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While U.S. President Donald Trump continues to call on OPEC to keep oil prices low, because “The World does not want to see, or need, higher oil prices!”, one corner of the world may need WTI prices higher than the current low $50s to keep pumping crude at the record pace it has been doing so far this year—the U.S. shale patch.

The recent price slide, by around 30 percent from four-year highs in early October, has brought down WTI Crude prices dangerously close to the wellhead breakeven prices in many U.S. shale areas.

The lower prices may lead to a slowdown in drilling activity and lower investments in the shale patch, U.S. oil industry executives and analysts say.

U.S. shale drilling may soon start to show slowdown in activity, Gary Heminger, Chairman and CEO at Marathon Petroleum Corporation, told FOX Business on Wednesday.

“If you look at the Canadian producers, when you’re looking at the wide spreads of the Western Canadian Select versus WTI, you look at some of the real cost to get some of the crude out of the Bakken because the pipelines are full – I think we are going to start seeing a slowdown in drilling if they don’t see some prices turn around,” Heminger warned, but noted that he doesn’t expect the slowdown to be “dramatic”.

The U.S. shale patch has managed to significantly cut wellhead breakeven prices since the oil price crash of 2014. Yet, its capital expenditure plans for 2019 may be derailed by $50 oil—a reality few had conceived of just two months ago, when the market was spooked by Iranian oil supply plunging to zero, or at least to much lower than the currently some 1.2 million bpd still being exported out of Iran.

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OPEC Surprises Markets With Last Minute Deal

December 7, 2018

OPEC Surprises Markets With Last Minute Deal

In the last possible minute, OPEC+ managed to agree upon a massive cut of 1.2 million bpd, pushing oil prices up by over 3 percent.

(Click to enlarge)

Friday, December 7th, 2018

OPEC+ succeeds, agrees to cut 1.2 mb/d. The obvious major news of the day comes from Vienna. OPEC+ agreed, despite a lot of jockeying, to cut 1.2 mb/d of supply beginning in January. OPEC will contribute 800,000 bpd and non-OPEC will cut by 400,000 bpd. The group met on Thursday but cancelled a press conference, raising doubts about the ability to reach an agreement. Iran held up the talks early Friday because it refused to accept limits on its production, although, to be sure, any limit would be symbolic anyway since its output is declining due to sanctions. Iran was exempted from the deal. Oil sank on Thursday and in early trading on Friday, but prices spiked by more than 4 percent when an agreement was announced.

Trump admin to roll back sage grouse protections. On Thursday, the Trump administration announced plans to roll back protections on the sage grouse, effectively opening up 9 million acres of federal lands to mining and drilling. The move would open up more land than any other policy change to date, according to the New York Times. The proposal is expected to be finalized next year.

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

U.S. Shale Struggles As Oil Prices Drop

December 6, 2018

U.S. Shale Struggles As Oil Prices Drop

The explosive production growth in the U.S. shale patch has surprised even the most optimistic forecasters, but the huge jumps in output belies and obscures the financial state of the industry, which is a bit more complicated than the production figures might suggest.

Shale companies scrambled to cut costs during the oil market downturn between 2014 and 2017, and they successfully lowered their breakeven prices significantly. When OPEC+ agreed on its initial production cut deal, which started at the beginning of 2017, the higher prices that resulted from the agreement allowed U.S. shale to rebound in a big way. Surging production over the past two years suggested that the shale industry was stronger than ever.

This year was supposed to be the year that the money started rolling in – with cost cuts in hand and higher oil prices lifting all boats, shale drillers were supposed to be in the clear. But profits have been elusive.

To be sure, some companies have posted significant earnings. The oil majors, in particular, are earning more money than they have in a long time. But the bulk of the shale industry is still struggling. According to the Wall Street Journal, the 30 largest shale companies earned a rather marginal $1.7 billion combined in 2017.

The latest meltdown in prices, however, puts a lot in the industry right back into hot water. The problem is that despite boasts of low breakeven prices, many shale companies have failed to take a comprehensive look at the all-in costs of producing oil, as the Wall Street Journal points out.

It wasn’t uncommon over the last few years to hear shale executives brag about how their wells were profitable even with oil under $40 per barrel. But often those figures didn’t include the cost of land acquisition, or transportation.

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

World Bank Warns Of Extreme Volatility In Oil Markets

December 6, 2018

World Bank Warns Of Extreme Volatility In Oil Markets

After several months of oil price rises and then a sharp reversal over the last few weeks, world oil markets are in for more heightened volatility next year because of scarce spare production capacity among OPEC members. This warning comes from the World Bank, which in the latest edition of its Russia Economic Report said that OPEC was the single most important factor for oil price outlooks in the short term.

“As non-OPEC oil supply growth is expected to be greater than that of global demand, the outlook for oil prices depends heavily on supply from OPEC members,” the report’s authors noted. The level of spare capacity among OPEC members is estimated to be low at present, suggesting there are limited buffers in the event of a sudden shortfall in supply of oil, raising the likelihood of oil price spikes in 2019.”

The World Bank is not alone in seeing OPEC’s spare capacity as an important factor for oil prices going forward. Spare capacity provides a cushion against price shocks as evidenced most recently by the June decision of the cartel and Russia to start pumping more again after 18 months of cutting to arrest a too fast increase in oil prices. They had the capacity to do it and prices stopped rising, helped by downward revisions of economic forecasts.

Now, the oil market is plagued with concerns about oversupply, but this could change quite quickly if there is any sign that OPEC is nearing the end of its spare production capacity. As to the likelihood of such a sign emerging anytime soon, this remains to be seen.

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

Iran: Oil To Fall To $40 If OPEC Fails To Reach Deal

December 5, 2018

Iran: Oil To Fall To $40 If OPEC Fails To Reach Deal

A fractured OPEC is meeting later this week to discuss a deal to cut oil production—yet again—to rebalance the market and lift oil prices that have recently slipped to below most of the cartel members’ budget-balance points.

OPEC needs a unanimous vote to pass decisions such as curtailing production. Yet, Iran—one of OPEC’s biggest producers but also one of the most sidelined members in recent months—warns that the group is unlikely to reach an agreement on a sizeable cut of around 1.4 million bpd as some are suggesting. Such a failure to act decisively would send oil prices plunging to $40 a barrel, Iran’s OPEC Governor Hossein Kazempour Ardebili told Bloomberg in an interview.

The cartel and its Russia-led non-OPEC allies may not extend their cooperation pact either, according to Iran’s representative at OPEC—a position typically held by the second most powerful oilman in a cartel member after the oil minister.

Iran has repeatedly expressed frustration with the Saudi/Russia-led increase in oil production since June to offset what was expected to be a steep decline in Iranian oil supply with the U.S. sanctions on Tehran’s petroleum and shipping industries.

Iran’s oil exports indeed dropped by some 1 million bpd, but they are likely still holding onto above 1 million bpd, while U.S. waivers to eight Iranian customers allow buyers to continue purchasing oil at reduced volumes until the end of April next year.

Oil prices have plunged by around 30 percent from early October as the market started to fear an oversupply is building up again, due to record high production in Saudi Arabia and Russia, and an all-time high oil output in the United States, coupled with fears of slowing economic and oil demand growth.

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

Is This The Next Disaster For Canadian Drillers?

December 5, 2018

Is This The Next Disaster For Canadian Drillers?

The government of Alberta this week took an unprecedented decision to enforce a crude oil production cut so excess inventories could be shrunk and the price of western Canadian grades could improve, but the industry’s problems are far from over. They will be among the hardest hit by the International Maritime Organization’s new emission rules, to enter into effect in two years, which will require a reduction of the sulfur content of bunkering fuel to 0.5 percent from 3.5 percent.

“We’ve got challenges with respect to pipelines, we’ve got challenges with respect to rail and now we’ve got challenges with respect to our demand market,” Bloomberg quoted the chief executive officer of the Canadian Energy Research Institute as saying at a presentation this week. The emission rules will start affecting the price of Canadian crude next year, Allan Fogwill, along with other analysts, believes.

Canadian crude is heavy and sour, that is, high in sulfur content, which is the obvious reason why the IMO changes would affect prices, adding to already substantial pressure from pipeline bottlenecks and the rising amount of crude that is being transported by costlier rail.

According to IHS Markit analyst Kurt Barrow, the emission rules will make Canadian crude another $7-8 cheaper than West Texas Intermediate in 2019. Even the completion of the Line 3 replacement project won’t offset these losses, although it will add 375,000 bpd to daily pipeline capacity.

Another analyst, Wood Mackenzie research director Mark Oberstoetter, told Bloomberg Western Canadian Select will likely be US$20 cheaper than WTI for most of 2019, which is the cost of railway transportation for Albertan heavy crude. All in all, things are looking pretty bad. But how bad is bad?

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

Alberta Intervenes To Halt Canada’s Oil Crisis

December 4, 2018

Alberta Intervenes To Halt Canada’s Oil Crisis

Oil prices rose on Monday, buoyed by coordinated production cuts – cuts that did not come from Vienna (although that too could occur later this week).

Instead, the mandatory reductions were handed down by the provincial government of Alberta. “Perhaps OPEC should therefore consider inviting Canada to its meeting on Friday,” Commerzbank said in a note.

Alberta Premier Rachel Notley announced the production cuts “in response to the historically high oil price differential that is costing the national economy more than $80 million per day,” her office said in a statement. Western Canada Select (WCS) has plunged below $15 per barrel, representing a discount to WTI that has hovered at around $40 per barrel.

“The price gap is caused by the federal government’s decades-long inability to build pipelines. Ottawa’s failure in this area has left Alberta’s energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs,” the Alberta Premier’s office said.

Alberta’s oil industry is producing roughly 190,000 bpd in excess of available takeaway capacity. The surplus is filling storage up quickly. Oil producers will be required to make cuts on the order of 8.7 percent, or 325,000 bpd, beginning in January. Once the storage glut is reduced, the cuts will narrow to just 95,000 bpd, which will stay in place through the duration of 2019.

The first 10,000 bpd for each producer will be excluded from the mandatory cuts, intended to avoid negatively impacting small producers. The baseline used to calculate the cuts will be the highest level of production for each producer over the past six months.

Notley expects the production cuts to boost prices for WCS by roughly $4 per barrel, adding $1.1 billion to government revenue between 2019 and 2020.

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

What Crashing Refining Margins Mean For Oil Markets

December 3, 2018

What Crashing Refining Margins Mean For Oil Markets

Oil prices have plunged to one-year lows, but refiners in certain parts of the U.S. are not benefitting from cheaper crude.

According to new data from the EIA, refining margins for motor gasoline have fallen to five-year lows. “Flattening year-over-year growth in gasoline demand in the United States, combined with high levels of refinery output, have contributed to low or negative motor gasoline refining margins for refiners along the East and Gulf Coasts,” the EIA said on November 27. Gasoline refining margins have been declining since August.

In November, U.S. gasoline demand is expected to have averaged 9.2 million barrels per day (mb/d), down 262,000 bpd from a year earlier.

(Click to enlarge)

Meanwhile, prices for distillates, such as diesel, are much higher. The discrepancy is notable, and the markets for gasoline and distillates have diverged sharply this year. The forthcoming 2020 International Maritime Organization regulations on sulfur content in maritime fuels is set to push extremely dirty heavy fuel oil out of the mix for ship-owners. One of the most important replacements for fuel oil be diesel and gasoil – in other words, distillate demand is set to spike at the start of 2020. In anticipation of these regulations, distillate prices are seeing upward pressure.

With diesel prices on the rise and gasoline prices heading in the other direction, refiners might want to maximize diesel output. However, things aren’t that simple. As the EIA notes, for every barrel of crude oil processed in a refinery, it tends to yield twice as much gasoline as it does diesel. “As a result, although gasoline margins have been low recently, refiners cannot completely stop making gasoline in favor of other petroleum products, such as distillate,” the EIA said.

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

Oil Prices Set To Book Worst Month In A Decade

December 1, 2018

Oil Prices Set To Book Worst Month In A Decade

Oil prices dropped early on Friday, on course to finish their worst month since 2008, as fears of oversupply and slowing demand growth dragged oil down into a bear market in November with prices off by some 30 percent from four-year highs in early October.

At 07:10 a.m. EDT on Friday, WTI Crude was down 1.81 percent at $50.52, and Brent Crudetraded down 1.47 percent at $59.03.

On Thursday, oil prices jumped on reports that Russia had conceded that it needs to reduce oil production and join a new Saudi-led OPEC cut to balance the market.

The rise didn’t last long—prices headed down again on Friday, pressured by rising U.S. oil production and comments by Russia’s Energy Minister Alexander Novak, who said in an interview with the TASS news agency that “To me, the current price range is comfortable for producers and consumers.”

Earlier this week, Russian President Vladimir Putin also signaled that Moscow is okay with oil prices at their current levels.

Russia is comfortable with oil at around $60, Putin said, a week ahead of the OPEC+ meeting in Vienna and just two days before the G-20 summit in Buenos Aires.

In his interview with TASS published on Friday, Novak, as usual, was elusive about Russia’s position about a new production cut, and said that Moscow will have its stance ready by the December 6-7 meeting.

Before the OPEC/non-OPEC meeting, the oil market will be looking for clues about global economy and trade at this weekend’s G-20 summit. U.S. President Donald Trump and Chinese President Xi Jinping are expected to meet on the sidelines of the event to discuss the trade war. Putin, for his part, is expected to meet with Saudi Crown Prince Mohammed bin Salman and the two may discuss the OPEC-Russia oil cooperation, days ahead of the OPEC+ meeting.

The next few days could provide some major catalyst for oil prices.

Oil Falls On Crude Inventory Build

November 28, 2018

Oil Falls On Crude Inventory Build

Crude oil prices slipped further down today after the Energy Information Administration reported crude oil inventories for the week to November 23 had added 3.6 million barrels. That’s compared with a build of 4.9 million barrels a week earlier.

The EIA figures came after yesterday the American Petroleum Institute reported an estimated inventory increase of 3.453 million barrels, which failed to affect prices in any significant way.

EIA also said gasoline inventories last week had declined by 800,000 barrels and distillate fuel inventories had added 2.6 million barrels. A week earlier, the authority estimated a decline of 1.3 million barrels in gasoline and a 100,000-barrel decline in distillate fuel inventories.

Meanwhile, production is hitting new highs and this will continue, according to most estimates, unless oil prices continue declining at a fast pace. The likelihood of this happening is relatively low, however. OPEC is meeting next week in Vienna to discuss a new round of production cuts and most analysts expect the cuts to be agreed with Russia also joining in again.

However, Morgan Stanley, for one, sees a 33-percent chance of the cartel failing or refusing to agree a production cut, in which case prices will definitely slump more, pressured by bleak economic outlooks and concerns about a crude oil oversupply. The argument against a production cut is simple enough: market share. It’s no wonder some OPEC members have already spoken against a cut, notably Libya, which said it expected to be granted an exemption from any cuts.

Besides the OPEC meeting, oil market observers would be watching the G20 meeting, where Russia may or may not give a clear indication whether it will join any cut agreements. Just like last time, Moscow would be a crucial ally for the cartel if it decides to join the cuts or a deal-breaker if it decides to sit these out.

How Much Oil Production Will The Saudis Cut?

November 28, 2018

How Much Oil Production Will The Saudis Cut?

Donald Trump continues to take credit for lowering oil prices.

Donald J. Trump
✔@realDonaldTrump

So great that oil prices are falling (thank you President T). Add that, which is like a big Tax Cut, to our other good Economic news. Inflation down (are you listening Fed)!

Trump’s tweetstorm complicates the OPEC+ meeting in Vienna next week. Trump is very much leaning on Saudi Arabia, pressuring them not to cut output. And he has gone out of his way to protect the Saudis even though the CIA has concluded that crown prince Mohammed bin Salman likely ordered the murder of journalist Jamal Khashoggi. He clearly expects the Saudis to return the favor by not cutting production.

This puts Riyadh in a bind. Saudi Arabia needs to patch up its relationship with the West, but it also can ill-afford oil prices at current levels. Saudi Arabia needs Brent to trade north of $80 per barrel for its budget to breakeven. Massive budget deficits during the 2014-2016 downturn help explain Riyadh’s about-face in late 2016 – they had tried to force high-cost drillers out of the market by crashing oil prices, but ultimately caved and engineered an OPEC+ production cut to push prices back up.

Little has changed since then. Saudi Arabia’s spending commitments are still large, and that is before we even take into account MbS’ overly-hyped economic reform proposals. Saudi Aramco is also trying to figure out how to transform itself for the long haul. There was the much-ballyhooed Aramco IPO that has since been shelved. There were the plans for Aramco to issue one of the largest corporate bond offerings ever in order to finance a major stake in Sabic, the state-owned Saudi chemical firm. That initiative was also recently abandoned.

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

Mexico’s Oil Crisis Deepens

November 27, 2018

Mexico’s Oil Crisis Deepens

Mexico’s state oil company Pemex said it produced an average 1.76 million bpd of crude in October, down 7 percent from October last year, Reuters reports, citing data released by the company. This is also one of the lowest monthly production rates since 1990 when records began.

The decline was attributed to the natural depletion of mature fields, highlighting the urgent need for new production in the country. The outgoing government of Enrique Pena Nieto launched a sweeping reform in Mexico’s energy sector, one of its aims being to open up the local oil wealth to foreign operators in order to stem this decline in production. The incoming government is currently reviewing oil contracts signed by the previous administration to make sure no corruption was involved in the deals.

Exports of crude also declined last month, and by a lot more than production. Pemex exported an average 1.03 million bpd, down by 25 percent from a year earlier. President-elect Andres Manuel Lopez Obrador earlier this year said Pemex should keep more crude for its refineries instead of exporting it to reduce Mexico’s dependency on imported fuels, but the country’s refining sector needs a lot of work to make this plan successful.

It was in October that Pemex’s refineries hit a record low utilization rate of 25.7 percent, according to an S&P Global Platts report, which also noted the causes of the drop included shortages of light crude and technical difficulties at some refineries. Pemex would need to upgrade its refineries to produce more gasoline to make local refining more profitable as currently its facilities produce a lot more fuel oil than would make economic sense.

Despite the problems, Obrador has ambitious plans, including an increase in crude oil production to 2.6 million bpd by the end of his six-year term in office and a lot more domestic refining.

The Biggest Losers Of The Current Oil Price Slump

November 27, 2018

The Biggest Losers Of The Current Oil Price Slump

The ongoing slump in oil prices, which has seen crude fall so sharply from the 52-week high set in October that $1 trillion has been wiped off energy stocks, will cut deep into the pockets of major producers like Saudi Arabia, Russia, Nigeria and Angola. As the world heads into an “unprecedented time of uncertainty” in oil markets, however, it’s not only OPEC members who will suffer. Even countries who are less naturally exposed to fluctuations in oil rents, such as Malaysia and Canada, are more vulnerable than usual to the current oil price crash thanks to poor policymaking.

Record losses

As recently as early October, Brent crude was trading at almost $87 per barrel, amid predictions of $100 a barrel. Since then, the commodity has endured an unprecedented run of losses. Affected simultaneously by a glut in supply and a drop-off in demand, oil is now valued at almost half of what it was two months ago, after recording its biggest single-day drop in three years.

The projected decrease in supplies precipitated by American sanctions on Iranian oil has failed to materialize, thanks to the Trump administration unexpectedly issuing waivers for eight countries, including major importers China and India. More worryingly, this abundance in supply may only account for roughly 15 percent of the current slump in prices, with the rest caused by depressed demand linked to sluggish economies.

OPEC under pressure

As the industry holds its breath hoping that the December 6^th meeting will stabilize crude prices, lethargic demand is far more concerning than outsized supply, as OPEC countries do not have direct control over it.

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

Trump And OPEC Face Off Over Production Cuts

November 26, 2018

Trump And OPEC Face Off Over Production Cuts

“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!” President Trump tweeted a few days ago.

Trump is a bit confused on the specific figures – perhaps he was mixing up Brent and WTI – but the message to Riyadh was clear. The American president is pleased with the collapse in oil prices and wants them to go even lower, although he’s light on specifics. “It would probably be incorrect to think that Trump has any particular oil price target other than ‘lower’, or a view on what would be a sustainable or even ‘fair’ oil price,” Standard Chartered wrote in a note on Wednesday. “The aim is simply to maximise the gain to consumers.”

The recent meltdown in oil prices is indeed impressive, but for prices to fall even more, OPEC+ would need to take a pass on a production cut. The problem is that the lower prices go, the more likely the group will agree to curb output.

Russia has been coy in recent weeks about where they stand on a production cut. The thinking in Moscow is a bit more cautious than in Riyadh – engineering a price increase, while good for the budget, also risks sparking more production from U.S. shale.

Moreover, Russia’s currency tends to weaken when oil prices fall, cushioning the blow to Russian oil producers and to the Russian economy. Russian firms can pay expenses in weaker rubles, while making oil sales in stronger dollars. Saudi Arabia, with its fixed exchange rate, doesn’t have this luxury. That makes the Saudis a bit more squeamish on lower prices.

However, Brent crude dipped below $60 per barrel on Friday, a level that starts to make even the Russians uncomfortable. As a result, the pressure is on OPEC+ to cut production.

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

Does The U.S. Really Need Saudi Oil?

November 23, 2018

Does The U.S. Really Need Saudi Oil?

“Saudi Arabia — if we broke with them, I think your oil prices would go through the roof. I’ve kept them down,” President Trump told reporters on Tuesday. “They’ve helped me keep them down. Right now we have low oil prices, or relatively. I’d like to see it go down even lower — lower.”

Oil prices have indeed fallen significantly in recent weeks, and to be sure, Saudi Arabia has played a large role in that. Saudi production reportedly hit a record high 11 million barrels per day (mb/d) at times this month, and global inventories are rising once again.

But Riyadh is also clearly upset at being “duped” by Trump. Having been convinced by the Trump administration that Iran’s oil exports were heading to zero, or at least close to zero, Saudi Arabia ramped up supply to offset the losses.

The U.S. then surprised the market by issuing a bunch of waivers, allowing Iran to continue to export oil. Japan and South Korea may even resume buying oil from Iran in January, after cutting imports to zero in anticipation of sanctions.

Almost immediately after the waivers were issued, oil prices crashed. Saudi Arabia then promptly announced that it would cut production by 500,000 bpd in December, and the rumors of an OPEC+ cut really began to pick up.

Trump is happy about the slide in oil prices, but Saudi Arabia clearly isn’t. Saudi Arabia and its OPEC+ partners could soon take action to push prices back up. So, it isn’t clear that Washington and Riyadh have the same objectives, or that their tight relationship is resulting in lower oil prices.

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

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