“Wow, tons of good data in today's Musings (sent earlier before I'd read it).
“The discussion on natural gas is particularly interesting, and uses a lot of data from Art Berman, whom I really respect. This issue is now being debated, but in my opinion both producers and the EIA are continuing to use inflated long-term production projections for recently drilled and planned wells. That does not say that the US cannot become energy independent, but it does suggest that we could see materially higher natural gas prices over the medium term (which I think would be a positive in terms of pushing the US towards less idiotic regulation in the o&g business).
“The discussion on the aging populations around the world is also really interesting, and pokes at the immigration policy issues of many countries (I also argue that aging nations need liberal immigration policies to encourage growth of the younger portion of the population).
“Anyway, it's a great edition of this always-interesting publication.”
Eoin Treacy's view Thank you for this edition of Allen Brooks' report which is always an educational report that arrived last week. Here is an important section:
Based on this analysis, it is very likely that producers are facing the prospect they soon will have to step up their gas drilling efforts in order to sustain production levels. While they may not do that in the near term, opting instead to let production fall in order to drive up gas prices. The one bad thing for producers that has come from the American gas shale revolution is that consumers are beginning to institutionalize the concept of growing gas volumes with continued low gas prices. Allowing production to fall and prices to rise will be the only way to re-educate gas buyers as to the rules of supply and demand, which many people think have been overturned. The oilfield service industry is likely staring at the up escalator of future drilling and completion work, although they probably can't see it for the downward pressures of current activity declines and fierce price competition. Companies with liquefied natural gas (LNG) export terminal applications pending before the Federal Energy Regulatory Commission (FERC) may want to reconsider how much effort they spend on these soon-to-be white elephant facilities.
Since bottoming in April natural gas prices have trended back to test the psychological $4 area. This represents the breakeven point for a sizable portion of unconventional supply and many in the industry would probably like to see prices hold above $4 in order to invest in more drilling. A sustained move below $3.50 would be required to question current scope for continued higher to lateral ranging.
The oil machinery and drilling equipment sector has been mostly rangebound for two years and has firmed from the lower boundary over the last couple of months. Cameron International Corp has one of the better chart patterns and found support in the region of the 200-day MA three weeks ago. A sustained move below $50 would be required to question medium-term scope for continued higher to lateral ranging.
In the drilling sector Patterson-UTI Energy found support in the region of its 2010 low from June and has held a progression of higher reaction lows since. A sustained move below $15.70 would be required to question medium-term scope for continued upside. Generally speaking offshore drillers have been clear outperformers. SeaDrill (8.81%) has by far the most consistent pattern in the sector and has returned to test the region of the 200-day MA where it has found at least short-term support. Ensco looks more likely than not to complete an 18-month range with an upside breakout.
In the services sector, Petrofac rallied last week from the region of the 200-day MA to break the short-term progression of lower rally highs. A sustained move below 1500p would be required to question current scope for continued higher to lateral ranging. Another company with an offshore focus, John Wood Group, also exhibits a consistent trend. It found support last week in the region of the 200-day MA and the upper side of the underlying trading range.
While somewhat smaller than the above companies Carbo Ceramics, with a market cap of $1billion is worthy of mention. It posted a large upside weekly key reversal in October and has returned to test the region of the 200-day MA A sustained move above $80 would break the downtrend and confirm a return to demand dominance beyond the short-term.