Are we now in the Supply/Demand ''TRANSITION ZONE'' ... ?
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<<New York, Feb. 26 (Bloomberg) -- U.S. crude oil output fell
last month to its lowest level since 1950, as producers, pounded
by low prices, were forced to cap money-losing wells.>>
***We are producing 500,000 bpd less in the US than last year. That is 180 Million boe per year if the refiners quit importing cheap crude. We could totally eliminate the entire US supply glut in 90 days if refiners did not have the financial incentive to keep storage full of historically cheap crude. However this past week we have seen some intial signs of refiners cutting production - ie: below:
<<Stamford, Connecticut, Feb. 24 (Bloomberg) -- Tosco Corp.
said it will shut down the world's biggest catalytic cracking
unit, at its Bayway Refinery in Linden, New Jersey, ahead of
schedule because of poor profit margins.>>
<<<<The price rally continued yesterday as Ultramar Diamond
Shamrock Corp. said it would reduce output at refineries in Texas
and Michigan.>>
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<<April crude fell 41 cents, or 3.2 percent, to $12.27 a
barrel on the Nymex. Crude sank to a 12-year low of $10.35 in
December.>>
***The bounce of late was due to some refinery shut downs, fires etc. But, the story is that we have moved 20% from the $10's to the $12's - no small matter; but we once again have the OSX at the bottom of its ''trough range.'' However, this brings a buying anomaly/opportunity imho. Over the last few months; rarely have we had the opportunity to buy the Oilpatch stocks on the decline to a bottom support level, when crude was actually improving fundamentally. I feel we are seeing the final shakeout/battle of the short sellers and some funds who need to trim holding both this past friday at month end and in advance of a huge ''catalyst'' the March OPEC meeting which is at Q1 end - so major window dressing by the funds was at hand this past week and this has given many buying opps on selloffs of late.
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NEW YORK, Feb 25 (Reuters) - Salomon Smith Barney's
natural gas analyst, Thomas Driscoll, raised his
forecast for the average price of natural gas in 2000
to $2.75 from $2.35 per million British thermal units
mmbtu), his office said Thursday.
The forecast is based primarily on a falling drilling
rig count, which has cut the number of wells
drilled and will curtail future production.
***I think CNBC reported $2.95 - but $2.75 is Bullish beyond most expectations and the ''Key'' concept here is - NOT that there was a dramatic increase in demand, but rather due to the historic low RIG count - low production will drive prices upward; and that the reduction in drilling activity has created a ''spike'' of potentially 50% in coming gas prices. IF OPEC cuts or fully complies with current cuts; do the math ! - we will in 6 months potentially be at supply/storage levels that have triggered/supported $16-18-20 Crude Prices. The ''Production'' side of the supply/demand equation will drive prices more than people are expecting imho. The is little margin built in to todays price levels for ''any'' degree of Asian demand upside surprise. EVER & PETD and select Nat Gas E&P's are great buys here . We could actually see the domestic pure-play Nat Gas stocks totally separate themselves from the rest of the Oilpatch very shortly... food for thought. Also, this Nat Gas forecast somewhat gives the forward looking expectations of a ''floor'' built under shallow water jackup - Nat Gas Drilling.
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bloomberg.com
<<Saudi Problems
Saudi Arabia, the world's biggest producer and OPEC's most
influential member, was forced to support its currency, the
riyal, as low oil prices put strains on its economy, the
Financial Times reported>>
***They borrowed $5 Billion earlier this year; this is indeed a very complex Geo-Political/Economic puzzle. However - anyone who keeps quoting the Saudi's ''cost'' as the few dollars of production cost per barrel; are missing the point. I think that the Market-Share Conspiracy Theory holds less and less weight as time moves on. The Saudi's true cost is over $17 per BOE as that is what they need to keep their Economy afloat. Less than $17 and their economy and more importantly the ruling family is in grave danger... the rise of Religious Fundamentalism in the Middle East and all of the Political instability that this brings, is not being discounted by the Saudi Royal Family. I anticipate positive news from the OPEC meeting. New cuts are not priced into these stocks; obviously quite the contrary here. Part of this selloff is the Institutional trimming of positions, as The Street doesn't expect ANYTHING positive from OPEC.
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If we all approach the highly emotional subject of calling a bottom - or selecting an entry point here with a little rationality; we just may be seeing the best technical & fundamentally supported entry point yet, as we wind down earnings season here of late.
In my opinion; one doesn't have to call a bottom as in OSX 45, 48, or 40. That is nearly impossible and individual stocks don't all obviously bottom the same time as the index. In my thinking, the bottom should be approached as a ''range'' of the OSX index's movement of late. I would say that a ''range'' of OSX 40 - 52 will probably be a bottom - trough indexwise.
The ''range'' of OSX 66-72 will be the high end of a trading range at current Crude Oil Price fundamentals. Perhaps a ''range'' of OSX 66-85 will be the ''recovery'' phase where the Street will universally acknowledge that the worst is behind us - in essence not just calling a bottom, but stating that we are now out of the bottom trough and we will see the talk of post $15 crude oil in the forward looking estimates and will see improving Rig utilization and dayrates.
OSX 85-100 will be the "Earnings" phase. We will need $15+ Crude Oil and improved contracts for both shallow & deepwater Drillers, the Fab/Const Companies will need increasing backlogs and Rig Utilization will need to be strongly improving. The Earnings estimates will need to be revised upward and Companies will need to start exceeding expectations...
So, are we beginning to seeing signs that we are entering a ''transition'' phase from the bottom ? The next 6 weeks of API/EIA numbers and the OPEC meeting will be the measuring stick for future expectations - it won't be long... We will all know very shortly if the OSX 45 +/- range is indeed ''THE" bottom... just 24 days untill the March 23rd, OPEC meeting in Vienna, Austria
...time will tell and it won't be long. |
