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Oil Shock Models with Different Ultimately Recoverable Resources of Crude plus Condensate (3100 Gb to 3700 Gb)

July 8, 2015

Oil Shock Models with Different Ultimately Recoverable Resources of Crude plus Condensate (3100 Gb to 3700 Gb)

The views expressed are those of Dennis Coyne and do not necessarily reflect the views of Ron Patterson.

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The post that follows relies heavily on the previous work of both Paul Pukite (aka Webhubbletelescope) and Jean Laherrere and I thank them both for sharing their knowledge, any mistakes are my responsibility.

In a previous post I presented a simplified Oil Shock model that closely followed a 2013 estimate of World C+C Ultimately Recoverable Resources (URR) by Jean Laherrere of 2700 Gb, where 2200 Gb was from crude plus condensate less extra heavy oil (C+C-XH) and 500 Gb was from extra heavy (XH) oil resources in the Canadian and Venezuelan oil sands.

In the analysis here I use the Hubbert Linearization (HL) method to estimate World C+C-XH URR to be about 2500 Gb. The creaming curve method preferred by Jean Laherrere suggests the lower URR of 2200 Gb, if we assume only 200 Gb of future reserve growth and oil discovery.

Previously, I have shown that US oil reserve growth (of proved plus probable reserves) was 63% from 1980 to 2005. If we assume all of the 200 Gb of reserves added to the URR=2200 Gb model are from oil discoveries and that in a URR=2500 Gb, oil discoveries are also 200 Gb, then 300 Gb of reserve growth would be needed over all future years (we will use 90 years to 2100) or about 35% reserve growth on the 850 Gb of 2P (proved plus probable) reserves in 2010. I conclude that a URR of 2500 Gb for C+C-XH is quite conservative.

A problem with the Hubbert Linearization method is that there is a tendency to underestimate URR.

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

Midweek Sector Update: Oil Prices Crash Again – Another Downturn Ahead?

July 8, 2015

Midweek Sector Update: Oil Prices Crash Again – Another Downturn Ahead?

We had warned over the past few weeks that there was an outside chance that the Greek crisis would infect oil markets, and over the weekend Greek voters ensured that it did. With an overwhelming “no” vote, just about every corner of Greece voted against Europe’s debt package. Exactly what Greeks were voting for was rather confusing, but the vote was taken as a robust vote of confidence in Prime Minister Alexis Tsipras’ hardline approach against Greece’s creditors.

While that handed Tsipras a strong victory, it also led to a plunge in oil prices. WTI fell by 8 percent on July 6, falling to around $53 per barrel. Brent lost nearly 5 percent, dropping to under $58 per barrel. Oil is now trading at its lowest level in months, erasing several weeks of stability as well as optimism that the market had begun the arduous process of adjustment.

The Greek crisis has entered a new and much more dangerous phase, raising the possibility that the country could get booted from the currency union. JP Morgan Chase stated that it thinks odds are more likely than not that Greece leaves the euro. With Europe in turmoil, oil prices may not recover in the short-term.

But it isn’t just Greece. In another (much more positive) geopolitical development, the Iranian negotiations are at the finish line. The outcome is still in doubt, as the deadline has once again been pushed back, this time until July 10, but all sides are extremely close to a deal. After weeks and months of uncertainty, the progress over the past week seems to have finally convinced the oil markets that a return of Iranian oil is close to becoming a reality.

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

Bearish News For Oil Growing By The Day

July 4, 2015

Bearish News For Oil Growing By The Day

Oil hit its lowest point in two months on July 1, falling on a combination of market turmoil and bearish oil figures.

WTI dipped below $57 and Brent dropped to around $62 per barrel, breaking out of a narrow range within which the two benchmarks have been trading for several months.

The ongoing crisis in Greece is weighing on global markets. The Greek government has called a referendum set for July 5th that will largely test the Greek public’s desire to endure more austerity or else risk a more uncertain path. Greece’s creditors have declined to negotiate an extension of the bailout package until after the referendum, and EU member states led by Germany have suggested the vote would be tantamount to a decision on whether or not Greece would remain in the Eurozone. Meanwhile, Greece’s banks are closed for the week, and tempers will likely flare as the days pass with people unable to withdraw cash.

The crisis is causing broader worries over the stability of global markets. Although Greece is a small country, and makes up only a fraction of the Eurozone’s GDP, the markets are keeping a wary eye on the ongoing predicament, watching for any signs that the euro itself could be affected. All of this is dragging down stock markets and oil prices.

A second major factor that suddenly pushed down oil prices is the latest EIA figures released on July 1, which showed a very surprising uptick in the level of crude oil storage. Oil inventories climbed by 2.4 million barrels, the first increase in two months. Since mid-April, the U.S. has begun drawing down its record high inventory levels, with refineries working their way through the glut and producers leveling off their production.

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

BP Data Suggests We Are Reaching Peak Energy Demand

June 24, 2015

BP Data Suggests We Are Reaching Peak Energy Demand

Some people talk about peak energy (or oil) supply. They expect high prices and more demand than supply. Other people talk about energy demand hitting a peak many years from now, perhaps when most of us have electric cars.

Neither of these views is correct. The real situation is that we right now seem to be reaching peak energy demand through low commodity prices. I see evidence of this in the historical energy data recently updated by BP (BP Statistical Review of World Energy 2015). Of course,

Growth in world energy consumption is clearly slowing. In fact, growth in energy consumption was only 0.9% in 2014. This is far below the 2.3% growth we would expect, based on recent past patterns. In fact, energy consumption in 2012 and 2013 also grew at lower than the expected 2.3% growth rate (2012 – 1.4%; 2013 – 1.8%).

Recently, I wrote that economic growth eventually runs into limits. The symptoms we should expect are similar to the patterns we have been seeing recently (Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)). It seems to me that the patterns in BP’s new data are also of the kind that we would expect to be seeing, if we are hitting limits that are causing low commodity prices.

One of our underlying problems is that energy costs that have risen faster than most worker’s wages since 2000. Another underlying problem has to do with globalization. Globalization provides a temporary benefit. In the last 20 years, we greatly ramped up globalization, but we are now losing the temporary benefit globalization brings. We find we again need to deal with the limits of a finite world and the constraints such a world places on growth.

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

Gas prices ‘way beyond’ where oil rebound should have them: BMO

June 22, 2015

Gas prices ‘way beyond’ where oil rebound should have them: BMO

It’s not just you: Gas prices are much higher than they should be, energy experts say

Gas prices are up by more than a third since the start of the year, a figure much higher than one would expect based on the slight rebound in oil prices, Bank of Montreal’s chief economist says.

Doug Porter noted Thursday that while everything connected to crude oil has looked execrable since the slowdown that started last fall, Canadian gas prices have been especially loopy because of the impact of the Canadian dollar.

A lot of the gasoline used in Canada is refined and processed in the U.S., where refineries price the base commodity in U.S. dollars. That makes Canadian pump prices doubly sensitive because they are heavily impacted by the value of the Canadian dollar.

Gas price jump ‘doesn’t make sense’ experts say

If you balance out the impact of currency fluctuations, “converting oil prices into Canadian-dollar suggests that the jump in gasoline has gone way beyond the move in crude,” Porter wrote. “So what’s up?”

It’s a question many Canadians have been asking themselves, with the average price of a litre of gasoline at $1.20 across the country. Porter noted there are indeed plenty of valid reasons for gas prices to be up a bit. In addition to the small rebound in crude oil, there are seasonal factors at play.

“In each of the past two years, the annual highs for gasoline prices were hit in the fourth week of June,” Porter said. We are right on track for that to happen again this year.

Demand is up

And demand for gasoline is legitimately higher too. Phil Flynn, the senior market analyst at energy research firm Price Futures Group in Chicago, said cheap oil prices last fall compelled most Americans to do what they normally do when that happens — drive more. “When oil prices crashed it stirred demand,” he said in an interview. “It’s the oldest story in the market.”

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

Why A U.S Shale Slowdown Will Hardly Effect Oil Prices

June 22, 2015

Why A U.S Shale Slowdown Will Hardly Effect Oil Prices

Just last week I wrote on the possibility of a renewed downturn in oil prices, owing to the fact that huge volumes of supplies could potentially come online in places like Iraq, Libya, and Iran. That is still the case.

But let’s look at the other side of the coin. Despite the surprising resilience of U.S. shale, production could be now entering an extended period of decline. The EIApredicts that output in the major shale regions could decline by 91,000 barrels per day in July.

An ongoing and deeper contraction is likely. The EIA also reports a dramatic decline in well completions since October of last year. When prices starting falling, especially after the November 2014 OPEC meeting, rig counts started vanishing from the field and drilling companies began completing fewer wells.

(Click to enlarge)

That is important because shale wells suffer from rapid decline rates in their production profiles. After about the first year, the initial burst of oil largely peters out, and the decline rate is precipitous. As a result, a large number of fresh wells need to constantly be completed just to keep output flat.

With the number of well completions down, falling production from wells that were drilled in the past start to become more obvious. This “legacy decline” is now overtaking new production, most likely forcing overall net production to have dipped into negative territory in May.

(Click to enlarge)

The volume of legacy declines will only increase as it will increasingly reflect the huge volume of production that came online in 2013 and 2014. All of that recent production won’t be replaced as drillers sit on the sidelines. That means the decline in total production will only accelerate in the months ahead.

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

Biggest Glut In Recorded Crude-Oil History Taking Shape

June 17, 2015

Biggest Glut In Recorded Crude-Oil History Taking Shape

The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable, according to Bloomberg.

Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show.

But as WolfStreet.com’s Wolf Richter warns, if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, we’ll be watching the most magnificent oil glut ever building up into next year.

“The market is flooded with oil and everyone is desperate to sell quickly, so you have a price war,” a marine-fuel trader in Singapore, the largest ship refueling hub in the world, told Reuters as prices for bunker fuel oil are plunging.

OPEC, which produces about 40% of global oil supply, announced on June 5 to “maintain” output at 30 million barrels per day for the next six months. Six days later, the IEA’s Oil Market Report for June clarified that “Saudi Arabia, Iraq, and the United Arab Emirates pumped at record monthly rates” in May and boosted OPEC output to 31.3 million barrels per day, the highest since October 2012, and over 1 MMbpd above target for the third month in a row. OPEC will likely continue pumping at this rate “in coming months,” the IEA said.

“We have plenty of crude,” explained Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing while in India to discuss with Indian oil officials supplying additional oil. “You are not going to see any cuts from Saudi Arabia,” he said. Saudi Arabia produced 10.3 MMbpd in May, its highest rate on record.

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

Global Cooling Alert: World Faces Longest Oil Glut In Three Decades

June 16, 2015

Global Cooling Alert: World Faces Longest Oil Glut In Three Decades

The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable.

Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show. If the Organization of Petroleum Exporting Countries were to keep pumping at current rates it would become the longest surplus since at least 1985 by the third quarter, the data show.

There are few signs the 12-nation group will cut back. Saudi Arabia, OPEC’s biggest member, will probably increase production to intensify pressure on U.S. shale drillers, Goldman Sachs Group Inc. predicts. OPEC’s supplies may be swollen further this year if Iran reaches a deal with world powers to ease sanctions on its exports, Commerzbank AG says.

“It seems to be taking longer for the oil surplus to clear, and, even without the return of Iran, IEA data indicates it could last for the rest of the year,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “Any expectations the oversupply will be gone by 2016 don’t look justified at this stage.”

OPEC pumped 31.3 million barrels a day in May and will probably continue to pump around that level “in coming months,” the IEA said in a report on June 11. The agency doesn’t forecast OPEC production.

Brent for August settlement gained 28 cents to $64.23 a barrel on the London-based ICE Futures Europe exchange at 12:04 p.m. Singapore time.

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

The Dark Side Of The Shale Bust

June 16, 2015

The Dark Side Of The Shale Bust

The fallout of the collapse in oil prices has a lot of side effects apart from the decline of rig counts and oil flows.

Oil production in North Dakota has exploded over the last five years, from negligible levels before 2010 to well over a million barrels per day, making North Dakota the second largest oil producing state in the country.

But the bust is leaving towns like Williston, North Dakota stretched extremely thin as it tries to deal with the aftermath. Williston is coping with $300 million in debt after having leveraged itself to buildup infrastructure to deal with the swelling of people and equipment heading for the oil patch. Roads, schools, housing, water-treatment plants and more all cost the city a lot of money, expected to be paid off with revenues from oil production that are suddenly not flowing into local and state coffers the way they once were.

Williams County Commissioner Dan Kalil says that a lot of unemployed people who flocked to North Dakota are left in the wake of the bust, something that the local government has to sort out. “We attracted everyone who had failed in Sacramento, everyone who failed in Phoenix, everyone who failed in Las Vegas, everybody who had failed in Houston, everyone who failed in Florida,” Kalil said in a June 3 interview with WHQR.org. “And they all came here with unrealistic expectations. And it’s really frustrating for those of us left to clean up the mess.”

Output is still only slightly off its all-time high of 1.2 million barrels per day, which it hit in December 2014. But more declines are expected with drillers pulling their rigs and crews from the field. Rig counts in North Dakota have fallen to just 76, as of June 12, far below the 130 or so that state officials believe is needed to keep production flat.

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

No, BP, the U. S. did NOT surpass Saudi Arabia in oil production

June 15, 2015

No, BP, the U. S. did NOT surpass Saudi Arabia in oil production

Even the paper of record for the oil industry, Oil & Gas Journal, got it wrong. With the release of the latest BP Statistical Review of World Energy, media outlets appeared to be taking dictation rather than asking questions about which countries produced the most oil in 2014.

If they had asked questions, they would have ended up with a ho-hum headline announcing that last year Russia at 10.1 million barrels per day (mbpd) and Saudi Arabia at 9.7 mbpd were once again the number one and number two producers of crude oil including lease condensate (which is the definition of oil). The United States at 8.7 mbpd remained in third place.

The most important question they could have asked is this: How is BP defining oil? It turns out that oil according to the BP definition includes something called natural gas liquids which includes lease condensate–very light hydrocarbons that come from actual oil wells and are included in the oil refinery stream–and natural gas plant liquids which come from natural gas wells and include such things as ethane, propane, butane and pentanes. Only a small portion of natural gas plant liquids are suitable substitutes for oil.

Production of natural gas plant liquids in the United States has grown rapidly as a result of increasing exploitation of natural gas in deep shale deposits, so-called shale gas. These liquids are useful, but they are not oil and only displace oil in a minor way. Moreover, their energy content is around 65 percent that of crude oil and so counting barrels of natural gas plant liquids as equivalent to oil is doubly misleading.

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

Don’t Believe The Hype On U.S. Shale Growth

June 15, 2015

Don’t Believe The Hype On U.S. Shale Growth

The OPEC Free Fall

There is a popular narrative going around that I want to address in today’s article. Last November, after several months of plummeting crude oil prices, the Organization of the Petroleum Exporting Countries (OPEC) met to discuss the oil production quotas for each country in the months ahead. Many expected OPEC to cut production in order to shore up crude prices that had been falling since summer. This was the strategy favored by OPEC’s poorer members, as many require oil prices at $100/barrel (bbl) in order to balance government budgets.

Instead, OPEC announced that they would continue pumping at the same rate. They chose to defend market share against the surge of supply from U.S. shale producers, and in doing so the fall in the price of crude oil accelerated. A look at the U.S. rig count shows the swift impact to U.S. shale drillers in the aftermath of that meeting:

Rig counts went into free-fall after it became clear that OPEC was not interested in propping up the price of oil for the benefit of rapidly expanding shale oil producers. While that approach hurt OPEC’s income in the short term, it also immediately impacted rig counts in the shale oil fields. But — and here is the narrative — shale oil producers continue to make gains in production even as rig counts have been slashed because they are becoming more and more efficient

Dissecting the Narrative

There is some truth to the narrative. Yes, oil production has continued to grow even though rig counts have plummeted. The week before OPEC’s meeting last November, the number of rigs drilling for oil stood at 1,574. Oil production that week was 9.1 million bpd. Today, with the rig count at 642, production is 9.6 million bpd — a gain of just over half a million bpd.

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

A Bit Of Perspective On Gasoline Prices

June 13, 2015

A Bit Of Perspective On Gasoline Prices

To me, commodity pricing today is so distorted that it is almost startling. The media continues its post Goldman Sachs’ bearish calls to pound away on OPEC supply with little attention paid to rising demand. Admittedly, as we end the summer driving season, such demand will wane, adding pressure for supplies to draw down as we head into the fall. Even the EIA seems to think this trend will likely begin in July.

The focus this week in the media is Saudi supply, as it negotiates with India for more supply without mentioning a reason: demand is up. This, even after reiteration upon reiteration from the Saudis that demand is exceeding expectations. Even the EIA has finally admitted it, although as expected, they upped their U.S. supply estimates to over 700,000 barrels per day in 2015 to offset the euphoria. I have my doubts on this call of higher supply as I’ve written before.

I have emphasized the point of waning supply, tied to depletion, for months now, which, like demand has gone unspoken in the media with the overriding narrative focused on efficiency gains or well productivity instead. The bias is very clear at this point and so is the media agenda.

In the near term, shorting in highly leveraged names ahead of the fall credit redetermination has caused equities to decouple from oil prices. Energy prices are at or near highs and even natural gas has recovered some while E&P equity prices for leveraged names are at lows. Look for a substantial pick up in M&A soon which, more than prices, will act as a catalyst on equity prices in my view.

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

The EIA’s Drilling Productivity Report

June 9, 2015

The EIA’s Drilling Productivity Report

The EIA has released its latest Drilling Productivity Report. There were some interesting data presented in the report.

They say the Bakken peaked at 1,311,703 barrels per day in March and will have declined by 74,763 bpd in July.

The EIA says the Bakken will get 51,000 barrels per day in July from new wells but legacy wells will decline by 80,000 barrels per day leaving a decline of 29,000 bpd.

The EIA says Eagle Ford peaked in 1,711,376 barrels per day in March and will have declined by a total of 117,971 bpd in July.

The EIA says Eagle Ford will get 90,000 bpd from new wells in July but the decline from legacy wells will be 139,000 bpd leaving a decline of 49,000 bpd.

The EIA says Niobrara peaked in March at 459,861 bpd and will have declined by 49,712 bpd by July.

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

Delayed gratification for OPEC, more pain for investors

June 8, 2015

Delayed gratification for OPEC, more pain for investors

Delayed gratification is said to be a sign of maturity. By that standard OPEC at age 55 demonstrated its maturity this week as it left oil production quotas for its members unchanged. It did so in the face of oil prices that are about 40 percent lower than they were at this time last year, delaying once again a return to the $100-per-barrel prices seen during the past four years.

Why OPEC members chose to leave their oil output unchanged is no mystery. The explicit purpose for keeping oil prices depressed is to close down U.S. oil production from deep shale deposits–production that soared when oil hovered around $100 a barrel, but which is largely uneconomic at current prices. That production was starting to threaten OPEC’s market share.

If OPEC were to cut its oil production now and drive prices back up, it would only lead to increased drilling in the United States and loss of market share. In fact, even as spot oil prices sank below $45 per barrel in the United States earlier in the year, investors continued pumping money into U.S. oil drilling. According to The Wall Street Journal U.S. oil companies sold almost $17 billion in new shares in the first quarter of 2015, more than they sold in any quarter last year when prices were much higher.

Preliminary estimates by the U.S. Energy Information Administration show that oil production continues to grow in the United States despite low prices. (The final numbers won’t be in for months.) New investors in U.S. oil company shares must believe they are catching the bottom and will have a very profitable ride up from here. This demonstrates that OPEC’s work is not done and accounts in part for the decision to leave production quotas unchanged.

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

Global Oil Shortage Before Year’s End? Surely Not…

June 8, 2015

Global Oil Shortage Before Year’s End? Surely Not…

Now that OPEC has left its production quota unchanged, the world will continue to see a glut in supplies, right?

Some analysts aren’t so sure. Sanford C. Bernstein predicts that by the end of the year global demand will outstrip supply by an estimated 1.5 million barrels per day.

That flies in the face of a lot of separate estimates. The IEA says that oil supplies are still in excess of what the world is consuming, by some 2 million barrels per day. Even with flat supplies coming from US shale, drillers are still pumping way more oil than the world is consuming. That leaves Bernstein as an outlier when it comes to guessing which way oil markets are heading.

But there is reason to believe that Bernstein is not off the mark. While market analysts are right to closely watch the trajectory of US production levels as well as what OPEC is up to, a lot less attention is being paid to the demand side of the equation. Part of OPEC’s strategy, we must remember, is to ensure the world stays hooked on oil for the long haul. The cartel’s strategy of keeping prices low dovetails with that – low prices reduce the urgency to transition away from crude oil.

And their strategy is bearing fruit – demand is growing quickly. The IEA said in its May report that “global demand growth gained momentum in recent months.” That is certainly true in the US, where motorists are hitting the roads at levels not seen since before the financial crisis. Seduced by lower prices, gasoline consumption is at its highest level since 2007, after years of stagnation. Low gas prices are also giving a boost to SUV sales as drivers cast off their energy efficient ways at the first sign of weak prices.

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

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