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Tight Oil Markets Could Be About To See A ‘Violent’ Price Spike
Tight Oil Markets Could Be About To See A ‘Violent’ Price Spike
Supply disruptions in the Middle East on top of an already tight crude market could send oil prices violently upward, according to Rystad Energy.
Two Saudi Arabian oil tankers were reportedly attacked off the coast of the United Arab Emirates (UAE) this weekend, sending crude futures sharply up Monday morning.
Commenting on the incident, Bjørnar Tonhaugen, Head of Oil Market Research at Rystad Energy, says:
“In the short term, the perceived risk of supply disruptions from the area will only add to the premium of short-dated oil contracts compared to deferred contracts on the futures curve, which are already trading at a high premium.”
The tightness in prompt supplies is caused by declines in production from Iran and Venezuela, along with ongoing OPEC cuts, outages in Russia owing to the Urals contamination, maintenance in Kazakhstan, plus planned maintenance in the North Sea during the summer months.
“The oil market is reacting today not because the physical market suddenly has lost more oil supplies, but because of risks that the market may lose more oil in the coming weeks and months given the heightened risk of supply disruptions from the critical Persian Gulf region. Raising tensions even higher, news flows suggest the latest incident might be related to the conflict between Iran and the US, which puts the Strait of Hormuz in play,” Tonhaugen said.
The incident occurred near the Strait of Hormuz, the world’s most important oil artery. Around 40% of the world’s traded crude oil is transported through the waterway between Iran to the north and UAE/Oman to the south. Approximately 90% of Saudi Arabian crude exports and 75% of Iraqi exports pass through this shipping lane, in addition to all oil exports from Iran, Kuwait, Qatar and Bahrain.
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Climate Change Triggers Hysteria As Ireland Declares A ‘Climate Emergency’
Climate Change Triggers Hysteria As Ireland Declares A ‘Climate Emergency’
Ireland has declared a climate emergency, with Climate Action Minister Richard Bruton calling climate change the greatest challenge mankind is facing.
ITV quoted the minister as saying, “We’re reaching a tipping point in respect of climate deterioration. Things will deteriorate very rapidly unless we move very swiftly and the window of opportunity to do that is fast closing.”
The move, which followed cross-party support to amendments to a climate action report drafted by the country’s parliament, made Ireland the second country in the world to declare a climate emergency after the UK. In the latter, the declaration followed crippling environmentalist protests in London that paralyzed parts of the city.
In its wake, an independent, government-appointed Committee on Climate Change recommended to the government such measures as reducing the consumption of meat and dairy products, changing the way farms do business, and making electric cars the only cars that people can buy starting in 2035. By 2050, according to the panel, the country should be greenhouse gas emission-free.
It looks like climate emergency declarations could become a trend: hours after media reported the Irish parliament’s vote for an emergency, the New Zealand Vegan Society issued a call for the government to declare a climate emergency.
“New Zealand is woeful in its protection of the environment, with many rivers and waterways polluted, in part due to excess dairying in particular regions. It shows that we are simply not doing enough to protect our part of the world,” the call read.
“It is the next biggest inconvenient truth… eating animals is causing habitat loss, driving climate change and the 6th mass extinction wave. What can we do? The answer is simple: go vegan and plant trees!” said a Vegan Society Aotearoa New Zealand representative, Claire Insley.
…click on the above link to read the rest of the article…
Why Your Gasoline Won’t Take You As Far As it Used To
Why Your Gasoline Won’t Take You As Far As it Used To
Over the weekend, I saw a passing reference on Twitter to the declining energy content of gasoline. Intuitively I know this to be correct for reasons I discuss below. But the poster linked to data from the Energy Information Administration (EIA) that I hadn’t previously seen.
The EIA doesn’t directly tabulate the energy content of gasoline. But they do provide two pieces of data that let us calculate it ourselves from two relevant tables in the April 2019 Monthly Energy Review.
Table 3.5 provides Petroleum Products Supplied by Type in thousands of barrels per day, while Table 3.6 provides Heat Content of Petroleum Products Supplied by Type in trillion Btus per year.
From the annual numbers, doing the appropriate conversions (which includes accounting for leap years) provides the energy content of gasoline, in BTUs per gallon, since 1949. What we find is that the EIA reported a constant energy content of gasoline from 1949 to 1992 of 125,071 Btu/gallon. I have always typically used 125,000 Btu/gal as the standard value for gasoline.
(Click to enlarge)
The energy content of gasoline
Starting in 1993, the EIA shows the energy content start to decline. The decline accelerates in 2006. What happened then? I have seen two explanations floated.
I have heard some suggest that the shale oil boom in the U.S., which created an abundance of light oil, ultimately lowered the BTU value of gasoline. This is unlikely for a couple of reasons.
First, to change the energy content of gasoline you must change the composition. As I explained in a previous article, adding butane is a recipe change that takes place seasonally. It impacts the vapor pressure of the gasoline, but it also impacts the energy content. Butane has an energy content of 103,000 BTU/gal, so the more butane, the lower the energy content of the gasoline blend. This means that winter gasoline, which contains more butane, has a lower energy content.
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The Beginning Of The End For British Shale Gas
The Beginning Of The End For British Shale Gas
Amid the ruckus of Great Britain’s reckless Brexit saga, one might not have noticed the ongoing environmental battle that could put a sudden end to shale gas development in the UK. While Britain’s energy security does not have any direct links to Brexit – its hydrocarbon production went into decline in 2000 and has been falling ever since, although the mid-2010s evidenced a stabilization of output – the UK High Court decision over the nation’s shale gas projects might deal a painful blow to the little hope British producers had to kick-start something new. All 9 basins of the Greater North Sea are mature and it is only until 2025-2027 that the current output rebound can last, after that Britain’s oil output will plunge Venezuela-style unless additional measures are taken.
There is no scientific consensus on how much shale gas can be recovered across the United Kingdom. We might use the British Geological Survey’s 2013 report as a point of reference, which states that across central Britain (Bowland-Hodder shales) the aggregate shale gas reserves are somewhere within the 164-264-447 TCf interval (P90-P50-P10). Even if it were true, due to the rather difficult lithography of central Britain the actual recoverable volume would be substantially smaller. The USGS has put the total recoverable gas resources in the Midlands area of England at 8.3 TCf. The Weald Basin in southern Britain and Northern Ireland also has shale gas resources, but they are in a less advanced stage of development than shale finds in Lancashire or Nottinghamshire.
Partially motivated by the emotional drain of Brexit and the necessity to present itself as an employment creating party, the Conservative Party (seemingly) made great headway last year in advancing the cause of developing UK shale gas resources and creating the regulative norms required for it.
…click on the above link to read the rest of the article…
A New Mega Cartel Is Emerging In Oil Markets
A New Mega Cartel Is Emerging In Oil Markets
China and India—two of the world’s largest oil importers and the biggest demand growth centers globally—are close to setting up an oil buyers’ club to have a say in the pricing and sourcing of crude oil amid OPEC’s cuts and U.S. sanctions on Iran and Venezuela, Indian outlet livemint reports, citing three officials with knowledge of the talks.
This is not the first time that the two major oil importers are working to create such an oil club.
India and China have discussed creating an ‘oil buyers’ club’ to be able to negotiate better prices with oil exporting countries and will be looking to import more U.S. crude oil in order to reduce OPEC’s sway, both over the global oil market and over prices, India’s Petroleum Ministry said in June 2018.
“With oil producers’ cartel OPEC playing havoc with prices, India discussed with China the possibility of forming an ‘oil buyers club’ that can negotiate better terms with sellers as well as getting more US crude oil to cut dominance of the oil block,” a tweet from the Petroleum Ministry’s Twitter account said in the middle of last year, when oil prices were rising ahead of the return of the U.S. sanctions on Iran’s oil industry.
According to the officials cited by livemint, China and India have exchanged senior-level visits several times since then and have made progress on “joint sourcing of crude oil.” Related: Massive Drop In U.S. Oil Rig Count Fails To Arrest Price Slide
Reports of the strengthened Chinese-Indian cooperation in potentially forming an oil buyers’ club come just as the U.S. sanction waivers for all Iranian oil customers expire this week.
…click on the above link to read the rest of the article…
19 Historical Oil Disruptions, And How No.20 Will Shock Markets
19 Historical Oil Disruptions, And How No.20 Will Shock Markets
Albert Einstein once wrote that “the definition of insanity is doing the same thing over and over again and expecting different results.” Were he alive today, he would be repeating the line to anyone who would listen, especially the reporters on cable news channels such as CNBC. He might add that the world’s policymakers always approach oil market disruptions in the same way: predicting there will be no impact on prices.
Einstein would then point out that the policymakers are consistently wrong. A hefty price boost has followed every disruption.
The world has experienced nineteen oil market disruptions over the last forty years. In a paper published in March 2018, I chronicled these events and noted that the maximum price increase was predictable. Last Monday, Secretary of State Mike Pompeo initiated the twentieth disruption. The consequences are projected here.
Start, though, with the energy policy insanity. In each of the disruptions since 1973, I have noted the following regarding government officials.
State Department representatives always say something like “the US Department of State remains in contact with our partners to reduce the risk of supply disruptions. There is sufficient oil supply in the global markets that countries can access.”
OPEC officials always spout some version of “the oil market remains well-supplied, with the recent price driven by geopolitics, not fundamentals.”
Nothing has changed. Last week Reuters offered this quote from the State Department’s Brian Hook, the person running the Iran sanctions program:
“There’s roughly a million barrels per day (bpd) of Iranian crude (exports) left, and there is plenty of supply in the market to ease that transition and maintain stable prices,” said Brian Hook, U.S. Special Representative for Iran and Senior Policy Advisor to the Secretary of State, speaking in a call with reporters.
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Report: Big Oil Is Spending ‘’Too Much’’ On New Oil Production
Report: Big Oil Is Spending ‘’Too Much’’ On New Oil Production
Big Oil plans to spend nearly US$5 trillion in capital expenditure over the next decade, much of which would go into adding new production. Yet this money will also bring the world farther from the Paris Agreement climate targets, a report from energy industry-focused nonprofit Global Witness warns.
The organization analyzed a report compiled by the International Panel on Climate Change last year and then compared the data with the spending plans of the oil and gas industry. What it found was that investment in any new oil and gas field development was “incompatible with limiting warming to 1.5°C.”
This is the lower target set in the Paris Agreement for the rate at which the Earth warms. The higher and preferable target is 2°C, but it is the less realistically achievable one. The 1.5°C target, however, may be achieved if a lot of things change fast, the IPCC report concluded last year.
Yet Global Witness did not stop there. The organization also calculated that current oil production should be cut by 9 percent and gas production should be reduced by 6 percent if the 1.5°C goal is to be achieved. It also noted in its report that all of the energy industry’s US$4.9-trillion capex planned for the next ten years was “incompatible with limiting warming to 1.5°C.”
The argument runs as follows: if the world is to limit the rise in the average global temperature to 1.5°C, work must be done to reduce its reliance on oil and gas. If this work is successful, all these trillions Big Oil plans to spend on production expansion will be the worst spent money ever. If the work on limiting the rise of temperatures fails, the planet will continue heating up at unacceptably high rates with a slew of adverse consequences hitting mankind.
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Saudi Arabia Will Cap The Oil Price Rally
Saudi Arabia Will Cap The Oil Price Rally
The US said on Monday that it won’t extend the sanctions waivers for eight countries importing crude oil from Iran. The move could remove around 1.1 million barrels per day from the market.
Although Rystad Energy anticipated a further tightening of sanctions, the details in the announcement have led us to revise our forecast downward for Iranian crude production.
Rystad Energy forecasts that production will drop to 2.27 million bpd for the second half of 2019, reaching this level by July 2019, which equates to a drop of 0.43 million barrels per day (bpd) from current March 2019 levels.
The net effect for the oil market is bullish, as the market will lose more supply from Iran, mostly of medium-sour and heavy-sour quality.
“However, Saudi Arabia and several of its allies have more replacement barrels than what would be lost from Iranian exports in a worst case scenario. This should limit the positive impact on crude prices,” says Rystad Energy Head of Oil Market Research, Bjørnar Tonhaugen.
“Since October 2018, Saudi Arabia, Russia, the UAE, and Iraq have cut 1.3 million bpd, which is more than enough to compensate for the additional loss. However, realistic spare capacity will be cut significantly, reducing room for error in Libya, Nigeria, and Venezuela,” Tonhaugen added.
Rystad Energy says that Iranian crude exports have dropped from around 2.5 million bpd in April 2018 to around 1.1 million bpd currently.
“In our new base case, we no longer expect India to buy Iranian oil after May 2019, and now only expect China and Turkey to continue purchasing Iranian cargoes. We lower our Iranian crude exports estimate from 900,000 bpd to 600,000 bpd from May 2019 onwards, allocating around 500,000 bpd of exports to China and the remainder to Turkey,” Tonhaugen remarked.
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Saudi Oil Minister: We Won’t Ramp Up Oil Production Soon
Saudi Oil Minister: We Won’t Ramp Up Oil Production Soon
Saudi Arabia plans to stay within the limits of its ceiling under the OPEC+ production cut deal in May and will certainly not rush to ramp up production, although it would respond to customer needs if they want more oil, Saudi Energy Minister Khalid al-Falih said on Wednesday.
As the U.S. announced on Monday that it would be ending sanction waivers for all Iranian oil customers, the Trump Administration said that it “had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply.”
While the U.S. and President Trump appear certain that Saudi Arabia would compensate for Iranian losses, the Kingdom seems reluctant to start swiftly raising production before seeing actual figures for how much Iranian oil will actually be lost and how tight the market will be.
Saudi Arabia’s oil production in May is pretty much set and will differ “very little” from previous months, Reuters quoted al-Falih as saying in Riyadh today.
Last month, OPEC’s de facto leader and largest producer Saudi Arabia followed through its commitment from February to cut deeper and pump well below 10 million bpd in March. Saudi Arabia’s crude oil production dropped by a massive 324,000 bpd from February to stand at 9.794 million bpd in March—just as al-Falih had said the Kingdom would do. Saudi Arabia pumped around 9.8 million bpd in March, some 500,000 bpd below the 10.311-million-bpdcommitment in the OPEC+ deal.
Speaking today, al-Falih said, as carried by Reuters:
“Inventories are actually continuing to rise despite what is happening in Venezuela and despite the tightening of sanctions on Iran. I don’t see the need to do anything immediately.”
…click on the above link to read the rest of the article…
The U.S. Is Losing Influence In The World’s Biggest Oil Region
The U.S. Is Losing Influence In The World’s Biggest Oil Region
Egyptian President Abdul Fatah al-Sisi’s visit to the White House on April 9, 2019, resulted in one of the worst setbacks for U.S. Middle Eastern policy under the Donald Trump Administration.
What was supposed to be a fence-mending exercise between the two countries essentially ended many of the meaningful strategic aspects of the U.S.-Egyptian relationship, despite the fact that the public appearances between the two presidents appeared to be cordial. There have been significant areas of difference and frustration between Egypt and the US, even since the Trump Administration came to office, but there was at least a concerted effort on both sides to work harmoniously.
There has also been good personal chemistry between the two presidents since Trump ended what the Egyptians had regarded as a disastrous period under Barack Obama. President Sisi had essentially broken off strategic relations with the U.S. during the Obama Administration tenure in order to resist Obama’s insistence that the Muslim Brotherhood play a larger role in Egyptian politics.
The question now is who in the Washington bureaucracy will take the blame for pushing Trump to insist on actions by al-Sisi which any fundamental analysis of the situation points to being infeasible and against Egypt’s view of its own strategic interests.
That is not to say that Egypt wishes to end cordiality and cooperation between Washington and Cairo; it does not. But certain battle lines have been drawn in the greater Middle East, and Cairo and the U.S. are not altogether on the same side. Both sides will need to undertake significant, careful action to put relations back on a positive path before the break becomes calcified.
The failure on this occasion lay at the door of the U.S. for failing to realize that Washington now needs Egypt more than Egypt needs the U.S.
…click on the above link to read the rest of the article…
Decline In U.S. Oil Rigs Sends WTI Higher
Decline In U.S. Oil Rigs Sends WTI Higher
The the number of active oil and gas rigs fell in the United States this week according to Baker Hughes.
The total number of active oil and gas drilling rigs fell by 3 according to the report with the number of active oil rigs gaining 2 to reach 833 and the number of gas rigs falling 5 to reach 189.
The oil and gas rig count is now just 14 up from this time last year, with oil seeing just a 18-rig increase year on year, gas rigs down on the year by 3, and miscellaneous rigs seeing a 1-rig decrease for the year.
Oil prices were trading significantly up earlier on Friday leading up to the data release as bullish factors excited the market after a massive shakeup deal between Chevron and Exxon was announced, and on tightening supply signals from Libya, Algeria, and Venezuela.
WTI was trading up $0.60 (+0.94%) at $64.18—inching closer to $70 per barrel that some analysts predict would hurt demand. The Brent benchmark was trading up $0.67 (+0.95%) at $71.50 at 12:22pm EST, comfortably over the $70 threshold. Prices for both represent a significant gain week on week.
US crude oil production for week ending April 5 was 12.2 million barrels for the second week in a row.
Canada, too, saw a decline in the number of active rigs this week. Canada’s total oil and gas rig count fell by 2 after falling by 20 last week, and is now just 66, which is 36 fewer rigs than this time last year as Canada’s oil industry continues to face steep uphill battles over its constrained pipeline capacity that is necessary to get its heavy crude to market along with production caps instituted to keep Western Canadian Select prices from falling further.
By 1:06pm EDT, WTI was trading up 0.82% (+$0.52) at $64.10 on the day. Brent crude was trading up 0.99% (+$0.70) at $71.53 per barrel.
Sharp Rise In Rig Count Pressures Oil Prices
Sharp Rise In Rig Count Pressures Oil Prices
The the number of active oil and gas rigs rose by 19 after two weeks of big losses in the United States this week according to Baker Hughes, in a sign that US production is still set for increases.
The total number of active oil and gas drilling rigs rose by 20 rigs according to the report with the number of active oil rigs gaining 15 to reach 831 and the number of gas rigs gaining 4 to reach 194.
The oil and gas rig count is now just 22 up from this time last year, with oil seeing just a 23-rig increase year on year, gas rigs holding flat, and miscellaneous rigs seeing a 1-rig decrease for the year.
Oil prices were trading up earlier on Friday leading up to the data release as early figures came in for OPEC’s March oil production from S&P Platts, which showed that its oil production had fallen by 570,000 barrels per day from February levels as Venezuela and Saudi Arabia saw steep declines in production levels.
WTI was trading up $0.49 (+0.79%) at $62.59—well above the psychologically important $60 per barrel mark. The Brent benchmark was trading up $0.48 (+0.69%) at $69.88 at 12:18pm EST, after easing off the $70 per barrel mark earlier this week. Prices for both represent a significant gain week on week. Related: Is This The End Of Colorado’s Shale Boom?
Despite the drop off in the number of active rigs, US crude oil production for week ending March 29 was 12.2 million barrels—another new all-time high.
Unlike in the United States, Canada saw a decline in the number of active rigs this week.
…click on the above link to read the rest of the article…
Platts Survey: OPEC Oil Production Down To More Than 4-Year Low
Platts Survey: OPEC Oil Production Down To More Than 4-Year Low
Over-delivering Saudi Arabia and blackouts in Venezuela helped push OPEC’s crude oil production down by 570,000 bpd from February to 30.23 million bpd in March—the lowest production from the cartel in more than four years, according to the monthly S&P Global Platts survey published on Friday.
OPEC’s de facto leader and biggest producer, Saudi Arabia, saw its production drop in March to the lowest level since February 2017. The Saudis delivered on their promise to cut more than pledged in the pact and slashed output by another 280,000 bpd last month, with March production at 9.87 million bpd, according to the S&P Global Platts survey.
Venezuela, for its part, saw its production drop to a 16-year-low, at 740,000 bpd, due to the massive blackouts that crippled oil production and exports in March, the Platts survey found.
OPEC’s second-biggest producer Iraq cut its production by 100,000 bpd from February to 4.57 million bpd in March, according to the survey. This, however, was still slightly above Iraq’s 4.512 million bpd production cap under the deal.
After an initial plunge following the U.S. sanctions on its industry, Iran’s production has been holding relatively steady over the past couple of months, and the Islamic Republic pumped 2.69 million bpd in March, the Platts survey showed.
The resumption of operations at Libya’s biggest oil field, Sharara, pushed Libya’s production up to 1.06 million bpd in March, according to the survey.
Earlier this week, the monthly Reuters survey showed that OPEC’s oil production in March 2019 fell to its lowest level since February 2015, as Saudi Arabia cut more than it had pledged and Venezuela continued to struggle amid U.S. sanctions and a major blackout.
…click on the above link to read the rest of the article…
Is This The End Of Colorado’s Shale Boom?
Is This The End Of Colorado’s Shale Boom?
Colorado has hosted a surge in oil and gas production in the last few years, but the industry faces new challenges as the state overhauls its regulatory regime.
Much of the shale boom in Colorado has been concentrated in relatively dense suburbs north of Denver, which means, unlike the fracking frenzy in West Texas, drillers often bump up against homes, businesses and schools. That has led to an ongoing tension and fights between local communities and the shale industry.
Years ago, this battle was manifested in a handful of local bans on fracking. Those were tossed out by state courts. More recently, a 2018 public referendum on increasing setback distances – the minimum distance between a drilling operation and a local home or school – went down in defeat as the oil and gas industry showered the state with money in opposition the vote.
But the story didn’t end there. Although consumer advocates, environmental groups and local communities lost the vote on greater setback distances, the same November election resulted in wins in the legislature for Democrats.
The bluer legislature has moved quickly. Over the last few weeks, a landmark bill has been moving quickly through the Colorado House and Senate, which would vastly expand the authority that local communities have over drilling operations. They would have a larger say on permitting, zoning and setback distances. On Wednesday, the Senate passed the bill, sending it to the desk of Governor Jared Polis, who supports the measure.
A few of the biggest losers could be Anadarko Petroleum, which holds over 400,000 acres in Colorado, followed by Noble Energy, which has 350,000 acres, according to Bloomberg. Some of that acreage could become harder to develop if local cities or counties impose stricter zoning laws or greater setback distances that limit the ability to drill near population centers.
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Shale Is In A Deep State Of Flux
Shale Is In A Deep State Of Flux
Oil prices are rising to their highest level in months, with WTI having topped $60 per barrel, but the U.S. shale industry is still showing signs of strain.
“This is a cycle in our industry where only the large well-capitalized companies can grow. Small companies without access to capital are stagnant,” one oil executive in Texas said in response to a survey from the Dallas Federal Reserve. “It is a major industry readjustment period.”
The oil majors are scaling up their operations in the Permian basin, with ambitious plans to ratchet up output. ExxonMobil plans on hitting 1 million barrels per day (mb/d) by 2024 from the Permian, and Chevron hopes to reach 900,000 bpd. U.S. shale is more important than ever to their business plans.
But even as the role of shale is critical to the majors, small- and medium-sized E&Ps are struggling. Poor financial returns, loss of interest from investors, pressure to cut spending and return cash to shareholders, and encroachment from the majors are tightening the screws on smaller drillers. The “shrinkage in market capitalization of some companies is breathtaking. These loses translate into a loss of interest in further direct investments in the drilling of new oil and/or natural gas prospects,” another respondent said in the Dallas Fed survey.
A few other concerns seemed to dominate the thinking of Texas oil executives:
- “Qualified young professionals are avoiding joining the oil and gas industry.”
- “Pipeline constraints in the Permian Basin continue to cost us up to $20 per barrel and have a significant impact on capital expenditures. This cost changes month by month, making revenue estimation difficult.”
- “Smaller independents are competing with a different animal that is too expensive to tame. Deep pockets for manufacturing oil and gas have taken over the patch here.”
…click on the above link to read the rest of the article…
