Wednesday, March 1, 2017

Texas Tea For Everyone

I told you a few weeks ago that even though the OPEC price cut deal is sill holding together, they forgot about the possibilities of the free market. The US is filling the void. This has not been reflected in the market price of oil as it remains in the low $50s. It won't stay there. The test will be at $47.85 and it will test that retracement. The volume in contracts at that time will tell us all we need to know. Check the facts:
* Rig count has reached the "magic" number of over 1000 in use in North America.
* 2017 oil inventory builds are 3x greater than the 10-year rate.
* US shale oil production is up. The Energy Information Admin(EIA) says it will approach 5m barrels by the end of March. If this happens, US production should hit 10m barrels = #1.
Now, here is two other tidbits that you can enjoy with your Texas tea.
US consumption is at its weakest in 15 years. Buyers use less gas than refiners need less oil. If you put this fact into the global picture, it makes global demand less due to the fact that the US uses 9% of all demand.
Could it be all those uncounted long-term unemployed? Could it be all the new electric cars and trucks? Could it be that vehicles get better gas mileage? Could it be that our military is downsizing? Our military uses more oil than most nations. No matter what, the fact that gas demand is down 5.5% YOY is all you need to know.
Now, here is the other shoe for prices to drop. It covers both sides of oil and gas.
Last week in Germany, Iran hosted the LNG & Gas Summit. Gazprom(OGZPY) had three representatives. Their company is the largest natural gas company. They were checking out the competition. They didn't like what they saw and learned. Iran is exporting LNG and at lower prices than Gazprom. Gazprom has long-term contracts, but they are tied to present prices. Their clients want new deals with cheaper prices. In addition, Gazprom has new pipelines with China and elsewhere, but roadblocks are surfacing. Not good for Gazprom or Russia, but great for consumers.
The EIA also reported that Iran and Iraq will both increase their oil production by over one million barrels by 2020. This is like a new large producer coming online and it will more than supply any future increase in demand.
Lower prices as supply builds EVERYWHERE.