Oil Spikes Again As Saudi Export Curbs, Anadarko Spending Cuts Ignite Momentum

One day after Al—Falih managed to jawbone crude sharply higher by promising cuts to Saudi crude exports next month, oil is on the move again.

WTI and Brent both spiked notably this morning as momentum seemed to gather steam:

“Shipments from OPEC’s largest producer will be capped at 6.6 million barrels a day in August, 1 million lower than a year earlier,” Bloomberg writes, recapping yesterday’s news, adding that “Nigeria is ready to accept a cap if production rises to 1.8 million barrels a day.”

It’s useful to pan out on the charts to see where we are versus Friday morning, when the Petro-Logistics report undercut the market:

Meanwhile, sentiment is also being underpinned by signs that US producers are finally starting to buckle under the pressure.

On Monday afternoon, we learned that Anadarko is cutting spending. That’s bad news for shale, but notable for prices:

this is probably bad: Anadarko 2Q Adjusted Loss Per Share Wider Than Estimates

— Heisenberg Report (@heisenbergrpt) July 24, 2017

shit. yep. look: https://t.co/vbXPKZz73u

— Heisenberg Report (@heisenbergrpt) July 24, 2017

Here’s the quote from the company’s Q2 results:

The current market conditions require lower capital intensity given the volatility of margins realized in this operating environment. As such, we are reducing our level of investments by $300 million for the full year.

As a reminder, this was telegraphed by company boss Al Walker. We’ve been calling for this for weeks. Here are a couple of the posts:

• Anadarko’s Al Walker Says US Shale Is An Alcoholic And Investors Are ‘A Problem’
• You’re Just Going To Let U.S. Oil Producers Drink Themselves To Death Aren’t You?

Of course it’s an open question whether the same market that Walker claims is serving as an enabler for the industry will reward him for being some semblance of sober.

“If Wall Street rewards them for being more reserved with their activity levels and capital expenditures, then maybe it catches on,” Mike Kelly, a Seaport Global Securities LLC analyst in Houston told Bloomberg in a phone interview, before warning that “if Anadarko shares suffer, on the other hand, I think other people will be reticent about coming out and saying, ‘we’re cutting as well.’”

Right. And guess what? This was the after-hours reaction:

All of that came after Halliburton Executive Chairman Dave Lesar said the U.S. binge is “showing signs of plateauing and customers are tapping on the brakes.”

So ultimately, it would appear that indeed OPEC can wait these companies out. Of course as we’re seeing this morning, there’s still a kind of self-defeating dynamic at play because when you see these operators pulling back, that buoys prices – especially when there’s a Saudi headline or three to kind of supercharge sentiment. Rising prices will embolden US drillers anew and up the down escalator we go until the bond market finally takes the keys away.

Anyway, we’ll get API later as usual, so watch for that.