A Return To Higher Oil Prices: It s Complicated

Transcription

1 A Return To Higher Oil Prices: It s Complicated Art Berman Labyrinth Consulting Services, Inc. Ray Leonard Hyperdynamics CFA Society Buffalo Buffalo, New York April 26, 2016 Labyrinth Consulting Services, Inc. artberman.com 1

2 A Return To Higher Oil Prices: It s Complicated Oil prices collapsed beginning in June 2014 because of market over-supply. This was a classic bubble: easy credit + high oil prices after the 2008 Financial Collapse lead to over-investment and over-production. We are in the third oil-price rally since prices collapsed prices are 63% higher than in January: $44 vs. $27 per barrel. This rally is similar to the previous two but may end differently because of growing concern about supply from under-investment (the reverse side of a bubble). The failure of an OPEC production-freeze may signal Saudi Arabia s expectation for higher oil prices in the near- to medium term. The weak global economy may not be able to sustain much higher oil prices. Everyone s break-even price including OPEC s is higher than current prices. Because of a profoundly changed economy and associated monetary policies, we have crossed a boundary and a return to higher oil prices is complicated. Labyrinth Consulting Services, Inc. artberman.com 2

3 Energy Is The Economy: The Context for The Oil-Price Collapse People think that the economy runs on money but it runs on energy Nate Hagens. Today, oil and gas prices & the economy must be viewed through the debt lens. The end of cheap oil and natural gas in the early 2000s led to financial dislocations and ultimately, the Financial Collapse of Because of resource scarcity, oil prices increased from a baseline of $33/barrel in the 1990s to an average price of $99/barrel from late 2010 until September Before the Financial Collapse, E&P companies had almost unlimited access to joint-venture capital and bank credit. Post-collapse monetary policy focused on forcing consumption and investment: zero interest & further expansion of credit. This resulted in more capital to oil companies in the form of bonds and share offerings as investors reached for yield in a low-interest rate world. It is impossible to understand and critically evaluate the shale gas or tight oil without this context. Labyrinth Consulting Services, Inc. artberman.com 3

4 Global Oil Output and Over-Production: How We Got Here World Crude Oil & Condensate Production Incremental Crude Oil Production Since Janaury ,000 U.S. + Canada Iraq Brazil Russia Saudi Arabia Iran 4 80,000 78, ~7.1 mmbpd increase 3.5 Production from these countries was 2.8 mmbpd more in Feb 2016 than in Jan Saudi Arabia 76, mmbpd was from the U.S. & 1.1 mmbpd from Iraq. Russia added 0.33 mmbpd. Russia Iran Thousands of Barrels Per Day 74,000 72,000 70,000 68, Production Plateau ~72.5 mmbpd Millions of Barrels of Crude Oil Per Day Iran production increased 0.15 mmbpd from December Brazil Iraq 66, ,000 U.S. + Canada ,000 Source: EIA & Labyrinth Consulting Services, Inc. 60, Jan-14 Source: EIA and Labyrinth Consulting Services, Inc. Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Global crude oil production reached a plateau of ~ 72.5 mmbpd from Depletion of old fields as new discoveries took longer to bring on production meant no production growth. Higher oil prices provided incentive to produce more expensive, unconventional oil: tight oil (shale), oil sands and deep-water oil. 7.1 mmbpd increase from lead to production surplus by February 2014 that peaked in May The over-supply caused oil prices to collapse beginning in mid Low-interest rates and currency devaluation after the Financial Collapse of enabled over-investment and over-production: cheap money and high oil prices. Main contributors to over-production: U.S. + Canada, Iraq, Brazil and Russia. Labyrinth Consulting Services, Inc. artberman.com 4

5 Global Market Balance and Tight Oil Over-Production Current global oil market is over-supplied by ~1.45 million barrels of liquids per day. The market is moving slowly toward balance. Production surplus increased to > 3 mmbpd by May 2015 & has declined since then. Supply has flattened but consumption has fallen. The origins of over-supply of oil and low oil prices are found, ironically, in increased scarcity of petroleum resources. Scarcer resources led to higher prices that permitted production of unconventional oil. Over-investment because of high prices and easy credit led to over-production, over-supply and lower oil prices. Labyrinth Consulting Services, Inc. artberman.com 5

6 The End of Cheap Oil Oil prices have only been more than $90/barrel (March 2016 dollars) 3 times: after the oil shocks of the 1970s and early 1980s, before the 2008 Financial Collapse, and For the last 15 years of the 20 th century, oil prices averaged $33/barrel and were partly responsible for economic prosperity in the United States (Reagan-Bush-Clinton era). Low percent of GDP spent on energy. During the Asian Financial crisis in 1998, oil prices reached lowest level since 1950 ($16.49/ barrel). Cheap oil ended in the early 21 st century flat production & increased demand from developing world especially China. Longest period (44 months) of high oil prices after the Financial Collapse. Labyrinth Consulting Services, Inc. artberman.com 6

7 The Collapse of World Oil Prices Market balance expressed by relative supply surplus or deficit (supply minus demand). Period of supply deficit before the Financial Collapse contributed to high oil prices. A supply surplus because of low demand after the Financial Collapse ( ). Period of supply deficit most of because of supply interruptions in the Middle East. Growing supply surplus beginning in 1 st quarter of 2014 caused collapse of oil prices. The surplus reached a maximum in the 2 nd quarter of 2015 (2.2 mmbpd) and has generally improved since then with falling production but remains more than 1.5 mmbpd. Labyrinth Consulting Services, Inc. artberman.com 7

8 The Collapse of World Oil Prices The oil industry experienced downturns during previous periods of low oil prices. Capex generally follows oil price (but not in ). Significantly lower levels of investment in oil exploration and production as companies cut budgets and staff. The magnitude of cuts and decreased investment are much greater in this downturn: debt makes a difference. Three phases to this downturn marked by changes in rig count responding to price cycles. Reduced drilling and completion, and development projects have hurt the oil-field services industry in addition to oil companies. Over-shoot will inevitably lead to higher oil prices. Labyrinth Consulting Services, Inc. artberman.com 8

9 The Big Picture On Oil Prices: Under-Investment Large reduction in E&P investment in 2015 and probably even greater in Deferred investments in 2015 equivalent to 20 billion barrels of reserves. Global E&P estimated capex for 2016 is 44% (-$412 billion) of A substantial supply deficit will result in the not-too-distant future. A price spike seems unavoidable. Labyrinth Consulting Services, Inc. artberman.com 9

10 The Big Picture On Oil Prices: E&P Debt Oil companies have relied on debt during good and bad times since the Financial Collapse. Secondary share offerings in U.S. E&P companies are already higher YTD 2016 than in Pioneer $1.4 billion, Devon $1.3 billion. Investors are looking for the bottom. ~$140 billion in junk bond debt coming due over next 7 years. Huge bank exposure to energy debt. But companies are spending more than they earn from operations. Labyrinth Consulting Services, Inc. artberman.com 10

11 The Big Picture On Oil Prices: Monetary Policy Interest rates have been almost zero since the 2008 Financial Collapse. 8 years of zero-interest rate policy have distorted investments and the economy. Investors seek yield because traditional investments have almost none. U.S. E&P companies became an attractive investment because of high yield and relatively low risk. Labyrinth Consulting Services, Inc. artberman.com 11

12 The Big Picture On Oil Prices: Monetary Policy NYMEX WTI Price & WSJ Dollar Index WTI NYMEX Price WSJ Dollar Index $50 93 $45 $40 Dollar Index!(RHS) Long dollar!futures! bets!sold!on!doubts! about!fed!rate!hikes WTI!(LHS) $35 90 NYMEX WTI Price ($/Barrel) $30 $25 $20 $15 $26!Price!Double Bottom $36!Price!Double Bottom $10 84 $5 83 $ Jan Jan Jan Jan-16 1-Feb-16 8-Feb Feb Feb Feb-16 7-Mar Mar Mar Mar-16 4-Apr Apr Apr-16 Declining!dollar! value Wall Street Journal Dollar Index Source: EIA, Wall Street Journal & Labyrinth Consulting Services, Inc. A negative correlation between the value of the U.S. dollar and world oil prices: a globally connected economy in which countries compete for investment based on interest rates and currency valuation. Oil transactions are denominated in U.S. dollars as the world reserve currency. Higher U.S. interest rates favor investments in the U.S. economy over commodities like oil. When the dollar is strong, oil prices are generally lower and vice versa. The correlation between oil price and the dollar is especially strong since 2015 and partly explains price cycles. The latest price rally began after the Federal Reserve Bank indicated that further interest rate increases in 2016 were unlikely. Labyrinth Consulting Services, Inc. artberman.com 12

13 Price Cycle Trends and Price Volatility Oil prices have increased from $26 to $44 per barrel during the current January April price rally. This is based partly on hope for an OPEC-plus-Russia production freeze. There were two major price cycles in 2015: March-August ($44-$60-$38 per barrel) and August-January ($38- $49-$27 per barrel). The first was based on plunging U.S. rig counts and withdrawals from storage. The second was based on good economic news about China and U.S. storage withdrawals. Both of these cycles lasted approximately 150 days (5 months). Oil-price volatility was generally high at the beginnings and ends of the cycles and generally low during their peaks. Labyrinth Consulting Services, Inc. artberman.com 13

14 The Present Price Cycle Prices increased from $26.55 to $33.62 in late January and then dropped to $26.21 on February 11. This double-bottom pattern probably tested the low-price threshold for the greater oil-price collapse that began in June Prices increased to $41.45 on March 22 over a period of 40 days, then fell to $35.70 over the next 12 days before peaking at $41.97 on April 13. The $35.70 low probably tested a threshold. Prices are now fluctuating between $42 and $44/barrel. Volatility patterns generally are consistent with earlier cycles but it is too early to say how these are developing. The total duration of this cycle is 96 days so far. Labyrinth Consulting Services, Inc. artberman.com 14

15 U.S. Production Decline U.S. Crude Oil Production Crude Oil Production WTI Price !kbpd!decline!since!April!2015 (90 kbpd!since!february) $ $ $80 $60 $ $20 Source: EIA April 2016 STEO & Labyrinth Consulting Services, Inc $0 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Millions of Barrels of Crude Oil Per Day Oil!Production (LHS) WTI!Price!(RHS) WTI Price ($/Barrel) March production fell to 9.04 million barrels per day, 90,000 barrels per day less than in February. 660,000 barrels per day less than peak production in April EIA forecasts that production will drop another 920,000 barrels per day by September 2016 for a total decline of 1.58 million barrels per day compared to April The rate of decline has increased from ~60,000 bpd/month to ~80-90,0000 bpd/month. Labyrinth Consulting Services, Inc. artberman.com 15

16 Inventories Remain An Obstacle To Price Recovery OECD Liquids Inventories !Inventory 359!mmb!above the!5-year!average 192!mmb!(54%)!is!USA 2015 Billions of Barrels of Liquids Source: EIA & Labyrinth Consulting Services, Inc. January February March April May June July August September October November December U.S. stocks are near record high levels of 539 million barrels: 78 million barrels more than at this time in 2015 and 138 million barrels more than the 5-year average. OECD stocks are also at record levels of 3.13 billion barrels of liquids. That is 359 million barrels more than the 5-year average but 54% of those volumes are U.S. stocks. Labyrinth Consulting Services, Inc. artberman.com 16

17 Comparative Inventories At Cushing Are Falling Cushing Comparative Invntory & Futures-SpotPrice Spread Futures Spread Comparative Inventory WTI 30 $70 WTI!(RHS) Comparative!Inventory!(LHS) Cushing Comparative Inventory (Millions of Barrels of Crude Oil) $60 $50 $40 $30 $20 $10 0 $0 26-Dec-14 9-Jan Jan-15 6-Feb Feb-15 6-Mar Mar-15 3-Apr Apr-15 1-May May May Jun Jun Jul Jul-15 7-Aug Aug-15 4-Sep Sep-15 2-Oct Oct Oct Nov Nov Dec Dec-15 8-Jan Jan-16 5-Feb Feb-16 4-Mar Mar-16 1-Apr Apr-16 WTI PRrice & Futures-Spot Price Spread x 4 (Dollars Per Barrel) Dec-June!2016!Futures!Price!Spread!(RHS) Comparative inventory is determined by comparing current stocks with a moving average of stocks over the past 5 years. The two previous price cycles in 2015 were both characterized by falling comparative inventories. When C.I. patterns reversed, prices fell. The current price cycle shows strong C.I. decrease at Cushing. Front-to-back futures spreads typically fall with decreasing inventories because shortdated contracts gain value compared to longer-dated contracts. The past two cycles ended because producers increased drilling and production at higher prices. Labyrinth Consulting Services, Inc. artberman.com 17

18 The Current Price Rally and Movement of Stocks Out of Cushing Gulf Coast (PADD 3) Minus Cushing Inventories and WTI Price NYMEX WTI Price & WSJ Dollar Index $ WTI NYMEX Price WSJ Dollar Index WTI Price ($/Barrel) $60 $50 $40 $30 $20 WTI!Price!(LHS) Gulf Coast!Minus!Cushing! Stocks!(RHS) Oil!moving!out!of!Cushing!and!into! Gulf!Coast storage Gulf Coast Minus Cushing Stocks (Millions of Barrels of Crude Oil) NYMEX WTI Price ($/Barrel) $50 $45 $40 $35 $30 $25 $20 $15 $10 Dollar Index!(RHS) $26!Price!Double Bottom Long dollar!futures! bets!sold!on!doubts! about!fed!rate!hikes WTI!(LHS) $36!Price!Double Bottom Declining!dollar! value Wall Street Journal Dollar Index $ $5 83 $0 Source: EIA & Labyrinth Consulting Services, Inc. Jan-15 Jan-15 Jan-15 Feb-15 Feb-15 Mar-15 Mar-15 Apr-15 Apr-15 May-15 May-15 Jun-15 Jun-15 Jul-15 Jul-15 Jul-15 Aug-15 Aug-15 Sep-15 Sep-15 Oct-15 Oct-15 Nov-15 Nov-15 Dec-15 Dec-15 Jan-16 Jan-16 Jan-16 Feb-16 Feb-16 Mar-16 Mar-16 Apr Source: EIA, Wall Street Journal & Labyrinth Consulting Services, Inc. $0 4-Jan Jan Jan Jan-16 1-Feb-16 8-Feb Feb Feb Feb-16 7-Mar Mar Mar Mar-16 4-Apr Apr Apr Overall U.S. crude oil stocks are increasing but inventories are falling at Cushing. Gulf Coast inventories increase as Cushing stocks are transferred. This also correlates with price cycles in 2015 and Cushing represents only 12% of total stocks but is the pricing point for WTI prices and is the bottleneck for all Canadian imports and Bakken production. It is also the largest casino in the world: 3 billions barrels of oil futures contracts are traded every week on WTI 3 times Brent, the international benchmark crude oil. Labyrinth Consulting Services, Inc. artberman.com 18

19 Why Imports From Canada Matter 3.5 U.S. Imports of Crude Oil U.S. imports 7.3 mmbpd 6.94 mmbpd (95%) from 9 countries Millions of Barrels of Crude Oil Per Day Canada (44%), Saudi Arabia (17%), Venezuela (13%), Mexico (8%), Columbia (7%), Iraq (5%), Nigeria (3%), Kuwait (2%) and Angola (1%) 80% of Canadian production goes to the U.S Canada Saudi Arabia Venezuela Mexico Colombia Iraq Nigeria Kuwait Angola Source: EIA & Labyrinth Consulting Services, Inc. 44% of U.S. imported crude oil is from Canada: 3 million barrels per day. The rest comes from Saudi Arabia (17%--1.2 mmbpd), Venezuela (13%--0.9 mmbpd), Mexico (8%--0.5 mmbpd), Colombia (7%--0.5 mmbpd), Iraq (5%--0.3 mmbpd), Nigeria (3% mmbpd), Kuwait (2% 0.1 mmbpd) and Angola (1%--0.1 mmbpd). U.S. imports from Canada have increased 1.25 mmbpd since % of all Canadian oil production is exported to the U.S. Labyrinth Consulting Services, Inc. artberman.com 19

20 Inventory Growth Includes Imported Oil U.S. inventory includes imported oil bought on arbitrage. As U.S. production declined after peaking in April 2015, net crude oil imports increased. U.S. inventories increased at the same time. There is a reasonable correlation between decreased Brent-WTI spreads and increased imports. Today s world economy is a casino. Labyrinth Consulting Services, Inc. artberman.com 20

21 Crude Oil Inventories, Oil Consumption and WTI Prices: 2016 Price Rally U.S. Crude Oil Production U.S. Liquids Consumption, Crude Oil Stocks & WTI Price Crude Oil Production WTI Price WTI Price Consumption Inventory !kbpd!decline!since!April!2015 (90 kbpd!since!february) $120 $70 9 Millions of Barrels of Crude Oil Per Day Oil!Production (LHS) WTI!Price!(RHS) $100 $80 $60 $40 WTI Price ($/Barrel) WTI Price ($/Barrel) $60 $50 $40 $30 $20 WTI!Price (LHS) Mar-Aug!2015! Price!Cycle Aug-Jan!Price! Cycle Stocks!(RHS) Consumption!(RHS) Jan-Apr!Price! Cycle Consumption (mmbpd/2.5) & Crude Oil Stocks (mmbo/60) 5.00 $20 $ Source: EIA April 2016 STEO & Labyrinth Consulting Services, Inc Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 $0 $0 Source:!EIA&!Labyrinth!Consulting! Services,!Inc. Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 6 In the current price rally, consumption has increased following record low prices from December 2015 through February Very high stock levels may be rolling over. Consistent production decline of ~70,000 barrels per month since September ,000 barrel per day decline in March is largest monthly drop so far. During 2015 price rally, $15 per barrel (41%) price increase killed consumption. In current rally, peak price was almost $17 above baseline with greater percent increase (63%) than Labyrinth Consulting Services, Inc. artberman.com 21

22 The Long-Term Perspective On Oil Prices Average oil price 1950-Present: $45 per barrel. Modal oil price: $25 per barrel. Present price: $44 per barrel : $33 per barrel. The end of cheap oil in the 21 st century led to financial dislocations and ultimately, the Financial Collapse of Labyrinth Consulting Services, Inc. artberman.com 22

23 Increased Driving Will Not Greatly Increase U.S. Oil Consumption Total U.S. Gasoline Sales & Vehicle Miles Traveled Vehicle Miles Traveled Gasoline Sales 12 per. Mov. Avg. (Gasoline Sales) Gasoline Product Supplied, Total Sale & Exports Gasoline Product Supplied Total Gasoline Sales Exports Total Wholesale & Retail Gasoline Sales (Thousands of Barrels Per Day) 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,000 Jan-2000 Jun-2000 Nov-2000 Apr-2001 Total Gasoline Sales (LHS) Sep-2001 Feb-2002 Jul-2002 Dec-2002 May-2003 Oct-2003 Mar-2004 Aug-2004 Jan-2005 Jun-2005 Nov-2005 Apr-2006 Sep-2006 Feb-2007 Jul-2007 Lower oil prices have lead to greater gasoline consumption. Product supplied has increased 9% (745 mbpd) since Jan Vehicle miles traveled have increased 6% (0.16 trillion miles per month). Gasoline sales have declined 8% (-640 mbpd). Gasoline exports have increased 264% (+419 mbpd) and storage has increased (+27 mmb). Greater gasoline consumption will not greatly increase U.S. oil consumption. Dec month average Americans are driving 6% more (0.16 trillion miles/month)than in 2009 but using 8% less gasoline (-0.64 mmbpd) 6,500 *March & April 2016 Gasoline Sales estimated from weekly Product Supplied data; no VMT data for those months. Source: EIA, U.S. Federal Reserve Bank & Labyrinth Consulting Services, Inc. May-2008 Oct-2008 Mar-2009 Aug-2009 Jan-2010 Vehicle Miles Traveled (RHS) Jun-2010 Nov-2010 Apr-2011 Sep-2011 Feb-2012 Jul-2012 Dec-2012 May-2013 Oct-2013 Mar-2014 Aug-2014 Jan-2015 Jun-2015 Nov ,200,000 3,100,000 3,000,000 2,900,000 2,800,000 2,700,000 2,600,000 2,500,000 2,400,000 Vehicle Miles Traveled (Millons of Miles) Labyrinth Consulting Services, Inc. artberman.com 23 Gasoline Product Supplied & Total Sales (Thousands of Barrels Per Day 12 MMA) Gasoline Stocks (Thousands of Barrels) Jan , , , , , , , ,000 Jun-00 Jan per. Mov. Avg. (Gasoline Product Supplied) 12 per. Mov. Avg. (Total Gasoline Sales) 12 per. Mov. Avg. (Exports) Nov-00 Jun-00 Apr-01 Nov-00 Sep-01 Apr-01 Feb-02 Sep-01 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Product supplied has increased 9% (745 mbd) since 2009 Product Supplied (LHS) Total Sales (LHS) Sales have decreased 8% (623 mbd) since 2009 Feb-02 Jul-02 Dec-02 Exports (RHS) Gasoline Stocks (RHS) Aug-04 Jan-05 Stocks May-03 Oct-03 Mar-04 Jun-05 Nov-05 Apr-06 Sep-06 Gasoline Stocks Aug-04 Jan-05 Jun-05 Nov-05 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Gasoline exports have increased 264% (419 mbd) since 2009 Mar-09 Gasoline Stocks Apr-06 Sep-06 Feb-07 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep per. Mov. Avg. (Gasoline Stocks) Feb-12 Gasoline Stocks have increased 13% (27 mmb) since 2009 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan month average Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Jun-15 Mar-14 Nov-15 Aug Jan-15 Jun-15 Gasoline Exports (Thousands of Barrels 12 MMA) Nov-15

24 A Perspective On Break-Even Prices $160 IMF Projected 2016 Fiscal Break-Even & U.S. Tight Oil Prices $140 $137 Fiscal Break-Even Price (Dollars Per Barrel) $120 $100 $80 $60 $40 $119 $115 $110 $97 $95 $89 $89 $86 $71 $70 $69 $67 $65 $49 $20 $0 Yemen Iran Algeria Bahrain Libya Source: IMF!&!Labyrinth!Consulting! Services,!Inc. Oman Qatar Average Saudi Arabia Permian Core UAE Iraq Eagle Ford Core Bakken Core Kuwait There has been a lot talk about low- and high-cost producers since the oil-price collapse of IMF published fiscal break-even prices for OPEC in We have determined break-even prices for the core tight oil plays in the U.S. Everyone needs prices higher than today s to break even. Realistically, $70 per barrel is the minimum for the most lower-cost producers. Most OPEC members need more than $80 to break even. U.S. tight oil plays look pretty good in this company! Labyrinth Consulting Services, Inc. artberman.com 24

25 A Return to Higher Oil Prices Is Complicated The current price cycle may represent the beginning of an oil-price recovery. Comparative inventories are falling at Cushing and stocks now include imported oil. Chart patterns suggest that a bottom may have been established at $26-$27 per barrel. A more recent threshold may have been tested at $36 per barrel. The fact that the Doha failure did not affect prices much is notable. Earlier price cycles in 2015 ended badly. Higher prices resulted in increased drilling and completion. Also, demand may have been range-bound because of a weak global economy. What may be different is concern about medium-term supply because of under-investment. There has been more progress toward market balance now but the global surplus is still 1.5 mmbpd. The likely path forward will be more price cycles but this time, with higher rather than lower ending prices. What is a reasonable price recovery level? History suggests $45 per barrel but everyone needs more now to break even. A weak global economy and weak oil demand are the biggest risks. Labyrinth Consulting Services, Inc. artberman.com 25