Is The Window Closing On Shale Opportunities?

The energy story this week is still centered in the aftermath of Harvey and Irma – and how those storms will continue to impact the energy markets from both a supply and demand side.

The obvious outcome in the Gulf Coast of Harvey has been a lot of crude oil waiting to be turned into product. Much of that crude was intelligently shipped into the Gulf Coast in front of the storm, swelling storage there and in Cushing. There is now a tremendous pressure among the refiners to restart operations as quickly as possible and restore product inventories moving back down the chain.

From all indications, all of that is going smoothly. There were tremendous lessons learned from super-storm Katrina and Gulf of Mexico assets were sealed tighter than a drum while refineries were also prepared to withstand the very worst. In all but a few cases, those refineries are coming back up without incident.

And the big Colonial pipeline, responsible for so much of the product transport from the Gulf towards the East is again fully loaded and back up to speed after a very short down time. In short, the refiners are back to work with few long-term consequences.

But what about the production that was sidelined by Harvey? And how are the markets going to react to the restarts?

Goldman Sachs’ analysis says that DEMAND, not supply, will be the significant outcome from the two storms. Their claim is that the sidelining of business and driving in the U.S. number two and number three most populous states will have more effect than the loss of supply. I can’t say that I agree, but you have to respect Goldman’s analysts.

Here’s an interesting piece on the issues surrounding production restarts in the storm-affected Eagle Ford shale play and in the Gulf of Mexico – my take from this piece is very bullish for crude oil as I infer a far different outlook from those CEOs who claim that production guidances for 2017 haven’t changed at all because of Harvey.

My take is that there is a very simple reason for the production side in the Gulf Coast area to lag going forward, making this restart a bit different from what most others are expecting for the next several weeks – or months – and accelerating the rebalancing trends I’ve been talking about in the last few weeks.

Finally, something outside of the storms – this one sentence from the BHP Billiton conference call in August that went mostly unnoticed, but tells a CRITICAL tale about the opportunities in shale – not just in the United States, but all over the globe:

(Click to enlarge)

Translation: U.S. shale oil will turn out to be a ONE TIME ONLY play.

Further translation: Correctly investing in US shale oil is a ONE TIME ONLY opportunity.

Now that implies a call to action all of us should heed for the next few weeks and months, particularly as oil still hovers below $50 a barrel – for the time being. I will reiterate my call for WTI crude to see more than $60 a barrel by the end of the year, and oil stocks remain in a great spot for continued investment.