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http://blog.gorozen.com/blog/leigh-goehring-on-the-many-factors-sending-oil-prices-higher?utm_campaign=Weekly%20Blog%20Notification&utm_medium=email&_hsmi=136200549&_hsenc=p2ANqtz-_sPg-5cp3uF-E1MoGZhMsWZuON2bwgdV9cJvBalW6I0BBLx1903M4iEG9iOinXgMdcp_4SPIOhrmN3AaYYLL0E017vKA&utm_content=136200549&utm_source=hs_email

Managing Partners Leigh Goehring and Adam Rozencwajg recently hosted a video conference call along with Stacy Havener, CEO and Founder of Havener Capital Partners. During the event, they discussed the outlook for different natural resources including oil and copper as well as factors affecting investors such as inflation. Here is Leigh discussing the current state of oil-related equities.

“Oil today is in the class of being an uninvestable asset. And if you just look at the way oil stocks are performing, they've gone up a lot. They've gone up about 120% off their bottoms that were reached back in the beginning part of April of last year. But as far as we can tell, there has been no real buying that has taken place in the oil names. This is hard to believe, but since they bought them back over a year ago, most of the upward pressure on oil stocks has come from short covering from both hedge funds and algorithmic traders who have been massively short the energy space over the last several years. Of course, it's that massive shorting which has made oil stocks such radical underperformers.

And just to give you a statistic to show you that this is indeed true. If you look at the E&P index which is embodied in the XOP ETF, the open interest in that ETF over the last year, since it bottomed back in April last year, is only up 15%. And usually what happens is that when true buying comes to the open interest, ETFs begin to expand. Now, you compare oil relative to copper, where there has been real buying and we'll talk about copper in a minute. For example, the various copper ETFs, their open interest in the copper stock ETFs are up 700% over the last year. Now how'd you like that? 700% versus 15%.

There's no buying taking place with long only fund managers in the oil space. However, that is going to change because the underlying fundamentals in the oil market are excellent. And there's several issues in the oil market today that very, very few people understand. In fact, I would say that next year, we're going to enter a situation in global oil markets where we have never ever been before in the 160 years of history of oil, since it was discovered back in Oil Creek, Pennsylvania 1850 by Colonel Drake.

Pt. 2

And there's also something else that's very interesting about oil. I don't know if you've followed the various news headlines last week, that the IEA, that is the International Energy Agency, which is sort of the global energy watchdog group that monitors global oil markets for the OECD countries. The IEA came out with a grand pronouncement, that they're recommending that all oil companies cease upstream capital spending starting now.

So we're already supply constrained in oil because of the huge cutbacks in capital spending that have taken place in the last two years. And the fact that the shales, which have been 100% of the world's supply growth over the last decade have now stop growing for a lot of interesting geological reasons, which we've written extensively about in our letters - this is only going to further crimp global oil supply going forward. And so the setup for oil, which, like I said in our last call, we outlined that it had fallen firmly into the bucket of being an uninvestable asset, is now going to wind up being the star performer in this coming decade as we progress through the 2020s.”

http://blog.gorozen.com/blog/leigh-goehring-on-the-many-factors-sending-oil-prices-higher?utm_campaign=Weekly%20Blog%20Notification&utm_medium=email&_hsmi=136200549&_hsenc=p2ANqtz-_sPg-5cp3uF-E1MoGZhMsWZuON2bwgdV9cJvBalW6I0BBLx1903M4iEG9iOinXgMdcp_4SPIOhrmN3AaYYLL0E017vKA&utm_content=136200549&utm_source=hs_email

Managing Partners Leigh Goehring and Adam Rozencwajg recently hosted a video conference call along with Stacy Havener, CEO and Founder of Havener Capital Partners. During the event, they discussed the outlook for different natural resources including oil and copper as well as factors affecting investors such as inflation. Here is Leigh discussing the current state of oil-related equities.

“Oil today is in the class of being an uninvestable asset. And if you just look at the way oil stocks are performing, they've gone up a lot. They've gone up about 120% off their bottoms that were reached back in the beginning part of April of last year. But as far as we can tell, there has been no real buying that has taken place in the oil names. This is hard to believe, but since they bought them back over a year ago, most of the upward pressure on oil stocks has come from short covering from both hedge funds and algorithmic traders who have been massively short the energy space over the last several years. Of course, it's that massive shorting which has made oil stocks such radical underperformers.

And just to give you a statistic to show you that this is indeed true. If you look at the E&P index which is embodied in the XOP ETF, the open interest in that ETF over the last year, since it bottomed back in April last year, is only up 15%. And usually what happens is that when true buying comes to the open interest, ETFs begin to expand. Now, you compare oil relative to copper, where there has been real buying and we'll talk about copper in a minute. For example, the various copper ETFs, their open interest in the copper stock ETFs are up 700% over the last year. Now how'd you like that? 700% versus 15%.

There's no buying taking place with long only fund managers in the oil space. However, that is going to change because the underlying fundamentals in the oil market are excellent. And there's several issues in the oil market today that very, very few people understand. In fact, I would say that next year, we're going to enter a situation in global oil markets where we have never ever been before in the 160 years of history of oil, since it was discovered back in Oil Creek, Pennsylvania 1850 by Colonel Drake.

Pt. 2

And there's also something else that's very interesting about oil. I don't know if you've followed the various news headlines last week, that the IEA, that is the International Energy Agency, which is sort of the global energy watchdog group that monitors global oil markets for the OECD countries. The IEA came out with a grand pronouncement, that they're recommending that all oil companies cease upstream capital spending starting now.

So we're already supply constrained in oil because of the huge cutbacks in capital spending that have taken place in the last two years. And the fact that the shales, which have been 100% of the world's supply growth over the last decade have now stop growing for a lot of interesting geological reasons, which we've written extensively about in our letters - this is only going to further crimp global oil supply going forward. And so the setup for oil, which, like I said in our last call, we outlined that it had fallen firmly into the bucket of being an uninvestable asset, is now going to wind up being the star performer in this coming decade as we progress through the 2020s.”

http://blog.gorozen.com/blog/leigh-goehring-on-the-many-factors-sending-oil-prices-higher?utm_campaign=Weekly%20Blog%20Notification&utm_medium=email&_hsmi=136200549&_hsenc=p2ANqtz-_sPg-5cp3uF-E1MoGZhMsWZuON2bwgdV9cJvBalW6I0BBLx1903M4iEG9iOinXgMdcp_4SPIOhrmN3AaYYLL0E017vKA&utm_content=136200549&utm_source=hs_email

Managing Partners Leigh Goehring and Adam Rozencwajg recently hosted a video conference call along with Stacy Havener, CEO and Founder of Havener Capital Partners. During the event, they discussed the outlook for different natural resources including oil and copper as well as factors affecting investors such as inflation. Here is Leigh discussing the current state of oil-related equities.

“Oil today is in the class of being an uninvestable asset. And if you just look at the way oil stocks are performing, they've gone up a lot. They've gone up about 120% off their bottoms that were reached back in the beginning part of April of last year. But as far as we can tell, there has been no real buying that has taken place in the oil names. This is hard to believe, but since they bought them back over a year ago, most of the upward pressure on oil stocks has come from short covering from both hedge funds and algorithmic traders who have been massively short the energy space over the last several years. Of course, it's that massive shorting which has made oil stocks such radical underperformers.

And just to give you a statistic to show you that this is indeed true. If you look at the E&P index which is embodied in the XOP ETF, the open interest in that ETF over the last year, since it bottomed back in April last year, is only up 15%. And usually what happens is that when true buying comes to the open interest, ETFs begin to expand. Now, you compare oil relative to copper, where there has been real buying and we'll talk about copper in a minute. For example, the various copper ETFs, their open interest in the copper stock ETFs are up 700% over the last year. Now how'd you like that? 700% versus 15%.

There's no buying taking place with long only fund managers in the oil space. However, that is going to change because the underlying fundamentals in the oil market are excellent. And there's several issues in the oil market today that very, very few people understand. In fact, I would say that next year, we're going to enter a situation in global oil markets where we have never ever been before in the 160 years of history of oil, since it was discovered back in Oil Creek, Pennsylvania 1850 by Colonel Drake.

Glad to have you back MT! You’ve been missed (separately I’d be interested in your thoughts on what is going down in SAVE in recent times - Accugas link to Lagos, Exxon deal and Niger)

https://www.zerohedge.com/energy/its-too-late-avoid-major-oil-supply-crisis

https://www.zerohedge.com/energy/its-too-late-avoid-major-oil-supply-crisis

Exxon are also what I would call a desperate seller - you must be if you've been trying to sell this for years - and this means they will be open to more flexible payment terms.

Tier this is well reasoned, in transactions I've done with large organisations there can be scope to step the payments e.g 5% on exchange, 15% on completion of the sale and purchase agreement then 20% on a yearly basis until the full amount is paid. Any purchase I make I try and keep these percentages as low as possible. It stands to reason that a cashed up company like Exxon with easy debt access and a need to "smooth" (rather than have choppy) revenues over accounting years would be amenable to such terms when it is selling off its assets. With SAVE's $100m + and growing in cash I would not be surprised if such a deal was done.

Pt. 2

Reflecting the improved inventory situation, both the WTI and Brent market has gone from an extremely high $15–20 per barrel 12-month contango last April to a $4 backwardation today. Remember, a backwardated market (where future prices are below spot prices) is indicative of tight physical supplies where traders are willing to pay a premium for prompt delivery. Throughout the past year, we explained why US shale production would be much slower to recover this cycle because of widespread depletion problems. US shale represented nearly all non-OPEC+ production growth last decade so any disappointments in US shale production would have immediate and far reaching impacts on global oil balances.

Shale production collapsed last year as companies actively shut-in producing wells (an industry first) and largely stopped drilling new wells. Shut-in production returned to the market last fall causing supply to temporarily rebound; however, we argued this would be short-lived — and it was. By the end of the year, all the shut-in production had been returned, yet shale supply was still down 1.4 m b/d year-on-year — the biggest decline in shale history.

In past cycles, shale production rebounded quickly because the industry had ample “core” locations left to drill. As prices fell, companies would focus all their activity on these best areas causing productivity to surge, largely offsetting the slowdown in overall activity. In multiple letters last year, we explained in great detail how the industry had nearly exhausted its inventory of core acreage, and we predicted how difficult it would be for E&P companies to boost productivity and production through additional high-grading. Our neural network told us that the E&P industry would not be able to offset lower activity with higher productivity. This important and fundamental shift — the first time in shale history — was missed by most analysts. Our neural network told us that shale productivity was largely flat in all three major basins (Permian, Eagle Ford, and Bakken), despite an incredible 80% reduction in 2020 drilling activity. In previous drilling downturns — 2008–2009 and 2014–2015 — drilling productivity soared as companies had ample inventories of top-tier prospects left to drill. In this drilling downtown, an 80% drilling drop with no corresponding increase in productivity is proof that you are near exhaustion in your inventory of top-tier drilling locations — a fact confirmed by our neural network.

We have entered a new era in global oil markets. The only source of non-OPEC+ growth over the past decade is now suffering signs of sustained depletion. Most analysts believe the shales will exhibit strong growth again when oil prices recover; however, our research tells us that growth from the shales will fall far below expectations in the first half of this decade.

To read more on this subject, we encourage you to download the full commentary, available below.

Pt. 1

http://blog.gorozen.com/blog/what-a-difference-a-year-makes-in-oil?utm_campaign=Weekly%20Blog%20Notification&utm_medium=email&_hsmi=134161917&_hsenc=p2ANqtz-8APx1-b22yw00nIHvxCwo90tP_E7HAAdb6wagxN11ENZU_fr1ErEki4Ed77z_yGRBbFOduWjXkANi_KVPjc3B4Sz_yFw&utm_content=134161917&utm_source=hs_email

Exactly one year after West Texas Intermediate crude reached its historic -$37 per barrel low, the damage inflicted on global oil markets from the COVID-19 economic lockdowns has been largely repaired. Inventories have drawn down at the fastest rate on record and in a mere 12 months nearly all excess crude inventories have been eliminated. Prices for Brent and WTI recently topped $70 per barrel. Exploration and production equities (as measured by the XOP) have led the broad market higher, advancing 170% since the beginning of April 2020.

n the midst of last year’s turmoil, we released a podcast on March 10th, 2020, discussing the severe volatility and weakness in global crude markets. We explained how falling productivity in the shales would cause the market to recover much faster than anyone expected. We advocated investors maintain or add to their energy exposure, an extremely bold call at the time. As with any prediction, we got some elements right and others wrong, but on balance we were correct. Not only has the oil market rebounded sharply over the past 12 months, but the drivers of the recovery have been consistent with our analysis. We bring this up because those same models which predicted the big oil price rebound last year continue to point to extreme tightness as we progress throughout 2021.

Global oil markets are firmly in deficit, as evidenced by rising prices, falling inventories, and growing backwardation. After having peaked in June 2020 at nearly 400 mm bbl above average, OECD inventories have drawn by 250 mm bbl relative to seasonal averages, suggesting the market has been 1.2 m b/d in deficit — the highest reading on record. We expect this deficit will grow as we progress through the year. Inventory data in the US shows continued draws relative to seasonal averages in March and April, albeit at a slower rate.

We should point out however, that extreme weather in Texas impacted production, demand, and net imports leaving the data difficult to analyze properly. With the Texas weather disruptions behind us, we expect US inventories will again resume their sharp moves lower, and the most recent data confirms our analysis. Last summer we predicted record high inventory levels would be fully drawn-down as soon as 2Q21 and that prediction now looks to have been accurate. We currently expect both excess OECD and US inventories to be completely worked off by late May — far sooner than anyone thought possible.

Pt. 2

Reflecting the improved inventory situation, both the WTI and Brent market has gone from an extremely high $15–20 per barrel 12-month contango last April to a $4 backwardation today. Remember, a backwardated market (where future prices are below spot prices) is indicative of tight physical supplies where traders are willing to pay a premium for prompt delivery. Throughout the past year, we explained why US shale production would be much slower to recover this cycle because of widespread depletion problems. US shale represented nearly all non-OPEC+ production growth last decade so any disappointments in US shale production would have immediate and far reaching impacts on global oil balances.

Shale production collapsed last year as companies actively shut-in producing wells (an industry first) and largely stopped drilling new wells. Shut-in production returned to the market last fall causing supply to temporarily rebound; however, we argued this would be short-lived — and it was. By the end of the year, all the shut-in production had been returned, yet shale supply was still down 1.4 m b/d year-on-year — the biggest decline in shale history.

In past cycles, shale production rebounded quickly because the industry had ample “core” locations left to drill. As prices fell, companies would focus all their activity on these best areas causing productivity to surge, largely offsetting the slowdown in overall activity. In multiple letters last year, we explained in great detail how the industry had nearly exhausted its inventory of core acreage, and we predicted how difficult it would be for E&P companies to boost productivity and production through additional high-grading. Our neural network told us that the E&P industry would not be able to offset lower activity with higher productivity. This important and fundamental shift — the first time in shale history — was missed by most analysts. Our neural network told us that shale productivity was largely flat in all three major basins (Permian, Eagle Ford, and Bakken), despite an incredible 80% reduction in 2020 drilling activity. In previous drilling downturns — 2008–2009 and 2014–2015 — drilling productivity soared as companies had ample inventories of top-tier prospects left to drill. In this drilling downtown, an 80% drilling drop with no corresponding increase in productivity is proof that you are near exhaustion in your inventory of top-tier drilling locations — a fact confirmed by our neural network.

We have entered a new era in global oil markets. The only source of non-OPEC+ growth over the past decade is now suffering signs of sustained depletion. Most analysts believe the shales will exhibit strong growth again when oil prices recover; however, our research tells us that growth from the shales will fall far below expectations in the first half of this decade.

To read more on this subject, we encourage you to download the full commentary, available below.

Pt. 1

http://blog.gorozen.com/blog/what-a-difference-a-year-makes-in-oil?utm_campaign=Weekly%20Blog%20Notification&utm_medium=email&_hsmi=134161917&_hsenc=p2ANqtz-8APx1-b22yw00nIHvxCwo90tP_E7HAAdb6wagxN11ENZU_fr1ErEki4Ed77z_yGRBbFOduWjXkANi_KVPjc3B4Sz_yFw&utm_content=134161917&utm_source=hs_email

Exactly one year after West Texas Intermediate crude reached its historic -$37 per barrel low, the damage inflicted on global oil markets from the COVID-19 economic lockdowns has been largely repaired. Inventories have drawn down at the fastest rate on record and in a mere 12 months nearly all excess crude inventories have been eliminated. Prices for Brent and WTI recently topped $70 per barrel. Exploration and production equities (as measured by the XOP) have led the broad market higher, advancing 170% since the beginning of April 2020.

n the midst of last year’s turmoil, we released a podcast on March 10th, 2020, discussing the severe volatility and weakness in global crude markets. We explained how falling productivity in the shales would cause the market to recover much faster than anyone expected. We advocated investors maintain or add to their energy exposure, an extremely bold call at the time. As with any prediction, we got some elements right and others wrong, but on balance we were correct. Not only has the oil market rebounded sharply over the past 12 months, but the drivers of the recovery have been consistent with our analysis. We bring this up because those same models which predicted the big oil price rebound last year continue to point to extreme tightness as we progress throughout 2021.

Global oil markets are firmly in deficit, as evidenced by rising prices, falling inventories, and growing backwardation. After having peaked in June 2020 at nearly 400 mm bbl above average, OECD inventories have drawn by 250 mm bbl relative to seasonal averages, suggesting the market has been 1.2 m b/d in deficit — the highest reading on record. We expect this deficit will grow as we progress through the year. Inventory data in the US shows continued draws relative to seasonal averages in March and April, albeit at a slower rate.

We should point out however, that extreme weather in Texas impacted production, demand, and net imports leaving the data difficult to analyze properly. With the Texas weather disruptions behind us, we expect US inventories will again resume their sharp moves lower, and the most recent data confirms our analysis. Last summer we predicted record high inventory levels would be fully drawn-down as soon as 2Q21 and that prediction now looks to have been accurate. We currently expect both excess OECD and US inventories to be completely worked off by late May — far sooner than anyone thought possible.

When an infrastructure asset is owned by several parties it is standard that the ownership/operating contract requires all parties to contribute their fair share to operating/upkeep/decommissioning costs. If I was a party to such a contract I would want all revenue from the asset going into a bank account where the likely costs would then be siphoned off into a separate account each month/quarter. It would also be standard practice that the likely costs would be regularly reviewed and the amount siphoned off adjusted accordingly. This way the costs are paid for logically and without the risk of a party withholding the costs in case of their bankruptcy or another matter.

The main reason for the delay is the public sector tax parasites are working at a snails pace and have no accountability

Thanks, but it appears to have been deleted and I can't see anything on youtube

“Extraordinary returns follow extraordinary discipline. Discipline in buying, selling, and the most important one of all, holding.”

“You can't hold winners without discomfort/volatility. You can have comfort or growth but not both.”

“The best investment strategy for you is the one that allows you to hold your winners the longest.”

“Often times your biggest risk is boredom as you wait for fundamentals to backfill into expectations. You look for reasons to sell because the stock isn't moving. You buy something else. The thing you sold immediately goes up. Then you realize you are just like everybody else.”

Ian Cassell

Someone posted this link earlier. Some may have missed it

https://corporate.exxonmobil.com/Locations/Chad-and-Cameroon/Chad-Cameroon-production-and-operations#SuccessfulpilotshowspromiseofincreasingoilrecoveryfromDobaBasin

A recent pilot project has shown promise in enhancing crude recovery from the project’s asset base and potentially extending the project’s life. Mixing specially designed polymers with the reinjected water can improve the recovery of oil. The process, called polymer waterflooding, increases the viscosity of the water to push oil like a plunger towards the producing wells, thousands of feet below the ground.

Because polymer waterflooding can significantly increase the amount of oil that is recoverable from a reservoir, it is used around the world. However, the process requires certain well conditions to be effective. The project’s reservoirs in the Doba Basin have the right combination of factors, including reservoir pressure and temperature, to make this a promising technique for extending the life and profitability of the project. ExxonMobil is closely following this project to see if there are learnings which can be applied in its fields around the world.

The polymers are neutralized once used, and they pose no environmental impact. After an initial pilot test on one well showed excellent results, the project has expanded the pilot to include nine additional wells with different characteristics. The results of this expanded pilot will provide a more clear picture of how to implement polymer waterflooding cost-effectively at scale. Given market conditions and EEPCI’s commitment to minimizing operating and capital expenditure costs, the approach will likely involve a long- term, phased implementation that strategically targets subsets of the field.

https://www.zerohedge.com/commodities/oil-300