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Venezuelan Oil Enters The Disaster Zone

Venezuelan Oil Enters The Disaster Zone

Rig

The decline of Venezuela’s oil production for the foreseeable future has been assumed, and to a large extent, already priced into the market. However, an acceleration in the rate of decline is possible, and a few recent developments raise the odds that such a disaster will become a reality.

Reuters reported that state-owned PDVSA is completely falling apart, with workers walking off the job at a frightening pace. The conditions for oil workers has deteriorated for years, with shortages of food, unsafe working conditions, and hyperinflation utterly hollowing out the value of paychecks.

Since last year, however, things have grown worse. Venezuela President Nicolas Maduro sacked the head of PDVSA and handed over control to the military in order to keep the armed forces on his side. But Major General Manuel Quevedo has only accelerated the decline of PDVSA, which once held a reputation as one of the better managed state-owned oil companies in the world.

Reuters reports that about 25,000 workers have quit PDVSA between January 2017 and January 2018, a staggering sum. PDVSA employs roughly 146,000 people. Thousands of workers are walking off of job sites, fed up with going to work hungry, putting their lives at risk at rickety refineries, all for a paycheck that fails to cover even the most basic expenses.

The worker exodus has grown so bad that the company has in some cases refused to process resignations. Those higher up are no less unhappy. Reuters says that General Quevedo “quickly alienated the firm’s embattled upper echelon and its rank-and-file.”

The loss of both top level engineers and managers as well as workers on the ground ensure the oil production losses will continue. Reuters reports that some rigs in the Orinoco Belt, where PDVSA produces heavy oil, are only operating “intermittently for lack of crews.”

…click on the above link to read the rest of the article…

OPEC March Crude Oil Production Data

OPEC March Crude Oil Production Data

All OPEC data below was taken from the April issue of The OPEC Monthly Oil Market Report. The data is through March 2018 and is thousands of barrels per day.

OPEC crude oil production dropped just over 200,000 barrels per day in March. They are now just over one million barrels per day below their fourth-quarter 2016 average.

Only the UAE showed any significant gain among OPEC members.

Algeria took a hit in March, down almost 50,000 barrels per day. They reached a new low of under 1,000,000 barrels per day.

Angola took the biggest his of all OPEC nations in March. They dropped 82,000 barrels per day to reach their lowest level in almost 7 years.

Ecuador has slowed their decline during the last two months.

…click on the above link to read the rest of the article…

IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

Shale oil

OPEC is very close to achieving its mission to draw oil inventories down to their five-year average, but the ongoing U.S.-China trade spat is a risk to oil demand growth expectations this year, the International Energy Agency (IEA) said in its Oil Market Report on Friday.

The Paris-based agency kept its global oil demand growth estimate unchanged from last month’s report—at 1.5 million bpd for this year.

“However, there is an element of risk to this outlook from the current tension on trade tariffs between China and the US,” the IEA noted.

The trade dispute is “introducing a downward risk to the forecast,” said the agency which sees oil demand growth possibly dropping by around 690,000 bpd if global economic growth were reduced by 1 percent on the back of widespread increase in trade tariffs.

“Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use,” said the IEA.

On the supply side, the agency continues to expect non-OPEC growth unchanged at 1.8 million bpd, with the U.S. production growth also unchanged from the previous report, at 1.3 million bpd year on year. Yet, there is concern about takeaway bottlenecks in Midland, Texas and in Canada, and those could widen the discounts of local grades to the international benchmarks, according to the IEA.

OECD commercial stocks—OPEC’s current measure of the success of its production cut deal—dropped by 26 million barrels in February and were just 30 million barrels above the five-year average at end-February.

“The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit,” the IEA said.

…click on the above link to read the rest of the article…

The Struggle Continues For Bankrupt Shale Drillers

The Struggle Continues For Bankrupt Shale Drillers

Oil rig

Remember the wave of bankruptcies that hit shale E&Ps and oilfield services providers in the shale patch between 2015 and 2017? Over those two years, more than 120 oil and gas producers filed for bankruptcy protection in the United States, figures from Haynes & Boone showed last year.

Since then, it seems that life has not been much different for many of these post-bankruptcy survivors.

Bloomberg’s Alex Nissbaum, in a recent story on the fate of those less fortunate drillers, noted SandRidge Energy as “the poster boy” for post-bankruptcy oil and gas companies that are still struggling to get back on their feet but may never succeed.

SandRidge exited bankruptcy last year but has found it difficult to return to growth mode for a number of reasons that are indicative of the challenges that remain in the U.S. shale oil and gas industry.

The most obvious one is that not all shale is created equal, whatever the industry tells us about lowering production costs and improving operational efficiencies.

Let’s forget this mantra for a moment. Everyone wants in on the Permian boom but not everybody wants in on certain parts of Oklahoma, for instance.

As one analyst told Nissbaum about the post-bankruptcy survivors, “The bottom line is a lot of these companies didn’t have very good assets to begin with. You can go through bankruptcy and wipe away debt and that’s all well and good, but the assets they ended up with are still not very attractive.”

…click on the above link to read the rest of the article…

OPEC Scrambles To Justify Output Cuts

OPEC Scrambles To Justify Output Cuts

Oil tanker

Oil inventories are approaching the five-year average level in OECD countries, the all-important threshold for “re-balancing” the oil market.

A year and a half on from OPEC’s original deal to limit output, the surplus oil stashed in storage tanks around the world are nearly back to average levels. However, by all indications, OPEC is not ready to ease up on the production caps, with top officials signaling a desire to keep the cuts in place into 2019.

But that might require changing of the definition of a “balanced” oil market. OPEC has consistently held up OECD inventories as the metric upon which it was basing its calculations. The goal was to drain inventories back down to the five-year average. With OECD inventories about 44 million barrels above that threshold in February – down from a roughly 300-million-barrel surplus at the start of 2017 – the goal will likely be achieved at some point this year, perhaps in the second or third quarter.

For a variety of reasons, reaching this milestone is not satisfactory for OPEC. For one, the measurement is clouded by the fact that it’s a running calculation, meaning that the past five-years is now made up of more than three years of bloated inventories. In other words, the current five-year average is significantly higher than the five-year average in early 2014 when inventories were not suffering from a supply glut.

The flip side of that argument is that the oil market is way bigger than it was in 2014. Both supply and demand are higher, meaning that the global market probably needs a much higher level of oil sitting in storage. As such, it isn’t necessarily a bad thing that inventories are above the five-year average.

Another reason why OPEC is suddenly not satisfied with OECD inventories as the sole metric around which it bases its decisions is that OECD inventories do not capture the entire global oil market. What is happening in the non-OECD, where at this point, much of global demand growth is occurring? A more comprehensive measurement that included non-OECD inventory data would paint a more accurate picture of the global oil market. However, the problem with this is that non-OECD data is notoriously opaque, which is exactly why OECD inventories is a widely-cited data point.

…click on the above link to read the rest of the article…

 

U.S. Rig Count Continues To Rise As Canadian Rig Count Plunges

U.S. Rig Count Continues To Rise As Canadian Rig Count Plunges

Sunset oil rig

Baker Hughes reported another 5-rig increase to the number of oil and gas rigs this week.

The total number of oil and gas rigs now stands at 995, which is an addition of 186 rigs year over year.

The number of oil rigs in the United States increased by 4 this week, for a total of 804 active oil wells in the U.S.—a figure that is 152 more rigs than this time last year. The number of gas rigs rose by 1 this week, and now stands at 190; 35 rigs above this week last year.

The oil and gas rig count in the United States has increased by 71 in 2018.

Canada continued its severe losing streak, with a decrease of 58 oil and gas rigs, after losing 54 rigs on top last week, and a 29-rig loss the week before. At 161 total rigs, Canada now has 84 fewer rigs than it did a year ago.

Oil prices managed to climb substantially this week and were up again today prior to data release as the Saudi Energy Minister, Khalid al-Falih, said that he expected the production cuts to last into 2019. Other factors buoying prices are tensions in the Middle East after Saudi Arabia insisted that it would pursue nuclear power plans with or without the support of the United States, and would even work on developing nuclear weapons should Iran do the same. Weighing on prices this week is U.S. crude oil production, which continued its uptick in the week ending March 16, reaching 10.407 million bpd.

…click on the above link to read the rest of the article…

 

BIGGEST BREAKTHROUGH IN ENERGY: Investor Warning

BIGGEST BREAKTHROUGH IN ENERGY: Investor Warning

As the U.S. and global oil industry continue to cannibalize itself just to stay alive, the market is totally clueless because investors are being misled by the fallacy that technology will solve our peak oil crisis.  While technology has allowed more oil to make it to the market, it has done so at a very high cost.  Unfortunately, a significant percentage of the increased cost to produce this high-tech oil was subsidized by debt from unsuspecting investors.

Hundreds of billions of Dollars were invested in the U.S. Shale Energy Industry by investors who were looking for a higher return on their money than they could receive from banks or other financial institutions.  Sadly, most investors will not see the return of their funds as the U.S. Shale Energy Industry isn’t making the profits to pay back this debt.

However, many resource analysts aren’t able to understand the ramifications of the falling EROI – Energy Returned On Investment and Thermodynamics in the energy industry.  Thus, they believe in the fantasy of unlimited oil production and economic growth on a finite planet.  Analysts and the public believe this nonsense due in part to claims of new revolutionary energy extraction technology.  Once such company is Petroteq Energy that claims that it can produce oil sands at a low-cost of $20 a barrel.

Over the past several months, I have received countless emails from followers who provided links to articles promoting these amazing new energy technologies:

Clean Oil That Only Costs $20

Why The Next Oil Boom Will Be Fueled By Blockchain

This Revolutionary Technology Could Deliver $22 Oil… In A $70 World

Interestingly, all of these articles were promoting the same company… Petroteq Energy.

…click on the above link to read the rest of the article…

U.S. Shale’s Dirty Secret

U.S. Shale’s Dirty Secret

Permian

U.S. shale is surging, threatening to take even more market share away from OPEC. But the prospect of U.S. oil edging out barrels from the Middle East is not nearly as simple as it might seem.

Oil coming from the major shale plays in the U.S. is light and sweet, while a lot of oil coming from OPEC is medium or heavy, and often sour. A lot of refining capacity along the U.S. Gulf Coast, built up over years and decades, is equipped to handle heavier forms of oil. Before the shale revolution, refiners made their investments in downstream assets assuming the oil they would be using would come from places like Saudi Arabia and Venezuela.

Lighter shale oil is perfectly fine for making gasoline, but not the best for making diesel and jet fuel. Medium and heavy oil is needed for that.

But refiners have a tidal wave of light sweet oil on their hands, perhaps too much. The U.S. refining industry could max out its ability to swallow up light sweet oil from the shale patch, as the FT reports, particularly as U.S. shale drillers are expected to add upwards of 4 million barrels per day (mb/d) over the next five years.

Meanwhile, heavy crude production has waned as of late, with sharp declines in output in Venezuela and Mexico in the past few years. Shipments from Canada face a bottleneck because of fixed pipeline capacity. The result has been a somewhat tighter market for heavy oil, which refiners want to process into jet fuel and diesel.

In the years ahead, demand for gasoline could start to slow down as vehicles become more efficient and EVs start to gain more market share. Meanwhile, diesel demand has grown much faster, and will likely jump in 2020 as new regulations on dirty fuels from the International Maritime Organization take effect. That could force the shipping industry to switch from residual fuels to diesel, perhaps adding as much as 2 mb/d of demand for diesel, the FT reports.

In other words, volumes of lighter oil suited for gasoline production are soaring while production of medium and heavy oil used for diesel is flatter, even as diesel demand is poised to grow quickly. And refining capacity capable of handling light oil might not be up to the task.

…click on the above link to read the rest of the article…

OPEC February Production Data

OPEC February Production Data

The March OPEC Monthly Oil Market Report is out with the February production data. All data is through February 2o18 and is in thousand barrels per day,

C

OPEC crude only production was down 77,000 barrels per day in February but that was after January production had been revised downward 40,000 barrels per day.

It seems most OPEC countries want to say they are producing less than what “secondary sources” say they are producing. Either they are correct or they are cheating on their quota.

Not much happening in Algeria. They just continue their slow decline.

Angola seems to be holding steady.

…click on the above link to read the rest of the article…

China Now Produces More Oil Abroad Than At Home

China Now Produces More Oil Abroad Than At Home

Oil

China is among the most import-dependent large oil consumers, but imports, it seems, are not its only problem when it comes to oil. Apparently, production from assets the Chinese state oil companies own abroad now exceeds domestic production, increasing the country’s dependency on foreign oil.

That in itself is not the problem, writes Michael Lelyveld in an analysis for Radio Free Asia. The problem is that much of the oil produced by these foreign assets does not end up in China for various reasons, including shipping costs and the difference in revenues if it gets exported to another market rather than imported into China.

The problem with foreign oil dependence is aggravated by the fact that domestic production is falling and will continue to fall. In its latest five-year oil market forecast, the International Energy Agency estimated that China’s domestic production of crude oil will only be enough to cover 29.7 percent of demand this year, which will further slide to 25 percent by 2023.

This means that China will have to rely on imports and foreign production assets for as much as 75 percent of its demand. That’s too much for any country to feel comfortable with. Yet China does not have a lot of options, since the decline in local production is mainly a result of natural field depletion.

True, China has staked a major claim for the resources of the South China Sea, but in addition to facing territorial disputes from its neighbors there, these resources may not be as large as Beijing expects. China also has substantial shale oil and gas reserves, but these could prove to be too expensive to develop.

…click on the above link to read the rest of the article…

Our Latest Oil Predicament

Our Latest Oil Predicament

It is impossible to tell the whole oil story, but perhaps I can offer a few insights regarding where we are today.

[1] We already seem to be back to the falling oil prices and refilling storage tanks scenario.

US crude oil stocks hit their low point on January 19, 2018 and have started to rise again. The amount of crude oil fill has averaged about 365,000 barrels per day since then. At the same time, prices of both Brent and WTI oil have fallen from their high points.

Figure 1. Average weekly spot Brent oil prices from EIA website, with circle pointing to recent downtick in prices.

Many people believe that the oil problem, when it hits, will be running out of oil. People with such a belief interpret a glut of oil to mean that we are still very far from any limit.

[2] An alternative story to running out of oil is that the economy is a self-organized system, operating under the laws of physics. With this story, too little demand for oil is as likely an outcome as a shortage of oil.

Oil and energy products are used to create everything, even jobs. If all humans have is energy from the sun, plus the energy that all animals have, then humans would be much more like chimpanzees. All humans would be able to do is gather plant food and catch a few easy-to-catch animals (earthworms and crickets, for example). They certainly could not extract oil or find uses for it.

It takes a self-organized economy to support the extraction and sale of energy products. We need a complex web that includes:

  • Equipment to extract the oil
  • Training for engineers and other workers
  • Devices that use oil, such as vehicles, farm equipment, road paving equipment
  • A financial system to enable transactions to purchase oil
  • Buyers with jobs that pay well enough that they can afford to buy goods made with oil

…click on the above link to read the rest of the article…

Old Fields Die Hard

Old Fields Die Hard

Oil is setting up for a turbulent year.

In an industry that is always full of contradictions, 2018 has been a particularly complicated and divisive year for the global oil markets–and it looks like it won’t be letting up any time soon.

For months, the Organization of Petroleum Exporting Countries (OPEC) has been pushing for a dramatic decrease in production in the interest of bolstering prices at the pump. They’ve even managed to get major OPEC outsiders like Russia and the oil cartel to agree to production cuts. While the original deal is due to expire at the end of March, 2018, OPEC has just extended the production caps to the end of the year in an attempt to counterbalance the global glut of crude oil.

However, despite OPEC’s best efforts, some countries are not stemming the flow of crude, and some are even ramping up production and even opening new major oil fields. Nigeria, for example, is talking out of both sides of its mouth, promising compliance with OPEC in the same year that it has pushed its output to the highest level in more than two years and is set to start up production in a new large-scale oil field by the end of the year, their first in half a decade.

Now, another major issue has arisen. British Petroleum (BP), which has long expected their mature oil fields to naturally plateau and then decrease in production, has now announced that their legacy fields are increasing output, to the great surprise of experts in the field and BP executives alike. An astonished Bob Dudley, BP’s chief executive officer, told an interviewer at the CERAWeek by IHS Markit energy conference in Houston that he, “cannot remember ever in my career having seen a negative decline rate.”

…click on the above link to read the rest of the article…

Glut Or Deficit: Where Are Oil Markets Headed?

Glut Or Deficit: Where Are Oil Markets Headed?

Barrels

A flurry of recent oil market forecasts have sent a lot of mixed messages about what to expect both in the near-term and over the next several years. Is U.S. shale about to flood the market, setting off another bust? Or is demand so strong that with the oil market already rapidly tightening, another price rally is in store?

Obviously, nobody knows how to untangle the long list of variables that will ultimately decide what happens next, but the divergence in opinions is rather striking.

By and large, the discrepancy is over the difference between the short-term and the medium-term. Surging U.S. shale production is keeping the market well supplied right now, but soaring demand and the lack of major conventional projects in the works will lead to a price spike somewhere down the line.

Nevertheless, there is also disagreement over the immediate future. We are currently in the “calm before the storm,” according to Gary Ross, global head of oil analytics and chief energy economist at S&P Global Platts. “Pressure is going to build on crude prices,” he said in an interview with the WSJ. “We’re not feeling it now, but we will.”

Ross argues that oil demand is growing so quickly, that the market will absorb all the extra supply. He says China and India alone will take on an additional 1.1 million barrels per day (mb/d). Meanwhile, oil inventories are sharply down, thanks to the OPEC cuts. After refineries finish up maintenance season, the oil market will wake up to the fact that supplies are incredibly tight, Ross argues. “The world is going to be short come peak season,” he told the WSJ. “When the music stops, someone’s not going to have a seat.”

…click on the above link to read the rest of the article…

Estimating Texas Production-Bridging the Gap

ESTIMATING TEXAS PRODUCTION-BRIDGING THE GAP

chart/

(Details for the chart above are explained in the post.)

The Texas Railroad Commission (RRC) had the oil and gas production reported online in early 2005, and became fully online for producers and the public on Feb 14, 2005. At the time it was set up, it required the producers to input their production in the production file for existing approved leases, and in the pending lease data file for those leases which have not yet received an approved lease number by the RRC. Each month, the RRC only reports the oil and condensate that is currently updated that month which is in the production file.

Historically, the production did not seem to be completely reported. The lag time to near full reporting of RRC production went from almost 18 months, down to about nine months within the past two years. Even at nine months it leaves interested parties trying to find some way to estimate what current Texas oil production is.

EIA, of course, has been one of those interested parties. RRC, also, attempted to provide an estimate of current production from the initial report of the production file. The two entities were not close, at times, and left many calling RRC to find out why there was a discrepancy. Eventually, RRC stopped reporting an estimate, leaving EIA to be the primary estimator for Texas production in the month it is reported. EIA has improved its method, which is described on their website. Basically, it involves using drillinginfo.com current estimates compared to production reports sent in by the majority of the producers. That is simplified, as it is a massive effort to estimate Texas production for the current reporting month.

…click on the above link to read the rest of the article…

Brazil and Mexico, 2017 Summaries

Brazil and Mexico, 2017 Summaries

Brazil had a fairly uneventful 2017 for C&C production. Overall production was up 4.5% at 957 mmbbls (114 kbpd average), but the December exit rate was down 4.5%, or 124 kbpd, at 2612 kbpd. There were only two new platforms with significant ramp-ups, and one of those went off line for a couple of months late in the year. The Libra (now Mero) extended test FPSO came on line in November but had achieved only 11 kbpd.

Pre-salt production exceeded 50% for the first time. It was 1356 kbpd, or 52%, in December compared to 1262, or 46%, for December 2016. There were 85 pre-salt wells up from 68, but average production for each had fallen from 19 kbpd to 16, which is as expected as they were drilled mostly on producing platforms.

Petrobras owned 94% of December production, with Statoil at 2.4% (63 kbpd) and Shell, from their BG purchase at 2.1% (57 kbpd); for 2016 the numbers were 94%, 2.1% and 2.0%.

chart/

(Note that December water data wasn’t available at the time of writing so the water cut values have been assumed to be the same as November for the chart.)

Santos platforms increased overall, but some of the older ones may be showing signs of coming off plateau. Campos platforms declined and the rate may be increasing as the water cut growth is accelerating.

chart/

chart/

This year will be a bit different as over 1 mmbpd of nameplate capacity is due to come on line, but it will be interesting to see how efficiently that amount of work is handled, and how far the ramp-up times might be limited by drill rig availability. If they add only another 20 odd wells then there is likely to be less than 400 kbpd new production. In addition reserve numbers for 2017 will come out in early April and the estimated Mero numbers will be important.

…click on the above link to read the rest of the article…

 

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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