I get this question a lot. The short answer is that “we can contribute to these endeavors in a big way”. Why does that matter to you as a producer who uses our traditional tools?
The oil markets trade is, on average, 20 to 30 times the number of barrels produced every day. Yep. The virtual market is 20-30 times larger than the physical market. What happens when we cannot predict supply and/or demand very well? We are blessed with spikes and cursed with troughs. Think about it. A 1.5% perceived oversupply in crude oil in late 2014 drove a 75% decrease in crude oil prices.
These folks are Very Important People. Their actions drive whether or how much we can borrow. Predictable, transparent markets make for low-cost financing. Turbulent, unpredictable markets make for high-cost or no financing whatsoever. If you, as a producer, have not hedged in the past, it is almost guaranteed you will hedge, at least somewhat, in the future, either virtually or really.
The chart above is an interesting one. It is the forward WTI Futures Curves for today (in white), a week ago (in blue), a month ago (in red), and a year ago (in orange). What’s interesting is how the market’s forward view of oil supply has changed over time. A year ago, the market thought 2020-2026 would show an increasing price of crude. This stayed steady through four months ago. Then, the long-term outlook for oil began to fall, with an anomaly one month ago, but since then it has stuck to the floor established four months ago.
Think about Drillinginfo’s Pattern Recognition Technologies (PRT) division. PRT uses a novel approach leveraging machine learning and AI to predict load AND “renewables” supply. The funny part is that they haven’t done any pattern recognition in years, because the dynamics of the business mean that NO day is like a past day.
Think about it. There is more and more “rooftop” solar. More and more windmills. On any particular day, an unknowable number of windmills will not be functioning mechanically along an unknowable part of the supply line. Likewise, predicting the weather next month, next week, tomorrow, or next hour is the very definition of “unknowable.” And yet, PRT has, by far, the best predictive rates of gaps in the supply/demand and price for these. It allows us to avoid brownouts and blackouts and wasted energy generation. Our data scientists and experts are working on applying these novel tools to natural gas demand/supply and pricing to allow producers to arbitrage differentials. If we can achieve similar benefits in insight in this market as we have for the renewable electricity market, it will be a game-changer. This is VERY important to the pure-play Marcellus players. It’s going to be very important to you.
Imagine solving the boom and bust cycle of global energy – it’s really nothing less than that. That will be a TRUE contribution to this industry we have all devoted our lives to, letting us improve the global quality of life WITHOUT blindly destroying capital and lives subject to blind and powerful markets mistaking lights at the end of the tunnel for headlights.
Latest posts by Allen Gilmer (see all)
- Why Has Drillinginfo Expanded Into Oil and Natural Gas Marketing and Renewable Supply and Demand? - February 23, 2018
- The Price Of Oil: Looking Ahead Without All The Noise - January 21, 2016
- Drillinginfo’s US Oil Production Forecast - April 7, 2015