“What we are experiencing today is far beyond headwinds; it is unsustainable. My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now.”
Jeff Miller, President of oil services company Halliburton
Market sentiment has switched to the opinion that prices are not going much lower, despite warnings from Goldman Sachs and other respected observers that there is no fundamental support for higher prices at this time. Last week various pieces of slightly bullish news that are usually are ignored by the markets were enough to move prices higher for the eighth time in the last ten weeks. Crude now is up 67 percent since February, closing on Friday at $43.73 in New York and $45.11 in London.
“Wells Fargo’s foray into oil shows how Wall Street misjudged the risks hidden in an esoteric type of energy financing long thought to be bulletproof.”
Asjylyn Loder, Bloomberg News
Oil prices climbed to recent highs early last week on hopes that the Doha meeting would eventually lead to some sort of production cut, a weaker dollar, and scattered production problems. Later in the week prices fell as the US crude glut continued to grow and expectations that something meaningful would come from the Doha meeting subsided. At week’s end, New York oil was at $40.36 and London at $43.10 up 2.8 percent for the week.
“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.”
Brad Beago, Oilprice.com, in Fortune magazine
Oil prices surged 8 percent last Friday and are now back at levels seen at the top of the last price surge in mid-March. This time strengthening the US and German economies, a falling dollar, and the OPEC price freeze meeting on April 17th was seen as the trigger behind the rally. Friday’s rally was the 12th time in the last two months that daily prices have surged by 5 percent or more showing that there is a lot of money eager to participate in big price rise that will come someday. However, this rally was mostly based on hopes that things are going to get better rather than any specific news, other than the recent increases in US gasoline consumption which are likely to short-lived as retail prices move higher.
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“Most of the fields in Argentina are mature, and they are declining in production. A lot of investment [$20 billion per year] is needed to sustain production. This is having an impact on production curve now [with the rig count down from 112 in 2014 to 64 in February].”
Alejandro Gagliano, a partner at Giga Consulting in Buenos Aires
The six-week long surge in oil prices which pushed the price of crude up by roughly 50 percent seems to be coming to an end with prices down 6 percent last week. Looming behind the price increase was the notion that the world’s major crude exporters would to get together and sign an agreement to freeze production at current levels. Supporting the price jump was an increase in US gasoline consumption as prices fell to levels not seen in decades and the never ending hope that the US economy was about to get better. Much of the surge was caused by the liquidation of the unprecedented short futures positions that hedge funds and other speculators had built up during the nearly two-year slide of oil prices. When oil fell below $30 a barrel, many speculators figured that the long price slide was over and that oil was unlikely to go much lower. The resulting liquidation of positions which pushed up prices was the largest on record.
(The National) From 2004 to 2008 and 2010 to 2014, oil production and prices both rose. The price increases were completely divorced from the market principle of a supply-demand balance. In the middle of 2014, the price momentum ran out of steam and prices began sinking in a bog of unconsumed, overproduced, expensive new oil.
That market disorder should have been a reason for concern. Unfortunately, greed suppressed the voices that raised the alarm and warned of the long-term dangers of short-term gains.
(Bloomberg) Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets.
Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision for the Public Investment Fund, which will eventually control more than $2 trillion and help wean the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate.
(Bloomberg via WorldOil.com) RIYADH — Saudi Arabia will only freeze its oil output if Iran and other major producers do so, the kingdom’s deputy crown prince said, challenging the country’s main regional rival to take an active role in stabilizing the over-supplied global crude market.
The warning by Mohammed bin Salman, 30, who’s emerged as Saudi Arabia’s leading political force, leaves the outcome of a meeting between OPEC and other big oil producers this month in question. Iran has already said it plans to boost its production after the lifting of sanctions following a deal to curb the country’s nuclear program.
(Reuters) A pump jack stands idle in Dewitt County, Texas January 13, 2016. As oil prices nosedived by two-thirds since 2014, a belief took hold in global energy markets that for prices to recover, many U.S. shale producers would first have to falter to allow markets to rebalance.
With U.S. oil prices now trading below $40 a barrel, the corporate casualties are already mounting. More than 50 North American oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data. While those firms account for only about 1 percent of U.S. output, based on the analysis, that count is expected to rise.
