Wrap – Week Ended 11/14/14

The 3Q14 E&P reporting season ended pretty much as it came, with stocks moving largely in the sideways trade, ahead of another Iran nuclear talks deadline and OPEC's regular meeting at month's end, while investors grew more leery over oil prices. As we wrote fairly consistently from late last year through August, crude prices over $100 (WTI) were unwarranted.  As usual, the pendulum has now swung too far in correcting away from those levels. The bigger guns in OPEC are not unconcerned but Saudi, UAE and Kuwait have so far been content to let it swing.   We get asked macro questions on supply quite often these days and less commonly on demand.  We note that nothing really changed for Supply (or other bear fear indicators) from July to present other than:

  • Libya came back (sort of),
  • the dollar rallied,
  • Ali ali-Naimi was quiet,
  • US production continued it's not so slow move higher,
  • the dollar rallied some more,
  • Iran said it wanted OPEC cuts, then it said it didn't playing it cool like the bigger boys at the table, then it said it did, and at last check they seem resigned to thinking no action will happen on November 27th,
  • people misconstrued the meaning of Saudi OSP moves in October and again in November,
  • Goldman made a short call and revised a little history of their calls on TV in the process,
  • several OPEC members called for emergency meetings and as usual they are the smaller guys that cheat when they can and as such their pleas fell on deaf ears of those who count (and are accountable), and 
  • the IEA realized that it's demand growth estimates were overly optimistic and pulled them back into line with where everyone else that matters (OPEC and EIA) already was for 2015.

But the reaction in the crude markets has been like the flipping of a light switch to the off position. In fact, rising US production was a well known issue and production growth has fairly well matched our expected march higher this year (slightly ahead of pace as we said we saw a U.S. 2014 exit of 9 mm bopd and we got that with this week's report (but the average will still be close to our 8.5 mm bopd for the year given the shape growth took and the average will come out low to EIA's STEO) but imports to the U.S. have done their expected part as well, falling enough when combined with higher refinery throughput to absorb those higher domestic volumes to forestall any significant inventory bloat. We responded to the following question this way during the Friday comments session that I think is worth sharing as it addressed the more global "what's really changed" question. 

Question: I am just looking for some additional facts. I go a little crazy when wallstreeters say things like there is an oversupply of crude in the market today. I try to challenge and ask questions like what is the daily demand in the world. When they don't have access to basic facts, I start tuning out. You are always helpful with my learning curve.  


In 2013

  • Global demand was 90.14 million barrels per day in 2013 (that includes NGLs)
  • Non OPEC supply was 54.23 mm bpd
  • OPEC NGLS were 5.65 bpd
  • = total of 59.88 bpd
  • So The Call on OPEC was 30.26 and OPEC made 30.2 mm bopd in the year

Move to 2014:

  • In 1H14, that was a little out of balance, you didn't see it in prices but non OPEC supply was up, in advance of demand jumping up seasonally. 
  • So in 1Q and 2Q14, there was an overbalance of about 1.1 mm bpd. OPEC still produced 29.8 mm bopd but the call on them was the 1.1 mm bopd lower number (or about 28.7 mm bopd)
  • In 3Q14, we're back to balance. OPEC did 30.2 mm bopd and that's what the world needed to stay balanced as in 3Q you get the seasonal  demand rise.
  • In 4Q14, demand will be up another 0.5 mm bopd higher seasonally (part of that is the US coming back up and running high for winter, part is Europe, part is other beaches).

Skip to 2015

  • 1H15 drops back seasonally on demand (pretty much every year)
  • Non-OPEC supply sees another 0.5 mm bopd or so bump up while demand temporarily eases (this may not happen as much if it is cold/winter weathery)
  • And the call on OPEC falls to 28.5 mm bopd in 1H15 and that's the real glut time and OPEC knows this very well and the cuts in production will be there this coming year to keep inventories from over bloating.

OPEC isn't loosing the net gain in US production growth each year. Because of growing global demand they are losing a fraction of it.

So in our view the Saudi silence is well timed from a number of angles. It keeps the US upstream gang from thinking of gunning for another record this coming year (US will grow but now by less than it would have), it gives them time to see what happens with the Iran talks (November 24th current deadline with is just in front of the regular OPEC meeting), and it pushes their Group of 12 friends back to discipline and sharing of any market stabilizing cuts that most members call for but expect Saudi to shoulder.

Natural Gas Storage Summary (normally included with the Friday post but delayed by the Veteran's Day holiday this week)

gas table 110714


gas graphs 110714


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Questions under the wrap will be addressed in Monday's Subscriber Mailbag section.

If you have questions about the site, please email us at zman@zmansenergybrain.com


6 Responses to “Wrap – Week Ended 11/14/14”

  1. 1
    RB Says:

    very good summary of what has happened

  2. 2
    Wayne G Says:

    Saudi Arabia Will Support Stability in Oil Markets: Crown Prince

    Saturday, November 15, 2014 08:02 AM

    by Wael Mahdi

    Nov. 15 (Bloomberg) — Saudi Arabia will continue its balanced policy and positive role to support stability in international petroleum markets, Crown Prince Salman bin Abdulaziz Al Saud says at G-20 Summit in Brisbane, according to state-run Saudi Press Agency.

    Says Saudi Arabia will take into consideration the interests of producing and consuming nations

    Saudi Arabia invested in spare capacity to support stability in global energy markets therefore supporting global economy growth

  3. 3
    RMD Says:

    REN:  BOP, I'll listen to replay for tone as I'm out of date. (Thinking may have to listen to 2 or 3 as mgt may be perpetually optimistic.)  Also will ask about, though I know one other guy who says mgt without a clue.

  4. 4
    Wayne G Says:


    Can't tell if this is the bottom or not, but Japan will hurt tomorrow.

  5. 5
    Baylor Says:

    Thanks for the comments z. Always helpful to keep things in perspective. Next 6 months seem to be settin up for a pretty flat level of returns (and hopefully that doesn't end up being an optimistic view). 


    Hanging tight and continuing to DCA where opportunity presents itself. 

  6. 6
    zman Says:

    HAL strikes to deal to buy BHI

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