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The US oil rig count dropped 5 to 763 last week, the biggest drop in 7 months. However, crude production from the Lower 48 has surged (rising the most since June last week) to the highest since July 2015. Even with today’s sheer farce panic-buying squeze higher in WTI crude, oil looks set for its 3rd weekly close lower as BNP notes the “whole supply surplus story is not likely to go away anytime soon.”

*U.S. OIL RIG COUNT DOWN 5 TO 763 , BAKER HUGHES SAYS :BHGE US
*U.S. GAS RIG COUNT UP 1 TO 182 , BAKER HUGHES SAYS :BHGE US

As we have noted previously, this inflection point in the rig count fits with the rolover in crude prices…

While the rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015…

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It’s not just the Permian that’s growing, as the agency sees higher output across the board.

WTI Crude remains lower on the week despite the panic-buying… with no catalyst at all except bannon momentum ignition in USDJPY.

Soime chatter on the crude curve – “Flat price is finally catching up with some of the signs we’ve seen that the physical market is tightening,” Clayton Rogers, an energy derivative broker at SCS Commodities, says.

US Shale Production Just Hit A New All Time High

July 17, 2017

US Shale Production Just Hit A New All Time High

One month ago, we reported that based on recent data, June oil output from shale producers would post the first double-digit production growth since July of 2015, when oil prices tumbled and a substantial portion of US production was briefly taken offline. While the final data has yet to be tabulated, it is safe to say that this is now the case.

Indicatively, while over the past year total U.S. production was up roughly 525kb/d, virtually all of it, or 98.5%, was the result of horizontal rig production in the Permian Basin, where output rose by just over half a million barrels per day.

The Permian basin has been leading the increase in horizontal oil rig count (+184%)

Also of note is that while US rig shows not signs of slowing yet, in its latest Weekly Oil Rig Monitor, Goldman predicted that $45/bbl is the price below which shale output would finally slow, although that price may also prove a substantial hurdle for many gulf budgets, whose all in cost of production – including mandatory and discretionary government outlays – is roughly the same if not higher.

Rig count (lhs), WTI spot prices (rhs, $/bbl, 3-mo lag)

But what is more notable, is that according to the June EIA Drilling Prodctivity Report forecast, in July total shale (note: not total) basin output would rise by 127kb/d from May’s 5.348mmb/d, and hit 5.475 mmb/d, surpassing the previous record of 5.46 mmb/d reached in March 2015. Today the EIA released its latest Drilling Productivity Report, and while the number is not official just yet, it is safe to say that as of July, the total US shale basin is producing a record amount of crude oil, which the EIA pegged at 5.472mmb/d, up almost exactly as predicted, and is expected to rise by a further 113kb/d in August to a new all time high of 5.585mmb/d.

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

Will Central Banks Derail The Shale Boom?

June 30, 2017

Will Central Banks Derail The Shale Boom?

The U.S. Federal Reserve has already increased interest rates several times, most recently in June, with promises to do much more. Rate hikes pose a problem for the oil industry, which has used debt to underpin a drilling boom across the U.S. shale patch. Higher rates could raise the cost of drilling.

But low oil prices, and few prospects for a strong rebound in the near-term – and possibly even the medium- and long-term – undercut the rationale for higher rates. After all, inflation is soft, and low commodity prices have a lot to do with that.

In fact, the decline of oil prices this year has led to even lower inflation than expected, not just in the U.S., but also in Europe. The Fed has insisted that weak inflation is “transitory,” but more people are starting to wonder if that is true. “There is now a much bigger chance that there will be an important disinflationary impact from lower oil prices,” Thierry Wizman, global interest rates and currencies strategist for Macquarie, told MarketWatch. With oil prices and broader inflation low, why raise rates?

Still, the Fed seems intent on moving forward. And the Bank for International Settlements (BIS), a group of central banks from around the world, urged central banks a few days ago to continue the “great unwinding.” That is, the extraordinary monetary stimulus stemming from the 2008-2009 financial crisis needs to be reined in. Fed chair Janet Yellen has warned about overpriced asset classes, a side effect of loose monetary policy. The hawkish Fed thinks that monetary policy needs to tighten in order to prevent overheating. Related: The Downturn Is Over, But U.S. Oil Companies Face A Huge Problem

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

Not OPEC, China Dictates The Oil Prices

May 29, 2017

Not OPEC, China Dictates The Oil Prices

The OPEC deal will lead to an ongoing tightening of the crude oil market, putting a floor beneath crude prices in the $50s per barrel in the second half of 2017, according to Helima Croft of RBC Capital Markets. She said that prices should ultimately “grind higher into the $60s” by the fourth quarter, with an average price for WTI expected at $61. Political and economic pressure surrounding Saudi Aramco’s IPO and Russian elections – both of which are slated for 2018 – will ensure that OPEC and non-OPEC does “whatever it takes” to keep oil prices stable and on the rise.

But there are a lot of factors outside of OPEC’s control. High up on that list is the role of China, a country that has received little attention in the oil world as of late amid all the furor over the OPEC vs. U.S. shale debate. But China could make or break the oil market this year and next, depending on what happens with its economy. “If you wanted to know where the downside risk is, it is not in OPEC’s decision or in U.S. driving demand or in global inventories rebalancing. I think China is the big source of concern,”Prestige Economics President Jason Schenker told CNBC.

Moody’s Investors Service downgraded China’s credit rating on May 24 to A1 from Aa3, explaining that the Chinese government might try to juice the economy with higher spending levels, which will lead to ballooning debt. The decision from Moody’s is ominous as it is the first credit downgrade for China in nearly three decades. Moody’s expects economic growth to continue to slow in China, putting a heavier burden on government stimulus when debt has already started to become a concern.

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

Shale Hotspot Draws In Another Big Oil Player

April 10, 2017

Shale Hotspot Draws In Another Big Oil Player

The oil price crash that destroyed a lot of smaller oil producers has not spared the finances of even the oldest and largest oil companies. Trying to keep the precious dividends intact and growing, Big Oil is focusing on cost control and cash preservation, and has effectively deferred investments in new ultra-expensive drilling ventures.

One of the biggest companies, U.S. Chevron, is now planning to capitalize on its vast acreage holdings in the Permian. Investments in new mega projects, at least over the next few years, are not currently on the table, chief executive John Watson told Reutersin an interview published this week.

Chevron is now betting big on the Permian; the star shale play straddling West Texas and New Mexico that has seen most of the resurgence since oil prices started steadily recovering in the fourth quarter last year.

Unlike some other (and smaller) producers who have just recently rushed to secure holdings in the shale play, Chevron is not a newcomer to the Permian – the group and its legacy companies have held acreage in the area since the early 1920s.

Now the new oil order is causing the company to shift strategies away from mega drilling projects to secure steady returns in more conservative projects in order to protect dividends and keep them growing.

Chevron reported earnings of $0.22 per share for the fourth quarter of 2016, compared with a loss of $0.31 per share for the fourth quarter of 2015, in line with analyst expectations that it would return to profit, but still missing the EPS estimates by a wide margin. Full-year 2016 results showed a loss of $497 million compared with earnings of $4.6 billion in 2015, which was the first annual loss Chevron has booked since 1980.

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

How OPEC Lost The War Against Shale, In One Chart

March 21, 2017

How OPEC Lost The War Against Shale, In One Chart

At the start of March we showed a fascinating chart from Rystad Energy, demonstrating how dramatic the impact of technological efficiency on collapsing US shale production costs has been: in just the past 3 years, the wellhead breakeven price for key shale plays has collapsed from an average of $80 to the mid-$30s…

… resulting in drastically lower all-in breakevens for most US shale regions.

Today, in a note released by Goldman titled “OPEC: To cut or not to cut, that is the question”, the firm presents a chart which shows just as graphically how exactly OPEC lost the war against US shale: in one word: the cost curve has massively flattened and extended as a result of “shale productivity” driving oil breakeven in the US from $80 to $50-$55, in the process sweeping Saudi Arabia away from the post of global oil price setter to merely inventory manager.

This is how Goldman explains it:

Shale’s short time to market and ongoing productivity improvements have provided an efficient answer to the industry’s decade-long search for incremental hydrocarbon resources in technically challenging, high cost areas and has kicked off a competition amongst oil producing countries to offer attractive enough contracts and tax terms to attract incremental capital. This is instigating a structural deflationary change in the oil cost curve, as shown in Exhibit 2. This shift has driven low cost OPEC producers to respond by focusing on market share, ramping up production where possible, using their own domestic resources or incentivizing higher activity from the international oil companies through more attractive contract structures and tax regimes. In the rest of the world, projects and countries have to compete for capital, trying to drive costs down to become competitive through deflation, FX and potentially lower tax rates.

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

Fitch Predicts Drop In Oil Prices By 2017 As U.S. Shale Output Soars

March 7, 2017

Fitch Predicts Drop In Oil Prices By 2017 As U.S. Shale Output Soars

Oil bigwigs should take a step back before becoming too comfortable with the new oil price range according to Fitch Ratings’ newest market analysis.

“The recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting a portion of recent oil price gains,” the credit rating agency’s report released on Monday says. “We therefore expect average oil prices for the year to be below those in January and February.”

In a stable market scenario, Fitch estimates that by the end of this year, oil prices will fall to $52.50, but then rebound to $55 and then $60 in 2018 and 2019, respectively. Long-term prospects for Brent barrels sit at $65 in this model.

A stressed, oversupplied market will mean a $40 barrel through 2019, however.

Since January, a 1.8 million-barrel global production cut led by the Organization of Petroleum Exporting Countries (OPEC) and joined by several other nations has kept prices between the $55-$60 range.

Compliance to the terms of the November deal by members of the bloc has been strong. Last week, new data showed that OPEC’s compliance stood at 94 percent.

Fitch cited the continuous increase of active oil rigs in the United States since May 2016 as key evidence for an impending price collapse. American production is set to top nine million barrels over the course of 2017, the analysts estimate, due to rejuvenated capital expenditure budgets and higher output capacity.

The total number of active oil and gas rigs in the United States is now 756, according to oilfield services provider Baker Hughes, which is 267 rigs above the rig count a year ago.

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

March 3, 2017

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

US oil rig counts rose for the7th straight week (up 7 to 609) to the highest level since October 2015.

With production surging back above 9mm b/d – the highest in a year – the trend in the rig count implies considerably more production to come…

And it’s all in the Permian…

And with rig counts rising (in the Permian), production shows no signs of slowing, as OilPrice.com’s Nick Cunningham notes, ExxonMobil’s new CEO Darren Woods announced a dramatic shift towards shale drilling this week, a new strategy that will prioritize drilling thousands of smaller wells while reducing spending on the massive projects that the oil major has long been accustomed to pursuing.

Mr. Woods gave a presentation to investors on March 1, selling his vision after recently taking over from Rex Tillerson, who left to become U.S. Secretary of State. Exxon will now ramp up spending on shale drilling, after watching dozens of smaller companies profit from the surge in production in Texas, North Dakota and elsewhere over the past decade.

Exxon will dedicate a quarter of its 2017 spending budget on shale, putting $5.5 billion into the effort. “More than one quarter of the planned spending this year will be made in high-value, short-cycle opportunities, including in the Permian and Bakken basins,” Exxon wrote in a March 1 statement. The oil major says that it has 5,500 wells in its queue for drilling in the Permian and the Bakken shales, each with a return of 10 percent or more at $40 per barrel.

Exxon was able to build up this inventory of shale wells with the $6.6 billion it spent in January to double its Permian acreage.

The shift towards shale should pay off over time, with a portfolio of thousands of tiny shale wells making up a growing share of the oil major’s production portfolio.

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

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

February 25, 2017

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

According to Continental Resources website, it labels itself as America’s oil champion. To be a champion, one is supposed to be winner. Unfortunately for Continental, it’s taking a serious beating and is a perfect example of what is horribly wrong with the U.S. Shale Oil Industry.

During the beginning of the U.S. shale energy revolution, the industry stated it would make the United States energy independent. The mainstream media picked up this positive theme and ran with it. Americans who wanted to believe in this “Growth forever” notion, had no problem going further into debt to buy as much crap as they could to fill their homes with and additional rental storage units.

For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.

And a perfect example, or the “Poster child”, of what is horribly wrong with the U.S. Shale Oil Industry is none other than Continental Resources.

Again, if you go to Continental Resources website, they proudly label themselves as “America’s Champion Oil Company”:

(courtesy of Continental Resources)

Maybe Continental was America’s oil champion at one time, however if we look at their financial results, they have been receiving some serious blows to their mid section. Looking at the company’s free cash flow since 2010, it isn’t a pretty picture:

From 2010 to 2016 YTD (year to date – Q3 2016), Continental (ticker CLR) has spent a stunning $7.6 billion more on capital expenditures (CAPEX) than they made in operating cash. Of course this had a negative impact on their balance sheet.

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

OPEC Production Cut May Need to Be Extended: Oil Ministers

February 9, 2017

OPEC Production Cut May Need to Be Extended: Oil Ministers

The oil ministers of Iran and Qatar have suggested that OPEC’s production cut agreement may have to be extended beyond the June deadline, despite an almost 100-percent compliance rate.

The comments come a day after the American Petroleum Institute reported the second-largest crude oil inventory increase in history, at 14.227 million barrels, which added fuel to worries that production cut efforts are not enough to rebalance the market.

Iran’s Oil Minister, Bijan Zanganeh, told Iranian media after a meeting with his Venezuelan counterpart that the option of extending the cut needs further study, but, he said, “in principle” the group must do it. Zanganeh also said that most OPEC producers would be happy with oil at US$60 – a level that has proved difficult to reach.

Qatar’s Oil Minister Mohammed Al Sada, for his part, spoke at a news conference in Doha, saying that the oil market may rebalance in the third quarter, adding that “it’s too early to make a judgment.”

At the same time, however, Qatar’s Finance Minister said that the country is comfortable with the current level of oil prices, with expectations that it will be able to plug its budget hole this year, at oil price levels of US$45, as stipulated in the budget.

The latest update from OPEC on how the production cut was progressing pegged daily production for January at 32.89 million barrels, versus a target of 32.5 million barrels. This represented a compliance rate of 91 percent and suggested that nearly everyone is on board with the market rebalancing effort.

Iraq is still producing 130,000 bpd more than agreed, but as a whole, the cartel is exceeding expectations of compliance. This, however, seems to be insufficiently lifting benchmark prices. After API’s report yesterday, WTI slipped below US$52 and Brent dropped below US$55.

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

Welcome to the Age of Crappy Oil

September 10, 2016

Welcome to the Age of Crappy Oil

It’s been a while since we’ve heard about peak oi l—the point at which we use up half the world’s reserves and see production terminally decline—but it’s happening. And yet, we still have enough oil left to burn our way to climate catastrophe.

In a paper released at the end of July, Sir David King, the British Foreign Office’s Special Representative on Climate Change, and his co-author, Oliver Inderwildi of Oxford University’s Smith School of Enterprise and the Environment, refute what they call “a common misperception about peak oil”: that fossil fuels are growing scarce.

Rather, they argue, peak oil means it’s getting more difficult and costly to get oil out of the ground—and there’s less of the cheaper, easy oil available.

The age of easy oil is over

Plummeting oil prices in the wake of the US shale boom have led many to dismiss peak oil as little more than a doom-mongering myth.

In his study published in the peer-reviewed journal, Frontiers in Energy, King agrees with critics that the planet is swimming in oil. But he warns that peak oil proponents are still right to warn of oil’s growing economic and environmental costs:

Haliburton fracturing operation. Image: Joshua Doubek/Wikipedia

“We are not running out of oil, but we have reached a plateau in easy, inexpensive conventional oil production, which will be followed by a fall in production…Novel unconventional oil reserves are abundant, but are more costly to produce, provide less net energy and cause more GHG [greenhouse gas] emissions.”

Up until 2005, economic growth was enabled by exponentially rising production of cheap conventional oil. But since then, conventional production has stopped rising. To keep the economy chugging along we’ve started using more expensive forms of unconventional oil—which are worse for the environment, and require more energy just to get out the ground and become usable.

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

Turns out, OPEC Isn’t Dead Yet

June 18, 2016

Turns out, OPEC Isn’t Dead Yet

In War for Market Share with US shale oil.

Mayhem has crisscrossed the global oil markets since 2014: Huge losses for Big Oil, including teetering, over-indebted, state-owned giants like Mexico’s Pemex and Brazil’s Petrobras; bankruptcies among some of the smaller players; cuts in production in the US, Canada, and China where production plunged 7.3% in May from a year ago, the biggest decline since February 2001; hundreds of thousands of people losing their jobs across the globe; deep trouble in Brazil, chaos in Venezuela….

Record levels of crude oil stocks have become a global phenomenon. In the US, crude oil stocks are at 532 million barrels, a record for this time of the year in EIA’s data series going back 80 years. Even driving season has barely made a dent so far; stocks remain 63.6 million barrels above the mega-record levels a year ago. Gasoline and distillate stocks are 19.2 million and 18.6 million barrels above their levels a year ago.

Oil tankers full of crude are lined up outside the port of Singapore and others, some waiting to unload cargo, others being used for crude oil storage at sea. Across OPEC, storage levels of petroleum products rose to 3,046 million barrels in April, or 13% above the five-year average.

The world is awash in oil.

In the process, OPEC has been declared dead or dying because it was unable to agree on anything, refused to cut production, and brushed off calls to do something, for crying out loud, about the collapsed prices — which, despite the mega-rally, remain down over 50% from where they’d been before the oil bust began.

But there was one thing OPEC was able to accomplish by not agreeing to buckle under pressure and cut production: it increased its market share.

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

Australian Public Broadcaster ABC unable to look at oil statistics

May 7, 2016

Australian Public Broadcaster ABC unable to look at oil statistics

Four times in as many months did ABC publish inaccurate statements about US shale oil. A glut of mis-information. This is unacceptable because it leads to wrong policy decisions and has ultimately damaging economic and financial consequences.

(1) “US shale producers pump like never before”
Just in time for last year’s X’mas we received these reassuring news:

Peak oil losing credibility as renewables shift accelerates
24/12/2015
“US shale producers are pumping like never before and adding to stockpiles”
http://www.abc.net.au/news/2015-12-24/peak-oil-losing-credibility-as-shift-to-renewables-accelerates/7052196

(2) “US virtually self-sufficient in oil”

This was broadcast on the 7 pm news (ABC channel 1)
16/1/2016
“The United States is now virtually self-sufficient in oil, while Saudi Arabia, the world’s biggest producer, has stepped up production to protect its market share.”
http://www.abc.net.au/news/2016-01-16/benefits-of-falling-oil-prices-not-fully-passed-on-to-motorists/7091862?section=business

(3) “US oil output rises”

Two months later the headline was:

Oil output rises even as US rig count falls to historic lows
18/3/2016
“The US Energy Information Agency said, despite the dramatic decline in rig numbers, production has steadily grown, indicating that drilling has becoming increasingly efficient”
http://www.abc.net.au/news/2016-03-18/oil-output-rises-even-as-us-rig-count-falls/7259566

This ABC article included the following graph

Fig 1: EIA’s annual US oil production

Coming from this post by the EIA:

Hydraulic fracturing accounts for about half of current U.S. crude oil production
15/3/2016
http://www.eia.gov/todayinenergy/detail.cfm?id=25372

The graph shows that indeed 2015 production is higher than 2014 but the ABC author failed to look at monthly statistics where a turning point was already visible.

(4) “New shale oil technology the end of OPEC”

In the most recent article “Saudi Arabia to sell part of Aramco as part of shift from oil” we find this para:

New shale oil technology ‘the end of OPEC’
26/4/2016
“With US shale oil producers pumping more than ever before and Iran production coming back on line with US sanctions lifted, the planned Saudi reforms underscore the damage from falling revenues.”
http://www.abc.net.au/news/2016-04-26/saudi-arabia-to-sell-part-of-aramco-as-part-of-shift-from-oil/7360388?section=business

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

US shale oil peak in 2015

March 30, 2016

US shale oil peak in 2015

The recent EIA drilling productivity reports show a peaking of shale oil production in the main production regions. https://www.eia.gov/petroleum/drilling/

Fig 1: Bakken production change from old/new wells

The 1st panel shows that the number of drilling rigs has dropped sharply but the initial well production per rig has increased from 450 b/d to 750 b/d. The 2^nd panel depicts the monthly production decline in old wells, which has stabilized at around 60 kb/d. This is the volume needed to keep production flat but the 3^rd panel shows that new wells offset only about half of the decline. That is why in panel 4 overall production declines.

Fig 2: History of production change

We see that in 2015 production from new wells declined abruptly. The intersection point with old wells corresponds to the peak in production. The old wells decline has moderated suggesting that more and more old wells have entered their phase of final, flat production at very low levels.

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

Peak Oil: Choosing Chaos … or Not

March 23, 2016

Peak Oil: Choosing Chaos … or Not

LB020116B

If/when a petroleum shortage impacts it will concentrate minds wonderfully. But when it comes the window of opportunity could be brief and risky. If things deteriorate too far too fast there could easily be too much chaos for sense to prevail and for us to organize cooperative local alternative systems. [1]

“Too much chaos” is certainly one problem-solving approach! Perhaps it should not be the first one, however.

Unfortunately, the more often the more prominent voices—those unwilling to share with followers the full scope of our future fossil fuel/energy supply challenges—are given forums for public consumption, the greater the odds that “too much chaos” will be the strategy available to all of us.

Of course, none of this is going to happen next month or next year, or perhaps not for several more years. But that’s not a reason to set it aside for now. The scope of adaptation to a diminished and ever-diminishing thereafter fossil fuel supply does not lend itself to anything close to a quick-fix.

The challenge now is all the greater because we’re presently in the midst of an over-supply of oil, and prices have dropped to or near historic lows. That’s obviously not a problem for consumers … today.

So why is oil so cheap? There are various contributing factors relating both to supply (production rate) and demand. The main supply factor is that production of U.S. shale oil has increased rapidly to 3.5 million barrels a day, along with the renewed oil production from Iraq and Libya. Saudi produce one third of OPEC’s output, and this time they have refused to cut production because they want to keep (grow?) their share of the market.
At the same time, demand has fallen because the global economy (especially China) has slowed down.

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

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