Apologies for the tardiness of this missive – call it an abbreviated and late vacation version.

After the week of oil price carnage that we have just endured, a person could be forgiven for thinking that the energy industry is in some form of supply/demand purgatory from which any escape attempt is futile.

It certainly seems that way with oil testing $41 a barrel during the week, OPEC continuing to ramp up production, and Iran’s oil gusher imminent… However, from poolside in Phoenix (because Calgary just wasn’t hot enough), on vacation, relaxing, it seems that somewhere, there must be some reason for optimism.

For the purposes of this entry, it is useful to look again at US tight oil, where production is in the process of retracting, at long last. Lower 48 production last week was less than 9 mm barrels, a significant reduction from prior months and the 4 week average has been posting regular declines.

Leading players in the shale have also indicated that unless prices were to rise to $60 and stay there for a consistent period of time, they aren’t likely to invest significant capital into production growth. Or as EOG puts it in their Q2 earnings report – they are going to “refrain from growing production into an over-supplied market” and then promptly cut both their production guidance and their capex for the balance of the year. The shift has happened – and the numbers are trickling in. The EIA has revised its production outlook in its Short Term Energy Outlook (STEO) downwards twice now.

Combine this with the consensus  view that has more than $200 billion of projects on the shelf and it is hard to argus that the market isn’t setting up for some form of supply/demand inversion. It may not be in the next several quarters but you can only starve the market for so long before it catches you by surprise.

It is also interesting to note that as the business media and some analysts read the last rites to the oil and gas industry, the stock performance of the sector, in particular the quality names, appears to have turned slightly up in recent weeks as prices have fallen. Why? Surely no one really knows, but maybe, just maybe (and it could actually be the heat talking), the people who invest for living are quietly calling the bottom as opposed to loudly proclaiming that we are staring into the abyss (hey – hyperbole allowed – an article this week called for $10 oil!).

Fun chart for the week – US refinery throughput – seems pretty robust.

Prices as at August 14, 2015 (August 7, 2015)

• The price of oil continued to decline during the week as heavy negative sentiment overcame any positive news in the market
  • Storage posted a surprise decrease
  • Production decreased by about 80,000 barrels per day in the Lower 48, but the market focused on China’s currency devaluation
  • The rig count posted a slight increase.
• Natural gas held its ground and rallied slightly during the week on weather, demand and storage

• WTI Crude: $42.16 ($43.77)
• Nymex Gas: $2.809 ($2.800)
• US/Canadian Dollar: $0.7634 ($ 0.7613)

Highlights

• As at August 7, 2015, US crude oil supplies were at 453.6 million barrels, a decrease of 1.7 million barrels from the previous week and 86.6 million barrels ahead of last year.
• The number of days oil supply in storage was 26.8, ahead of last year’s 22.3.
• Production increased to 9.395 million barrels per day from 9.465 with lower 48 accounting for the decrease. Production last year at the same time was 8.556 million barrels per day.
• As of August 7, 2015, US natural gas in storage was 2,977 billion cubic feet (Bcf), which is 3% above the 5-year average and about 21% higher than last year’s level, following an implied net injection of 65 Bcf during the report week.
• Overall U.S. gas consumption declined by 3% this week, with a slight increase in industrial use offset by a decline in generation
• Oil rig count at August 14 was up to 672 from 670 the week prior.
• Natural gas rigs drilling in the United States fell this past week to 211 from 213.
• As of August 10, the Canadian rig count was down slightly to 197 (26% utilization), 132 Alberta (25%), 33 BC (40%), 27 Saskatchewan (22%), 5 Manitoba (28%)). Utilization for the same week last year was 48%.

Drillbits

More Q2 reports this week – some high (low?) lights

• Crescent Point – Funds from Operations of $524 million ($637)
• Painted Pony – Funds from operations $10.7 million ($33.7)
• Total Energy Services – EBITDA of $13 mm ($16 mm)
• Canadain Energy Services – EBITDA of $19.6 mm ($31.4)
• Ensign Energy Services – EBITDA of $69.5 mm ($97.1)
• Pason Systems – EBITDA of $7.5 mm ($45.9) – the company also announced they had cut staff by 20%
• Secure Energy Services – EBITDA of $17.5 ($40.4)