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U.S. energy boom firing on all cylinders for 2014
globeadvisor ^ | Tuesday, December 24, 2013 | DAVID BERMAN

Posted on 12/29/2013 7:49:50 PM PST by ckilmer

News from globeandmail.com

U.S. energy boom firing on all cylinders for 2014

Tuesday, December 24, 2013 DAVID BERMAN

dberman@globeandmail.com

David Berman writes for Inside the Market (tgam.ca/inside-the-market), which offers up-to-the-minute analysis of stock trends and market-moving news throughout the trading day.

It is amazing how fast U.S. energy production has gained traction in our imaginations. One minute, the country is talking up a need to move toward energy independence; the next, it is on the verge of becoming the world's largest oil producer, according to the International Energy Agency.

James Hamilton at Econbrowser highlights the transition this way: Just eight months ago, the U.S. Energy Information Administration estimated that crude oil production from "tight formations" (accessed through fracking) would total 2.3 million barrels a day in 2013; now the EIA is estimating production of 3.5 million barrels a day this year.

Similarly, eight months ago, the EIA believed production would increase by half a million barrels a day annually before peaking at 2020; now, it is saying the increase will be 1.3 million barrels a day by 2021.

"Those numbers along with the EIA's other projections imply that total U.S. field production of crude oil from all sources would reach 9.6 [million] b/d in 2019 - almost as high as the all-time U.S. peak in 1970 - before resuming its decline," Mr. Hamilton said.

And if you add in natural gas liquids and ethanol produced from corn, total U.S. energy production would top the historical peak by a wide margin.

The question, then, is why this surging level of production - up nearly fivefold over the past five years - hasn't had an impact on the price of oil. West Texas Intermediate, the U.S. benchmark crude, is up 8 per cent in 2013; North Sea Brent crude is flat.

The answer, according to Mr. Hamilton, is because without an increase in U.S. and Canadian oil production, global supply of oil would have declined between 2005 and 2012.

As well, demand from emerging market economies has more than eaten up the new production. In other words, U.S. production is filling a gap.

You would think that this role would propel U.S. energy stocks, but the results so far have been mixed. Yes, the S&P 500 Energy subindex rose about 20 per cent in 2013 - but that gives it laggard status, given that the S&P 500 rose about 28 per cent during the year.

Break things down a little more, though, and you can see that investors are showing relatively little interest in the giant integrated producers (up less than 16 per cent this year) and drillers (up just 5 per cent).

Instead, the biggest gains by far have come from refiners - Tesoro Corp. and Phillips 66 are two examples - which, as an industry group, have surged 43 per cent.

Also showing impressive gains, oil and gas exploration and production firms (ConocoPhillips and Chesapeake Energy Corp. are two examples) have risen 25 per cent; and equipment and services firms (Schlumberger Ltd.) have risen 26 per cent.

The U.S. energy boom is big, and getting bigger. But the market is being selective - a healthy sign that should persist in 2014 if the price of crude oil holds relatively steady.


TOPICS: Business/Economy
KEYWORDS: 2014issues; bhoenergy; energy; fracking; shalegas; shaleoil
Key Question and answer: .............. The question, then, is why this surging level of production - up nearly fivefold over the past five years - hasn't had an impact on the price of oil. West Texas Intermediate, the U.S. benchmark crude, is up 8 per cent in 2013; North Sea Brent crude is flat.

The answer, according to Mr. Hamilton, is because without an increase in U.S. and Canadian oil production, global supply of oil would have declined between 2005 and 2012.

As well, demand from emerging market economies has more than eaten up the new production. In other words, U.S. production is filling a gap.

1 posted on 12/29/2013 7:49:50 PM PST by ckilmer
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To: ckilmer

Still waiting for the price of gasoline to come down! Really nice that we are becoming the world’s leader in oil production but it helps us not a bit if the price of oil remains so high!


2 posted on 12/29/2013 7:52:21 PM PST by Deagle
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To: ckilmer

So if not for this increase in production oil would probably be $175 bbl?


3 posted on 12/29/2013 7:53:56 PM PST by Lurkina.n.Learnin (This is not just stupid, we're talking Democrat stupid here.)
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To: ckilmer

All of that sounds a bit false to me! Maybe we should get the NY Times to focus on this issue...haha. Unfortunately, they seem to be spending all of their resources on the 2016 election cycle.


4 posted on 12/29/2013 7:54:29 PM PST by Deagle
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To: Deagle

Remember, Obama is against more drilling.


5 posted on 12/29/2013 7:57:11 PM PST by mfish13 (Elections have Consequences.)
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To: Lurkina.n.Learnin

Blame WE I, II, III, etc....


6 posted on 12/29/2013 8:01:33 PM PST by neodad (USS Vincennes (CG-49) Freedom's Fortress)
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To: Lurkina.n.Learnin

QE


7 posted on 12/29/2013 8:02:29 PM PST by neodad (USS Vincennes (CG-49) Freedom's Fortress)
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To: mfish13

Absolutely right! Maybe if he joined in on the oil bonanza the US might actually enjoy some benefit! I do think that the global prices are a problem though as we will sell internationally at a much higher price than is warranted here in the good ole USA. Maybe still a problem that is controlled by the middle eastern Cartel.


8 posted on 12/29/2013 8:03:08 PM PST by Deagle
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To: ckilmer
And if you add in natural gas liquids and ethanol produced from corn...

Time to drop the ethanol subsidies. They are no more useful than the sugar price supports.

9 posted on 12/29/2013 8:09:17 PM PST by glorgau
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To: Deagle

Actually, the price can’t drop much, nor do you really want it to. It costs about $70 per barrel to produce oil from shale formations. While technology might cause some decrease, it won’t be much. That tramslates to about $3/gallon at the pump for the companies to have a profit. If the price falls much, American wells cease operation.


10 posted on 12/29/2013 8:49:22 PM PST by henkster (Communists never negotiate.)
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To: ckilmer

The surging level of production is accompanied by higher costs of production. Would Canada be cooking sand for $20 a barrel oil?


11 posted on 12/29/2013 8:49:54 PM PST by count-your-change (you don't have to be brilliant, not being stupid is enough)
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To: henkster

Actlually, I do want it to drop much more! I am paying 3 dollars a gallon now in Texas - an oil rich producing area for sure and it seems to never go down these days.

I want the price of oil to actually reflect the price of obtaining it and it should be much lower than it is now...so, something needs to give. They are making a profit at a much lower cost but they continue to keep prices high for their benefit and the stock holders...wrong.


12 posted on 12/29/2013 8:57:20 PM PST by Deagle
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To: henkster

Actually, I’d expect the production costs to drop as most costs do due to innovation and competition. If that does not happen here, then there is other reasons.


13 posted on 12/29/2013 9:14:15 PM PST by Deagle
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