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 stuttered earlier in the week on concerns about the Chinese economy. Yet, the latest data shows that China is importing a lot of oil and showing no signs of slowing down. China’s crude oil imports rose to 37.04 million tons in November, or 9.01 million barrels per day (bpd), the second highest on record, data from the General Administration of Customs showed on Friday, according to Reuters.
The demand side of the equation is what many people forgot to think about when they kept taking glut like that was somehow a permanent. Yet, demand in China and above average growth in both developed and emerging markets has helped draw down global oil inventories. While OPEC is looking for a balanced market in their Third Quarter of last year, the evidence that we are seeing in declining oil inventories is that it is happening right now.
The Energy Information Administration (EIA) latest report on U.S. oil production hit 9.71 million barrels a day, the highest level in weekly data compiled by the EIA since 1983. But considering recent admissions by the EIA about their methods and how they may be overstating U.S. production levels may be the reason the market is skeptical. Remember a study by MIT showed what they say is a critical flaw in the way the EIA forecast production numbers that leads them to vastly overstate U.S. oil production numbers.
The study pointed out something we pointed out in our “Peak Shale” report that the EIA was assuming that productivity of individual wells will continue to rise because of improvements in technology or as the report said that they assumed that the oil production would compound year after year, like interest. So, the EIA would look at rising rig counts and assume that would mean more oil. Yet, because of that incorrect assumption they kept raising production when in reality because of less production per well and the sweet spot where they have been drilled would cause less not more oil per well.
The EIA did not dispute this and said the study raises valid points. Yet the EIA is doing the best job they can with the tools they have to work with.
Yet, this production overestimation can cause some real problems for the shale industry and the average American. I warned about this earlier this year on Mornings with Maria on the Fox Business Network long before anyone was talking about it. That is why you need to watch Fox Business. Many folks had shale stars in their eyes but failed to account for the declining shale production rates as shale producers moved from their sweet spots and the profitability of shale was increasing but in question.
Later, Harold Hamm, of Continental Resources told FOX Business’s, told Maria Bartiromo that the slight uptick in oil prices is due to small adjustments made in the Energy Information Administration’s (EIA) short-term energy outlook. “Recently with their September short-term energy outlook, they made an adjustment of 130,000 barrels down. It should have been about 500,000 barrels actually,” Hamm told Maria Bartiromo on Mornings with Maria.
Hamm said his estimates for oil production pales in comparison to the EIA’s. According to Fox Business said that “We are showing about 9.35 million barrels, 9.4 million barrels by the year’s end for the U.S. In comparison their prediction was 9.8-9.9, close to 10 million barrels,” he said. “If you look back when Nigeria and Libya brought on an extra 400,000 barrels, the price was hit some 20%, it went down $53 to $43, and we feel like that’s about the adjustment that’s due right now.”
That is a big deal. False perceptions about production can lead to inefficient investment and prices, and could lead to shortages in the future. Hopefully we can take the shale out of our eyes and give the market reality and not fantasy on U.S. shale. Natural gas as we expected had an increase in supply of 2 bcf. Surging nat gas production and warm weather set the stage for the build.
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
Stay tuned to the Fox Business Network where you get the Power to Prosper! Make sure you see me at the Orlando Money Show! I will be among some amazing speakers! You can also sign up for my master class that will go over why oil has hit the most significant bottom in a generation. Shale potential and limitations and the danger of the lack of investment in energy that could help spark a future financial crisis. Go to Flynn.OrlandoMoneyShow.com. This show fills up quickly so make sure you secure a seat.
Ps, you might need golf clubs just in case there is a golfing emergency. Hey it could happen! Besides I think some of those travel websites will accept your bitcoin.
Call to get the daily trade levels at 888-264-5665 or email me at firstname.lastname@example.org
Questions? Ask Phil Flynn today at 312-264-4364