A +12 rise in the total (oil+NatGas) Baker-Hughes AHEM “Baker-Hughes-General Electric” (hereinafter referred to as BHGE) weekly drilling rig count report once again reveals serious weakness in the current frenzy of short-selling. This has not dissuaded hedge funds as they continue to hold a record number of short positions in WTI futures.
For the umpteenth week in a row, oil in storage is down. This week’s numbers are scorching to any bearish thesis on a further drop in the futures price of crude. Storage at the Cushing, OK hub is of particular note. But we are talking about an enormous amount of money staked against crude oil at the moment.
A rational mind looks at the following and says “Buy”. But this is crude oil, and rational thought only bears fruit over a period of months, not days or weeks.
Of particular note is gasoline inventories. These numbers, at the beginning of fucking July, are poison. Refineries are pumping out gasoline in record numbers. They cannot keep up with demand.
“Ahhh, but hedge funds are holding record positions!”, you bleat. Yes, but if one looks at the actual performance of hedge fund managers over the past five years (dismal) perhaps it would give you pause. Perhaps.
Something is going to snap here. It will be brutal and it will be swift.
For the second week in a row, active drilling rigs are down in the Permian Basin. And flat in the Eagle Ford. The bulk of added drilling rigs in the entire 50-state region was in fucking Alaska, which increased it’s total rig count to 8 from 4. All horizontal. All meaningless.
Everything is meaningless outside the Great State of Texas, and specifically the Permian when it comes to crude oil in 2017. Everything.
The following comes from BHGE and it is not bearish at all:
Relentlessly bullish analysts at Raymond James are calling out the entire commodity market. From Bloomberg:
The recent collapse in oil prices was triggered by a breakdown in the technical charts but fueled by the ‘negative feedback loop’ of bearish headlines that usually follow price declines,” the analysts wrote in a July 3 note to investors. “Some oil price headlines have been misleading, or outright wrong, and they have distracted investors from what we believe is fundamentally a bullish overall picture.”
Those concerns have been overblown, the Raymond James analysts argued, saying trends pertaining to U.S. inventories, production and gasoline demand have been misinterpreted. They put out a list of “myths” that explain the downturn and set out to debunk them in arguing that crude can rise about 45 percent from current levels.
Raymond James focuses on U.S. inventory data since early March to capture the impact of OPEC’s production curbs given the time it takes to ship oil from the Middle East to U.S. refineries. They find U.S. crude inventories have averaged “massive” declines of roughly 280,000 barrels per day over this span, compared to a mean build of 180,000 barrels per day during this seasonal period over the past decade.
Moreover, factoring in stockpiles of refined products “would actually be more bullish than looking at the crude only trend,” the analysts contend. Extrapolating this to the global level implies that crude “inventories have been falling by about 1.2 million barrels per day over the past four months,” according to Raymond James.
EIA confirmed this week’s API news of massive drawdowns. Crude futures dropped as a result. Draw your own CONclusions. The end game will be a bloodbath.
Yeah, I’m looking at you, Mr. Short-Seller. Hedge funds currently sit on a record number of short WTI Futures. Prices fell yesterday after an unnamed source in Russia claimed that the country would not support any further cuts or extensions to the current OPEC voluntary production cutbacks.
This is not normal. Gasoline stocks should be rising during peak driving season. Yesterday’s holiday-delayed API showed an abysmal -5.7 million barrel drop in gasoline supply. Some blame can be laid at the tropical storm that passed through the Gukf of Mexico, but in truth the effects of the storm were minimal.
We will need confirmation from EIA today as we all know that the API report cannot be trusted. Expectation for crude is -1.6 million barrels. For now, futures are up 1.7% heading into the opening bell.
Another bullish report from EIA, coupled with another drop in the number of active drilling rigs on Friday, can easily push crude oil back towards the magic $50 price point.
In an act of savage bullying, a multinational #FakeNews shithole masquerading as a news source has publically threatened to expose the identity of a Reddit user who created the infamous CNN/WWE cartoon video starring President Trump. (Andrew Kaczynski, who writes the “Kfile” column, is the genius behind this blatant assholery).. Then Kaczynski bragged about it. Then he threatened the entire internet. The Reddit guy is scared to death and rightly so.
The rest of the Internet, however, has exploded with rage. How could the buffoons running this shitpile not know this would happen? It is the ultimate indictment of their life inside an impervious bubble of fuckery and stupidity. Thousands of new wrestling videos are appearing online:
That is well over one-third of the world population, folks.
1st Qtr 2017 China GDP Growth = 6.9%
1st Qtr 2017 India GDP Growth = 6.1%
You do not have to be good with numbers to come up with the conclusion that energy demand cannot be met without substantial capital investment in exploration. There is, however, a rather large elephant in the room and that is the fact that CAPEX has dwindled to almost nothing since the oil market collapsed in 2014-2015. There is simply no money available to companies that have been losing money on every barrel they have produced since the heady days of $100 Oil.
For the second year in a row, proven world reserves of crude oil have fallen. One can rightly assume that lack of exploration would have something to do with that.
This shit is going to hit the fan, people. In fact, the shit-train has already left the station. Here are this week’s numbers for rigs in the places that matter (data courtesy shaleexperts.com):
Shale Experts Rig Count
Contrary to Baker Hughes, the rig count is down in the Permian, Eagle Ford, SCOOP/STACK, and many other basins:
Of course the Headline News is that the Baker Hughes Rig Count that many traders rely on has risen for 21 weeks straight. This mantra is being repeated in just about every article I have read this week.
Yet if you look at yesterday’s Baker Hughes data, you will see that the bulk of the rise last week was in the category of “Other”, essentially meaning areas outside the more efficient production areas of Texas, New Mexico, Oklahoma, Louisiana, Alaska and South Dakota. In other words, current drilling contracts in areas that are most certainly not about to make money actually pumping crude oil.
Why a DUC?
What we are talking about here are DUCs (drilled but uncompleted wells). It is a common misconception that the weekly rig counts are tied to actual production of crude oil.
DUCs are everywhere. Over a year ago, DUCs were said to be at the highest percentage ever recorded. The BAKKEN play is inundated with DUCs. And with the frenzy over the stacked plays in the Permian Basin, with tens of billions being thrown at the area by the Oil Majors like Exxon, Apache and Pioneer, (not to mention private equity investors like Blackstone or blank-check firms such as Silver Run Acquisition Corp), the number of DUCs has continued to soar.
For more info on the current state of, and influence of, DUCs, see this fine article from 2016 in Oil & Gas Investor
“But wait”, you bleat. “Shale production is soaring”. Well yes, yes it has been. It has also begun to level off. Nobody wants to sell oil at $43. Some have no choice but the slow bleed they have been producing for the better part of three years.
The firms financing this fiasco have been covering and extending credit during this downturn. Don’t expect that trend to continue. M&A has been ramping and as hedges come off and the banksters come calling, I expect to see a lot of blood in the streets over the rest of 2017.
Crude Futures have been trading purely on emotion during this current downturn. Investors do not trust OPEC, even though available data shows the cartel’s compliance on the agreement to limit production is currently at 106%.
Below you can view my current “Oil Basket”, which is a table of energy stocks I currently own (subscribers to Exodus have the ability to share our investment ideas). It exploded higher yesterday on a rise in the futures price of thirty-eight cents. Take from that what you will, Thursday’s and Friday’s action signaled the first inklings of bullish enthusiasm in weeks.
My Oil Basket is now comprised of 17 equities ranging from mega-caps like $XOM to pure-plays like $CDEV to blank-check acquisition companies like $SRUNU which have not even completed one transaction yet. From risky bets like $CHK and $WLL to bets on valuation like $APA, $PDCE and $MDR. Many of these names were beaten to shit before the latest downturn, and that is when I did some buying recently. Look at the Short Percentage of Float!…an Epic short squeeze will be the reward for my patience.
As always, betting on the volatile commodity is not a game for the weak. The swings in the value of my Oil Basket over the past two weeks would curl your hair. I have daytraded in and out of some of the stocks listed but many will be held through 2018-2020 time frame.
The “World’s Worst Tweeter” is at it again. In between his detailed examinations and research into Hentai tentacle porn, Kurt wants you to know that he has the ability, the contacts, and the means to crush you like the disgusting vermin that you are.
You have been warned. Do not come crying to the Authorities after you have been eviscerated:
Mister Eichenwald would be well advised to look after his own hide, as it would appear there could be kiddie porn involved. FBI, take note.
But it was the aftermath of the Hentai Incident that was most hilarious as Kurt went on a Tweetstorm that made The Donald look like a rank amateur. With typical results.
Now find my real identity, dipshit. I’ll pay you a thousand clams and a steak dinner at Morton’s complete with a bottle of Pichon Lalande in a suitable vintage. Brush up on your knowledge of VPNs and 256-bit AES encryption. Perhaps you could enlist the FBI to help you. Good luck
With WTI near six month lows, I’m focusing on the mega-caps with substantial core Permian assets.
I still see positives while the Sharks finish their devouring of weak hands. We are now looking at storage drawdowns for nine of the last ten weeks. Cushing hub levels continue to drop. Imports continue to fall. Against all odds, OPEC compliance still hovers at ~100%. Meanwhile we have been in the midst of a short-selling frenzy for the last few weeks.
There is a bottleneck on the horizon, as existing infrastructure will not be able to handle much more product. That CAPEX, tho!
Production costs continue to rise as production continues to ramp.
With that growth, you’re going to see cost inflation,” said Mr. Sandeen, the WoodMac analyst. “It’s inevitable.”
Once again I hedged bets, buying $DWT on Wednesday in a premarket trade. Once again it paid off, though I could have doubled the gain had I held it overnight. I sold, then re-bought $APA and $XOM after they dipped post-EIA.
My bloodied $SN has finally showed me a floor, barring further carnage in /CL futures. Today Sanchez announced the sale of non-core assets in the Eagle Ford to Lonestar for $50 million. Shares of the two companies moved predictably on the news:
Sanchez burned it up today, climbing an astounding 13.5% in regular trading hours after a miniscule rise in drilling rigs noted in the BHI Rig Counts. Almost all the rest of my oil basket saw gains today, some of them robust ($APA up 3,68%, $MUR 4.3%, $XOM 1.33%, $CHK 2.1%, $SN 13.5%). All gains were late-day, indicating to me strong buying interest just waiting for a kick in the ass.
How quickly we forget what matters in the long run: Core Assets. Remember way back in the Dark Days of Sept 2016?
HOUSTON, Sept. 7, 2016 /PRNewswire/ — Apache Corporation (NYSE, Nasdaq: APA) today announced that after more than two years of extensive geologic and geophysical work, methodical acreage accumulation, and strategic testing and delineation drilling, the company can confirm the discovery of a significant new resource play, the “Alpine High.” Apache’s Alpine High acreage lies in the southern portion of the Delaware Basin, primarily in Reeves County, Texas. The company estimates hydrocarbons in place on its acreage position are 75 trillion cubic feet (Tcf) of rich gas (more than 1,300 British Thermal Units) and 3 billion barrels of oil in the Barnett and Woodford formations alone. Apache also sees significant oil potential in the shallower Pennsylvanian, Bone Springs and Wolfcamp formations.
Key highlights of the discovery:
Apache has secured 307,000 contiguous net acres (352,000 gross acres) at an attractive average cost of approximately $1,300 per acre.
Alpine High has 4,000 to 5,000 feet of stacked pay in up to five distinct formations including the Bone Springs, Wolfcamp, Pennsylvanian, Barnett and Woodford.
That is all well and good for Apache, but here is the Ethiopian in the Woodpile:
Apache has drilled 19 wells in the play, with nine currently producing in limited quantities due to infrastructure constraints.
Due to the dearth of capital spending we simply do not currently have the infrastructure in place to move all this frackable petroleum.
Moving to January 2017, we saw the announcement (since finalized) that Exxon Mobil had agreed to purchase prime acreage from the Bass family:
ExxonMobil has agreed to pay Fort Worth’s famed Bass family as much as $6.6 billion for 275,000 acres of oil and gas leases in the Permian Basin.
The deal announced Tuesday more than doubles the Irving-based giant’s Permian Basin reserves to about 6 billion barrels. The Bass lands are estimated to have 3.4 billion barrels. The property is located mostly in New Mexico’s Delaware Basin.
Readers will note that Exxon Mobil spent $5.6 billion on Permian acreage in 2015, before the $6.6 billion deal with the Bass family. $XOM currently sits just north of a 52-week low.
As for Chevron Texaco, they started the game early and are the second- largest holders of prime land in the Permian Basin after Occidental ($OXY). It all just sits there, waiting for it’s moment.
Gasoline stocks are the only current issue in my opinion. So we wait.
Remember the final paragraph of my May 30 post, people:
“I reckon I’ll be holding through 2019-2020. And remember, a spike in crude prices is often just a geopolitical event away. As always, this is not advice, this is an opinion. You lose your shirt betting on volatile crude oil, don’t come crying to me, rube”.
Playing the oil sector has a vibe not unlike your average mine field. I haven’t sold a fucking thing. Here are a few reasons why I’m not crying the blues:
My horizon is long-term. I don’t give a rat-fuck what mouth-foamed short sellers bring to the conversation. People who actually know what they are talking about see a rebalancing of the sector in 2018-2019. I am betting on companies that have clearly stated they don’t anticipate profit until that time. One bad report from the EIA (after eight positives in a row) changes nothing. Wise men trade EIA data on a monthly basis or longer, not weekly. My big bets are on growth plays, not value plays. Do I wish I had bought $CHK at $4.50 instead of $5.50, of course I do. Do I care? Hell, no. With their asset base, it will be much, much higher in a couple of years.
Today’s Disclaimer: Don’t play this game with your IRA. If you don’t have a separate trading account stuffed with cash you can afford to lose, you are reading the wrong blog. This is gambling, Bubba. This is my play money. Buy some Berkshire Hathaway and walk away, son. And re-read my advice above.
…and then there is this:
As Brent crude oil closed on Wednesday at its lowest level since before OPEC and other nations agreed to cut output, someone bet half a million dollars on prices surging to $80 by year-end. (Bloomberg) — As Brent crude oil closed on Wednesday at its lowest level since before OPEC and other nations agreed to cut output, someone bet half a million dollars on prices surging to $80 by year-end. Options to buy 10 million barrels of Brent crude for $80 a barrel in December traded Wednesday, far exceeding the next-largest contracts, according to exchange data compiled by Bloomberg. Placed in two trades, the transactions were especially large given they were to purchase crude at 66 percent above the day’s closing price.
I don’t trade crude options. Or God-forbid, futures contracts (you would have to be out of your mind to trade crude futures).
Speaking of Geopolitics, keep one eye on events in the Middle East. The saber-rattling by the Saudis towards Qatar is most-likely the result of The Donald’s trip to Saudi Arabia to meet with the heads of Sunni Islam in advance of new sanctions against Shia Iran. Saudis have been buying massive amounts of arms for quite some time now. Conflict with two Iran proxies is possible. The implications for crude pricing would be profound. And don’t count on Libya or Nigeria either with crazed terrorists crawling about like ants. Venezuela is dissolving in a puddle of piss.
China is growing. India is growing. They will not be powered by the sun. Continue to stick your head in the sand and deny the obvious.
I hedged my bets by, well, hedging. Buying a healthy slice of $DWT, a 3X Short ETF, substantially lessened my risk and exposure. The Plan was to quickly sell the $DWT for a loss as I watched my oil stocks soar. Oops. However, that cut my losses almost in half.
I don’t have to tell anyone the results as the weaker stocks in my Oil Basket got decimated within 2 minutes of the surprise build. I didn’t even get to witness the carnage as I was on the golf course. That surely saved my score on the back nine. Yet $DWT rose a healthy 15% Wednesday and added almost 3% on Thursday.
Oil stocks are now ridiculously oversold.
I am still holding $DWT and will most likely sell it on Tuesday morning when I anticipate more short-selling from ravenous speculators on the short side. I also bought gold ($AU, $GLD) and added to $TLT. I sold the $AU early in the week for a quick +15%, the $GLD has not been as friendly but I’ll keep it around for a short time. My trading account and my current oil basket shows a few names rebounding strongly this morning even though Crude futures are currently selling at $45.72. My oil basket, currently consisting of 13 stocks plus the $DWT ETF, can be seen inside Exodus.
At this point I look at which equities in the basket are showing buyer interest at these levels and which are showing further downside. Not counting $DWT, my oil basket comprises about 8% of my day-trading account.
The nightmare has been $SN, aka “Dirty Sanchez”, my worst trade in decades. This would be followed by $WLL in the negative column. Neither has shown any life post-mortem. In the case of Sanchez, the Eagle Ford gets no love while the Permian gets showered with rose petals. That makes absolutely no sense, but so it goes. I will sell my Sanchez in two years at a substantial profit. Bank on it. I’m betting that Whiting is the target of M&A.
I like to watch after-hours and pre-market traders to get an idea of who is bottom-feeding what. Signs of life are apparent in $APA, $CHK, $PDCE and my largest holding, $XOM. In fact, $XOM, which I bought on June 1st, is in the green for the week. $CDEV, my second-largest, has a low cost basis as I bought the bulk of it at the ~$10 IPO.
I may pick up some $CVX as well. Both oil giants now have enormous exposure in the Permian Basin and coupled with dividends should bring me good cash flow over the next few years. $CVX has by far the largest footprint in the Permian and $XOM, via acquisitions, is a major presence as well. $XOM was already battered over the last year and is selling at 52-wk lows.
Once again the API report on Tuesday was off by millions of barrels, although their numbers on gasoline and distillates were pretty much in-line with EIA. Despite using the same data as EIA (as per the API website), one simply cannot trade the API data with any certainty at all. I have written about this in the past, and should have known better. So in essence, the 5% drop in /CL on Wednesday was purely on crude storage numbers. That is an overreaction by any measure, but that is driven by the spec futures traders, a volatile crowd of catamites.
Nothing has changed. Crude production numbers were down in the EIA report. I think you missed that. Catching a bottom is never an easy task. Oil is oversold. Patience.