Home » Posts tagged 'oil supply' (Page 5)
Tag Archives: oil supply
The Unthinkable Is Happening: Oil Storage Space Is About To Run Out
The Unthinkable Is Happening: Oil Storage Space Is About To Run Out
In the past three weeks, oil plunged and has continued to plunge even more in the aftermath of the oil price war declared between Saudi Arabia and Russia, and where US shale (and its junk bonds) has been caught in the crossfire. However, as we reported last week, we may get to the absurd point when the price of a barrel of oil not only hits $0 but goes negative.
The reason: according to Mizuho’s Paul Sankey, at a whopping 15MM b/d in oversupply, crude prices could go negative as Saudi and Russian barrels enter the market. According to Sankey, much of the US 4MM bpd in crude exports will be curtailed as prices fall and tanker rates soar. And with US storage roughly 50% full, and able to take another 135MM bbl more, assuming a build rate of 2MM b/d, the US can add 14MM bbl/week for 10 weeks until full.
As a result, there is a now race between filling storage and negative pricing “unless U.S. decline rates can outpace inventory builds, which we very much doubt.” Said otherwise, absent dramatic changes, in roughly 3 months, energy merchants will be paying you if you generously take a couple million barrels of crude off their hands.
It went from bad to an outright disaster earlier this week when Goldman, Vitol, and the IEA all raised their estimate for daily oil oversupply to an unthinkable 20 million barrels per day, as a result of the collapse in oil demand as the global economy grinds to a halt coupled with Saudi Arabia’s determination to put all of its higher-cost OPEC peers out of business.
…click on the above link to read the rest of the article…
What Happens If Oil Prices Go Negative?
What Happens If Oil Prices Go Negative?
Various reports hit the news feeds today quoting a deliberately headline-grabbing statement by Paul Sankey, managing director at Mizuho Securities, in which he is reported as saying, “Oil prices can go negative.” That is, they could as a combination of Saudi Arabia (and Russia) flooding the market with increased oil and the market running headlong into COVID-19-induced curtailment of activity that is suppressing consumption, which combined will create the perfect storm of excess supply.
In reality, inventory levels are already rising.
CNN quotes Sankey, who said global oil demand is only around 100 million barrels per day.
However, the economic fallout from the coronavirus pandemic could crash demand by up to 20 percent.
This would create a 20 million barrel-per-day surplus of oil in the market that would rapidly exceed storage capacity, forcing oil producers to pay customers to buy the commodity – hence, in effect, negative oil prices.
The American government plans to purchase a total of 77 million barrels of oil starting within weeks the article states, but according to Sankey, this can only be done at a rate of 2 million barrels per day, leaving a massive excess that will be looking for a home.
Brent oil prices have already fallen to the lowest level for 17 years. The consequences for the U.S. oil industry if a coronavirus-induced recession drives down demand could be catastrophic.
West Texas Intermediate crude (WTI) collapsed by a staggering 19.2 percent to $22 while the Mexican Basket is down 22.4 percent.
For a short while, hedges will protect producers and they will continue to pump oil. While that will protect producers for a while, it encourages counter-cyclical practices; producers should be cutting back but instead will probably continue to pump and ship into store.
…click on the above link to read the rest of the article…
The Great American Shale-Oil Bust Turns into Massacre
The Great American Shale-Oil Bust Turns into Massacre
Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.
It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out a statement that it would have to delay its monthly Energy Outlook to figure in all the chaos: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”
Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:
Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.
Today, there are only two trades listed on FINRA-Morningstar, but they were big trades, with institutional investors unloading them for whatever they could get. So the price today collapsed by 34% from the close on Friday, and by 39% over the past three trading days, to 61 cents on the dollar:
Shares of Chesapeake Energy, a former shale oil-and-gas giant, particularly focused on natural gas, plunged 28% today, from nearly nothing to almost nothing, closing at $0.16. The company has been dilly-dallying around near the bankruptcy-filing counter for years, without having filed yet, as investors continued to feed it fresh cash and agreed to haircuts and restructure its debts. But that fresh-cash option appears to be off the table.
…click on the above link to read the rest of the article…
Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices
Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices
With the commodity world still smarting from the Nov 2014 Saudi decision to (temporarily) break apart OPEC, and flood the market with oil in (failed) hopes of crushing US shale producers (who survived thanks to generous banks extending loan terms and even more generous buyers of junk bonds), which nonetheless resulted in a painful manufacturing recession as the price of Brent cratered as low as the mid-$20’s in late 2015/early 2016, on Saturday, Saudi Arabia launched its second scorched earth, or rather scorched oil campaign in 6 years. And this time there will be blood.
Following Friday’s shocking collapse of OPEC+, when Russia and Riyadh were unable to reach an agreement during the OPEC+ summit in Vienna which was seeking up to 1.5 million b/d in further oil production cuts, on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.
In the first major marketing decision since the meeting, the Saudi state producer Aramco, which successfully IPOed just before the price of oil cratered…
… launched unprecedented discounts and cut its April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by a whopping $7 a barrel in attempts to steal market share from 3rd party sources, according to a copy of the announcement seen by Bloomberg. In the most significant move, Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark.
…click on the above link to read the rest of the article…
OPEC Slashes Oil Demand Forecast On Coronavirus Crunch
OPEC Slashes Oil Demand Forecast On Coronavirus Crunch
Perhaps buoyed by speculation that oil demand in China is set to plunge as much as 20% if not more on the coronavirus “demand shock”, on Tuesday OPEC slashed it forecast for global oil demand by almost a quarter million barrels per day as the coronavirus pandemic cripples fuel use in China, leaving the cartel facing a renewed glut despite its recent production cuts.
The cartel reduced projections for demand growth in the first quarter by 440,000 barrels a day, or about a third, in its monthly report, and 230,000 for the full year, one day after oil prices sank to a one-year low on Monday as the infection has idled thousand of businesses and left millions quarantined in the world’s biggest crude importer.
The plunge in oil prices has sparked a push by OPEC’s top exporter, Saudi Arabia, to push for an emergency meeting and consider new output cutbacks, following a recent Vienna meeting that ended without a consensus after Russia – the biggest non-OPEC producer – refused to comply with further cuts as it is able to weather lower prices more easily.
Ominously for Riyadh, the latest OPEC report showed that, even though many OPEC members made a strong start with fresh output curbs that took effect last month, the overhang from the virus will leave them with an even greater surplus. The group collectively pumped 28.86 million barrels a day in January, down 509,000 on the month, and if it maintains that rate there will be a surplus of 570,000 barrels a day during the second quarter, when consumption slows down seasonally.
…click on the above link to read the rest of the article…
OPEC+ Committee Fails To Agree On Proposed Production Cuts
OPEC+ Committee Fails To Agree On Proposed Production Cuts
Oil futures remain in a bear market following the collapse in oil demand from China amid two-thirds of its economy shutdown following the coronavirus outbreak.
This forced the OPEC+ technical committee to meet in Vienna, Austria, for a third day this week, to discuss the importance of slashing oil output by at least 500,000 barrels per day (bpd), reported Reuters.
The Joint Technical Committee (JTC) is an advising body of OPEC and Russia, known as OPEC+.
As of Thursday, there’s no firm decision by the technical committee to cut oil production. This is because Russia has opposed to cuts and said it would be willing to agree on an extension of current cuts.
Ransquawk reports that the meeting has officially ended without a planned resolution of production cuts.
The technical committee meeting comes ahead of a planned OPEC+ conference on March 5-6.
OPEC+ has already agreed in December to remove 1.7 million bpd from markets in response to a slowing global economy. Now the deadly virus outbreak has created a “shock” in the global economy as China’s economy grinds to a halt. The country is the largest importer of crude in the world, suggesting that demand has collapsed, and oil prices will plunge deeper if supply isn’t curbed.
Russian Energy Minister Alexander Novak said on Tuesday that he wasn’t sure if it was time to tighten output further.
BP CFO Brian Gilvary warned Tuesday that the virus outbreak has reduced 2020 global demand growth by 300,000-500,000 bpd, or about 0.5%.
…click on the above link to read the rest of the article…
Global oil discoveries far from breaking even with consumption
Global oil discoveries far from breaking even with consumption
Preface. According to Bloomberg (2016), oil discoveries in 2015 were the lowest since 1947, with just 2.7 billion barrels of conventional oil found globally (though Rystad calculated this differently at 5.6, nearly twice as much). Since the world burns 36.5 billion barrels of oil a year in 2019, we’re not even close to breaking even.
Rystad Energy (2019) in “Global discoveries on the rise as majors take a bigger bite” estimates barrels of oil equivalent, which includes both conventional oil and gas. Since oil is the master resource that makes gas, transportation, and all other goods and activities possible, I’ve taken the second number as the percent of oil in the BOE to come up with how much conventional oil was found. It falls way short of the 36.5 billion barrels we’re consuming. The pantry is emptying out, perhaps pushing the peak oil date forward in time as we continue to grow at 1% a year in oil consumption and put nothing at all back on the shelves. Peak Demand? Ha! Not until we’re forced to cut back from oil shortages.
2013 50:50 17.4 billion BOE 8.7 billion BOE oil shortfall: 27.8 billion BOE
2014 54:46 16.0 billion BOE 7.4 billion BOE oil shortfall: 29.1 billion BOE
2015 61:39 14.4 billion BOE 5.6 billion BOE oil shortfall: 30.9 billion BOE
2016 57:43 8.4 billion BOE 3.6 billion BOE oil shortfall: 32.9 billion BOE
2017 40:60 10.3 billion BOE 6.2 billion BOE oil shortfall: 30.3 billion BOE
2018 46:54 9.1 billion BOE 4.9 billion BOE oil shortfall: 31.6 billion BOE
This doesn’t include fracked oil, but the IEA expects that to peak somewhere from now to 2023.
What it means is enjoy life while it’s still good, and stock your pantry while you’re at it.
***
Mikael, H. August 29, 2016. Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead. Bloomberg.
…click on the above link to read the rest of the article…
IEA Sees $90 Crude Ahead Of Oil’s Downfall
IEA Sees $90 Crude Ahead Of Oil’s Downfall
Global oil demand will plateau around 2030, according to a major new report, but the decline in demand is way too slow to head off the worsening effects of climate change.
Oil demand begins to flatten out in the 2030s “under pressure from rising fuel efficiency and the electrification of mobility,” The International Energy Agency (IEA) said in its widely-anticipated annual World Energy Outlook.
However, the agency does not see a peak in CO2 emissions through 2040, even in a scenario that incorporates some intended policy targets. The IEA says that an expanding economy and growing global population outweigh efforts to cut emissions. Reducing emissions will require “significantly more ambitious policy.”
“The dissonance between the rising trend for CO2 and the commitment of countries to reach an early peak in emissions was especially striking in the light of the latest scientific findings from the Intergovernmental Panel on Climate Change,” the IEA said, referring to the rather dire conclusions from the IPCC report in 2018, which found that the world is running out of time to make deep and far-reaching cuts to emissions.
As Reuters reports, some groups criticize the IEA for consistently predicting strong oil demand growth. “The IEA is effectively creating its own reality. They project ever-increasing demand for fossil fuels, which in turn justifies greater investments in supply, making it harder for the energy system to change,” Andrew Logan, senior director of oil and gas at Ceres, told Reuters.
With that said, renewable energy is growing fast and taking a growing slice of all new investment. The IEA sees solar becoming the single largest source of installed electricity capacity by 2040, surpassing coal in the 2030s.
…click on the above link to read the rest of the article…
OPEC Braces For Drastic Drop In Oil Demand
OPEC Braces For Drastic Drop In Oil Demand
OPEC admitted that demand for its oil over the next few years could be drastically weaker than it previously thought, due to a combination of a weakening economy, rising supply elsewhere, and pressure from climate activists.
In its World Oil Outlook, OPEC said that demand for its oil may only reach 32.8 million barrels per day (mb/d) by 2024, a figure that is substantially lower than the 35 mb/d from last year’s estimate. Demand is still expected to grow in non-OECD countries going forward, but OPEC admitted that demand may peak in the OECD in 2020.
Slower economic growth also factored into the lower medium- and long-term estimates. “Given recent signs of stress in the global economy, and the outlook for global growth, at least in the short- and medium-term, the outlook for global oil demand has been lowered slightly this year to 110.6 mb/d by 2040,” OPEC’s Secretary-General Mohammad Barkindo said in the report.
OPEC said that non-OPEC production continues to rise, particularly from U.S. shale, although not exclusively. The cartel has had to restrain production for several years to keep prices from crashing, even in the face of relentless shale growth. U.S. shale is growing, but is now slowing dramatically. At the same time, countries such as Norway, Brazil, Canada and Guyana are expected to continue to add supplies in the next few years. Steady supply increases puts OPEC in a bind.
Meanwhile, the attention paid to the risks of demand destruction in the OPEC report is notable. The phrase “climate change” appears nearly 50 times in the report and the cartel acknowledged that electric vehicles are “gaining momentum.”
…click on the above link to read the rest of the article…
IEA: An Oil Glut Is Looming
IEA: An Oil Glut Is Looming
If global oil demand growth continues to languish with uncertainties around the global economy and Brexit, the oil market will likely have to cope with another oversupply next year, according to the International Energy Agency (IEA).
“Unless other things change, we will see a surplus probably, unless there is very strong demand growth recovery,” Keisuke Sadamori, the IEA’s Director for Energy Markets and Security, told CNBC on the sidelines of an energy event in Singapore on Tuesday.
“Overall, we will continue to see a well supplied market in 2020,” Sadamori said, echoing the IEA’s monthly oil report from earlier in October, which painted a rather gloomy pictureof oil demand growth in the short term.
In the report earlier this month, the IEA cut its demand growth forecast by 100,000 bpd for both 2019 and 2020, to 1 million bpd and 1.2 million bpd, respectively. For the second quarter of this year, the IEA expects oil demand growth to quicken to 1.6 million bpd, thanks to a lower base for comparison in the same period of 2018 and to oil prices that are currently some 30 percent lower compared to a year ago.
Other organizations, as well as analysts, have been also revising down their oil demand growth estimates for this year and next, citing increased uncertainties over the pace of the global economic growth amid the U.S.-China trade war, Brexit, and slowing growth in major economies including China, India, and Germany, for example.
Against this background, the market attention turns again on OPEC and its non-OPEC allies led by Russia, who need to decide in early December how to proceed with their production cut pact expiring in March 2020. There is a growing consensus among experts and observers that the OPEC+ coalition may need to cut even deeper if it wants to prevent a large oversupply building in 2020 and sending oil prices even more uncomfortably low for major oil-producing nations.
…click on the above link to read the rest of the article…
Oil Discoveries Hit 70-Year Low
Oil Discoveries Hit 70-Year Low
The last three years has been the worst stretch of time in seventy years for new conventional oil discoveries.
A new report from IHS Markit finds that conventional oil discoveries plunged to a seven-decade low and “a significant rebound is not expected.” Conventional exploration – as opposed to unconventional development, including shale – had already been trending down following the 2008 global financial crisis and its aftermath, which overlapped with the rise of horizontal drilling and hydraulic fracturing in several U.S. shale basins.
But the collapse of oil prices in 2014 really knocked conventional exploration – and thus, discoveries – on its back.
After OPEC refrained from cutting production in the face of a swelling supply surplus in late 2014, prices fell sharply…and continued to fall for much of the next year and a half. WTI bottomed out in early 2016 below $30 per barrel, before a pullback in drilling and production cuts by OPEC+ led to a more durable price rebound beginning in 2017.
But the multi-year downturn hit conventional exploration in multiple ways. Not only were companies slashing spending and cancelling riskier ventures, but the oil majors and investors began to view short-cycle shale drilling as inherently less risky. That was because drilling was quick – companies were able to turn projects around in a matter of weeks or months, not the years that large-scale conventional projects took, particularly those offshore in deepwater. Capital flowed en masse from conventional to unconventional development.
Predictably, that led to a steep rise in U.S. shale output, while simultaneously leading to a sharp contraction in conventional discoveries. “One of the main drivers here is the shift of investment by US independents from international exploration to shale opportunities in the United States—shorter cycle-time projects—with greater flexibility to respond to changing market conditions,” Keith King, senior advisor at IHS Markit and author of the report, said in a statement.
…click on the above link to read the rest of the article…
Why An OPEC Oil Supply Surge Won’t Happen
Why An OPEC Oil Supply Surge Won’t Happen
The end of the Iranian sanction waivers by the Trump Administration has put oil traders on edge.
While most analysts are optimistic about OPEC leader Saudi Arabia being able to fill the gap left by lower Iranian oil exports, reality could be totally different. Looking at the ongoing discussions between OPEC’s two key members, Saudi Arabia and the UAE, there are no real signs that the Kingdom of Oil will be willing to increase its overall oil production to keep prices at the pump low in oil importing nations.
The real crux at present is what the market will do when, on the 2nd of May, the Iran sanction waivers end. History has shown that oil importers are very well equipped to take mitigating measures to counter the effects of the Iran sanctions. Saudi Arabia, and others, will have to be very careful to stabilize the market without falling into a Trumpian trap, which could result in an oversupply situation in the short term.
At present, all signs point to higher oil prices. If no real additional oil is brought onto the market, shortages will become visible within months. Statements made by U.S. president Trump and U.S. Secretary of State Mike Pompeo that Saudi Arabia and the UAE will add supplies to counter the loss of Iranian volumes are currently only wishful thinking, and not based on any hard promises from Riyadh or Abu Dhabi.
OPEC’s leaders are in a powerful position to react to Trump’s calls for additional volumes and lower prices as they wish. Washington’s strategy may well have backfired, as U.S. shale will not be able to supply the markets with the necessary crude grades. At the same time, national oil companies are willing to take a backseat, as long as OPEC+ production cuts are in place.
…click on the above link to read the rest of the article…
Smart Money Is Piling Into Oil
Smart Money Is Piling Into Oil
Oil prices jumped to five-month highs this week, pushed higher by a bullish cocktail of supply outages, geopolitical unrest and a sputtering shale sector.
The most recent factor is the sudden eruption of the long simmering feud in Libya between rival factions. The attack on Tripoli by the Libyan National Army (LNA), a militia led by Khalifa Haftar, led to a spike in oil prices on Monday as the market priced in the possibility of supply outages.
One oil export terminal near Tripoli is the most obvious asset at risk. “If this port were to be shut down due to the fighting, this could see a delivery outage of up to 300,000 barrels per day,” Commerzbank said in a note on Tuesday. “The oil market is already undersupplied, so if supply from Libya also falls away the supply deficit will become even bigger.” Brent jumped to $71 and WTI to $64 on the news, the highest level in five months.
Intriguingly, speculators have only recently turned bullish on crude oil in terms of their positions in the futures market. “Indeed, our money-manager positioning index implies that speculative funds only moved from neutral to positive on oil in the latest week,” Standard Chartered wrote in a report on April 9. The investment bank argued that major investors only began to properly factor in geopolitical risk in the last few days, having overlooked risk for much of this year. Standard Chartered analysts said that the “supply security” of Libyan oil is “low,” and that output could decline in both the short and medium term.
…click on the above link to read the rest of the article…
IEA 2018 World Energy Outlook: Peak oil is here, oil crunch by 2023
IEA 2018 World Energy Outlook: Peak oil is here, oil crunch by 2023
Preface. I’ve been working on a post about the latest IEA 2018 World Energy Outlook report, but the excerpts from the cleantechnica article below states most clearly why there is likely to be a supply crunch as soon as the early 2020s and the investment implications.
Meanwhile, here’s what I’ve gleaned from other summaries of the report.
Although many hope that oil companies will drill for oil when prices go up and close the supply gap looming within the next few years, very little oil has been found to drill for for several years now. The IEA 2018 report also says that shale oil will not rescue us, and likely to peak in the mid-2020s.
Oil companies do have money, but they haven’t been drilling because there’s no cheap oil to be found, so instead they’ve been spending their money buying their shares back.
From crashoil.blogspot.com: World Energy Outlook 2018: Someone shouted “peak oil”
This excerpt is in Spanish translated to English by google. It shows a civilization crashing 8% decline rate that the IEA hopes will be brought to an also civilization crashing 4% rate with new oil drilling projects.
“How is this alarming graph interpreted? According to the text, the red is what they call “natural decline” and corresponds to how oil production would decrease if the companies did not even invest in maintaining the current wells; As explained in the report, it is 8% per year. The pink area corresponds to the “observed decline” and is what the IEA inferred how production will actually decline if companies invest what is needed for the correct maintenance of the current deposits. This decline corresponds to 4% per year.
…click on the above link to read the rest of the article…
