It is finally Friday. Many of us have had a long week and we are finishing the week strong. We are looking forward to a glass of champagne in our pjs since it is finally the weekend and we made it through the week. Ok, maybe that is just *some* of us.

Back to business before bubbly…

We are not the only thing that is finishing the week strong – oil is up.

Oil reportedly closed at a three-year high today – check out the Wall Street Journal article entitled Oil Closes at Three-Year High: Light, Sweet Crude for May Delivery Settled Up 32 Cents, or 0.5%, to $67.39 a barrel. According to today’s Wall Street Journal article: “Prices have climbed as supply cuts from major oil exporters and strong global demand have helped ease a longstanding glut. Increased geopolitical risk has also put a premium on crude, as production from countries like Iran and Syria has been threatened.”

According to Bloomberg Energy, WTI Crude Oil is at $67.39 per barrel and Brent Crude is at $72.58 as I write this.

The uptick was also discussed in Bloomberg’s article, Oil Posts Biggest Weekly Gain Since July Amid Global Conflict, featured in Oil & Gas 360.

Bottomline – oil prices are up. Good news – champagne Friday. Bad news – the reasons behind the bump in prices.

According to many folks in the know, the jump in prices is at least partially attributable to big-ticket issues that stress us all out, like major potential conflict. IE: the Wall Street Journal article notes supply concerns due to potential conflicts in the Middle East and trade tensions with China and Bloomberg’s article notes “geopolitical tensions from Saudi to Syria boosting prices.”

The jump in prices is also partially attributable to that good ‘ol surplus we had forever finally reducing – it has always been about supply and demand.

Coco Chanel famously said, “I only drink champagne on two occasions: when I am in love and when I am not.” Those of us in the energy industry have a similar mindset when it comes to oil prices – we only drink when prices are up and when prices are down. I am kidding…today, we toast to finishing the week strong.

Today, the U.S. Energy Information Administration (“EIA”) issued its Today in Energy entitled U.S. Crude Oil Production Growth Projected to be Led by Light, Sweet Crude Oil.

We all know that I have a sweet tooth, but we aren’t talking those kinds of sweets today – we are talking light, sweet crude. It is no secret that light, sweet crude oil accounted for the growth in domestic production in recent years – but just how much growth is attributable to lighter crude from tight formations?

According to the EIA’s Today in Energy, “light, sweet crude oil, defined as having an API gravity of 35 or higher and a sulfur content of 0.3% or less” accounted for “nearly 90% of the 3.1 million barrel per day (b/d) growth in production from 2010 to 2017.”

In fact, just last week on April 4, 2018, the EIA issued a Today in Energy entitled U.S. Production of Crude Oil Grew 5% in 2017, Likely Leading to Record 2018 Production. This article discussed the significant increase in domestic crude oil production due to the development of tight rock formations. Specifically, the EIA’s April 4 Today in Energy provides as follows:

“Annual average U.S. crude oil production reached 9.3 million barrels per day (b/d) in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016.”

“In November 2017, monthly U.S. crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in U.S. history.”

As I write this, according to Bloomberg Energy, oil prices are pretty steady – WTI Crude Oil is at $63.30 per barrel and Brent Crude is at $68.65 per barrel.

I took this photo while flying into North Dakota a couple of weeks ago – flying high above North Dakota’s Bakken oil play and the mecca of light, sweet crude.

Behind the Energy Law Today blog is usually one face – me, Melissa J. Lyon. Sometimes we feature guest authors, but most of the time it is just me and I bring you along on this energy and natural resources law journey with me.

Thinking back, I realized I have been writing this blog since 2014 and some of my most-read articles are ones like this one, where I provide you with a real life update of what I have been up to…

I have updated you as to the happenings in the energy sectors of various places I have traveled to (for example, What Fuels Tennessee?, Through the Eyes of the Cowboy State: A Commentary on Wyoming Being Featured in the New York Times, Status Update: The Paris Agreement), I have reported back from conferences and provided insight on great books and industry events, I even share with you how my recipes relate to industry issues (recently – Resilience is Key: Gingerbread and Oil Prices, and my all time fav from back in 2016, It Takes the Right Ingredients: The Recipe for Oil and Gas Economics and the Perfect Pie Have Common Components)…but this time, I have something much more thought provoking to tell you about. This update is about “Thriving in Chaos.”

Enter Corinne Hancock. Earlier this month, Fox Rothschild brought Corinne Hancock in as a speaker and she spoke about “Thriving in Chaos.”

Something near and dear to many of us!

This program truly resonated with me and has made me think about all of the chaotic events that life throws at us – in business, in our personal lives, with our families and with our friends and children – and how we not just survive these times, but we learn to “thrive” in them, as Corinne would say.

As you know, I often write about the price of oil, not to mention that I am an attorney (an often chaotic profession in and of itself!) – chaos is inherent in this biz.  Chaotic is a great word to describe the volatility of the price environment over the past few years. We remember days, not that long ago, when oil was lower than we could imagine, yet many companies found a way to thrive during these difficult times, becoming more innovative and creative with how they approached problems.

As I write this, oil is up according to Bloomberg Markets’ article entitled, “Oil Jumps to Three-Week High as Advancing Stocks Fan Optimism.” WTI Crude Oil is at $63.95 per barrel and Brent Crude is at $67.54 per barrel, according to Bloomberg Energy.

The energy sector is the epitome of “thriving in chaos,” so that is probably why I found Corinne’s program so spot on and insightful. Corinne importantly teaches that, “how we react can be the difference between success and failure.” This is interestingly the one thing that we can control – our reaction.

No matter your chaotic environment, remember that “how we react can be the difference between success and failure.” Check out Corinne Hancock here if you would like more info on her programs!

For many, this month has been very good to us. January is traditionally a month of hope and resolutions that many feel will set the tone for the upcoming year.  Based on this month, we are looking forward to a great 2018!

Crude oil is in a similar position – January has been very good for it.

According to the Bloomberg article entitled, Dollar Helps Propel Oil to Three-Year High as Supplies Tighten, “[o]il just got an extra tailwind from a weakening dollar as this month is shaping up to be the best January for black gold in 12 years.”

As I write this, according to Bloomberg Energy, WTI Crude is at $66.20 per barrel and Brent Crude is at $70.48 per barrel.

Basically oil is rallying and prices are increasing as the dollar is weakening…

In other news, Baker Hughes released its U.S. rig count today, which can be found here. According to Baker Hughes’ Rig Count Overview & Summary Count, as of today, the U.S. rig count has increased 11 from the prior count on January 19, 2018 and a whooping 235 rig increase since the same time last year.  Huge increase since January of 2017!

The U.S. Energy Information Administration (“EIA”) also released its Drilling Productivity Report for January 2018, which can be found here. The report shows that oil and natural gas production are up through the month of December 2017 for the Anadarko region, Bakken region, Eagle Ford region, Niobrara region, Permian region and projected oil and natural gas production through February 2018 are also on the increase for all regions except the Appalachia and Haynesville regions.

January has been good to us.

Side note, I recently read in The Old Farmer’s Almanac that there are two full moons this month – the Wolf Moon, the first full moon of the year, was on January 1, and we have another full moon coming on January 31. According to The Old Farmer’s Almanac, since the second full moon that will occur January 31 has no given name, that makes it a Blue Moon.

Things really do happen once in a Blue Moon!

And for that, I think we should celebrate how good January has been to us by cracking open a Blue Moon beer!

You may remember a prior blog post I wrote back in May of 2016 about Denver’s office real estate market feeling the pinch of the downturn in the oil and gas industry – Denver Feeling the Pinch: Denver Office Market Finally Feeling the Effects of Downturn in Energy Industry. A few months later in September of 2016, I wrote a follow up piece discussing this further in the blog entitled, Denver Office Market Still Feeling the Impacts of the Downturn in Energy Industry.

Well folks, we all know how far-reaching the impacts of the oil and gas sector can be, and today we have some more good news. I read an article today that discusses how the Denver office market is getting fresh blood from some new energy companies and how it is back on the upswing!

Denver Bisnow featured an article today entitled, Denver Office Market Improves with Recovering Energy Prices that discusses how energy companies are filling the downtown Denver office space back up.

We all know that I am the forever optimist – but I write this piece to show again how the energy sector can positively impact so many different areas. From the real estate market to the service sector, the energy industry’s benefits are widespread!

For the first time during my holiday baking, I added gingerbread men to the baking list. I can’t emphasize how nervous I was to add gingerbread to my already long list of holiday baking items. We have all bitten in to a rock hard gingerbread cookie and been amazingly disappointed. It is a lot of pressure to bake the perfect cookie from a new recipe you have never tried before. Gingerbread can be especially difficult to perfect – like oil prices, the dough can be a little temperamental.

I did my recipe homework and emotionally prepared myself just in case my gingerbread cookies did not turn out. I found the perfect gingerbread man cookie cutter. I found a well-regarded recipe by Sweet Sugarbelle, which can be found here. When I realized I had all of the ingredients in my pantry already, I got started!

At the last minute, I realized I did not have enough molasses…as you might guess, the molasses provides the crucial flavor and dark coloring for the gingerbread cookies.

Baking, like the oil and gas industry, keeps one on her toes.

I halted where I was so far in the recipe and walked over to my neighborhood market to buy more molasses, only to realize, très disaster, they did not have it in stock. Just like the oil industry has done since the downturn, I had to improvise and figure it out in the heat of the moment. Although the stakes were clearly lower for me, as all I had in the game were cookies…

I thought on my feet – put a little of this and that in to substitute and went on with the plan. Grit is important. One must always follow through with the plan! Needless to say, it paid off and I baked the softest and best tasting gingerbread men I have ever had!

You may be wondering what this has in common with oil prices. Actually, it has a lot to do with it. As I write this blog, WTI Crude is sitting at $63.46 per barrel and Brent Crude is at $69.20 per barrel, according to Bloomberg Energy. This is “the highest closing levels in more than three years,” according to CNBC article entitled, Oil Prices Are Close to Levels Not Since the Thanksgiving 2014 Bloodbath.

Oil prices have led us on an emotional rollercoaster.  Luckily, it seems that we are headed in a good direction.

A little resilience goes a long way – in baking and with oil prices.

Just recently, oil prices hit a two-year high – but now, this week they have started to head lower. What is going on? Are sliding oil prices a reflection of cold feet?

As I write this, according to Bloomberg Energy, WTI Crude is down to $56.96 per barrel (a -1.03% change) and Brent Crude is at $62.77 per barrel (a -1.32% change).  This is down about $1 per barrel from yesterday.

So what is causing folks to be nervous and uncertain and to have cold feet? Shouldn’t our toes be cozy and warm with WTI in the high $50s?

Contributing Factors to Cold Feet:

  • Rig Count

The rig count may be a factor contributing to the uncertainty in oil prices. As we all know, the rig count is typically used as an indicator of demand – increasing rig count should hopefully correlate to increasing demand for oil and gas. Increasing rig count can become an issue if it is out of sync with demand – if it outpaces demand.

According to the Baker Hughes Rig Count Overview & Summary Count, the last U.S. rig count was from November 22, 2017 and the total domestic rig count was 923 rigs – up 8 from the prior count and up a whopping 330 from the same time last year. The Canadian rig count has reportedly similarly increased 7 rigs since the prior count and 41 from the same time last year, while the International rig count is also reportedly on the rise with 20 more rigs in October 2017 from the prior count in September of 2017 (a 31 rig increase from the same time in October 2016).

  • OPEC Meeting – Tomorrow

The 173rd meeting of the Organization of Petroleum Exporting Companies (“OPEC”) is tomorrow, November 30. The upcoming OPEC meeting could be contributing to price uncertainty because it is unclear whether OPEC will continue to extend production cuts. Prices have been holding relatively steady and have been on the rise, which makes folks wonder about the future of OPEC production cuts. Many are reportedly concerned that “[t]he Nov. 30 gathering is likely to have a different tone than the last two OPEC meetings, because global oil demand has strengthened, inventories have tightened, prices are on the rise, and trading technicals appear bullish.” In the Bloomberg article, “War of Words Threatens to Upend OPEC Meeting,” geopolitical tensions are also listed as a factor that could potentially end hopes of extended oil production cuts.

The New York Times took a different perspective of the upcoming OPEC meeting in its article entitled, “OPEC Leader Cites ‘New Optimism’ With Oil Prices on the Rise” – namely, that the prior production cuts to some extent, appear to have worked. Political issues from across the world – from Venezuela to Russia – are also noted as contributing factors by The New York Times.

  • Supply Concerns

Concerns over supply also may be contributing to the cold feet – the headlines say it all:

  1. Wall Street Journal: “Oil Near Flat After Data Shows Drop in U.S. Inventories
  2. Nasdaq: “U.S. Oil Production Hits 4th Straight Record High Ahead of OPEC Meeting
  3. Bloomberg: “OPEC’s Clash with U.S. Oil Is Nearing Its Day of Reckoning

As usual, predicting what is going to happen with oil prices is darn-near impossible. For now, all we can do to temper the uncertainty is to be sure to wear really warm socks…

If you watched the Broncos play the Patriots on Sunday, chances are you still do not want to talk about it. Chances are also that you are devastated by the fact that they are 3-6 right now, but you are nonetheless looking forward to watching the Broncos play the Bengals this coming Sunday.

You may have also noticed that the price of oil has been declining for the past 4 days in a row…

Two things that I have learned are not for the faint of heart: watching football and oil prices.

Here are some of the recent headlines on oil prices:

The bottom line is that WTI is still at $55/barrel as I write this. According to Bloomberg Energy, WTI Crude is currently at at $55.31 per barrel and Brent Crude is at $61.84 per barrel.

I was told today that I one of my best qualities is that I am genuinely cheerful – this post is not just me being optimistic towards the Broncos and also oil prices. While we loved seeing WTI inch up and hoped it would hit the $60 per barrel mark, we cannot be discouraged by this recent slump in oil prices. We have been through worse before. Same with the Broncos, and any football team for that matter – there are ups and downs.

Folks are starting to question oil demand and try to predict what will happen next: How much will oil slide? Is $30 oil on the horizon again?

Our time is better spent looking at the “best qualities” of a circumstance or thing – instead of questioning these things. There is no rulebook by which we can predict what will happen next – this holds true for both football and oil prices.

For example, a recent Forbes article from right before oil started taking a dip – “Oil at Two-Year Highs as Saudi Arabia Engages in its own ‘Game of Thrones’” – provides some valuable insight; specifically, if WTI trades in a similar range or higher between now and year-end, 2017 will mark the first year since 2013 that the median price of WTI crude is higher than the previous year’s.

Also, it could all change on a dime. One play can change the game. One tiny change in any one factor related to oil can significantly impact the price of oil. Enter: Venezuela. According to CNBC article entitled, “Oil expert Dan Yergin on why Venezuela could cause a ‘big shock’ to the markets,” major supply constraints will impact the system if the global oil market suddenly loses Venezuela’s 2 million barrels of daily oil production.

So chin up Broncos fans and chin up to those of us watching oil prices…we cannot get discouraged yet. John Elway once said, “I’ve experienced the highest of highs and lowest of lows. I think to really appreciate anything you have to be at both ends of the spectrum.”

Last August, I wrote a blog entitled, “Did you just ask me to dance the Contango?” It explained, in detail, oil prices being in Contango – the “situation where the future spot price is below the current price, and people are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity” (according to Investopedia).

Fast forward to today…

Everyone is talking about oil prices.  Specifically, the price of oil hitting the mid-$50 per barrel range for WTI and over $60 for Brent; according to Bloomberg Energy as I write this, WTI Crude Oil is at $54.74 per barrel, a 0.81% increase, and Brent Crude Oil is at $60.70 per barrel, a 0.35% increase. These prices also mark great price points thus far in the year.

CNBC put out an article today entitled, “The oil market just did something it hasn’t done for nearly three years,” where it discussed that the WTI calendar spread for the next six months has moved from “Contango” into “Backwardation.” The CNBC article states that based on Reuters data, the 6-month spread for WTI has slipped from Contango into backwardation for the first time since November 20, 2014 (Brent crude moved into backwardation earlier this year).

To me, it still seems like we may be talking about dance moves…

Let’s break this down:

  • According to the previously mentioned CNBC article, “Backwardation is when the current price of oil is higher than a future cost of oil. It is seen as a sign of higher immediate demand. Conversely, Contango is when the futures price of oil is higher than the spot delivery price.”
  • Another CNBC article entitled, “US crude oil fails to take out 2017 high as a ‘cruel’ month for energy market begins,” provides that backwardation indicates the market is tightening – backwardation means “prices for future delivery are less expensive than contracts to ship oil at an earlier date.”
  • According to Investopedia, “Backwardation is the opposite of Contango.”

It is all linked to supply and demand. According to Investopedia, “[t]he primary cause of backwardation in the commodities’ futures market is a shortage of the commodity in the spot market.”

CNBC’s article explains, “[t]raders have less incentive to hold crude in storage because they stand to make more by selling it immediately. It also prevents U.S. shale drillers from locking in higher future prices with buyers, which tends to rein in their production.”

The takeaway is this – the price of oil may have moved from the hokey pokey to the two-step. The good news is that regardless, oil prices are still dancing.

 

I just read an online article in Fortune entitled, “Oil Prices Have Rallied. So Why is No One Celebrating?” and for a moment, I thought to myself, “wait, is this really a rally?”  Grab the champagne!

As I write this blog, WTI Crude Oil is at $52.47 per barrel and Brent Crude is at $58.51 per barrel according to Bloomberg Energy.

The Fortune article says, “the rally remains unloved, and for a good reason.”  Ok, hold the champagne…

Hang on, hang on. Are we really experiencing an oil rally?  Part of me thinks we are experiencing some stability in pricing, finally, but are we calling prices in the fifty dollar range truly a rally? Sure, many companies are able to be profitable above the $50/barrel mark. But is it a price rally? Or is it only a perceived rally?

Could prices perk up more and make us all happier? I think so – but if we really are in a sort of faux rally, we should be cautiously optimistic. The Fortune article lists several reasons why we should not show love to the alleged price rally.

Similarly, Nasdaq published an article yesterday entitled, “WTI Crude Oil Near $52; Why Price Rally Could Fade.”

So the bottom line is, no matter whether you think we are in an oil price rally or if you are not sure, we need to stay tuned to see what happens before we decide. Sure, we have seen gains and some stability in oil prices, but it looks like we should continue to be a little cautiously optimistic about prices…unfortunately, it looks like they are telling us not to break out the bubbly quite yet!