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Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

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The Latest Media Attempts To Suppress Oil Prices

It started with the Iranian supply overhang and has grown louder by the day in the media. While we were all supposed to be cowering in fear at the 1MB/D that would be coming from Iran any day, it emerged instead that not only is the deal in doubt, as the only real agreement was to agree to say there was an agreement, but any such additional supply won’t occur imminently. Far from it.

That sanctions will only be lifted through intensive verification is now the reality and this process will take time. And even that isn’t fully agreed upon as we now learn. Be that as it may, we wake up yet again with more evidence that the Cushing cries have all but died and now shifted to the forward curve which has flattened. This is the normal course after a price collapse as the market begins to gain confidence that it will rebalance soon.

Hedging by producers is now also playing a role as the financially strapped ones are pressuring prices to lock in whatever little profit they have, ahead of the October credit redetermination, in order to preserve liquidity. A further source of pressure is articles now seeping out at an increasing rate in the media regarding OPEC increasing production (which only appears as a response to much higher than anticipated demand, disproving what the same media asserted months ago). OPEC’s strategy will most likely be short-lived but now, if one can believe it, we’re supposed to buy the latest “worrying news” of rig counts increasing? Related: Who Will Control The World’s Water: Governments Or Corporations?

It’s impossible to cite every case where these absurd cries occur but here are just two cases. The point is that it was anticipated here so when it occurs you the reader can be mentally prepared to process the propaganda so that an objective opinion can be reached.

This via Bloomberg 4/14……

U.S. Crude Oil Production About to Ramp Up

Notice that the headline for the article does not match the actual underlying article title nor its actual content that supports higher refinery runs tied to demand and more capacity to process light crude from shale areas (see prior article on this). How much more blatant can the bias be to create the impression that some overhand is present to hold future prices?

Then there is this article. Within it states: “Weak global demand and a boom in U.S. shale oil production are seen as two key reasons behind oil's price plunge over recent months.” Related: Shell Betting Its Future On LNG

Weak demand when OPEC is citing the opposite in recent months and so does the US gasoline demand data that supports demand being well above trend and accelerating to 5% year over year growth?

And now the topper: “But Kleinman said prices were unlikely to stay higher in the face of an expected pickup in American rig counts towards the end of the year, and big productivity gains.

"Yeah, we may have a very sloppy (fourth quarter) if we don't have the sloppiness that we were expecting in (the second quarter)," he said.”

So one way or the other prices must collapse? You are telling us that if prices rise above $60 that E&P companies are that stupid to just re ramp rigs and get hosed again when they can’t hedge as the curve flattens? Forward prices are only in low $60s hardly high enough for producers to go wild to shoot themselves in the foot again. The other absurd point is once again that productivity will surge while we just saw in the Bakken that this has not occurred and in fact it’s reversing and will continue to reverse. Related: Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt

More wells, not less, are needed to support current production never mind increase it. The focus of lowest cost oil in most prolific regions can’t go on forever and will ultimately force operators back into higher cost areas in the next 12-18 months. Thus leading to either further production cuts as prices don’t rise or prices rise to adjust to the new cost paradigm. Lower operating costs being realized will help decrease the “normalized’ price to re-accelerate production, but $60 isn’t it by far……$70 maybe on WTI.

Admittedly in early plays such as Marcellus, productivity in natural gas wells drilled is still increasing. But that is because production only recently, in the past 18 months, has ramped up. E&P companies aren’t in business for the greater good, as the media seems to think, to produce low price oil to support the economy. They are in business to seek IRRs that justify the risks and huge capital expenditures necessary to drill new wells.

One could make a pretty good living just exposing the new world of propaganda and spin that distorts reality. Maybe we have finally found our calling. With regard to those from GS & Citibank, isn’t it time to hold them accountable for their distortions of the truth?

By Leonard Brecken for Oilprice.com

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Leave a comment
  • Ryan on April 17 2015 said:
    I couldn't agree more. Thank you for you're pragmatic, rational insight.
  • Rick on April 19 2015 said:
    Just a thank you for your efforts. You get disgusted by the garbage the media spin these days. It would be nice if GS, Citi, and the other distortion artists could be held accountable.
  • Robert on April 20 2015 said:
    Agree! One thing I would like to understand better is why GS, City spin the way they do? Leonard, If you have the facts, expose their reasons!

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