Here's why MRP thinks the price of crude will double!

Joe has added being long oil stocks as a new MRP theme, based on his belief that a supply/demand imbalance is about to unfold that will lead to oil shortages faster than expected and a doubling  of crude's price, driven by the industry contraction that has already begun coupled with stronger than expected demand. Below is the summary. If you'd like to see the full report or learn more about MRP please contact Rob at 646-964-6152 or rob@mcalindenresearch.com.

On the supply side:

• Projected Capex, which from 2009 to 2014 US grew by 50% to reach around $540bill, already decreased to $330bill and dropping
• The global delay of more than 150 projects accounting for 15% of global production
• The world’s biggest oil companies draining their petroleum reserves faster than they are replacing them
• In 2015, the seven biggest publicly traded Western energy companies, including Exxon Mobil Corp. and Royal Dutch Shell PLC, replaced just 75% of the oil and natural gas they pumped, the biggest combined drop in inventory reported in at least a decade
• Exxon, for the first time in more than two decades not fully replacing production with new reserves...  
• The rig count down 75%
• Production in the US holding up better than anyone could have expected given the rig count, but now rolling over
• More than 50 North American companies already having filed for bankruptcy
• Greater financial pressures facing many more U.S. companies as banks begin reducing credit facilities and the Spring round of "reserves revaluations" begins
• Hedges that helped support revenues  being used up
• Bond markets closed for all but the strongest groups
• Moody’s saying that the entire US oil industry is under financial stress with prices at today’s levels.
• Big industry lay-offs with over 70% of workers seeking jobs in other industries
• The question of how quickly the fracking industry can move to ramp up the employment needed to re-open the wells that have been shut-in becoming problematic in a 5% unemployment environment vs the 10% when fracking was ramping up
• The winter of usually warm weather as a big factor in the downward pressure on prices with virtually every month setting a record

On the demand side:

• A reversal of weather patterns from overly warm to unusually cold in April
• Miles driven in the U.S. on pace to set the all time record
• The price elasticity of oil was revealed last year last year, when the Nov report on gasoline consumed was up an all-time record 4.3%
• The March report of 9.4 mill barrels/day of gasoline consumed, equal to a number previously only seen in peak driving months
• In the past thirty years that number has increased from March to the peak, on average 6%, with a standard deviation of 2, suggesting very meaningful consumption coming down the road  :)
• For every barrel of crude that goes to a U.S. refinery, about half gets turned into gasoline
• Gasoline is by far the most common product from crude with U.S. drivers accounting for about a third of global demand.

Rob Davis
Managing Director
McAlinden Research Partners
division of Catalpa Capital Advisors
230 Park Avenue, Suite 1515, New York, NY 10169
Office: 646-964-6152
Mobile: 203-912-1518
rob@mcalindenresearch.com