US Land Horizontal Rig Count Report, Week Ending July 23, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JULY 22, 2021 (2021-29)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JULY 21, 2021 (2021-29)

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US Land Horizontal Rig Count Report, Week Ending July 16, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JULY 15, 2021 (2021-28)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JULY 14, 2021 (2021-28)

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US Land Horizontal Rig Count Report, Week Ending July 9, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JULY 8, 2021 (2021-27)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JULY 8, 2021 (2021-27)

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ART BERMAN NEWSLETTER: JULY 2021 (2021-6)

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US Land Horizontal Rig Count Report, Week Ending July 2, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JULY 1, 2021 (2021-26)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JUNE 30, 2020 (2021-26)

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US Land Horizontal Rig Count Report, Week Ending June 25, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JUNE 24, 2021 (2021-25)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JUNE 23, 2020 (2021-25)

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US Land Horizontal Rig Count Report, Week Ending June 18, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JUNE 17, 2021 (2021-24)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JUNE 16, 2020 (2021-24)

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US Land Horizontal Rig Count Report, Week Ending June 11, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JUNE 10, 2021 (2021-23)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JUNE 10, 2020 (2021-23)

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT JUNE 4, 2021 (2021-22)

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US Land Horizontal Rig Count Report, Week Ending June 4, 2021

Total U.S. land rig count…

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ART BERMAN NEWSLETTER: JUNE 2021 (2021-5)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT JUNE 4, 2020 (2021-22)

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US Land Horizontal Rig Count Report, Week Ending May 28, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT MAY 27, 2020 (2021-21)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT MAY 26, 2020 (2021-21)

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US Land Horizontal Rig Count Report, Week Ending May 21, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT MAY 20, 2020 (2021-20)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT MAY 19, 2020 (2021-20)

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US Land Horizontal Rig Count Report, Week Ending May 14, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT MAY 13, 2020 (2021-19)

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT MAY 12, 2020 (2021-19)

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US Land Horizontal Rig Count Report, Week Ending May 7, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT MAY 7, 2020 (2021-18)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT MAY 5, 2021 (2021-18)

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Net Zero, Gross Delusion

World government and business leaders sound committed to meaningful reduction of carbon emissions.

This is delusional.

The world economy is about 79% dependent on fossil energy. Substitution with non-fossil energy cannot happen fast enough to both reduce emissions and sustain present levels of economic activity and growth. Fossil fuels cannot be abandoned because production of non-fossil energy requires substantial carbon use.

For those who think that transport is the main use of internal combustion engines, think again. Of the 165 million internal combustion engines manufactured in 2020, less than half (78 million) were for automotive use. Agriculture, manufacturing, power generation, forestry and construction accounted for the other 53%.

For all of the net-zero emphasis on EVs, the transportation sector accounted for only 16% of global greenhouse gas emissions in 2020 (Figure 1). The industrial sector was the greatest source at 29% followed closely by agricultural at 28% and residential-commercial at 18%.

Figure 1. Transportation accounted for 16% of global greenhouse gas emissions in 2020. Source: World Resources Institute, Our World in Data & Labyrinth Consulting Services, Inc.

Energy is a system. A path to lower global emissions cannot be found by attacking one of two components without considering the state and inter-relationships of those to other parts of the system.

Energy consumption is unquestionably the largest source of greenhouse gas emissions and fossil fuels are the source of 79% of the world’s energy. It is, therefore, reasonable to assume that fossil energy is the biggest emission problem. It is, however, unreasonable to assume that this problem can be solved by substituting different energy types for fossil energy.

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ART BERMAN NEWSLETTER: MAY 2021 (2021-4)

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US Land Horizontal Rig Count Report, Week Ending April 30, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT APRIL 29, 2020 (2021-17)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 28, 2021 (2021-17)

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US Land Horizontal Rig Count Report, Week Ending April 23, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT APRIL 23, 2020 (2021-16)

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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 21, 2021 (2021-16)

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The Great Artificial Oil Price Rally

Happy days are here again! Goldman Sachs is calling for $80 Brent price and Citigroup expects record oil demand in the third quarter of 2021.

The problem with these forecasts is that the oil-price rally that began in April 2020 is mostly artificial.

When price fell from $60 in late February to -$38 two months later, it’s hard to call a return to $60 a rally. It’s really a just a recovery. Without OPEC+ withholding 8 to 10 mmb/d since April 2020, it’s doubtful the price recovery would have gotten much past $40 per barrel.

Record oil demand seems improbable since no one expects air travel to fully recover in 2021 and it accounted for about 8 mmb/d of global oil consumption in 2019.

Goldman Sach’s $80 forecast is plausible but it ignores that OPEC spare production capacity is at record levels. It reached 9.2 mmb/d in June 2020 and the March level of 8.5 mmb/d is about eleven times more than the 1.6 mmb/d the last time Brent price was at $80 in November 2018 (Figure 1).

Figure 1. $80 Brent ignores that OPEC spare capacity is at record high levels and is 11 times higher than when Brent was $81 in late 2018. Source: EIA & Labyrinth Consulting Services, Inc.

Spare capacity is part of supply and the 8.5 mmb/d of crude oil spare capacity in Figure 1 is equivalent to about 10.5 mmb/d of total liquids. World production of 93.5 mmb/d in March would have been almost 104 mmb/d without OPEC+ constraints.

Markets know this so why would they pay $80 per barrel with an 11% surplus in OPEC’s back pocket?

Citigroup’s view is that demand for oil will explode now that Covid vaccines are available. I expect demand to improve but not even the most optimistic forecasts suggest that it will return to pre-pandemic levels any time soon.

Figure 2 shows OPEC’s latest demand forecast and EIA’s supply projection. Oil demand was more than 100 mmb/d in the final two quarters of 2019. It is about 7 mmb/d lower now in the first quarter of 2021 at 93 mmb/d. OPEC expects it may rise to 97.75 mmb/d the third quarter. It’s forecast for 99.45 mmb/d in the fourth quarter represents an upward adjustment of +1.5 mmb/d since last month’s estimate. If true, that’s a big improvement but hardly the record demand levels proclaimed by Citigroup.

Figure 2. OPEC Q3 2021 oil demand expected to be 97.5 mmb/d & 99.5 mmb/d by year end. Demand was more than 100 mmb/d at the time of the Saudi refinery attack and Soleimani assassination in late 2019. Source: OPEC, EIA & Labyrinth Consulting Services, Inc.

The celebratory mood among analysts and journalists further ignores that current oil price is approximately the long-term average price. The CPI (consumer price index)-adjusted price of WTI since 1974 is $63.07 per barrel. The March average price was $62.33. The April 20 closing futures price was $62.44. There is nothing extraordinary about oil prices except that they have recovered from the lowest levels ever a year ago.

Figure 3. March $62.33 WTI price is slightly less than $63.07 47-year average CPI-adjusted price. Price only higher during artificial Iran sanction supply crisis April-October 2018 since 2014 oil-price collapse. Source: US Bureau of Standards, EIA & Labyrinth Consulting Services, Inc.

Oil prices cannot be whatever people think they should or might be. They are constrained by storage levels. OPEC knows this. That’s why it targets inventory because lower inventories will result in higher oil prices.

Higher price is not arbitrary or capricious. It is a cheerless and grudging matter for markets and done only when absolutely necessary.

The beauty of comparative inventory (C.I.) is that if you tell me a price that you think oil may be, I can tell you what has to happen to C.I. in order to get there. I have discussed the details of comparative inventory in a recent post.

Figure 4 shows the relationship between WTI spot price and total U.S. petroleum inventory from 2014 to the present. Two yield curves describe different periods of price formation. The red curve fit 2014 through 2016 data based on the market’s sense of supply urgency. The blue yield curve fits 2017 through present price-volume data. It reflects a lower sense of supply urgency than the 2014-2016 yield curve.

The March price-volume data point is shown in yellow with it’s $62.71 price annotated. If comparative inventory continues to decrease to the 8-year minimum, price will probably not exceed $70 per barrel. The data point by the blue arrow near the text “2018 Iran Sanction Excursion” represents the maximum price of $74.08 in July 2018.

The chart suggests that there is little possibility that WTI can get to $80 per barrel or more at any comparative inventory value unless markets re-value oil to 2014-2016 supply-urgency levels. Although that is possible, it seems unlikely given the amount of spare capacity that OPEC+ has withheld from the market since March 2020.

Figure 4. Two comparative inventory yield curves describe WTI market pricing since 2014. Excursions from the yield curve represent periods of price discovery. Source: EIA & Labyrinth Consulting Services, Inc.

Figure 5 shows the relationship between Brent spot price and OECD total commercial inventories. Unlike Figure 4, I have used EIA inventory forecasts and my own Brent price projections for 2021 beyond March. The March price-volume data point is shown in yellow with it’s $65.41 price annotated.

If comparative inventory continues to decrease, as EIA expects, the August 2021 price will probably not exceed $75 per barrel. That data point is shown in the second yellow dot near the text “Aug 2021”.

Figure 5. Maximum Brent price may reach ~$75 by late summer 2021 based on OECD comparative inventory yield curve. Source: EIA STEO & Labyrinth Consulting Services, Inc.

There are some who dismiss comparative inventory as a “backward-looking” method. I hope that I have shown its value in making reasonably calibrated estimates of future price based on previous and projected inventory data.

Another common objection to comparative inventory is that the yield curves are not a perfect mathematical regression. They are not supposed to be. Markets consist of people and human behavior does not follow regression algorithms. Price excursions—or deviations from the yield curve–are as important as price-volume data that falls on the curves.

Excursions represent periods of price discovery. When traders perceive that something has changed, they will bid prices up or down until no one is willing to take the other side of the trade. Then, price-volume data either reverts to the yield curve or moves to a new one if the discovery process reveals a new sense of supply urgency that warrants higher prices.

That does not, of course, mean that what I have shown is correct. It does suggest plausible scenarios that do not include the kind of unconstrained price forecasts often cited in the industry press.

The main point is that there is nothing extraordinary about current price or inventory trends. Relatively tight physical supply is entirely artificial because of OPEC+ production and export constraints. That said, none of the inventory projections presented discount those constraints at all.

The important yet simple take-away is that markets are not nearly as suggestible as most analysts and investors. Markets use price as a signal to producers to drill more or fewer wells in order to ensure future supply. Markets are not like the impatient person in an elevator who repeatedly presses a button for his desired floor thinking that somehow he will get there sooner. The elevator gets the signal the first time.

Similarly, once a price signal has been sent to producers, markets do not continue pressing the button with higher prices imagining that drillers are able to drill more wells faster as a result. Recently, 152 U.S. oil company executives told the Dallas Federal Reserve Bank that they were profitable at $52 per barrel WTI price. Why should markets pay more when there is already a healthy profit margin in the $60 to $65 range?

Markets are cheap and hate to over-pay. That is the basis of price formation.

 

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US Land Horizontal Rig Count Report, Week Ending April 16, 2021

Total U.S. land rig count…

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COMPARATIVE INVENTORY & NATURAL GAS STORAGE REPORT APRIL 15, 2020 (2021-15)

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