(Rigzone) Saudi officials insist the kingdom’s oil production strategy is not aimed at putting U.S. shale producers out of business, a message that has been repeated to visiting U.S. policymakers.
The United States remains the kingdom’s most important security partner, and Saudi officials do not want to be seen to be deliberately trying to halt the shale revolution.
Oil prices plunged for four days last week, settling at a recent low of $26.21 in New York, a drop of nearly 30 percent since the start of the year, and $30.06 in London a 20 percent drop this year. The inevitable rebound came on Friday with a vigorous jump for the day of $3.23 or 12.3 percent in New York to close at $29.44, and $3.30 or 11 percent to $33.36 in London. This time the rebound was started by rumors out of the UAE that OPEC, while not considering a production cut, might be willing to consider halting further increases in production. This rumor was seen by traders as a willingness on the part of OPEC to take charge of the oil supply situation for the first time since the crisis began. Another factor contributing to the decline was the long weekend in the US and the unwillingness of traders to be caught in short positions with prices so low. As one analyst said, “every time someone in OPEC comes out and says we are willing to cooperate, there is always a knee-jerk reaction on the part of oil traders.” “No one wants to be caught selling futures at the bottom of the move.”
Due to the oil price crash and the industry’s crushing debt load, “The oil industry will be permanently damaged.”
Steven H. Pruett, CEO of Elevation Resources, an oil company based in Midland (TX)
(The Fuse) In 2015, almost 40 oilfield services companies, with more than $5 billion in debt, went bankrupt. More are expected this year.
While bankruptcies among independent shale producers have received the most attention , the oilfield services sector is in dire straits. The carnage from the low oil price in the shale patch has been widespread, with companies that provide technology, transportation, and supplies to producers getting slammed.
(artberman.com) Fundamentals point toward market balance but pessimism is dragging oil prices down. IEA has apparently succumbed to this negativity but their data suggests that things are getting better, not worse.
In a business-as-usual world in which nothing unusual happens, the world will be close to market balance some time in 2016. If anything unusual happens, all bets are off and oil prices could rebound much faster than anyone imagines.
(Reuters) The world will store unwanted oil for most of 2016 as declines in U.S. output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output, the International Energy Agency said.
The agency, which coordinates energy policies of industrialised countries, said that while it did not believe oil prices could follow some of the most extreme forecasts and fall to as low as $10 per barrel, it was equally hard to see how they could rise significantly from current levels.
(The Fuse) Two years ago some oil market prognosticators were worried (or happy) that oil could go to $150 a barrel or more. The unexpected collapse in oil prices appears driven by the desire of some OPEC members to reduce competition by opening the spigots. The fall from $115 a barrel to as little as $30 a barrel has discouraged investment in drilling. Oil rig count in the United States is down by two-thirds from its peak. Middle East rig count has not fallen. In this paper we review the rise of U.S. oil production driven by the fracking revolution. Oil price volatility impacts many business sectors and affects federal macroeconomic policy as the Federal Reserve tries to encourage low unemployment and price stability. The history of 40 plus years of oil volatility continues to damage U.S. economic performance.
“I never thought I would wish, let alone pray, for higher oil prices, but I am. The world badly needs higher oil prices.”
Han de Jong, chief economist at ABN Amro Bank NV in Amsterdam
It was a volatile week, with prices falling on Monday and Tuesday due to the oversupply situation and traders deciding that a grand agreement between Russia and OPEC to cut oil production was unlikely. However, prices climbed on Wednesday as talk of the Russia/OPEC deal revived, the US dollar underwent a sudden price drop, and a hedge fund that that held $600 million in short oil futures positions was liquidated. On Thursday and Friday, the markets were back to believing that the Saudis were not going to cut production as Riyadh lowered their prices for oil being sold to Europe and Asia as part of the new competition with Iran. A big jump in US crude and gasoline inventories announced on Wednesday helped with the downward pressure. At week’s end, New York futures closed at $30.89, down 8.1 percent for the week and London closed at $34.06, down 5.4 percent for the week.
(International Business Times) At the outset of the global economic meltdown in 2008, the world was already bracing for another crisis: peak oil. Predictions that oil production would soon top out flooded the airwaves, stoking fears of a global oil shortfall and fueling speculation of prices at hundreds of dollars a barrel.
“People have been trying very hard and they can’t increase oil production from here,” Robert Hirsch, an energy analyst, said in a June 2008 segment on CNBC. He projected oil production would peak, and then decline sharply within three to five years. “For somebody to suggest that all of a sudden something magic is going to happen, and there’s going to all of a sudden be an enormous amount of new oil — they don’t understand the problem,” he added.
(peakoilbarrel.com) Rystad Energy , an independent oil and gas consulting services and business intelligence data firm in Oslo, Norway, has online, a wealth of information concerning upstream oil production projects and costs. Some of it is a bit dated but some of their charts date from late 2015.
The two below Rystad charts were published by CNN Money on November 23, 2015. Costs, Overall This is overall or average cost, not marginal cost. It cost Canada $41 to produce a barrel of oil but only cost Russia $17.20. I guess that is why Canada is cutting back but Russia is not. Costs, Breakdown Here is the breakdown between capital expenditures and operational expenditures. Why would the United Kingdom’s operational expenditures be two and one half times those of Norway? After all, they are both drilling basically the same oil field.
(Reuters) Less than two months into the year, the top U.S. shale oil companies have already cut their budget for 2016 a second time as the relentless drop in oil prices continues to erode their cash flow.
With oil prices firmly wedged in the low $30-per-barrel range, oil producers are deferring spending on new wells and projects.
(Bloomberg) After a year of low oil prices, only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience.
The analysis, published ahead of an annual oil-industry gathering in London next week, suggests that oil prices will need to drop even more — or stay low for a lot longer — to meaningfully reduce global production. OPEC and major oil companies like BP Plc and Occidental Petroleum Corp. are betting that low oil prices will drive production down, eventually lifting prices. That’s taking longer than expected, in part due to the resilience of the U.S. shale industry and slumping currencies in oil-rich countries, which have lowered production costs in nations from Russia to Brazil.
(The Fuse) It seems fitting that oil prices fell back under $30 on the day that two major oil companies reported disastrous earnings results showing the damage of the past year and a half. The decline in prices that began in mid-2014 has wreaked havoc across all different types of companies—NOCs, IOCs, independents, oil majors, oilfield services—and there seems to be no respite in the short run. Companies are continuing to lay off staff, cut back on projects, and report eye-opening losses.
(Bloomberg) Texas has a message for $30 crude doomsayers: Bring it on.
A handful of shale patches in the state, which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In DeWitt County, which produced more than 100,000 barrels a day in November from the Eagle Ford formation, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year. Drive 200 miles southwest to Dimmit County, and drillers need $58 oil.
(Bloomberg) The long-term credit rating for the world’s third-largest oil producer by market value was reduced one level to A+, the fifth-highest investment grade, from AA-, and was placed on watch for another possible reduction, the ratings company said in a statement Monday. S&P also assigned a negative outlook to BP Plc, Eni SpA, Repsol SA, Statoil ASA and Total SA.
Oil has fallen more than 70 percent since June 2014. The slump accelerated after Saudi Arabia led the Organization of Petroleum Exporting Countries’ decision in November 2014 to maintain output and defend market share against higher-cost producers including U.S. shale drillers.
“The fact that some oil is being sold at $10 per barrel – like some Canadian and Venezuelan crude grades – shows that the strain on producers has rarely been so big. At this level, some producers are not covering capital and operating expenses. And costs are even higher to shut down production. These prices will serve as destabilizing factors in many producing countries and on many bank loans.”
Marco Dunand founder and CEO of trading house Mercuria
Last week there was a surge in oil prices based on rumors and statements from Iraq’s oil minister and a Russian pipeline official that Russia and the Saudis might be considering a meeting to discuss “coordination” of their oil production. The merest hint of a supply cut was enough to send traders into a frenzy. Short positions were covered and prices rose from below $30 a barrel to nearly $36 in London. The story was quickly denied by numerous OPEC officials and even by Russia’s deputy prime minister, but oil prices stayed firm closing at $33.62 in New York and $34.74 in London.
(The Fuse) Oil prices plunged to fresh decade-plus lows by mid-January amid concerns over persistent oversupply and the faltering Chinese economy. A growing chorus is projecting oil to drop as far as $25 or $20 per barrel before all is said and done, with some even raising the prospect of sub-$20 oil.
There are some places where oil already passed those lowly depths weeks ago, most notably Canada. While WTI and Brent hover around $30 per barrel, Western Canadian Select (WCS), a benchmark for heavy crude in Canada, has plunged to less than half that level.
(Wall Street Journal) Here’s how bad things are getting in the oil patch: In some cases it is now cheaper for energy companies to buy one another rather than drill for crude.
A year-and-a-half on from the start of the worst crude-oil price crash in a generation, the biggest U.S. and European energy companies have delayed projects and made such deep budget cuts that they will soon struggle to replace the oil they pump out of the ground with new reserves.
(CrudeOilPeak.info) The media is full with news that there is a global oil glut.
(The Economist) Along with bank runs and market crashes, oil shocks have rare power to set monsters loose. Starting with the Arab oil embargo of 1973, people have learnt that sudden surges in the price of oil cause economic havoc. Conversely, when the price slumps because of a glut, as in 1986, it has done the world a power of good. The rule of thumb is that a 10% fall in oil prices boosts growth by 0.1-0.5 percentage points.
(Bloomberg) Oil’s collapse to $27 a barrel last week spurred concern that, on top of the existing oversupply, the market is facing a demand crisis. Goldman Sachs Group Inc. thinks that’s wrong.
Over the past six weeks, long-term oil futures — for deliveries in five years’ time — have fallen even harder than prices for immediate supplies.
(Peak Oil Barrel) The EIA’s Monthly Energy Review just came out. They have the U.S. production numbers through December along with World, OPEC C+C, Non-OPEC and selected Non-OPEC nations through October. All EIA data is in thousand barrels per day.
(Politico) For months, American drivers have been greeted at gas stations with a pleasant surprise: Gas prices have fallen by half, dropping an average of more than $2 a gallon since their most recent peak in 2011. President Barack Obama took a moment to bask in the credit last week in his State of the Union speech: “Gas under two bucks a gallon ain’t bad,” he said.(Politico) For months, American drivers have been greeted at gas stations with a pleasant surprise: Gas prices have fallen by half, dropping an average of more than $2 a gallon since their most recent peak in 2011. President Barack Obama took a moment to bask in the credit last week in his State of the Union speech: “Gas under two bucks a gallon ain’t bad,” he said.
Or maybe it is.
