rounded corner
rounded corner
top border

Lower for Not Too Much Longer. The Energy Report 10/30/17

Bookmark and Share

While many in the oil industry have been talking about lower for longer oil price the truth is that oil prices will not stay low for very much longer. Oil has confirmed that the market may have put in the most significant bottom in oil prices since 1999 after it posted its best quarter since 2004. Long term charts are suggesting a breakout that puts oil at much higher levels.

Back in early 2016 oil doubled bottomed in the $26 a barrel handle and many had felt that oil could go below $10 a barrel. They worried that shale oil production would keep oil lower for longer and big and little energy companies felt pain and embarked one on the biggest investment pull backs in energy spending history. Now with oil supply dropping at a historic rate, OPEC doubling down on production cuts and shale and Gulf of Mexico oil output sputtering we should see oil continue to rise into the end of the year. In fact, we should see oil continue to rise for the rest of this decade.

While the bottom in 2016 has not been without its big corrections the fundamentals on oil are getting clear to almost everyone. Global oil demand is surging as low oil prices and an improving economic backdrop has caused the strongest global oil demand growth in at least two years if not longer. The rash of Hurricane, mainly Harvey was the reason for oil recent correction, but the rebuilding process post Hurricane Harvey will only lead to even stronger oil demand.

U.S. oil exports are also surging. Some think that because U.S. oil exports are rising and that is making price go even higher. Yet, the fact is that if it were not for U.S. exports surging prices would be higher than they are. The large spread of Brent oil over WTI means there is a tight supply of oil in Europe and Asia that needs to be filled. The U.S. oil producer has risen to the occasion.  U.S. oil  exports increased by 300,000 barrels per day to a total average of 900,000 barrels per day in the first half of 2017 from the same period last year, according to federal data released this month. Other data show the U.S. hit a record of about two million barrels per day in late September, according to the Energy Information Administration, the data analysis arm of the Energy Department as reported by the Washington Examiner.

Reuters warn that “Tankers carrying record levels of crude are leaving in droves from Texas and Louisiana ports, and more growth in the fledgling U.S. oil export market may before long test the limits of infrastructure like pipelines, dock space and ship traffic.”

The lower for longer expectations for oil were in part based upon the assumption that oil producers would produce oil at any price and could easily ramp up production whenever it was needed, both of with has proven to be not true. Cash strapped producers are slowing down output and shale wells that are in production are seeing a significant drop in production per well.

Mark G. Papa the founder and former Chairman and CEO of EOG Resources raised shale concerns when he said that “We think the massive surprise will come in the 2019 and 2020 period, when total U.S. oil growth will be less than many people are currently predicting, because of the deterioration in the remaining number of tier-1 locations in the Eagle Ford and Bakken and declines in the Gulf of Mexico. Even in a robust oil price environment, I’d expect 2019 and 2020 total U.S. oil production growth to be 700,000 to 800,000 barrels per day per year, which is much less than the 1.5 million barrels per day, many people are predicting. Even likely, 2018 through 2020 global demand growth of 1.4 million barrel per day per year, this sets up a tight supply-demand picture.”

The FT reported that even Exxon and Chevron are losing money on oil and gas production in the U.S.. The FT says that the losses raise a question over the companies’ forecasts of robust growth in U.S. production, particularly in the Permian basin of Texas and New Mexico.  Exxon said it lost $238m on oil and gas production in the U.S., while Chevron lost $26m. The losses were reduced from the equivalent period of 2016, but came as both companies made healthy profits on their international operations. The FT said that “In presentations for analysts on Friday, both companies set out projections showing robust growth in production from U.S. shale resources. Exxon forecasts average annual growth of 20 per cent in its shale oil and gas production, with 45 per cent growth in the Permian region.

It has been building up its position in the region in recent years, and in September did another deal to acquire more drilling rights, increasing its 6bn barrels of oil equivalent resource base by a further 400m boe. Chevron similarly projected robust growth in production in the Permian Basin, where it has retained a large legacy position built up over decades.

John Watson, Chevron’s chief executive who is stepping down at the end of January, said the company was “exceeding expectations” in the Permian. However, unlike “conventional” oil developments, where an initial capital cost to drill wells and install facilities is followed by an extended period of production that declines only slowly, shale resources require continual drilling to maintain output.

Gulf of Mexico oil production is also disappointing as cut backs in spending and the mothballing of rigs means production has leveled out in the Gulf. The cutback in CapX are now beginning to be felt and so it will take a year and billions of dollars in spending before they can ramp up production again.

OPEC will of course benefit, and they want to keep the supply deficit going. Prince Mohammed bin Salman on Saturday reiterated Saudi Arabia’s readiness to support the extension of a global oil production cut agreement according to reports.

Oil is in a major breakout mode and the bears are starting to cover. Even with dollar strength supply and demand are starting to drive oil prices. Long term bullish strategies are starting to pay off and you should add on more going out in the futures. Gas and distillates arrest, and we should see those market. Lower for longer in now higher for longer. The Bulls are now in control.

The Fox Business Network! The only place where you can get the Power to Prosper! Our energy webinar lays out exactly why Brent oil hit a two year high. Find out why and where we are going next Call 888-264-5665 or email me at

Phil Flynn


Questions? Ask Phil Flynn today at 312-264-4364

View The Energy Report

A Subsidiary of Price Holdings, Inc. – an Employee Owned Diversified Financial Services Firm. Member NIBA, NFA

Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.

The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017

Recent articles from this author

About the author

Mr. Flynn is one of the world's leading energy market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.

Phil Flynn's accurate and timely forecasts have come to be in great demand by industry and media worldwide. His impressive career goes back almost three decades, gaining attention with his market calls as writer of “The Energy Report”.

He is a daily contributor to Fox Business Network where he provides daily market updates and analysis. Phil’s daily commentary is also featured in Futures Magazine, International Business Times, Inside Futures, 312 Energy, Enercast, among many others.

Phil is a lifelong resident of Illinois. He attended Daley College in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange which eventually led him and his team to The PRICE Futures Group.

Media highlights include: The President of the United States, Bloomberg, ABC, CBS, NBC´s "Today Show" and "Nightly News with Tom Brokaw", CNBC, CNN/CNNfn, FOX´s "O´Reilly Factor", PBS´s "The Newshour with Jim Lehrer" and "Nightly Business Report", MSNBC´s "The News with Brian Williams", The Wall Street Journal, Business Week, Investor´s Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine, Inside Futures, and National Public Radio.

Contact Phil Flynn: (800) 769-7021 or at

Published by Barchart
Home  •  Charts & Quotes  •  Commentary  •  Authors  •  Education  •  Broker Search  •  Trading Tools  •  Help  •  Contact  •  Advertise With Us  •  Commodities
Markets: Currencies  •   Energies  •   Financials  •   Grains  •   Indices  •   Meats  •   Metals  •   Softs

The information contained on is believed to be accurate but is not guaranteed. Market data is furnished on an exchange delayed basis by Data transmission or omissions shall not be made the basis for any claim, demand or cause for action. No information on the site, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any futures or options contracts. is not a broker, nor does it have an affiliation with any broker.

Copyright ©2005-2018, a product. All rights reserved.

About Us  •   Sitemap  •   Terms of Use  •   Privacy Policy