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Rig Count Data Shows Gulf States Cranking Up Pressure On The U.S.
Rig Count Data Shows Gulf States Cranking Up Pressure On The U.S.
The global rig count statistics published by Baker Hughes provide a crucial industry activity indicator and some of the most up to date industry statistics available. This is a short report updating international statistics to March 2015 and US statistics to 10 April 2015.
Figure 1 The Middle East OPEC gulf states continue to confound expectations by increasing their rig count and drilling, evidently intent on keeping the oil market over-supplied and the oil price suppressed. Oil rig count for these 4 countries increased 6 to 161 for the month of March. Saudi oil production hit a new record of 10.3 Mbpd in March. Oil Minister Ali Al-Naimi wants price stability and order to return to the market but on OPEC’s terms.
Related: Could We Finally Have A Meaningful Oil Price Rally?
Figure 2 The international oil rig count peaked at 1080 in July 2014 and has since fallen 104 (10%) to 976 units in March 2015. This is as yet a very muted response to what is a full blown industry crisis. It does take longer for offshore drilling to wind down and it is possible that companies with rigs on contract have simply parked them for the time being.
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Top 12 Media Myths On Oil Prices
Top 12 Media Myths On Oil Prices
The upstream oil and gas industry is not a black hole. There’s no mystery wrapped in an enigma here.
There are a lot of meetings with engineers, chemists and geologists. There’s a constantly evolving learning curve. And then there’s all the regulations and compliance. But all-in-all it’s pretty straight forward, that is, until the media gets a hold of it. That’s when it becomes complicated. It’s as though we are getting reports from the mysteries of the deep ocean or life in the great galaxies beyond. There is so much hyperbole and unsupported guesswork that investors don’t have a chance. So, in a small effort to set the record straight, let’s see if we can’t dispel some of the misinformation.
Misperception #1: Goldman Sachs knows what is going on. This is incorrect. Goldman Sachs should not be quoted extensively. They are notoriously wrong when forecasting tops and bottoms. What they are good at is jumping on the band wagon and stoking fires. Their forecasting always seems to be done through a rear view mirror and their calls for peaks and troughs are always overdone. Back in July 2014 when WTI was peaking, they were calling for more, even as the dollar was showing signs of strength (and we know what happened there) and as oil inventories were beginning to wash up over our ankles. And then when we are forming a bottom in January and retesting it in March, they were calling for a deeper bottom. And then there was 2008. Remember the calls for $150 and $200 oil from Goldman and Morgan Stanley? That was right before we went to $40 and then some. (To be fair, Ed Morse from Citi called the top but he overshot the bottom. We’re not going into the 20s).
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Kiev, Moscow, Bonds and Haircuts
Kiev, Moscow, Bonds and Haircuts
When money managers talk outside their narrow field, nonsense is guaranteed to ensue. No better example than this Bloomberg piece on Ukraine’s ‘debt restructuring’ plans, which are as much a political tool as they are anything else at all. Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved.
And despite all obvious angles to the issue that are not purely economical, Bloomberg presents a whole array of finance professionals who are free to spout their entirely irrelevant opinions on the topic. If you didn’t know any better, you’d be inclined to think that perhaps Russia is indeed just another creditor to Kiev.
Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin
As Ukraine begins bond-restructuring talks, it finds itself face-to-face with a familiar foe: Russia. President Vladimir Putin bought $3 billion of Ukrainian bonds in late 2013. The cash was meant to support an ally, then-President Yanukovych.
That is, for starters, a far too narrow way of putting it. Russia simply wanted to make sure Ukraine would remain a stable nation, both politically and economically, because A) it didn’t want a failed state on its borders and B) it wanted to ensure a smooth transfer of its gas sales to Europe through the Ukraine pipeline systems. Whether that would be achieved through Yanukovych or someone else was a secondary issue. Putin was never a big fan of the former president, but at least he kept the gas flowing.
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Ukraine Playing Hardball With Gazprom In New Gas Deal
Ukraine Playing Hardball With Gazprom In New Gas Deal
Ukraine plans to suspend its gas purchases from Russia on April 1, the day after the current contract expires, in an effort to strengthen Kiev’s bargaining position as the two countries negotiate a new deal that could lower the price of the fuel.
Ukraine has been shifting its reliance on gas from Russia to Europe, in large part because of growing tensions between the two countries that have previously led to interruptions in the flow of gas through a Ukrainian pipeline that also serves Western Europe.
Europe has been buying about half of its gas from Russia, and about 30 percent of its flows through Ukraine. Moscow has interrupted that flow three times in the past decade because of pricing disputes with Ukraine. Both Europe and Ukraine hope to end most or all Russian gas shipments by shifting to alternate sources of energy.
Related: Natural Gas Prices To Crash Unless Rig Count Falls Fast
Ukraine believes gas it buys under the current contract with Russia’s state-owned Gazprom is too expensive and has been negotiating with Russia for a lower price for the fuel as well as higher transit fees for Russian gas to European customers.
The expiration of the current contract also coincides with the end of winter, when Ukraine needs to buy less gas for heating.
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Saudi Exec Expects $1 Trillion Drop In Energy Investments
Saudi Exec Expects $1 Trillion Drop In Energy Investments
A high-ranking Saudi Aramco executive says the plunge in energy prices already has caused many in the industry to cut spending on oil and gas projects, and the trend probably will continue for a few years, perhaps reaching a cut of $1 trillion in investments.
“Challenges during down cycles are more complicated today than before,” Amin Nasser, a senior vice president for exploration and development at Saudi Aramco,told the Middle East Oil and Gas Show on March 9 in Manama, Bahrain.
“At this moment the global industry is poised to potentially cancel about $1 trillion in capital funding,” Nasser said.
Later Nasser told reporters on the sidelines of the conference that the $1 trillion amount included initiatives that might be delayed, not merely those that would be canceled altogether. “What we’ve heard from the industry is that there is $1 trillion of planned projects that will be dropped or deferred over the next couple of years because of what’s happening,” he said, without identifying his source.
Related: OPEC Boasts About Pain In U.S. Shale
The price of oil has plunged since late June from around $115 per barrel to around $60 today because of an oversupply caused by increased US production of shale oil and weaker demand for oil, especially in China and Europe.
This has eaten into the profits of both big and small energy companies, leading them to cut costs in many ways, including employee layoffs. But the largest hits are being felt in capital expenditures in companies ranging from Exxon Mobil Corp. of the United States, Norway’s Statoil and Britain’s BP.
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Rig Count Decline Re-Accelerates To 2nd Biggest Drop In 22 Years
Rig Count Decline Re-Accelerates To 2nd Biggest Drop In 22 Years
Following last week’s slowing in the pace of rig count, crude prices dropped and then spiked, and it makes today’s data under more scrutiny. At around $49.50, WTI prices have round-tripped back almost perfectly to the scene of the crime before today’s rig count data hit. The total oil rig count dropped almost 6%, down 75 to 1,192 meaning a re-acceleration of the rig count decline and the 2nd biggest drop since 1993.
- *U.S. TOTAL RIG COUNT -75 To 1,192 , BAKER HUGHES SAYS
- *U.S. OIL RIG COUNT -64 TO 922, BAKER HUGHES SAYS
2nd biggest rig count decline since 1993
Total rig count has now dropped 38% in the last 13 weeks – just shy of the move in 2009…
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Some Toronto area gas stations run out of fuel
Extreme weather blamed, but some analysts say Canada lacks refinery capacity
Motorists are pulling up at some Toronto-area gas stations to find that the pumps are dry.
The oil companies that supply fuel in the area have said it’s a temporary situation, caused by extreme winter weather and a power outage.
But Natural Resources Canada says southern Ontario and other parts of Canada may face frequent gasoline shortages in the future, as nearby refineries are already operating at capacity.
Without new refining capacity “supply interruptions could become more frequent and increasingly difficult to manage,” the government agency says in an online report.
Canadians increased their consumption of gasoline by two per cent or 800 million litres in the first nine months of 2014, to 38 billion litres.
“Petroleum companies are suggesting this is logistics. I sense there’s product issue somewhere as the weather is not likely to have contributed to this shortfall, which covers the entire Golden Horseshoe,” said Dan McTeague, with GasBuddy.ca, which tracks the price of gasoline.
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Stranded Assets in Oil and Gas a Reality
Stranded Assets in Oil and Gas a Reality
Just a few short years ago a friend called me to chat about the possibility of stranded assets in oil and gas due to climate change and the expected legislation and new regulations that would entail. This was an interesting idea coming out of the UK at the time. Since then, the idea has gained more and more traction. What is starting to emerge, however, is that stranded assets in oil and gas are not going to happen merely because of climate change. It is happening as we speak because a number of potentially disrupting events are all converging on one point: our use of hydrocarbons. Some of the challenges are due to climate and some are not. What is clear, however, is that they are multiplying. Though climate change will no doubt prove to be one aspect of stranded assets, others will include a simple but powerful realization that there are simply better places to put your investment dollars…or euros…or yuan.
So what are these potentially disrupting events? Let’s start with just one.
We’ve all heard of the compound effect and how it can beneficially impact our investments. What we don’t hear as much is what it can do detrimentally as well. Because the compound effect doesn’t just work on investments. It also works on every aspect of your life. If you choose to add desserts to a couple of meals a week when you never ate dessert before, chances are that you will gain weight. It won’t seem a big deal at first. You won’t even notice it but then one day you will wake up and “somehow” you’ve gained five pounds. Something similar is happening with the alternative energies of wind and solar. While most of us were not paying attention, they were quietly adding capacity to the grid. While we were incessantly fixated on the “shale revolution” they were streamlining manufacturing processes and the costs were plunging.
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“Default Monday”: Oil & Gas Companies Face Their Creditors
“Default Monday”: Oil & Gas Companies Face Their Creditors
Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook.
And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps.
Early January, WBH Energy, a fracking outfit in Texas, kicked off the series by filing forbankruptcy protection. It listed assets and liabilities of $10 million to $50 million. Small fry.
A week later, GASFRAC filed for bankruptcy in Alberta, where it’s based, and in Texas – under Chapter 15 for cross-border bankruptcies. Not long ago, it was a highly touted IPO, whose “waterless fracking” technology would change a parched world. Instead of water, the system pumps liquid propane gel (similar to Napalm) into the ground; much of it can be recaptured, in theory.
Ironically, it went bankrupt for other reasons: operating losses, “reduced industry activity,” the inability to find a buyer that would have paid enough to bail out its creditors, and “limited access to capital markets.” The endless source of money without which fracking doesn’t work had dried up.
WAR & PETROLEUM RESERVES
WAR & PETROLEUM RESERVES
In the interest of analytical balance, we would do well to consider the possibility of war strategies when it comes to the global stockpiling of petroleum reserves. In the years leading up to the German invasion of Poland, the world witnessed dramatic decreases in the price of oil as well as massive increases in petroleum inventories, especially as the Texas fields began to produce.
These shifts in the global oil markets ran parallel to the deflation which had begun in October, 1929, and as such, we can see the same pattern repeating today as oil prices collapse, inventories are growing, and world wide deflation is deepening.
The United States and China are both increasing their Global Strategic Petroleum Reserves, with stockpiling taking place in Cushing, Oklahoma, and in provinces throughout China. The promoted script is that America is seeking energy independence and China is taking advantage of low oil prices to increase stockpiles, as they are an energy importer.
But other countries around the world are stockpiling oil and petroleum products as well, from the construction of massive storage tanks in Nigeria, to hundreds of oil tanker ships full of crude floating of coastlines. Crude and petroleum product stockpiles are increasing to record levels.
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Christophe McGlade on who gets left with the unburnable carbon
Christophe McGlade on who gets left with the unburnable carbon
Christophe McGlade is a research associate in energy materials modelling at the UCL Institute for Sustainable Resources. He recently co-authored, with Paul Ekins, a paper called “The geographical distribution of fossil fuels unused when limiting global warming to 2°C”, a paper whose stark call to leave the substantial majority of fossil fuels in the ground generated a lot of media coverage in recent weeks (see for example here and here). I started by asking him to give an overview of the paper and of its key findings:
“The paper is looking at the optimal use of fossil fuels if we want to have a good chance of staying below the agreed 2°C threshold. Within that, it breaks down the amount of oil, gas and coal reserves that are used and aren’t used at a regional level, so it points out or suggests the countries that would have to sacrifice a large proportion of their fossil fuel reserves if we want to have a good chance of 2°. The headline findings on a global level are that around 80% of coal reserves, 50% of gas and one third of oil reserves need to remain unburnt if we are to have this chance of 2°C.
How the Guardian graphically summarised the findings of Ekins and McGlade’s paper.
How has the paper been received since it came out?
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Cheap petrol prices behind us, modest rises predicted to continue: economist
Cheap petrol prices behind us, modest rises predicted to continue: economist
Motorists may have seen the last of cheap fuel, with the price of petrol rising for the first time in 10 weeks.
The Australian Institute of Petroleum said the national average petrol price rose four cents per litre last week to 112.6 cents.
The cost to fill up increased even more in the capital cities, rising by as much as 20 cents a litre late last week.
Before the rise petrol had been selling at its lowest price in six years.
CommSec economist Savanth Sebastian said the increase was triggered by a rise in global oil prices as well as the resumption of the discounting cycle.
“The discounting cycle has been essentially non-existent since late last year when fuel prices were sliding,” he said.
“But now we’ve actually seen in the past week that the discounting cycle is back in full force.
Average unleaded prices in past week
- Sydney 110.6 (up 8.9 cents)
- Melbourne 107.2 (up 4.6 cents)
- Brisbane 110.6 (up 7.5 cents)
- Adelaide 109.2 (up 9.3 cents)
- Perth 112.1 (up 1.8 cents)
- Darwin 128.4 (down 0.7 cents)
- Canberra 117.3 (down 0.3 cents)
- Hobart 123.0 (down 0.4 cents)
“What that means is we’ve seen in the past few days a huge lift in fuel prices across the capital cities.”
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Oil Majors’ Profits Take A Beating
Oil Majors’ Profits Take A Beating
The first quarterly earnings reports since the collapse of oil prices are in and the numbers show a significant deterioration in profits for the oil majors.
Royal Dutch Shell went first on January 29, revealing a big jump from the same quarter a year ago, but down from the third quarter of 2014. In fact, Shell announced that it would cut $15 billion in spending over the next few years, an about-face from just a few months ago when it stated that it would leave capital expenditures unchanged in 2015. Shell’s CEO, concerned about the poor state of oil and gas markets, said that it may even consider withdrawing itself from significant assets held around the world, retrenching and focusing on North America.
On the same day, ConocoPhillips also reported gloomy numbers. It plans onslashing 2015 spending by an additional 15 percent, which comes after a December announcement of a 20 percent cut in expenditures for the year.
Related: Schlumberger To Retake Oil Services Crown With New Deal
Chevron followed that up on January 30, posting its worst showing in five years. The $3.5 billion in earnings for the fourth quarter of 2014 was 30 percent lower than from the previous year. The California-based oil major says that it will trim spending by 13 percent.
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Russia And China’s Growing Energy Relationship
Russia And China’s Growing Energy Relationship
Russia’s economic freefall and isolation from the West has made it increasingly eager to build its relationship with China, even at the cost of lost leverage with Beijing.
But new economic data from China shows that Russia has succeeded in capturing a larger share of the massive – and growing – Chinese oil import market. China’s imports of Russian oil skyrocketed by 36 percent in 2014. The rapid rise in Russian oil exports to China is displacing other sources, such as Saudi Arabia and other OPEC members. The Wall Street Journal reports that China’s oil imports from Saudi Arabia fell 8 percent in 2014, and imports from Venezuela fell 11 percent.
The data suggests that Russia and China are finally forging closer trade ties based on energy. They share a massive border, but have been unable to capitalize on what has long appeared to be a well-matched economic opportunity – Russia is a huge energy producer and China is the world’s largest importer of petroleum products. Historic animosity and mutual suspicion had long left a major deal off the table.
The sticking point had been price. Years of negotiations over major natural gas trade stalled as each side held out for more favorable terms.
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Expanding Russia Issues Europe An Ultimatum
Expanding Russia Issues Europe An Ultimatum
Don’t tell the West, but Vladimir Putin isn’t changing. The Russian President has skipped their little ‘lesson’ on 21st century politics in favor of his own, unadulterated, version. In what we’ve come to expect, Putin is set to formally absorb South Ossetia – Georgia’s breakaway republic – and Gazprom is prepared to deny Europe up to one-quarter of its annual exports to the continent. What’s more, the conflict continues in Ukraine and allegations of Russian financing are growing louder.
As we remarked earlier, Russia has enjoyed a less than ideal start to 2015. In line with crude prices, the ruble has tumbled nearly 60 percent since its high last June. The country is hemorrhaging its foreign exchange reserves and desperately trying to rein in capital flight, which hit record levels in 2014 and is on track for more of the same this year. On Friday, Moody’s Investors Service slashedRussia’s credit rating to the lowest investment grade, with a cut to junk looming. The ratings cuts – which also targeted oil and gas companies Gazprom, Gazprom Neft, and LUKoil – represent serious stumbling blocks, but Western sanctions remain the primary source of Russia’s financing woes.
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