Slide 1Labyrinth Consulting Services, Inc. artberman.com
Coronavirus Has Crushed Oil Prices
PIFNHouston, TexasMarch 20, 2020
Slide 2Labyrinth Consulting Services, Inc. artberman.com
Summary ObservationsØ Economic depression is unavoidable.Ø Coronavirus is leading cause of economic downturn but Saudi price cuts
and export increase may be a tipping point or Lehman moment for markets.
Ø This is not a price war nor is it a war on shale but an axiomatic response.Ø Oil prices have been low since 2014 because of a familiar cycle of over-
investment, over-supply and devaluation.Ø People are reluctant to accept new paradigms. Recent price rallies driven
by sentiment and geopolitics but not supported by fundamentals.Ø Poor energy sector performance has resulted in reduced capital & credit.
Ø Comparative inventory showed that markets did not value WTI at more than $60-$65 since at least mid-2017.
Ø Coronavirus now adds to the long list of oil market problems.Ø Markets were slow to recognize the scale of the virus’s effect on markets.
Slide 3Labyrinth Consulting Services, Inc. artberman.com
What we know about Coronavirus (Covid-19)Ø The threat is to healthcare capacity more than to human life.Ø It seems likely that economic activity will be limited for several months.
Ø That may be extended through 2020 or longer.Ø A vaccine will not be available for 18 months.Ø Solutions will be found to re-open the global economy.
Slide 4Labyrinth Consulting Services, Inc. artberman.com
• Any movement, activity or event in nature requires energy• Human society runs on energy
Ø Work requires energy—joules/calories.Ø Subsistence: energy intake = energy expenditure.Ø Surplus: energy intake > energy expenditure.Ø If I accumulate excess energy such as grain, I may choose to have you do some
of my work in exchange for some of that energy.• Money is a call on work
Ø Today, most work is done by oil, natural gas and coal.Ø 1 barrel of oil contains about 4.5 years of human manual labor.
“Energy is and always will be the currency of life” –Nate Hagens
Slide 5Labyrinth Consulting Services, Inc. artberman.com
13.1%
30.6%
36.5%
8.3%
2.7% 0.9%
2.5% 5.1%
Windwas2.5%ofU.S.PrimaryEnergyConsumption &Solarwas0.9%v
COAL NATURALGAS PETROLEUM NUCLEAR HYDRO GEOTHERMAL SOLAR WIND BIOMASS
Petroleum
NaturalGas
Coal
EnergyistheEconomyFornow, thatmeansoil,naturalgasandcoal
Source:EIA&LabyrinthConsulting Services,Inc.Table_1.3_Primary_Energy_Consumption_by_Source
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Slide 7Labyrinth Consulting Services, Inc. artberman.com
Slide 8Labyrinth Consulting Services, Inc. artberman.com
Slide 9Labyrinth Consulting Services, Inc. artberman.com
$72.38
$50.65
$57.52
$0$10$20$30$40$50$60$70$80$90$100$110$120$130$140$150$160$170$180$190$200$210
Jan-79
Jan-80
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Jan-18
Jan-19
Jan-20
CPIAdjustedW
TIPrices(December2019DollarsPerBarrel)
2006-2014
Expensive
UnconventionalOil
Avg$98
2015-2020
Over-supply
&price
deflation
Avg$55
Areturntoparadigmofoilover-supplyandpricedeflationafter2014
Similarto1986-2002followingperiodofexpensiveoil1979-1985
Source:EIA, U.S.Bureau ofLaborStatistics &LabyrinthConsulting Services,Inc. Oil&GasGeneral CPI-AdjustedWTI-USGDP-Bubbles
1986-2002
Over-supply&
pricedeflation
Avg$37
2003-2005
Endof
CheapOil
Avg$58
AllpricesinJanuary2020dollars
1979-1985
Expensive
Unconventional
Avg$74
Slide 10Labyrinth Consulting Services, Inc. artberman.com
10.3
3.8
$114.27
$65.48
$0
$50
$100
$150
$200
-1
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BrentPrice
(2020$/barre
l)
SaudiArabiaOilProduction(m
mb/d)
SAPROD CPIBRENTSource:EIA,BP & Labyrinth Consulting Services,Inc. EIA/EIAInternational/International_data_ANNUAL MASTER
Saudi oilproductionfell6.5mmb/dfrom1981to1985butBrentpricefellfrom$114to$65in2020dollars
SaudiOilProduction(LHS)
BrentPrice (RHS)
Slide 11Labyrinth Consulting Services, Inc. artberman.com
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Slide 14Labyrinth Consulting Services, Inc. artberman.com
$30.32
$70.98
$49.52$51.37
193
568
618
509
521
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-50
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$55
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$65
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$115
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$130
Jan-14
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Jul-1
4
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5
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Jul-1
9
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Mar-20
4-MonthLaggedTightO
ilRigCount
WTIPrice($/barrel)ChartTitle
WTI RC
Tightoilrigcounttripledwithoilpricelessthan$65thenflattened&fell
MarketsperceivedWTImarginalbarrelat$60-$65
butre-valuedpricelowerafterlate2018oil-pricecollapse
Source: BakerHughes,EIADPR,Drilling Info&LabyrinthConsulting Services,Inc. RigCount/Rig Count2019/MONTHLYSHALEGAS-TIGHTOILRIGCOUNT
Nov
2018
Feb
2020
Jan
2020
Jul
4-monthLagged
TightOilRigCount
(RHS)
WTI
(LHS)Jan
2016
Dec
2018
Dec
2018
RigCountTripled
below $65WTI
$65
Slide 15Labyrinth Consulting Services, Inc. artberman.com
Slide 16Labyrinth Consulting Services, Inc. artberman.com
Slide 17Labyrinth Consulting Services, Inc. artberman.com
Slide 18Labyrinth Consulting Services, Inc. artberman.com
$63.05
$58.54
$31.73
$20.37
$15
$25
$35
$45
$55
$65
Jun-19
Aug-19
Oct-19
Dec-19
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WTIFuturesPrice($/barrel)
JAN32020
JAN102020
JAN172020
JAN242020
JAN312020
FEB52020
FEB142020
FEB212020
FEB282020
MAR62020
MAR132020
MAR182020
Source:CME& LabyrinthConsultingServices,Inc.
WTIpricelowestsinceMar3,1999in2020dollars&12-mospreadsare-$9.80ForwardcurveinJune-Septembersuper-contango(-$1.10- $1.29)
Prompt-month-$0.49contangolessextremethanBrent-$1.81onMarch18
Oil&
GasGeneral/Futures&FutureSpreads/FU
TURESCO
NTRA
CTSMAS
TER
Jan10
Jan3
Jan17
Jan31
Jan24
Feb 7Feb 14Feb 21
Feb 28Mar6
Mar13
Mar18
Slide 19Labyrinth Consulting Services, Inc. artberman.com
$68.60
$33.85
$24.88
$20
$30
$40
$50
$60
$70
$80Jun-19
Aug-19
Oct-19
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Dec-24
BrentPrice
($/barrel)
JAN32020
JAN102020
JAN172020
JAN242020
JAN312020
FEB72020
FEB142020
FEB212020
FEB282020
MAR62020
MAR132020
MAR182020
Source:CME& LabyrinthConsultingServices,Inc.
Brentforwardcurvein"super-contango"March18May-Junespreadis-$1.81,June-Julyis-$1.62&July-Augustis-$1.39
12-monthspreadof-$10.83isgreatestsinceFebruary20156-monthspreadis-$6.96
Oil&GasGeneral/Futures&Futures Spreads/FUTURESCONTRACTSMASTER
Jan3Jan10Jan17
Jan31
Jan24
Feb7
Feb14Feb21
Mar18
Feb28
Mar6
Mar13
Slide 20Labyrinth Consulting Services, Inc. artberman.com
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Slide 22Labyrinth Consulting Services, Inc. artberman.com
Slide 23Labyrinth Consulting Services, Inc. artberman.com
$22.16
$53.46
$115.24
$22.48
$117.61
$107.1735
$0
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$0
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$401960
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WTIPrice2018DollarsPerBarrel
U.S.G
ovennment+Non-FinancialCorporateDebt(Trillions)
WTI GDP DEBT WTIAVG1950-2017
Debt
GDP
Source:U.S.FederalReserveBank,U.S.Bureauof Labor Statiistics, WorldBank,EIA&LabyrinthConsulting Services,Inc. Oil&GasGeneral/U.S.Public Debt
WTI Price2020Dollars
(RHS)Oil Shocks1974-1985
$73
Debt >GDPAfter1986
Debt InflectionPoint1982
U.S.Debtbeganincreasingduringoilshocks&exceededGDPBy1986U.S.andtheworldhavebeenborrowingforwardontheirsurplusenergy
Itfeelslikegoodtimesbutit'snot
TheOldOrder$25
$54NewNormal1986-2004
$37
Highest Prices2005-2014
$95
Averagepricesince 2014is44%higher than1986-2004avg
Slide 24Labyrinth Consulting Services, Inc. artberman.com
Slide 25Labyrinth Consulting Services, Inc. artberman.com