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The cartel’s Monthly Market Report, published Thursday, said its 12 members extracted an average of 31.38 million barrels of oil per day last month, down by 256,000 barrels per day in September because of export delays in Iraq and lower production in both Saudi Arabia and Kuwait.

As for next year, the report said low prices are prompting energy companies not affiliated with OPEC to pare back on capital expenses by nearly $200 billion. As a result, non-OPEC output in 2016 will fall by an average of around 130,000 barrels per day, “a gaping supply hole” compared with the average growth of 720,000 barrels per day in 2015.

The report on OPEC’s production decline comes less than a month before the cartel meets on Dec. 4 at its headquarters in Vienna. Some producers have been calling for the group to abandon its price war with rival producers, particularly in the United States, and bolster the price of oil, which has fallen from more than $110 per barrel in June 2014 to below $50 per barrel today.

Yet the report supports the opposing view: that the strategy, masterminded by Saudi Oil Minister Ali al-Naimi, is working precisely because OPEC is not only regaining market share it lost to rival producers, but also forcing those producers to extract less oil. Many of them rely on hydraulic fracturing, or fracking, to extract oil from shale, and can’t make a profit with the global price of oil so low.

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

Oil Tankers Are Filling Up As Global Storage Space Runs Low

November 13, 2015

Oil Tankers Are Filling Up As Global Storage Space Runs Low

The rebound in oil prices is still not here, and new data suggests that it will take some more time before the markets start to balance out.

Global supplies are still too large to justify a significant rally in oil prices. The latest indicator that the glut of oil has yet to ease comes from the FT, which concludes that there is 100 million barrels of oil sitting in oil tankers. Oil has piled up in tankers that are floating at sea, as onshore storage space begins to dwindle.

The level of crude oil stashed at sea is nearly double what it was earlier in 2015. “Onshore storage is not quite full but it is at historically high levels globally,” David Wech of JBC Energy told the FT. “As we move closer to capacity that is creating more infrastructure hiccups and delays in the oil market, leading to more oil being backed out on to the water.”

Rising levels of crude stored at sea has more to do with shrinking capacity onshore, rather than traders stockpiling volumes in order to profit from an eventual rebound in prices. Oil tanker rates have surged this year, so it doesn’t exactly make sense to store oil at sea strictly for a trading opportunity. Daily rates for very large crude carriers (VLCCs) are around $60,000 per day, although down from a peak of $111,000 per day hit on October 8. The collapse of crude prices over the past year have contributed to a surge in tanker rates – while volatile, VLCC daily rates consistently ran as low as $20,000 over the last few years.

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

Oil Market Supply Imbalance Getting Worse, Not Better

November 13, 2015

Oil Market Supply Imbalance Getting Worse, Not Better

Oil futures prices (WTI) plunged 12.5 percent this week from $47.90 on Friday, November 3 to $41.96 yesterday morning, November 11. The main reason is that the global supply imbalance is getting worse.

The U.S. Energy Information Administration’s (EIA) latest report indicates that the world supply surplus (production minus consumption) increased 590,000 barrels per day (bpd) compared to September to 1.58 million bpd (Figure 1).

Figure 1. World liquids production, consumption and relative surplus or deficit.

Source: EIA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

Supply was flat but consumption decreased 520,000 bpd. Weaker consumption suggests weakening demand, a disturbing trend that is also evident in year-over-year consumption-change data (Figure 2).

Figure 2. World year-over-year liquids consumption change.

Source: EIA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

Only OPEC estimates global oil demand. Their Monthly Oil Market Reportreleased today shows world oil demand growth of 1.6 million bpd so far in 2015 (Figure 3) but decreasing to 1.5 million bpd overall for the year and only 1.25 million bpd for 2016. OPEC data indicates about 1 million barrels of surplus supply relative to demand.

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

2-Mile Long Stretch Of Iraqi Oil Tankers Bound For U.S. Shores

November 12, 2015

2-Mile Long Stretch Of Iraqi Oil Tankers Bound For U.S. Shores

After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. slumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq – the fastest-growing member of OPEC – has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to U.S. ports in November.

Crude prices are already falling:

(Click to enlarge)

But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports,

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November,ship-tracking and charters compiled by Bloomberg show.

Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

Worse still, they are slashing prices…

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter.Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

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

The Biggest Threat To Oil Prices: 2-Mile Long Stretch Of Iraq Oil Tankers Headed For The U.S.

November 11, 2015

The Biggest Threat To Oil Prices: 2-Mile Long Stretch Of Iraq Oil Tankers Headed For The U.S.

After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. sllumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq – the fastest-growing member of OPEC – has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to US ports in November.

Crude prices are already falling:

But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports,

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show.

Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

Worst still, they are slashing prices…

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter.Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

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

Absolutely Right

November 11, 2015

Absolutely Right

Good to see that even after months on hiatus, not much changes on the Right, right? First up:

The shale revolution has opened additional centuries of low-cost hydrocarbon resources to modern society….
The anti-fossil fuel environmental movement is in despair. For decades, proponents of the ideology of sustainable development preached that humanity was running out of oil and gas, that consumption of hydrocarbons was destroying the climate, and that renewable energy was rapidly becoming a cost-effective alternative. But the Shale Shock has slain peak oil and promises low-cost oil and gas for centuries to come. [1]

Yup! Except for those still-pesky facts, juvenile name-calling, and not actually addressing those issues, we indeed have additional centuries of hydrocarbon “resources” at our beck and call. Click our heels together; close our eyes; wish real hard; ignore reality; ignore our future; skip past the facts; omit explanations or critical distinctions, and presto!

If the “The anti-fossil fuel environmental movement is in despair” it’s because a legion of misinformers with public platforms continue to disseminate falsehoods [while ignoring a substantial body of facts supplying the full story and not just the partial one they massage for the benefit of the few], with a heaping shovelful of disingenuous, cherry-picked pseudo-truths for good measure. The public sure as hell isn’t being served by the ongoing stream of nonsense.

An important aspect of the pesky-facts portion of the discussion: oil producers can’t earn profits when the cost of oil is low. The “Shale Shock” works when prices are high.

Consumers as a rule don’t like high prices all that much. That puts a dent in the mandate for high prices to continue the “Shale Shock.”

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

IEA Sees No Oil Price Rebound For Years

November 11, 2015

IEA Sees No Oil Price Rebound For Years

Oil prices are likely to stay below $80 per barrel for another five years, according to a closely watched energy report.

The International Energy Agency released its 2015 World Energy Outlook (WEO), with predictions for energy markets out to 2040. Although there are no shortage of caveats, the IEA projects that oil prices will only rebound slowly and intermittently, and the supply overhang will slowly ease through the rest of the decade. In its “central” scenario, it sees oil prices rebalancing in 2020 at $80 per barrel, with increases in the years following.

At issue, as always, is supply and demand dynamics. The IEA estimates that the oil industry will slash upstream investment by 20 percent in 2015, which will cut into long-term supply figures. Non-OPEC supply will peak before 2020 as a result of much lower investment, topping off at 55 million barrels per day.

U.S. shale will recover as prices rebound, but the IEA still sees it as a passing fad. As the sweet spots get played out in the U.S., and costs remain elevated compared to other sources of production from around the world, shale will not be around for the long haul. The IEA sees U.S. shale output plateauing in the early 2020s at 5 million barrels per day. Thereafter, it declines.

The IEA weighs a scenario in which oil prices don’t actually rebound in the medium to long-term, however. In this scenario, OPEC continues to pursue market share, U.S. shale remains resilient, and the global economy doesn’t perform as well as expected. All of that adds up to oil prices remaining at $50 per barrel through the remainder of the decade and only rising to $85 per barrel by 2040.

Of course, there is a flip side to that coin. Persistently low prices gut investment in new sources of supply, which sow the seeds for a supply shortage in the years ahead. As a result, prices could spike.

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

What The Oil And Gas Industry Is Not Telling Investors

November 2, 2015

What The Oil And Gas Industry Is Not Telling Investors

Oil prices crashed because of too much supply, but will rebound as production shrinks and demand rises. But what if long-term demand for oil ends up being sharply lower than what the oil industry believes?

That is the subject of a new report from The Carbon Tracker Initiative, which looks at a range of scenarios that could blow up oil industry projections for long-term oil demand.

Historically, Carbon Tracker says, energy demand has been driven by population, economic growth, and the efficiency (or inefficiency) of energy-using technologies. Carbon Tracker looks at a couple possible future scenarios in which those parameters are altered, resulting in dramatically lower rates of oil consumption.

Carbon Tracker has been a pioneer in the concept of “stranded assets,” the notion that fossil fuel assets will lose their value as the world moves to restrict carbon emissions. If an oil field cannot be produced profitably in a carbon-constrained world – or cannot legally be produced because of certain regulations – then it ceases to have value. That puts investors’ dollars at risk, a risk that financial markets have not fully grappled with.

However, in a new report, Carbon Tracker expands upon the possible scenarios in which oil demand may not live up to industry predictions.

For example, if the world population hits only 8.3 billion by 2050 instead of the 9.7 billion figure typically cited by the UN, fossil fuel consumption could end up being 17 percent lower in 2050 than the oil industry thinks. Coal would be affected the most, with 25 percent reduction in demand compared to the business-as-usual case.

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

The Global Oil Supply: Implications for Biodiversity?

November 1, 2015

The Global Oil Supply: Implications for Biodiversity?

The following is an overview of my recent lecture to the Linnean Society of London, which is named in honour of Carl Linneus, who among many other accolades has been described as “The father of modern taxonomy”, and is also considered as one of the founders of modern ecology. It is the world’s oldest active society for the biological and environmental sciences, and the roll call of its Fellows includes such great names as Charles Darwin and Alfred Russel Wallace.

The lecture itself can be viewed here: https://vimeo.com/143163653

The link between the global oil supply and biodiversity is not directly causal; rather, the two are elements of a broader and more integrated picture. Of the energy used by humans on Earth, crude oil represents the lion’s share (33%), followed closely by coal (30%), with gas in third place at 24%. Traversing the gamut of energy sources, we find nuclear energy (4%) and hydro-power (7%), with renewable energy (wind and solar) entering the final furlong at just above 2% of total energy use, meaning that around 88% of our energy is furnished by the fossil fuels. 100 years ago, oil could be produced at an EROEI of 100, while this is now nearer to 17 as a global average, and falling, as unconventional oil sources increasingly make up for the decline in conventional production. So it’s becoming increasingly harder to maintain the oil flow into global civilization.

The Global Oil Supply.

We produce around 30 billion barrels of oil every year, which is absolutely staggering, and depending on exactly what you count as oil, this works out to 84 million barrels a day, or about 1,000 barrels every second. The major producers are Saudi Arabia and Russia, who between them produce around one quarter of the world’s oil supply….click on the above link to read the rest of the article…

U.S. Shale Lifelines Running Thin

October 28, 2015

U.S. Shale Lifelines Running Thin

As the world heads towards the start of the winter fuel oil season, crude prices still show little sign of a sustained upward move. Instead, oil seems to be trapped in a new “normal” range of around $40 to $55 a barrel. Shale oil producers have done a remarkable job in adjusting to that change in the environment, but it remains to be seen what the eventual damage to companies in the sector will be once the last crude hedges from the pre-collapse period finally settle in 2016.

With that uncertainty just around the corner, it is little wonder that financing has proven challenging for many shale firms. What might be more surprising though is where the financing that is available is actually coming from. Unlike in the past, many shale firms are having great difficulty tapping financing from either banks or public equity markets. Instead shale firms are turning to private equity firms and other unconventional sources of financing. In a report earlier this year, Reuters noted that there was $44 billion in high yield debt and share sales for the first half of 2015. That issuance though has increasingly become unfeasible as the much hoped-for fast rebound in oil prices has failed to materialize.

This lack of funding has created opportunities for patient and deep pocketed private equity firms. Asset sales, M&A deals, and bankruptcies have all been relatively limited thus far in the oil price fiasco in part because many firms had strong hedge positions, committed bank revolvers, and perhaps most importantly, because the spread between bid and ask prices on assets was wide.

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

Stop Blaming OPEC For Low Prices

October 26, 2015

Stop Blaming OPEC For Low Prices

We are a little more than a month away from OPEC’s next meeting, which will be held in Vienna on December 4, 2015.

OPEC altered the course of the oil markets last year when it decided to cast aside its traditional role of maintaining balance through production cuts. Instead it pursued a strategy of fighting for market share, contributing to an immediate rout in oil prices. WTI and Brent then went on to dive below $50 in the weeks following OPEC’s decision.

OPEC is widely expected to continue its current strategy at its next meeting, and as such, no rebound in oil prices is expected, at least not because of the results of the group’s meeting in Vienna.

But that raises a question about what the world of oil expects from OPEC: Why is it that the responsibility for balancing the market falls on OPEC? Why should OPEC be the one to fix the imbalances in the global crude oil trade?

On the one hand, it makes a certain degree of sense that market watchers anticipated adjustment from OPEC. After all, the group has historically coordinated its production levels in an effort to control prices, or at least influence them. They could cut their collective production target to boost prices, and vice versa.

However, there is an element of imperialism and superiority in the expectation that the burden should fall on OPEC, which is largely made up of producers from the Middle East. It is a bizarre mentality to think that private companies deserve to seize as much market share as they can manage, after which OPEC producers can take what is left. Steven Kopits, President of Princeton Energy Advisors, laid out the concept very nicely in a Platts article earlier this year, in which he says the expression “call on OPEC” should be scrapped.

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

Saudi, US Oil Inventories Hit Record High as Demand Fizzles

October 20, 2015

Saudi, US Oil Inventories Hit Record High as Demand Fizzles

The amount of oil in storage globally, not including the various “strategic petroleum reserves” in the US, China, Europe, Japan, and other locations, has grown to staggering proportions this year, as oversupply drowns out tepid demand.

In the US, oil storage is seasonal. A big buildup starting late fall gets Americans and their favorite gas or diesel sipping or guzzling toys or clunkers through “driving season” – late spring and summer – when somehow everyone has to drive somewhere. After driving season, petroleum stocks fall. This pattern has played out this year as well, but with a difference.

Last week, the EIA reported that crude oil stocks rose 7.6 million barrels to 468.6 million barrels, the highest for this time of the year since records have been kept. Crude oil stocks are now 98 million barrels higher than they were last year at this time, when they were already bouncing into the upper end of the 5-year range.

This chart from the EIA shows the out-of-whack relationship between the five-year range (gray area) and the weekly buildup (blue line) this time around:

Instead of getting better somehow, this situation simply got worse over driving season. At the peak of the buildup this year, crude oil stocks were 22.5% higher than a year earlier. Now they’re 26.4% higher than they were at this time last year.

If the inventory buildup this fall, winter, and spring continues in this manner from today’s much higher starting point, we can look forward to a fiasco on the storage front – and on the pricing front. Because at this rate, by April, we’ll be having oil coming out of our ears!

But this is a global issue for producers (or conversely, an opportunity for oil consumers). Here’s Saudi Arabia, which has been pumping oil at record levels to maintain its market share against Russia and the boys from the oil patch in the US and Canada: its inventories are ballooning too.

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

Saudi Arabia’s fiscal break-even oil price to be around $US 100 mark for the foreseeable future

October 19, 2015

Saudi Arabia’s fiscal break-even oil price to be around $US 100 mark for the foreseeable future

The latest IMF Article IV consultation report on Saudi Arabia was published on 9 September 2015.

http://www.imf.org/external/country/sau/

Extract: Government spending has increased substantially in recent years. Consequently, the breakeven oil price rose to $106 a barrel in 2014 from $69 a barrel in 2010. As a result, with the large decline in oil prices, the fiscal deficit has increased sharply and is likely to remain high over the medium-term. These deficits will rapidly erode the fiscal buffers (in the form of government deposits and low public debt) that have been built over the past decade. http://www.imf.org/external/pubs/ft/scr/2015/cr15251.pdf

Let’s put this into some graphs. We start with the fiscal deficit first, then look at the external balance.

Expenditure

Fig1: Expenditure, Budgetary Central Government Operations

During the period of high oil prices until 2014, expenditure grew by 9-15% pa. In early 2015, King Salman disbursed a bonus of 50 bn Riyal to government employees, contributing to a 30% increase of the annual wage bill. Capital expenditure (transportation, health and education) includes the expansion works at Medina and Mecca.

Budget Balance

Fig 2: Budget revenue vs expenditure

Oil revenue dropped sharply, starting in 2013 and leading to a negative balance by 2014. It will get worse in 2015. It is clear that the pre 2015 trend cannot continue. The IMF proposes a budget adjustment scenario (ii, Fig 7) by initially reducing expenditure in 2016 and then increasing it moderately by 4% and later 1%. Oil revenue is assumed to grow along a recovery of oil prices.

Fig 3: Budget balance as % of GDP

In Fig 3, we take the balance from Fig 2 and add a curve (blue) as percentage of GDP. In 2015, the deficit reaches 20% of GDP. For comparison: commodity dependent Australia had a budget deficit of -2.6% of GDP in 2014/15, the US estimate for 2015 is -2.7%.

Oil price assumptions

The underlying oil prices have been taken from the World Economic Outlook (WEO), assumed as follows:

Fig 4: Oil price assumptions and Saudi budget balance

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

Too Many Wildcards For Oil Markets To Settle Yet

October 6, 2015

Too Many Wildcards For Oil Markets To Settle Yet

Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year.

Suppose, for illustration, that even at a price of $40, there would be enough producers with sunk costs on projects already begun who would be willing to bring sufficient oil to the market to fully meet current consumption. But suppose further that at a price of $40, few new investments are undertaken, so that next year supply is much lower than it is this year, such that next year’s production would equal next year’s demand at a price of $60.

What’s wrong with this picture? Under the above scenario, if you were to buy oil today at $40, store it for a year, and sell it next year for $60, you’d make a huge profit. And if right-minded capitalists tried to do exactly that in huge volumes, the price of oil today would be bid up above $40, as the inventory demand is added to current consumption demand. As that oil is sold next year, it would bring the price next year below $60. In equilibrium, the difference between this year’s price and next year’s expected price should be close to the storage cost.

That arbitrage is clearly an important aspect of what has been going on over the last year. In response to lower prices, capital expenditures in the oil patch are being slashed. The number of drilling rigs active in the U.S. areas associated with tight oil production is only 43 percent of its level a year ago.

Number of active oil rigs in counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to Aug 2015. Data source: EIA Drilling Productivity Report.

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

Whatever Happened to Peak Oil?

September 16, 2015

Whatever Happened to Peak Oil?

Whatever happened to “peak oil” – the assertion that the rate at which oil is extracted from the Earth is nearing a maximum or peak level? With falling oil and gasoline prices and a boom of new oil development in the United States and elsewhere, concern about global oil supplies have faded from public view.

But have concerns about peak oil really disappeared? What key factors have changed in the oil industry, and what challenges remain? Are we entering a new era of “abundance” or are the risks of the world’s dependence on oil rising?

Guests:

Jeremy Gilbert – principal, Barrelmore Ltd; former chief petroleum engineer, BP
John Kingston – president, McGraw Hill Financial Global Institute; former director of news, Platts (energy information division of McGraw-Hill)
Steve Andrews – co-founder, Association for the Study of Peak Oil USA

Key Questions:

Cost: What are the trends regarding costs to maintain global oil production now and in the future? Are costs of developing new oil rising or are fracking and other technologies driving production costs down? Do falling prices mean that oil is getting cheaper?

Demand: What are the trends regarding global oil demand? Will oil consumption peak because of a peak in demand as much as supply? How are demand and supply interconnected?

Supply: What is the outlook for global supply? How will trends regarding costs and price volatility affect global supply? How much does price affect the outlook for supply? Do prices need to keep rising to maintain supply?

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

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