(oilprice.com) There has been a lot of pessimism among oil investors in recent months, and indeed the bear market over the last couple of years in black gold has destroyed many nest eggs. With that said, oil investors who have run for the hills could find themselves regretting that decision in the months and years to come.
(artberman.com) Rig count matters. Saying that it doesn’t is like a realtor saying that location doesn’t matter.
Rigs Don’t Produce Oil
The holiest mystery of shale plays is that so much production is possible with ever-fewer rigs.
But if we look at the number of producing wells, the mystery evaporates. That’s because rigs don’t produce oil and gas. Wells do.
Horizontal wells in a few tight oil plays tell most of the story for U.S. production. Figure 1 shows the rig count and number of producing wells for the Bakken, Eagle Ford, Permian, Niobrara, Mississippi Lime and Granite Wash plays. Figure 1. Tight oil horizontal rig count and number of producing wells. Source: Baker Hughes and Labyrinth Consulting Services, Inc. Although rig counts decreased dramatically beginning in late 2014, the number of producing wells continued to increase until very recently. This may be a technical triumph for the drilling industry but it is no cause for oil producers to celebrate.
(rigzone.com) The layoffs continue in oil and gas as two more companies announce workforce reductions in Texas. Weatherford Artificial Lift Systems and Sun Fab Industrial Contracting are reducing staff by 90 and 125 employees, respectively, according to data sent to the Texas Workforce Commission.
Weatherford Artificial Lift Systems, a subsidiary of Weatherford International, is cutting 90 jobs at its manufacturing operations facility in Katy, Texas due to “a loss of business opportunities.”
“The disturbing truth is that the real cost of oil production has doubled since the 1990s. That is very bad news for the global economy. Those who believe that technology is always the answer need to think about that…Tight oil may have bought us a few years of abundance but the resulting over-supply, debt and prolonged period of prices below the cost of production have exacted a terrible cost. Under-investment, a damaged service sector, weak oil company balance sheets and a decimated work force practically ensure cripplingly higher prices a few years in the future.”
Art Berman, consulting geologist
The vote in Britain to pull out of the EU came as a surprise as most observers were expecting the referendum would fail. Oil prices fell immediately and after some gyrations settled down about $2.50 a barrel at $47.64 in New York and $47.54 in London.
The ramifications of the British vote for the oil markets will take years to work out, and many believe it will lead to a series of international realignments with other countries pulling out of the EU and possibly even the secession of Scotland and Northern Ireland from the UK. Conventional wisdom currently holds that Britain’s withdrawal from the EU will lead to lower economic growth in the EU, UK, and possibly other countries.
(Bloomberg) The new Saudi oil minister, Khalid Al-Falih, says the oil glut is over. That means the kingdom’s war against U.S. shale producers is coming to an end, too. Who won it is a tough question to answer; on balance, it’s probably the Saudis, but they have paid a huge price, and the surviving U.S. frackers have also benefited.
(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.
(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.
“The embattled crude oil and natural gas industry worldwide has slashed capital spending to a point below the minimum required levels to replace reserves — replacement of proved reserves in the past constituted about 80 percent of the industry’s spending; however, the industry has slashed its capital spending by a total of about 50 percent in 2015 and 2016. According to Deloitte’s new study, “Short of Capital? Risk of underinvestment in Oil and Gas is amplified by competing cash priorities,” this underinvestment will quickly deplete the future availability of reserves and production.”
The BOE Report
Oil prices dropped for six straight trading sessions before rebounding on Friday to close at $47.98 in New York and $49.17 in London but both markets were down for the week. Trading was dominated by polls showing that Britain may vote to leave the EU this week sparking financial turmoil and slower economic growth. These fears resulted in a stronger US dollar which in turn drove oil prices lower. Running counter to these pressures were an IEA forecast that the global supply/demand would be back in balance by the end of the year; production outages in Libya, Canada, and Nigeria; and concerns that the deteriorating situation in Venezuela could soon limit oil production and exports.
(Bloomberg) Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak.
Then came the bust. Almost half of Ultra’s reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion.
On the Canadian oil sands: “It is not a growth sector, and one of the issues particularly for the oil sands is, if you’re sitting in London or New York or Hong Kong or Tokyo and you’re running institutional money, are you really going to think about being a shareholder in something that’s going to cost billions, take 10 to 15 to 20 years to realize a return and be in the high-cost production when price is under pressure and global growth is slow? I don’t think so…. In general, we’re the [world’s] high-cost producer…. And in a US$50 [oil market] … we’re just not competitive.”
John Stephenson, CEO of Stephenson & Co.
Oil prices remained firm last week amidst continuing reports concerning actual or impending supply disruptions. US futures dipped below $50 a barrel on Friday, to close at $49.83, but analysts are expecting further gains as the impact of more disruptions are felt. Higher oil prices have encouraged a small revival of drilling activity with the US rig count up slightly for the second week in a row.
(oilprice.com) The disruptions in global oil supplies are at their highest level since 2011. That comes from an updated assessment from the EIA, which shows total disruptions in oil production at more than 3.6 million barrels per day in May (mb/d), the highest monthly total since the EIA began tracking the data in January 2011. The outages hit major oil supplies across the world. At its worst, Canada saw more than 1 million barrels per day knocked offline because of the wildfires near Fort McMurray. That production is starting to come back online, however, and was always thought to be a temporary disruption.
(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.
(Hellenic Shipping News) Iraq is pumping more oil than ever before, even as ISIS-fueled chaos grips parts of the Middle Eastern country.
Iraq, which relies on oil to fund nearly its entire government, increased daily oil production to an all-time high of 4.5 million barrels in May, according to estimates from research firm JBC Energy.
(The Telegraph) McKinsey has slashed their forecasts for the world’s energy use even as global economic growth climbs Global oil demand could peak by the end of the next decade even as global economic growth climbs.
The latest downward revision to forecasts, from consulting firm McKinsey, could leave major new investments uneconomic if demand for energy fails to meet expectations.
“The widely recited rhetoric that Canada must continue its de facto energy strategy of liquidating its remaining non-renewable resources as fast as possible to maintain the economy has no credibility.”
David Hughes, researcher and geologist, in a recent report “Can Canada Expand Oil and Gas Production, Build Pipelines and Keep Its Climate Change Commitments?”
Oil prices hovered just below the $50 level last week with Brent closing just above $50 on Thursday before settling at $49.46 on Friday. As has been the case lately, there were numerous factors pressuring oil prices one way or another. The week opened with much enthusiasm that OPEC would agree to a production freeze, but this went away when the OPEC meeting failed to take any action. The major factor pushing prices higher last week was the unplanned production outages in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands, it will be several weeks before the 1 million b/d of production that had to be shut down during the firestorms can return fully to production. In the meantime, the Alberta outage and the one in Nigeria have likely removed much or all of the production surplus that has overhung the markets and for now, there may be a rough balance of supply and demand.
(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.”
(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.
(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.
(seekingalpha.com) If you have been following what we have been writing you will know that we have become bullish on oil (NYSEARCA: USO ) prices for the next few years.
As with most of our opinions we have arrived at this one by listening to what some of the world’s best investors are saying about oil and why they are saying it.
We believe that Jeremy Grantham is another voice worth paying attention to, and it turns out that he too believes oil is going higher, perhaps significantly so. Source: GMO.
“The fall in discovered volumes for conventional oil outside North America [to just 2.8 billion barrels, the lowest level since 1952] has been steady and dramatic during the last few years. We’ve seen four consecutive years of declining oil volumes, which has never happened before. The bottom has completely fallen out for conventional exploration, and the result portends a supply gap in the future that is going to be challenging to overcome. In the current cost-cutting environment, the outlook for 2016 discovery volumes is not likely to be better, either.”
Leta Smith, director, IHS Energy, upstream industry future service
Oil briefly traded above $50 a barrel last week but quickly fell back to close at $49.33 in NY and $49.32 in London on profit taking and uncertainties about the status of the global oil glut. For the past two months, oil prices have been driven higher by a series of unplanned production outages in Kuwait, Libya, Canada, Nigeria, and concerns about the political stability of Venezuela. Currently, about 3.5 million b/d of normal production is offline. While some of these outages, such as the 1 million b/d fire-caused drop in tar sands production, will be short-lived, other situations such as in Nigeria, Libya, and Nigeria could last indefinitely.
