ARRA News Service
ARRA News Service facebook page  
News for social, fiscal & national security conservatives who believe in God, family & the USA. Upholding the rights granted by God & guaranteed by the U.S. Constitution, traditional family values, "republican" principles / ideals, transparent & limited "smaller" government, free markets, lower taxes, due process of law, liberty & individual freedom. All content approval rests with the ARRA News Service Editor. Opinions are those of the authors. While varied positions are reported, beliefs & principles remain fixed. No revenue is generated for this site - no paid ads accepted - no payments for articles. Fair Use doctrine is posted & used.
Editor/Founder: Bill Smith, Ph.D. [aka: OzarkGuru & 2010 AFP National Blogger of the Year]
Contact: (Pub. Since July, 2006)
    Home Page

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Friday, April 08, 2016

$85 Crude Oil By Christmas – An Interview With Mike Rothman

by Nick Cunningham : After a 50 percent rally in oil prices between February and March, crude has retreated a bit as of late. The upcoming OPEC-Russia meeting in Doha looms over the markets, but few expect the outcome to have any material impact on supply and demand. Global supply still exceeds demand, but there are solid signs that the overhang is finally starting to ease. Storage levels are high, but are expected to come down.

Where does that leave us? With so many energy investors unsure of where the markets are heading, decided to get in touch with Mike Rothman at Cornerstone Analytics – a macro energy research firm that has produces some of the most accurate data out there. Oil prices may be gyrating up and down, but Mr. Rothman provided some juicy clues for investors, highlighting some key near-term trends for crude oil.

A few topics covered:• "Missing" IEA oil barrels
• Why oil markets are tighter than people think
• What to expect from the OPEC-Russia meeting in Doha
• Why oil prices could spike
• Where investors should put their money
• Mr. Rothman's prediction for oil prices at the end of 2016 The IEA has been accused of overestimating global supplies. The WSJ says that somewhere around 800,000 barrels per day are unaccounted for, meaning they are not consumed nor have they ended up in storage. Are these "missing" barrels a big deal?

Mike Rothman: The issue has not been one of the IEA over-estimating supply, but rather under-estimating demand. There are basically two ways to arrive at figures for global oil demand. The IEA methodology is built on an estimate of GDP and an assumed ratio of oil demand growth to GDP growth.

For the emerging markets in particular, that methodology represents a leap of faith since there are >100 countries and close to real time measures for economic activity rank up there with seeing unicorns and leprechauns. Also, in countries where we have better and more timely data for demand and GDP (like the U.S.), we see that oil demand growth to GDP growth ratio fluctuate sharply.

The other way to measure usage (which is what we do at Cornerstone Analytics) is to assess how much physical oil the global system is absorbing. It's called "apparent demand." It presumes global oil production data is close to the mark - which is the evident historical pattern - and that inventory changes in the OECD are the proxy for global storage changes. Basically non-OECD countries use oil on a hand-to-mouth basis with the primary exception really being China -- whose stockpiling has actually been smaller than generally believed. "Missing oil" is the gap that we see between econometrically estimated demand and apparent demand. Historically, bouts of "missing oil" are resolved by the IEA revising up its demand series. The underlying issue is generally an underestimation of oil consumption in the non-OECD countries.

OP: Are oil markets actually much tighter than everyone thinks?

MR: Yes, in the sense that storage is not as high as generally presumed and yes in the sense that OPEC's spare production capacity is much more limited than generally believed. But, to be realistic, because petroleum stocks in the OECD countries (which is the proxy for global stores) are high, there is no real concern in the market about availability, yet. We think this changes starting in the current quarter because we forecast global oil inventories will be drawn down contra-seasonally.

OP: What is Saudi Arabia's position coming into the production freeze? Are they winning the oil war – or are they rather desperate at this moment in time? Data compiled by FGE energy consultancy suggests that Saudi Arabia is losing its leadership position in 9 out of 15 of its major markets.

MR: Our sense is that Saudi Arabia put itself in a position whereby it will wait for global supply/demand to rebalance itself. Most market watchers don't really understand that back in 2014, the Saudi aim was about coercing a handful of OPEC countries to make production cuts to counter what was a collapse in the "financial demand" for oil. While Saudi Arabia has been burning through $12-$15 billion per month from its financial reserves to fund government spending through this period, it seems the policy is that the path to a much higher price (and higher revenue) will come about by allowing for a prolonged low price.

OP: What can we realistically expect from the OPEC/non-OPEC meeting in Doha?

MR: At most, countries may agree to freeze output, which may sound encouraging but in reality is little more than an agreement of the lowest common denominator since they are basically capacity constrained to begin with. To defend a price, OPEC would need to actively take barrels "out of the hands" of refiners – that is, a production cut, the current prospects for which lie somewhere between slim and none.

OP: Do you expect oil to fall back below $30 if Doha turns out to be disappointing?

MR: No, but that's partly because we think the oil balance will be transitioning into a deficit in 2Q and because many will come to realize that a production freeze is not a viable plan to cause the oil balance to tighten.

OP: The oil industry is making massive cuts in investment. Should we be bracing ourselves for a price shock at some point in time? If yes when do you see this occurring?

MR: You cannot cut CAPEX and reduce upstream activity and somehow think future production growth goes unaffected. We forecast non-OPEC supply to contract this year for the first time since 2008. That was a way-out-of-consensus call to make a year-ago when most pundits vigorously argued non-OPEC production would still expand even with the drop in oil prices. What we've communicated to our clients – and those we deal with directly in OPEC – is that the spike down in oil prices is basically setting up an eventual spike up.

OP: Will bankruptcies in the U.S. shale industry do anything to balance the market?

MR: We expect that it will feed into the contraction we forecast for U.S. output. We also see the credit availability issue as likely being a limiting factor moving forward, sort of like what we saw in 1986 and then again in 1999.

OP: Where should investors look if they want to put money in the energy market? What types of companies will perform well over the next year?

MR: Since energy equities basically trade as a proxy for the commodity, it's safe to say all boats rise when the tide comes in. The ‘beta" names typically include the Oil Services sector and E&Ps. The most leveraged play would be the commodity itself (or a vehicle like the USO).

OP: Lenders to the oil and gas industry have been fairly lenient with companies. Do you believe that the banks will start to tighten the screws a bit more as the periodic credit redetermination period finishes up?

MR: The old joke is that bankers are the guys who will lend you an umbrella and then ask to have it returned as soon as it starts to rain. Yes, we think lending will become much more highly scrutinized and financing less readily available.

OP: Can oil break out from $40 per barrel anytime soon?

MR: Sure. All it takes is one outage of consequence. More generally, though, we think oil breaches $40 during 2Q as physical evidence becomes available about inventories drawing down globally.

OP: Where can you see oil heading over the next 3 months, 6 months and 1 year out?

MR: Our target is Brent crude at $85 by the end of 2016.

OP: How do you see the U.S. presidential elections impact U.S. oil and gas policies? What could be the most radical change for oil and gas?

MR: Ask me after the election…

OP: Thanks for taking the time to speak with us Mike.
Nick Cunningham is a Vermont-based writer on energy and environmental issues and author of this article which was contributed by James Stafford the editor of, the leading online energy news site, to the ARRA News Service.

Tags: Cude oil, interview, Mike, James Stafford, Nick Cunningham To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 2:50 PM - Post Link


Post a Comment

<< Home

national debt
Don't miss anything!
Subscribe to the
ARRA News Service
It's FREE & No Ads!

You Receive One Email Each Morning
With Prior Days Articles / Toons / More

Also, Join us at:

Recent Posts:
Personal Tweets by the editor:
Dr. Bill - OzarkGuru
Married 48yr #Conservative #Constitution #NRALife #GunRights #USAF 22yr #military #veteran #Christian #CCOT #ProLife #TEAParty #GOP #TCOT #SGP #schoolchoice

Action Links!
Arkansas State Senators
AR State Representatives
Arkansas Governor Office
Arkansas Attorney General
Bankrupting America
US House of Representatives
US Senators
Family Research Council
Sunshine Review

Facebook Accts - Dr. Bill Smith
ARRA News Service
Arkansans Against Big Government
Alley-White Am. Legion #52
Baxter County Republicans, AR
Catholics & Protestants United Against Discrimination
End Taxpayer Funding of NPR
Overturn Roe V. Wade
Prolife Soldiers
Project Wildfire
Republican Liberty Caucus of Arkansas
The Gold Standard
Twin Lakes Republican Women
US Atty Gen Loretta Lynch, aka Eric Holder, Must Go
Veterans for Sarah Palin
Why Vote for Hillary (Satire)
FB Groups:
Arkansas For Sarah Palin
Arkansas Conservative Caucus
Arkansas County Tea Party
Arkansans' Discussion Group on National Issues
Blogs for Borders
Conservative Solutions
Conservative Voices
Defend Marriage -- Arkansas
FairTax Nation
Arkansas for FairTax
Friends of the TEA Party in Arkansas
Freedom Roundtable
Let's Mine AR Lignite NOW!
Personhood Initiative
Pro-Life Rocks - Arkansas
Republican Network
Republican Liberty Caucus of AR
Reject the U.N.


Links to ARRA News
A Patriotic Nurse
Agora Associates
a12iggymom's Blog
America, You Asked For It!
Americans for a Free Republic
America's Best Choice
America's Whatchtower
An Ol’ Broad’s Ramblings
AR Republican Assembly
ARRA Twitter
As A Matter of Fact
As The Crackerhead Crumbles
Baaad Media!
Baxter Co. GOP Assembly
Baxter County Republicans
Benton Co. GOP Assembly
Black & Right
Blogs For Borders
Blogs for Palin
Blow the Trumpet Ministry
Boot Berryism
Cap'n Bob & the Damsel
Chicago Ray Report
Chuck Baldwin - links
Citizen Pamphleteer
Common Cents
Conservative Hideout
Conservative Observer AZ
Conservative Voices
Conway Real Deal
Defeat Obama's Agenda
Diana's Corner
eGOP News
Florida Pundit
Franklin Online Outreach
Free Zone Media Center
For God and Liberty
Garland County Republicans
Greater Fitchburg For Life
Guns and Religion
Lasting Liberty Blog
Liberal Isn't Amy
Liberty's Lifeline
Maggie's Notebook
Marathon Pundit
Monkey in the Middle
NASA Satellites
No Runny Eggs
Okie Campaigns
Our Voices Arkansas
Patriot's Corner
Publius Forum
Randy's Roundtable
Real Debate Wisconsin
Religion and Morality
Right on Issues that Matter
Right Reason
Rocking on the Right Side
Saber Point
Saline Watchdog
Secure Arkansas
Sentry Journal
Stop Obama Satire & Cartoons
The Arkansas Patriot
The Audacity of Logic
The Blue Eye View
The Bobo Files
The Born Again Americans
TEA Party Cartoons
The Conservative Citizen
The Foxhole | Unapologetic Patriot
The Liberty Republican
The Lid
The Looking Spoon
The Maritime Sentry
The O Word
The Path to Tyranny Blog
The Real Polichick
Truth About Obamacare
Twitter @ARRA
Warning Signs
Women's Prayer & Action

Editor's Managed Twitter Accounts
Twitter Dr. Bill Smith @arra
Twitter Arkansas @GOPNetwork
Twitter @BootBerryism
Twitter @SovereignAllies
Twitter @FairTaxNation

Editor's Recommended Orgs
American Committment
American Enterprise Institute
American Family Business Institute
Americans for Limited Government
Americans for Prosperity
Americans for Tax Reform
American Security Council Fdn
AR Faith & Ethics Council
Arkansas Policy Foundation
Ayn Rand Institute
Bill of Rights Institute
Campaign for Working Families
Center for Individual Freedom
Center for Immigration Studies
Center for Just Society
Center for Freedom & Prosperity
Citizens Against Gov't Waste
Citizens in Charge Foundstion
Coalition for the Future American Worker
Competitive Enterprise Institute
Concerned Veterans for America
Concerned Women for America
Curtis Coleman Institute for Constitutional Policy
Declaration of Am. Renewal
Eagle Forum
Family Research Council
Family Security Matters
Franklin Center for Gov't & Public Integrity
Gingrich Productions
Global Incident Map
Great Americans
Gold Standard 2012 Project
Gun Owners of America (GOA)
David Horowitz Freedom Center
Institute For Justice
Institute for Truth in Accounting
Judicial Watch
Less Government
Media Reseach Center
National Center for Policy Analysis
National Right To Work Foundation
National Rifle Association (NRA)
National Rifle Association (NRA-ILA)
News Busters
O'Bluejacket's Patriotic Flicks
Open Secrets
Presidential Prayer Team
Religious Freedom Coalition
Renew America
Ron Paul Institute
State Policy Network
Tax Foundation
Tax Policy Center
The Club for Growth
The Federalist Today
The Gold Standard Now
The Heritage Foundation
The Leadership Institute
Union Facts

Blogs For Borders

Reject the United Nations

Adopt Our Troops in Prayer

Thousands of Deadly Islamic Terror Attacks Since 9/11

FairTax Nation on FaceBook
Friends of Israel
Blog Feeds
Syndicated - Get the ARRA News Service feed Syndicated!
ARRA Blog Feed

Add to Google Reader or Homepage

Add to netvibes

Add to Bitty Brouser

Add to The Free Dictionary

Powered by Blogger

Politics Blogs
Politics blog

  • How To Exchange Links!
  • Comments by contributing authors or other sources do not necessarily reflect the position the editor, other contributing authors, sources, readers, or commenters. No contributors, or editors are paid for articles, images, cartoons, etc. While having reported on and promoting the beliefs associated with the ARRA, this blog/site is not controlled by nor funded by the ARRA. This site/blog does not advertise for money or services nor does it solicit funding for its support.
  • Fair Use: This site/blog may contain copyrighted material the use of which has not been specifically authorized by the copyright owner. Such material is made available to advance understanding of political, human rights, economic, democracy, and social justice issues, etc. This constitutes a 'fair use' of such copyrighted material as provided for in section Title 17 U.S.C. Section 107 of the US Copyright Law. Per said section, the material on this site/blog is distributed without profit to readers to view for the expressed purpose of viewing the included information for research, educational, or satirical purposes. Any person/entity seeking to use copyrighted material shared on this site/blog for purposes that go beyond "fair use," must obtain permission from the copyright owner.
  • © 2006 - 2016 ARRA News Service
Creative Commons License
Creative Commons Attribution Noncommercial Share Alike 3.0 Unported License.