Archive for Energy

Oil Intends To Skyrocket

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex

The Oil market is extremely volatile and fluctuates significantly early in another September week. Brent is currently trading at 66.30 USD and may continue soaring.

It’s all about attacks of drones on Saudi Arabia facilities, which took place last weekend. There were two attacks on the Saudi Aramco oil facilities in Khurais and Abqaiq, one of which is the largest refinery in the world. This refining capacity covers about half of all oil production in Saudi Arabia, which is about 6 billion barrels per day. If damages are serious, and such is indeed the case, as they say, refineries won’t be restored very quickly. This, in its turn, means that Saudi Arabia’s supplies to the global oil market will significantly reduce and this quantity deficiency is what pushes the oil prices upwards.

The USA has already announced that the country is ready to fill the void with its own supplies, but the aspects of this are quite subtle.

Houthi rebels have already taken credit for the incident, but there are other versions as well, for example, Iran.

In the H4 chart, Brent is moving inside the third rising wave with the target at 69.30; right now, it is correcting towards 64.50. Later, the market may grow to reach 69.30 and then return to 64.50. After that, the instrument may resume trading upwards with the target at 70.60. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal is moving directly upwards.

As we can see in the H1 chart, Brent has completed another ascending structure and reached the target at 68.30; right now, it is correcting downwards to reach 64.50. After that, the instrument may start another growth towards 69.30. From the technical point of view, this scenario is confirmed by Stochastic Oscillator: its signal line has broken 50 to the downside, thus confirming a further correction.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

 

 

Is oil heading back towards $100 a barrel?

By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime

  • Oil prices surge 20% on Monday open
  • Drone attack wipes off 5.7 million barrels of Saudi oil production
  • US administration blames Iran for the attack

This week was supposed to be centered on monetary policy decisions from the US, UK, Japan and Switzerland central banks, Brexit negotiations and developments in US-China trade talks. However, the weekend’s drone attacks on Saudi Arabia’s critical crude processing plant have now taken the spotlight. Such an event may have far more catastrophic consequences on the world economy than any other event which has occurred over the past couple of years.

Oil prices soared 20% as markets reopened to trade near $72 a barrel but gave up half its gains five hours later.  The price shock seen today is the largest in almost three decades since Saddam Hussein invaded Kuwait back in the 1990s. Such a reaction in price suggests that we are currently facing an unprecedented threat to oil supplies that could reverberate through the global economy.

What we know so far is that the attack has caused a disruption of 5.7 million barrels a day, which is almost 5% of global oil supply. This makes it the biggest supply shortage shock in history. Now everyone seems to have the same question; when can Aramco return to normal production? Unfortunately, we don’t yet have a decisive answer.

The market has suddenly shifted from being oversupplied to undersupplied, and even if we combine all the spare global capacity available, that won’t make up half the current disruption. However, Saudi Arabia has a significant volume of oil in storage that will keep exports flowing and the US has stated it may even tap into its Strategic Petroleum Reserve if needed. This would soften the damage to some extent, but again it’s all about when production returns back to normal. The longer the disruption goes on, the more damage will be felt.

Three days ago, oil prices hitting $100 a barrel was almost an impossible scenario. Not anymore. That’s not just because of the current disruption from Saudi Arabia, but the fact that the chances of military conflict in the region have risen dramatically. US Secretary of State Mike Pompeo blamed Iran for the drone attacks, and Republican Senator Lindsey Graham said the United States should consider an attack on Iran’s oil refineries. Meanwhile President Trump warned that the US is ‘locked and loaded’. If such statements continue to come out of the US administration, geopolitical risk premium would increase significantly as any strike against Iran may put the whole Gulf region in jeopardy.

If investors begin pricing in the possibility of an attack against Iran’s crude infrastructure, oil may quickly hit the $100 benchmark. Nevertheless, if President Trump reverses course and allows Iran to export its oil, tensions will de-escalate, although currently this doesn’t seem to be the base case scenario. The next couple of days and weeks will be of incredible importance to the global economy and markets, so keep a close eye on further developments.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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Time to expect a jump to $60 in WTI Oil?

By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM, ForexTime

The breaking development that transpired throughout the weekend, where attacks on Aramco Oil plants in Saudi Arabia could take away up to 5.7 million barrels per day from the Kingdom’s production has led to a flurry of views that the Oil price could spike as high as $100 over the coming weeks.

This view is encouraged by concerns that the attacks on Oil plants might provoke an intense escalation in a region that is already sensitive to geopolitics, but it is still not clear what caused these fires and how this happened, before deciding into a portfolio what impact this could have on valuations.

US WTI concluded the week just below $55 and to expect a move to $100 from here is ambitious, though confirmation that it will take weeks, and not days to replace this removal of Saudi production can encourage a move to $60.

Looking at the technicals on the Daily charts, Oil prices have suffered more than 3 days of successive declines and found short-term support at $54. As long as prices do not fall below $54 we can look for a rebound from recent declines.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

WTI Crude Oil Speculators sharply lifted their bullish bets to 15-week high

September 14th – By CountingPips.comReceive our weekly COT Reports by Email

WTI Crude Oil Non-Commercial Speculator Positions:

Large energy speculators boosted their bullish net positions in the WTI Crude Oil futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.

The non-commercial futures contracts of WTI Crude Oil futures, traded by large speculators and hedge funds, totaled a net position of 428,205 contracts in the data reported through Tuesday September 10th. This was a weekly lift of 44,048 net contracts from the previous week which had a total of 384,157 net contracts.

The week’s net position was the result of the gross bullish position (longs) going up by 18,639 contracts (to a weekly total of 527,579 contracts) while the gross bearish position (shorts) dropped by -25,409 contracts for the week (to a total of 99,374 contracts).

WTI crude speculators added to their bullish bets by the largest one-week amount in the past twenty-five weeks and pushed their positions to the highest level in fifteen weeks. The crude speculative position had been consistently creeping lower throughout the summer as the overall net position had been under the +400,000 contract level in eleven out of the thirteen weeks preceding this week’s gain.

WTI Crude Oil Commercial Positions:

The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -424,188 contracts on the week. This was a weekly shortfall of -42,069 contracts from the total net of -382,119 contracts reported the previous week.

WTI Crude Oil Futures:

Over the same weekly reporting time-frame, from Tuesday to Tuesday, the WTI Crude Oil Futures (Front Month) closed at approximately $57.40 which was an advance of $3.46 from the previous close of $53.94, according to unofficial market data.

*COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) as well as the commercial traders (hedgers & traders for business purposes) were positioned in the futures markets.

The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators).

Find CFTC criteria here: (http://www.cftc.gov/MarketReports/CommitmentsofTraders/ExplanatoryNotes/index.htm).

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An ‘Electrical Storm’ of Catalysts Converge to Jump Start Sales of Eguana’s Solar-Power Storage Solutions

The Energy Report

Source: Knox Henderson for Streetwise Reports   09/10/2019

The small-cap energy storage firm just signed a global production agreement with industry heavyweight Jabil.

The Punch:

Eguana Technologies Inc. (EGT:TSX.V; EGTYF:OTCQB), which provides solutions for residential and commercial energy storage is about to supremely capitalize on a wave of industry catalysts and government-led solar powered storage initiatives. These advancements affecting demand, distribution and production culminate into a “perfect electrical storm,” which should boost revenues from about $1 million per quarter to six times that amount and beyond in the next 12 months. The product is there, the installs are waiting, the last piece of the puzzle, which was to exponentially ramp up production, was ushered in through a recently announced big-fish partnership backed with the essential, scalable financing. Since that announcement we see a clear buying signal as the stock has a solid base at $0.10. EGT.V appears to now have the momentum to climb back to a previous plateau of $0.17, then beyond as this translates into real sales.

That big fish is a global production agreement, announced September 3, with industrial giant Jabil Inc. (JBL:NYSE), a $4.5 billion market-cap company with more than $22 billion in global revenue. The sweetener on the entire arrangement is that Eguana is now backstopped, with working capital support by Export Development Canada (EDC) to guarantee its loans and lines of credit with Eguana’s banking partners, so production and financing is instant and scalable from one to 100,000 units.

“Given the success the company has had building out our distribution and dealer network, we needed a manufacturing partner with the ability to produce around the world, with an engineering and design core competency, and a global supply chain and logistics network,” said Justin Holland, Eguana’s CEO. “Jabil has over 100 manufacturing sites and more than 200,000 employees, providing Eguana the scalability and reliability required to service our customer base and growing demand.

“Having EDC’s support for working capital is a significant step forward for Eguana,” said Holland. “As orders continue to scale, working capital becomes critical to recognizing revenue, and this agreement immediately lowers our cost of capital and allows us to get Jabil started immediately.”

After developing the brains behind the batteries in an ever-changing market, it looks like the market is about to clash head-on into Eguana’s photovoltaic (PV)—that’s “solar power” to you and me—two-way energy storage system. The “two-way” is important as it relates to the grid, but more on that later.

The Purpose:

Eguana’s vision is “to become a global leader in residential and small commercial grid tied energy storage systems.” Strategically, the company remains focused on product standardization, with pre-integrated, factory assembled, software driven energy storage systems with flexible capacity to the market. Put simply, all of this had led to Eguana developing smart battery storage systems that enable households or small commercial businesses with legacy or newly installed solar panel electrical units to store excess power in lithium batteries. This enables the owner to store power off the grid and—even better—to sell excess power back to the grid, through what is known as “feed-in tariffs.” Over the past few decades, in the push toward clean renewable energy, utility providers and governments would offer installation incentives and feed-in tariffs, an incentive for residential or small commercial solar power, to be sold back to the grid. It created an arbitrage system that rewarded solar-power customers, a motivation beyond the environmentally friendly aspect of renewable energy. However, over the recent years those incentives have decreased and now the game is to provide incentives for power storage rather than the power itself.

Two key global markets leading the PV storage trend and adapting Eguana power control solutions are Germany and Australia. “You skip forward to what’s happened in the last four years in South Australia, for example; well, those feed-in tariffs, those subsidies, continue to reduce,” said Holland. “And that was by design, because everyone’s now using this stuff. Before, residents in Australia were getting 65 cents per kilowatt to deliver power onto the grid. Then in 2017 the utilities and government recognized they don’t need to do this anymore, so they dropped the feed-in tariffs down to 10 cents. And now there’s a new arbitrage opportunity for the homeowner who’s thinking, ‘Why would sell my solar power for 10 cents, come home, and buy off the grid at 40 cents? I’m going to stick a battery in the middle of this whole thing and save money, be less reliant on the grid, and reduce my carbon footprint with renewable energy.’ When it comes down to it, the real incentive starts with ‘I’m going to save money. I’m going to have a more reliable energy source.'”

To maintain flexibility, Eguana has focused on the software layer of the entire energy storage architecture. Ownership of the power control systems (PCS) provides control over the energy storage design, reliability and key performance characteristics of the system. The company has a development partnership and is fully integrated with LG Chem, a global-leading battery supplier and is fully tested and endorsed by Mercedes Benz Energy. Eguana, because of this focus on the software layer of the PCS, has the flexibility to be the “agnostic” player in the space with the flexibility to adapt new and legacy battery and PV systems. It’s a significant competitive advantage for them to not be relying on specific providers to adapt to Eguana’s battery controls.

“What Eguana focused on in the past and excels at today is power control,” says CEO Justin Holland. “So that’s the brains of the battery system, it determines how to move the energy in and out of it, and onto the grid, while providing protection for the battery modules. It’s a testament to Eguana to have a partnership with a world leader like LG. It’s this protective layer for the battery modules that has given Eguana a complete flow through to the LG battery warranty.’

According to industry researcher GTM Research, the annual residential energy storage market size is expected to grow at a CAGR of 44% to beyond $3 billion by 2023, so even a slice of that pie can be significant for a company such as Eguana that now has an opportunity to significantly ramp up sales in key markets such as Germany, Australia and beyond.

The Partnerships

In Europe, Eguana has partnered exclusively with Hanwha Q CELLS to deliver its residential Enduro product as part of Q CELLS industry leading Q.HOME+ package. Hanwha Q CELLS is one of the world’s largest and most recognized photovoltaic manufacturers for its high-performance, high-quality solar cells and modules. It is also the current European market leader for residential rooftop PV installations, with more than 17,000 residential systems installed in 2018 alone.

The Q CELL network includes over 1,000 trained sales and installation partners throughout Europe. The Eguana Enduro will provide the Q.HOME+ package with residential energy storage capability, allowing homeowners to utilize their self-generated energy at night. Approximately one out of every two residential solar installations have an accompanying integrated battery.

According to Bloomberg, the German market remains the largest market and has topped €5 billion and continues to grow at a 10% rate per year. The agreement with Hanwha Q CELLS has the size and scale required to enter the largest and most competitive market for Eguana.

According to a Mackie Research report published back in March this year, “We believe the Q CELLS agreement could provide about $3 million in revenue in the first year alone. Cumulatively about 3,500 units over three years could provide $20 million potential.”

In Australia, Eguana established its Adelaide sales, training and manufacturing facility, and increased its local staff to support dealer partners locally and across the country. The South Australian market is expected to be one of the fastest growing markets in the world for residential storage based on the government-run Home Battery Scheme, which provides grant and loan subsidies for energy storage. Installations have been steadily increasing since the first volume delivery was completed at the end of the quarter. Eguana has also qualified for the Simply Energy virtual power plant (VPP) program, Simply Extra. With 10 installation partners in South Australia and two national distribution partners through the onboarding process, the company expects to see further growth in orders and revenues from this key region

The Home Battery Scheme offers $100 million in state government subsidies for up to 40,000 households to install battery storage in their homes with individual grants of up to A$6,000 to help purchase batteries. In addition, the Clean Energy Finance Corporation will offer A$100 million in loans to help purchase rooftop solar. The 40,000 batteries will create a state-wide Virtual Power Plant, a new phenomenon that Eguana has addressed with battery-agnostic capabilities right out of the box.

South Australia has 230,000 rooftop solar deployments; over the next few years the state may be producing more rooftop solar supply than demand, which creates grid challenges.

In May this year Eguana introduced Sharpe Energy Rating Systems (ERS) as its newest partner delivering the Eguana Evolve energy storage system to support Simply Energy’s Simply Extra Virtual Power Plant in South Australia. This is the first VPP to be launched in support of South Australia’s Home Battery Scheme storage incentive program, which aims to install 40,000 systems over the next two years. As a result, Sharpe ERS has placed an opening order valued over $2.3 million and expects to see immediate order uptake in the region.

Speaking to the Home Battery Scheme effect, Mackie Research noted in late 2018, “We suspect this announcement could be very positive for EGT’s F2019 order intake. Medium term, a 10% penetration in South Australia implies at roughly $12 million revenue opportunity for EGT versus 9-month (Sept) revenue of about $4 million.

Meanwhile, Eguana’s other partnerships contributing to revenue include more than 20 solar dealer partnerships in the U.S. and Caribbean islands; a partnership with Puerto Rico’s top two solar installers, Maximo Solar and New Energy Puerto Rico; and the leading Hawaiian solar installer, Hawaii Energy Connection, all supported with more than 300 trained and Eguana certified contractors.

The Production Ramp Up

The bottleneck to this point is not product or market demand, but production and the related financing. But that has now been blown wide open with a new agreement with Jabil Inc. (NYSE:JBL). Jabil is a worldwide manufacturing services company headquartered in St. Petersburg, Florida. With 100 plants in 28 countries, and 170,000 employees worldwide, Jabil is a massive manufacturing conglomerate, one of the biggest behind Flextronics. The company has a market capitalization of about $4.5 billion and more than $22 billion in trailing 12-month revenues.

“Jabil has the size and scale to get better pricing on everything,” said Holland. “Battery modules, all the components, virtually the entire supply chain, and they’re underway right now in engineering, building in cost savings, streamlining components. We also now have working capital support from EDC, another step forward for the company, that will be backstopping a letter of credit from Comerica.” Export Development Canada (EDC) is Canada’s export credit agency, offering trade financing, export credit insurance, bond services and foreign market expertise. “Normally to get a letter of credit you have to deposit cash. In this case, EDC is effectively collateralizing purchase orders. You got purchase orders for 2 million dollars? EDC guarantees the bank financing. ‘Here’s a load of credit,’ Jabil gets going.

“So that is huge. That now allows you to scale because Jabil will buy from LG and all the other component suppliers, manufacture it, ship it, you collect the money from the customer, then you pay Jabil. Then you do it all over again.”

The Proposition:

Consider how a top line revenue boost of X6 should affect a company with about 235 million shares out at current price of CA$0.115 for a market cap of ~CA$26 million. Eguana completed a CA$4 million preferred share financing and loan settlement with the company’s largest shareholder, Doughty Hanson (26%), in January to help finance imminent working capital needs, as well as two convertible debenture tranches in June and August totaling $4.2 million, of which Doughty Hanson took an additional CA$1.2 million. The company has nominal warrant overhang of 21 million warrants, and insider ownership of about 30%.

Due to delays of Jabil/EDC agreements, Eguana’s revenues for the period ending June 30, 2019, were low at CA$774,670 in fiscal Q3 and CA$2.6 million in the nine-month year-to-date period, compared to CA$3.8 million in the same period in 2018, for a current 12-month trailing revenues of around CA$4 million, so trading at a multiple of 5.5 times. With anticipated revenues to ramp up to CA$6 million per quarter based on the aforementioned agreements and a gross profit margin around 20%, it’s not entirely unreasonable for investors to weather this storm well north of the current CA$0.115 support level.

Knox Henderson is a journalist and capital markets communications consultant. He has advised for a broad range of small cap companies in the resource, life sciences and technology sectors for more than 25 years.

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Disclosure:
1) Knox Henderson: I, or members of my immediate household or family, do not own shares of the following companies mentioned in this article: Eguana Technologies. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: Eguana Technologies. My company has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Eguana Technologies. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Eguana Technologies. Please click here for more information.
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5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Eguana Technologies, a company mentioned in this article.

( Companies Mentioned: EGT:TSX.V; EGTYF:OTCQB,
)

OPEC Cuts Demand Forecasts

By Orbex

Crude has been knocked lower this week as worsening global conditions and a series of forecast downgrades have trumped the latest moves in inventories data.

On Tuesday, the American Petroleum Institute reported a 7.23 million barrel decline in US crude stores. This initially boosted oil. The Energy Information Administration report then confirmed this move on Wednesday.

The EIA reported that in the week ending September 6th, US crude stores fell by a substantial 6.9 million barrels. This is more than double the forecasts for a 2.7 million barrel decline.

The data also showed gasoline inventories falling by a further 700k barrels per day. This extended declines from the 2.4 million barrel drop over the prior week.

The report was now all bullish, however, as distillate fuel inventories, which include heating and diesel, came in higher by 2.7 million barrels over the week. They thus extended the gains of 2.5 million barrels over the prior week.

EIA Ups Its US Crude Production Forecasts

The EIA also released its latest Short Term Energy Outlook.

In it, it forecast a further rise in US crude production over both this year and next. The EIA projects that US crude production will rise by a further 1.25 million barrels per day over 2019 to end the year at 12.24 million barrels per day.

The latest forecast also projects a 990k barrel rise over 2020 to take crude production in the US up to 13.23 million barrels per day.

OPEC Meeting Underway

This data will be particularly frustrating for OPEC. The oil cartel is currently meeting for the first time since June.

The relentless rise in US crude production over the year has diluted the upside price impact of OPEC’s production cuts. OPEC has been cutting oil production across its member states, and across a group of allied non-OPEC producers led by Russia, since the start of the year.

Indeed, given the fresh outbreak of trade tariffs between the US and China, as well as generally slower global economic conditions, the group announced in June that it would be extending cuts until Q1 2020. The aim of this was to counter soft demand.

OPEC Cuts Global Oil Demand Forecasts

In its latest global outlook released this week, OPEC has revised global oil demand lower once again.

They now expect demand to fall by 60k barrels per day to just 1.08 million barrels per day as of 2020. The cartel cites ongoing trade wars and worse global economic conditions as the reason for softer demand. The question now is whether OPEC will take further measures to counter this soft demand environment.

The energy minister from Iraq has said that OPEC originally discussed cuts of up to 1.6 – 1.8 million barrels per day when production cut discussions first began last year.

He claimed that the group would, of course, be discussing further options at this point. However, the Russian energy minister said that there were no fresh proposals on the table at this point (ahead of the meeting).

For now, the market is waiting to hear the outcome of this meeting, which could pave the way for deeper cuts.

Technical Perspective

WTI crude oil

The upside move in oil this week saw price briefly piercing above the bearish trend line from year to date highs. However, the 58.38 level resistance capped the move and price is now back below the trend line. For now, the market remains rangebound between resistance at the 58.38 level and support along the 51.29 base. Any topside break will see a test of the 60.50 level next while any move to the downside (breaking 51.27) could pave the way for much lower levels in oil over the medium term.

By Orbex

Weakening Shale Productivity “VERY Bullish” For Oil Prices

By OilPrice.com

After years of improvements in drilling techniques and impressive “efficiency gains,” there is now evidence that the U.S. shale industry is reaching the end of the road on well productivity.

A report earlier this month from Raymond James & Associates finds that the U.S. shale industry may struggling to achieve further productivity gains. If these improvements begin to fizzle out, it could result in “an inflection point in future global oil supply/demand balances,” the investment bank said.

Well productivity is “tracking WAY below our model,” analysts Marshall Adkins and John Freeman wrote in the report. They note that U.S. oil production is up less than 100,000 bpd over the first seven months of 2019, compared to the 600,000-bpd increase over the same period in 2018.

The analysts note that over the past eight years, Raymond James has been one of the most aggressive forecasters for U.S. shale growth, and even then, actual output tended to exceed their forecasts. But this year U.S. shale growth is significantly below their prediction.

The reason is that productivity improvements have suddenly come to an end. Since 2010, initial production rates for the first 30 days of production (IP-30) improved by 30 percent annually on average, according to Raymond James. That was largely the result of the “bigger hammer” approach, the bank said. In other words, drillers threw more of everything at the problem – more money, longer laterals, more sand, and more frac stages. Earlier this decade, IP-30 rates were growing by roughly 40 percent per year. But that slowed to 11 percent in 2017 and 15 percent last year.

However, in the first seven months of 2019, IP-30 rates are up only 2 percent, compared to the 10 percent prediction from Raymond James. Part of the reason is that there is simply a limit to “more, longer and bigger,” the analysts said. “We believe that this represents clear evidence that U.S. well productivity gains are beginning to reach maximum limits and may even roll over in the coming years as the industry struggles to offset well interference issues and rock quality deterioration.” Even 2018 figures may have been a “one-off” increase as the oil majors – Chevron and ExxonMobil – escalated activity.

But perhaps the first 30 days is too short of a timeframe to analyze well productivity. So, the investment bank looked at 90 days of production (IP-90). On that metric, the industry is faring even worse, showing an outright decline of 2 percent in the first half of the year compared to the first six months of 2018.

“Recent Permian IP-90 well productivity trends are especially dire,” the analysts wrote. “While U.S. IP-90s declined 2%, Permian IP-90s declined 10% relative to 2018.” Because the Permian is the largest source of shale production and the most important source of growth, whatever happens there will determinate the trajectory for U.S. production figures on the whole.

Raymond James said that a slight uptick in productivity on an IP-30 basis but a decline on an IP-90 basis suggests that well interference is taking a toll. In other words, shale well performance is suffering as time goes on because wells have been spaced too close together. “Put another way, the average decline curve is becoming steeper than we thought because the wells are starting to cannibalize each other,” the analysts wrote.

Problems with “parent-child” well interference have become more of a concern over the past year or so, which refers to the first well drilled within a given block (the parent well), and subsequent wells drilled (the child wells). As Raymond James notes, not only do they cannibalize each other, but the longer the parent is online, the more the block sees a drop in pressure.

But here’s the thing – a lot of companies have drilled parent wells on various tracts, incentivized to do so because their leases can expire if they don’t demonstrate activity. They held off on the child wells, focusing on drilling parents. Then, at a later point, they go back and drill child wells to squeeze more oil from their acreage. The problem is that so much of the output growth over the last few years came from parent wells. Going forward, the growth will need to increasingly come from the less productive child wells.

But as Raymond James notes, the longer they wait, the less productive the child wells become, because the area loses more and more pressure over time.

In specific terms, the average child well is 30 percent less productive than the parent. But a child well drilled six months after the parent may only see a 10 percent degradation in productivity, while a two-year delay might result in more substantial 40 percent reduction in productivity.

On the other hand, the “cube development” approach, which entails intense development all at the same time, also has problems. Cube development consists of multiple wells, often rising to more than a dozen, are drilled pretty much simultaneously to avoid well interference and pressure decline. Also, in theory, costs are lower because it takes less time, while shared infrastructure reduces costs as well.

But well interference still occurs, and a growing number of companies have reported disappointing results, suggesting that there are limits to density. In a high-profile admission just a few weeks ago, Concho Resources said its 23-well “Dominator” project proved disappointing. The company said it would space out its projects more. Raymond James says there is some middle ground on well-density that companies still need to figure out, but because the industry has boasted about ever-increasing well-density, the pullback is translating into stagnating productivity.

Ultimately, the investment bank says that because of weaker-than-expected productivity, U.S. oil production may only grow by around 350,000 bpd in 2020, versus the market consensus of around 1.5 million barrels per day. In a scenario in which productivity actually falls to zero, production would remain flat for the next few years.

Because “the single most important driver of the oil market over the next decade will be trends in U.S. well productivities,” Raymond James analysts wrote, this is “VERY bullish for oil prices next year.”

“Given that the oil market seems to be pricing in virtually unlimited U.S. oil supply growth at $50/bbl over the next five years, the implications…are very, very important to upside oil price surprises over the coming years.”

Link to article: https://oilprice.com/Energy/Crude-Oil/Weakening-Shale-Productivity-VERY-Bullish-For-Oil-Prices.html

By Nick Cunningham of Oilprice.com

 

US Oil Affected By Bolton Departure

By Orbex

The US President has bid goodbye to another national security adviser. 

This comes after an array of internal disputes over Russia, Iran, North Korea, and several other foreign policy issues.

President Trump took to Twitter, announcing:

John Bolton, on the other hand, claims he offered his resignation to Trump on Monday night first. The former adviser tweeted:

Bolton Was Splitting White House

The 70-year old now-former national security adviser to the White House was hawkish on many issues.

That being said, he did seem to manage to keep a tight rein on Pyongyang’s plutonium production during his tenure under President Bush.

In the Trump era, however, there was a breakdown of attempts to schedule peace talks with Afghanistan last weekend. This came as a result of internal foreign policy disagreements, indicating the President’s hard-line stance against his advisers.

After Monday, when North Korea’s Kim Jong provoked the US once again by testing two more missiles, the Trump-Bolton era came to an end.

Bolton and Trump disagreed on many US foreign policy measures. These included how to deal with provocations from North Korea and Iran. And, most recently, they disagreed on negotiations for a peace accord with the Taliban. Sources say that Bolton, who was notoriously pro-war, was even excluded from meetings related to Afghanistan.

Bolton seems to have played an important role in the worsening of tensions between the US and, North Korea, Venezuela, Iran, and Russia. The two men argued for a long time, with Trump expressing his dissatisfaction over Bolton’s hawkish stance and policy splitting for months.

This is now the third national security adviser Trump has fired. The position is vacant, for now. But, Charles Kupperman, Bolton’s deputy, will serve for a week or so until the President picks his new “ally”.

How Will A Dovish Replacement Help Trump?

The internal division is widening. And Trump is somewhat forcing a more dovish stance when it comes to foreign policy.

Therefore, the markets will start looking at the run-up to the 2020 election with a different lens.

North Korea’s first vice foreign minister Choe Son Hui has stated that her country is prepared to resume talks. And that could be Trump’s chance to offer an alternative, softer path to denuclearisation now that Bolton is out of the way.

WTI Oil Takes a Breather but Looks Bullish Medium-Term

Risk assets have been on a good run lately. This is especially true given the latest geopolitical deescalations. With that said, the shift in commodity-based currencies and oil itself has allowed market participants to gain.

The firing of Bolton, however, has halted the oil rally for now. His dismissal seems to be a sort of healing potion to further geopolitical tensions.

Despite the recent cap, WTI oil still looks bullish in the medium term. The break outside the descending triangle could offer more long opportunities, with short-term ones depending on the EIA report later today.

wti oil

By Orbex

 

Texas Firm Represents ‘Inexpensive Way to Buy Integration in Midstream’

The Energy Report

Source: Streetwise Reports   09/06/2019

The reasons this energy firm warrants a rerating are discussed in a Raymond James report.

In an Aug. 28 research note, analyst J.R. Weston reported that Raymond James upgraded Targa Resources Corp. (TRGP:NYSE) to Strong Buy from Outperform “as we feel this is an attractive entry point to gain exposure to the longer-term theme; the selloff is overdone.”

That theme, Weston explained, is “meaningfully improved” financial flexibility in 2020 and beyond for this midstream energy corporation now that capex has “dialed down” and cash flow is increasing. “The worst is largely behind the company,” and now, it is on the cusp of “reaping the rewards of a long-running and ambitious growth program.”

That program involved Targa integrating business and enhancing downstream assets to strengthen its long-term strategic position, noted Weston. “With Grand Prix online this month and expected to ramp to 200,000 barrels per day September, Targa has connected the natural gas liquids value chain between its Permian/Midcon assets and top-tier downstream footprint.”

Targa “is poised to rate into a group of midstream players that are perceived to be higher quality,” Weston commented, and as the company nears full integration, “we expect that investors become willing to provide it with a substantial premium valuation, closer to large-cap C corps.”

Raymond James’ target price on Targa remains unchanged at $48 per share. This compares to $36.78, where the stock is currently trading.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from Raymond James, Targa Resources Corp., August 28, 2019

ANALYST INFORMATION

Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst’s success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.

The analysts J.R. Weston and Justin Jenkins, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates, Inc. makes a market in the shares of Targa Resources Corp.

Raymond James & Associates received non-securities related compensation from Targa Resources Corp. within the past 12 months.

 

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.

( Companies Mentioned: TRGP:NYSE,
)

Analyst Raises Q3/19 Production Estimates Texas-Based Oil & Gas Company

The Energy Report

Source: Streetwise Reports   09/06/2019

The revisions and the reasons for them are discussed in a ROTH Capital Partners report.

In an Aug. 27 research note, analyst John White reported that ROTH Capital Partners raised its Q3/19 production estimate for Lonestar Resources US Inc. (LONE:NASDAQ), “based on guidance which is supported by continuing strong well completions.”

ROTH also revised its oil and gas price deck, which led to it lowering its price target on Buy-rated Lonestar to $8 per share from $11 per share. The energy company’s current share price is $2.66.

White detailed ROTH’s changes to its model on Lonestar, resulting from the energy company having been “consistently guiding production higher and operating costs lower.”

ROTH increased its Q3/19 production projection by 11%, to 17,170 barrels of oil equivalent per day (17,170 boe/day) from 15,505 boe/day. ROTH also raised its projected cash flow per share for Q3/19 to $1.02, up from $0.84. Its new EBITDA estimate is $35 million, up from $32.9 million.

As for changes to its near- and medium-term oil price estimates, ROTH lowered its West Texas Intermediate (WTE) estimates for Q3/19 to $56 per barrel ($56/bbl) from $57 and for Q4/19, to $54/bbl from $57, White relayed.

For the Henry Hub price in Q3/19, ROTH predicts $2.20 per million British thermal units (2.20/MMBtu) versus $2.20 and in Q4/19, $2.25/MMBtu versus $2.40.

As for 2020 forecasts, ROTH now expects a WTI crude oil price of $52.25/bbl versus $54.75 and a Henry Hub price of $2.40/MMBtu as opposed to $2.49.

ROTH has a Buy rating on Lonestar Resources.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from ROTH Capital Partners, Lonestar Resources US Inc., Company Note, August 27, 2019

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

ROTH makes a market in shares of Lonestar Resources US Inc. and as such, buys and sells from customers on a principal basis.

Shares of Lonestar Resources US Inc. may be subject to the Securities and Exchange Commission’s Penny Stock Rules, which may
set forth sales practice requirements for certain low-priced securities.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.

( Companies Mentioned: LONE:NASDAQ,
)