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Tsvetana Paraskova

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$40 WTI Is Now More Realistic Than $60

Rig

The current rise in oil prices is more of a fear trade right now, driven by fear of what is going on in the Middle East, rather than a result of growing OPEC chatter or inventory reports, Todd Horwitz, chief strategist at Bubbatrading.com, told Bloomberg on Wednesday.

“The oil premiums are very narrow going out to the future, which means that this is more of a fear trade in the front month,” Horwitz said on ‘Bloomberg Markets’.

“To me, this is more of just another farce of what OPEC is trying to do, and trying to push these prices higher,” the strategist noted.

OPEC and its non-OPEC partners in the production cut deal are scheduled to meet in Vienna on November 30 to discuss the extension of their pact. While just a month ago a nine-month extension to the end of 2018 was the base case of all analysts, now there are growing voices that OPEC may delay the decision to early next year. The constant OPEC chatter and the return of some geopolitical risk premium in oil prices--with Saudi Arabia’s purge, heightened Saudi-Iran tensions, and the Iraq-Kurdistan standoff—have pushed oil prices to their highest in two years over the past few weeks.

According to Horwitz, however, the WTI price has little room to rise from its current price of around $58 per barrel, because U.S. shale will return stronger.

There’s a better chance that WTI prices will drop to the low $40s than they rise to the low $60s, Horwitz said.

“I would think that the rigs will be back in the fields and the shale producers will be pumping it out like crazy at these levels,” Horwitz said.

On Wednesday, Baker Hughes said that the number of oil and gas rigs in the United States rose again this week. The boost in the number of active oil rigs this week brings the total gained in November to 10—the first monthly gain since July. Oil and gas rigs combined were up by 14 in November—also the biggest increase seen since July, in a sign that drillers are once again eager to add rigs after scaling back in August.

By Tsvetana Paraskova for Oilprice.com

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  • Al on November 23 2017 said:
    Nonsense....let me guess, the analyst or related parties are short...the possibility of a large oil shock hasn't been greater in years.
  • AB on November 23 2017 said:
    Great. Another analyst probably who is losing his shirt because he is on the sell side. Shale will not deliver next year as oil companies opt to repay debt instead of reinvesting back in the oil patch.
  • Zuhul on November 23 2017 said:
    Absolutely non sense.
  • G on November 23 2017 said:
    The only nonsense is believing that this run isnt just another “walls street” mega bull trap (for retailers / private investors) and wont be dumped upon like every other time.

    What happened with the Saudi arrests news? Has any Saudi oil company shut down or something? Have the workers themselves seen a single difference or shut a single valve?

    War? Does anyone really believe that people used in supercars and malls, (and even Iran isnt that bad either) will, for reals, start exploding each other’s stuff? This is a nice sellable “oh, them ME brown people fight each other” for the average joe but be serious. Oil industry is all the Saudis and Iran have that keeps them from being Afghanistan and will just start blowing that up?

    Inventories: Fact is that the only reason inventories dont build up is because the US is exporting the f out of oil. If inventories were falling and exports were going down then you could say uh oh. Now Its like saying that a farm that is constantly increasing its apple sales is in danger of dieing from apple starvation. Wat.

    Keystone: Damaged pipeline may prevent the movement but doesnt make it dissapear which is a bit funny to base a “futures” price on. All that oil is now just in storage. Pipeline repaired, back in the market.

    Venezuela: Only actual & organic bullish news that justify 50 rather than 40. But lets be honest, oil is also all they have and it is the last industry of it that will close the door. (The reason its bullish is because one should not expend any expansion whilst everyone is starving)

    OPEC cuts: The price of living in a world with cuts was the price oil had for the last 2 years. Meanwhole the US production is increasing and increasing. (aka its going to be more) And lets not even get into the whole “oh, I am cutting but my products made out of oil are increasing” cheating stuff SA does.

    Buy the rumor, sell the news. Remember all that in December or January as you baghold $60 oil.
  • Citizen Oil on November 23 2017 said:
    My prediction is another "analyst" will say just the opposite in about 5 minutes. The shale players have the ball in their court My suggestion is to LISTEN to your investors and make profitability a priority and not just growth in production . Investors patience is wearing thin and if you make the commodity plummet to $ 40 or less again, you will pay a huge price.
  • Peter Novak on November 26 2017 said:
    Oil producers and OPEC in particular, are running out of time - the peak-oil is around the corner and once we get over that hill, its elevator to $10 oil. Therefore they have no alternative but to produce as much as they can, while they can sell it at all.

    The beauty of shale, and it is not only US as Russia and Argentina have even greater albeit undeveloped reserves, is that this production can be literally turned on and off within weeks, while technology makes the extraction ever more efficient.

    I will soon be shorting oil as if it was going out of stile yesterday.
  • Jeffrey J. Brown on November 26 2017 said:
    A trip down memory lane:

    GARTMAN: Crude oil will never trade back above $44 'in my lifetime’ (January 26, 2016)

    http://www.businessinsider.com/dennis-gartman-crude-oil-call-2016-1

    Excerpt:

    Dennis Gartman has a call on oil.

    Gartman said Monday that he thought crude oil wouldn't trade back above $44 "in my lifetime," though he did say oil may have hit a short-term bottom.

    The price of crude oil, which has been driving the price action in the stock market for the past month, fell about 7% Monday but bounced back a bit early Tuesday.

    Gartman is the publisher of the widely read "Gartman Letter," a daily markets newsletter, and is an omnipresent voice on CNBC. His calls are also often chronicled on Zero Hedge and taken as a contrarian indicator: When Gartman says he wants to be "long of" something, short it, and vice versa.
  • adec on November 27 2017 said:
    I remember not long ago Ms. Slav wrote an article alleging Russia actually don't want high oil prices and of course turned out to be slammed by the statement of Russia oil minister. This article is actually as ridiculous as Ms Slav's. It reminds me of those guys like Gartman who has the gut to say "oil will never see 43!".
    I would think the big institutional sideliners would really appreciate articles like this, as it helps them to scoop cheap shares.
  • Bill Simpson on November 27 2017 said:
    You could be right. I never knew about the vast amount of shale oil in the Alberta and British Columbia shale deposits, which extend over hundreds of thousands of square kilometers and are over 100 meters thick in some places. That is a LOT of oil!
    Add all of that to the 100 billion barrels some geologists claim might still be below Texas, and that is a lot of oil. The Canadians haven't even bothered fooling with their shale oil and gas much yet. Their government claims that they can meet their domestic gas needs for another 150 years.
    Not to mention the electricity they could generate if they decided to go all out with dam construction in the Rocky Mountains like Stalin did in Siberia. Not using slave labor, of course. You've got to admire what they did in Quebec. An amazing accomplishment in that bitter cold much of the year. Nothing like clean hydro power. You can't do everything with electricity, but you can do an awful lot with it.
    As the oil price goes up, a lot more supply might come on line from North America. OPEC and Putin is lucky Canadians, with their rule of law and democracy, don't inhabit Venezuela. Oil might be selling for $35 a barrel.
  • Jeffrey J. Brown on November 28 2017 said:
    Some interesting comments by executives of companies involved in tight/shale plays:


    WSJ: Terrible Month for U.S. Energy Shares (8/27/17)
    Sector down 5.7% as quarterly reports disappoint investors and oil prices languish

    https://www.wsj.com/articles/energy-shares-set-for-worst-month-since-2015-1503846001

    Excerpt:

    Analysts and investors pointed to quarterly reports from companies including Pioneer Natural Resources Co. as key contributors to the sector’s sagging stock prices this month. . . .

    Pioneer is down 28% for the year, with most of that decline coming in August. Pioneer President Timothy Dove attributed the production issues to “train-wreck wells” that have caused “all kinds of problems,” when he discussed earnings results with analysts. Pioneer said it now takes more time to drill those wells, and it has increased costs, too.




    WSJ: U.S. Shale Juggernaut Shows Signs of Fatigue (10/5/17)
    Forecasts that abundant American oil can permanently meet global needs may be ‘myth,’ company leaders warn

    https://www.wsj.com/articles/u-s-shale-juggernaut-shows-signs-of-fatigue-1507195802#comments_sector

    Excerpt:

    Future oil production is notoriously difficult to predict, and a surge in prices could certainly improve the economics of American shale. But a growing chorus of oil industry leaders, including some shale trailblazers, believes U.S. growth may peak sooner than government forecasters have anticipated—a development with ramifications for global oil markets.

    In recent years, shale production has reliably filled any voids in world supply, effectively taming volatile price gyrations. Potential limits to shale growth call into question predictions that this trend will continue in the future.

    “There are no new shale plays that have come forward,” said Mark Papa, chief executive of Centennial Resource Development Inc. and former CEO of EOG Resources Inc. “Their ability to spew forth infinite streams of oil is really just a myth.”
  • John Brown on November 28 2017 said:
    There really is no reason right now for oil to be above $30 a barrel except for massive collusion and manipulation by OPEC, the entire oil industry, the commodities markets, and the finance sector for the oil industry. They all desperately want higher oil prices as they all make more money when the price is higher. The only problem is they have to use smoke and mirrors, because even with Saudi Arabia cutting production to make up for the rest of OPEC cheating there is still a glut of oil sloshing around the world, and the amount of idle capacity grows more and more every day, and the urge for some of these countries to cheat even more is likely incredible.
    Also as this article points out the U.S. industry can make money between $40 to $50. With prices right now of WTI closer to $60 everyone in the U.S. has to be scrambling to bring on more production, and unlike in the past additional production can flow in as little as 6 months. The longer the price stays well above $50 the stronger the flood of new production will be. Despite that I just read an article predicting $80 a barrel oil by next Nov. If they manage to manipulate it that high the eventual flood of oil will be a Tusanami.
  • Jeffrey J. Brown on November 29 2017 said:
    Re: "no reason right now for oil to be above $30 a barrel except for massive collusion and manipulation by OPEC"

    Here are a couple of reasons:

    Global oil, gas discoveries drop to 70-year low: Rystad Energy
    http://www.reuters.com/article/us-oil-exploration-idUSKBN1521TA

    Related article linked below, and a pretty good quote from the article is shown below.

    The GOR for global dry gas versus global Crude + Condensate (C+C) production was pretty stable from 2002 to 2005, at 3,660 and 3,650 (CF/BO) respectively, but it rose significantly to 4,200 in 2016. 

    Of course, in my opinion this reflects virtually flat actual global crude oil production versus increasing liquids from natural gas production, i.e., condensate and natural gas liquids. 

    WSJ: Investors Question Oil Output in Permian Basin, America’s Fastest-Growing Field
    Worries mount after Pioneer reported its Permian wells are producing more gas than expected

    https://www.wsj.com/articles/investors-question-oil-output-in-permian-basin-americas-fastest-growing-field-1502325779

    Excerpt:

    . . . someone who described himself as a former Pioneer petrophysicist raised alarms in a post on LinkedIn, predicting that “ALL oil shale wells…will die a disappointing and gassy death.”

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