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A Good Friday U.S. Shale. The Energy Report 12/09/19

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Oil prices soared on Friday after OPEC, led by Saudi Arabia, engineered a 503,000 barrel per day production cut, bringing the total cut to 2.1 million barrels. The split called for an additional 372,000 barrel cut by OPEC as well as an additional 131,000 barrels a day by non-OPEC led by Russia. While prices this morning are filling in some of the run-ups from Friday, there is little doubt that this move should put in a floor for prices and even have the bears raise their oil price forecasts.

Saudi Arabia led the way. Reports say that Saudi Arabia’s new production quota will fall from 10.3 million barrels a day down to 10.14 million barrels. Market Watch reported that the Kingdom has only produced 9.9 million barrels per day of late to help offset a global glut of oil. The prince insisted the Saudis will cut well below its quota and hold production at close to 9.75 million barrels a day in early 2020, about 400,000 barrels below its quota.

The new Saudi Energy Minister, Prince Abdulaziz bin Salman, made a point that the production cut was a good thing for the United States. He was probably worried about a President Trump tweet and said, “It’s also a good Friday for our friends in Oklahoma and Texas.” In the past President Trump has scolded OPEC and Russia about production cuts but so-far the President has remained  silent. Perhaps he is starting to feel the heat from U.S. oil producers that need a higher price to thrive.

Bin Salman tried to play hero by saying that, “We want to be more helpful. I think the world expects us to lead. When the market requires some stabilization, we come to the aid of the market.” Here they come to save the day. Yet he has a point. President Trump touts his pro energy policies but he has not been helpful on price. In fact in many ways it has been a very challenging year for U.S. shale producers. The Saint Louis Dispatch says that bankruptcies are rising in the oil patch, with Texas law firm Haynes and Boone counting filings by 33 producers in the first nine months of this year, up from 28 in all of 2018.

This comes as the U.S.rig count continues to fall. Baker Hughes, according to Market Watch on Friday, reported that the number of active U.S. rigs drilling for oil fell by five to 663 this week. That followed declines in each of the last six weeks. The total active U.S. rig count, meanwhile, also fell by three to 799, according to Baker Hughes.

Natural gas has conflicted weather models, again and was down on a warming model. Andrew Weissman of EBW analytics says that  there is a deep split between the American and European weather forecast models. The American model called for sustained cold weather in mid-December, while the often more-reliable European was much warmer. Beginning Friday afternoon and continuing throughout the weekend, however, both weather models trended significantly warmer. The net result is likely to be continued downward price pressure for NYMEX natural gas, extending through Christmas.
Phil Flynn


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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.

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