A Week with Oil Markets (Updated)

As of October 23rd, a floor may have firmed up beneath oil prices in the low $80 range for WTI. Major oil field services firm Halliburton does not see signs of its customers altering production plans at present. Large independent producer Occidental Petroleum notes in its earnings call for the third quarter that they are not making any deviations from earlier plans in the Permian Basin. (See a more in-depth article about oil market fundamentals and market players, "Global Oil Markets: There and Back Again.") From last week, when the bottom was nowhere in sight, the oil market appears to be finding its equilibrium, rising up from the lower $80s for both WTI and Brent crude prices. This series of articles provides numerous charts of fundamentals, including what margins a few key Permian Basin players rely on to produce profitably:

• "Global Oil Markets Finding a New Groove?" Oct. 16th here.
• "Fundamentals of Pioneer, the Permian Basin, and Oil Prices," Oct.15th here.
• "Oil Market Karma Reversed?" Oct. 9th here. And an update to that article: "The OPEC Oil Market Gambit," Oct 14th here.

The expert insights in the "Global Oil Markets..." article are derived from the commenter very recently visiting Saudi Arabia.

Oil Market Snapshots

Today, the Seeking Alpha article, "Oil Market Karma Reversed?" offers a look at the fundamentals driving, or that should be driving, the oil market. Of course, volatility is an aspect of the oil market across decades. The reversal part of the title relates to an earlier article from December, 2013 that relayed the effects being noticed from U.S. shale oil production, namely that U.S. production was moderating some of the price volatility given global supply outages that would normally have driven prices up. An October 2013 article discusses fundamentals and the Permian Basin, and chronicles how shale basins were producing. Given the fundamentals, markets have been potentially over-reacting in their heavy blows to oil and gas producers and midstream firms.

Reading the Texas Tea Leaves

Given the breakneck-pace of shale oil production in the Bakken, Eagle Ford and Permian Basin, many stocks of the larger exploration and production firms drilling in these basins have been hammered as West Texas Intermediate (WTI) has tumbled.

Pioneer Natural Resources, a leader and top producer in the Permian and Eagle Ford, has seen its stock rise to $234.00 and fall back to $184.00, from virtually the same position as last year. $13.3 billion market cap Concho Resources (NYSE:CXO) followed the same trend as Pioneer. The smaller, newer additions such as RSP Permian (RSPP) recognized smaller price losses but it began from a lower price realization as a new IPO in January of 2014. When interviewing the CEO of RSP Permian in July, the sentiment about the Permian Basin's sustainability was positive.

According to Gray, he expects the Permian to continue producing when other basins slow down. Given its 'massive reserves, right geology, and history of oil and gas infrastructure,' these attributes combine for ease of operations and competitive advantages. The midstream segment of the oil and gas industry, charged with transporting, processing and storing resources, has been tracking the developments in production with some time lags. A recently published interview with CEO Kelcy Warren of Energy Transfer, a publicly-traded family of MLPs, or master limited partnerships, reveals one firm's continued growth and transformation as the industry continues to increase production. The midstream sector has made considerable investments in infrastructure to move the U.S. supplies around the country, and for export. (My report details some of the growth areas emerging from the midstream sector.)

Concerns about the oil supply growth with the potential for glut have been on the radar of numerous analysts for over one year. The prices of Brent crude and West Texas Intermediate (WTI) have fallen in tandem in the last few months. "WTI fell below $90 a barrel today for the first time in 17 months, extending this year’s decline to 9.9 percent," notes Bloomberg, and "Brent crude, fell 20 percent from its June peak to trade at $92.24 a barrel today on London’s ICE Futures Europe exchange." Weaker global demand and ample supply is a main culprit of the Brent crude decline; conversely the WTI declines are partially based on supply factors resulting from U.S. oil supply growth, along with the influences of Brent factors.

Arctic Exploration by Russia's Rosneft

With geopolitical tensions strife across the globe, news of Rosneft's Kara Sea well result makes for an interesting diversion. The firm announced the "northernmost well" in history. The area in question is said to contain more oil and gas than the Gulf of Mexico. Apparently, more drilling results will be needed over time to confirm or adjust the resource projections. See a Seeking Alpha article of mine for more detail and indications of Russia's Arctic passageway infrastructure build out. The Moscow Times says:

"The first oil was extracted. It is an astonishing sample of light oil, which based on the results of the analysis performed, is comparable to Siberian Light oil," [CEO] Sechin said in a statement on Rosneft's website. He said Rosneft would like to call the discovered field "Pobeda," Russian for victory...But it was not yet clear whether commercially viable quantities of oil could be recovered from the well. Rosneft said data from the well will be analyzed and only then could a conclusion be reached on the reserves there.

New report on midstream movements

As previously mentioned, the report titled, "U.S. Oil and Gas Going Places: Parsing a Midstream Perspective," is available. After detailing shale oil developments, trends and players in production for over a year, this inaugural report kicks off hopefully a first of many. Many of the articles that chronicle these developments are housed on Seeking Alpha. However, over the last five months, I have spent time delving into how the trends in shale oil and gas production are trickling down to the midstream area. In June, I was very fortunate to interview Energy Transfer CEO Kelcy Warren. The interview from D CEO's October special oil and gas issue inspired the report; the report is the backstory to some of the interesting investment choices and directions of Energy Transfer but also indications and analysis of the larger trends occurring in the industry. Link to the report page.

Inaugural post and what's ahead

This site will be a clearinghouse for a combination of blog posts of commentary and research and analysis reports and briefs. Most importantly, I will write about and analyze those aspects of energy  and resources that attract my attention, perhaps require further explanation, or need another perspective.

The first "report" in the planning stage is background analysis and research and the insights gleaned from an upcoming article about Energy Transfer. It will be the work I did behind the scenes to understand the shifts occurring in the oil and gas industry, and what it may mean in the future. I will direct readers to the article once it is 'live.' My intended roll out of the analysis brief, for lack of a better term, is about three weeks from now.

Please bear with me as I expand the site. I hope the experience of the site and the help I offer in providing context for trends, decisions and changes in the global resource narrative proves useful and informative.