Posted on 05/05/2015 4:35:05 AM PDT by thackney
The meteoric rise in U.S. oil production has ended, easing a global glut and driving a rebound in crude prices from below $50 a barrel, according to crude trader and hedge fund manager Andrew J. Hall.
“We have now reached a turning point,” Hall said in a letter Friday to investors in Astenbeck Capital Management LLC, his commodities hedge fund. Growing demand and supply pullbacks “rendered all the doomsday forecasts self-defeating.”
Oil production from Texas to North Dakota peaked at almost 10 million barrels a day in February and has been falling since then, Hall wrote. A drastic reduction in drilling rigs is starting to shrink U.S. oil output, according to government data cited by Hall.
That’s helped drive a 36 per cent rally in the past six weeks, and prices will continue to rise because it will be harder for producers to ramp up than it was to cut back, Hall said in his letter. Lower crude prices have also boosted demand, while the risk of supply disruptions across the Middle East is growing amid sectarian tensions.
West Texas Intermediate, the U.S. benchmark crude, settled at $59.15 a barrel Friday, marking a 3.5 per cent rise for the week. It rose 44 cents on Monday to $59.59 a barrel.
Astenbeck funds were up more than 10 per cent through April, and gained 10 per cent in 2014 even as oil fell by more than half, according to people familiar with its performance, who asked not to be identified because the information was not public.
$100 Million
Known for making aggressive bets on rising oil prices, Hall became renowned in 2009 after being paid about $100 million while at Citigroup Inc., a bank that received government assistance during the financial crisis. For more than two decades he led Phibro LLC, a commodities trading company bought from Citigroup by Occidental Petroleum Corp.
Phibro is in the process of being shuttered by Occidental. Hall separated from Phibro last year and is now exclusively focused on Astenbeck. Founded in 2010, Astenbeck manages a total of about $3 billion.
Hall’s production estimate is based on weekly data from the U.S. Energy Information Administration. The EIA’s numbers have been closely watched by the market for signs that a record pullback in the number of rigs drilling for oil since October has begun to reduce output.
The EIA has predicted that oil output from major shale plays would begin to decline in April. Total average daily U.S. production will peak this year in the second quarter before falling by 210,000 barrels in the third quarter, the agency said in a report last month.
Oil Adjustments
Hall says the EIA data is derived from estimates at state agencies that generally lags months behind, making it “essentially an artifice.”
A more accurate gauge of U.S. output is an “adjustment” the agency uses, which, in addition to the weekly number, adds up changes to how much oil is in storage, how much was used in refineries and how much was imported and exported, Hall said.
Paul Sankey, an energy analyst at Wolfe Research, also cited the trend in a report Thursday to investors. The amount of production that isn’t accounted for has fallen “dramatically” in the last two weeks, suggesting U.S. daily output may have fallen by as much as 200,000 to 300,000 barrels in April, he said.
“That number seems high to us, but it does support the notion that U.S. production is rolling over at present,” said Sankey, a former analyst at the Paris-based International Energy Agency.
Buy Hate
Imports, refinery demand and storage level data all come from surveys the EIA conducts with oil companies. Export data comes from the U.S. Census Bureau. Production data comes from a variety of sources, including state and federal regulatory agencies.
In a perfect world, the supply and disposition would equal each other, said Mike Conner, a petroleum analyst at the EIA. But they often don’t, so the EIA uses the adjustment figure to balance it out.
“All we really know for sure is the supply components are not enough to make up for the volume on the disposition side,” Conner said. “We don’t know if the error is in field production, imports, refinery inputs or what have you. Different analysts are going to have different interpretations.”
Hall, who said earlier this year that he planned to invest in the shares of U.S. shale producers, believing they would rally, said it is now better to bet on oil.
“Many years ago we were told by a veteran of the commodities business that the secret to making money was to ‘buy it when they hate it and sell it when they love it,'” he wrote. “We do not base our decisions on nostrums but there is a certain logic to this old saw. The market is forward-looking. If the consensus is universally bearish then that view will already be reflected in the price.”
Cuz they always rise??
Except when they fall.
Any big money “revealing” what they are doing is telling a lie. Hide and watch, wait and see.
Six months ago, diesel was almost a dollar more than regular gas. Now it’s a little cheaper than it was, but it is roughly the same price as regular gas. At least it was on my drive yesterday from Chicago, through Indianapolis and Louisville.
I don’t know what that means, other than there is apparently the usual manipulation going on.
We can’t have a breather for the little people last too long, can’t we? s/
What’s the price that spurs the completion of the number of un-fracked wells?
If you consider demand for distillates (diesel, fuel oil) is higher in winter, higher still in colder than normal New England winters, manipulation....
Do you think oil companies like gasoline consumers more than diesel consumers so they gave them a break?
Higher prices will result in more wells completed, lower prices will result in less.
There is no single magic number. The cost of completion and the break even cost vary by field and even locations in the same field.
I noticed that yesterday here in northern AZ. Diesel was 2 cents cheaper at 2.67. Seems like it happened overnight
This year was a recent anomaly. I’ve lived in central KY now for four years and have watched diesel because with my 120+ mile round trip commute I was considering a diesel car and realized that the diesel was expensive enough to more than ruin any savings from better fuel mileage. Winter, spring, summer or fall.
But now it’s the same price as regular.
On a side note, when I was a kid in the 60’s (and early 70’s) it was always a given that gas was more expensive in small towns and rural areas than it was in the city. Now it’s the opposite. I guess if you are gonna want to over-charge people, you want to overcharge the most people.
It is supply and demand. More people with fewer sites per capita available. Not to mention the property cost/rent downtown versus a rural location
It is supply and demand. More people with fewer sites per capita available. Not to mention the property cost/rent downtown versus a rural location
That last sentence is my point. Something changed.
It is supply and demand. More people with fewer sites per capita available. Not to mention the property cost/rent downtown versus a rural location
Everything else is more expensive, and why we do our shopping for “big” stuff in the city now. (i.e. Costco).
In some rural places, it still is more expensive. Where located far from refineries, terminals, little traffic and little choices for other stations, it can be quite high. But those tend to extreme places, complete with the “last gas for 100 miles” sign, even if not true.
I haven’t experienced the reversal you speak of.
Yes, there is a station at Ross Lake in Washington state that gouged the heck out of me. We’re tlakin’ over $2 a gallon when the average price was $.89. But like you said, it was REALLY out of the way and it was either there or grab a gas can and walk a long ways.
While were on the subject, I noticed where I now live, KY, the gas prices have a predictable pattern, the likes of which I’ve never seen before. In Seattle (my home for 45 years) gas would go up a penny or two, and go down a penny or two. it was like an undulating ocean surface. If prices were making a big change in one direction or another over a long period, the “ocean surface” would slant up or down, but it was relatively gradual.
Here in KY, It’s a sawtooth. It goes down gradually. A penny here, two cents there. But it goes up like a rocket. I’ve actually seen, with no news whatsoever to justify it, the price go up as much as $.47 in a single day. And it’s not a station here or there. I would drive out of town (Etown at the time) and gas was $3.15 at every single station, regardless of brand. And then go to work the next morning and every single station was at $3.54. All brands.
People tall me it’s always been that way.
And Chicago has always been corrupt. That don’t make it right.
If you look at the record of hedge funds the last five years, you’d take their advice with a big chunk of salt.
Bingo! Hahaha... Rocket science!
Gas is creeping back up for sure.
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