Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil prices surged this quarter as Brent crude put in the best performance in 13 years. This comes as oil demand is surging, geopolitical risk is rising and Moody’s warns that shale oil producers will need $50 a barrel plus oil to make any money.
Shale oil producers have shown signs that they are pulling back because many are having a tough time making any money. We have said it before and we will say it again. You can’t lose money on every barrel and try to make up for it in volume. While Moody’s says that producers have driven down costs, their capital efficiency now depends on higher oil and gas prices. The study says they need above $50 for oil and $3.00 for natural gas. Moody’s says that drillers won’t be able to make significant returns on the capital they plow into new production unless benchmark U.S. West Texas Intermediate crude oil and natural gas prices cooperate.
Moody’s analysts, Sreedhar Kona and Steven Wood, said the “producers in the U.S. and Canada have made dramatic efforts to cut costs since the collapse of oil prices three years ago, with many delivering higher dividends to investors this year. But with limited wiggle room to reduce costs further, any improvement in their ability to sustain healthy returns will have to come from commodity prices”.
Hopefully, growing global demand will bring back shale play but producers have to be smart. Companies should be rewarded for good well–head economics, not on how many barrels they can produce.
Yet the lack of CapX spending is sowing the seed of a new tight market down the road. Reuters reports that “Higher investments in offshore oil production are critical to avoiding a supply squeeze by 2020, as expanding shale output will not match projected demand increases in the next few years, U.S. oil producer Hess Corp”. The past four years of low oil prices have major producers pulling back on needed offshore investment, and the gap between supply and demand should help prices rebound, Hess Chief Operating Officer Greg Hill said at an energy conference at Rice University’s Baker Institute. “The world is going to have to invest in more than shale,” said Hill, whose company has projects in offshore Guyana, Gulf of Mexico, and Gulf of Thailand. Expanded offshore production “will play a critical role in avoiding another supply shock.”
As global supply tightens. Geo-political concerns have more sway. The void by the Kurdish minority in Iraq is rising concerns of a supply stoppage. Turkish President Tayyip Erdogan called the vote illegitimate and has threatened to break with past practice and deal only with the Baghdad government over oil exports from Iraq. Stay tuned!
Questions? Ask Phil Flynn today at 312-264-4364
A Subsidiary of Price Holdings, Inc. – an Employee Owned Diversified Financial Services Firm. Member NIBA, NFA
Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017
Prosper Today! Stay tuned to the Fox Business Network the only place where you get the Power to Prosper! Who is going to go to the Big D? I am back at the MoneyShow Dallas, October 4-6, 2017, at the Hyatt Regency Dallas. I will be there With Steve Forbes and many other fantastic speakers. I’d love for you to join us! Reserve your free spot! Call me at 888-264-5665 or email me email@example.com.
SubscribeReceive daily summaries of all Market Insights blog posts.
Enter email below.
Most Recent Posts
- Unemployment Data This Morning. The Corn & Ethanol Report 12/08/17
- What slowdown? The Energy Report 12/08/17
- Analysts expect these energy stocks to rise the most in 2018 as oil rebounds
- Oil prices recover on GDP gains in Europe, U.S. labor
- Rare December Injection No Surprise For NatGas Futures as Bears Already in Control
- 76 Years Ago Today A Day That Will Live in Infamy. The Corn & Ethanol Report 12/07/17
- Silver turns slightly lower for the year. The Nemenoff Report 12/07/17
- Home for The Holiday. The Energy Report 12/07/17