The Mysterious Case of Big Oil’s Disappearing Barrels

(Bloomberg) If you ever find yourself at a cocktail party with a bunch of oil executives, one phrase is a guaranteed mood-killer: “reserve replacement.”Not merely awkward to say, it is the industry’s bogeyman. Because in a business chiefly concerned with getting stuff out of the ground, you need to replace that stuff pretty consistently unless you want to, well, eventually run out of stuff.Last year, the stuff-gathering did not go so well.

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Oil glut seen extending into 2017 on weaker demand

(Toronto Star) The much-anticipated rebalancing of oil markets appears to be a bit further away after the International Energy Agency revised its forecast, trimming its expectations for the growth in oil demand and citing near-record production by OPEC’s Middle East exporters.

The IEA said Tuesday that global oil demand is rising at a slower pace than expected, lowering its forecast by 100,000 barrels a day to an increase of 1.3 million barrels a day in 2016 and 1.2 million barrels a day in 2017.

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A truck used to carry sand for fracking is washed in a truck stop on February 4, 2015 in Odessa, Texas.

Are Shale-Oil Companies Starting to Weather the Crude Slide?

(Wall Street Journal) A truck used to carry sand for fracking is washed in a truck stop on February 4, 2015 in Odessa, Texas. … Debt from U.S. shale companies has held its ground even as oil prices have beat a fast retreat, a sign the firms may have adapted to an era of cheaper crude and could remain key suppliers to the market.

A build-up in stockpiles of oil has renewed downward pressure on prices: U.S. crude is now at roughly $42 the barrel, 14% below where it was at the beginning of June, when it appeared to be rallying.

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Oil rallies as fears over Brexit abate

(Reuters) Oil rallied on Monday, lifted by a wave of investor confidence and a weaker dollar after polls showed a diminishing chance that Britain may vote to leave the European Union later this week.

August Brent crude futures were up 90 cents at $50.07 a barrel by 0843 GMT, set for a gain of 6 percent in two trading days. NYMEX crude for July delivery, which expires on Tuesday, was up 80 cents at $48.78 a barrel.

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With oil price near $50, resilient U.S. shale producers eye new chapter

(Reuters) Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding OPEC and Saudi Arabia with their resiliency.

That shale giants Hess Corp ( HES.N ), Apache Corp ( APA.N ) and more than 25 other companies have beaten back OPEC’s attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared.

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India beats Japan in oil use, only next to US, China

(The Economic Times) India has surpassed Japan to become the world’s third-largest oil consumer, with its oil demand galloping 8.1 per cent in 2015, according to BP Statistical Review of World Energy released today.

With demand of 4.1 million barrels per day, India is the third-largest consumer behind US (19.39 million bpd) and China (11.96 million bpd). India accounted for 4.5 per cent of world oil consumption in 2015.

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Rising Investment Requirements Show Oil’s Irreplaceability

(Forbes) When Wood Mackenzie reported in the Fall that $1.5 trillion in potential global oil projects were uneconomic oil cost $51 a barrel, about what it costs now. The industry is making big cuts in CAPEX and upstream investments, and more than $200 billion in oil and gas investments evaporated in 2015. There’s still about 1.3 million b/d of surplus oil on the global market, and just the other day “OPEC Fails to Reach Agreement on Oil Production Ceiling.”

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The Oracle of Oil: The man who predicted peak oil

(New Scientist) THIS is a curious time to publish a biography of M. King Hubbert. The story of how this brilliant but irascible Shell geologist accurately forecast in 1956 that US oil production would peak and go into terminal decline by 1970 is by now well worn. Worse, after the supply crunch of 2008 that sent the price soaring to $147 per barrel and was widely mistaken for the global peak, the world is now swimming in oil once more, and the price languishes at around $50.

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OPEC Dying of Self-Inflicted Wounds

(Bloomberg) OPEC’s meetings in Vienna have for decades offered a heady mix of wealth, power and intrigue. The latest one may feel more like a wake.

The closest OPEC came to operating like a true oil cartel was in the early 1970s. Back then, it controlled more than half the world’s oil supply and was more or less aligned in trying to manage pricing and, for many members, throwing off the remnants of colonialism.

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Returning To Market Balance: How High Must Prices Be To Save The Oil Industry?

( The global oil market is returning to balance based on the latest data from the EIA. That should mean higher oil prices but how high must prices be to save the industry?

Data suggests that oil producers need prices in the $70-80 range to survive. That is unlikely in the next year or so. Without more timely price relief, the future looks grim for an industry on life support.

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Former OPEC insider tells how global oil pricing got flipped on its head

(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.

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US Shale Oil Production Costs Fell by 30% from Decade High

( Costs associated with shale oil exploration and production decreased by a third in 2015 thanks to implementation of more effective technologies. Experts are certain that this could affect crude oil prices in the short term.

Costs beared by US shale producers shrunk by 25-30% last year in comparison to their decade high in 2012. This is attributed to the usage of advanced technology that improved the effectiveness of both well drilling and post-drilling well development, according to research conducted by the energy industry consultant IHS Global Inc. and commissioned by the Energy Information Administration (EIA).

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Why rigs deactivation doesn’t matter much?

(Econotimes) According to latest numbers from Baker Hughes, number of active oil rigs operating in United States has dropped to lowest levels since 2008/09 financial crisis. While back in October, 2014, the number of active rigs were at 1609 but as of last week it declined further by 15 rigs to 372, lowest since November, 2009.

In recent times, some market participants have taken note of the rig count to increase bullish bets on oil price recovery, suggesting drop in number of rigs indicating further declining in investments. However, our analysis suggests, when it comes to oil price recovery by changing fundamentals, other than intraday or few days boost, rigs count doesn’t matter much.

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IMF: Oil Prices And The Global Economy – It’s Complicated

(Seeking Alpha) By Maurice Obstfeld, economic counsellor and director of research at the International Monetary Fund; Gian Maria Milesi-Ferretti, deputy director in the Research Department of the International Monetary Fund; and Rabah Arezki, chief of the Commodities Unit in the IMF Research Department

Oil prices have been persistently low for well over a year and a half now, but as the April 2016 World Economic Outlook will document, the widely anticipated ” shot in the arm ” for the global economy has yet to materialize.

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Why North-American Oil Is Positioned To Win In The Long-Run

( Did U.S. investors complete the U.S. E&P’s revolutionary transformation of the global oil market at the end of February?

Very possibly, yes. At a time when oil companies large, medium, and small were cutting more from 2016 capex budgets, Americans were expressing their confidence in the U.S. E&P’s sector’s future, pouring $9.2 billion in new equity into the beleaguered sector.

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In Shift, Obama Won’t Open Southeast Atlantic Coast to Drilling

(NY Times) When the Obama administration unveiled a proposal in January 2015 to open the southeastern Atlantic coast to oil and gas drilling for the first time, environmental advocates were shocked and enraged — and the oil industry was delighted.

The emotions were the same, just on opposite sides of the energy-environmental divide, when the Interior Department announced Tuesday that the administration was yanking Atlantic drilling off the table. And almost everyone was shocked.

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A Short History of Unsuccessfully Calling a Bottom in Oil: Chart

(Bloomberg) The upturn in U.S. core inflation and rise in oil prices are causing money to pour into a trade that was one of Wall Street’s favorites heading into 2016, according to Société Générale SA.

Late in 2015, strategists at Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley—to name a few—were pounding the table on Treasury inflation-protected securities, based on the belief that market-based measures of price pressures over the medium term were far too subdued.

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The Long Term Impact Of The Oil Rig Crash

( The North American Baker Hughes Rig Count came out Friday. The decline continues. Baker Hughes gives an oil and gas breakout for every basin and state with five years of historical data. Baker Hughes has twenty eight and one half years of historical data for total U.S. rigs but only five years for individual basins. Gas rigs peaked in August 2008 at 1,606 rigs, over six years before the peak in Oil rigs. On February, 26, gas total U.S. gas rig count stood at 102, a decline of over 93 percent. A closer look at the total U.S. total rig count.

October 10, 2014 1,609 rigs
February 26, 2016 400 rigs
Percent decline 75 percent

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Oil Prices Should Fall, Possibly Hard

(Forbes) Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.

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What Really Controls Oil Prices?

(Forbes) World oil prices are controlled by the amount of crude oil stored at Cushing, Oklahoma. That’s because Cushing is the pricing point for WTI (West Texas Intermediate) oil prices, the most-traded oil futures contract in the world.

Cushing Storage Rules World Oil Prices.

WTI (and Brent) oil prices have good negative correlation with the volume of crude oil stored at Cushing.

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Why Oil Booms And Busts Happen

( What if I told you that there was a period in history where oil demand declined by 5 million barrels per day and non-OPEC supply increased by 5 million barrels per day, yet oil price rallied more than 50 percent? Would you believe me?

If your answer is yes, then you guessed right. This was the period from 1979 to 1985; it was a period during which global oil demand declined from over 61 million barrels to 56 million barrels and non-OPEC supply increased from 32 million barrels to 37 million barrels. Yet prices rallied from $17 a barrel in 1979 to $26 a barrel in 1985, while reaching as high as $35 in 1981.

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Oil Price And Its Effect On Production

( The JODI Oil World Database came out a few days ago. The data is through December 2015. The JODI C+C production numbers differs somewhat from the EIA numbers. The JODI OPEC numbers are crude. Also there are a few very small producers that do not report to JODI so their numbers will be slightly less than the EIA. But otherwise they are pretty accurate.

Also, JODI, for some reason, does not count all of Canada’s oil sands production. So for Canada I use Canada’s National Energy Board numbers instead.

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