Crude Observations

Mid Term Report. Yuck.

So there I was the other day thinking about all the forecasts that I read and how dumb some of them seem to be. I mean seriously, how detached from reality do some people have to be to make the picks and forecasts they do.


Then I realized that I had yet to do my Q1 report card on my own fearless forecast and I was struck by a feeling of dread. Because let’s face it, I’m about as skilled at this game as the proverbial thousand monkeys typing. And by monkeys, I mean real monkeys. Like monkeys who don’t know how to type. Seriously, who comes up with this stuff anyway?


How about instead of monkeys, we look at my Final 4 bracket. Wait, forget that. How about we look at my Super Bowl pick! Yes. I am the genius who made a bet via text with a friend early in the first half of the Super Bowl, confidently picking Atlanta. This after picking Kansas City in January. Seriously.


So in that vein, I guess this is it, right?


Broad Themes


I had a number of broad themes relating to the global environment, such as the rise of Trump style popu-nationalism in various countries around the world and my expectations that this fervour might wane and I think this is playing out although too early to tell with the election in the Netherlands repudiating this while France is looking shaky and Hungary is, well, Hungary.


I suggested we would see action on trade and regulation from the Trump administration and this is starting to happen, with NAFTA renegotiation now an actual thing and continued saber rattling to China.


On the security front, I expected a rapprochement of sorts with Russia (too soon to tell with all the lection nonsense) which is further complicated by Trump’s recent action in Syria.


Turkey was underlined as a global flashpoint given its historic position as the intersection of cultures and I stand by that given the tensions across the region and the


The final theme was the “cresting” of the green wave and how the Trump election was a disaster for the environmental movement. I would say that with Dakota Access, Keystone XL, the declawing of the EPA, the rollback of Obama climate and energy regulations and, let’s face it, a pretty muted reaction by the media we are indeed seeing this play out.




First call was that OPEC would meet their production cuts and indeed they did as did Russia. I believe compliance was at 98% across the board so that is a good thing. A+!


Non-OPEC production was expected to be flat year over year so we will wait in that result.


I predicted the US would add 300 to 400 thousand barrels a day of production in 2017. This may be light, but I can’t bring myself to revise it to the 1.2 million barrels some analysts are predicting, that’s too far out there. Year to date through March 31 the US has added about 250,000 barrels a day of production. So a weak call there that might need a revision so I will raise my top end to 600,000 barrels a day. That’s pretty much a D in my books.


Canadian production was expected to post modest growth as well and, well, we will, but the Syncrude shutdown is kind of distorting things right now. Let’s give it a few months.


Price of oil


As part of my forecast I had predicted that the price of oil would be fairly choppy in the $48 to $55 dollar rage (WTI) for the first 6 months of the year until the OEPC cuts really take hold and then a possible run up to $65 with an average for the year of $55. Reading that again, I’m actually really happy with that call.  As of March 31, the price of oil was $50.60 and the average price for the year to date was $51.79.  The period high was $54.45 and the low was $47.34. Grade A


Price of Natural Gas


Gas. Gas, gas, gas. Jumping Jack Flash. It’s a gas, gas, gas. So natural gas has yet to light the world on fire as I expected, anticipated, hoped for. Early winter draws were massively promising but fizzled out as the heating season was volatile, the weather was all over the map and demand was inconsistent. All of this conspired to hold gas back in the first quarter. My prediction that gas would be a key performer is looking, well, a bit tough. I still believe in the gas story long term as generation switches over and export facilities and pipelines get built but it may take a while longer. There’s just a lot of gas. With ijection season approaching and the rig count rising, we are likely to see softness in the gas market through September.


My year end prediction was $4.50, which conceivably could still happen, and I could also conceivably grow to be six feet tall, but I don’t see how my average price of $3.50 can come to pass. Low gas prices into an early fall with even normal weather can lead to pretty dramatic price swings but hard to get to where I predicted. As for a grade and a revision? I have to stick with my call, it’s too easy to change things on the run. Price at the end of March was $3.19 and the average for the period was $3.065. But gas traded as low as $2.50, in the winter. And that is a problem.


Initial grade is a C because we are holding north of $3, but I suspect I will be dropping an F bomb by summer on gas.


Activity Levels


I predicted a robust 2017 in Canada with activity concentrated in a barbell fashion – Montney/Duvernay/Viking and then quiet all the way to the Bakken with the activity happening in Q1 2017 and resuming later in the summer. So the first quarter was bang on and these areas were super busy. My prediction was based on number of wells so way too early to tell. But it’s looking not unreasonable at this point.


US activity was expected to show quite robust growth and, well, Permania. Need I say more.


Grade? B.


M&A Activity


I predicted for the year that M&A activity would pick up, definitely in the service sector and to a lesser extent in the E&P world until later in the year when I expected a rebound. Great call on the service companies, especially in Canada with three major public deals having occurred in the upstream service world. We expect more M&A activity in the next few quarters both in upstream services and in construction and infrastructure as companies position for all these anticipated projects.


A little less spectacular on the E&P side, where the idea was right, but the timing was way off, as evidenced by the headlining Canadian transaction of the past few weeks. Grade Pending.


Canadian Dollar


The dreaded 75 cent dollar was the call and that seems where we are destined to be. Absent any significant rally in the economy, rate rises by the BoC or a big run in energy prices, there are no real catalysts to improve the dollar. Dear Canada – get used to those $200 dinners when you vacation in the US. Grade A




I did say KXL would come back to life, so good on me for that call. I also suggested some movement by Petronas on LNG and we are all waiting, likely til after the BC election. The wager was that KXL would break ground first – still waiting for someone to take me up on that one. Grade Pending


Super Bowl


Kansas City over Green Bay? Really? What in the world was I thinking? Umm, F.


Stanley Cup


Montreal Canadiens. It’s a good start, they actually made the playoffs this year.


Stock Picks


Not a great first quarter but I’ll take outperforming the index and some positive results in my American picks.


Stock Jan-01 Mar-31 % Change
Tourmaline 36.00 29.65 -17.6%
TORC Oil and Gas 8.42 6.83 -18.9%
Total Energy Services 15.18 13.30 -12.4%
Macro Enterprises 2.11 2.00 -5.2%
*EQT 25.31 27.38 8.2%
*Quanta Services 35.16 37.11 5.5%
Average -6.7%
TSX Capped Energy 222.99 199.74 -10.4%
*Not currency adjusted


Prices as at April 7, 2017 (March 31, 2017)

  • The price of oil held steady early in the week on OPEC optimism and jumped at the end on US bombing action in Syria.
    • Storage posted a modest but unanticipated increase
    • Production was up marginally
    • The rig count in the US continues to grow, although at a slower pace
  • Natural gas was weak early in the week on milder weather but rallied toward the end of the week
    • WTI Crude: $52.24 ($50.85)
    • Nymex Gas: $3.260 ($3.192)
    • US/Canadian Dollar: $0.7464 ($ 0.7516)


  • As at March 31, 2017, US crude oil supplies were at 535.5 million barrels, an increase of 1.6 million barrels from the previous week and 36.9 million barrels ahead of last year. High import volumes and refinery turnarounds are holding back meaningful inventory reduction. Inventory draws typically begin this time of year
    • The number of days oil supply in storage was 33.5, ahead of last year’s 32.9.
    • Production was up for the week by 52,000 barrels a day at 9.199 million barrels per day. Production last year at the same time was 9.034 million barrels per day. The change in production this week came from a small increase in Alaska deliveries and increased Lower 48 production.
    • Imports fell slightly from 8.224 million barrels a day to 7.850, compared to 7.254 million barrels per day last year.
    • Refinery inputs were up during the week at 16.429 million barrels a day
  • As at March 24, 2017, US natural gas in storage was 2.051 billion cubic feet (Bcf), which is 15% above the 5-year average and about 17% less than last year’s level, following an implied net injection of 2 Bcf during the report week.
    • Overall U.S. natural gas consumption was down by 2% during the week as a decline in consumer demand offset an increase in power burn
    • Production for the week was flat and imports from Canada rose by 2% from the week before
  • As of April 3, the Canadian rig count was 129 (23% utilization), 100 Alberta (23%), 23 BC (32%), 5 Saskatchewan (5%), 1 Manitoba (7%)). Utilization for the same period last year was about 10%. With breakup now on, this count isn’t expected to rise significantly for the next month or so.
  • US Onshore Oil rig count at April 7 was at 672, up 10 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was up 5 at 165.
    • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
  • Offshore rig count was flat at 22
    • Offshore rig count at January 1, 2015 was 55
  • US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 56%/44%


  • Rumour has it that Petronas is considering locating part of its LNG project on Ridley Island, formerly the site of the now paused Shell LNG project. This would save costs, get it out of the salmon habitat and avoid the need for a suspension bridge.
  • It would appear that the global drawdown in stocks as a result of OPEC cuts is underway as floating storage decreases and significant inventory draws in the Caribbean (not just a beachy haven for the rich – who knew?) are being reported. Much of this excess inveory appears to be washing up in the US, exacerbating the US inventory picture, but in time, it will make a difference.
  • Trump Watch: Meetings, meetings, meetings. And golf. Meetings. Golf. Call to Russia, China meeting. Call to Syria. Meetings. Golf. Missiles in Syria. Golf. Meetings. Wait – did anyone call Congress? Ooopsy Poopsy!
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