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RE: OPEC, for some quiet moments.. - kommonsents - 01-23-2015

Thursday, January 22nd 2015 - 11:36 UTC


Oil price collapse hurting some more than others


U.S. oil and gas rig counts dropped to their lowest level in over four years, falling by an additional 74 units for the week ending on January 16. The lower count provides fresh evidence that low oil prices are forcing drillers to pare back operations and slash spending.

While that may soon begin to cut into actual production figures, a new Wood Mackenzie report finds a lot of nuance in the oil patch, painting a complex picture of what to expect in 2015. The report identifies several trends beyond the simple narrative that low prices will force a cutback in drilling.

First, Wood Mackenzie estimates that at $40 per barrel, many producing Wells could shut in. In fact, about 1.5 million barrels per day of production would be “cash negative” – meaning it wouldn’t even make sense to continue pumping at the most marginal wells, which tend to have extremely low-output. These “stripper wells,” which only produce 15 barrels of oil per day or less, have high costs given their level of production.

Wells producing such a tiny flow of oil may seem like a nonissue, but with hundreds of thousands of them dotting the country, they collectively account for about one-tenth of the United Sates’ production. As these wells become unprofitable, production should start declining.

Elsewhere, larger projects face a complicating set of factors that could slow drilling, but not as fast as some think. That’s because slowing activity is also pushing down the rental rates that drillers pay for rigs. With weak demand, drillers can negotiate down rig prices. This leads to lower costs, helping drillers stay in the game.

Another interesting twist occurring from lower oil prices is the fact that the economics of natural gas production have been relatively enhanced. To be sure, natural gas prices are also low, but over the last several years, the revenues generated from a barrel of oil were so much greater than the equivalent form of energy in natural gas. That pushed companies to focus on wet gas and oil.

For the equivalent amount of energy, natural gas priced at $3 per MMBtu is equal to about $17 to $20 per barrel of oil. That is still significantly lower than the $50 oil is trading for now, but the disparity is not nearly as severe as when oil was trading for $100.

With that said, the fact is that oil and gas are often produced in tandem, so a drilling cutback could hurt the gas patch as well. Nevertheless, the composition of drilling could change in favor of more gas-rich areas relative to before.

Another intriguing trend forecasted by Wood Mackenzie is the resilience of offshore oil in the Gulf of Mexico. Offshore wells are much more expensive, but have much longer production lives. They also have long lead times, making cutbacks less feasible in the short run. And unlike shale wells, production is steady and can last decades, so the current period of low oil prices won’t worry corporate executives who take a long-term view. As a result, while rigs start vanishing from shale regions, they should remain steady in the Gulf.

Still, it is not as if American shale will suddenly go into decline. Oil production across the U.S. continues to rise. In the first full week of January, oil production ticked up by an additional 60,000 barrels per day to 9.19 million barrels per day, according to the latest EIA data. Wood Mackenzie predicts that the industry will continue to consolidate and focus on the most profitable areas while finishing up projects still in the pipeline. That means the Eagle Ford in South Texas first and foremost, which remains one of the lowest cost shale basins in the country.

The thousands of oil wells across the United States are not uniform. The collapse in oil prices is hurting pretty much everyone, but some areas – core shale regions, and the Gulf of Mexico – will weather the storm better than others.

By Nick Cunningham of Oilprice.com




RE: OPEC, for some quiet moments.. - admin - 01-23-2015

Estimated U.S. exploratory oil well completions increased by 75% in the fourth quarter of 2014 compared to year-ago levels, according to API' s 2014 Quarterly Well Completion Report, Fourth Quarter.

Exploratory oil drilling increased 75% in fourth quarter, API says

“Once we are through this bearish phase, prices will rise again but not to triple digit figures,” David Fyfe said at the Platts Oil Storage conference in Amsterdam. Saudi Arabia, the nation leading OPEC in defending its share of the global oil market, will resist $100/bbl to $120/bbl crude, he said, without specifying for how long.

Gunvor sees no return to $100 oil once price plunge is reversed

Oil traded below $48/bbl before government data that’s forecast to show U.S. crude inventories expanded for a second week. Futures dropped as much as 1.2% in New York. Stockpiles in the U.S., the world’s biggest oil consumer, probably gained by 2.7 MMbbl last week, a Bloomberg News survey shows before government data on Jan. 22.

Oil trades below $48 as U.S. crude supplies seen worsening glut

The collapse of crude oil over the last year is one of the biggest asset crashes since the Great Recession and where there’s crisis, there’s often opportunity. From a historical perspective, this collapse ranks a bit smaller than the crash in 2008. During that period, crude dropped from $140 per barrel to $40. While the current drop from $108 per barrel during the June 2014 peak to $46 is significantly smaller, that they’re comparable at all is staggering.

You can still cash in on the collapse in crude oil - MarketWatch

"Today's supply-demand mismatch seems likely to be absorbed in a year's time, if not sooner. Prices would reasonably be expected to return to the $100 a barrel averaged for the past three years," David Carbon, chief economist at DBS, said in a note this week. "Crude at $100 a barrel one year from now would imply a 210 percent return. Nobody expects that from equities."

Is it time to get back into oil?

If Saudi Arabia’s goal is to push shale out, taking into account how long hedges last for, how long companies can operate in the red, and how fast they can slim down, one to three years may be reasonable.

You can still cash in on the collapse in crude oil - MarketWatch




RE: OPEC, for some quiet moments.. - admin - 01-24-2015

Indonesia’s LNG exports may drop by a quarter this year as domestic demand climbs and contracts with several overseas buyers are set to expire.

Indonesia sees LNG exports falling 25% this year

As fourth-quarter-earnings season continues, we're getting more insight into how the oil crash is affecting companies, and a new research note from Goldman Sachs highlights executive commentary on the energy market from earnings announcements and conference calls.

Accenture CEO On Oil Crash - Business Insider

Southern Pacific Resource Corp. (STP)’s default is being seen in the bond market as a death knell for many of Canada’s startup oil-sands exploration companies in the wake of the collapse in crude prices.

Oil-Sands Startups Ask for Whom the Bell Tolls Amid Slide - Bloomberg

Oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow, according to Conway Mackenzie Inc., the largest U.S. restructuring firm.

Oil Drillers ‘Going to Die’ in 2Q on Crude Price Swoon - Bloomberg

Weekly U.S. gasoline demand soared to five-year highs last month, after a collapse in oil prices, in a worrying sign that previous gains in efficiency and emissions cuts may evaporate. The week of Dec. 26 2014 saw the highest weekly consumption since July 2010.

A right oil hotchpotch | FT Alphaville

So what’s this a subtle reference to really? Could it be, perchance, the fact that the entire oil and commodity rally was something of a financial speculator-induced sham which detached commodities entirely from their fundamentals? Some clues as to why that might be the case come by way of news headlines from the 2001-2003 period and a hint of the market-structure changes that were going on at that time.

A right oil hotchpotch | FT Alphaville




RE: OPEC, for some quiet moments.. - admin - 01-25-2015

The shale revolution has reduced the amount of oil the US needs to import and dramatically trimmed energy costs for a variety of US industries. US natural gas is now half the price it is in Europe due to shale technologies, and one third of the price it is in Asia (based on a Henry Hub price of $4 per MMBtu). IHS estimates that lower natural gas and electricity prices will boost US industrial production 3.9 per cent by 2020, resulting in additional trade benefits of $180 billion a year by 2020 compared with 2012. However, for major manufacturing or energy exporting nations, this US cost advantage poses a significant threat.

US shale revolution must force Davos energy rethink | FT Alphaville

A wholesale move to solar could help level the playing field, though it is only realistically achievable once the total cost of solar reaches parity with grid-based energy. While companies are devising innovative financing approaches to enable households to install solar panels at zero or no upfront cost (see Elon Musk’s Solar City and Vivint, backed by Blackstone), battery costs remain a key stumbling block to achieving this objective. Only Malta and Cyprus are at grid parity in Europe, though if battery prices were to fall by half to 7.5 euro cents/kWh, six more countries would reach it.

US shale revolution must force Davos energy rethink | FT Alphaville

Brazil sources about 71 percent of its electricity from hydroelectric plants, so a drought not only threatens the agricultural sector – which is a critical part of Brazil’s economy – but it also threatens to cut off energy supplies to Brazil’s most important economic centers.

Drought Forcing Brazil To Turn To Gas

But to investors, a too-low oil price can also be a sign of trouble. The price of oil has certainly dropped because of an increase in supply – specifically, OPEC’s refusal to cut production and the vast amount of shale oil and gas being pumped in the United States. But the price of oil is also a product of slowing economic growth and declining demand, especially from China, Japan and the Eurozone.

The Oil Price Tag That Investors Say Would Signal a Global Recession - Forbes

Prince Alwaleed Bin Talal, chairman of Kingdom Holdings, spoke with "Squawk on the Street" following the death of his uncle, King Abdullah. While he admitted that his country—which derives 90 percent of its budget from oil—is feeling the pain of the commodity's collapse, he predicted that Saudi Arabia would not be the first to blink.

Prince Alwaleed: Saudi Arabia will continue to reform




RE: OPEC, for some quiet moments.. - admin - 01-26-2015

The price of oil will go lower as supply and demand remain unbalanced, activist investor Carl Icahn said Thursday. Icahn, who spoke with CNBC's "Fast Money: Halftime Report," said that Saudi Arabia's decision not to cut oil production blindsided the global market, and that he expects the commodity's price will keep sliding.

Icahn: Oil will go lower, Saudi Arabia blindsiding the world

Many investors believe that declining oil prices are a good thing—for now—though some see $30 a barrel as the break point when the trend turns negative.

This is the price point to beware for falling oil

However, one big unknown in 2015 is to what extent the sharp fall in prices will affect economic growth rates for Africa’s oil exporters and the impact in major cutbacks in government spending. Africa’s largest oil producer, Nigeria, has already had to enforce spending cutbacks and lowered its growth estimate for this year as falling oil prices eat into government revenue.

Can Africa’s oil producers weather the oil price storm? « The Barrel Blog

The sharp fall in oil prices has wreaked havoc on shares of energy companies, leaving investors to decide whether now is the time to go bargain hunting.

Is It Time to Invest in Energy Stocks? - WSJ

The original rationale for crude export restrictions no longer applies. Today’s oil market looks very different than in the 1970s when current crude oil export restrictions were first put in place. At that time, the US had adopted domestic price controls to combat inflation and crude export restrictions were necessary to make those price controls effective. While price controls have long since fallen away, crude export restrictions remain.

Columbia | SIPA Center on Global Energy Policy | Navigating the U.S. Oil Export Debate




RE: OPEC, for some quiet moments.. - admin - 01-26-2015

Don't expect a bounce any time soon. That's the verdict on beaten-down oil prices from business leaders and experts gathered in Davos for the World Economic Forum. "I don't see oil coming back up very quickly. There is a lot of oil in storage at the moment, so that will take some time to work through," Peter Terium, the CEO of Germany's biggest power producer RWE, told CNBC in Davos Wednesday.

Why the oil slump is not just a blip

Oil prices fell on Monday, with U.S. crude falling close to a nearly six-year low, as Saudi Arabia's new King Salman moved to assuage fears of an unstable transition and any policy change in the world's largest oil exporter.

Oil prices fall on market relief over Saudi policy - Yahoo Finance

In earlier time, the death of Saudi Arabia's King Abdullah bin Abdulaziz Al Saud would have rocked the oil market. The succession plan has always pointed in a direction away from U.S. interests and a turn toward an even harder line on Middle East issues. The antipathy toward Iran will be levered up, and the various Sunni-Shia battles will likely see greater escalation.

Saudi oil policy 'just took turn for the worse'

The Department of Defense is the single biggest user of energy in the U.S. — its energy bill in 2013 was $18.9 billion — and Caley now plays a central role in trying to ensure that just one of its branches, the Marine Corps, uses that power in the optimal way.

The next energy revolution won’t be in wind or solar. It will be in our brains. - The Washington Post




RE: OPEC, for some quiet moments.. - jft310 - 01-26-2015

23 minutes ago
URL Twitter
Oil prices may have hit a floor and could soon rebound, said the secretary general of Opec, the oil producing cartel, on Monday.

After hovering in the $45-50 a barrel range, Abdallah el-Badri said, "maybe prices have reached a bottom," report Anjli Raval and Neil Hume.

Speaking on the sidelines of a Chatham House conference in London, Abdallah el-Badri told the Financial Times, "How long will it last? I don't know… but I am sure the price will rebound."

Crude has slumped by almost 60 per cent since mid-June due to a combination of strong US supply growth, sustained Opec output and weak global demand led by economic weakness in Europe and a slowdown in Asia.

The sell off accelerated in November after the cartel decided to hold production at 30m barrels a day, rather than cut to shore up prices.

Led by its largest producer and de facto leader Saudi Arabia, Opec — which pumps around a third of the world's crude oil — said that market forces should determine the price of oil.

Mr el-Badri reaffirmed the cartel's stance that it would not give up its market share to non-Opec producers.

"We know the market is oversupplied but it is not because of Opec. For the last 10 years we have been producing 30m barrels a day. Non opec has increased by 7.5m barrels a day," said Mr el-Badri. "We are not the cause of the oversupply, so we are not cutting."

Even so, Mr el-Badri said the door was always "open" should non-Opec producers want to speak with the cartel about production.

"It's always beneficial for both of us to have a dialogue."

In November, Opec members Saudi Arabia and Venezuela held talks with Russia and Mexico about potential supply cuts, but they failed to reach any agreement.

But a month later, Saudi Arabia's oil minister said that talks with non-Opec members not been fruitful, just as in the past, when producers outside of the cartel failed to deliver on pledges for cuts.

On Friday, oil prices rose following the death of Saudi Arabia's King Abdullah.

Oil gave up those gains early on Monday, with brent, the international oil marker, falling below $48 a barrel. However, it had recovered those losses to trade up 0.4 per cent at $49 in early afternoon trading in London.


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RE: OPEC, for some quiet moments.. - admin - 01-27-2015

Enterprise Product Partners LP is looking to sell a year’s supply of U.S. ultra-light oil to the global market, signaling another challenge for OPEC as it contends with the U.S. shale boom.

U.S. oil exporter scouting for buyers signals challenge for OPEC

U.S. drillers idled rigs seeking for a seventh week as production hovers near a three-decade high, contributing to a global glut that’s kept prices below $50/bbl for more than two weeks. The rig count dropped by 49 this week to 1,317, the lowest level in two years, Baker Hughes Inc. said on its website Friday. Those drilling for natural gas increased by six to 316. The total slid by 43 to 1,633.

Baker Hughes: Rigs seeking U.S. oil fall to two-year low

Oil pared gains following the death of King Abdullah of Saudi Arabia as his successor said policies won’t change in the world’s largest crude exporter.

Oil pares gains as new Saudi King says policies won’t change

OPEC’s secretary-general said oil prices as high as $200 a barrel are possible if producers fail to invest in new supply. Crude futures erased losses in New York.

OPEC’s El-Badri Says $200 Oil Possible With Lack of Spending - Bloomberg

The euro climbed from an 11-year low amid speculation the victorious Syriza party in Greek elections will pursue its anti-austerity agenda without forcing an exit from the currency bloc.

Euro Up From 11-Year Low on Fading Greek Exit Odds; Ruble Drops - Bloomberg

OPEC’s secretary-general said oil prices as high as $200/bbl are possible if producers fail to invest in new supply. Crude futures erased losses in London and New York.

$200 oil possible with lack of spending, OPEC’s El-Badri says




RE: OPEC, for some quiet moments.. - admin - 01-28-2015

Crude-oil futures rose more than 2% on Tuesday, as some optimism about curtailing output seemed to permeate markets and ahead of a fresh weekly report on stockpiles.

Oil rises on hopes Saudis may step in - MarketWatch

The United Arab Emirates will continue building and upgrading its oil facilities to maintain its role as a major producer amid the decline and volatility in prices, Energy Minister Suhail Al Mazrouei said.

U.A.E. plans to keep investing in energy amid volatile oil price

U.S tight oil production from shale plays will fall more quickly than most assume. Why? High decline rates from shale reservoirs is given. The more interesting reasons are the compounding effects of pad drilling on rig count and poorer average well performance with time.

The US Shale Boom May Come To An Abrupt End - Business Insider




RE: OPEC, for some quiet moments.. - admin - 01-28-2015

Saudi Arabia won’t balance global crude markets on its own even as prices fall to levels that are “too low for everybody” and threaten investment needed to meet long-term demand, the head of Saudi Arabian Co. said.

Saudis won’t ‘singlehandedly’ balance crude market, Aramco says

Oil prices will probably continue to decline and could reach as low as $30/bbl, according to Gary Cohn, president of Goldman Sachs Group Inc.

Goldman Sachs president sees oil falling to $30/bbl in extended slump

Total U.S. petroleum deliveries (a measure of demand) rose last month by 5.1% from December 2013 to average nearly 20.0 MMbpd. For the fourth quarter, total domestic petroleum deliveries gained 2.9% compared to the same period in 2013.

API: December petroleum demand up sharply, crude production highest since ‘72

The world’s biggest oil producers, historically resilient with their mix of energy exploration, refining and chemical manufacturing, are about to reveal how they are weathering the great oil crash. Financial results will start trickling in Thursday for Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc from a fourth quarter that saw the price of oil drop from $115 a barrel in June to below $50 a barrel.

Crude at $49: The New Reality for Big Oil Companies - Bloomberg Business