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Could Kurdish Independence Spark An Oil War?

Could Kurdish Independence Spark An Oil War?

Kurdish Flag

As the date of the Kurdish independence referendum approaches, oil industry moguls should be concerned about an oil production war between Iran and headless Iraq.

The Kurds are expected to vote on their political status in late September. A vote in the affirmative would mean that Iraq would lose a chunk of its northern areas, which includes the crucial Kirkuk oilfield and its surrounding reserves.

The latest news from the election committee shows that the Kurdistan Regional Government (KRG) is doing the most it can to increase international participation in the election. On Monday, authorities announced that they had removed a key requirement for diaspora voters participating in the elections. Kurds participating in the e-voting platform will no longer be required to present a ration card to be able to cast their vote through September 25th. Iraqis who have been living abroad for several years, even decades, no longer hold a valid version of the United Nations-conferred identification. The new provision just requires that voters prove their current Iraqi citizenship via relevant documentation.

In roughly one week, the election authority will count votes and announce the political and territorial future of Iraq. It has been a rocky 100 years for the country since the 1916 Sykes-Picot agreement divided Asia Minor on an imperialist paradigm, without regard for cultural variations within the territory.

Believe it or not, soon after Sykes-Picot, Iraq became a kingdom ruled under a Hashemite monarch related to the current king of Jordan. In 1958, the Iraqi army overthrew the monarchy in a development known as the July 14 Revolution, which brought the rebel leader Abd al-Karim Qasim to power and pulled Iraq closer to the Soviet Union.

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

IEA: Price Spike Coming In 2020

IEA: Price Spike Coming In 2020

Oil

The oil market has been awash in crude for more than three years, and OPEC has struggled to accelerate the rebalancing effort, but the world could be heading for a supply crunch in a few years due to the sharp fall in industry spending.

The halving of oil prices from $100 per barrel before 2014 down to just $50 today has led to a corresponding plunge in upstream investment. But even as benchmark prices seem to have stabilized over the past year, with most analysts predicting gradual and modest gains in the year ahead (depending on OPEC’s actions), there’s still no sign of a serious rebound in spending levels.

The problem of a shortage of supply seems very far off today, given the swift turnaround in U.S. shale and persistently high levels of crude storage.

But demand continues to rise—the IEA just upgraded its demand growth estimate for 2017 to 1.6 million barrels per day (mb/d). If that level of demand growth continues for a few years, it will more than devour the excess supply on the market. Even a more tempered growth rate would strain supplies toward the end of the decade, absent a corresponding uptick in production.

“There are still not enough signs of investment beginning to return, and that raises the risk of tightening of the market in the next five years and a risk to the stability of oil prices,” Neil Atkinson, head of the IEA’s oil markets and industry division, said at a conference in Bahrain. “There is at least a possibility of going back to the situation we had 10 years ago where oil prices were very, very high at a time when demand was growing.”

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

WTI/RBOB Sink After Big Crude Build, Production Jump Offsets Greatest Gasoline Inventory Draw In History

WTI/RBOB Sink After Big Crude Build, Production Jump Offsets Greatest Gasoline Inventory Draw In History

WTI and RBOB prices are higher this morning following API’s reported the biggest gasoline draw in history (compared to EIA data). Of course, disruptions (Florida demand and Texas supply) remain dominant but DOE reports a massive 8.4mm draw in Gasoline inventories – the biggest draw ever. The reaction in prices is anti-climactic as production rebounded and crude built dramatically to offset the exuberance.

Bloomberg’s Javier Blas reminds readers that the report covers the period from 7:01 am on Friday, Sept. 1 to 7:00 am on Friday, Sept. 8. So a lot of disruption from Harvey (particularly from Sept. 1, 2, and 3) will still impact everything from refining intake to crude production and U.S. imports and exports.

API

  • Crude +6.181mm (+4.82mm exp)
  • Cushing +1.32mm (+1.6mm exp)
  • Gasoline -7.896mm (-1.5mm exp) – biggest draw ever
  • Distillates-1.805mm

DOE

  • Crude +5.888mm (+4.82mm exp) – biggest build in 6 mos
  • Cushing +1.023mm (+1.6mm exp- biggest build in 6 mos
  • Gasoline -8.428mm (-1.5mm exp) – biggest draw ever
  • Distillates -3.215mm – biggest draw in 6 mos

Bloomberg Intelligence energy analyst Vince Piazza notes that the impact from hurricane season will keep crude demand subdued, with roughly two million barrels of daily refining capacity off-line. Depressed gasoline consumption should persist temporarily on lower transportation use and suppressed refining utilization.

Gasoline inventories confirmed API’s data and saw the biggest draw in history as Crude and Cushing saw major builds…

The bearish data point is that total U.S. petroleum inventories (that’s crude, refined products, propane and the volatile “other oils” category) have built for the second consecutive week.

Total stocks up 1.7 million barrels, driven by big builds in crude, propane and other oils.

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

OPEC Reports First Oil Production Drop In 4 Months As Deal Compliance Slides

OPEC Reports First Oil Production Drop In 4 Months As Deal Compliance Slides

Confirming Monday leaks that OPEC production had dipped last month, the just released OPEC report for the month of September confirmed that in September, OPEC produced 32.755mmb/d (according to secondary source data), a drop of 79,100 bpd, and the first monthly decline in 4 months.  According to the underlying data, in the last month output increased in Nigeria (+138.3Kb/d), while declining in Libyam Gabon, Venezuela and Iraq. Saudi Arabia.

While secondary sources pegged Saudi production in August at 10.022mmb/d, a drop of 10.3kb/d in the past month, the Saudi self-reported number was 9.951mmb/d, not a nominal difference and a drop of nearly 60kb/d from the Saudi self-reported 10.01mmb/d July number, perhaps indicating that the Saudis are trying a little too hard to demonstrate compliance with the production cut agreement.

In the same report, OPEC boosted global oil demand growth in 2017 to 1.42mmbpd, an upward revision of 50kb/d from last month’s estimate, predicting that the impact of Hurricane Harvey on demand will be “negligible”, with disruption offset by rebuilding activity. Demand for OPEC crude in 2017 is estimated at 32.7mmb/d, roughly 0.5mmb/d higher than the 2016 level. 2018 demand is now seen at 98.1m b/d, with growth rate revised up by ~100k b/d to 1.35m b/d.

Finally, the 11 OPEC members disclosed an 83% compliance rate with the production cuts, down from last month’s 86%. Iraq was the least compliant on output cuts, with a self-reported August output of 4.38mmb/d, below the secondary sources print of 4.45, and above the quota of 4.35mmb/d.

What Is Behind Surging Gas Prices?

What Is Behind Surging Gas Prices?

Gas

As gas stations raise prices in the wake of Hurricane Harvey, there have been numerous accusations of price gouging. Especially on social media, some are quick to conclude price gouging if they see gasoline prices go up by 10 or 20 cents per gallon over the course of a couple of days.

At the same time, there are widespread reports of gasoline hoarding, even as reports of shortages were spreading across Texas. The photo above, which has been widely circulated on social media, shows a motorist in Texas putting gasoline in two plastic trash cans in the back of his pickup (which, to be clear, is extremely dangerous). I tracked down the photographer — Miguel Jimenez — to obtain permission to use the photo. He confirmed this incident took place at the gas station located next to his Nomad Bar in Austin.

These issues — gouging, hoarding, and shortages — are all interrelated, and they demonstrate why the issue of price gouging isn’t always as simple it seems.

Here are the options that a gas station may face. If a service station’s gasoline inventories are depleting at a faster than normal pace (for example, deliveries are delayed), they have three choices. One, they can do nothing and just hope they don’t run out of fuel. Two, they can raise prices to slow down demand (especially from those who are hoarding gasoline) and to provide an incentive for more supplies to flow into the region. Or three, they can ration gasoline.

There are disadvantages of each approach.

In most cases, a station will opt to raise prices. This, effectively, is rationing by price. It provides a disincentive against hoarding while stretching gasoline supplies for those who really need it.

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

Rig Count Slumps To 3-Month Lows As US Crude Production Collapses

Rig Count Slumps To 3-Month Lows As US Crude Production Collapses

US crude production collapsed this week with most of Texas offline and we would expect rig counts to have continued to stabilize (if not fall) following the lagged track of WTI, and they did – oil rigs dropped 3 to 756, the lowest since June.

As a reminder, Crude production in the Lower 48 collapsed…

This is the biggest week-on-week fall since August 2012, when Hurricane Isaac shut in more than 1.3 million barrels a day of Gulf of Mexico production.

Uncertainty has the “market pulling in their horns ahead of the storm. They are worried about demand destruction,” Phil Flynn, senior market analyst at Price Futures Group, says. The market also “seems to be a little technically heavy”

The North Sea Oil Recovery Is Dead In The Water

The North Sea Oil Recovery Is Dead In The Water

North Sea

The oil majors issued a vote of confidence for the North Sea in recent days, citing precipitous declines in the cost of production, which they say will revive the region’s oil and gas production.

At an oil industry conference in the North Sea’s oil capital, Aberdeen, the chief executives of BP and Royal Dutch Shell both offered bullish assessments for the turnaround underway off the coast of Scotland. BP’s Bob Dudley said the North Sea is “back to growth,” according to the FT.

The North Sea has long been a costly place to produce oil. And as the aging oilfields in the North Sea suffer from declining output – a decline underway since the late 1990s – investing in a high-cost basin for the oil majors has slipped down on the priority list, especially when shale has emerged as an alternative in an uncertain market.

Even when oil prices were high, production was falling. When prices started to crash in 2014, the North Sea looked like a dead man walking.

But things are looking a little better than they were a few years ago. The oil majors say they have overhauled their cost structures in the region, making production profitable in today’s $50 market, even when the region struggled to be profitable with a $100 oil price a few years back. BP says costs of halved to just $15 per barrel.

Shell’s CEO Ben van Beurden told the FT on the sidelines of the conference that the industry managed to avoid the “death spiral” that they were facing in 2014. At the time, a growing number of key pieces of infrastructure looked like they might have to shut down.

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

WTI Jumps After Harvey Prompts US Crude Production Collapse, Biggest Inventory Build In 6 Months

WTI Jumps After Harvey Prompts US Crude Production Collapse, Biggest Inventory Build In 6 Months

Last night’s first glimpse of Harvey’s impact on energy confirmed a sizable crude build but only modest gasoline draw. WTI/RBOB prices slid into the DOE print and extended losses after a bigger than expected crude build (+4.58mm vs +4mm exp). Gasoline and Distilates saw bigger draws than API reported but it was the collapse in Lower 48 crude production that stood out with most of Texas offline.

API

  • Crude +2.79mm (+4mm exp) – biggest build in 5 months
  • Cushing +669k (+1mm exp)
  • Gasoline -2.544mm (-5.2mm exp) – biggest draw in 6 weeks
  • Distillates -610k

DOE

  • Crude +4.58mm (+4mm exp)
  • Cushing +797k (+1mm exp)
  • Gasoline -3.20mm (-5.2mm exp)
  • Distillates -1.396mm

The inventory changes reported by the API were much smaller than those forecast by analysts. As a reminder, Saxo Bank’s Ole Hanson notes that “inventory data later is a lot of moving parts which could be quite skewed away from what we’ve seen in recent weeks.” Additionally, investors “are going to be skeptical of the data,” James Williams, an economist at energy researcher WTRG Economics, told Bloomberg. “It might be pretty flaky data this week and next, so I don’t expect to see a big market-mover”

Bloomberg’s Fernando Valle notes energy’s past week was all about Hurricane Harvey as refineries shuttered, choking output and hauling down inventories of gasoline and distillates.

Bigger than expected crude build and bigger gasoline and distillate draws than API reported…

As one might expect, Gulf Coat imports fell to a record low.

Production declined in the previous week, and with most of Texas ofline last week – Crude production in the Lower 48 collapsed…

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

GoM June Production Update

GoM June Production Update

Production

Production for June by BOEM was 1631 kbpd and by EIA 1636, compared with 1673 and 1659 kbpd, respectively, in May. The decline was mostly from Thunder Horse going offline and Constitution staying offline. Hurricane Cindy didn’t seem to have much of an impact, things will be different for the impact of Harvey on August figures.

Even with the two offline facilities coming back July numbers will struggle to beat those for March, and after that the depletion declines and hurricane disruptions take over. Note that the “others” area includes any assumptions BOEM has made to allow for missing data, which is quite a lot this month.

chart/

The combined new fields added from late 2014 are holding a plateau with South Santa Cruz and Barataria fields added and a new lease for Marmalard starting (adding about 20 kbpd combined). Stones also had a better month and achieved 70% of nameplate capacity. It’s interesting that five leases have come on line and then have effectively been killed off in this thirty month period: Amethyst (a small gas field that died after sputtering along for about six months, and not shown as the flow was so small), one lease in Lucius, Kodiak, one lease in Caesar/Tonga/Tahiti, and one in Rigel. Dalmatian South production fell immediately after start-up and was offline for a couple of months but came back in June (there are plans for subsea pumping to be installed but I don’t now the present status).

chart/

The big drops have been for BP, with Thunder Horse off line for part of June, and for Anadarko with the Constitution shut down extending into a second month (I think a bit longer than was planned).

chart/

chart/

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

How EIA Guestimates Keep Oil Prices Subdued

How EIA Guestimates Keep Oil Prices Subdued

Rigs

The EIA has once again undercut its previous estimates for U.S. oil production, offering further evidence that the U.S. shale industry is not producing as much as everyone thinks.

The monthly EIA oil production figures tend to be more accurate than the weekly estimates, although they are published on several months after the fact. The EIA just released the latest monthly oil production figures for June, for example. Meanwhile, the agency releases production figures on a weekly basis that are only a week old – the latest figures run up right through August.

The weekly figures are more like guestimates though, less solid, but the best we can do in nearly real-time. It is not surprising that they are subsequently revised as time passes and the agency gets more accurate data.

But the problem is that for several months now, the monthly and the weekly data have diverged by non-trivial amounts. The weekly figures have been much higher than what the monthly data reveal only later. And remember, it is the monthly data that tends to be more accurate.

Let’s take a look. A month ago, I wrote about how the EIA’s monthly data for May put U.S. oil production at 9.169 million barrels per day (mb/d). But back in May, the EIA’s weekly figures told a different story. The agency thought at the time that the U.S. was producing nearly 200,000 bpd more than turned out to be the case. Here were the weekly estimates at the time:

• May 5: 9.314 mb/d

• May 12: 9.305 mb/d

• May 19: 9.320 mb/d

• May 26: 9.342 mb/d

But two months later, the EIA published its final estimate for May, and put the figure at 9.169 mb/d. So, as it turns out, the U.S. was producing much less in May than we thought at the time.

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

Norway’s Big Fish Story

Norway’s Big Fish Story

Decision Season

With Parliamentary elections looming, more Norwegians than usual are asking themselves the tough questions. It is now apparent that the slump in oil is not a temporary one. What will the country do now? Time for the lottery winner, after receiving the last annuity, to get a job before burning out the savings. Many are looking towards the sea, fishing and exploiting underwater natural resources. Others are looking to blast open the mountains to do the same.

However, commodity based economies, third-world in nature, are subject to mother nature’s whims, innovation, and ruthless competition.  Moreover, it creates complacency, catching the nation off guard when there is a shift in the supply curve (instead of hitting peak oil, the opposite happened). Hence, the decisions or lack thereof, made during the next four years will impact future generations. Two generations of Norwegians grew up on the delusion that their society, built on pre-socialist values and high oil prices, can endure any challenge.


The
Fund’s withdraws could accelerate amid a global financial crisis: politicians burning cash to shore up the economy and secure votes.

Burn Rate

Taking the sovereign wealth fund (The Fund) for granted, many fail to realize that the underlying investments are all pinned to the prevailing low-interest rate climate. If inflation gets out of control and rates must be pushed up to cut it off, the effect on stock and bond values could be substantial.


Norwegian GDP growth correlates to oil prices.

Currently, assuming constant tax revenues, budget and oil fund value, Norway is in great shape: able to fill the budget gap for the next 30 years. But then what?

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

 

Norway Oil and Gas: Reserves, Production and Future Projection

Norway Oil and Gas: Reserves, Production and Future Projection

Norwegian oil production peaked in 2000 to 2001; gas production may be peaking about now. Oil hit a low in 2013 and then recovered towards a new local peak, probably concurrent with the gas.

drilling and development

The most surprising thing I find with their industry is that the drop in oil price made almost no difference the drilling activity shown here (all data here and below taken from the NPD – Norwegian Petroleum Directorate – which provides more data than just about any other such organisation).

chart/

The chart shows numbers of wells drilled, as stacked bars, and number of operating rigs (unstacked) against the left hand axis, other curves are ratios of total against the right axis. There was a high level of drilling activity in 2013 and 2014 which then actually increased in 2015 and was still high in 2016, although exploration well numbers look to be decreasing now. This may be just a consequence of the momentum built up in the high price years, or because of the influence of Norwegian regulatory regime (which has always sought to smooth out development activity, though less so recently with new Conservative governments), or a move to new frontiers in the Norwegian and Barents Seas (the background area chart shows proportion of wells in each sea). The development wells marked N/A (information not available) are probably mostly oil judging by the fields being drilled, the non-production wells are mostly injection with a few for observation and disposal. The number of rigs and proportion of dry wells have remained pretty steady, as has the proportion of subsea wells.

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

US Crude Production Stalls As Oil Rig Count Rolls Over

US Crude Production Stalls As Oil Rig Count Rolls Over

Amid the chaos and turmoil caused by Harvey, today’s rig count data is likely to change things as much as a fart in a hurricane. US crude production in the Lower 48 actually fell last week, syncing with the stabilization in the lagged oil rig count.

The US Oil Rig count held to two-month lows last week, unchanged at 759

US Crude production in the Lower 48 dropped last week following a stabilization in rig counts (but rose 2k overall thanks to a pick up in Alaska)…

Notably RBOB prices are down today (and WTI) as  John Kilduff, a partner at Again Capital, notes “The government is actually reacting positively trying to address and do what they can,… There are some signs of life in several of the refineries already and the 1 million-barrel tapping of the SPR is also helping to ease anxieties over the storm”

Forget OPEC, China Controls Oil Prices

Forget OPEC, China Controls Oil Prices

China

U.S. shale has taken a lot of headline space recently as the biggest headwind for oil prices and the highest stumbling block for OPEC’s efforts to prop them up by cutting production. Yet, there may be another factor that could bring down oil prices as soon as next year…

China.

China has been building a strategic crude oil reserve for the last decade, but the size of that reserve remains undisclosed, with analysts making estimates based on China-bound cargoes and satellite imaging.

Last year, a Silicone Valley tech company, Orbital Insight, suggested that China may have stored as much as 600 million barrels of crude by May. This was the highest reserve estimate at the time. Since then, the reserve has in all likelihood grown, possibly exceeding the U.S. SPR, which stood at 678.9 million barrels as of August 18th this year.

This year, Chinese crude imports have run at record-breaking rates, with the average daily on par with what the U.S. imports, at about 8 million barrels, the Financial Times notes in an analysis. A lot of these, however, are going into storage tanks, analysts believe, and they warn that soon the tanks may fill up, wreaking havoc on prices and–more notably–on OPEC.

The cartel, Russia and 11 other producers agreed last year to remove 1.8 million bpd from global oil supply in an attempt to raise prices above US$50, with hopes for at least $60. This May, they agreed to extend the cuts to March 2018. Nevertheless, prices have remained largely stable around the $50 mark because of rising U.S. output, which last week jumped above 9.5 million bpd, according to the EIA. Related: Qatar Aims To Ease Its Reliance On LNG Exports

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

Peak Shale: Anadarko Just Became The First US Oil Producer To Slash CapEx

Peak Shale: Anadarko Just Became The First US Oil Producer To Slash CapEx

It appears that Horseman Global’s Russell Clark may have been spot on with his bearish take on the US shale sector.

As a reminder, in his latest letter to investors, Clark said that “the rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money…. at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the next month.”

What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me.

While the bearish thesis has yet to play out, moments ago Anadarko poured cold water on US energy investors after it missed earnings badly, reporting a Q2 EPS loss of 77c, more than double the 33 cent loss expected.

…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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