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The recent slide in oil prices may finally start impacting U.S. oil production forecasts.

The plunge in oil prices in November and December spread gloom around the industry. Comments from anonymous oil executives in a survey from the Federal Reserve Bank of Dallas from earlier this month clearly depicted the creeping pessimism from oil country. “I expect the dramatic, unexpected and significant drop in oil prices will significantly decrease revenue for the first half of 2019. I intend to mitigate this by stopping all drilling and deferring any new projects,” one oil executive told the Dallas Fed.

Another worried about lack of financing for drilling. “It feels like the capital markets (equity and debt) are backing up fairly hard, which will have a noted impact on capital spending if sustained. Coupled with the fall in oil prices in the past six weeks, this could cause 2019 plans to get pared back,” the executive said.

But the downturn in oil prices, and even the gloomier outlook from oil executives themselves, hadn’t really fed through to oil production forecasts. The projections for U.S. shale still included heady growth figures, despite the plunge in prices.

That is, until now.

“As a result of the slide in oil prices over the past three months, operators have already started to guide down activity for 2019 compared to their initial plans to ramp up activity,” Rystad Energy wrote in a new commentary. “Consequentially, we have lowered our expectations for oil production growth by about 500,000 bpd for 2020 and 2021, implying less need for takeaway capacity.”

Rystad says slower production growth might put a lot less urgency on the closely watched midstream bottlenecks. “This raises the question as to which (if any) of the pipelines projects in the Permian slated for development will move forward if there is less oil to fill them,” Rystad stated.

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

Oil Markets Could See Deficit In 2019

January 16, 2019

Oil Markets Could See Deficit In 2019

The oil supply surplus is “starting to reverse,” according to a new report from Bank of America Merrill Lynch.

The investment bank noted that oil prices had collapsed in late 2018 not only because of an oversupply problem, but also because of other “non-fundamental factors,” including the selloff of long positions by hedge funds and other market managers, as well as by fear and uncertainty in broader financial markets. Still, the bottom line was that the oil market saw a glut once again emerge in the fourth quarter.

However, “now the 1.3mn b/d surplus in 4Q18 is starting to reverse,” Bank of America Merrill Lynch analysts wrote in a January 10 note. In fact, the bank says that the OPEC+ cuts could translate into a “slight deficit” for 2019. “With investor positioning reflecting a bearish set-up, Brent prices have already bounced back above $60/bbl, and we retain our $70/bbl average forecast for 2019,” BofAML wrote.

Oil price forecasts vary quite a bit, but a dozen or so investment banks largely agree that the selloff in late December, which pushed Brent down to $50 per barrel, had gone too far. BofAML is betting that Brent rises back to $70 per barrel.

However, the investment bank issued a rather significant caveat. This assessment is based on the assumption that the global economy does not take a turn for the worse. BofAML analysts said that Brent could plunge as low as $35 per barrel if global GDP growth slows from 3.5 percent to 2 percent.

At this point, it is anybody’s guess if the global economy slows by that much, but there is a growing number of indicators that at least suggests such a deceleration is possible. The recent data from China showing a shocking slowdown in both imports and exports is discouraging.

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

Protests Erupt As Zimbabwe Now Has The Most Expensive Gasoline In The World

January 15, 2019

Protests Erupt As Zimbabwe Now Has The Most Expensive Gasoline In The World

Zimbabwe is once again at the brink of economic collapse, making a mockery of President Emmerson Mnangagwa’s claim that the country is open for business.

As Bloomberg reports, many shops and factories have shut their doors because of a lack of customers and those that continue to trade are open to haggling over prices to secure hard currency. At an appliance shop in the capital, Harare, a salesman whispers that a Whirlpool Corp. washing machine priced at about $5,000 if paid for electronically will sell for $1,500 in cash, while at a nearby electrical warehouse, a $600 invoice is whittled down to $145 for payment in dollar bills.

But, as OilPrice.com’s Tsvetana Paraskova reports, Zimbabwe is on a three-day nationwide strike and protests are erupting in the streets after the government of the southern African country doubled fuel prices, making gasoline sold in Zimbabwe the most expensive gasoline in the world.

Zimbabwe is in the midst of an economic crisis and a shortage of foreign exchange, which has led to fuel and bread shortages, and many companies have stopped working because they can’t import raw materials.

Following hyperinflation in 2009, Zimbabwe abolished its own currency and has been using the U.S. dollar and South African rand instead.

But the economic crisis and foreign currency shortages has prompted the government to say over the weekend that it would introduce a new currency of its own in the next 12 months.

However, the policy that really sparked protests and calls for a national stay-away was the sharp increase of fuel prices over the weekend.

According to Zimbabwe’s President Emmerson Mnangagwa – who succeeded the president of 38 years Robert Mugabe in November 2017 – the doubling of the fuel prices would help ease fuel shortages.

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

The Overlooked Catalyst That Will Send Energy Demand Soaring

January 14, 2019

The Overlooked Catalyst That Will Send Energy Demand Soaring

As the earth gets hotter, energy demand will increase significantly along with global temperatures. Now a team of researchers in China has determined in a recent study that by the end of this century, peak energy demand in China will increase by a minimum of 72 percent. For every degree Celsius that the global mean surface temperature (GMST) increases, average Chinese residential energy use is projected to raise 9 percent, while peak electricity use will increase 36 percent per degree Celsius.

It is projected that the mean surface temperature of the earth will be 2-5 C hotter by 2099. Calculating based off of current consumption patterns in China, this means that the most conservative estimates show average Chinese residential electricity demand would rise by 18 percent. At the high end, average Chinese residential electricity demand would rise by a whopping 55 percent. Meanwhile peak usage, on the low end, would increase by at least 72 percent.

These findings will have major implications for energy grid planning and other infrastructure in China, where energy use has already been booming thanks to a rapidly expanding middle class. As Chinese incomes increase, even without the added impact of climate change, the electricity consumption of the average Chinese household is expected to double by 2040. Libo Wu, one of the authors of this recent study and professor and director of the Center for Energy Economics and Strategies Studies at Fudan University in China, says that his team’s findings “contribute solid evidence supporting China’s low-carbon policy by showing how important increasing demand from the residential sector will be.”

As part of the study, researchers examined how Chinese energy users responded to daily fluctuations in temperature by analyzing data gathered from more than 800,000 residential customers in the Pudong district of Shanghai between 2014 and 2016.

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

There’s No Sugarcoating Canada’s Oil Crisis

January 14, 2019

There’s No Sugarcoating Canada’s Oil Crisis

Has financial disaster been averted in Canada’s oil and gas industry?

‘Disaster’ is all relative. Let’s just say 2019 is going to be a difficult year following a tough set of recent circumstances.

One thing we know is that the recent episode of bargain-basement commodity prices—triggered by a regional glut of oil and gas looking for a pipeline to call home, combined with low international oil prices—has wounded this year’s outlook for conventional oilfield activity. That’s the segment of the business, outside the oil sands, where two-thirds of the industry’s spending typically occurs.

Beyond the tight orbit of Fort McMurray’s oil sands, in the broader oil and gas fields of BC, Alberta and Saskatchewan, the overt indicator of sectoral health is drilling activity. Like counting cars on a freeway, you know the economy is bad if there are only a few commuters on the road.

It’s looking pretty bad for the first quarter. We’re entering the peak ‘rush hour’ of the winter drilling season with only 180 bits turning on active rigs. The level of activity is feeling a lot like the depths of 2016, the lowest New Year’s entry in decades (see Figure 1).

For comparison, last year at this time the rig count was climbing toward a more stable February peak of 348. But stability is hardly in the energy dictionary right now. Volatile discounts, weak international prices, illiquid equity markets and a never-ending pipeline drama has spooked those with money and hollowed those without. It’s pretty simple really: No confidence plus no money equals no drilling. That’s what was happening late last year.

Having said that, the very real potential for fiscal disaster was averted. To clear the late ’18 production glut, the government of Alberta stepped into the market with a mandatory oil curtailment (8.7 percent across the board).

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

Canada’s Crude Oil Production Cuts Are Unsustainable

January 13, 2019

Canada’s Crude Oil Production Cuts Are Unsustainable

In an attempt to combat a ballooning oil glut and dramatically plummeting prices, the premier of Alberta Rachel Notley introduced an unprecedented measure at the beginning of December when she is mandating that oil companies in her province cut production. This directive was particularly surprising in the context of Canada’s free market economy, where oil production is rarely so directly regulated.

Canada’s recent oil glut woes are not due to a lack of demand, but rather a severe lack of pipeline infrastructure. There is plenty of demand, and more than enough supply, but no way to get the oil flowing where it needs to go. Canada’s pipelines are running at maximum capacity, storage facilities are filled to bursting, and the pipeline bottleneck has only continued to worsen. Now, in an effort to alleviate the struggling industry, Alberta’s oil production has been cut 8.7 percent according to the mandate set by the province’s government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market.

Even before the government stepped in, some private oil companies had already self-imposed production caps in order to combat the ever-expanding glut and bottomed-out oil prices. Cenovus Energy, Canadian Natural Resource, Devon Energy, Athabasca Oil, and others announced curtailments that totaled around 140,000 barrels a day and Cenovus Energy, one of Canada’s major producers, even went so far as to plead with the government to impose production caps late last year.

So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel.

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

Another Crucial Canadian Pipeline Runs Into Trouble

January 13, 2019

Another Crucial Canadian Pipeline Runs Into Trouble

Late last year, Royal Dutch Shell gave the greenlight to a massive LNG export terminal on Canada’s Pacific Coast, one of the largest investments in LNG in years. But like other fossil fuel projects in Canada, the plans have run into some trouble.

Shell’s LNG Canada project hinges on a crucial pipeline that will connect gas fields along the border of British Columbia and Alberta to the Pacific coast at Kitimat. The Coastal GasLink pipeline is to be constructed by TransCanada (or, rather TC Energy, as the company now wants to be known).

The Coastal GasLink pipeline was supposed to mark a departure from previous long distance pipelines in Canada – a project that would, from the start, adequately consult with First Nations. Prior pipeline projects – Enbridge’s Northern Gateway and Line 3; TransCanada’s Energy East; as well as Kinder Morgan’s Trans Mountain Expansion – ran into stiff resistance from various First Nations.

TransCanada hoped that Coastal GasLink would be different. But, it too is now meeting resistance. Members of the Wet’suwet’en nation threw up makeshift barricades to stop construction on their land in recent weeks. On January 7, the Royal Canadian Mounted Police broke through those barricades and arrested at least 14 people. RCMP said it was enforcing a court order, but the clash made national and international headlines.

The situation is complex because the Wet’suwet’en nation never signed a treaty with Canada, so their territory is neither ceded nor even formally acknowledged by Canada. “What I see is a long history of the Canadian government doing its best to avoid acknowledging the existence of other systems of government,” Gordon Christie, a scholar of indigenous law at the University of British Columbia, told The Guardian.

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

Darkening Outlook For Global Economy Threatens Crude

January 10, 2019

Darkening Outlook For Global Economy Threatens Crude

“The outlook for the global economy in 2019 has darkened.”

That conclusion came from a new report from the World Bank, citing a variety of data, including softening international trade and investment, ongoing trade tensions, and financial turmoil in emerging markets over the past year. “Storm clouds are brewing for the global economy,” the World Bank warned.

As a result, economic growth in emerging markets could “remain flat” this year, while overall growth could be “weaker than anticipated.”

One of the key backdrops to this assessment is the rate tightening from the U.S. Federal Reserve. “Advanced-economy central banks will continue to remove the accommodative policies that supported the protracted recovery from the global financial crisis ten years ago,” the World Bank report said. After several rate hikes in 2018, the Fed had suggested that two more were on the way in 2019, although the central bank’s chairman Jerome Powell recently softened that tone.

Higher interest rates and a corresponding strengthening of the dollar puts enormous pressure on indebted countries, companies and consumers in emerging markets. Such countries are vulnerable to sudden capital outflows, which could leave them crushed under the weight of dollar-denominated debt. Worse, government debt in low-income countries has surged over the last four years, from 30 percent of GDP to 50 percent of GDP, according to the World Bank. Related: Energy Experts Are Watching This Hotspot In 2019

Growth contracted in Japan, Italy and Germany in the third quarter of last year, and financial turmoil rocked global equities in the final few weeks of 2018.

“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said World Bank Chief Executive Officer Kristalina Georgieva.

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

Evidence Mounts For Shale Slowdown

January 8, 2019

Evidence Mounts For Shale Slowdown

There is a growing pile of evidence pointing to a slowdown in the U.S. shale industry, as low prices take their toll.

The rate of hydraulic fracturing began to decline in the last four months of 2018, a sign that U.S. shale activity began to slow even before the plunge in oil prices. According to Rystad Energy, the average number of fracking jobs declined to 44 per day in November 2018, down from an average of between 48 and 50 for the five-month period between April and August 2018.

“After reaching a peak in May/June, fracking activity in the Permian Basin has gradually decelerated throughout the second half of 2018,” Rystad Energy senior analyst Lai Lou said in a statement.

“Looking at preliminary data for November, we see evidence that seasonal activity deceleration has likely started in all major plays except Eagle Ford,” Lou added. “There has been a considerable slowdown in Bakken and Niobrara in November, our analysis shows.” Rystad said that much of the slowdown can be attributed to smaller companies.

The drilling data echoes that of the Dallas Fed, which reported last week that drilling activity began to slow in the Permian in the fourth quarter. Whether measuring by production, employment, business activity, equipment usage rates – a wide variety of data from the shale industry points to an unfolding slowdown.

Moreover, independent data also suggests that a lot of shale drillers are not profitable with oil prices below $50 per barrel. Breakeven prices on the very best wells can run in the $30s or $40s per barrel, but industry-wide all-in costs translate into much higher breakeven thresholds. The rig count has also already plateaued after growing sharply in the first half of 2018.

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

New Data Suggests Shocking Shale Slowdown

January 7, 2019

New Data Suggests Shocking Shale Slowdown

U.S. shale executives often boast of low breakeven prices, reassuring investors of their ability to operate at a high level even when oil prices fall. But new data suggests that the industry slowed dramatically in the fourth quarter of 2018 in response to the plunge in oil prices.

A survey from the Federal Reserve Bank of Dallas finds that shale activity slammed on the brakes in the fourth quarter. “The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained positive, but barely so, plunging from 43.3 in the third quarter to 2.3 in the fourth,” the Dallas Fed reported on January 3.

The 2.3 reading is only slightly positive – zero would mean that business activity from Texas energy firms was flat compared to the prior quarter. A negative reading would mean a contraction in activity.

The deceleration was true for multiple segments within oil and gas. For instance, the oil production index fell from 34.8 in the third quarter to 29.1 in the fourth. The natural gas production index to 24.8 in the fourth quarter, down from 35.5 in the prior quarter.

But even as production held up, drilling activity indicated a sharper slowdown was underway. The index for utilization of equipment by oilfield services firms dropped sharply in the fourth quarter, down from 43 points in the third quarter to just 1.6 in the fourth – falling to the point where there was almost no growth at all quarter-on-quarter.

Meanwhile, employment has also taken a hit. The employment index fell from 31.7 to 17.5, suggesting a “moderating in both employment and work hours growth in the fourth quarter,” the Dallas Fed wrote. Labor conditions in oilfield services were particularly hit hard.

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

Canada’s Natural Gas Crisis Is Being Ignored

January 6, 2019

Canada’s Natural Gas Crisis Is Being Ignored

“Alberta and its natural gas producers face a daunting crisis,” Alberta’s Natural Gas Advisory Panel said in a report in December, highlighting the challenges that natural gas producers in Alberta face in market access and pricing for their commodity.

Industry officials and analysts say that the situation with the steep natural gas discounts in Canada to the U.S. Henry Hub benchmark is similar to the huge discounts of Canada’s heavy oil benchmark—the Western Canadian Select—to the U.S. benchmark West Texas Intermediate (WTI).

The record-low oil prices in Canada have attracted a lot of media attention in the past few months, but the steep discounts and volatile prices of Alberta’s natural gas have received less attention, although the pricing and problems are similar.

“It’s absolutely a similar situation,” Advantage Oil and Gas president and chief executive Andy Mah told the Financial Post.

Like oil, natural gas prices have also been suffering from the steep discounts, but the attention has been on oil “because of the slower decline in natural gas prices,” Mah told Geoffrey Morgan of the Financial Post.

According to Samir Kayande, director at RS Energy, the natural gas prices discounts have been plaguing the industry for longer and the problem has been “far worse than it is for oil.”

“Gas is such a forgotten commodity now,” Kayande told the Financial Post.

Alberta’s government has recently taken drastic measures to prop up the price of heavy oil in Canada, but it has yet to address the distressed natural gas pricing.

Natural gas “is just as important (as oil), it’s just not getting the same kind of attention as oil” but that could soon change, a government official told the Financial Post.

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

Why Oil Prices Rose And Crashed In 2018

December 31, 2018

Why Oil Prices Rose And Crashed In 2018

Last week the price of West Texas Intermediate (WTI) crude oil, the primary U.S. benchmark, fell to a 17-month low. The price, $45.88/bbl, marks a stunning fall from a price that closed at $76.40/bbl on October 3rd.

So, what has caused this roller coaster ride, and where are prices headed as we head into 2019?

Let’s first review how to we got to sub-$50 oil as we near the end of 2018. That’s important, because I think it strongly influences what is likely to happen in 2019.

Why Oil Prices Rose in 2018

In my 2018 predictions, which I will grade in a couple of weeks, I projected that oil prices would reach $70/bbl in 2018. The price of WTI, the U.S. benchmark, rose to that level in May and remained there for most of the summer.

There were several reasons I expected oil prices to rise. The threat of sanctions on Iran, global demand that continues to rise (despite increasing predictions of the demise of demand growth), and the deteriorating situation in Venezuela were just three of the reasons I predicted higher oil prices.

But if you had asked me in mid-summer what I expected for the rest of 2018, I would not have anticipated an oil price collapse. I largely attribute this decline to an unexpected variable in the oil markets that I call “The Trump Effect”.

The Trump Effect

President Trump has done some good things for the oil industry, but he has a blind spot when it comes to oil prices. He has been vocal about the need to keep oil prices low, even as the U.S. becomes an increasingly important global oil producer.

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

The Mediterranean Pipeline Wars Are Heating Up

December 28, 2018

The Mediterranean Pipeline Wars Are Heating Up

Things have been quite active in the Eastern Mediterranean lately, with Israel, Cyprus and Greece pushing forward for the realization of the EastMed pipeline, a new gas conduit destined to diversify Europe’s natural gas sources and find a long-term reliable market outlet for all the recent Mediterranean gas discoveries. The three sides have reached an agreement in late November (roughly a year after signing the MoU) to lay the pipeline, the estimated cost of which hovers around $7 billion (roughly the same as rival TurkStream’s construction cost). Yet behind the brave facade, it is still very early to talk about EastMed as a viable and profitable project as it faces an uphill battle with traditionally difficult Levantine geopolitics, as well as field geology.

The EastMed gas pipeline is expected to start some 170 kilometers off the southern coast of Cyprus and reach Otranto on the Puglian coast of Italy via the island of Crete and the Greek mainland. Since most of its subsea section is projected to be laid at depths of 3-3.5 kilometer, in case it is built it would become the deepest subsea gas pipeline, most probably the longest, too, with an estimated length of 1900km. The countries involved proceed from the premise that the pipeline’s throughput capacity would be 20 BCM per year (706 BCf), although previous estimates were within the 12-16 BCm per year interval. According to Yuval Steinitz, the Israeli Energy Minister, the stakeholders would need a year to iron out all the remaining administrative issues and 4-5 years to build the pipeline, meaning it could come onstream not before 2025.

The idea of EastMed was first flaunted around 2009-2010 as the first more or less substantial gas discovery in the Eastern Mediterranean, the Tamar gas field in Israel’s offshore zone, paved the way for speculations about an impending gas boom.

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

Falling Oil Prices May Spark New Debt Crisis

December 27, 2018

Falling Oil Prices May Spark New Debt Crisis

U.S. oil prices at below $50 and now even below $45 a barrel could cause concerns about the debt levels of some energy companies, Nasdaq energy analyst Tamar Essner told CNBC on Wednesday.

“Credit markets have held up a lot better than the energy equity markets right now, so that tells you that credit investors out there believe in the oil story much more so than energy equity investors do right now,” Essner said.

Consumers in the U.S. like the low gasoline prices that come with lower oil prices, but a slide in the price of oil has a broader impact on the economy, Essner said.

Some of the newer U.S. shale producers are probably deep into cash-flow negative at the current oil prices of $43 a barrel WTI Crude, although the energy industry as a whole is “in a lot stronger position” today than it was in the price crash of 2014, according to the energy analyst.

“A lot of the debt has been put in a much more consolidated position. We’ve just had a round of credit redetermination in the fall when prices were higher, so that should buy us some time in the market as well,” Essner said, referring to the banks’ twice-yearly borrowing base redetermination of energy companies.

Over the past few weeks, when oil prices were falling due to fears that the OPEC+ production cuts won’t be enough to rebalance the oil market, some companies announced their 2019 capital budget plans.

Many of those companies said they would be cutting spending and the number of rigs, Essner said, noting that lower spending levels will ultimately result in a lower pace of oil production growth, but it will take time.

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

Mnuchin’s Bizarre Statement Rattles Markets

December 25, 2018

Mnuchin’s Bizarre Statement Rattles Markets

If he thought it would inspire confidence in the markets, his bizarre announcement did just the opposite.

Over the weekend, U.S. Treasury Secretary Steven Mnuchin issued a statement saying that he “conducted a series of calls today with the CEOS of the nations six largest banks,” which included Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, and the bank executives “confirmed that they have ample liquidity available” for consumer and business lending operations. To which, the collective response from the whole world seemed to be: “Wait, who said anything about not having ample liquidity?”

Mnuchin also said that the major banks “have not experienced any clearance or margin issues and that the markets continue to function properly.” Again, since few expected otherwise, the “clarification” from Mnuchin only seemed to sow more fear and confusion.

Mnuchin was scheduled to hold another call with the President’s Working Group on financial markets – commonly referred to as the “Plunge Protection Team” – which includes the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and the Commodities Futures Trading Commission. He said that the FDIC and the Comptroller of the Currency might participate as well. “These key regulators will discuss coordination efforts to assure normal market operations,” Mnuchin’s statement said.

The curious statement intended to reassure the markets prompted the opposite response. “This is the type of announcement that raises the question of whether Treasury sees problems that the rest of the market is missing,” Cowen & Co. analyst Jaret Seiberg wrote in a note to clients. “Not only did he consult with the biggest banks, but he is talking to all of the financial regulators on Christmas Eve. We do not see this type of announcement as constructive.” Related: Chinese Refiners Aren’t Buying U.S. Crude

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

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