Plato Oil is the moment in time when, on a global scale, the maximum rate of oil production (per
year) is reached. The moment after which oil production, by nature, must decline at the same price level
and the same volume can only be achieved only at higher price level. Since Earth is a closed system,
next to this production event, there must be an equal demand event: Peak Oil Consumption. As higher
price level tent to put economy in recession Peak oil consumption is achievable only on relative low
(say below $100 per ballel price levels).
Peak can be achieved at different time for each country on the earth that produces oil. Some some
of which are already beyond peak oil production That leads to the assumption the world as
a whole soon reaches if not reached the plato oil production and from this point absolute number can
only slowly decline. On consumption side while some countries like China and Arab countries (as well
as other countries with rapidly growing population) still experience significant growth in oil consumption,
some countries are already well beyond Peak Oil Consumption by now. That's probably true for several
European countries with very low population growth.
I am pretty sure that the hype in the US will not turns until the very last moment after which it's
just impossible to preserve it. Dominant (sustained by propaganda machine) myths like "oil glut", "storage
overflow", fight for market share and mass overproduction by oil producing countries (except, of course,
the USA, where shale producers suffers under brutal attack from Saudi Arabia ;-) have now a life of
their own.
IMHO we need a trigger event that suddenly becomes a focus of news coverage. For example, March 20 meeting
in Moscow can be a trigger for a some short squeeze, despite the measure to be taken is an old news.
But just the level of determination of oil producing countries on this meeting might be interpreted
as a market signal.
Also media coverage at some point will change as Western media might realize that oil producing counties
had it enough and are ready to fight and "oil shortages" story start to replace "oil glut" stories (production
does not matter at this point ;-). That also is a market "signal".
Glut story will be maintained as long as possible despite all the evidence until key "glutters" in financial
markets and subservient to them media realize that they can lose the pants (important) and all the credibility
(which they actually did not care much about)
This is also called "groupthink". As Jeffrey Brown said "The Cornucopian Crowd, which is
basically making the same argument as the Economist Magazine writer in 1999, is arguing that
advances in technology have indefinitely postponed any kind of production peak to the distant
future. "
But in reality the wells depletion does not sleep. And with severely cut capex there is no major
countervailing factors other then Iran desire to get its former place under the sun. So this might
well be the key factor to recon with and no discussion of oil prices is possible without forecasting
the depletion for key fields levels first the way Ron does it.
Moreover if the current short squeeze turns into positive dynamics (aka "oil rush") with 3-5% upside
a day on good days, you need just ten trading days to get to $50. Which can happen before OPEC
meeting. In such case I would like to feed all those respondents of Reiter survey with a copy of
this articles printed with soy ink and shredded into French onion soup :-).
Nobody can cancel the end of cheap oil. those manipulations with futures and paper oil is
just a blip of the radar. "Bottom line is that we live on a finite world which capitalism treats
as an infinite resource."
On the previous thread, Piotr Berman @ 417 did bring up the subject of this post by b, and
had the following final comment: "...Actually, the most acute pain is among the clever
folk who provided the so-called hedges, namely who sold the obligations to buy oil at a
certain price. They are losing hundreds of billions -- my guess. Now they are forced to buy
AND store, hence the negative price."
Thanks, Piotr. Some of what is happening makes a bit more sense to me as far as the
strange dealings in the stock market are concerned.
Also, just above at 416, karlof1 had this to say: "...Was the West ever on the path to
making its goal the improvement of the Common Man as advocated by Wallace and his political
allies?..." His answer is NO (exclamation point.)
My answer is YES (exclamation point.) Even if you only progress as far as the creation of
the UN, with the leadership of Eleanor, that is an important pivotal moment for mankind which
we cannot ignore. But I will state uncategorically that the JFK administration had similar
idealistic goals and would have carried them out, had it not been for divisive powers
plotting against it. That such dastardly powers succeeded does not negate the previous
effort.
And even the example of China proves that this is not an impossible dream for mankind in
general. As also is the example of Russia. We are fortunate in this generation to have two
role models instead of one.
I don't have the Frost poem at hand so I will thusly mangle the last lines (sorry)
Two paths lay in the woods, and I Took the one less travelled by And that has made all the difference.
I've mangled it, but the meaning is there, I think. (I'll go find the correct version, and
point of reference, I was a college student when Robert Frost came to Johns Hopkins and I
heard him read his poems. He did so also at Kennedy's inaugural.)
Oil futures paper contracts market (in normal times of stable->rising oil prices and
plenty of tank storage capacity a simple safe "buy low, hold, sell high" investment vehicle
used heavily by investment banks, hedge funds, ETFs and teachers', municipal employees', etc,
retirement/pension funds) explained in 5 minutes by Chris Martenson starts at ~minute
35:00:
Emily, We may still be at or around peak oil. That does not mean that all of the heavily
indebted countries and oil companies won't pump what's left as fast and hard as they can.
Now
you have to stir in a massive plunge in demand to the equation. Seems to me that all newer
oil discoveries are deep sea or shale. All of which require much more energy to produce then
say thirty years ago.
When it takes the equivalent of one barrel of energy to produce one barrel of energy it will
be lights out.
The petrodollar was not in and of itself the mechanism that the US used to "export
debt" and enrich itself off global trade. Rather, the petrodollar was the mechanism used
to lock-in the US$ as the global reserve currency. If you wanted oil, you needed US$. After
that it was just convenient to use US$ for other internationally traded commodities as well.
Of course, this made even more sense way back in the distant past of the middle of last
century because most of the international trade in manufactured goods was for American
products, for which you'd have to use dollars to buy anyway.
The empire fanbois will cook up all kinds of explanations for why the dollar will remain
the Global Reserve Currency in order to reassure themselves of the empire's continued
hegemony, but the fact is that all of the "locks" locking other countries into that
regime are now gone. Countries can choose to walk away now whereas in the past that would
mean giving up access to oil and no longer importing all of those awesome things that the US
used to make. That is not a barrier anymore.
US/Western financial markets are a "musical chairs" game, where right now more chairs are
being pulled out from the game faster than the FED and the central banks can 'digitally
print' new chairs to keep the game going.
"We will never let the great US Oil & Gas Industry down. I have instructed the
Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds
available so that these very important companies and jobs will be secured long into the
future!" Trump said via Twitter.
Is this a result of all the lockdowns? A sort of automotive general strike occasioned by the
virus, aided and abetted by government enforcement of restrictions on industry, travel,
general hulabaloo?
Peace has descended upon a weary world. Nature has commanded us to cease and desist from
gigantic insults upon the earth. Stop digging! she says, Leave it in the ground! Cease and
desist making war for oil!
What does it profit a man? It profits him nothing! I have no idea where this leads, but it
is a delicious moment. Look, see the power we have to bring everything to a standstill, even
when we only do it because we are forced to! What if we did it willingly?
Where are your trillions now, moghuls?
The earth has spoken. We should all listen. Me, I am going out to plant potatoes.
Peak shale has arrived. The energy inefficiency of fracking - directly related to the
economic efficiency of producing shale - killed it off. This would have happened even without
COVID-19.
The same will (eventually) happen with oil. The global economy - already teetering - has
now been pushed over the edge by COVID-19. The demand side of capitalist growth has been
temporarily (and in some cases permanently) crushed - which is a good thing for the planet -
as workers are idled for the foreseeable future, and many out of a job forever.
Bottom line is that we live on a finite world which capitalism treats as an infinite
resource.
U.S. crude oil production is flirting with record highs heading into the new year thanks to the technological nimbleness
of shale oil drillers who have unleashed the crude bonanza.
The current abundance has erased memories of 1973 gas lines which raised pump prices dramatically traumatizing
the United States and reordering its economy. In the decades since presidents and politicians have mouthed platitudes calling
for U.S. energy independence.
President Jimmy Carter in a televised speech even compared the energy crisis of 1977 to "the moral equivalent of war."
"It's a total turnaround from where we were in the '70s " said Frank Verrastro senior vice president at the Center for
Strategic and International Studies.
Shale oil drills can now plunge deep into the earth pivot and tunnel sideways for miles hitting an oil pocket the
size of a chair Verrastro said.
The United States is so awash in oil that petroleum-rich Saudi Arabia's state-owned oil and natural gas company is reportedly
interested in investing in the fertile Texas Permian Basin shale oil region according to a report last month.
That is a far cry from the days when U.S. production was on what was thought to be an irreversible downward path.
"For years and years we thought we were running out of oil " Verrastro said. "It took $120 for a barrel of oil to make
people experiment with technology and that has been unbelievably successful. We are the largest oil and gas producer in
the world."
The resilience of U.S. oil producers has come as the price of crude rose above $60 per barrel on world markets. Many shale
drillers can start and stop on a dime depending on the world oil price. The sweet spot for shale profit is in the neighborhood
of $55 to $60 per barrel.
Overall stocks down 0.56%, pretty much inline with recent trends, crude up 2.2 mmbbls,
gasoline down 3.3 and distillate down 3.4. But the only number that matters to the traders is
the crude and because it is up price falls and it's reported we must be back in a glut.
Bonkers.
I think we are in refinery maintenance season now, so crude stocks should increase normally.
Interesting to note is that gasoline and distillate stocks are back to normal levels. So they
will have to draw a lot more from crude stocks going forward.
"... Canada is the 10th largest oil consuming nation in the world, Mexico the 11th and the UK the 18th. America, on the other hand, is the largest oil consuming nation in the world, by a wide margin. We do not have the LTO resources to achieve, nor sustain, hydrocarbon independence. Forget the costs, and the additional burden that attempting to achieve hydrocarbon independence would place on our national debt, it can't be done. There is not enough of it. ..."
"... I dislike the American shale oil industry, in general, because it cannot function without borrowed capital and it no longer has the ability, in my opinion, to pay back the hundreds of billions of dollars it owes. ..."
"... I also dislike the lying the shale oil industry engages in that convinces other stupid people that we have all the shale oil we ever need in America, enough for ourselves, and anybody else in the world that wants to buy it. ..."
"... I also embrace oil price stability as that leads to employment stability and a healthier oil industry for America's future. I also believe it is important to conserve our remaining hydrocarbon resources in America and to otherwise develop what is left of those resources at a pace that is commensurate with the world crude oil market. ..."
Got it tee-tee; America is still a net importer of crude oil. That's some
good investigative reporting there.
Look, inventory levels are still at an all time high in America and the
bulk of that is light tight condensate. The export ban has been lifted in
the US for over three years now; nobody afar wants to import LTO, or much of
it, and we still can't lower those inventories. The price of oil is low, and
volatile. In the mean time all those big wells you own in Oklahoma are just
making the problem worse. And while all this is going on, hold onto your
knickers .oil imports into America are going UP, not down. Google it.
Canada is the 10th largest oil consuming nation in the world, Mexico the
11th and the UK the 18th. America, on the other hand, is the largest oil
consuming nation in the world, by a wide margin. We do not have the LTO
resources to achieve, nor sustain, hydrocarbon independence. Forget the
costs, and the additional burden that attempting to achieve hydrocarbon
independence would place on our national debt, it can't be done. There is
not enough of it.
I dislike the American shale oil industry, in general, because it cannot
function without borrowed capital and it no longer has the ability, in my
opinion, to pay back the hundreds of billions of dollars it owes. I
understand that doesn't bother you, and I understand why.
I also dislike the
lying the shale oil industry engages in that convinces other stupid people
that we have all the shale oil we ever need in America, enough for
ourselves, and anybody else in the world that wants to buy it.
Personally, I would rather sell my oil for a higher price than current
prices, but then again I have to pay to get it out of the ground, unlike
yourself, I am sure, who gets it free and clear of all costs.
I also embrace
oil price stability as that leads to employment stability and a healthier
oil industry for America's future. I also believe it is important to
conserve our remaining hydrocarbon resources in America and to otherwise
develop what is left of those resources at a pace that is commensurate with
the world crude oil market.
Again, I understand completely why you don't get
that. I can't help you.
720 million barrels in the US SPR when full. It's
usually not 100% full and when it is (last happened Dec 2009) it's not
really full because you can't recover 100% of what you store. Oil gets
into pores in the rock and won't come out. Just like less than 100%
recovery of oil from an oil field.
The usual calculation is 720 / 20 mbpd US burn = 36 days of
consumption storage. With US production at about 8.5 mbpd that number
seems to rise to a little less than double - call it 70 days.
But not true. Maximum extraction rate is only 4.4 mbpd (takes 13 days
from the word go for the first barrels to enter the system). Not 11.5. So
the total embargo of imports scenario because Canada wants to save it for
their grandkids means the country goes from 20 mbpd consumption to 12.9
mbpd - for 160ish days (720/4.4) and then just the 8.5 is all we have to
function.
Gonna have to compute oil consumption required to haul/deliver food to
stores and for people to drive to stores to get it. Tricky for the
haulage from central america (fruits).
The Venezuela figure is BS. The reserves outlook gets grimmer by the year,
because the current development strategy is incompatible with enhanced
recovery. The areas under development are mostly the "sirloin steak" in the
Orinoco heavy oil belt, and these high graded areas are now being gutted by
pdvsa and partners. They are going after quick kill primary recovery,
ruining the reservoirs. This means that not only is the 300 billion barrel
figure a poor number, the "real number" is gradually degrading as they
continue to lower reservoir pressures and allow water to penetrate the
developed reservoirs.
Based on what you know I think your estimate for URR for
Orinoco is about 100 Gb, if I remember correctly, due to the poor
development you outline above.
Please correct me if I am remembering incorrectly. Thanks.
SW, just curious but what do you think will cause this turnaround. That is
from the current glut to demand outstripping supply. US storage is near its
all time high and OECD storage is 300 million barrels above its 5 year
average.
OECD commercial inventories fell in October for the third month in a
row. They have drawn 75 mb since reaching a historical high in July,
but
remain 300 mb above the five-year average.
Product stocks have fallen
twice as quickly as crude during that period. Preliminary data show stocks
falling further across the OECD in November.
How much confidence do we have on oil storage accounting? According to
Art Berman much of it is unaccounted for oil. Looks like a very good way
to manipulate oil prices.
My take is that the powers of the world are
very much afraid of what a new global recession could do to the
shenanigans they have been running at the Central Banks to keep the
system from imploding and are very much decided to do everything on their
power to prevent a new global recession, and a very important part of it
is to keep oil price affordable to prevent the economy from stalling.
They cannot control neither production nor demand except by staging a
war, but as price is determined by the effect of the production/demand
ratio on oil storage, they can control price by rigging the storage
reporting. Unaccounted for oil could be the tool to do that.
For most of the world's oil storage, there is no reporting. We have
only the USA and a wild ass guess at OECD storage. We have nothing for
Eastern Europe, Africa or Asia.
WTI jumps up and down a few cents
when the US storage figures come out each week, but that's about it.
And when that happens the price very quickly reverts to what the
actual supply and demand dictates.
If there were actually storage reporting for most of the world's
oil, then your conspiracy theory might hold water. But there is not
and it does not.
This is a presentation by Amrita Sen at Energy Aspects a few months
ago. At the 4:30 minute mark she discusses worldwide crude draws.
She is claiming the only place in the world we are getting builds
is in the U.S. Not sure where they are getting their information.
Our post was NOT about conspiracy theories. It has number crunching
on the statistical fact that there is a huge discrepancy between US
crude oil production, imports, exports and refinery intakes.
I know the article said nothing about intentional
overreporting of crude oil stocks. It just occurred to me that
if intentional it could have a clear effect on oil prices.
Ron,
That USA is the only one reporting crude oil stocks makes it
easier to manipulate them, not harder.
Is the following correct?:
How do we know that there is a huge global excess in crude
oil?
We know there is some excess from multiple sources, but we only
know that there is a large excess from USA reported oil storage.
Where is that large excess in USA crude oil storage coming
from?
We don't know as 4 out of 5 barrels in USA crude oil storage are
from unaccounted-for oil.
I think the situation demands an explanation as large
unaccounted-for oil is a new phenomenon that started when oil
prices were very high.
"OECD storage is 300 million barrels above its 5 year average."
When
the IEA and all other oil market observers compare current storage levels
with 5-year average they miss two important things:
1) Global oil demand continues to increase. Therefore, in relative
terms (inventories as % of annual demand) the volume of oil in storage is
not as big as if we compare absolute volumes for this year and previous
years.
Thus, according to the IEA, global oil demand in 2017 should average
97.51 mb/d. This is 7.94 mb/d higher than in 2011 (89.57 mb/d) and 5.39
mb/d higher than 5-year (2011-2015) average (92.12 mb/d).
7,94 mb/d = 2898 million barrels/year
5.39 mb/d = 1966 million barrels/year
Now compare this with the 300 mbbls surplus in crude inventories vs
5-year average.
2) There are two "market buffers" that were always used as a measure
of over/under supply in the oil market.
The first are crude and product inventories. They are indeed above 5-year
average.
The second is OPEC spare capacity, which is well below historical
averages.
OPEC output cuts will result in decreasing inventories, but spare
capacity will increase.
"... Refining runs increased sharply, particularly on the U.S. Gulf Coast, the main refining hub in the United States. While end-year refinery activity tends to increase, this was larger than expected. ..."
"Oil prices fall on big build in U.S. gasoline, distillate stocks"
By David Gaffen...NEW YORK...Jan 5, 2017...12:10pm EST
"Oil prices slipped on Thursday after a surprisingly large increase in U.S. inventories of
gasoline and distillates, slamming the brakes on an early rally on news that Saudi Arabia had
started talks with customers about reducing crude sales.
U.S. crude stocks fell sharply to end the year, the Energy Information Administration said,
with a draw of 7 million barrels, but stocks of gasoline and distillates surged as refiners ramped
up production to reduce crude inventories, a typical year-end practice to avoid higher taxes.
Refining runs increased sharply, particularly on the U.S. Gulf Coast, the main refining hub
in the United States. While end-year refinery activity tends to increase, this was larger than
expected.
"The magnitude of the products changes were much larger than expected and overwhelming somewhat
supportive crude data," said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.
The big boost in product inventories was seen as bearish, wiping out a rally that had pushed
U.S. crude prices to a high of $54.12 on the day, and dropped U.S. gasoline margins to two-week
lows..."
"... mazamascience.com/oilexport and the BP bible says 2015 oil consumption growth in China was +5%. There is no continue to decline. And they have 21 million more cars this year burning oil. How can there be much decline, at all? ..."
"... Just checked EIA. No evidence of any significant fall in US consumption. It will probably rise. Indian consumption was +7% last year. No real evidence of a global drop in consumption. Population grows. So why is this surprising? ..."
Here is the sort of stuff going on. Some stuff profoundly right. Some stuff completely, factually
wrong. Final paras from a ZH article:
In sum, OPEC has so far managed to fool the market,
and send the price of oil surging off all time lows hit in early 2016 even as OPEC output has
reached record highs, and the just concluded deal may end up eliminating just a small fraction
of this excess supply.
All true.
There is also risk that demand – most notably out of China – will continue to decline, delaying
the so-called market equilibrium even assuming full OPEC and non-OPEC compliance.
mazamascience.com/oilexport and the BP bible says 2015 oil consumption growth in China was
+5%. There is no continue to decline. And they have 21 million more cars this year burning oil.
How can there be much decline, at all?
And, courtesy of Modi's ridiculous "demonetization" attempt, India's economic outlook is
suddenly in jeopardy: should Indian oil import demand decline as a result, OPEC will have to double
its daily production cuts just to catch up to the drop in global demand.
Just checked EIA. No evidence of any significant fall in US consumption. It will probably rise.
Indian consumption was +7% last year. No real evidence of a global drop in consumption. Population
grows. So why is this surprising?
Perhaps the best forecast at this point is that the price of oil will remain rangebound
between $45 and $55. Below that and more jawboning will emerge; above it and concerns about shale
output will dominate.
That's not best. They are all equally worthless.
Finally, it is safe to say that this is OPEC's final attempt to prove it is still relevant
in a shale-driven world after the "2014 Thanksgiving massacre" when Saudi Arabia essentially unilaterally
crushed the organization, and the price of oil. Should OPEC blow this, it will likely be game
over for any future attempts to artificially prop up the oil price by the world's oil exporters.
Perhaps the true purpose of financial austerity is to reduce oil consumption world wide.
tegnost
indeed perhaps, as our financial overlords have such clear benevolent foresight and care about
people, not profits or perhaps demand has never recovered from $4/gal gas in 2007 and it's much
simpier than that but perhaps the $4/gal gas was done on purpose in order to kill demand and reduce
oil consumption, first by high price and then by austerity, perhaps they just wanted to find out
what price of gas (apparently $4/gal) would crash the economy so they could save the world through
austerity, but first they wanted to get some money in the bank so they could survive his "austerity
period" because their kids can't take out student loans because they create an austerity rich
environment that the children of the world benefit from but their kids were brought up right so
they don't need austerity to be good global citizens, or perhaps crows communicate through quantum
vibration and that's why we can't understand the meanings in their throaty calls .
Robert Hahl
If peak oil is a problem, austerity is a solution.
rjs
it's not a demand side problem; it's supply, which built up as refinery margins were near record
highs and contango made it profitable to store products
ambrit
Local fuel prices show a more 'nuanced,' which is business speak for rent extraction oriented,
situation. Sunday, we went to Laurel, a town some twenty miles north of Hattiesburg. The cheapest
gasoline in Hattiesburg cost $1.99 per gallon. Laurel had gasoline selling for $1.76 per gallon,
all over town, not in isolated pockets. This price disparity was consistent across brands and
types of location. Laurel does not have it's own refineries.
The Oil business has a few rules of it's own, which lowly consumers are not privy to.
Isotope_C14
Seeing as Hattiesburg is in the northern part of Forrest County, and Laurel is in Jones County,
could the price disparity be a component of county taxes?
Also, EPA requirements include a variety of fuel formulations depending on desired pollutant
reduction in a given air-space. Some formulations are for reduced volatile organics and they may
have varying prices.
MLS
day-to-day fuel prices are heavily influenced by all sorts of factors like local tax rates,
the cost of operating any convenience store or auto service on premises (local ordinances regarding
wages, for example), the volume of business they do, whether a particular city or county has a
specific ordinance relating to gasoline formulations, the cost of transporting the fuel from refinery
to the station (generally speaking farther = more expensive), and so on. That you're seeing different
prices 20 miles apart is not necessarily evidence of rent extraction.
Chauncey Gardiner
Puzzling that the price of ethanol, a lower btu and more corrosive fuel that is added to and
blended with petroleum-based gasoline by refineries, has been maintained in a tight price range
since late 2015 and is currently priced near its all-time highs. This while the price of gasoline
has fallen. Why?
NeqNeq
Wasn't there a post a few days ago which showed the US EIA' weekly data was not lining up with
actual monthly numbers? Meaning that there were large revisions being made to prior (2) month
volumes?
Why should last weeks EIA inventory numbers be considered as anything but a noisy estimate
subject to lots of revisions?
ambrit
The more cynical among us wonder in what direction the 'revisions' should really go.
NeqNeq
I get that. And I am sympathetic. That doesn't change the fact that any prognostication (on
the supplied info) is mood affiliation. Using your gut is fine. Hell, it might be instrumentally
better than reasoned argument in certain situations. No need to claim its something other than
your gut though. Unless, you are trying to sell something. Then its probably useful to engage
in post-hoc rationalization.
Pwelder
Two points to remember about "glut" chatter in the Oil and Gas space:
1) The IEA – and to a lesser extent, the EIA – work for governments of nations which are net
importers of crude and products. These governments prefer low prices. This doesn't mean that their
published data is deliberately bad. It does mean that if there's a number that lends itself to
a bearish interpretation, they'll make sure you know about it.
2) One way to generate such numbers is to shift inventories from jurisdictions with low transparency
on storage levels (e.g. the Persian Gulf) to jurisdictions where reporting is somewhat better
(US, Western Europe.) The Saudis have been doing quite a bit of this, as part of their war on
Iranian/Russian oil revenues. This will be coming to an end within a year or so, as realities
of supply and demand overwhelm operations aimed at "painting the tape".
a different chris
>The Saudis have been doing quite a bit of this
Funny how oil has gotten so messed up – the major producers want to broadcast the
fact that there is a glut. Ah Capitalism in all its contradictions
Something to point out to the goldish bugs – the people who just have to have currency attached
to something physical, since gold is a hilarious currency anchor in this day and age* they have
been switching to recommending oil as the baseline. Wonder how they will spin this?
*think about explaining to an intelligent and even sympathetic-to-backed-currency alien, without
any historical reference, why you would pick gold
"... Shallow, when analyzing the economics of a well, or field, or entire "play," of course it matters
how oil and or natural gas production is reported. You are 100 % correct for being perturbed by this
SCOOP/STACK stuff. Reporting a well whose revenue stream is 75-80% gas, as oil or liquids, by gas to
oil "equivalents" is absurd. ..."
"... That stuff up there is no different that any other unconventional resource play. It declines
like an anchor being dropped from VLCC in the open ocean and is hugely unprofitable. ..."
"... The key strategy for long term survival has been and will be, during boom times set money aside:
during frenzy's, go to the beach: during bust allocate reserved capital for future growth. ..."
"... What on earth does the BTU content of gas have to do with reporting gas as though it were oil?
This makes no sense to me whatsoever. ..."
"... Personally, if I believed we would be in a $2.50mm/btu and $60/BBoil environment for the foreseeable
future, I would not be drilling anywhere. ..."
"... I believe that to keep production steady we need at least $4mm/btu and $70Bo, may be even higher.
..."
Shallow, when analyzing the economics of a well, or field, or entire "play," of course it
matters how oil and or natural gas production is reported. You are 100 % correct for being perturbed
by this SCOOP/STACK stuff. Reporting a well whose revenue stream is 75-80% gas, as oil or liquids,
by gas to oil "equivalents" is absurd. It is a distortion of the facts and meant to be misleading.
Until three years ago even the most prominent of distorters would report BOE as a percentage of
liquids, now most of them have quit doing that. Wonder why? For one reason, to get 1.2 MBOE EUR's -- For another reason, 58 degree condensate prices take a big negative hit to actual oil prices.
I don't know what the price of natgas is in OK. If it's like Texas, it sucks. Its discounted
value at the moment is less than zilch. If at $ 1.50 net per MCF (and I am being very liberal)
the gas to oil conversion should be 25-30:1, NOT 6:1. Therefore the notion that this OK stuff
has some secret oil leg that has yet to be developed, awaiting higher oil prices, is a little
wonky.
With regard to RI and ORRI, I can sometimes be guilty of irrational exuberance myself. Then
the operator in me takes over and reality sets in. That stuff up there is no different that
any other unconventional resource play. It declines like an anchor being dropped from VLCC in
the open ocean and is hugely unprofitable.
Mike,
goodness, I have been drilling wells with my own money for over 30 years. We made money in each
of the last 3 quarters on our mix of properties across several states and our mix of product and
our mix of interest, ORRI, WI,RI . I know first hand about some of the production in scoop. You
may not be open to the facts and that is fine, leaves more room for those with opens mind to exploit.
NO skin off my nose. By the way the Btu content of scoop gas is 135o. This is not investment advice
but you have a couple of contributors to this blog that have been right with regard to the market
fundamentals and exploiting the unrealistically low prices we have seen of late.
They have made money, just satin one last quick point, based on interest in a couple of dozen
wells in scoop, I can say at $4nat gas and $80oil, the roi will be as good or better, risk weighted,
than most anything I have participated in, over the entirety of my career. I am not all wells
in scoop, but in the core areas.
All our production in onshore US, its the mix of assets. My only point SS is I do know how to
run a business and economically evaluate an oil prospect. That is what keeps me between the lines
so to speak, I can't constantly be wrong like climate change scientist and still make a living
:-). The key strategy for long term survival has been and will be, during boom times set money
aside: during frenzy's, go to the beach: during bust allocate reserved capital for future growth.
What on earth does the BTU content of gas have to do with reporting gas as though it were
oil? This makes no sense to me whatsoever. I am very open to facts, I deal with them every
day. Production data does not lie. It takes time to sort the BS out but ultimately it can be done,
as Shallow has proven. Tell your SCOOP/STACK boys to quit the BOE BS and start being transparent.
Here is what is going on in the SCOOP, because the same thing is happening in the PB: The word
is out on the Bakken, Eagle Ford and Niobrara. UR is not going to fall in line with the EUR bunk
and the economics are bleak. Money is getting scarce. So now everyone is running to new territory
where there is little data to support the same old shale oil propaganda machine. Accordingly,
some shale oil companies are getting good mileage out of being the first in the new subdivision
and even raising some more money, believe it or not. Lenders, for the most part, have ADD. Lets
talk in three years when there is more data. That stuff will suck just as bad as any other shale
play, betcha.
you ask about the price of gas in okla. I gave you the information to help determine what the
price was/is
we do not have WI in the Bakken, hayneseville, Barnett or Eagle ford. We do have WI in scoop,
we do have RI in a number of those plays. All shale is not created equal, as an oil man you should
know that.
As for betting, i do that every time I drill a well and I'll let the drill bit keep score :-)
texas tea: Can you educate me a bit about the Scoop Play. I haven't worked the area much since
my Gulf Oil days working Hunton in the area. In your opinion, how many months would bring payout
(at $2.50mm/BTU, and $60/BB oil, 75% NRI lease, to a WI owner in the top 20% of wells.
It is really to big of question because of the number of variables. What I can say is that
in the gas/condensate window, with the parameters you mentioned, most wells will provide a real
rate of return based on the wells we have interests in. Personally, if I believed we would
be in a $2.50mm/btu and $60/BBoil environment for the foreseeable future, I would not be drilling
anywhere.
I believe that to keep production steady we need at least $4mm/btu and $70Bo, may be even
higher. I can add for SS that i have the updated production on the Good martin unit oil window
Woodford Scoop (46 API) the production across the 8 wells in the unit over the last 4 months,
and if the number are correct they are not impressive. As say said, i do not draw conclusion until
i have all facts.
Mike: Glad to see you still fighting the good fight of putting some real world oilfield sense
in the discussions.
Question: 1.
We in US have we are told we have a huge stockpile hangover. If the oil in pipelines is counted
as storage, how many long huge cross country pipelines have been built during the boom through
your area? We have one through us that goes from west Texas through central to Houston. If those
pipe volumes are counted as storage, they will probably never be drawn down after the initial
volume is added.
2. Do you believe that the promoters of LTO will have money shoved to them fast enough to bring
about another price collapse as the market seems to believe.?
Hope you are finding some good purchases to take some pain out of this downturn.
Hi, Doodle; I hope this finds you well. I can make money at 45 dollars but I still get a burr
under my saddle over the shale oil industry's bullshit. Which seems to be getting worse.
Question 1 is a good point, sir. I side with our old friend Jeffrey Brown on this issue of
supply overhang and the quality of the oil in storage and not in very good favor with end users.
When Mexico stops being a net exporter, and Venezuela implodes, LTO is going to take some big
price whacks simply because there won't be anything left to blend it with. I look for it to take
a long time for Cushing to drain. I produce a lot of low gravity sweet stuff and its getting a
premium price now for the first time in four years.
Question 2: LTO reserve inventory is not being replaced and the discounted value of those PDP
reserves is dropping like a rock. Some companies are now in a bind with the SEC over EUR's and
the IRS is bearing down on PUD reserves. The bottom line is the debt to asset ratios of all but
2 to 3 public shale oil companies is abysmal and new OCC regulations imply most of those guys
can't legally borrow more money; they have 2-3 mortgages on their homes already, and their MasterCards
are maxed out. The shale oil industry is dead in the water if it cannot borrow more money and
that gets harder every day, IMO. I think the shale boom is over, thankfully, and we should not
worry too much about another 70% price collapse, no.
Thanks man: We're shaking off the dust and starting to "think" of getting busy again.There's still
good oil out there under the right rock and we are determined to find it! We had a good little
discovery that has pulled us through this Depression, though it was a shame to give the oil away
to hold on.
Shallow,
I think at this point it does not matter if they are oil or gas fields or how the fields are classified.
With Fed announcing that would not have legal problem pursuing negative rates it is completely
clear that main goal is to keep broke debtors alive and prevent the gigantic debt bubble from
imploding. With negative rates being essentially tax on the savings Fed is basically saying to
investors to keep sinking money in anything that resemblance of hard assets in some distant hope
that prices will recover before they run out of oil or gas. Good luck with that in the case of
high depleting shale. So with negative rates boxes of brass fixtures could be more attractive
than cash tomorrow. Markets are broken.
"... as to GS public statements relating to oil and gold, the money has been by taking the other side of the trade, I have little doubt that what their trading desk does. ..."
Goldman Sachs has dismissed what's been described by some analysts as a recovery in the global
oil markets.
The uber bear said it expects a "modest" deficit in the coming months due to current prices, before
the market returns to surplus early next year.
Rising demand, falling US oil output as well as supply disruptions have helped the black stuff
recover from below $28 per barrel in January to just under $50 today.
Read more: North Sea to warn MPs subsea sector risks losing world-leading position
But Damien Courvalin, an analyst at Goldman Sachs, said that this was, at best, the first signs
of a turnaround.
"Canadian production is finally restarting, production from other Organisation of Petroleum Exporting
Countries' members continues to beat our expectations."
Courvalin continued: "The recent recovery in prices risks that non-Opec production declines
less than we expect, especially in the US."
What is it they say? A sucker is born every day? This should be illegal!
as to GS public statements relating to oil and gold, the money has been by taking the other side
of the trade, I have little doubt that what their trading desk does.
"... No mention of decline in China's aging oil fields, or that EOR and infill drilling are what is not affordable at current oil prices, resulting in higher decline rates ..."
"... And the angle that Saudi Arabia flooded the market by keeping their production relatively flat (not cutting production) is a bit ridiculous, to me. US LTO and Canadian tar sands increased production to cause an abundance of oil and condensate. ..."
"... I think China's decline is due to geology and, secondarily, to price realities. It is not caused by stable production in Saudi Arabia. ..."
"... Bloomberg is trying to manipulate markets, as usual. ..."
Interesting article from Bloomberg. I note their take is that it is all
about prices. Geology and resources are not factors in their thinking.
No mention of decline in China's aging oil fields, or that EOR and
infill drilling are what is not affordable at current oil prices, resulting
in higher decline rates , or that some of China's biggest, aging fields
are probably at the end of their producing lives. The intimation is that
production can jump right back up with higher prices – uh, not that simple.
And the angle that Saudi Arabia flooded the market by keeping their
production relatively flat (not cutting production) is a bit ridiculous,
to me. US LTO and Canadian tar sands increased production to cause an abundance
of oil and condensate.
I think China's decline is due to geology and, secondarily, to price
realities. It is not caused by stable production in Saudi Arabia. Bloomberg
is trying to manipulate markets, as usual.
"... Crude inventories fell by 933,000 barrels last week, according to the U.S. Energy Information Administration. A 2.33 million barrel decline had been projected by analysts in a Bloomberg survey ahead of the release. ..."
"... Crude output dropped to the lowest level since September 2014, the EIA data show ..."
"... Nationwide crude supplies fell to 531.5 million barrels in the week ended June 10, according to the EIA. ..."
Crude inventories fell by 933,000 barrels last week, according to the U.S. Energy Information
Administration. A 2.33 million barrel decline had been projected by analysts in a Bloomberg survey
ahead of the release. The American Petroleum Institute was said to report Tuesday that inventories
rose 1.16 million barrels.
Crude output dropped to the lowest level since September 2014, the EIA
data show
... ... ...
Nationwide crude supplies fell to 531.5 million barrels in the week ended June 10, according to
the EIA. Stockpiles climbed to an 87-year high of 543.4 million barrels in the last week of April,
EIA data show.
Oil-market news:
Completion of drilled but uncompleted wells in the U.S. will accelerate at a WTI price of
$50 a barrel, while $60 oil will trigger an increase in the rig count, according to a report from
Citigroup Inc.
The global market will be almost balanced next year as demand continues to rise faster than
output, while the current glut is much smaller than previously thought, the International Energy
Agency said.
Venezuela and the U.S. will begin talks to normalize relations as President Nicolas Maduro
said he's ready to exchange ambassadors.
Official data released early on Wednesday confirms expectations of a U.S. crude oil inventory
draw, with the Energy Information Administration (EIA) showing inventories down by over 3.2
million barrels for the week ending 3 June.
The EIA's latest weekly status report, released at 10:30am EST, reported a 3.226-million draw on
U.S. crude inventories, while the consensus had called for a drop between 2.7 million to 3.4
million barrels. The new data puts U.S. crude oil inventories at 532.5 million barrels-a figure
that is still historically high for this time of year.
The EIA's report follows Tuesday's inventory report from the American Petroleum Institute (API),
which shows a draw of 3.56 million barrels, slightly more than the official figures just
released.
Oil rose above $50 on Tuesday, following the API report, and was holding steady, close to $52
in early Wednesday trading prior to the EIA's weekly status report release.
The Weekly Petroleum Status Report showed gasoline inventories with a build of +1.01 million and
distillate inventories with a build of +1.754 million.
U.S. Crude refinery inputs averaged 16.4 barrels per day, according to Wednesday's numbers. That
number is 211,000 barrels per day more than the previous week's average. Refineries were at 90.9%
of their operable capacity this past week, and gasoline production increased, averaging over 10.1
million barrels per day.
Related: India Putting Floor Beneath Oil Prices As Demand Continues To Soar
U.S. crude oil imports averaged 7.7 million barrels per day last week, which was down by 134,000
barrels per day from the week before. Total motor gasoline imports averaged 815,000 barrels per
day. Distillate fuel imports averaged 167,000 barrels per day last week.
Total commercial petroleum inventories increased by 3.2 million barrels.
The EIA notes that total motor gasoline inventories increased by 1.0 million barrels last week,
and are well above the upper limit of the average range.
"... The shalies will say anything to keep the money coming in. I would only trust the data you can see at the well level. In the Bakken, CLR has touted 800,000 EUR's. In their recent 10-K, they actually booked about 170,000 in reserves per completed well in the Bakken in 2015. Their problem nowis there are actual well histories. They can't book high PDP given what their past wells have produced. ..."
I think the presentations and reports by CLR and other shalies have to be looked at very skeptically
as their breakevens are much, much higher than the numbers they tout. I have looked at loads of presentations
by LTO players the last 5 years. Even with high oil prices, almost all their claims were disproven
by the poor to mediocre financial results posted.
The shalies will say anything to keep the money
coming in. I would only trust the data you can see at the well level. In the Bakken, CLR has touted
800,000 EUR's. In their recent 10-K, they actually booked about 170,000 in reserves per completed
well in the Bakken in 2015. Their problem nowis there are actual well histories. They can't book
high PDP given what their past wells have produced.
"... Third parties like "Drilling Info", BTU Analytics, CERA, etc. provide their looks at the market for very high prices, and as such are much more granular than those from government data providers. As much as they try, they are still limited by the availability of international data and reporting time lags domestically, not to mention their own biases. ..."
"... Inevitably, we will have another price shock – or at minimum an upside surprise. It's unavoidable at this point. Oil never transitions smoothly. Just like all the oil bulls had to be run out during the declining price stage, all the price bears, like Dennis Gartman, will be run out when fundamentals hit them over the head. Gartman, to his credit, will change his tune 180 degrees when he sees the actual data shaping up. That's how he has survived so long and profitably as a trader. ..."
"... My prediction - $80/bbl in 18 months, but it won't last very long. I think $60 - $70/bbl is a healthy range. ..."
I follow oil pretty closely given our exposure. As such, I get frustrated with
many press and news show accounts of the commodity. It gets worse when the pundits
and writers should know better. Frequently inexact terminology leads to misconceptions
and sometimes I see outright falsehoods that completely distort the truth.
As a former oil analyst and professional energy investor, I feel compelled
to take those to task. As a realist, I see that all markets require a difference
of opinion and all investors talk their "book". For this reason, when Jeff Currie
at Goldman Sachs Commodities Group gets on CNBC and opines about future price
movements, I give little notice. Jeff is posturing for his customers' and GSs'
positions. Jeff can spin the story either way and chooses his statistics accordingly...That's
what he is paid very well to do.
Last week (March 28, 2016), I heard Dennis Gartman of the Gartman Letter,
a trader and investor that I respect and have learned much from, spout an outright
falsehood on CNBC. Everyone can have a bad day, but I've been hearing various
versions of this for months. Dennis said in essence that oil prices could not
rise very much because of "all the capped wells that could be brought on line
very rapidly". He predicted no more than $42/bbl this year. He estimated that
at current strip pricing, you could lock in $45/bbl in 12 months, making large
numbers of these "capped" wells profitable. The implication being that at current
prices, the market would be rapidly flooded with new oil.
I'll take the over on price, the under on production and bet all my capital
that I'm right. (Oh, I already did that...). Dennis should know better. For
fun though, I thought I'd like to take apart his thesis.
First, there are no "capped" wells in the U.S. To my knowledge not
one well has been capped due to low prices, especially relatively young horizontal
shale wells. Older wells are capped all the time when production is no longer
sufficient to pay operating expenses for the well. Generally, onshore wells
may cost something in the order of only $2,000 per month to operate. At $40
dollar oil, 3 barrels per day of production (gross) should cover operating costs.
What Dennis is likely referring to is the "Drilled Uncompleted" or DUC well
inventory in the various shale plays. Some estimates have shown as many as 4,000
of these DUCs exist and the numbers are rising. Many pundits cite these DUCs
as an effective ceiling on oil prices.
However, a DUC is very different from Gartman's implied "capped" well. There
are many reasons why a producer would drill and not complete a well. They may
have had a rig under contract, they may want to beat competitors, retain their
or their service companies' good employees, they may be able to hold expiring
acreage, they may just want to see what the rocks look like in a particular
area. However, the most likely reason is that the completion costs of these
wells can amount to over 60 percent of well cost maybe – $3 to $4 million per
well. As such, this investment is very difficult to recoup if a well's flush
initial production is sold at low prices. This is compounded when whole well
pads are completed at the same time to increase efficiency. If you don't like
the price one well gets, six wells coming on line at the same time is worse.
This also flows into the other reasons why this production will not flood
the market, namely the intersection of costs, timing and decline rates.
• Costs – 4,000 wells at even $3 million per well is $12
billion dollars. Given the upheaval among producers, where does Dennis suppose
the $12 billion will come from to "instantly" "uncap" these wells and increase
production? Not from the banks, the high yield market is tight, equity investors
have stepped up for some Permian and Eagle Ford producers, but $12 billion is
a lot of money.
• Time – Let's say that oil prices above $40/bbl equals
a green light for energy producers to attack their DUCs. (There appears to be
no factual basis for this, but let's pretend.) A quick look at C&J energy services,
which controls the country's third largest frac fleet as well as other completion
services, tells part of the story. Today, just over 50 percent of the companies'
fleet is working and the rest is "stacked" or to be retired. The people were
laid off months ago. Clearly, when they get the signal that their customers
want more completion services, they will begin to reactivate some of this idle
iron – one frac fleet at a time. The problem is the C&Js stock price is $1.46
and they have close to $1.2 billion in debt. Where will the money come from
to rehire people, and reactivate idle equipment? After that, will the people
return? Yes, but slowly and at a high cost. What about Baker and Schlumberger?
Both are in better financial shape but their fleets have been stacked also and
at this time, investors are in no mood to hear a company talk about adding capacity.
When these companies return fleets to active status, they will be competing
to hire a smaller pool of laid off workers.
• Decline rates – Wells producing from tight rock or shale
(wells that must be fracked) exhibit steep decline curves on the order of 75
percent during the first year of production. The implication is that producers
are on a never ending treadmill in order to maintain or grow production volumes.
That is, they must complete new wells in order replace the natural declines
from existing wells. There are two critical points associated with these steep
decline curves that pundits like Gartman don't appear to grasp. The first is
that based on current data, the four key liquids rich shale plays have declined
by over 600,000 bopd since their peak of production in March, 2015. This production
is gone. These wells have depleted. They can't be turned back on. The only way
to increase production again is new completions and new wells – in other words
massive new reinvestment. This is very different from past cycles when OPEC
dialed back production by idling a major field or two until demand rebounded.
These OPEC giant and super giant fields are a totally different animal. It's
all about the infrastructure, not the productivity of a single well. The entire
complex can be shut down, reworked, maintenance performed, etc. then turned
back on…more akin to a refinery than typical single or multiple well fields.
But that's another story. Bottom line – that 600,000 bopd is not magically coming
back. It took the onshore industry something like 12 months running flat out
to add those volumes. Given oil prices, it will be quite a while and it will
take higher prices before the industry even gets back to a steady walk, much
less a flat run.
Another key thing to understand about decline curves is that they are continuous
and right now declines are accelerating. However for example purposes, let's
look at the Eagle Ford. There are some 10,000 wells in the Eagle Ford producing
today, and they are all in decline. The EIA estimates the average Eagle Ford
well adds 800 bopd in its first month of production. Last month, Eagle Ford
production is estimated to have declined by 60,000 bopd. That implies that 75
new wells per month must be drilled and completed to just replace this 60,000
bopd. Assuming it takes 15 days to drill a well, that implies around 38 rigs
drilling and around 25 frac fleets running above what is running today! Today,
there are 42 rigs drilling for oil and we estimate 10 – 15 frac fleets running
in the Eagle Ford…so just to replace production, the industry would have to
increase rigs running by nearly 100 percent and frac fleets by 150 – 200 percent.
This would require a massive mobilization of capital and manpower. During this
whole mobilization process, production from existing wells is declining, month
after month. Don't get me wrong, I believe this will happen. However, I know
this won't happen quickly and won't happen at $40/bbl oil, making Gartman's
thesis and pricing argument completely false.
Production data, or lack thereof, is a primary hindrance to clear and transparent
oil fundamentals. The mechanics of the above discussion would be more obvious
if we could measure field production in real time. In fact, production data
in Texas takes some three months to even estimate, and these estimates are often
revised. The same goes for well completion data. The EIA tries to model this
through its "Drilling Productivity Report". However, there are no similar efforts
for the rest of the global oil industry, in fact, OPEC publications use third
party reporting not internal or "real" data from the companies themselves.
In Saudi Arabia, production statistics are a state secret. Not surprisingly,
many countries distort the data to suit their own needs. That's why the IEAs
look at G7 storage data is an important industry statistic. It is widely recognized
that both global demand and supply data is inaccurate, but changes in storage
inventories should reflect supply and demand changes. The only problem with
this approach is they only get data for around 2/3 of the global storage capacity.
This is what led to the recent headlines "800,000 bopd of oil is missing". Supply
estimates exceeded demand estimates by 800,000 bopd during the quarter, yet
storage didn't build, leaving the question of where did the oil go? The answer
is that there never was this extra oil…if it existed, it was burned. More than
likely, both supply and demand estimates were off by that amount.
Third parties like "Drilling Info", BTU Analytics, CERA, etc. provide
their looks at the market for very high prices, and as such are much more granular
than those from government data providers. As much as they try, they are still
limited by the availability of international data and reporting time lags domestically,
not to mention their own biases.
Generally it takes 18 months before the world has a decent picture of supply
and demand. This is little consolation to those trying to do real time analysis
on the direction of prices. That is why I can say categorically "the fix is
in". In other words, fields are declining, meaning investment is far below levels
required just to replace production. The only thing that will change the vector
of these declines is more spending, lots more spending, and the only thing will
spur lots more spending is higher prices. Significantly higher than $40/bbl.
In conclusion, we have a typical commodity price cycle. Prices have dropped
to levels destroying capital, bankrupting businesses, idling massive amounts
of equipment and manpower. The cycle is reversing now. The weekly EIA numbers
are showing steady declines in production (this is a balancing item – not real
production estimates) and also increasing demand – In the United States. The
IEA is showing the same thing in their monthly report that has a decent look
at the G7 countries and attempts to look at the G20. Between these two, there
is a large world with little accurate measurement. China for instance jailed
a Platts reporter for espionage when he tried to put together a fundamental
energy statistics database.
Inevitably, we will have another price shock – or at minimum an upside
surprise. It's unavoidable at this point. Oil never transitions smoothly. Just
like all the oil bulls had to be run out during the declining price stage, all
the price bears, like Dennis Gartman, will be run out when fundamentals hit
them over the head. Gartman, to his credit, will change his tune 180 degrees
when he sees the actual data shaping up. That's how he has survived so long
and profitably as a trader.
But by then it will be too late, the world will want incremental supplies
immediately – yet the industry cannot scale in real time. In order to motivate
producers to get busy and provide incremental supplies, prices must increase
sharply from current levels. My prediction - $80/bbl in 18 months, but it
won't last very long. I think $60 - $70/bbl is a healthy range.
"... With respect to the longer term, however, capital expenditure cuts are slowly becoming visible. Non-OPEC supply growth (year-over-year) stood at 2.9 million barrels per day at the end of 2014. Supply did not grow in December and January and preliminary data indicate large year-on-year declines in February and March 2016. Low oil prices curbed capital spending worldwide by an estimated 24 percent last year and could trim another 20 percent from capex this year. ..."
Giovanni Staunovo, commodities analyst at UBS Wealth Management
Oil prices are under pressure following the failure of OPEC and major
non-OPEC producers to agree on a production freeze at Sunday's meeting in
Doha.
We expect Brent crude prices to drop toward $30 a barrel during the
current quarter but recover to $55 a barrel in 12 months as the oversupply
of oil dissipates towards the end of this year.
... ... ...
With respect to the longer term, however, capital expenditure cuts
are slowly becoming visible. Non-OPEC supply growth (year-over-year) stood
at 2.9 million barrels per day at the end of 2014. Supply did not grow in
December and January and preliminary data indicate large year-on-year
declines in February and March 2016. Low oil prices curbed capital spending
worldwide by an estimated 24 percent last year and could trim another 20
percent from capex this year.
"... The severance and extraction tax takes 10% off the top. So call it $20. Then look at company 10K for LOE, gathering and transportation, G & A. Also, look at the interest expense. Keep in mind those figures are in BOE. ..."
"... Bakken well produces 3,000 barrel of oil and 3,000 mcf of gas. Assume 20% royalty (in TX I'd say assume 25% royalty). Net is 2,400 barrel of oil and 2,400 mcf of gas. Divide the gas production by six and we get 2,800 BOE. Assume $22 oil price and $1.50 gas price at the well. So we sold $52,800 of oil and $3,600 of gas. So if my math is correct, the $ realized per BOE is $20.14. 10%, or $2.01 comes off the sales, in state severance and extraction taxes, so now down to $18.13. Then subtract the rest. There couldn't have been much, if any cash flow for CAPEX. I will say the larger companies likely received closer to $25-26 per barrel of oil in Q1. ..."
"... Hedging will make a tremendous difference in Q1 2016. ..."
"... http://www.theoildrum.com/node/9821 A good discussion from yesteryear worth reviewing. 10,898 wells at 6 million each is a major investment. The more than 64 billion dollar gamble. No different than launching a satellite into space, flying it by wire to Mars then it crashes into the Martian surface because you forgot to change from miles to kilometers. Everybody makes mistakes. ..."
Of course, if you have any skin in the game, the most important statistic
in the post is that the average posted price for oil in the Williston Basin
for the last three months is $22.
The severance and extraction tax takes 10% off the top. So call it
$20. Then look at company 10K for LOE, gathering and transportation, G &
A. Also, look at the interest expense. Keep in mind those figures are in
BOE.
A typical Bakken producer had $8 LOE, $3 of G & A, $2 of gathering and
transport and $5 of interest expense, all on a BOE basis.
I have looked at the earnings forecasts for Q1, WOW!! Reno Hightower
,
04/16/2016 at 9:30 am
So with a 20% royalty (I have no idea what their nets are) they are
getting back $16 before you take out the $8 LOE, $3 G&A, $2 gathering
and $5 interest for a loss of $2 per barrel produced. All before you
factor in the Drilling and Completion and acreage costs.
Reno. US companies report BOE produced after payment of royalties.
Example:
Bakken well produces 3,000 barrel of oil and 3,000 mcf of gas. Assume
20% royalty (in TX I'd say assume 25% royalty). Net is 2,400 barrel of oil
and 2,400 mcf of gas. Divide the gas production by six and we get 2,800
BOE. Assume $22 oil price and $1.50 gas price at the well. So we sold $52,800
of oil and $3,600 of gas. So if my math is correct, the $ realized per BOE
is $20.14. 10%, or $2.01 comes off the sales, in state severance and extraction
taxes, so now down to $18.13. Then subtract the rest. There couldn't have
been much, if any cash flow for CAPEX. I will say the larger companies likely
received closer to $25-26 per barrel of oil in Q1.
http://www.theoildrum.com/node/9821
A good discussion from yesteryear worth reviewing. 10,898 wells at 6 million
each is a major investment. The more than 64 billion dollar gamble. No different
than launching a satellite into space, flying it by wire to Mars then it
crashes into the Martian surface because you forgot to change from miles
to kilometers. Everybody makes mistakes.
It forecasts that "After a brief retrenchment due to low prices and falling
investment, US tight oil production is now expected to plateau in the 2030s
at nearly 8 Mb/d, accounting for almost 40% of total US oil production."
US shale gas is expected to grow by around 4% p.a. over the Outlook.
This causes US shale gas to account for around three-quarters of total US
gas production in 2035 and almost 20% of global output.
An alternative scenario implies that tight oil and shale gas have even
greater potential.
"North American tight oil output increases to 16 Mb/d by 2035, nearly twice
its level in the base case, with its share of global liquids output reaching
14%. "
North American shale gas production is around 72 Bcf/d higher by 2035,
with North American shale gas accounting for almost a third of global gas
supplies in the 'stronger shale' case.
----------–
What do they know about shale oil and gas that we don't know?
And what has changed since BP's last year's forecast?
Base case U.S. tight oil forecast vs. previous years' projections
"... Although it makes little sense, US stocks make a huge impact on the worldwide oil price. Until US inventories meaningfully drop, the oil price will stay low, sub $50. ..."
"... Inventory can be manipulated by importing more and as a consequence keep pressure on price. ..."
"... At this stage of oil price cycle I do not think that the size of inventories is a material factor, affecting the oil price. It is played as such by Wall Street, but that's just reflects the power of "paper oil" producers. They can choose something else (S&P transportation index readings, for example) and use it to depress the oil price. ..."
Although it makes little sense, US stocks make a huge impact on the worldwide oil price.
Until US inventories meaningfully drop, the oil price will stay low, sub $50.
Not seeing a sign of that happening yet. Hopefully will soon.
It is strange that anybody pays attention to US crude stocks, for the past 4 weeks average
net imports of crude have been about 7.6 Mb/d, there are about 200 Mb of excess crude stocks (above
normal levels), reduce imports by 1.6 Mb/d and the excess stocks are drawn down to normal levels
in 125 days (about 4 months).
It would make more sense to look at the change in refinery inputs and US crude output.
I also do not understand the focus on inventory. Inventory change is a function of "Crude in less
crude out". Inventory can be manipulated by importing more and as a consequence keep pressure
on price.
Why does inventory keep going up? It is related to the contango in the oil futures market.
In the attached table the front month contango is $1.34, today. If an investor owns storage, he
can take delivery today and sell one month forward for a gain of $1.34 less about 50¢ for storage
costs. As long as the front month contango stays above $1, inventory will continue to grow.
Although it makes little sense, US stocks make a huge impact on the worldwide oil price.
Very true.
At this stage of oil price cycle I do not think that the size of inventories is a material
factor, affecting the oil price. It is played as such by Wall Street, but that's just reflects
the power of "paper oil" producers. They can choose something else (S&P transportation index readings,
for example) and use it to depress the oil price.
What it probably reflects at this stage of the cycle is the level of pure greed.
\Blatant lies are in blue. Libya can't rump up production as civil war is
still ongoing and there is no signs ofreconsiliation betwtnn two major pforces
with ISIS as a third force, a spoler.
By the end of 2015, Saudi Arabia supplied 8.1 percent of the global oil
demand, which is higher than the 2014 figure of 7.9 percent, but still well
below its 8.5 percent global market share in 2013.
Saudi Arabia realized that the price war was not helping it to increase
its market share, instead, the price was taking a toll on revenue due to
plummeting crude oil prices. Ballooning budget deficits, depleting foreign
reserves, and the necessity of introducing unpopular measures brought about
memories of the
Arab
Spring.
Similarly, Russia, which is pumping at close to its peak capacity, is
worried about losing its market share in
Europe to Saudi Arabia.
The other nations participating in the meeting are also pumping near
maximum limits. With a production freeze, most nations will retain their
existing clients without worrying about losing them to the competitors.
This excludes Iran and Libya, which will
not take part in the production freeze talks, as both are in the process
of ramping up production.
Initially, this all started out as a price war with U.S. shale oil drillers
as the Saudi's feared they would lose their dominant hold over the oil markets.
But the outcome was not what the Saudi's expected. The Saudi's found themselves
isolated with no support from the U.S., fearing alienation if they continued
to oppose the majority demand of the OPEC nations to cut production.
Just
over three months after the authorities lifted the four-decade ban on crude oil exports, the U.S.
has actually exported less this year than it did over the same period the year before, when the ban
was still in place.
According to Clipper Data market intelligence cited by the
Financial Times , we've seen a 5 percent decline in U.S. crude oil export volumes since the beginning
of this year. The data suggests that on average we are exporting (waterborne) 325,000 barrels per
day now, compared to 342,000 barrels per day during the first months of 2015.
And there's no official data yet-not since the beginning of this year, when the U.S. Energy Information
Administration (EIA) noted that during the
week ending 22 January , the U.S. had exported just shy of 400,000 barrels of oil, which again
was 25 percent less than what was exported for the same week in 2014.
An oil tanker that reached a French port in January was the first post-ban delivery of U.S. crude
oil, but things haven't really picked up pace since then.
January's cargoes, totaling about 11.3 million barrels, marked a 7 percent decline from U.S. crude
exports in December, according to data by the
U.S. Census Bureau . Shipments during January went to Curacao and France, in addition to Canada,
the primary destination. The total number of tankers that have set sail with U.S. crude oil will
not be known until comprehensive data on February's shipments is released by the U.S. Census Bureau.
The immediate beneficiaries of the ban suspension are gas and oil companies such as Chevron and
Exxon Mobil-among the most tireless lobbyers against the ban-and oil trading giants such as Vitol
Group BV and Trafigura Ltd Pet.
Europe and Asia are flooded with oil from Russia and the Middle East, though the first two shipments
to leave the U.S. post-export ban went to Europe: one to Germany and the other to France, to be used
in a
refinery in Switzerland . Dutch media outlets
reported in January that a tanker from Houston had reached Rotterdam port, but this remains just
a drop in the global export bucket.
In Asia, even China's state-run Sinopec-the world's second-largest refiner-has imported a consignment
of U.S. oil, according to a
Reuters source . Japan's Cosmo Oil was the first Asian buyer of U.S. oil, purchasing some 300,000
barrels of U.S. crude in mid-January, which will be delivered to its refineries in mid-April.
The current market turmoil has created a once in a generation opportunity for savvy energy investors.
Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors
are setting up their next winning oil plays.
The very first South American country that will import U.S. crude oil is Venezuela. In early February,
Venezuela's state-run oil company PDVSA imported a 550,000-barrel cargo of West Texas Intermediate
(WTI) through its U.S.-based
Citgo
Petroleum affiliate . Venezuela started importing foreign crudes in 2014 amid a fall in its own
production - buying mostly Angolan and Nigerian light grades.
WTI is also expected to be exported to
Israel, where Swiss commodities house Trafigura will ship some 700,000 barrels. Atlantic Trading
& Marketing, the U.S. trading unit of French Total SA, has been planning an export cargo of U.S.
crude from Cushing.
Also, earlier this month, Exxon
became the first U.S. oil company to export U.S. crude, sending a tanker from Texas to a refinery
it owns in Italy.
However, storage is now at the highest level in at least a decade.
U.S., crude storage levels
hit 487 million barrels in early November, closing in on the 80-year high of 518 million barrels
in the last week of February.
According to the EIA ,
about 60 percent of the U.S. working storage capacity is filled.
Globally, the picture isn't much better, with the International Energy Agency (IEA) saying that
1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles
in OECD countries currently exceed the running five-year average by 210 million barrels.
Bloomberg still promotes oil glut myth. There are paranoidal about rising oil
prices and for a good reason: the US economy might well be toast if proces return
to $100 level.
Notable quotes:
"... Iran boosted output by 187,800 barrels a day to 3.13 million a day in February, the biggest monthly gain since 1997, OPEC said in a report on Monday. Brazil will also add more than 100,000 barrels of supply this year and has shown little interest in taking part. ..."
There are reasons to be doubtful that the planned freeze can radically alter
an oil market that's fallen victim to a global fight for market share, causing
stockpiles to rise to a record. Most significantly, Iran is seeking to increase
production after the end of economic sanctions and has said it won't participate
in any accord until its output has recovered.
Iran boosted output by 187,800
barrels a day to 3.13 million a day in February, the biggest monthly gain since
1997, OPEC said in a report on Monday. Brazil will also add more than 100,000
barrels of supply this year and has shown little interest in taking part.
Saudi Arabia boosted oil exports to a 10-month high of 7.84 million barrels
a day in January, just weeks before the initial freeze agreement, according
to the Joint Organisations Data Initiative, an oil industry group overseen by
the International Energy Forum.
"We will now see if OPEC and Russia are able to freeze the bears in the oil
market," said Olivier Jakob, managing director at consultants Petromatrix GmbH.
"The significance of the agreement is that it could remove the perception that
OPEC is fighting for market share."
Other forces have driven prices higher in recent weeks. Outages from Iraq
and Nigeria have disrupted more than 800,000 barrels a day of supply and tightened
the Brent market, according to Citigroup Inc. And falling drilling activity
in the U.S. shale industry has seen analysts raise forecasts for declines in
North American production.
One key question is how fast shale production could come back if OPEC and
some non-OPEC producers succeed in driving prices higher.
Oil ministers for Argentina, Venezuela and Colombia didn't immediately respond
to questions on whether they would attend. Ecuador's oil minister said he still
plans to gather Latin American producers before April 17, after a planned meeting
earlier this month was postponed.
"It's not surprising they'd be willing to agree to this because the outlook
for a further production increase was quite limited," Jeff Currie, global head
of commodities research at Goldman Sachs Group Inc., said in an interview on
Bloomberg Television. "You can't operate a cartel the way you used to."
A typical disinformation bunged with the obvious attempt to amplify differences
within the OPEC. In spite of all this noise about oversupply i t will be difficult
to return to the lows of the year. Oil prices have surged more than 50 percent from
12-year lows since the OPEC floated the idea of a production freeze, boosting Brent
up from around $27 a barrel and U.S. crude from around $26. 15 oil-producing nations
representing about 73% of oil production have agreed to take part.
Notable quotes:
"... Qatar, which has been organizing the meeting, has invited all 13 OPEC members and major outside producers. The talks are expected to widen February's initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC Russia. ..."
"... Iran produced about 2.9 million bpd in January and officials are talking about adding a further 500,000 bpd to exports. So far though, Iran has sold only modest volumes to Europe after sanctions were removed. ..."
...Libya has made its wish to return to pre-conflict oil production rates
clear since four countries reached a preliminary deal on freezing output in
February. Other producers understand this, the delegate said. "They appreciate
the situation we are in."
Qatar, which has been organizing the meeting, has invited all 13 OPEC
members and major outside producers. The talks are expected to widen February's
initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC
Russia.
The initiative has supported a rally in oil prices, which were about $41
a barrel on Tuesday, up from a 12-year low near $27 in January, despite doubts
over whether the deal is enough to tackle excess supply in the market.
Iran has yet to say whether it will attend the meeting. But Iranian officials
have made clear Tehran will not freeze output as it wants to raise exports following
the lifting of Western sanctions in January.
The potential volume Libya and Iran could add to the market is significant.
But conflict in Libya has slowed output to around 400,000 barrels per day since
2014, a fraction of the 1.6 million bpd it pumped before the 2011 civil war.
Iran produced about 2.9 million bpd in January and officials are talking
about adding a further 500,000 bpd to exports. So far though, Iran has sold
only modest volumes to Europe after sanctions were removed.
One month ago, as we pounded the table on the biggest threat to the fundamental case for oil,
namely that even a modest rebound in oil prices could unleash another round of production by the
"marginal", US shale oil producers, we warned that a rebound in the price of oil as modest as $40
per barrel, could be sufficient to get drillers to resume production.
As
noted in late February , among the companies prepared to flip the on switch at a moment's notice
are Continental Resources led by billionaire wildcatter Harold Hamm, which said it is prepared to
increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost
2017 production by more than 10 percent, chief financial official John Hart said last week. Then
there is rival Whiting Petroleum which may have stopped fracking new wells, but added it would "consider
completing some of these wells" if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told
analysts. Then there was EOG Chairman Bill Thomas who did not say what price would spur EOG to boost
output this year, but said it had a "premium inventory" of 3,200 well locations that can yield returns
of 30 percent or more with oil at $40, and so on, and so on.
The reason for the plunging breakeven price? The same one we suggested on February 3: surging,
rapid efficiency improvement which "have turned U.S. shale, initially seen by rivals as a marginal,
high cost sector, into a major player - and a thorn in the side of big OPEC producers."
To be sure, while many had expected low oil prices to curb output, virtually nobody had predicted
that even a modest jump in oil (when we wrote our article on February 29 oil was at $33, just $7
from the $40 threshold) would lead to a major portion of US shale going back on line. The threat
of a shale rebound is "putting a cap on oil prices," said John Kilduff, partner at Again Capital
LLC. "If there's some bullish outlook for demand or the economy, they will try to get ahead of the
curve and increase production even sooner."
However, the cap was not big enough, because late last week driven by the relentless short squeeze
and the sliding dollar, WTI soared well over $40 hitting a fresh 2016 high.
And, as warned, with oil surging above the critical $40 new "floor" price, as
Reuters
put it moments ago , " a dreaded scenario for U.S. oil bulls might just be becoming a
reality."
What exactly is this scenario?
According to Reuters, some U.S. shale oil producers, including Oasis Petroleum and Pioneer
Natural Resources Co, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy
that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.
When oil prices started their long slide in mid-2014, many producers kept drilling wells, but
halted expensive fracking work that brings them online, waiting for prices to bounce back.
But now, with crude futures hovering near multi-year lows and many doubting recent modest gains
that brought oil prices near $40 a barrel can hold, the backlog of DUCs is already shrinking in some
areas. In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has
fallen by as much as a third over the past six months, according to data compiled by Alex Beeker,
a researcher at Wood Mackenzie.
"If the number of DUCs brought online is surprising to the upside, that means U.S. production
won't decline as quickly as people expect," said Michael Wittner, global head of oil research
at Societe Generale. " More output is bearish."
In the Wolfcamp, Bone Spring and Eagle Ford, the combined backlog of excessive wells remains around
600, Beeker estimates. About 660 wells could be the equivalent of between 100,000 and 300,000 barrels
per day of potential new supply, according to Ed Longanecker, president of Texas Independent Producers
and Royalty Owners Association (TIPRO)
And with its usual 2-4 month delay, the market is finally starting to realize just this.
As expected, Reuters writes that for now, most of the wells are activated in Texas, where proximity
to refiners allows producers to sell their crude closer to benchmark prices, and by well-hedged companies
that have locked in higher prices.
Still, the pace of fracking of the uncompleted wells may quicken if cash-strapped producers
facing debt repayments can no longer afford to store their oil in the ground.
While the potential additional supply is a fraction of total U.S. production of around 9 million
bpd, the fresh flow would reinforce concerns about a growing global glut just as Iran ramps up
output and inventories in domestic storage tanks from the Gulf to Cushing, Oklahoma, test new
highs on a weekly basis.
But back to the DUCs, which are a new development for many of the algos which have been trading
oil on nothing but momentum:
Wood Mackenzie reckons that the backlog of excess DUCs will decline over the next two years,
and return to normal levels by the end of 2017. It is expected to fall 35 percent from current
levels in the Bakken and 85 percent in the Eagle Ford by the end of 2016. With service costs down,
now is a good time to bring a well online if a company has hedged its production and covered its
costs, said Jonathan Garrett, an analyst with Wood Mackenzie. The U.S. crude breakeven for such
wells is one-third lower than for new ones, according to Wood Mackenzie.
Typically, average DUC inventory is around 550 in the Wolfcamp/Bone Spring formations and around
300 in the Eagle Ford, Beeker estimates. Rival Oasis is also focusing on drawing down its backlog
this year, executives said during the company's last earnings call.
In each of those formations, the excess has fallen by about 150-175 over the past six months,
bringing the surplus to around 300 wells in each. " We're just going to be continuously
completing the wells there (in the Permian) with our fleets and so you will not see any DUCs in
Midland basin," Pioneer Chief Operating Officer, Tim Dove, told a recent earnings conference.
And then the story verges off to something else we have warned about, namely soaring hedging as
oil has rebounded, allowing producers to lock in profits even in case oil should once again resume
sliding from this price. Both Pioneer and rival Oasis have locked in future sales at prices well
above current levels. Oasis has 70 percent of its oil production for 2016 hedged above $50 a barrel
and roughly 20 percent of its 2017 production hedged at about $47 a barrel. Similarly, Pioneer has
locked in a minimum price for 85 percent of this year's production.
To be sure, not everyone will be able to ramp up production: in North Dakota, the second-largest
oil-producing state where producers like Whiting Petroleum Corp sell their oil at steep discounts,
it might not be economic Reuters calculates. There, the number of DUCs climbed above 1,000 in September
before falling to 945 in December, according to the latest data from the state's energy regulator.
Bakken producer Continental Resources Inc which made waves when it unwound its hedges in late
2014, has said it would continue to defer completions until prices rise. Bakken discounts were
just too steep, said Garrison Allen, a research associate at Raymond James. "It doesn't make sense
to do anything up there."
But not everyone is needed to ramp up production: even if shale output rises by just a few hundred
thousand barrels in the short term, that will be enough to push the US storage situation, already
at critical point, into beyond operation capacity levels, and lead to dumping of oil in the open
market, resulting in the next major leg lower in oil prices, which in turn will spillover into energy
stocks and the broader market, and force central banks to consider what until recently was merely
a joke, namely monetizing crude in the open market. After all, at this point when central banks have
lost all credibility, why not?
Rapid swings in supply/demand and prices is actually one of the predictions of what would happen
when we hit peak (or long plateau if you prefer). World peak oil was expected somewhere between
2008 and 2020 by the majority of estimates. Remember, peak oil isn't about running out of crude
. It's about falling extraction rates in the face of higher costs to extract. Tar sands and shale,
for example, is very expensive oil as evidenced by the drop off of the industry in Canada and
North Dakota when prices fell below $50 . Once the easy oil peaks, and capital no longer is able
to respond to the rapid feast and famine , THEN you'll start to notice the reality that was always
there with peak oil.... $5 gas, gas lines, etc. It will be the Jimmy Carter days all over again.
If amount of the energy needed to extract and process a unit of gas/oil is greater or equal
to the amount of energy from a unit of gas/oil, then oil/gas stays in the ground irresspective
of the volume.
REUTERS is the establishment propaganda mouthpiece. production may be increasing, but i DOUBT
its gonna hurt the price. they just want you to think that.
4) The drop of 4.5 million barrels for gasoline inventories was split betwixt PADD 1 (East
Coast) and PADD 3 (Gulf Coast). While the drop can in part be attributed to winter blend stocks
being drawn down, the driving force (pardon the pun) has been rising demand. On the
more-reliable, less-noisy four-week moving average, gasoline product supplied is up 7%
year-on-year. Robust.
I'm always interested in the stuff you have to hunt around to find reported. Someone on a web
board earlier mentioned a pipeline bombed in Nigeria. Didn't see it anywhere, very sporadically
reported, apparently 300kbpd there, in reading that I found the pipeline from Kurdistan to Turkey
has been out for three weeks, apparently up to 600kbpd there.
If it was something about the glut, bloomberg would be all over it. This, zip. I used to wonder
about conspiracies, but I started following a few bloomberg reporters late last year and they
are some of the laziest SOBs I'd ever encountered. The amount of copy/paste and rehash the prevailing
sentiment without checking a few facts was astonishing. Talk about slobs, it really was about
getting all the current keywords and search descriptions into the article and particularly the
first paragraph and not much else.
Thanks. My feelings, exactly. But at the same time, what to expect from them? Is not Bloomberg
to a certain extent a GS propaganda arm ? May we need to lower our expectations.
Some grains of truth with additional effort still can be extracted from the piles of lies and
lazy, incompetent reporting (aka rehashing somebody else talking points).
Funny, but this is a kind of "Back in the USSR" situation. Our feelings are probably 1:1
correspond to the feelings of Soviet citizens about the USSR government economic reporting
:-).
7) Finally, the graphic below
from Rystad energy shows how it sees shale costs showing substantial improvements, and across
various shale plays. It projects that wellhead breakeven prices have dropped by more than 40%
between 2013 and 2015:
This article has all signs "a am short on oil" bias. As such this can serve as an
example of fine art of disinformation. Previously the same deso as now about Kuwait was
promoted about Azerbaijan. i could well be that Zerohedge traders are hurt by this "short
covering" oil rally. They never disclose their positions.
Notable quotes:
"... According to Reuters, Kuwait's oil minister said on Tuesday that his country's participation in an output freeze would require all major oil producers, including Iran, to be on board. ..."
"... Kuwait's announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie said that the "commodity rally is not sustainable" and it is time to sell crude. "While these dynamics (rising prices) could run further, they simply are not sustainable in the current environment," the analysts wrote. "Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it did last spring." ..."
"... China's February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year on year, data from the country's Passenger Car Association showed. ..."
Back in late February, when crude prices had just hit a 13 year low, one catalyst unleashed a
furious short-covering rally: a WSJ report which cited a delayed SkyNews interview with the UAE energy
minister, according to which OPEC would freeze, if not cut production. Since then we learned, courtesy
of the Saudi oil minister Al-Naimi himself, that the Saudis will never reduce output, however, in
a utterly meaningless gesture, Saudi Arabia and Russia agreed to "freeze" production at levels which
are already at maximum capacity and under one condition: that all other OPEC members join the freeze,
with the possible exception of Iran which may be allowed to produce until it hits its pre-embargo
export levels.
Of course, even the said "freeze" is nothing but a stalling tactic employed by an OPEC member
(Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when
OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal
redux of "Weekend at Bernies" where everyone pretends not to notice the corpse in the room.
However, while many had pretended to at least play along with the charade, today a core OPEC member
effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers
take part including Iran.
According to Reuters, Kuwait's oil minister said on Tuesday that his country's participation in
an output freeze would require all major oil producers, including Iran, to be on board.
"I'll go full power if there's no agreement. Every barrel I produce I'll sell," Anas al-Saleh
told reporters in Kuwait City. And since Iran has made it very, very clear that it will not join
the production freeze at its current mothballed output, and will need at least 9-12 months before
it regains its pre-embargo capacity levels, one can forget about a production freeze well into 2017,
if not forever, since by then at least one if not more OPEC members will be bankrupt (they know who
they are: they are the source of those "ALL CAPS" flashing read headlines every day).
Putting Kuwait's production in context, Kuwait - the small Gulf state Saddam invaded 25 years
ago - is currently producing 3 million barrels of oil per day. Incidentally, this is precisely how
much the oil market is oversupplied each and every day, and why in addition to PADD1, 2 and 3 being
almost full, and excess oil now being stored in ships, pipelines and trains, and re-exported to Europe,
quite soon empty swimming pools will be full with the "black gold" as the algos continue to refuse
to pay any attention to the constantly deteriorating fundamentals.
Kuwait's announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie
said that the "commodity rally is not sustainable" and it is time to sell crude. "While these dynamics (rising prices) could run further, they simply are not sustainable in the
current environment," the analysts wrote. "Energy needs lower prices to maintain financial stress
to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it
did last spring."
Perhaps, but not just yet: in addition to China's abysmal exports, we also learned that in February
its crude imports soared 19.1% to 31.80 million tons, or about 8 million barrels per day, an all-time
high, suggesting China - like the US - is filling every available container including its SPR at
a time when prices are relatively low even if organic demand continues to deteriorate.
As Reuters writes, "despite strong oil demand, questions about the sustainability of growing consumption
weighed on markets after China's overall exports tumbled by a quarter in February."
China's February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year
on year, data from the country's Passenger Car Association showed. "This is really a poor start
for trade this year," said Zhang Yongjun, senior economist at the China Centre for International
Economic Exchanges.
However, judging by the latest bounce in crude in the last hour of trading, the only thing that
still matters is who the daily "short squeeze" will rip higher. By the looks of things, at least
one major trader already got the tap on the shoulder.
"... In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers among the Organization of the Petroleum Exporting Countries (OPEC). ..."
"... Instead, they would keep pumping and allow prices to fall. While they did not anticipate the longest and deepest oil price rout since the mid-1980s, the effort has at last begun to curb the rise of rival higher-cost producers such as U.S. shale drillers, another sign that prices may have found a bottom. ..."
"... In his note to clients, Ross also pointed to the recent agreement between major OPEC members and leading non-OPEC producer Russia to "freeze" production at January levels as a factor boosting market sentiment after a brutal period when the only safe trade seemed to be sell. ..."
"... Officials from less influential members such as Venezuela or Angola have occasionally referenced specific prices, generally in the vicinity of $70 to $80, ..."
Major OPEC producers are privately starting to talk about a new oil price equilibrium of $50 a
barrel, adding to signs that the market's long, deep rout is officially over, says one of the
industry's leading prognosticators.
Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy
PIRA, told clients 2-1/2 weeks ago that he reckoned the "lows are in" for crude, which was then
about $30 a barrel. U.S. futures <CLc1> have rallied since then to close at nearly $36 on Friday,
with a handful of analysts also cautiously calling a bottom.
In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the
year, potentially aided by eventual supply cuts from leading producers among the Organization of
the Petroleum Exporting Countries (OPEC).
"They want $50 oil, this is going to become the new anchor for global oil prices," said Ross, one
of the industry's most respected forecasters for his bold price predictions and decades-long
history of consulting with OPEC members.
"While it may not be an official target price, you'll hear them saying it. They're trying to give
the market an anchor."
If Saudi Arabia and other powerful Gulf OPEC members begin invoking $50 as "fair price for
producers and consumers" - a once-favored phrase that has been absent for several years - it may
could signal the end of an unusual and extended period in which the group abandoned efforts to
manage the market.
After years of signaling satisfaction with prices hovering at around $100 a barrel, top
exporter Saudi Arabia in late 2014 led OPEC in its most dramatic policy shift in decades. No
longer would the world's top oil exporter, or its OPEC allies, agree to cut their own production
to support such high prices, which they feared would erode their share of the world market.
Instead, they would keep pumping and allow prices to fall. While they did not anticipate the
longest and deepest oil price rout since the mid-1980s, the effort has at last begun to curb the
rise of rival higher-cost producers such as U.S. shale drillers, another sign that prices may
have found a bottom.
In his note to clients, Ross also pointed to the recent agreement between major OPEC members
and leading non-OPEC producer Russia to "freeze" production at January levels as a factor
boosting market sentiment after a brutal period when the only safe trade seemed to be sell.
The pact will do little to curb immediate oversupply, especially with Iran exports still swelling
after the end of sanctions. Still, working together on "verbal intervention" was a positive start
that "could lead to eventual cuts" after a period in which Saudi Arabia and Russia made little
effort toward any kind of cooperation, he said.
"Russian production is going down anyway, why not agree to a freeze and then cuts?" Ross told
Reuters.
The $50 figure was in line with analysts' consensus for 2017 U.S. prices, according to the last
Reuters poll, although much higher than the $38 a barrel median for this year.
Ross, whose forecasts are not normally made public, was among the few analysts to anticipate
OPEC's decision to let prices fall in 2014.
While he was wrong-footed in the first part of last year, when crude's rebound to around $60 a
barrel proved temporary, he joined others such as Goldman Sachs in taking a much more bearish
view in more recent months, predicting in December that U.S. crude would drop below $30 a barrel
in February.
Ever since the market detached from the $100 a barrel figure that anchored it from 2010 to 2014,
analysts, traders and executives have struggled to pinpoint where it might ultimately settle,
agreeing only that it would be a period of extraordinary volatility in the absence of any overt
OPEC guidance.
Officials from less influential members such as Venezuela or Angola have occasionally
referenced specific prices, generally in the vicinity of $70 to $80, but the bigger Gulf
producers have largely avoided any public mention of a new reference point, leaving the market
adrift.
With available storage facilities for oil filling up in Houston, Fairway Energy Partners
said the time is right for the 11 million barrels of crude storage space it's currently developing.
Fairway Energy Partners plans to convert three salt dome caverns more than 2,000 feet under
Southwest Houston into crude oil storage. The company, which is backed by Haddington Ventures,
is targeting a completion date of late 2016.
… … …
The Texas Gulf Coast has about 128 million barrels stored at refineries and terminals.
It's also about 60 percent full, Genscape said.
… … …
"We're seeing storage levels that we've never seen across the U.S.," Hilgert said. "Crude
is piling up everywhere, Cushing is effectively full, and that's started to domino down to
the Gulf Coast."
I think frenzied hoarding of oil in anticipation of higher prices is the phenomenon that MSM
does not cover. They try to sell it under "oil glut" banner.
"... So, bottom line is, filling up of oil storage early in the cycle is an indicator of oversupply. But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of future oil price movement, oil demand or supply. ..."
Ron, I am a regular reader of your blog and find it very insightful. I have not seen much written
about Oil super contango and reasons for oil storage at multi decade high so would like to highlight
below.
When there is a temporary over supply, it fills up storage, as more and more storage get filled
up it leads to an increase in storage cost. This in turn lead to a contango, meaning future oil
prices being at premium. Currently premium stands at 20% for 1 year forward contract. This is
super contango and a bonanza for oil traders. If you can find a place to store oil you can make
risk free returns of 20% – (storage cost). So, why storage space are filling up so fast its because
commodity traders are scrambling to make this trade. It's a positive feedback loop. It can only
end when supply falls below the consumer demand.
So, bottom line is, filling up of oil storage early in the cycle is an indicator of oversupply.
But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of
future oil price movement, oil demand or supply.
As oil prices continue to plunge amid a supply glut and weaker demand, companies
reckon they can make more money from simply hoarding the oil and selling it
at later date, when prices rebound.
This phenomenon is known as "contango," a term for when the price of commodity
futures is higher than the current price. In this case, traders believe there
is more money to be made from simply sitting on oil, if they can bear the costs
of storing it.
Euronav
Oil prices will stay low if there continues to be space to store it. However,
once storage is full, producers will finally be forced to slow output because
there will not be anywhere to put the surplus. From that point, the price has
a chance to rebound, assuming demand doesn't keep falling.
According to Goldman Sachs, however, that turnaround probably won't happen
as quickly while more firms decide to store rather than sell oil. The investment
bank is expecting a slow "u-shaped" recovery, rather than a rapid "v-shaped"
bounce in prices:
Not only has the US expanded storage capacity significantly, but Europe has
also shuttered refining capacity that can be used as storage, and the global
crude tanker fleet has grown by 100 million dwt since 2008 - while oil at sea
has remained stagnant given the dominance of onshore drilling. We believe at
least a 1.0 million barrel per day surplus can be maintained for a year before
any significant problems would arise.
"... I do not agree that $55 (assume WTI) is enough to keep the basins flat or grow production, without significantly more cost reductions. The company 10K, demonstrate that. Not enough future net cash flow. Especially as those calculations are sans interest and g & a. ..."
"... the average Bakken well produces 190K in 60 months. 152K is assumed 80% NRI. ..."
"... These guys just throw out prices, never any substance behind what they say. For once I would like to see an article that walks through the numbers and proves us wrong, but they can't, so they won't. ..."
I do not agree that $55 (assume WTI) is enough to keep the basins flat
or grow production, without significantly more cost reductions. The company
10K, demonstrate that. Not enough future net cash flow. Especially as those
calculations are sans interest and g & a.
Again, the average
Bakken well produces 190K in 60 months. 152K is assumed 80% NRI.
152,000 x $48 per barrel (assumed $7 basis discount) is $7,296,000.00
$7,296,000.00 less 10% severance = $6,566,400.00
Subtract gathering of $1.50, LOE of $8 and G &A of $2.50. We are now
at $4,742,000.00. This isn't enough in 60 months for a well that costs $6.5-8
million.
These guys just throw out prices, never any substance behind what
they say. For once I would like to see an article that walks through the
numbers and proves us wrong, but they can't, so they won't.
Sure, a standout well can work. Our standout wells work at $20. No one
has only standouts, unless they are fairly small.
One way to tell that a bear market move has run its course, or is getting
close at least, is when front page stories on major news outlets declare that
all hope is lost, and none of the experts think things will get better for a
long time, if ever.
Well, forever is a very long time, and even if it weren't, the bell has tolled,
since Bloomberg, on Feb. 12,
declared the following: The Oil Industry Got Together and Agreed
Things May Never Get Better.
"Thousands of industry participants gathered in London for their annual
get-together, only to find a world awash in crude and hardly a life jacket
in sight."
The head of commodity research at mighty Goldman even said: "I wouldn't
be surprised if this market goes into the teens."
Whether or not Jan. 20 was the bottom for Brent (an ominous day being exactly
one year from the next Presidential inauguration), closing under $30, is yet
to be determined. But if nothing else, the extreme pessimism on offer at the
London gathering make it likely that a rally, if not a turning of the tide,
is in order. And, if that is the case, now that the oil price seems to be a
symptom rather than a cause of global growth, or lack thereof, there is reason
to believe that the S&P is also due for a rally.
The following dynamic
Bloomberg
graphic shows the utter collapse in U.S. drilling rigs. The most recent
figure for rigs is getting close to the record low set in 1999, when Brent was
trading in the teens.
...The IEA predicts that China will need to import another 2.6 million barrels
per day five years from now.
"... And the number of DUCs reached their peak while prices were still high. There are DUCs because there is always a delay between when the drillers finish their work and when the frackers start their work. And the number of DUCs grew, during high prices, because there were more wells being drilled than wells fracked. ..."
"... higher prices will only bring on more completions if there is money to pay for them, which is not a given. ..."
"... You don't have to be an economist or a CPA to figure out how difficult it will be for oil companies to again be growing at this point. ..."
There are always DUCs. There have always been DUCs, even when the price
was well above $100 a barrel. In fact the inventory of DUCs grew every year
that the price of oil was in the $100 range. And the number of DUCs
reached their peak while prices were still high. There are DUCs because
there is always a delay between when the drillers finish their work and
when the frackers start their work. And the number of DUCs grew, during
high prices, because there were more wells being drilled than wells fracked.
Higher prices will bring on more completions, bringing on more production,
knocking prices back down again, keeping prices lower for longer. Right
or wrong, that is simple logic. It is not nonsense.
That interrupts the logic, and is not to be considered. It is not important
that upstream companies are out of bucks, and nobody will lend them any.
Drilling will continue to be done with cash available until which time,
the coffers start filling. May take some time to put into completing those
wells that are only profitable at 80. Be quacking for quite a while. However,
that interrupts the logic of lower for longer, so it is not to be considered.
You don't have to be an economist or a CPA to figure out how difficult
it will be for oil companies to again be growing at this point. It
is mostly going to be funded by internal cash flow. Let's assume that EIA'S
estimate of the average Eagle Ford's EUR to be 168,000 bbls, and somewhat
meaningful. So, maybe the average first year's production to be 75,000 bbls.
At 100 a barrel, they recover the cost of the capex, plus a little more.
They can drill another well with positive cash flow. Probably describes
the average DUC. At 80 a barrel, they are in negative cash flow. Probably,
a profitable well, but negative cash flow. They did not make back enough
money to drill a new well the first year. Later, next year, but not by the
end of the year. So amount available for capex goes down. At 40, they may,
or may not recover the cost of the well. If the DUC is an average Eagle
Ford EUR, then it could sit for quite a while if lower for longer is the
logic.
That is the main reason you won't see large scale ramp ups on production
until it stays over 70 for a while. A large percentage of the area is average,
or less than average.
It looks like the the US oil refiners like a bargain when they see one.
http://www.eia.gov/petroleum/supply/weekly/pdf/highlights.pdf
"U.S. crude oil imports averaged 8.3 million barrels per day last week,
up by 1.2 million barrels per day from the previous week. Over the last
four weeks, crude oil imports averaged 7.6 million barrels per day"
They don't seem to worried about the so called glut of US oil production with an increase
of oil imports like that?
That was always one of the funniest things about this "Oil Glut". The US stocks though they
were in the upper range, were certainly not overfull. Now I know the US is not the world, but
they do use 25% of the words oil, and do put out some of the best number on a timely manner, and
therefore a good guide to what is going on in the market, but maybe there were keeping their powder
dry, and are now racing to fill their boots, while the 50% discount sign is still on display.
What Kiernan fails to understand is that peak oil does not happen overnight. We have hit
the peak of conventional low cost oil production and demand exceeding that conventional oil production
has pushed prices up to a level where higher cost oil is now possible to develop.
If we had an option, we wouldn't be spending money to produce shale oil, because it is high
cost. But at the current level of demand we need shale production. That is why the drop in oil
prices is not going to be permanent. The price of oil needs to be at a level that allows shale
production to continue.
"... I think the "shale revolution" may never really recover from the price collapse. Investors will think twice before putting any money there again. Unless the oil price goes alot higher than 100 $/barrel and stays there for a while. ..."
"... Hard to how a business can keep running on negative cash flow, falling price of its only commodity, and interest rates continuing to rise, if a lender can be found, that is? ..."
"... "What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another. ..."
Current oil price collapse is exposing many false claims about shale profitability.
Oil price will recover, but investors will forever become more cautious.
Drilling pace in shale oil mainly determined by credit availability and cost. With investors
being more cautious, drilling activity will become less aggressive .
I think the "shale revolution" may never really recover from the price collapse. Investors
will think twice before putting any money there again. Unless the oil price goes alot higher than
100 $/barrel and stays there for a while.
Down in the comments, I thought this was very interesting,
"A quick check indicates that both Whiting and EOG, two of the better shale plays, continue
to show negative free cash flow"
Hard to how a business can keep running on negative cash flow, falling price of its only
commodity, and interest rates continuing to rise, if a lender can be found, that is?
"What is clear is that the world has become addicted to central bank stimulus. Bank of
America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc
of the free-floating equities on global bourses. Half of all government bonds in the world yield
less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.
These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still
contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including
Fed officials themselves."
"... The momentum of the shale boom can be seen in the large overhang of drilled but uncompleted wells (DUCs) sitting out in the field today, looming over the market and weighing on any potential oil price recovery… ..."
Raymond James analysts shared a similar viewpoint, noting a certain dynamic
on the oilservice industry. "Lower returns and crimped cash flow lead operators
to slow activity and conserve cash in any way possible," the note said. "Since
many of the land rigs had longer-term contracts and the frack crews didn't,
the quickest way to conserve cash is to drill but not complete."
But wells are obviously being completed. In fact more wells are being completed
than being drilled but we obviously don't know just how many. And…
DUCs to Prolong Shale Boom Hangover
Many prognosticators of oil and gas markets have found themselves on the
wrong side of U.S. production calls throughout the shale era after failing to
understand and model the risks associated with operational momentum. Increases
in well productivity brought higher potential returns, and every company in
the oil patch scrambled to gain the assets, people, and infrastructure to grow
production (and hopefully cash) in the future. As supply growth outpaced demand,
prices sank, but production hasn't responded with an equal intensity. Why doesn't
production respond accordingly? The same reason you can't turn around an aircraft
carrier on a dime, momentum.
The momentum of the shale boom can be seen in the large overhang of drilled
but uncompleted wells (DUCs) sitting out in the field today, looming over the
market and weighing on any potential oil price recovery…
Until the number of DUCs returns to levels more aligned with historical working
inventory levels (3-6 months of drilling), we expect their threat to loom large
over the market and have a dampening effect on any near-term price recovery.
But their longer term impact could loom just as large. If producers steer too
much capital away from drilling, and instead harvest DUCs to maintain production
and cash flow in 2016, the human capital behind the rig fleet could be lost
to other industries, making service cost inflation all but guaranteed when U.S.
supply growth is again needed. It looks like this hangover will be felt for
years to come.
Conclusion
The decline in the oil rig count cannot, in the near term, be directly linked
to a decline in oil production due to so many DUCs. But eventually it must.
Steep declines in oil production must eventually follow steep declines in the
rig count. And as we see a drop in production we will see a corresponding rise
in prices. This, in turn, will cause an increase in well completions, knocking
the price back down again.
So don't expect any quick recovery of either oil prices or production. Yes,
it looks like the hangover will be felt for years to come. And in the meantime
peak oil will be in the rear view mirror. But no one will notice for years to
come.
"... This ship has some big holes in it and is taking on water; what else is the captain going to say to it's passengers? Abandon ship? Some folks are getting ahead of themselves; EOG had a plus 40 dollar hedge and lost money last quarter. Now it says it can make money at 30. If anybody thinks EOG has been "saving" its good locations for high grading, or super high grading, whatever they want to call it, that is ridiculous. Oil companies don't drill the worse stuff first and save the best for last. I drive thru the guts of EOG's operations all the time; they have been hammering that stuff down there for years. There are stinkin' shale wells everywhere. Look at a TRRC GIS map for Karnes County. ..."
"... Shale oil that declines at the rate of 73% the first 3 years of production cannot compete with the rest of the world's conventional fields. Haven't we just learned that? ..."
"... The horse is gone and over the hill; closing the barn door now by slashing CAPEX costs is a day late. And several hundred billion dollars short. And when these shale companies have to come off the drilling hamster wheel, and those steep declines on exiting wells really kick in, hold on to your knickers, boys. ..."
These guys are getting desperate. I think because no shale oil company can qualify for additional
lending based on the 65% yardstick of PV10, it is back to trying to raise money again by promoting
stock to grandmas and grandpas. I think there is evidence this might even be working?
EOG stated it could reduce costs, maintain production (essentially) and even deleverage. Right.
It's important to recognize that this latest round of rhetoric, and bluster, fails to address the
issue of existing debt. I think these shale guys want a do over.
I like EOG and hope they succeed, but at a development pace that is conducive to price stability,
not production spikes. Oil price volatility will be the death of the American oil industry and it
is up to companies like EOG to control production spikes and help keep oil prices stable. EOG led
the way in LTO oversupply and that is the primary reason we are in a nine line bind now, all of us;
LTO oversupply. I don't believe a vowel of what the shale oil industry says anymore and so myself
and several much smarter friends try and stick to the numbers, and not the hype. EOG states it is
going to slow development and not bleed as much cash in 2016. That's a necessity, not a plan. My
smart buddy up hole thinks they are still going to gush cash this year (and by the way, his numbers
do not even include G&A or interest expense!). EOG has been drilling in the lower EF and geo steering
in 10 ft. windows for years. It's sweet spots are pretty well delineated. Go to Cheapside, Texas
(now called Richside) here: http://wwwgisp.rrc.state.tx.us/GISViewer2/
and decide how much saturation drilling it can still do. It is already drilling wells 18H and higher
on their 1000 plus/minus acre units. Again, we don't "save" our best locations for last in the oil
industry so we can drill them when oil prices decline 70%, I assure you. CAPEX costs can't come down
too much more, I don't think. OPEX costs have come down very little.
Mega frac's cost mega bucks. They make for bigger IP's so shale companies can create bigger EUR's
to make themselves look healthier than they are and to meet lender covenants. Higher IP's appear
to be resulting in steeper declines and not much more UR, not enough to pay for the mega frac's.
The funky EUR stuff is going to come out, big time, pretty quick.
These shale guys are NOT making money and the interest meter on their massive debt never stops.
The PV10 value of their reserves are now vastly insufficient to be able to still borrow money; many
of the best shale companies barely have assets equal to total debt. They owe lots of money and by
2018 that is all come to head, big time.
This ship has some big holes in it and is taking on water; what else is the captain going to say
to it's passengers? Abandon ship? Some folks are getting ahead of themselves; EOG had a plus 40 dollar
hedge and lost money last quarter. Now it says it can make money at 30. If anybody thinks EOG has
been "saving" its good locations for high grading, or super high grading, whatever they want to call
it, that is ridiculous. Oil companies don't drill the worse stuff first and save the best for last.
I drive thru the guts of EOG's operations all the time; they have been hammering that stuff down
there for years. There are stinkin' shale wells everywhere. Look at a TRRC GIS map for Karnes County.
Shale oil that declines at the rate of 73% the first 3 years of production cannot compete with
the rest of the world's conventional fields. Haven't we just learned that?
The horse is gone and over the hill; closing the barn door now by slashing CAPEX costs is a day
late. And several hundred billion dollars short. And when these shale companies have to come off
the drilling hamster wheel, and those steep declines on exiting wells really kick in, hold on to
your knickers, boys.
I read that CLR will return to activity if prices reach $45. At least that is the headline.
Assuming 200K gross barrels of oil from a CLR Bakken well in 60 months, 160K net with 20% royalty,
with a $7 discount to WTI, per CLR recent 10K, such a well will only gross $6 million dollars
in 60 months.
So after 60 months CLR will still be over $1 million short of reaching the cost of the well,
BEFORE, considering 10% severance tax, OPEX, G & A and interest. Also, none of the land acquisition,
permitting , seismic, etc is considered.
Why do the MSM ignore this. It seems so elementary to me.
Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't
need any exotic presentations to figure this out.
SS,
Don't pay attention to headline. They are just part of deception game. Shale production is adjusting,
US on shore is adjusting. Today I have briefly scanned that Russian paper is stating that Russian
big oil have a meeting today where among the topics are "freeze" (previously discussed with Saudis,
Qataris) and even some possible cuts. Pieces are coming together although it looks like at snail
pace from the perspective of someone like you that is caught in this bullshit politics. But it
is coming.
Ves, Don't pay attention to headline. They are just part of
deception game.
This is not typical business as usual and
a regular level of MSM deception with corrupt jornos bought by
powerful interests. This is something more then that. The level
of cheerleading of low oil prices is really deafening.
Elementary logic is ignored in most such articles. Which makes
them pure propaganda. which looks a lot like war propaganda to
me. Guided by the same principles:
1. Obscure one's economic interests;
2. Appear humanitarian in work and motivations;
3. Obscure history;
4. Demonize the enemy; and
5. Monopolize the flow of information.
and
These principles are abstracted from Jowett & O'Donnell.
•Avoid abstract ideas – appeal to the emotions.
•Constantly repeat just a few ideas. Use stereotyped phrases.
•Give only one side of the argument.
•Continuously criticize your opponents.
•Pick out one special "enemy" for special vilification.
Pieces are coming together although it looks like at snail
pace from the perspective of someone like you that is caught in
this bullshit politics. But it is coming.
I also hope so. But it looks like there are powerful forces
behind the current drop. And they will not give up easily.
Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't
need any exotic presentations to figure this out.
Exactly!
Bakken oil production is more like mining coal than it is drilling for oil ("Red Queen effect").
All company operating in this areas have crushing debt levels. Obtaining revolving credit line
when prices are below $80 might become very difficult as Bakken has the highest marginal cost
of production. So this slump will last longer for Bakken then for other plays.
Also "carpet bombing" drilling is new and might have some additional effects that we now can't
predict. I would give three years on restoring investor confidence.
Last week
we reported that in what has been Saudi Arabia's biggest victory to date
in its war against U.S. oil and gas producers, both Whiting Petroleum, which
is North Dakota's largest oil producer, and Continental Resources would indefinitely
suspend fracking operations for the foreseeable future. The reason was simple:
oil prices are too low to make incremental drilling and pumping profitable,
and instead most shale companies are now entering hibernation, limiting cash
outlays in the form of dividends and capex spending, in hopes of weathering
the crude oil storm, which has already gone on far longer than even the most
pessimistic mainstream pundits expected it would.
Which, of course, is the right response: as the saying goes the cure for
low oil prices is low oil prices, and as more shale companies halt drilling,
exploring and production, the 3 mmb/d oversupplied oil market will slowly return
to equilibrium.
There is logically a flipside to that as well: as those companies which have
recently mothballed operations either voluntarily or because they had to when
they went bankrupt when oil was at $30, return to market the previously oversupplied
market condition will promptly return as well, thereby pressuring oil lower
yet again.
The question is at what "breakeven" price does it make sense for US shale
companies to return. As
Reuters reports , less than a year ago major shale firms were saying
they needed oil above $60 a barrel to produce more ; however in just
one year this number has changed and quite drastically at that.
We hinted at this three weeks ago in an article which many readers had a
hostile reaction to: specifically we warned of "
Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower
Breakevens ." As we reported then, "what many thought would be the "breaking"
price point for virtually every shale play has just been lowered, and quite
dramatically at that. It also means that algos and traders who had reflexively
bought any dip below $30 on expectations this is close to the "sweet spot" and
where the Saudis would relent, will have to drop their support levels by as
much as a third."
Today
Reuters confirms that this assessment was stpo on with a report that some
shale companies say they will settle for far less in deciding whether to crank
up output after the worst oil price crash in a generation.
Among the companies which are prepared to flip the on switch at a moment's
notice are Continental Resources led by billionaire wildcatter Harold Hamm,
which said it is prepared to increase capital spending if U.S. crude
reaches the low- to mid-$40s range, allowing it to boost 2017 production by
more than 10 percent, chief financial official John Hart said last week
.
Then there is rival Whiting Petroleum which may have stopped fracking new
wells, added it but would " consider completing some of these wells"
if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts.
Less than a year ago, when the company was still in spending mode, Volker said
it might deploy more rigs if U.S. crude hit $70 ."
EOG Chairman Bill Thomas did not say what price would spur EOG to boost output
this year, but said it had a "premium inventory" of 3,200 well locations
that can yield returns of 30 percent or more with oil at $40.
Apache Corp , forecasts its output will drop by as much as 11 percent this
year, but said it would probably manage to match 2015 North American
production if oil averaged $45 this year.
The reason for the plunging breakeven price? The same one we suggested on
February 3: surging, rapid efficiency improvement which "have turned U.S. shale,
initially seen by rivals as a marginal, high cost sector, into a major player
- and a thorn in the side of big OPEC producers."
To be sure, while many had expected low oil prices to curb output, virtually
nobody had predicted that even a modest jump in oil ($40 is just $7 from here)
would lead to a major portion of US shale going back on line.
The threat of a shale rebound is "putting a cap on oil prices," said John
Kilduff, partner at Again Capital LLC. " If there's some bullish outlook
for demand or the economy, they will try to get ahead of the curve and increase
production even sooner."
Which in turn will force the Saudis to immediately retaliate, breach all
amusing "production freezes", and double down their efforts to crush shale.
In fact, some producers have already began hedging future production, with
prices for 2017 oil trading at near $45 a barrel, which could put a floor under
any future production cuts.
Another risk factor for all those hoping the modest rebound in oil will persist
is the record backlog of wells that have already been drilled but wait to get
fractured to keep oil trapped in shale rocks flowing. There were 945 such wells
in North Dakota compared to 585 in mid-2014, when prices peaked, according to
the latest available data from the Department of Mineral Resources. Their numbers
are growing as firms like Whiting keep drilling, but hold off with fracking.
Reuters' summary:
Their latest comments highlight the industry's remarkable resilience,
but also serve as a warning to rivals and traders: a retreat in
U.S. oil production that would help ease global oversupply and let prices
recover may prove shorter than some may have expected.
Our
observation three weeks ago was practically identical : since Saudi Arabia
had expected that its FX reserve outflow would last only temporarily using $40-50
breakevens, it will have to sell many more US reserves (either TSYs or stocks)
to fund the cash shortfall which will persist for far longer until oil catches
down to the lowest cost US producers.
What this means is that for the Saudis to declare victory they will have
to unleash a sharp downward oil spike that lasts long to put as many marginal
producers out of business as possible.
As we said: "In short: the oil price war is about to enter its far more vicious,
and far more lethal phase, and while it is unclear who ultimately wins, whether
it is Shale or the Saudis, the loser is clear: anyone who bought into bets of
an imminent oil bounce."
But the real punchline has nothing to do with breakeven prices and efficiency
and everything to do with balance sheets, because if and when the mass default
wave finally hits and hundreds of U.S. corporations undergo debt-for-equity
exchanges in which the bondholders end up with the equity keys, then the all-in
production costs (AIPCs) will be drastically cut even lower as there will be
no interest expense left to cover with operational cash flow proceeds.
As such, the stunning outcome may well be one in which U.S. shale turns Saudi's
"marginal producer" war on its head, and unleashes a massive oversupply spike,
one which slowly at first then very fast, leads to the Saudi exhaustion of its
FX reserves, until it is Saudi Arabia which itself is pushed out of the low-cost
production bracket and is instead forced to deal with far less palatable outcomes
such as social insurrection and revolution, as its already precarious welfare
state fights for survival in a world in which government oil revenues have trickled
to a halt.
What happens to the price of oil then is unclear, but what will need to happen
before we get to that point is very clear: oil will have to trade far, far lower
from its current price.
And even if it doesn't, we now have the oil price ceiling bogey: any time
a barrel of crude approaches $40, watch as the "marginal" producers do just
that, and resume production on very short notice.
Once a well is dug, they just keep pumping it. It costs money to shut
it down, better off to keep running until you can't breakeven at the daily
cost level which my guess is somewhere in the single digits for oil companies.
These "costs of production" also don't factor in that all of the O&G suppliers
cut their prices as oil prices decline so while it may have cost "$50" to
pump oil 2 years ago the cost is much lower because all the equipment suppliers
are struggling and cutting prices as well.
All through 2015 we've heard about how the storage was going to be gone
"soon". The reality if you look into it is that no one really knows how
much storage is available. Seems really stupid, I know, but no one ever
kept track of it in any single or consolidated database so everything is
run off of "estimates" and we all know how reliable those are. My guess
is that storage is likely a lot higher than these estimates make it because
there was so much money flowing in oil during the run up years that people
probably built a ton of it. It was covered on ZH once that no one knows
what the actual global (or even US) storage capacity is I think in like
2014 but then the stories converted over to just that we are running out.
We're still running on rumor from the Saudi's. I don't think it will
matter in a few months when the economic numbers can no longer be 'adjusted'
into a smiley face......
Investors are so starved for yield that even at $20 oil most of these
companies will be able to either issue equity and/or issue debt to rollover
any upcoming debt repayment obligations. Until the market freeze up this
party will keep going.
Goldman helps with both the selling of equities and debt. More selling
is good for Goldmen. Brakeing the companies in the process and rewarding
themselves, dont forget the bankruptcy management teams.
Wow, thank god. This is great news. Since the financial media cheerleaders
are always accurate and correct once this baby gets back above $40 I can
get out there again peddling High Yield Shale Bonds yielding a massive 4.99%
at par. The assumptions built in are quite reaosnable oil just needs to
hold above $40 in 2016 and then rocket above $100 in 2017 holding at least
at that level for twenty years to cap total capital losses at only 30%.
I'm really anticipating strong interest in these debt instruments.
Filling up of oil storage early in the cycle is an indicator of oversupply.
But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of
future oil price movement, oil demand or supply. It just indicates the level of contango that
exists in oil futures market. See
Gaurav
comment on Mar 06, 2016
Notable quotes:
"... One interesting take from Art Berman presentation is that he ignores "Great condensate Con" (and grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut $30 oil price range will last for the whole 2016 ..."
"... And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production. The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers indicate. It's largely do to speculators hoping to take advantage of f increases in future oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for domestic production. ..."
"... And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the bulk of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the smaller number of refineries combined with the large volume of Canadian imports seeing Cushing filling up is no surprise. ..."
"... So again compare the 88 mm bbl capacity at Cushing to the total storage capacity at US refineries: 179 mm bbls. No: the volume of oil held at refineries is not part of the total TANK FARM capacity. So how much is the Cushing storage capacity compared to tank farms + refinery storage: 13%. ..."
Here is a short excerpt from this article, in which Berman basically argues that the price
of oil is controlled by the level of storage at Cushing. I agree at least to the extent than the
price correlates closely with storage at Cushing.
For oil prices to increase, Cushing inventories must fall. That means that both U.S.
tight oil production, chiefly from the Bakken play, and Canadian light oil production brought
by pipeline to Cushing must decline.
Bakken production was consistent in 2015 at about 1.2 million barrels per day. Canadian
oil imports to the U.S. decreased from April through July 2015 and may have contributed to
the fall in Cushing inventories that lead to a $15 per barrel increase in WTI prices. At the
same time, decreased production from the Eagle Ford and Permian basin tight oil plays would
free up storage in the Gulf Coast that might allow more oil to flow out of Cushing.
One interesting take from Art Berman presentation is that he ignores "Great condensate Con"
(and grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut
$30 oil price range will last for the whole 2016:
• Energy markets have been characterized by low oil prices and over-supply since mid-2014.
• Supply deficit before Jan 2014, supply surplus after
• Prices fell from 2011-2013 average of $111 per barrel to average of $52 in 2015.
• Without an OPEC cut, 2016 prices will probably be in the $30 per barrel range.
… … …
U.S. crude oil produc4on has declined about 570,000 bopd since the peak in April 2014,
about 60,000 bopd per month.
• EIA forecast is for a total decline of 1.4 mmbpd by September 2016 ( ~100,000 bopd per month)
before increasing again based on $43 per barrel WTI by year-end 2016 and $58 by year-end 2017.
• Price deck has WTI at $43 per barrel by December 2016 & $58 by December 2017.
• Forecast suggests that the oil market is sufficiently in balance now for prices to increase
but that production will not respond to price signals until later in 2016-very optimistic.
… … …
Little chance that oil prices will increase beyond the head-fakes and sentiment-driven price
cycles of 2015 and early 2016 until U.S. crude oil storage begins to decrease.
• Oil stocks are currently 152 million barrels above the 5-year average and 128 million barrels
above the 5-year maximum.
… … …
• Cushing and Gulf Coast storage make up almost 70% of U.S. working storage.
• These areas are currently at 84% of capacity. Cushing at 89%.
• As long as storage volumes remain above 80% of capacity, oil prices will be crushed.
• Until U.S. oil production declines substantially, storage will remain near capacity.
This article is a little on the long side, for those of us who are into sound bites, but folks
with more patience will find it illuminating, and maybe even find a little something in it to
improve their personal morale, if they are feeling really down about the future.
Here is a short excerpt from this article, in which Berman basically argues that the price
of oil is controlled by the level of storage at Cushing. I agree at least to the extent than
the price correlates closely with storage at Cushing.
… … …
That's what happens when good people get into bad company due to lack of employment opportunities
caused by shale oil price crush :-)
And to add to some of the good points made: Cushing contains only 20% of total US oil storage
capacity. Notice they don't mention the fill level of that total: last time I looked it was
about 65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty.
And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production.
The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers
indicate. It's largely do to speculators hoping to take advantage of f increases in future
oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners
for domestic production.
Which, again, explains why we still import a huge volume of oil despite the constant and
foolish use of the word "glut". IOW if we are still importing oil how can there be a glut of
domestic oil: the US lacks sufficient oil production to satisfy the demand from the refineries
AND speculators.
rockman on Sat, 27th Feb 2016 9:39 am
A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is in
PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only
holds 60% of that total capacity.
And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the
bulk of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the
smaller number of refineries combined with the large volume of Canadian imports seeing Cushing
filling up is no surprise.
And we're just talking about tank farm storage.
So again compare the 88 mm bbl capacity at Cushing to the total storage capacity at US refineries:
179 mm bbls. No: the volume of oil held at refineries is not part of the total TANK FARM capacity.
So how much is the Cushing storage capacity compared to tank farms + refinery storage: 13%.
Nice mocking of US energy independence propaganda.
Notable quotes:
"... Had Texas maintained production at 400,000,000 barrels per year, the price would have stabilized to a higher low. A 700,000,000 barrel per year drop in production would be steep. ..."
"... 400,000,000 barrels per year at 75 usd per barrel is 30,000,000,000 dollars. ..."
"... 1.161,024,209 times 25 dollars per barrel is 29,025,600,000 dollars. ..."
"... Just too much oil production in Texas by two times. Texas at a 1.3 million barrel per day production level might bring back 75 dollar oil. ..."
Texas goes from 399,315,095 barrels in one year of production in 2009 all
the way to 1,161,024,209 barrels in 2015.
Looks close to a tripling of production from 2009 to 2015. Gotta go for
the gusto.
Must be contributing to the 'glut', in other words, 'we have to refine
this oil into all of the diesel fuel we can and get it shipped to Europe
as fast as we can, that's where the money is'. Gotta follow the money, that's
where the money is. It's a no brainer.
Or some such verbiage.
Or, refinery 'glut'. The gasoline can be sold at a bargain price, those
crazy Europeans buy diesel at any price, they could care less about that
gasoline. har
Europeans pay through the nose for diesel fuel only to subsidize low
gasoline prices for US consumers! double har, so har again.
Had Texas maintained production at 400,000,000 barrels per year,
the price would have stabilized to a higher low. A 700,000,000 barrel per
year drop in production would be steep.
400,000,000 barrels per year at 75 usd per barrel is 30,000,000,000
dollars.
1.161,024,209 times 25 dollars per barrel is 29,025,600,000 dollars.
Just too much oil production in Texas by two times. Texas at a 1.3
million barrel per day production level might bring back 75 dollar oil.
For leading U.S. shale oil producers, $40 is the new $70.
Less than a year ago major shale firms were saying they needed oil above
$60 a barrel to produce more; now some say they will settle for far less
in deciding whether to crank up output after the worst oil price crash in
a generation.
Their latest comments highlight the industry's remarkable resilience, but
also serve as a warning to rivals and traders: a retreat in U.S. oil production
that would help ease global oversupply and let prices recover may prove
shorter than some may have expected.
Continental Resources is prepared to increase capital spending if U.S.
crude reaches the low- to mid-$40s range, allowing it to boost 2017 production
by more than 10 percent, chief financial official John Hart said last week.
Rival Whiting Petroleum, the biggest producer in North Dakota's Bakken
formation, will stop fracking new wells by the end of March, but would "consider
completing some of these wells" if oil reached $40 to $45 a barrel, Chairman
and CEO Jim Volker told analysts. Less than a year ago, when the company
was still in spending mode, Volker said it might deploy more rigs if U.S.
crude hit $70.
While the comments were couched with caution, they serve as a reminder
of how a dramatic decline in costs and rapid efficiency gains have turned
U.S. shale, initially seen by rivals as a marginal, high cost sector, into
a major player – and a thorn in the side of big OPEC producers.
Nimble shale drillers are now helping mitigate the nearly 70-percent slide
crude price rout by cutting back output, but may also limit any rally by
quickly turning up the spigots once prices start recovering from current
levels just above $30.
The threat of a shale rebound is "putting a cap on oil prices," said
John Kilduff, partner at Again Capital LLC. "If there's some bullish outlook
for demand or the economy, they will try to get ahead of the curve and increase
production even sooner."
Some producers have already began hedging future production, with prices
for 2017 oil trading at near $45 a barrel, which could put a floor under
any future production cuts.
While the worst oil downturn since the 1980s sounds the death knell for
scores of debt-laden shale producers, it has also hastened the decline in
costs of hydraulic fracturing and improvements of the still-developing technology.
For example, Hess Corp., which pumps one of every 15 barrels of North Dakota
crude, cut the cost of a new Bakken oil well by 28 percent last year.
What once helped fatten margins is now key to survival in what Saudi
Oil Minister Ali al-Naimi described last week as the "harsh" reality of
a global market in which the Organization of Oil Exporting Countries is
no longer willing to curb its supplies to bolster prices.
While Deloitte auditing and consulting warns that a third of U.S. oil
producers may face bankruptcy, leading shale producers say their ambitions
go beyond just outrunning domestic rivals.
"It's no longer enough to be the low cost producer in U.S. horizontal shale,"
Bill Thomas, chairman of EOG Resources Inc, said on Friday. "EOG's goal
is to be competitive, low-cost oil producer in the global market."
Thomas did not say what price would spur EOG to boost output this year,
but said it had a "premium inventory" of 3,200 well locations that can yield
returns of 30 percent or more with oil at $40.
Apache Corp, forecasts its output will drop by as much as 11 percent
this year, but said it would probably manage to match 2015 North American
production if oil averaged $45 this year.
One reason shale producers can be so fleet-footed is the record backlog
of wells that have already been drilled but wait to get fractured to keep
oil trapped in shale rocks flowing.
There were 945 such wells in North Dakota, birthplace of the U.S. shale
boom in December, compared to 585 in mid-2014, when prices peaked, according
to the latest available data from the Department of Mineral Resources. Their
numbers are growing as firms like Whiting keep drilling, but hold off with
fracking.
Some warn that fracking the uncompleted wells can offer only a short-term
supply boost and a sustained increase would require costly drilling of new
wells and therefore higher prices.
"It's going to take a move up to $55 before we see anyone plan new production,"
says Carl Larry, director of business development for oil and gas at Frost
& Sullivan.
To be sure, it is far from certain whether oil prices will even reach
$40 any time soon. Morgan Stanley and ANZ expect average prices in the low
$30s for the full year.
Some analysts also warn resuming drilling quickly may prove hard after firms
laid off thousands of workers and idled more than three-quarters of their
rigs since late 2014.
In fact, John Hess, chief executive of Hess Corp last week took issue with
labeling U.S. shale oil as a "swing producer." Hess told Reuters in an interview
that U.S. shale firms should be rather considered as "short-cycle" producers,
which might need up to a year to stop or restart production.
And even scarred veterans of past boom-bust oil cycles are not sure what
will happen once prices start to recover – during the last big upswing a
decade ago, shale oil did not even exist.
"We are a little concerned that this time there is one dynamic we've never
had previously," said Darrell Hollek, vice president of U.S. onshore at
Anadarko Petroleum Corp.
--------------
Some analysts also believe that drilling/completion activity in the U.S.
will rebound in the second half of the year, as oil prices reach $40-45.
See, for example, US rig count forecast by Raymond James (chart below).
BTW, their energy analyst expect WTI to reach $50 by the end of 2016.
AlexS. This talk is pure desparate talk, and nothing more.
A group of us have been analyzing the Statements of Future Cash Flows
in the 10K's recently released by some of the large shale players, including
EOG, CLR, WLL, PXD and CHK.
The assumptions made in the reduction of future production costs
are questionable. Here are the revisions from 12/31/14 to 12/31/15 for
these companies:
EOG
2014 $51.533 billion
2015 $32.061 billion
CLR
2014 $25.799 billion
2015 $10.869 billion
WLL
2014 $20.772 billion
2015 $12.344 billion
PXD
2014 $18.223 billion
2015 $11.475 billion
CHK
2014 $17.036 billion
2015 $7.391 billion
The only thing I have been unable to determine is whether any drilling
and completion costs are included by these companies in "future production
costs"
I would note all break out "future development costs" and all have
greatly reduced numbers from 2014 to 2015, which makes sense given large
budget cuts.
In any event, it is worth noting the future estimates of these companies
in the 10K and how radically they have changed from 12/31/14 to 12/31/15.
Further, it is noteworthy that if current oil and gas prices are
plugged into the 12/31/15 future cash inflows, there is little positive
to negative future net cash flows.
In summary, the claims are not backed up by the company SEC filings,
IMO. Also, the large long term debt incurred in prior years cannot be
ignored either, IMO.
Here is a repost of CLR's snake oil sale press release and calculations
for PDP reserve adds for CLR and what that implies about EUR's in the
Bakken. If correct, breakevens for the Bakken is much higher than $55.
Sorry, 850K. From CLR's Q4 press release:
"Given its plans to defer most Bakken completions in 2016, Continental
expects to increase its Bakken DUC inventory to approximately 195 gross
operated DUCs at year-end 2016. The year-end 2016 DUC inventory represents
a high-graded inventory with an average EUR per well of approximately
850,000 Boe. At year-end 2015, the Company's Bakken DUC inventory was
approximately 135 gross operated DUCs."
From an analyst named Frank, who posts on Yahoo. His calcs look right
to me.
"Look at the 10-k reserve and production data – proved developed
only of course.
In the Bakken
They added 180 net wells in 2015
They produced 38 mm BO and 47 mmcf ng or 46 mm boe
Reserves declined 15.5 mm BO and ng reserves increased by 16.2 mmcf
or 2.7 boe
Therefore reserves declined by 13 mm boe
So adds from new wells was 46-13 = 33 boe from 180 wells. That is 185k
boe per well. A little shy of 800k."
EUR is total expected production from a well during its lyfe cycle,
not annual production, especially as these wells were producing less
than a year in 2015.
I know. The EUR sabove are calculated from the change of PDP reserves
adjusted by a year's production, divided by wells completed. That should
give you the amount of reserves added per completed well.
Break even cost remain slightly north of 60 dollars per bbl
Notable quotes:
"... We have decided to that we too need to reduce our future production costs by 60%. The electric cooperative said no problem. So did the chemical company, our workers comp carrier, liability insurance carrier. The steel manufacturers did too, so our tubing and rods dropped 60%. The down hole and injection pump service providers were ok with that. Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC and Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this oil price war! Show em who is boss!" ..."
I wonder what ShallowS thinks of EOG's new strategy? That is, to choose their very best of
the best projects, cut costs to the bone and hope that they can make a profit.
Good analogies are hard to come by, but I will throw one out. In 2009, at the depths of
the housing collapse, what if the CEO of Toll Brothers proposed: "We are going to select our
very best lots – the Crown Jewels in our inventory.
Then we are going to build some of our more modest houses on them, cutting costs to the
bone. We hope that we can then sell them for at least break even." Personally, if I owned the
stock, I would have sold immediately.
Clueless. You know what I think. And I do really like your Toll Brothers example.
What I think is more impressive than their current meme on $30 oil is how they cut their
estimate of future production costs from $52 billion at the end of 2014 to $32 billion at the
end of 2015, without a major proved reserve reduction.
But hey, Continental cut theirs from $26 billion to $11 billion. So no big deal.
We have decided to that we too need to reduce our future production costs by 60%. The electric
cooperative said no problem. So did the chemical company, our workers comp carrier, liability
insurance carrier. The steel manufacturers did too, so our tubing and rods dropped 60%. The
down hole and injection pump service providers were ok with that.
Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC
and Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this
oil price war! Show em who is boss!"
Seriously, we have seen some cost reductions, but nothing remotely near 40-60%. And, of
course, although we pay the most to the electric coop of anyone, they just don't seem too keen
on lowering rates for us.
The speculation surrounding the possibility of an OPEC production cut have
not gone away, despite the comments from Saudi oil minister Ali al-Naimi earlier
this week. Venezuela's oil minister stoked the markets when he
said on Thursday that representatives from Russia, Saudi Arabia, Qatar,
and Venezuela would meet in mid-March to discuss cooperative efforts to stabilize
oil prices.
Oil prices shot up more than 1 percent on the news, but there isn't much
new here to trade on. These countries will move forward with the production
freeze, but that will likely have only a limited effect on the fundamentals
in the short-term. An actual production cut remains a remote possibility for
now.
"... And to add to some of the good points made: Cushing contains only 20% of total US oil storage capacity. Notice they don't mention the fill level of that total: last time I looked it was about 65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty. ..."
"... The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers indicate. It's largely do to speculators hoping to take advantage of f increases in future oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for domestic production. ..."
"... IOW if we are still importing oil how can there be a glut of domestic oil: the US lacks sufficient oil production to satisfy the demand from the refineries AND speculators. ..."
"... A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is in PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only holds 60% of that total capacity. ..."
"... OMG: almost 13% of the capacity of storing oil in the US is getting close to being full…what are we going to do??? ..."
"... Maybe they'll just build more storage: since 2011 about 25 million bbl of new storage was added to Cushing and 57 mm bbls added in the Gulf Coast. IOW Cushing would have been completely filled years ago had not SPECULATING INVESTORS not paid for new storage. ..."
"... Agreed, the Cushing stuff is overplayed. It's the tail, not the dog anyways. ..."
"... From all evidences Cushing is flooded with light oils and condensate, waiting for more heavy oils to be blended with, or more orders from the plastics manufacturers. ..."
"... That is probably true because very light crude is only minimally useful to the refineries: ..."
"... It produces almost none of the more profitable end products, like diesel. It also only has a minimal impact on the economy because its energy content is much lower. ..."
"... Its lower energy content also impacts crude prices. The price of oil depends on the strength of the economy, and the strength of the economy depends on oil's ability to power it. Lower energy content oil does less powering, which results in less demand. ..."
"... The specific gravity of a fuel oil is a reflection of its heating value. The heating value is determined primarily by the carbon/hydrogen ratio; as the carbon/hydrogen ratio increases, the specific gravity will increase and the heating value will decrease. Section 3, Figure 3 will give some idea of the effect of the carbon/hydrogen ratio and the various hydrocarbon components on the heating value. The heating value is also decreased by the presence of sulfur. ..."
And to add to some of the good points made: Cushing contains only 20% of total US oil storage
capacity. Notice they don't mention the fill level of that total: last time I looked it was about
65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty.
And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production.
The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers
indicate. It's largely do to speculators hoping to take advantage of f increases in future oil
prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for
domestic production.
Which, again, explains why we still import a huge volume of oil despite the constant and foolish
use of the word "glut". IOW if we are still importing oil how can there be a glut of domestic
oil: the US lacks sufficient oil production to satisfy the demand from the refineries AND speculators.
rockman on Sat, 27th Feb 2016 9:39 am
A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is
in PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only
holds 60% of that total capacity.
And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the bulk
of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the smaller
number of refineries combined with the large volume of Canadian imports seeing Cushing filling
up is no surprise.
And we're just talking about tank farm storage. So again compare the 88 mm bbl capacity at
Cushing to the total storage capacity at US refineries: 179 mm bbls. No: the volume of oil held
at refineries is not part of the total TANK FARM capacity. So how much is the Cushing storage
capacity compared to tank farms + refinery storage: 13%.
OMG: almost 13% of the capacity of storing oil in the US is getting close to being full…what
are we going to do???
Maybe they'll just build more storage: since 2011 about 25 million bbl of new storage was
added to Cushing and 57 mm bbls added in the Gulf Coast. IOW Cushing would have been completely
filled years ago had not SPECULATING INVESTORS not paid for new storage.
Nony on Sat, 27th Feb 2016 12:41 pm
Agreed, the Cushing stuff is overplayed. It's the tail, not the dog anyways.
Oil us up several dollars over the last couple weeks (26 to 33). And the contango has shrunk
(prompt/spot up more than 1 year out). Both of these are factors that argue we are not in a storage
crisis, that the glut is easing.
Note: 33 is still WAY less than 100. And the long term strip has dropped significantly also
So we have had a radical change in the market since JUL2014. But current indications (even just
the contango itself) argue that future oil prices will be higher than current, rather than lower.
Of course there is a probability spread of outcomes and the US EIA STEO price funnel diagram
shows that prices could be higher or lower over next few years. So future price drops are still
reasonably possible (above 5% likelihood), although not likely (below 50% chance).
farmlad on Sat, 27th Feb 2016 2:02 pm
From all evidences Cushing is flooded with light oils and condensate, waiting for more
heavy oils to be blended with, or more orders from the plastics manufacturers.
Apneaman on Sat, 27th Feb 2016 4:02 pm
Short sellers hitting energy at near-crisis levels
It produces almost none of the more profitable end products, like diesel. It also only
has a minimal impact on the economy because its energy content is much lower.
Its lower energy content also impacts crude prices. The price of oil depends on the strength
of the economy, and the strength of the economy depends on oil's ability to power it. Lower energy
content oil does less powering, which results in less demand.
IFuckYouOver on Sat, 27th Feb 2016 4:59 pm
Short of a chemical analysis of what is in there, we cannot interpret these data properly
The specific gravity of a fuel oil is a reflection of its heating value. The heating value
is determined primarily by the carbon/hydrogen ratio; as the carbon/hydrogen ratio increases,
the specific gravity will increase and the heating value will decrease. Section 3, Figure 3 will
give some idea of the effect of the carbon/hydrogen ratio and the various hydrocarbon components
on the heating value. The heating value is also decreased by the presence of sulfur.
The heat contained in a fuel, or its heating value (BTU/lb), is primarily affected by
changes in a specific (or API) gravity and its sulfur content in percent by weight.
As the gravity of the oil increases, the ratio of carbon to hydrogen increases, as well as
the sulfur content. The result is that there is less hydrogen with its high heating value available
per pound, and a consequent decrease in heat released during combustion. From a performance viewpoint,
this change in heat content is indicated by an increased brake specific fuel rate in pounds per
brake horsepower-hour and, to a very slight degree, by a decrease in overall engine efficiency,
as more fuel with a lower heat content must be burned for a fixed power output.
"... Despite all the talk of technology, etc, the real measure of any business is an accurate measure of its future cash flows, and then application of an appropriate discount rate to those future cash flows, minus the debt. ..."
"... EOG reported long term debt of $6.654 billion. Production fell from 2014 to 2015. Go to shale profile.com and look at their Bakken and Niobrara production drops. Soon Enno will have the Eagle Ford shale up, we can look at that to. ..."
"... In my opinion, EOG released this presser because at current oil and gas prices, their assets have no value, absent even more cuts to production and development costs, which to me seem improbable. Even more cuts probably don't get them to the ability to pay back debt, especially as the above cash flow calculations DO NOT include general and administrative expenses, nor debt interest expense. ..."
"... I really hope readers will take the time to read this post. EOG is about the best shale company out there IMO. Yet, their assets cannot produce future net cash flows over their expected lives, in aggregate, at current oil and gas prices, without even further cost cutting. Even another 25% of cost cuts doesn't get them close to servicing debt. ..."
"... Also, for the oil traders out there, knowing that EOG is likely a more effective cost producer out there than over half of worldwide production, why don't you explain to me the current futures strip? ..."
For EOG, $40 is becoming the new $70. This morning, the company discussed a new strategy
to make unconventional oil development in US plays like the Eagle Ford and the Permian Basin
competitive on a global scale at current oil prices. Specifically, EOG has identified a decade
of premium unconventional oil drilling inventory that will generate double digit returns at
$30 oil.
Backed into a corner by lower cost producers in a global price war, EOG essentially just
yelled a battle cry at OPEC on behalf of US shale, implying they will make unconventional oil
just as cost effective as OPEC barrels.
EOG Resources is light years ahead of its peers in shale science and acreage quality, and
its ambitions may not be repeatable industry-wide, although others will certainly try. EOG
is to shale what Saudi is to OPEC - uniquely advantaged relative to other peers/members.
Friday morning, EOG Resources CEO Bill Thomas launched a new "premium location" concept,
which is essentially next level high-grading (focusing on the core of the core). Thomas's plan
aspires to make shale work in the new oil price paradigm, and competitive in the new world
oil market.
I have not had time to read it all, but have fun. I am sure the comments will be worth a read.
Toolpush. I read that on Oilpro. It is a head scratcher, as I thought I read Bill Thomas had earlier
said they need $80 oil to have a good business. He is EOG's CEO.
Despite all the talk of
technology, etc, the real measure of any business is an accurate measure of its future cash flows,
and then application of an appropriate discount rate to those future cash flows, minus the debt.
EOG, like all other oil and gas producers, is required to disclose estimates of future cash
flows in their annual 10K reports. They employ an independent engineering firm for this purpose.
Here is what they disclosed effective 12/31/14
Future cash inflows:$146.950 billion.
Future production costs:$51.633 billion
Future development costs$20.495 billion
Future income taxes: $20.495 billion
Future net cash flows:$51.636 billion
Future net cash flows discounted to PV10:$27.923 billion
Here is what they disclosed effective 12/31/15
Future cash inflows:$68.720 billion
Future production costs:$32.061 billion
Future development costs:$15.786 billion
Future income taxes $4.616 billion
Future net cash flows $16.258 billion
Future net cash flows discounted to PV10: $9.621 billion
Now, here is what happens to EOG reported numbers as of 12/31/15 if we drop their cash inflows
by another 1/3, which is where prices are today:
Future cash inflows:$45.814 billion
Future production costs:$32.061 billion
Future development costs:$15.786 billion
Future net cash flows:-$2.032 billion.
EOG reported long term debt of $6.654 billion. Production fell from 2014 to 2015. Go to
shale profile.com and look at their Bakken and Niobrara production drops. Soon Enno will have
the Eagle Ford shale up, we can look at that to.
In my opinion, EOG released this presser because at current oil and gas prices, their assets
have no value, absent even more cuts to production and development costs, which to me seem improbable.
Even more cuts probably don't get them to the ability to pay back debt, especially as the above
cash flow calculations DO NOT include general and administrative expenses, nor debt interest expense.
I really hope readers will take the time to read this post. EOG is about the best shale
company out there IMO. Yet, their assets cannot produce future net cash flows over their expected
lives, in aggregate, at current oil and gas prices, without even further cost cutting. Even another
25% of cost cuts doesn't get them close to servicing debt.
I ask anyone to tell me what I am missing. If there are any business media out there, please
look this over and then report on it. Look at other major independents such as ConocoPhillips,
Anadarko, Marathon, Chesapeake, Occidental, etc. I am sure that, with the possible exception of
OXY, they are worse.
Also, for the oil traders out there, knowing that EOG is likely a more effective cost producer
out there than over half of worldwide production, why don't you explain to me the current futures
strip?
Actions of the company in cutting drilling and capex contradict rozy projections
Notable quotes:
"... Specifically, EOG has identified a decade of premium unconventional oil drilling inventory that will generate double digit returns at $30 oil. ..."
"... EOG expects to complete approximately 270 net wells in 2016, compared to 470 net wells in 2015, with total company crude oil production expected to decline only 5 percent versus 2015. ..."
"... For 2 yrs in a row, EOG has now cut its capital budget by more than 40%. 2016 spending will be $2.4-$2.6bn, down 45% to 50% year-over-year. ..."
"... EOG wont be fooled again by a temporary oil price uptick like in spring-2015, so the company plans to wait on any activity increase until it is convinced any future increase in oil price is sustainable. ..."
For EOG, $40 is becoming the new $70. This morning, the company discussed a new strategy to make
unconventional oil development in US plays like the Eagle Ford and the Permian Basin competitive
on a global scale at current oil prices. Specifically, EOG has identified a decade of premium unconventional
oil drilling inventory that will generate double digit returns at $30 oil.
Backed into a corner
by lower cost producers in a global price war, EOG essentially just yelled a battle cry at OPEC on
behalf of US shale, implying they will make unconventional oil just as cost effective as OPEC barrels.
EOG Resources is light years ahead of its peers in shale science and acreage quality, and its
ambitions may not be repeatable industry-wide, although others will certainly try. EOG is to shale
what Saudi is to OPEC - uniquely advantaged relative to other peers/members.
... ... ...
EOG has identified more than 2 billion barrels of oil equivalent resource, and over a decade
of drilling inventory (3,200 wells) that can generate returns of 10% at $30 oil, 30%+ at $40 oil,
and 100%+ at $60 oil. The company is shifting into premium drilling mode, concentrating on the
core-of-the-core in top plays.
... ... ...
In addition to the new strategy, some key takeaways from EOG's 2016 plan:
EOG expects to complete approximately 270 net wells in 2016, compared to 470 net wells
in 2015, with total company crude oil production expected to decline only 5 percent versus 2015.
For 2 yrs in a row, EOG has now cut its capital budget by more than 40%. 2016 spending
will be $2.4-$2.6bn, down 45% to 50% year-over-year.
Non-premium inventory is still high quality. A large portion will be converted to premium
through technology over time. What can't be converted will be part of property sales or trades.
EOG is delaying the work schedule on some frac spreads from 7 to 5 days a week in order to
maintain more fleets so they will have the ability to ramp in the future.
EOG won't be fooled again by a temporary oil price uptick like in spring-2015, so the
company plans to wait on any activity increase until it is convinced any future increase in oil
price is sustainable.
"The balance sheets of shale producers are in disrepair," said Mr Hess"
and
"Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
In a rare admission that the policy hasn't worked out as planned, Mr El-Badri said that Opec
didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.
Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia
agreed to freeze their output at the January level, provided other oil-rich countries joined.
Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether
to take other steps.
"This is the first step to see what we can achieve," he said. "If this is successful, we will
take other steps in the future." He refused to explain what steps Opec could take."
Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
This para is in the article, but is apparently not a quote of anyone but the reporter. It's
not attributed in the article.
The rest is much like it. Exact quotes scarce. Interpretation-without-portfolio not scarce.
Not surprising. It's IHS/CERA week. They pour it onto the reporters.
"... So who placed an order for oil they weren't going to sell to someone else who would then burn it? Answer: No one did. They had customers and the customers placed orders for it because they needed to burn it, and then took possession of it and burned it. ..."
"... Some of the tankers being used for storage hold gasoline, not crude. (You may already have mentioned this elsewhere.) ..."
"... This is going circular, despite some good procedural information. The issue is this. Does KSA put oil on a tanker and send it to . . . whatever destination with no order for it. Now that's rhetorical in that the correct question could be Does KSA let oil leave that tanker without being a promise of payment. ..."
"... You're not making your point. Are you saying KSA and other exporters pumped that much oil out without being paid for it? ..."
Yes, has anyone noticed swimming pools filled with oil in their neighborhood?
I haven't.
Why would anyone let oil go on a tanker and leave port unless they were
paid for it? Answer: They wouldn't. They get paid for it because they had
an order for it and filled the order. Why would they cut output and refuse
to fill customer orders?
So who placed an order for oil they weren't going to sell to someone
else who would then burn it? Answer: No one did. They had customers and
the customers placed orders for it because they needed to burn it, and then
took possession of it and burned it.
Why contort thinking on this? It's simple and clear.
"Why would anyone let oil go on a tanker and leave port unless they
were paid for it? "
This is a common practice. The tankers leave ports and can several times
change directions as the owner/seller of oil is trying to find the best
buyer.
Interesting. How about offloading? That ever happen without paying the producer?
Because if the theory proposed here is all the storage is in tankers, you're
going to have to find about a billion barrels sitting unpaid for - all whilst
KSA says they produce what they have orders for.
About 20 to 25 of the world's 650 supertankers, which can hold two
million barrels and are called very large crude carriers, are in use
as floating storage,
That's 2 X 25 = 50 million barrels. The alleged oversupply of 3 mbpd
for 20 mos (since June 2014) is 20 X 30 X 3 = 1.8 billion barrels.
There was never 3 mb/d oversupply, not to say for 20 months. The oversupply
peaked at 2.2-2.4mb/d in 2Q15, according to various estimates (see the chart
below).
From IEA OMR, January 2016:
"A notional 1 billion barrels of oil was added to global inventories
over 2014 – 2015 and our latest supply and demand balances suggest builds
will persist with up to 285 mb expected to be added to stocks over the
course of 2016. Despite estimations of current space storage capacity
and the outlook for significant capacity expansions over 2016, this
stock build will likely put midstream infrastructure under pressure
and could see floating storage become profitable. "
The volume in floating storage is a small part of total global inventories.
It can belong to producers (particularly, the NOCs) or to large traders.
Oil producers, particularly the NOCs (national oil companies). For
example, Iran's ~40 million barrels of crude and condensate stored in
tankers belongs to the Iranian national oil company.
Oil traders, who have bought that oil and are storing it in tankers
in a hope that they could sell it later at a higher price.
Can you please explain how in oversupplied Europe Iran suddenly found
customers for more then 0.3 Mb/d (Italy, Greece and France; Spain is next).
You should see inventories rising by the same amount because according
to the "oil glut" theory this oil can't be consumed, don't you ? And 0.3Mb/d
is 9 Mb/month. Most large oil contracts are long term and you can't break
them without penalties.
Also in the USA no producer with reasonably good quality oil ("sweet"
with reasonable API gravity) has any difficulties selling any volume he
can produce. Moreover buyers ask for additional volumes. Note the word "selling",
not putting in storage at his own expense.
Theoretically within "oil glut" framework there is no place for this
oil to go other then in storage. And storage costs now are very high in
Continental US so there should be reasonable attempts to minimize losses
due to large amount of stored oil, which should limit "new" oil buying.
So it looks like "glut theory" (which is essentially an extension of
neoclassical supply/demand model) has some serious holes in it.
"Can you please explain how in oversupplied Europe Iran suddenly
found customers for more then 0.3 Mb/d (Italy, Greece and France; Spain
is next). "
Iran is selling its oil in Europe at a big discount trying to regain
its market share in this region. The customers are happy to buy Iranian
oil at a lower price than the Saudi or Russian oil. The market is oversupplied,
therefore part of oil supplies goes to storage.
"You should see inventories rising by the same amount because
according to the "oil glut" theory this oil can't be consumed, don't
you ? And 0.3Mb/d is 9 Mb/month."
1) Inventories in Europe are rising. Thus, according to the IEA, in December,
even prior to the restart of Iranian exports, they have increased by 0.29
mb/d, or 9 million barrels.
2) Oil exporters are constantly adjusting their geographical mix of oil
supplies. So with increasing volume of Iranian oil directed to Europe, Russia
and others may have redirected part of their supplies to China.
"Most large oil contracts are long term and you can't break them
without penalties."
Oil is not natural gas. Contracts are much shorter than typical take-or-pay
contracts for gas supplies. A lot of oil is sold in the spot market. In
general, the oil market is very flexible.
"Also in the USA no producer with reasonably good quality oil
("sweet" with reasonable API gravity) has any difficulties selling any
volume he can produce. Moreover buyers ask for additional volumes. Note
the word "selling", not putting in storage at his own expense."
When a customer in US or any other country buys oil, it may consume (process)
it or put in storage. With the current low price of oil and a steep contango,
it makes sense to put oil (or refined products) in storage. Therefore, oil
and product stocks in the US are increasing.
"Theoretically within "oil glut" framework there is no place for
this oil to go other then in storage. And storage costs now are very
high in Continental US so there should be reasonable attempts to minimize
losses due to large amount of stored oil, which should limit "new" oil
buying."
The contango in the oil market justifies storing oil even at a high cost.
If not, customers are ready to buy oil only at a lower price. That explains
the current downward pressures on the oil price.
"So it looks like "glut theory" (which is essentially an extension
of neoclassical supply/demand model) has some serious holes in it."
The oil glut in the market is empirical reality and has nothing to do
with the neoclassical theories. You and Watcher are the only ones who deny
this.
"Glut" is emotional word and it is has negative connotation if you are
oil producers and very likely it is misused in the press in order to provide
certain perception of abundance.
or pick word "Oligarch" or "Businessman" which is more emotional to you?
Better word would be "over-supply" of oil. But the real question is how
much of over-supply there is?
This is going circular, despite some good procedural information. The
issue is this. Does KSA put oil on a tanker and send it to . . . whatever
destination with no order for it. Now that's rhetorical in that the correct
question could be Does KSA let oil leave that tanker without being a promise
of payment.
Simply that, and you seem to be dodging. Is oil coming out of the ground
- or if you're happier, coming out of the tanker, without agreement to pay.
And again, your reference made clear you're talking about 50 and only 50
lousy million barrels. The decline in prices started June 2014. Quotes of
oversupply have been up to 3 mbpd. Even that graph you posted would add
up to hundreds upon hundreds of millions of barrels.
You're not making your point. Are you saying KSA and other exporters
pumped that much oil out without being paid for it?
The oil of course is paid for, but the price is very low. A "glut" means
an oversupply, how do we know there is an oversupply? Because many producers
are selling their product at a loss.
For a commodity like oil which does not deteriorate in storage (like
apples) there can be oil traders that buy and store oil in hopes of selling
later for a higher price.
Every single business in the world must increase its inventory when it increases
it sales unless it is somehow able to get more efficient with its inventory
turns. When growth is very fast like it has been in the US oil industry
over the past few years, inventory turns almost always get less efficient,
particularly if there are bottlenecks in product flows due to insufficient
infrastructure or logistics which struggles to catch up with that growth.
So when you are producing and selling record or near record amounts of a
good then your inventory of that good should be at or near record levels.
Also, when you build more inventory capacity you are going to carry more
inventory particularly if you don't like the price that you can sell that
inventory now as is the case in the oil business.
The inventory in the US will turn much quicker than people think as the
production declines accelerate or more importantly the price goes up. Assuming
either of those things ever happen again….
The
Weekly
Petroleum Status Report came out earlier today. The biggest news is
that oil inventory levels increased by another 3.5 million barrels. They
are at an all time high.
I understand that there are some folks out there who do not believe that
there is currently a glut in the oil supply. I wonder how they would explain
this record in stored oil. Of course this is just not in the US, there are
similar stories around the world. We are running out of places to store
oil. That's not a glut? Then what the hell would you call it.
US crude oil production dropped by 33,000 barrels last week, according
to the EIA's algorithm that tries to track production. Understand that this
is not an actual measurement of oil produced but a mathematical equation
that tries to figure it out.
The most recent four week running average data (through Mid-February),
show that US net crude oil imports increased year over year, from 6.8 million
bpd in 2/15 to 7.4 million bpd in 2/16. And US net crude oil imports, as
a percentage of C+C inputs into refineries, rose year over year from 44%
last year to 47% this year (four week running average data).
And links to articles from last year and this year that discuss refiners'
unhappiness with "Synthetic WTI" blends of heavy crude and condensate:
Well we have the OECD storage levels for the last 6 years, courtesy of the
IEA Oil Market Report And, as you can see they are at a high since January
2010.
If you substract US storage increase from OECD numbers, I think you should
see a plateau. So the majority of the increase in oil storage is in the
US, at least for OECD.
I have tried in the past to find information about non-OCED and OPEC storage.
I have been unable to do so. If anyone has this information (AlexS?) I would
appreciate it very much.
Per IEA, total supply, including refinery gains and biofuels stood at
97.1 million bopd. Of that, OCED was 24 million bopd, with refinery gains
and biofuels in OCED making up another 4.6 million bopd.
This means that a little over 70% of world wide supply (production) is
non-OCED and OPEC. So, without storage information for non-OCED and OPEC,
seems it is a little difficult to obtain a clear picture of how much higher
worldwide storage is now than it has been in the past?
It would seem if non-OCED exporters and OPEC desired to sell into this
market and draw down crude oil storage inventories, they very well could
do so, as refiners in importing countries would be inclined to buy as much
oil as they could store, assuming that low prices will not remain forever.
OTOH, when oil shot up to $140, clearly refiners in importing countries
tried to keep from buying anymore crude than necessary, as there is much
more risk in storing $140 oil losing value than $30 losing value.
Also, when we get right down to it, strategic petroleum reserves should
be included into the mix. However, what weight they should be given is difficult,
given the uncertainty of if and when they would be accessed.
The inventories for countries producing 29.5% of C + C, including refining
gains and biofuels, have increased from about a five year average of 58
days, to 65 days supply. I wonder what has happened with regard to storage
for the remaining 70.5% of world wide production?
I will give you an example of what I mean through a stripper well oil
producer. Stripper well production is separated from water and goes into
a stock tank. When the stock tank is full, the tank is picked up by a tanker
truck and driven to a refinery.
In January, a stripper well operator may start with 1,000 barrels of
oil on hand, produce 1,000 barrels in the month, sell 1,200 barrels in the
month, and end the month with 800 barrels on hand. The next month, the operator
may start with the 800 barrels, produce another 1,000 barrels, sell just
600 barrels, and end the month with 1,200 barrels on hand.
We know the operator produced 1,000 barrels each month. However, if I
had not told you that, you might very well think the operator produced 1,200
barrels in January and 600 barrels in February.
Is it not possible that this game is occurring with regard to large producers
for which we have no storage data?
For example, I sincerely doubt KSA suddenly shuts in wells to cut production,
or opens up wells to increase production. I assume they have considerable
storage, and when they ramped up production greatly, they really didn't,
they put a lot of stored oil on the market. I think it would be tough to
suddenly increase or decrease production by 1 million bopd. Maybe they do,
but I doubt it happens immediately.
Of course, I really do not know the above re KSA for a fact. However,
it would be much easier for them, or any other producer, to manage supply,
at least in part, through the use of storage.
Please understand, I have no idea what is really going on with worldwide
oil storage. But that is my point, unless someone can point me to some good
data, no one does. For all we know, storage levels in non-OCED and OPEC
could be low?
Hi
Thanks for the weekly graph – always great to see your data presentation.
Careful with the increase in crude stocks, because, as you surely know
gasoline, distillates (the low sulphur part) and the propane are all down
the double,
so that total stocks (bottom line in top part of "data overview table 1"
EIA) are DOWN 5 mb last week!
I think people are gonna start reacting, 4 week averages are down, yearly
cumulative production is down, the tide is turning. And as Mr Brown writes,
imports are up too. The show goes on…
Best,
With US shale balancing of the verge of financial collapse this is a pure propaganda. This time
it is the US shale companies that are the weakest link and they will not last 2016 is oil prices stay
low. Wells can be reopened but shale well deteriorate so fast that it does not make much
sense. And you need money for drilling new wells. Who will finance this new shale boom after so many
players were burnt ?
Notable quotes:
"... Kuwait's struggles in the 1980s are instructive for anyone wondering whether producing countries can tinker their way out of trouble now. In the face of weak prices in the early years of the decade the OPEC production group introduced output cuts in an attempt to mop up oversupply. Kuwait slashed production from nearly 2 million barrels per day to about 600,000 bpd. The top producer Saudi Arabia made even costlier cuts. ..."
When Sheikh Ali Khalifa al-Sabah of Kuwait thinks about today's plunging oil prices, his mind drifts
back to the mid-1980s, when he was forced to sell some of his country's crude for as little as $5
a barrel.
As Kuwait's oil minister at the time, Sheikh Ali had to sell a cargo or two at that price
just to keep up cash flow to a country that depended upon oil revenues. "It wasn't because I wanted
to; it was because it was the market price," he recalls.
"We really had no alternative."
For oil industry players active during the 1980s bust, the current drop in prices carries echoes
of those desperate days. Interviews with some of those involved in that period reveal that while
there is little consensus on how long prices will stay depressed, experience suggests the current
market glut will not evaporate soon.
Representatives from all aspects of the energy industry will be mulling current low oil prices
and the supply glut this week during the IHS CERAWeek gathering in Houston.
Kuwait's struggles in the 1980s are instructive for anyone wondering whether producing countries
can tinker their way out of trouble now. In the face of weak prices in the early years of the decade
the OPEC production group introduced output cuts in an attempt to mop up oversupply. Kuwait slashed
production from nearly 2 million barrels per day to about 600,000 bpd. The top producer Saudi Arabia
made even costlier cuts.
Three factors dashed the plan: fellow OPEC members cheated on their own cuts; global thirst for
oil had dried up after price spikes in the 1970s pushed consumers to buy efficient cars; and new
supplies, particularly from non-OPEC Mexico, Norway, and Alaska threatened to squash gains from any
cuts.
By late 1986, Saudi Arabia and other OPEC members opened the taps again to regain market share,
and prices did not recover for 20 years.
The memory leaves Sheikh Ali, now 71, feeling grim about a price recovery this
time.
"Tomorrow if the price of oil goes down to $20 I would not be surprised," he said. "You don't
take excess oil away very quickly. It was true in the 1980s, now it's even worse."
... ... ...
Sheikh Ali estimated it will take seven to 10 years to emerge from the current slump. "The
idea that U.S. companies are going to collapse and therefore their production is going to zero is
daydreaming," he said. "Even the wells that have closed can easily re-open."
Saudi Arabia may no longer be the swing producer of global markets, but the United States is
now the world's "spring producer," Sheikh Ali said. Shale stands to put a long term damper on
global markets, because when oil prices rise even a little, North Dakota and Texas output can pop
back to market far easier than expensive deepwater or Alaskan production did decades ago, he
said.
Technology innovations keep pushing the cost of shale production lower. And the return of Iran's
oil exports after the lifting of sanctions also threatens to moderate prices.
The only problem with US exports is that the USA is net importer of oil. The USA definitely can
export condensate, as it does not has processing facilities for it, but that's about it. As for
"A prolonged period of low gas and oil prices will put heavy pressure on Russia" the USA shale producers
will go belly up first. Probably this year.
The same is true for natural gas. The USA remains a net exporter and shale production is dwindling
down quickly. Individual shipments does not change this picture.
Notable quotes:
"... The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent since peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m. on the New York Mercantile Exchange Tuesday, down 33 percent from a year earlier. ..."
"... "A prolonged period of low gas and oil prices will put heavy pressure on Russia in its relations with the West and of course low energy prices put tremendous strain on all exporters of hydrocarbons worldwide, on their government budgets," said Ted Michael, an analyst at Genscape Inc., an energy-market data and intelligence firm. ..."
"... Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben Luckock, global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel cargo of U.S. benchmark crude will be delivered in March. ..."
"... Bloomberg has an article up by somebody saying that it is a "game changer" now that the US can ship oil all over the world to compete with OPEC. I would guess that the guy has never read anything by Jeffrey Brown. I think that he thinks that we are an Export Land in the model. ..."
"... There is so much ignorance out there that it is going to be a rude awakening when it happens. All these guys advising investors to sell everything related to fossil fuels because they are not making any money, but they think that they will make huge profits at $50 bbl. Except that when it does get to $50, it will plunge again because the huge flood of oil that will hit the market. What a joke. ..."
"... I think Bloomberg is mixing the export of condensate which is overproduced in the USA and does not fit the refineries tune up with the export of oil which might be a more challenging idea. ..."
"... It is unclear whether this is a "real" WTI or "artificial" WTI that the US refineries do not want. I think it is the latter. ..."
For the
Saudis and their OPEC cohorts, who collectively control 40 percent of the globe's oil supply, the
specter of U.S. crude landing at European and Asian refineries further weakens their grip on world
petroleum prices at a time they are already suffering from lower prices and stiffened competition.
With Russia also seeing its influence over European energy buyers lessened, the two crude superpowers
last week tentatively agreed to freeze oil output at near-record levels, the first such coordination
in a decade and a half.
... ... ...
Beyond corporations, the Dec. 18 lifting of the export ban by Congress and President Barack Obama
created geopolitical winners and losers, too. The U.S., awash in shale oil, has gained while powerful
exporters like Russia and Saudi Arabia, for whom oil represents not just profits but also power,
find themselves on the downswing.
The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent since
peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m. on the New
York Mercantile Exchange Tuesday, down 33 percent from a year earlier.
... ... ...
"A prolonged period of low gas and oil prices will put heavy pressure on Russia in its relations
with the West and of course low energy prices put tremendous strain on all exporters of hydrocarbons
worldwide, on their government budgets," said Ted Michael, an analyst at Genscape Inc., an energy-market
data and intelligence firm.
... ... ...
The Theo T was joined shortly after its trailblazing journey by a second ship out of Houston destined
for the Netherlands. How many tankers have sailed since won't be known until comprehensive data on
January's shipments is released by the U.S. Census Bureau in the coming weeks.
Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben Luckock,
global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel cargo
of U.S. benchmark crude will be delivered in March.
What's already clear is that even with crude losing about 70 percent of its value since the middle
of 2014 amid a worldwide production glut and a slowdown in Chinese demand growth, buyers are happy
for the chance to diversify their sources of supply.
... ... ...
U.S. companies, led by Cheniere, have been spending billions of dollars on LNG export complexes where
the fuel is cooled to minus 256 degrees Fahrenheit (minus 160 Celsius) to shrink it to 1/600th its
volume so it can be shipped aboard ocean-going tankers. As a result, an international gas market
is emerging akin to the long-established one for the more readily transportable crude oil.
LNG
Exports
Houston-based Cheniere plans to begin LNG exports within weeks, after missing a January target
because of faulty wiring. The first tanker that will carry LNG from Cheniere's Sabine Pass terminal
in Louisiana has arrived. Asia Vision has moored at Sabine Pass, according to ship-tracking data
compiled by Bloomberg.
U.S. LNG cargoes, in combination with a bevy of new gas projects in Australia, will probably add
15 billion cubic feet of daily supply to global markets in the next few years, Genscape's Michael
said. That would be a 43 percent addition to the 35 billion currently bought and sold internationally.
Bloomberg has an
article up by somebody saying that it is a "game changer" now that the US can ship oil all
over the world to compete with OPEC. I would guess that the guy has never read anything by Jeffrey
Brown. I think that he thinks that we are an Export Land in the model. How can they not know
that, in effect, except for quality differences, we are just exporting oil that we imported from
Canada or some other place.
There is so much ignorance out there that it is going to be
a rude awakening when it happens. All these guys advising investors to sell everything related
to fossil fuels because they are not making any money, but they think that they will make huge
profits at $50 bbl. Except that when it does get to $50, it will plunge again because the huge
flood of oil that will hit the market. What a joke.
I think Bloomberg is mixing the export of condensate which is overproduced in the USA and does
not fit the refineries tune up with the export of oil which might be a more challenging idea.
Beyond corporations, the Dec. 18 lifting of the export ban by Congress and President Barack
Obama created geopolitical winners and losers, too. The U.S., awash in shale oil, has gained
while powerful exporters like Russia and Saudi Arabia, for whom oil represents not just profits
but also power, find themselves on the downswing.
The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent
since peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m.
on the New York Mercantile Exchange Tuesday, down 33 percent from a year earlier.
… … …
Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben
Luckock, global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel
cargo of U.S. benchmark crude will be delivered in March.
What's already clear is that even with crude losing about 70 percent of its value since
the middle of 2014 amid a worldwide production glut and a slowdown in Chinese demand growth,
buyers are happy for the chance to diversify their sources of supply.
It is unclear whether this is a "real" WTI or "artificial" WTI that the US refineries do not
want. I think it is the latter.
Zero hedge is a really crooked site when it comes to oil.
I had an account banned
there for continually pointing out the inconsistencies of their narrative on production and supply.
You'll notice they'll only use graphs when there's been an uptick in production. All the time last
year when production was falling they never once used a graph.
When production was still increasing they always used a combined rig count/production graph, the
moment production started to fall they pulled the production line from the graph. The moment production
plateaued and slightly increased, the production line reappeared.
There's some skilled propagandists there because most of the commenters lap it up, I doubt many
of them would realise production actually fell in the US in 2015, they probably still think it's
increasing. None of them would realise Saudi production has fallen either.
"... My comment: Anyway, Russia and Saudi Arabia were not expected to increase oil production this year ..."
"... Yes, but the markets don't know that Russia and Saudi Arabia cannot increase output. With this agreement they are trying to sustain oil prices or even increase them, one of the few things Saudi Arabia and Russia can agree on. ..."
"... As you can see this fake narrative of 1-2 Mb/d of "glut" is still in place. If this is not taking the price down I do not know what is. In this "fog of war" we should not blindly believe Western agencies reporting. It is even unclear what this agreement is about. ..."
"... In any case please understand the Western game to talk down oil prices down until recently included Saudis. Now they are out of this game. ..."
"... The fact output from Saudi Arabia and Russia – the world's two top producers and exporters – is near record highs also makes an agreement tricky since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels. ..."
"... Within the next 3 months all these trends will reverse. Seasonal demand will rise while production declines rise, and Iran's production stabilizes eliminating the new production bidding war. ..."
"... Why the hell do some people always believe that the media or agencies that track and sell data are always lying? ..."
"... A good point. Really, why some people distrust Western MSM and agencies ? Can it be for the same reasons they distrust bankers, IMF and World Bank ? ..."
"... If Congress and government are owned by banks according to senator Durbin ( "And the banks - hard to believe in a time when we're facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place." ) why do you think government agencies and major MSM are different ? ..."
"... The key point is that whenever possible we should try to compare different sources of data. That's the only way to reveal the real picture as none of us can verify the data provided by agencies and MSM. ..."
"... Plato has Socrates describe a gathering of people who have lived chained to the wall of a cave all of their lives, facing a blank wall. The people watch shadows projected on the wall from things passing in front of a fire behind them… The shadows are as close as the prisoners get to viewing reality. ..."
"... Still we can for major oil-related data to estimate the error margin and the direction of bias. Like I tried to estimate error margin for EIA data. Much depends whether you assume it to be 1% or 10%. If, for example, you think about particular source as 100% reliable that's fine, but 100% rating should be rare in this world and should never be awarded uncritically. Actually your posts for me are close. ..."
"... So non-US media, discussion forums that attract professionals like your blog, posts of professionals who try to present unbiased views like your posts, Jeffrey Brown posts, Art Berman posts (to name a few) and remnants of media still loyal to oil industry (your example of The Oil and Gas Journal ), not to Wall Street traders interests (Bloomberg) are especially important islands of sanity in this distorted, crazy, financial speculation dominated world. ..."
"... Did you ever hear about the "Great Condensate Con" hypothesis? This is an alternative to the "oil glut" hypothesis and I think it is more plausible. ..."
Nations agree to maintain output at Jan. 11 level, Naimi says
Ministers from Qatar, Venezuela also agreed to freeze"
Saudi Arabia and Russia, the world's two largest crude producers,
agreed to freeze output after talks in Qatar.
Freezing output at January levels will be "adequate" and the nation
still wants to meet the demand of its customers, Saudi Oil Minister
Ali Al-Naimi said in Doha after talks with Russian Energy Minster Alexander
Novak. Qatar and Venezuela also agreed to participated in the freeze,
Al-Naimi said.
"A freeze would not create an immediate U-turn but it creates a better
foundation for the price recovery in the second half," Olivier Jakob,
head of oil consultants Petromatrix GmBh, said in a note to clients
before the meeting concluded.
According the International Energy Agency, Saudi Arabia produced
10.2 million barrels a day in January, below the most recent peak of
10.5 million barrels a day set in June 2015. Russia produced nearly
10.9 million barrels a day in the same month, a post-Soviet record,
according to official data.
Qatar will lead monitoring of output freeze agreement, the nation's
Energy Minister Mohammad bin Saleh al-Sada said at a press briefing.
My comment: Anyway, Russia and Saudi Arabia were not expected to
increase oil production this year
Yes, but the markets don't know that Russia and Saudi Arabia cannot
increase output. With this agreement they are trying to sustain oil prices
or even increase them, one of the few things Saudi Arabia and Russia can
agree on.
"Yes, and they are successfully "talking up" oil prices over the
past 2 or 3 weeks"
What do you mean by "talking up"? Funny, but you sound like ZeroHedge.
The current prices are unsustainable and will go up talking or no talking.
Now the effect will be amplified by a short squeeze.
Those presstitutes from Reuters already proudly reported that Azerbaijan
will not join. As if it matters.
Look at the example of the current Western propaganda drivel:
Reuters reported that the meeting had echoes of a 2001 encounter
between OPEC and non-OPEC producers when Saudi Arabia pushed through
a global deal to curb output in which Russia agreed to participate.
But Moscow never properly followed through on its pledge to curb exports.
After 19 months of declines in oil prices, analyst are cautious,
however, of another short-lived bump higher based on jawboning from
producers. This is despite the fact that the impetus to agree on price-boosting
production cuts has been heightened by budgetary pain in both Russia
and Saudi Arabia.
"The noise around potential production cuts is hugely elevated;
if we don't see a cohesive response in a month or so, the speculators
will no doubt start to ramp up short positions again," IG's
chief market strategist, Chris Weston, said in a note.
And Phillips Futures cautioned, "if they allow prices move
up in the immediate term, prices would likely be remaining lower
for longer. This is because producers of oil at higher breakevens
could hedge off their exposure, resulting in strong production moving
forward. Thus, would mean that it would still be in the best interest
for oil producers, especially those who could still get by to continue
and wait it out, no matter how painful it may be."
The Tuesday price spike also masked complications in the oil industry
that have clouded the market.
One major issue is how much oil producers were actually pumping out,
UBS Wealth Management's commodities and FX strategist Wayne Gordon told
CNBC's "Street Signs."
"Some people believe that Saudi Arabia et al have been over-reporting
production and exports just so that when they go to the OPEC meeting
they can say 'Oh yeah, we cut around here and here'," he said.
The world was still swimming in 1-2 million extra barrels of oil
a day, he added.
UBS forecasts oil in the $20-$40-a-barrel range this year.
Also in focus is the fallout and snowball effect of the oil crash,
with banks now faced with decisions on what of their commodities assets
to write down, at a time when lenders are already under pressure from
the Bank of Japan's move into negative interest rates.
"On the Japanese banks side, clearly they've had to take a lot of
impairments…(over) commodities assets in the last five years… [then]
as you go into negative rates, all you're really doing is forcing banks
to take loans or lend money to higher risk propositions," Gordon warned.
As you can see this fake narrative of 1-2 Mb/d of "glut" is still
in place. If this is not taking the price down I do not know what is. In
this "fog of war" we should not blindly believe Western agencies reporting.
It is even unclear what this agreement is about.
In view of this event it looks like the recent visit of Qatar minister
to Moscow was crucial. I expect Iraq joining this agreement immediately.
In any case please understand the Western game to talk down oil prices
down until recently included Saudis. Now they are out of this game.
But Reuters still tries to play Iran card.
The fact output from Saudi Arabia and Russia – the world's two
top producers and exporters – is near record highs also makes an agreement
tricky since Iran is producing at least 1 million barrels per day below
its capacity and pre-sanctions levels.
In this "fog of war" we should not blindly believe Western agencies reporting.
It is even unclear what this agreement is about.
I can understand some political bias in what national oil companies are
reporting, or in some cases what government agencies themselves are reporting.
But I just flat do not believe that agencies like Platts, and other such
sources, are deliberately lying about what they believe a nation's oil production
really is. What reason would they have to lie? Fog of war? Shit, they are
not at war with anyone.
I do not believe that the news agencies, and agencies that track oil
production, around the world are engaged in some kind of giant conspiracy
to deceive the world into believing that either more or less oil is being
produced than it really is.
Why the hell do some people always believe that the media or agencies
that track and sell data are always lying? They don't have a dog in that
fight. Their first priority is to find out and accurately report what is
actually happening. It is in their interest to tell the truth, as near as
they can determine what the truth actually is. Because if they are caught
lying it could severely damage their reputation and deeply hurt their company
profits in the long run.
I don't believe they have an agenda, but follow normal human behavior in
following the crowd. The media coverage seems to be very one-sided at the
moment and at times poorly researched. It appears though as if the game
of the moment is to talk to "oil-price down". Headlines and world-events
that would have caused an immediate oil-spike in the last years is suddenly
seen as good opportunity to short oil. As a person working in the oil industry
this is extremely frustrating at times.
There is no spin or bias in the fact that refined product inventories
are at record highs leading to large discounts to remove winter blend
gasoline stocks.
There is no spin or bias in the fact that inventories are at record
highs. This data is tracked from multiple independent sources AND in
several different ways. There are data analytic companies that have
used satellite data to estimate storage tank usage by means of the shadow
they cast. Even this unique and statistically accurate way of measuring
changes in storage agrees that storage is well above historical highs.
There is no spin or bias in the fact that oversupply and price competition
between major producers has led the UAE to offer India free oil so long
as it stores it.
There is no spin or bias in the fact that oversupply is causing
bidding wars between major producers forcing the Saudis and others to
continuously lower prices to keep contracts.
It is glaringly obvious, from every single angle, that the world is oversupplied
at the moment. Current production declines aren't yet having an impact because
this time of year is a period of seasonally low demand. Add in Iran's need
to win contracts, and you get a temporary bidding war where every exporter
is desperately lowering prices to keep contracts. Once it gets really bad
you get things like the UAE deal with India.
Within the next 3 months all these trends will reverse. Seasonal
demand will rise while production declines rise, and Iran's production stabilizes
eliminating the new production bidding war.
Just because the market will re-balance strongly in 2016 does not mean
that it is currently in the process of re-balancing. Due to the confluence
of Iran competing for contracts, record high storage, and the seasonal lull
in demand canceling out any nascent production declines we're in the most
acute phase of oversupply relative to demand.
It doesn't matter where the market will be in 3 months. Oil produced
today needs to be bought by SOMEONE NOW. This is causing a massive bidding
war because there aren't enough buyers now that Iran entered and needed
to win contracts immediately.
No, it absolutely cannot be the same reason. Banks deal in money, news
agencies deal in news. Banks have a vested interest in secrecy, news
agencies have a vested interest in telling everything they know.
News agencies desperately want a reputation for telling the truth. Banks
desperately want a reputation for making money for their clients, investors
and stockholders. These people don't give a damn if banks lie or not as
long as they make money. Money is the only thing they care about.
Likbez, the fact that you see the same motives behind what news agencies
report and what banks do, tells me you really don't understand either.
If Congress and government are owned by banks according to senator
Durbin ( "And the banks - hard to believe in a time when we're facing a
banking crisis that many of the banks created - are still the most powerful
lobby on Capitol Hill. And they frankly own the place." ) why do you think
government agencies and major MSM are different ?
Oh for God's sake! Platts can create a banking crisis? Petroleum Intelligence
Weekly has a lobby? The Oil and Gas Journal has the same agenda as CitiBank?
The Oil and Gas Journal has the same agenda as CitiBank?
Thank you for attacking my viewpoint. That actually clarified my thinking.
Looks like our viewpoints are not that different. In my view we can (and
should) mentally rate each source information as for objectivity and bias
(for example your blog and posts vs ZeroHedge ).
The sources of information that have bias of opposite sign in comparison
with MSM are especially valuable. Even in MSM comment sections are much
more valuable then the articles published. Right now for me the most valuable
sources of information that help to reveal the bias are sources that question
the mainstream hypothesis of oil glut (and related spin about Saudis desire
to preserve market share), as well as those who were critical of shale oil
boom and are questioning EIA, IEA and friends statistics. Your mileage may
vary.
The key point is that whenever possible we should try to compare
different sources of data. That's the only way to reveal the real picture
as none of us can verify the data provided by agencies and MSM.
This is a classic situation called "Plato cave" "https://en.wikipedia.org/wiki/Allegory_of_the_Cave"
Plato has Socrates describe a gathering of people who have lived
chained to the wall of a cave all of their lives, facing a blank wall.
The people watch shadows projected on the wall from things passing in
front of a fire behind them… The shadows are as close as the prisoners
get to viewing reality.
Still we can for major oil-related data to estimate the error margin
and the direction of bias. Like I tried to estimate error margin for EIA
data. Much depends whether you assume it to be 1% or 10%. If, for example,
you think about particular source as 100% reliable that's fine, but 100%
rating should be rare in this world and should never be awarded uncritically.
Actually your posts for me are close.
So non-US media, discussion forums that attract professionals like
your blog, posts of professionals who try to present unbiased views like
your posts, Jeffrey Brown posts, Art Berman posts (to name a few) and remnants
of media still loyal to oil industry (your example of The Oil and Gas
Journal ), not to Wall Street traders interests (Bloomberg) are especially
important islands of sanity in this distorted, crazy, financial speculation
dominated world.
"sources that question the mainstream hypothesis of oil glut "
No one serious source (IEA, EIA, OPEC, Platts, Woodmac, Rystad, IHS,
energy ministries of exporting countries, oil companies, large oil traders,
etc.) questions the oversupply in the global oil market.
Right now for me the most valuable sources of information that help
to reveal the bias are sources that question the mainstream hypothesis
of oil glut
I think this is hilarious. The sources that you believe are those who
think there is no oil glut at all. The sources that believe the price of
oil has been driven from over $100 a barrel to $30 a barrel by…. some kind
of giant conspiracy.
Yeah right! Rolling in the floor laughing my ass off.
Perhaps you believe Watcher's theory. That it was all because some exporter,
Saudi I think, just kept selling at a slightly lower price until after many
months they had gotten the price down to thirty bucks a barrel.
Did you ever hear about "Great Condensate Con" hypothesis? This is
an alternative to "oil glut" hypothesis and I think it is more plausible.
Well no, it is not. While the Great Condensate Con is very real, it is
not an alternative to the oil glut. The oil glut simply deals with supply
and demand. If the supply of oil is greater than the demand for oil then
the price falls. It is as simple as that.
The increase in production by Iran and Saudi Arabia, that began in March
of 2015, was not condensate, it was crude oil. Much of the increase before
that date was condensate. But the decline in demand had nothing to do with
the Great Condensate Con. It was a decline in demand due to very high prices
and a definite decline in the world economy.
Bottom line, there is a definite oversupply of crude oil in the world
today. That is the reason we are seeing oil in the range of $30 a barrel,
and not any kind of conspiracy by anyone.
Hey! I am a peak oil advocate. I would love to say that there is a shortage
of oil in the world today as a result of crude oil peaking. But the very
obvious facts do not allow me to make such a claim. There is a glut of
oil today. That cannot be denied.
For Christ's sake, don't try to spin reality into some kind of conspiracy.
Accept reality as it is and go from there.
I have said all along that peak oil will be a time when more oil is produced
than any time in history of the world or ever will be produced in the future
of the world. And such a time will be far more likely to be perceived
as a time of an oil glut than as a time of an oil scarcity.
As usual I agree with Ron in terms of broad outlines. News agencies and
organizations as a whole or a group are more interested in the truth than
in spinning the truth, or ignoring it.
But there is no doubt at all in my mind that a lot of news organizations
spin the truth for some particular reason, emphasizing the news in such
a way as to support an agenda OTHER than getting the truth out.
WHY?
Because in this day and time, the OWNERSHIP of news organizations is
in the hands of people who have HUGE stakes in spinning the news to suit
themselves, in a lot of cases.
Business interests have bought control of news organizations as much
for the power gained thereby, as for legitimate investment purposes.
AND the organizations themselves, after a while, tend to become hotbeds
of partisan employment.
It's not that the truth doesn't matter, in terms of getting caught out
wholly in the wrong, but rather that the truth is judged expendable in terms
of certain events and issues, or at least , just something to be IGNORED.
I have no problem AT ALL with FOX NEWS when it comes to reporting earthquakes,
airplane crashes, and day to day local news. But I would be laughed out
of this forum if I said that Fox does a great job of reporting on environmental
issues. Fox does not, of course.
OTOH, FOX has actually started reporting in an even handed manner, at
least some of the time, about electrified personal automobiles.
I listen to NPR almost exclusively, whenever I turn on a radio, or else
a folk and bluegrass music station, if NPR is playing organ music.
But so far as I am personally concerned, I cannot ever REMEMBER hearing
anybody on NPR on a regular basis who sounds like a R partisan.
OTOH, I am confident I can identify the political orientation of everybody
talking on NPR, with ninety nine percent accuracy, just by reading an hour
or less of randomly selected black and white transcript of what they have
to say, word for word.
The OVERWHELMING majority are conventional stereotypical liberals, with
a few token conservative voices popping up once in a long while.
Tone of voice and choice of words can convey the message , quite as effectively
as the actual words spoken.
Note that I continue to listen to NPR.
I might listen to some other outfits, but there isn't any other programming
WORTH listening to. There is no comparable right wing radio. So called talk
radio is all about the lowest common denominator, and that denominator is
ignorance.
So if you want to hear anything that is based on knowledge and reason,
coming from the conservative pov, you are reduced to a few magazines, for
all intents and purposes.
Mac, of course news agencies like Fox News spin political news. Neither
they, nor any other news agencies would need to lie about Azerbaijan's oil
production numbers. Or China's oil production numbers. Or… well, I hope
you understand that.
To accuse Fox, or Platts, or whomever, of lying about
some Asian countries oil production, just smacks of stupid conspiracy theories.
Here we talk about peak oil and measure every uptick and downtick in production. On the other
hand oil is so abundant that they are now giving it away for free. India will get free oil from
UAE in return for offering storage.
As Russia's oil minister meets his Saudi Arabian counterpart in
Doha on Tuesday, the world's second-largest crude producer faces numerous
obstacles in cooperating on such a deal even if Putin decides it's in
the national interest. Reducing the flow of crude might damage Russia's
fields and pipelines, require expensive new storage tanks or simply
take too long.
In Siberia, Russia's main oil province, winter temperatures can
go below minus 40 degrees Celsius (minus 40 Fahrenheit). That's a challenge
for anyone thinking of turning off the taps.
The oil and gas that flows from wells always contains water, so
once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked
for more than 10 years in the Russian oil industry, said by e-mail.
The problem goes away in summer, but there's still the risk of a long-term
reduction in output because a halted reservoir can become polluted with
salts and residues, he said. Production from a shut-in well might never
be restored in full, Maxim Nechaev, director for Russia at consulting
firm IHS Inc., said by phone.
Blink. Someone from IHS says oil wells can be permanently damaged?
Might want to go thru the article. It's loaded with frown inducers.
Why would anyone "produce oil" aka extract it from the ground if they
don't have an order for it. There is verbage about Russia pumping it to
store it. Hell, it's already stored. Underground. Russia isn't going to
get tax revenue from oil flow that isn't sold. The sales revs are what pay
the taxes.
People are so desperate to sprint to the oversupply narrative that they
don't think it through.
Watcher,
That part of the text that was quoted from ZH is totally wrong (like most
of the MSM garbage) in way that it looks at the tomorrow's meeting. Russia
is not negotiating any cuts at all with SA in Doha or vice versa. The whole
meeting is about a possible attempt of negotiation only of oil production
freeze of additional production in retrospect of Iran return to the oil
market.
KSA has 'cut' production in 6 out of the last seven months. Cut might not
be the right word though as I suspect it was not a choice. It was thrust
upon them by geology. KSA will IMO face month after month of decreasing
production. They managed a production surge for a short while but that's
all they had in them. They've shot their bolt. Iran probably has some good
increases coming but that's about it, and not all of that Iranian increase
will be exported.
The increase in Saudi oil production
in the summer season was due to peak demand from the domestic power generation
for air conditioning.
As demand moderated in the past several months, KSA slightly reduced output
levels, while crude exports have actually increased.
KSA oil production and exports in 2015 – Jan. 2016
sources: JODI, OPEC
Do you believe that the slightly reduced production level of the last
6 of 7 months was optional? I tend not to. I feel they are producing every
single barrel that they possibly can. They've got the peddle to that floor.
No holding back.
Looks like some negotiations are happening behind closed doors between
Saudis and Russians (probably discussion over Iran return to the world oil
market) despite thick smoke of disinformation from Bloomberg presstitutes.
With French, Italian and Greek deals (and Spain deal in pipeline) it
might well be that accommodation of Iran is already started in full force.
The question is whether they are able to produce additional volumes of oil
above 0.3 Mb/d that is expected (and actually already contracted) and if
yes, when.
Iraq and a couple Persian Gulf monarchies are on board for the cuts.
Saudis need to pander to growing Wahhabi sentiments of its population. So
they probably are not in order to "punish" Iran and Russia. Also hardliners
are now in power. But as money evaporate from their coffers even hardliners
might soften their position. Eventually.
Still here is Bloomberg disinformation in full glory:
As Russia's oil minister meets his Saudi Arabian counterpart in Doha
on Tuesday, the world's second-largest crude producer faces numerous
obstacles in cooperating on such a deal even if Putin decides it's in
the national interest. Reducing the flow of crude might damage Russia's
fields and pipelines, require expensive new storage tanks or simply
take too long.
So far Russia's top oil official have offered mixed signals. Energy
Minister Alexander Novak has said he could consider reductions if other
producers joined in. Igor Sechin, chief executive officer of the
country's largest oil company Rosneft OJSC and a close Putin ally, said
last week in London that coordination would be difficult because no
major producer seems willing to pare output.
BTW looks like Bloomberg intentionally distorted the position of Sechin.
IMHO he is onboard about a one time cut around 1 Mb/d if it is implemented
as a proportional cut by all major oil producers. As Russians most probably
have a reasonably good intelligence about Persian Gulf countries they should
understand the situation with new projects and natural decline of wells
in Gulf which now will drive the world oil production dynamics.
"… the strategy of the prince Mohammed Bin Salman is to push Iran
to the fault in causing the tensions that can go up to a risk of open
warfare that would force the west to choose Saudi Arabia against Iran
…"
"… The Prince Mohammed bin Salman is now the most powerful man in
Saudi Arabia. It has exclusive access to his father, King Salman, and
effectivly he can rule the coutries inread of him. He is head of his
office, which means that nobody can contact or be received by the King
without going through the son …"
"… Saudi Arabia is extremely disturbed by the detente with Iran on
the international scene. We are witnessing more or less a reversal of
alliances, and of countries images in the eyes of the West. A short
time ago, Iran was demonized in the West. Today, it is accepted as a
normal partner. Iran, therefore, benefits from a relatively favorable
treatment, while at the same time when the Arab monarchies, particularly
Saudi Arabia, are seen as retrograde, unable to provide for reforms
and creating the flow of Islamic radicals… The nature of Hezbollah,
interference military and terrorists of Iran is currently forgotten.
…"
"… I think it will be very difficult to see any reapprochement with
Iran in the coming months as Saudi Arabia has two hardliners in the
young rising generation of leaders. The heir and the vice-inherit the
Kingdom share the same radical line toward Iran. …"
"… Moreover, Saudi Arabia pays very dear to his strategy of crushing
oil prices, which makes it less able to buy social peace than before.
Therefore, there is an internal demand of radicalism, because the discontent
rumbles in the parts of the Saudi population fueled by the effects of
the falling oil prices. …"
"… If one wanted to summaries, we could say that to buy a peace with
Islamist Wahhabi radicals, it is necessary to kill shia… besides, the
Saudis have a genuine complex of encirclement by the Shiite states.
They try to counter it by creating an opposite ark of Sunni radicals.
…"
"… even if this does not lead to open warfare, the tension between
Saudi Arabia and Iran is sustainable, if only because this new generation
of Saudis leaders is more combative. They differ from the former kings
who belonged to a generation that was distinguished rather by its search
for a compromise and some consensus. This is absolutely not the case
for those two heirs of the throne. …"
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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HI Alex S
Although it makes little sense, US stocks make a huge impact on the worldwide oil price.
shallow sand ,
