Update: The U.S. Over-Supply of Oil is Ending

Posted in Presentations & Publications on November 22, 2017

Pay-It-Forward Network Presentation November 17 2017

PIF Presentation November 2017


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11 comments on this entry


  1. Your blog is great ! Thank you very much !


  2. Many thanks!

    Art


  3. Art,
    As the oil price rises, share prices of producers and service companies usually followed the rise. However, this time many shares did not follow the oil price and underperformed the oil price by up to 90 %. My interpretation is that decline rates rose over the latest months and the producers generated even less cash, despite higher oil prices.


  4. Heinrich,

    I fully agree. As oil prices increase, so do oil-field service costs effectively canceling the benefits of higher oil prices. 3rd quarter financial data from tight oil companies indicates that a few more companies are breaking even or making a little money than a year ago but that 2/3s are still losing money.

    http://www.artberman.com/wp-content/uploads/PPI-3Q-Graph-from-NOV-2017-GMR-Presentation-1024x769.jpeg

    All the best,

    Art


  5. Art,

    Great work! Can you enlighten me how/where you account for releases from the SPR…is it included in “imports”? What is the YTD number? Thanks!


  6. Art, and
    I have been following the market since a few months and it is still interesting that oil and gas producers did not follow the price rise of oil. This is historically the first time. Your explanation that service costs rose does not explain the underperformance of oil service companies. So something fundamental has changed in the oil market. The question is what and why?


  7. Heinrich,

    I don’t think that the data supports your position. I have always noted that oil company stock prices track oil prices although with a few weeks lag.

    Concho-Diamondback-EOG-Stock-Prices

    All the best,

    Art


  8. Art,
    Oil and gas producers and service companies continue to underperform the oil price. As the Shale industry is hedged to more than 80% for 2018 at an average oil price of USD 52 per barrel, this could be also a reason for the underperformance. As this hedging strategy looked brilliant when oil prices were in the forties, companies cannot now participate in any upside of the oil price above 52. Do you have also any thoughts about this assumption.


  9. Heinrich,

    I think that we need to wait a few weeks to see if the stock price performance increases to track oil price.

    All the best,

    Art


  10. Here is a cross-plot of Concho’s stock price and WTI.

    Concho-Stock-vs-WTI


  11. Art,

    Thank you for answering all my previous questions. However, I think there is a major shift going on in the market and it is very important to understand this for making good decisions.

    It is true that EOG and some other top companies did follow the oil price over the last year. Nevertheless, these companies usually outperform the oil price as this is the way as it should be for a company which creates value over time. However, EOG could barely follow the oil price and when you look at the performance over the last six months, it underperformed the oil price by over 15%, which is very much for a company which has outperformed the oil price by 50% over the last three years.

    I think this is a significant trend and one explanation is for me the recent considerable decline in well productivity. Alone in Bakken 40% more wells are necessary for the same production as three years ago. This means 40% higher costs for maintenance, operation, labor and most important transportation and infrastructure costs per produced barrel. As thousands of new wells come into production every year, this trend intensifies over time, which leaves companies with less cash from existing wells – and declining stock prices.