An Insiders ENERGY REPORT: $75 Per Barrel for 1st Quarter 2015?

U.S. Oil Production Continues To Rise By Alex Mills AUSTIN Texas (Texas Insider Report)  Clearly the decline of oil prices suggests that the current expansion of oil and gas drilling and development activity that began in January 2010 might be about to come to an end" said Karr Ingham the Texas Alliance of Energy Producers economist who created the Texas Petro Index (TPI) and maintains it monthly. Any slowdown  and the depth and length of that slowdown  will depend entirely upon how far prices fall and how long they remain relatively low.   Crude production surpassed another milestone at the end of October reaching almost 9 million barrels per day (bpd) according to the Energy Information Administration (EIA) the numbers section of the Department of Energy. The EIAs monthly data shows production at 8.97 million bpd the highest since 1986. In Texas crude oil production surpassed 3 million bpd and the Texas Petro Index set another record last month. U.S. crude production continues to grow U.S. inventories climbed by 2.06 million barrels to 379.7 million barrels at the end of October according to the EIA report. Crude imports dropped 5 to 7.1 million bpd down 4.8 from a year ago. The surge in production has helped push oil prices down 20 this year. Gasoline There is a direct impact on gasoline prices when the price of crude oil goes up or down EIA stated.

A general guideline for how crude oil prices affect gasoline is that a $1-per-barrel change in the price of crude oil translates into a change of about 2.4 cents per gallon of gasoline" EIA stated.

U.S. average gasoline prices declined 6 cents last week to $2.993 per gallon EIA reported.  Cheapest region was the Gulf Coast with an average-per-gallon cost of $2.769.  Highest prices were on the West Coast at $3.237. Texas Petro Index Record permitting activity record employment and more than 900 rigs drilling on-location continue to propel the Texas Petro Index (TPI) to a record 312.3 up from 310.7 last month and a 6 increase over the same period in 2013. However the record-setting indicators were overshadowed by declining crude oil prices which fell to about $78 per barrel at the end of October.

But remember" added the Texas Alliance of Energy Producers Ingham (right) the oil-price decline is neither accidental nor random. It is the result of the spectacular crude oil production increases achieved by operators in Texas and all across North America in recent years with assistance from sluggish economic conditions keeping a lid on energy-demand growth. This is how markets are supposed to work: high prices stimulate additional production which in turn stabilizes prices or pushes them lower. That is exactly what is happening now" Ingham said.

Ingham said the benefit of lower oil prices to U.S. consumers in the form of lower gasoline prices was just one direct beneficial outcome.  More of our energy is being produced here at home; crude oil imports have been cut well more than in half and more of what we do import comes from Canada. In fact this in part is what energy independence looks like in the U.S. and isnt this the outcome we have wanted as consumers?" Ingham asked. Estimated Texas natural gas output was more than 680.2 billion cubic feet a meager year-over-year monthly increase of about 0.3.  With natural gas prices in September averaging 3.92/Mcf the value of Texas-produced gas increased 13.3 to more than $2.66 billion. The Baker Hughes count of active drilling rigs in Texas averaged 902 increasing 7.8 from 837 active rigs in September 2013. The number of Texans on oil and gas industry payrolls averaged a record 309400 according to statistical methods based upon Texas Workforce Commission estimates about 9 more than in September 2013. Upstream oil and gas industry employment in Texas has increased steadily since falling to a nadir of 179200 in October 2009.  During the previous growth cycle industry employment peaked at 223200 in November 2008. U.S. Shale Oil Production: The New Oil Order Goldman Sachs one of the best known companies following in the futures market of crude oil announced on Oct. 26 that it projects $75 per barrel for the first quarter of 2015 for West Texas Intermediate (WTI) down from its previous forecast of $90. Goldman Sachs also forecast $85 per barrel for Brent down $15 from its previous prediction of $100. Our forecast path reflects our expectation that timespreads will be weakest in the second quarter of 2015 when the global oversupply will be largest with Brent prices reaching $80 per barrel and WTI  prices $70 per barrel" Goldman Sachs stated in its report called The New Oil Order." Morgan Stanley another of the top analyzing companies is a little more optimistic that prices will not fall much farther.

Despite the recent sell off in crude pricing we see several positive developments emerging in the physical markets" their report issued on Oct. 13 stated.  Even if OPEC is not overly responsive before year-end (which we expect) fundamentals have turned which should eventually lift crude prices. Calling the bottom is difficult and macro fears and rumors could continue to pressure crude.  However we see the potential for a positive bounce into year-end particularly given extremely bearish sentiment and positioning" the Morgan Stanley report stated.

Morgan Stanley said crude oil demand should rise during the fourth quarter of 2014. Both reports agree that OPEC especially its largest exporter Saudi Arabia will play an important role in what happens regarding worldwide crude oil supplies. Morgan Stanley said that assuming supply delivers as scheduled OPEC will likely have to cut its quota 500000 barrels per day in 2015 and 2016 to balance the market. However Goldman Sachs stated that OPECs pricing power has diminished because of the increased oil production in the U.S. which needs to slow to keep supplies more in line with demand. U.S. shale is the marginal swing barrel in the new oil order" according to Goldman Sachs. Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely those of the author.