Oil Prices: Supply, Demand and the S&P 500 It is common knowledge that oil is a commodity, with what economists describe as “elastic pricing” set by the markets.  The following supply and demand factors consistently move oil (and natural gas) prices and are the focus of Wall Street analysts and academics, both in the long…

Permian Activity Flattening / Growth is Moderating Given Pipeline Constraints Although the Permian rig count has continued to climb to over 500 drilling rigs running, new well completions in the play have flattened out month over month as in-basin transportation constraints begin to materialize.1   As shown in a recent EIA report graphics below, the…

Oil Price Forecasts Diverge According to a recent Credit Suisse analyst report,1 the investment bank forecasts longer term oil and gas prices at $65.00 per barrel, approximately $9.00 above the Nymex Futures strip pricing and the Bloomberg Consensus forecast.  All three of the forecasts, however, show that the markets expect oil prices to remain in…

Geopolitics and the Strategic Petroleum Reserve On May 8, 2018, The Trump administration declared that the United States was withdrawing from the Joint Comprehensive Plan of Action (the Iran nuclear deal) that lifted economic sanctions upon Iran, most notably restriction on Iran’s oil imported to the US.1  Furthermore, the U.S. threatened to put pressure on…

Diesel and Gasoline Price Spreads Higher This Summer Since January 2017, diesel prices have exceeded regular gasoline prices, but to varying degrees. Demand for gasoline tends to increase in the spring and summer while diesel demand (and the similar hydrocarbon product heating oil) is typically higher in the fall and winter. However, there has been…

Is Gold a Substitute for Crude Oil? Oil and gold are not often considered substitutes, but there is a long-standing financial theory regarding the gold-oil relationship.  On one hand, oil is a major consumable commodity and its market price partly drives US inflation rates (via the cost of diesel and gasoline).  Higher oil and gas…

Even as Oil & Gas Prices Increase, MLP Values Decline When the Federal Energy Regulatory Commission (“FERC”) evaluates tariff rates on regulated pipelines, they target a “just and reasonable” return on equity (“ROE”) to compensate pipeline operators.  To determine these rates, operators calculate their expenses associated with running their pipelines and are allowed to charge…

International Energy Agency’s Report is Bullish on U.S. Oil Production According to the U.S. Energy Information Administration (“EIA”), U.S. crude oil production has grown to 10.4 million BPD (“Barrels per Day”) as of March 2018. 1 This production level surpassed the previous peak of 9.6 million BPD dating back to 1970. 2 The International Energy…

  Backward Days Are Here Again After Q4-2017’s run up in oil prices, the futures market pricing is now in a state of “backwardation.”  Beginning around November 2017, the WTI calendar spread for the next six months moved from “contango” into “backwardation.”  According to Reuters’ data, oil prices have not been shown “backwardation” since November…

  Banks are Increasing Price Decks Given the last month’s increased hydrocarbon prices (approximately +18% for gas and +11% for oil), banks are increasing their price decks for evaluating loans to E&P companies.  In a recent Wells Fargo Securities Equity Research Report1, the table below shows their current oil price decks for both WTI and…

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