Are Shale’s Glory Days Gone?
July 15, 2020
The API inventory report called crude oil stocks down a surprising 8.3 million barrels compared to the average estimate for today’s DOE report for stocks to be down 2.1 million barrels. The crude oil stocks at Cushing, Ok were up 548,000 barrels. Gasoline stocks were down 3.6 million barrels and the outlook for today’s report is for stocks to be down 643,000 barrels. Distillate supplies on the API report were up 3.0 million barrels and the average estimate for today’s number is for them to be up 1.5 million barrels. The above estimates for the DOE update are from the Reuters survey.
On the propane side the estimate for today’s propane update is an above average build of 2.24 million barrels. The five-year average for this reporting week is a build of 1.757 million barrels.
Good news about positive results from a company working on a coronavirus vaccine sends the equities markets higher. This is crazy to me, but markets love to jump on good news. The market trades higher on this news despite the fact that in a best case scenario a vaccine is 10 months away, but the market doesn’t care.
Today’s inventory report good or bad may not matter as traders are riding a trend of optimism that the economy is getting better and energy demand is increasing along with it. I struggle with this outlook but maybe those looking farther forward are correct.
The rising cases of the virus and more states enacting more restriction has the potential to upset the current positive outlook. The OPEC+ meeting in which the market expects them to add more barrels into the market starting August 1 is also a head wind for the current rally. OPEC is trying to increase supply without killing prices, which will be a very delicate job to manage. But low prices have been good for demand and bad for production and that will result at some point in the future in tight supplies, which will be supportive to prices. Most analysts have estimated this time frame to be in 2021. Near term all these factors point to more congestion with an upside bias.
Chief executive of Parsley Energy, Matt Gallagher told the Financial Times that peak production in the US hit back in March – with 13.1 million bpd on average – represented shale’s glory days, never to be repeated in his lifetime. This is very likely true but saying never again in his lifetime can be dangerous but then again, I am do not know the age of Mr. Gallagher. The plunge in crude prices has already had its impact on shale companies and the implications are not over yet. As has been said before the crash in prices and the affects to oil companies around the world is setting up the next bull market in the long run as the impacts have set the oil industry back several years.
A U.S. Appeals Court stated that the Dakota Access oil pipeline will be able to continue operating at normal levels of 570,000 bpd during the court battle. The pipeline was originally ordered to halt operations by August, but this action has put that order on hold for now.