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The Hidden Consequences of the Oil Crash

(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.

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The oil conundrum

(The Economist) Oil traders are paying unusual attention to Kharg, a small island 25km (16 miles) off the coast of Iran. On its lee side, identifiable to orbiting satellites by the transponders on their decks, are half a dozen or so huge oil tankers that have been anchored there for months.

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OECD review committee chairman’s perspective on the global economy

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

William White, chairman, OECD’s review committee; former chief economist, Bank for International Settlements

“So much of the frenzy in shale in the past few years was a result of the money pouring out of Wall Street. It was as much a Wall Street play as it was an oil-and-gas play. It was putting money to work. Companies took on all that risk and now we see the result [–bankruptcies].”

Terry Clark, White Marlin Oil & Gas Co.

Posted On : Published By : Tom Whipple
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Peak Oil Review – 25 Jan 2016

Oil prices touched 12 year lows of just above $27 a barrel on Wednesday and then rebounded sharply to close above $32 on Friday. Other than the major east coast snowstorm in the US and the expectation there would be more demand for heating oil, there was no significant news to touch off the rebound other than traders feeling there was not much downside for oil prices left and that it was time to take profits. The rapid rebound was helped by the record size of the short positions held by hedge funds. As these were liquidated, the rebound accelerated to gain some 21 percent from the Wednesday lows. Hints by the European Central Bank last week that there could be a further stimulus coming also supported the move.

Posted On : Published By : Tom Whipple
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This Time, Cheaper Oil Does Little for the U.S. Economy

(NY Times) WASHINGTON — It has been a truism of the American economy for decades: When oil prices rise, the economy suffers; when they fall, growth improves.

But the decline of oil prices over the last two years has failed to deliver the usual economic benefits.

As oil prices have fallen to levels not seen since 2003 — sagging below $27 a barrel on Wednesday before rebounding to about $30 on Thursday — many experts now say they do not expect lower prices to bolster the domestic economy significantly in 2016.

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Oil Giants Start Losing Safety Net as Refining Margins Squeezed

(Bloomberg) Refining profits that buttressed earnings for Exxon Mobil Corp. and Royal Dutch Shell Plc as crude prices plunged are now slumping, further pressuring all of the world’s biggest oil companies as they move into 2016.

Global refining margins, the estimated profit from turning oil into gasoline and diesel, fell 34 percent in the fourth quarter, the steepest decline in eight years, to $13.20 a barrel, data on BP Plc’s website show. Every $1 drop cuts BP’s pretax adjusted earnings by $500 million a year, according to its website.

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Why Oil Prices Could Remain Low

(Seeking Alpha) There is much hope in the financial markets, with individual investors and oil company employees that oil prices will rise in the months ahead. Many point to the 2008 commodity crash as THE example as to why the oil price decline is likely temporary. However, if we look back further in history we see another situation where the crash in commodity prices marked an extremely long period of oil price suppression.

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IEA says world ‘drowning’ in oil, prices could go lower

(CNN) World is ‘drowning’ in oil, says IEA Can oil really go lower? The answer from the International Energy Agency is an “emphatic yes.” The world is “drowning” in oil, and weak demand has failed to match relentless pumping by the world’s biggest oil producers, the group said. With Iran planning to boost its production by as much as 1.5 million barrels a day by the end of 2016, the global oil glut will get even worse.

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$20 Oil No Longer Seen As Good For The Economy

(OilPrice.com) After flirting with breaking below $30 per barrel, oil decidedly broke that threshold at the end of last week, deepening the unrelenting losses the market shave witnessed so far in 2016.

The reasons for the 20 percent decline in oil prices since the start of the year range from rapidly growing concerns over the Chinese economy , fears of a persistent glut in oil supplies, and most recently the removal of sanctions on Iran .

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Goldman Sachs, in a note to oil industry investors

“At our conference, producers largely did not provide specifics on what capex/ production would look like at $35/bbl of oil. Instead, producers spoke largely of their agility to spend within cash flow and … ramp up when needed. Commentary suggested $50 per barrel WTI is now where producers would raise activity.”

Goldman Sachs, in a note to investors

Posted On : Published By : Tom Whipple
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Peak Oil Review – 18 Jan 2016

Crude futures settled below $30 a barrel on Friday with New York closing at $29.42, down 10.5 percent for the week, and London closing at $28.82, down 13.7 percent for the week. The global oil glut, a stronger dollar, and reports that the sanctions on Iran were about to be lifted contributed to the move. The now familiar factors of a circa 1.5 million b/d surplus in global oil production; a strong US dollar, up 20 percent since mid-2014; the Chinese economy continuing to slacken; and problems on the horizon for US growth were the main reasons behind the price slump. A couple of new concerns have arisen lately. Analysts are worried about the optimism being expressed by US shale oil producers over the likelihood of higher oil prices just ahead. Many US drillers are not trying to cut back on production but simply tying to hold things together until later this year. Another factor is reduction in demand for diesel used to drill and frack oil wells which is down by nearly 50 percent in the last 18 months. The drop in demand for diesel along with warm weather is leading to large surpluses of distillates.

Posted On : Published By : Tom Whipple
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Oil price woes deepen as Iran vows to add 500,000 barrels a day

(Guardian) Global oil prices will remain under pressure this week after Iran said it was ready to add half a million barrels a day to crude exports just hours after international sanctions were lifted this weekend.

Iran’s president, Hassan Rouhani, hailed a “glorious victory” as his country relished reconnecting to the global economy following the formal announcement late on Saturday that sanctions were ending thanks to moves by Tehran to scale back its nuclear programme.

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Why the falling oil price may not lead to boom

(Guardian) There was a time when Blue Monday meant a song by New Order. These days it is the third Monday in January, allegedly the most depressing day of the year.

Whether there is any scientific basis for this claim is debatable, but for what it’s worth the argument is that people feel miserable because Christmas is over, the credit card bills are arriving, it’s dark when you go to work in the morning and it’s dark when you head home.

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A Saudi Aramco oil installation in the desert east of Riyadh.
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Saudi Aramco – the $10 trillion mystery at the heart of the Gulf state

(The Guardian) Along the King Fahd highway in downtown Riyadh, signs of the country’s wealth glitter and dazzle. Monuments include the massive Kingdom Centre – instantly recognisable by the giant bottle-opener feature formed by its two wings – and the beautiful and futuristic Faisaliyah building. New ones are still rising, like the King Abdullah financial district, still under construction: a reminder of the fat years of high oil revenues under the previous monarch.

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N.D. oil sinks to $20 per barrel with more bankruptcies expected as drilling activity declines

(Star Tribune) Oil industry experts have been making dire predictions of $20 per barrel oil. In North Dakota, they’re now reality, prompting warnings of more bankruptcies and less drilling in 2016.

Although the U.S. domestic crude oil benchmark is higher — $29.64 per barrel — Bakken producers must sell at a discount because of the region’s limited oil pipelines and the higher cost of alternate shipping methods.

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