Dear PGM Capital Blog readers,
On Friday, April 22, in its weekly release, Houston-based oilfield services company Baker Hughe (NYSE: BHI) reported another record fall in the U.S. rig count (number of rigs searching for oil and gas in the country) from the previous week.
As can be seen from below chart, the USA oil rig count fell by 8 to 343, to a new 6-year low.
As can be seen from above chart, U.S. energy firms cut oil rigs for a fifth week in a row to the lowest level since November 2009, oil services company Baker Hughes Inc said Friday, as energy firms continue to slash spending despite a bigger than 60 percent spike in futures since hitting a near 13-year low in February.
The number of 343 U.S.A. oil rigs currently operating compares with the 703 rigs operating in the same week a year ago.
PGM CAPITAL ANALYSIS AND COMMENTS:
In 2015, drillers cut on average 18 oil rigs per week for a total of 963 for the year, the biggest annual decline since at least 1988 amid the biggest rout in crude prices in a generation. Before this week, drillers cut on average 12 oil rigs per week for a total of 185 so far this year.
Energy firms have sharply reduced oil and gas drilling since the collapse in crude markets began in mid-2014.
Brent crude futures fell from over US$107 a barrel in June 2014 to a near 13-year low around US$ 28.50 in February as can be seen from below 5-year chart.
Peak Production in the USA:
According with a brief from the USA Energy Information Agency (EIA), of July 7, 2015, it acknowledged that U.S. oil production peaked in April, hitting 9.7 million barrels per day (mb/d), the highest level since 1971 as can be seen from below chart.
Why Peaking of the USA Oil production is so important:
The slowing US production due to the higher break-even and production costs will reduce supplies in the global oil market. As a result, we could see the supply and demand gap to narrow down in 2016. US production averaged 9.3 MMbpd in 2015 and is expected to slow down to 8.8 MMbpd in 2016.
As can be seen from below chart, the crude oil production in the USA, continued to decrease in 2016, and was a 8,953 million barrels per day in the week ending on Friday, April 15, 2016.
Decreasing U.S.A. oil production combined with a rig count decrease is like music in the ears of Crude Oil Bulls, because it means that when shortage hits the market it will be difficult to bring those rigs back in operation in order to fill the demand supply gap.
With the cooling and driving season 2016, to start in approx. one month, we believe that most probably, we have seen the lowest for the oil prices by now.
Our research team has a report of some great Oil producers, -services and drillers company, which benefit the most from the coming oil price recovery.
Like Warren Buffett said:
“BE GREEDY, WHEN OTHERS ARE FEAR FULL and FEAR FULL WHEN OTHERS ARE GREEDY”
The following quote from John Maynard Keynes, might also be applicable for crude oil its producers:
“MARKETS CAN REMAIN LONGER IRRATIONAL, THAN YOU CAN REMAIN SOLVENT”
Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that commodities prices and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.
Yours sincerely,
Eric Panneflek