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Four Key Catalysts To Watch In The Oil Sector

Tyler Durden's picture




 

Submitted by Energy Burrito via OilPrice.com,

Just as there is a consequence to every action or two sides to every story, there are contrasting repercussions due to the precipitous oil price drop in the last year. This post takes a look at some such flip sides to see who is benefiting from the recent rout…and who is not.

The below image shows how the US is seeing a varying benefit from low oil prices across the country. Low oil prices are negative for employment in eight states such as Texas, Oklahoma, and North Dakota – where energy-related employment is strong – but positive elsewhere. Low oil prices are also a boost to the broader economy – through the medium of greater consumer disposable income, decreasing energy costs for firms, and higher capital investment and hiring, among other factors.

On the flip side, oil and gas companies unsurprisingly feel the pinch the most as capital expenditures are slashed to limit bloodletting, while material job losses in the oil and gas sector provide a drag on the economy. In summary, lower oil prices are a net-positive – but unevenly distributed – benefit for the US.

 

ChangeInEmploymentOilPrices

The flip-flop of fortunes is also illustrated to great effect by the below image, which assesses the global impact of lower oil prices. While the IMF projects that lower oil prices this year could boost the global economy by 0.7%, this benefit is by no means evenly spread.

Net oil-importing regions such as the US, Europe, and Asia are set to be the recipients of a sizeable $900 billion stimulus, while oil-exporting nations are set to fund it. This wealth transfer is most starkly exhibited by the loss of $357 billion by the Middle East this year…and a $393 billion gain by Asia:

OilStimulus

Next up is a trend which highlights the predicament faced by oil producers in the US: whether to weather the storm and keep on producing in a lower price environment, or whether to delay operations and await more favorable market conditions. The result of this conundrum has given birth to the buzzword, ‘fracklog.’

Rather than fracking wells now, companies are deciding to leave the oil in the ground, awaiting higher prices. The below image from Bloomberg shows 4,731 US wells are drilled but uncompleted (DUCs), which equates to 322,000 barrels a day of oil not coming to market. The usual three suspects of the US fracking boom – the Permian, Eagle Ford and Bakken shale plays – account for more than 3,400 of the fracklog.

UntappedWellInventoryBuild

Finally, we finish with a look at the flip we have seen along the forward curve for crude oil in the last few months. While nearer-term prices have been rising as expectations of slowing US oil production materialize, longer-dated prices have been dropping.

This ‘flattening’ of the forward curve is indicative of increased hedging activity, as US producers are taking advantage of the recent rally in nearer-term prices to lock in prices for next year and beyond. In addition, after the near-term prices had been dragged to six-year lows earlier in the year as US inventories ramped up, the unwinding of the contango in the market is indicative of these oversupply fears abating.

As with everything in life, there are winners and losers, and the recent rout in the oil market is no different. These four aforementioned flip sides should be closely monitored in the coming months, for the oil market will be impacted by these factors – regardless of if they change their tune, or become a broken record. See you on the flip side!

 

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Tue, 05/05/2015 - 14:38 | 6062774 pazmaker
pazmaker's picture

oil well...shit happens

 

Tue, 05/05/2015 - 14:46 | 6062801 Oh regional Indian
Oh regional Indian's picture

Given that this is the time of the Revelation aka the Apo-Calypso, I feel the 1 key catalyst is the probable, global awareness that oil is abiotic.

Shock-waves. All the models break down, pricing being the first.

Why might this happen?

Russia is firmly on the abiotic side of the fence.

There will be a slew of "innovations" leaked from the DARPA dark cupboard, given to the chosen few, but th eway they have the switch planned feels rough, if the trend is indeed a tell.

Sequence 14...Sigtar + Flute

https://www.youtube.com/watch?v=gYBO6cJUsFA

Hey Hephasteaus, are you lurking?

 

 

Tue, 05/05/2015 - 14:51 | 6062817 wee-weed up
wee-weed up's picture

The price of oil WILL go back up.

Tue, 05/05/2015 - 14:56 | 6062834 kaiserhoff
kaiserhoff's picture

This ‘flattening’ of the forward curve is indicative of increased hedging activity, as US producers are taking advantage of the recent rally in nearer-term prices to lock in prices for next year and beyond.

This is where the action is.  Only the Dummies are hurting, as long as it's easy to hedge forward prices.

Tue, 05/05/2015 - 15:12 | 6062892 Bunga Bunga
Bunga Bunga's picture

Real estate never goes down.

Tue, 05/05/2015 - 16:46 | 6063211 sun tzu
sun tzu's picture

If it does, it will be because of a collapsing dollar, not a shortage of supply. 

Tue, 05/05/2015 - 16:47 | 6063217 nevadan
nevadan's picture

...the 1 key catalyst is the probable, global awareness that oil is abiotic.

That is a bold statement.  Maybe some is abiotic.  As a geology student I once went to a symposium at the Colorado School of Mines that featured a group of Russian geologists and resource bureaucrats who were promoting business opportunities in the resource area.  I heard some claims there that were shall we say a bit over the top.  Not knocking the Russians but the evidence seemed a little thin.  Who knows, maybe they are on to something but even if that is true, abiotic oil still takes eons to form also, no?  Regardless of the source, volume available will still be a problem it seems to me.

Tue, 05/05/2015 - 17:20 | 6063349 LawsofPhysics
LawsofPhysics's picture

no question that living cells make oils/fats from all kinds of carbon sources, but even this requires energy input.  Plants use sunlight to turn carbon dioxide into sugars and fats/oils, but certainly not as fast as humanity uses it.  That's the issue.

Tue, 05/05/2015 - 18:10 | 6063518 nevadan
nevadan's picture

Hence the volume available problem.

Tue, 05/05/2015 - 17:18 | 6063339 LawsofPhysics
LawsofPhysics's picture

flux matters.  Sure, living cells make oils/fats all the time.  The issue is how fast can they do it.  Sorry, but it isn't anywhere close to the rate at which the oil is consumed.  Not to mention all the chemical cycles that require a lot of energy, just to simply maintain life as we know it....

 

 

Tue, 05/05/2015 - 14:49 | 6062808 GoinFawr
GoinFawr's picture

oil's well that ends well.

Tue, 05/05/2015 - 14:45 | 6062794 cigarEngineer
cigarEngineer's picture

 SO this happened on Drudge today:

NSA CONVERTING SPOKEN WORDS INTO SEARCHABLE TEXT
Tue, 05/05/2015 - 14:49 | 6062811 wee-weed up
wee-weed up's picture

 

 

Methinks the NSA has already been converting spoken words into searchable text for a long time...

They're only now admitting it.

Tue, 05/05/2015 - 15:11 | 6062890 Achilles Heel
Achilles Heel's picture

The Ebonics algo appears to still be in the beta testing phase

Tue, 05/05/2015 - 17:02 | 6063282 Sudden Debt
Sudden Debt's picture

There’s even a app for that!

Tue, 05/05/2015 - 14:55 | 6062831 Skateboarder
Skateboarder's picture

Friggin hilarious joke from those comments:

A guy texts his neighbor…

Dear Keith :

I’m sorry. I’ve been riddled with guilt and I have to confess. I have been helping myself to your wife when you’re not around, probably more than you.
I know it’s no excuse, but I don’t get it at home. I can’t live with the guilt any longer. I hope you’ll accept my sincerest apology. It won’t happen again .

The neighbor, feeling outrage and betrayed, grabs his gun goes into the bedroom and without a word shoots his wife.

Moments later the guy gets a second text:

Damn, I really should use spell check! That should be “wifi”… Sorry!

 

Tue, 05/05/2015 - 15:03 | 6062847 boattrash
boattrash's picture

I'm off topic, but here's a Photobucket slideshow of the Garland TX art show. Not too bad for a bit of R&R.

http://s1167.photobucket.com/user/AFDIMotoons/slideshow/?sort=6

Tue, 05/05/2015 - 17:30 | 6063399 Motorhead
Motorhead's picture

Hehehe.....

Tue, 05/05/2015 - 15:16 | 6062909 Bunga Bunga
Bunga Bunga's picture

So be careful what you are saying to yourself in the empty elevator.

Tue, 05/05/2015 - 15:54 | 6063045 new game
new game's picture

hopefully the empty elevator isn't our head, ha...

Tue, 05/05/2015 - 14:44 | 6062796 Ms No
Ms No's picture

The unemployment will reach way beyond those areas highlighted.

Tue, 05/05/2015 - 14:45 | 6062798 buzzsaw99
buzzsaw99's picture

i heard they were gonna frack washington's forehead on mt rushmore

Tue, 05/05/2015 - 14:45 | 6062799 KnuckleDragger-X
KnuckleDragger-X's picture

Due to the way the game is played now, I wouldn't be a bit surprised to see another boom-bust in a couple of years depending on the level of bond market insanity...

Tue, 05/05/2015 - 14:48 | 6062805 gcjohns1971
gcjohns1971's picture

Most balanced post on "Low Oil" yet.

No "Oil-pocalypse", just a collection of temporary winners, temporary losers, and mid-term expectations.

Tue, 05/05/2015 - 15:12 | 6062893 Achilles Heel
Achilles Heel's picture

Some will win, some will lose. Some were born to sing the blues.

Tue, 05/05/2015 - 14:53 | 6062827 AIIB
AIIB's picture

Where's my goddamned flying car?

Tue, 05/05/2015 - 14:57 | 6062835 TrumpXVI
TrumpXVI's picture

On the chart, the < > thingamajiggies are backwards.

Tue, 05/05/2015 - 15:11 | 6062857 troubledasset
troubledasset's picture

What. Are you crazy.

Tue, 05/05/2015 - 17:36 | 6063421 Abbie Normal
Abbie Normal's picture

It depends on whether you think -3 is greater or less than -2.

Tue, 05/05/2015 - 15:09 | 6062876 will ling
will ling's picture

this can easily be circumvented; relates to an ancient proverb.

Tue, 05/05/2015 - 15:15 | 6062908 Kirk2NCC1701
Kirk2NCC1701's picture

I sympathize, but my God Darwin demands that I look after the interests of my family first, and ingest the weekly Sacrament of Money.  Unlike the bread & wine trick of Transubstantiation, my Sacraments transform into all kinds of useful things.

BTW, He also demands that I turn the other cheek for NO one, unless they "Make me offer I can't refuse".

p.s. My Deity does not demand that I kill on His behalf, but I know that He would approve if I rejoiced if a bunch of Banksters and their hired Politicians are tried and hung Mussolini style.

Tue, 05/05/2015 - 16:46 | 6063213 wrs1
wrs1's picture

Is Cushing full yet?  When does oil get to $20?

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