• November 13, 2019

ELAM: Too much of a good thing? - Odessa American: Dennis Elam

ELAM: Too much of a good thing?

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Posted: Sunday, November 3, 2019 5:00 am

The Permian Basin economy declined for the sixth month in a row.

Karr Ingham, Ingham Econ LLC

Almost half of the US fracking firepower is expected to be sitting idle within weeks. In the previous slumps, frackers parked equipment waiting for an upturn. This time it is different, equipment is being stripped for parts or sold for scrap.

Fracking Equipment Being Sent to the Junkyard, Bloomberg News

And that readers is precisely the kind of headline that accompanies a bottom in oil prices. Benchmark Patterson and RPC are retiring pumping units. Well no wonder the firms are trading below book value.

Transocean RIG is scrapping rigs that cost billions to build. No wonder it trades at 20% of book value.

Infill founder Joseph Triepke announces there is too much of everything from horsepower to sand.

In Odessa everything is being stacked from pipe to rigs to sand haul trucks.

Social Mood maxes out at the top and bottom of markets. The most intense mood occurs then. That results in comments like this one in the Bloomberg Article.

And next year does not look much brighter.

We’ll need to see oodles and oodles more attrition from other pumpers to clean up this market absent a notable demand boost.

Tudor Pickering

All of this is typical of conventional economic analysis. Economists tend to think in linear fashion. At bottoms there is nothing but an endless trend extending as Buzz Lightyear would say “To Infinity and Beyond.”

The Philadelphia Oil Service Index is down after rallying some eight points (61-68) this month.  The XES has also turned down again. FRAK has turned down in price.

After brief rallies, Patterson and Transocean have pulled back as well.

However the S & P Energy Sector Bullish Percent Index is above its August low of 20 now trading at 46.

I may be early but for now this looks like an energy low is in the making for the last quarter of 2019.

The US Economy registered a gain of 19% for the third quarter. Trump’s trade policies are to blame. The FED has lowered its overnight rate to 1.75%. The ten year Treasury trades at a 1.8% yield. What is the FED going to do if the economy in fact does sour a bit? Trump has what he asked for. He had better make the best of it and wrap up a few trade deals, declaring victory going into the 2020 campaign.

Yes the S & P hit a new high but rally and the Dow Industrials are a few points above the recent year-long trading range.  Uncertainties include trade, impeachment, interest rates, world social unrest (even Chile has joined the fray), and finally the election itself. Stock market momentum is up but it may be slow going in the election year.

DAILY OIL PRICE: November 13

  • Crude Oil: 57.12 (+0.32).
  • Nymex MTD AVG:  56.7977.
  • Natural Gas: 2.600   (-0.021).
  • Gasoline: 1.6365   (+0.0221).
  • Spreads: December/January   (-.08)   January/February   (+.11).
  • Plains WTI Posting: 53.50   (+0.25)
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