headline. While this may not be the beginning of a return to $70 oil it was a preview of how that return will begin. Oil prices will eventually stop going down and investors will become restless while shorts will continue loading the boat on every minute dip. A headline will appear and a short squeeze will result and the low prices will begin to fade. Continue reading
Energy Decline Continues
Oil prices may have held at the $45 level for the past week but that is no guarantee it will continue. Analysts continue to predict $30 oil despite the enormous damage that will cause to the U.S. economy and to the energy sector as we know it. Layoff announcements are increasing and with the energy earnings cycle just ahead there are sure to be even more dismissals. Continue reading
Beware of Unintended Consequences
While everyone is celebrating cheap gasoline the energy sector is imploding. Goldman Sachs now believes up to $2 trillion in future oil investments are now threatened by low oil prices. Goldman said "Lower commodity prices and production overcapacity are forcing a renewed focus on capital discipline, cost efficiency and productivity across the industry. We expect significant price pressure to come through the supply chain." $2 trillion is definitely a significant number. Continue reading
Spending Cuts Ahead
U.S. energy companies are announcing drastic spending cuts for 2015 because of the lower oil prices. Barclays said companies in North America could cut by 30%. Several have already announced cuts of that magnitude with others in the 30-35% range. A few have slashed spending by 50% or more because they lost their funding and access to the debt markets. Continue reading
Oil Prices Under $50
That is the headline we are likely to see early next week as the last round of portfolio restructuring hits the energy sector. I have warned for a couple weeks we could see a test of that level but I don't think it will last more than a few days. Oil at $50 is simply too low. Continue reading