Home » Posts tagged 'oil price'

Tag Archives: oil price

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Texas Hit Hard By Shale Slowdown

Texas Hit Hard By Shale Slowdown

Texas Shale Slowdown

Texas’ economy is perhaps the most vulnerable to oil price swings given its leading role in the country’s oil industry. Recently, as prices have remained low, talk has begun about the outlook for the state’s economy.

According to a recent Reuters report, for example, smaller independent oil and gas producers in the Lone Star State are struggling to get loans from banks as the latter become increasingly wary of the ability of the borrowers to return the money when the time comes.

Jobs in the Texas oil and gas industry are falling, too. The Houston Business Journal reported this month that September saw a 1,100 decline in the number of jobs in the mining and logging sector—the category that includes oil and gas jobs. Over the 12 months from September 2018, the state’s oil and gas industry added just 1,700 new jobs, which was the lowest number of new job additions to any Texas industry over the same period, data from the Texas Workforce Commission showed.

Yet not everyone is worried. The University of Houston Energy Fellows, for instance, wrote in an article for Forbes that “the alarm bells are premature.” While the experts that make up the group acknowledge there are plenty of reasons to be worried about the economy of Houston—the article focuses on the city—oil prices are not among them.

The trade war with China and the anticipation of a global economic slowdown caused by it is a top concern for any economy and Houston is no exception. Political economic problems in Europe are also a cause for worry. Yet, according to the University of Houston Energy Fellows, bankruptcies in the Houston oil and gas industry are only slightly higher this year than last, and the credit crunch energy independents are facing now is “far from comparable to 2015-16.”

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

Oil Erases All Saudi-Attack Gains After Iran Sanctions Report

Oil Erases All Saudi-Attack Gains After Iran Sanctions Report

Already helped by reports of a partial Saudi cease-fire with Yemen, oil prices have legged lower – erasing all the price gains since the Saudi-attack – on the back on a Reuters report saying that US offered to remove all Iranian sanctions in exchange for talks.

That’s not going to help the value of the Aramco IPO.

Oil Tumbles On Report Saudis Agree To Partial Ceasefire With Yemen

Oil Tumbles On Report Saudis Agree To Partial Ceasefire With Yemen

With the price of oil still on edge over the duration of Saudi Aramco repairs and speculation over how long until Saudi oil output is fully restored, moments ago Brent tumbled after a WSJ report that Saudi Arabia – which is hoping to come to market with the Aramco IPO in the coming weeks – is seeking to impose a partial cease-fire in Yemen, as Riyadh and the Houthi militants the kingdom is fighting try to bring an end to the four-year war that has become a front line in the broader regional clash with Iran.

Saudi Arabia’s surprise decision to de-escalate a long-running war follows a just as surprising move by Houthi forces to declare a unilateral cease-fire in Yemen last week, just days after claiming responsibility for the Sept. 14 drone and cruise missile strike on Saudi Arabia’s oil industry the WSJ notes. While the Houthis fired two missiles at Saudi Arabia earlier this week, the strike wasn’t seen by Saudi leaders as a serious attack that would undermine the new cease-fire efforts.

Houthi leaders initially said they were responsible for the attack on the oil facilities, but Saudi, U.S. and European officials have dismissed the claims as a transparent attempt to obscure Iran’s role in the strike. Yemeni fighters, these officials say, have neither the weapons nor the skills to carry out such a sophisticated strike.

In the days that followed the attack, an internal Houthi rift expanded between those who want to distance themselves from Iran and those who want to strengthen ties.

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

Oil Set To Spike After Report Saudi Repairs At Abqaiq May Take “Up To Eight Months”

Oil Set To Spike After Report Saudi Repairs At Abqaiq May Take “Up To Eight Months”

While S&P futures may spike at the open following Saturday’s news from the NYT that the “the delegation of Chinese agriculture officials that had planned to travel to Montana and Nebraska in the coming week didn’t cancel the trip because of any new difficulty in the trade talks” but “instead, the trip was canceled out of concern that it would turn into a media circus and give the misimpression that China was trying to meddle in American domestic politics”, oil too is likely to catch a bid after the WSJ reported that it may take “up to eight month”, rather than 10 weeks company executives had previously promised, to fully restore operations at Aramco damaged Abqaiq facility, suggesting the crude oil shortfall will last far longer than originally expected.


Saudi officials say there is little sense of calm at the highest levels of the company and the Saudi government, however. It could take some contractors up to a year to manufacture, deliver and install made-to-measure parts and equipment, the Saudi officials said. #OOTT https://twitter.com/summer_said/status/1175859119061909506 …https://www.os-repairs-could-take-months-longer-than-company-anticipates-contractors-say-11569180194 243:52 PM – Sep 22, 2019


The official reason for the delay: the supply-chain is unable to respond to the Saudi needs. Specifically, Aramco is” in emergency talks with equipment makers and service providers, offering to pay premium rates for parts and repair work as it attempts a speedy recovery from missile attacks on its largest oil-processing facilities.” 

Following a devastating attack on its largest oil-processing facility more than a week ago, Aramco is asking contractors to name their price for patch-ups and restorations. In recent days, company executives have bombarded contractors, including General Electric , with phone calls, faxes and emails seeking emergency assistance, according to Saudi officials and oil-services suppliers in the kingdom.

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

Energy Expert Warns Oil Shocks Hit The Economy With Incredible Speed, Usually Within Thirty Days

Energy Expert Warns Oil Shocks Hit The Economy With Incredible Speed, Usually Within Thirty Days

The lasting damage from the weekend’s attacks on Saudi oil infrastructure is yet to be fully assessed.  Having said that, we can make some broad statements about supply outages and economic cycles.

Although we tend to forget it, almost all of the major US recessions since 1945 have been triggered by wars in the Middle East involving Persian Gulf countries and oil politics.

Specifically:

  • The 1956-1957 Suez Crisis led to the closing of the Suez canal and rapidly precipitated a recession in the advanced economies
  • The Yom Kippur War of 1973 led to an embargo on oil exports to the US and other western countries, precipitating the first US post-peak oil shock
  • The Iran-Iraq War created another price spike, triggering the Second Oil Shock, two back-to-back recessions in the US (1979-1983)
  • Price increases associated with Saddam Hussein’s preparations for the First Gulf War tipped in the US into recession in 1991
  • The Arab Spring of 2011 created supply shortages which sent oil prices back over $100/barrel, leading to a two year recession in Europe

In recent times, only the 2001 Dot.com bust and the 2008 oil price spike were not associated with supply outages related to a conflict in the Middle East. A conflict-induced recession would not be an exception to the rule, but rather the typical trigger ending a late stage expansion in the west.  

Oil shocks hit the economy with incredible speed, usually within thirty days.  

The magnitude necessary to precipitate a price spike and a resulting recession is probably less than a loss of 3 mbpd, 3% of global supply.  Over the weekend, Saudi outages totaled 5.7 mbpd.  The oil price would have to reach around $110 / barrel to push the world into recession, before taking into consideration the phase of the business cycle.  The closest parallel is 1991, when a brief oil price spike pushed an already tottering US economy into recession.

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

Oil Explodes 20% Higher, Biggest Jump On Record

Oil Explodes 20% Higher, Biggest Jump On Record

With traders in a state of near-frenzy, with a subset of fintwit scrambling (and failing) to calculate what the limit move in oil would be (hint: there is none for Brent), moments ago brent reopened for trading in the aftermath of Saturday’s attack on the “world’s most important oil processing plant“, and exploded some 20% higher, to a high of $71.95 from the Friday $60.22 close, its biggest jump since futures started trading in 1988.

Source: Bloomberg
Source: Bloomberg

As Bloomberg notes, “for oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Department of Energy.”

Furthermore, in light of news that the Saudi outage could last for months, this could be just the start. As a reminder, according to Morningstar research director, Sandy Fielden, “Brent could go to $80 tomorrow, while WTI could go to $75… But that would depend on Aramco’s 48-hour update. The supply problem won’t be clear right away since the Saudis can still deliver from inventory.”

Of course, should Aramco confirm that the outage – which has taken some 5.7mmb/d in Saudi output after 10 drones struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais – will last for weeks, expect the crude juggernaut to continue until the price hits $80, and keeps moving higher.

Finally, here is the price summary from Goldman commodity strategist Damien Courvalin, who earlier today laid out four possible shutdown scenarios, and the price oil could hit for each:

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

Russia Considers Possibility Of $25 Oil Next Year

Russia Considers Possibility Of $25 Oil Next Year

MBS Putin

Russia is considering the notion that oil prices may be as low as $25 per barrel in 2020, the country’s central bank said in its new forecast published on Monday, as cited by Reuters.

Russia’s Central Bank has forecast in its macroeconomic forecast that oil could possibly hit that low due to falling demand for oil and oil products worldwide, as well as from disappointed global economic growth.

The doom and gloom scenario was just one proposed by the bank. If that risk scenario actually materializes, Russia’s inflation could increase to 7% or 8% next year, on the back of falling gross domestic product to 1.5%– 2%.

Russia is perhaps uniquely positioned to withstand low oil prices, although $25 per barrel is pretty bleak.

One of the reasons why Russia is more impervious to low oil prices compared to its competition is that its currency weakens when oil prices fall. This provides some type of a cushion—at least to some extent—for its lower oil revenues. Russian oil companies can pay their expenses in this weaker ruble, but still rakes in US dollars for its oil exports. Further allowing it to withstand lower prices, are that Russia’s oil company’s taxes are designed to be less as oil prices fall.

So much so is Russia’s ability to adapt to lower oil prices, that it actually struggles with higher oil prices, which dent demand for its oil. Russia’s budget for 2019 was based on $40 oil.Meanwhile, Saudi Arabia needs $80—some say even $85—per barrel.

In August, Russia said its 2019 budget breakeven was at a Urals price of $49.20—the lowest breakeven in more than a decade.  This has Russia and Saudi Arabia—colleagues in the current production quotas designed to rebalance the market—at odds, and likely working toward perhaps different goals.

“A Murderer’s Row”: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years

“A Murderer’s Row”: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years

Oil and gas companies are facing an onslaught of bankruptcies as the “shale revolution” appears to be coming to an unceremonious end, at least on Wall Street, according to the Wall Street Journal

Companies like Sanchez Energy Corp., Halcon Resources Corp. and 26 other oil and gas producers have all filed for bankruptcy this year, already matching the 28 industry bankruptcies from all of 2018. The number is expected to rise as debt maturities for those looking to cash in on the shale revolution and make bets on higher oil prices years ago are now looming. 

5.7% of all energy companies with junk rated bonds are defaulting as of August, the highest level since 2017. The metric is “considered a key indicator of the industry’s financial stress.”

The defaults are on the rise as companies struggle to service debt, bring in new money and refinance existing debt. The once-darling shale business model has been under significant scrutiny from Wall Street over the last 18 months, adding to the headwinds for many companies. 

Investor interest has faded after years of meager returns while, at the same time, companies struggle to meet their cost of capital with oil prices below $60/barrel. 

Private companies and smaller drillers have felt the most pain thus far. These companies “collectively generate a large portion of U.S. oil,” and their distress is indicative of wider distress throughout U.S. shale. 

Patrick Hughes, a partner at Haynes & Boone said: “They were able to hang in there for a while, but now their debt levels are just too high and they’re going to have to take their medicine.” 

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

Possible Currency War Would Be A Disaster For Oil

Possible Currency War Would Be A Disaster For Oil

Yuan

Oil prices plunged on Friday after the U.S. and China both announced tariff hikes in tit-for-tat fashion. At the same time, markets opened on a positive note early Monday after President Trump struck a more conciliatory tone. But the respite could be brief.

Global financial markets are completely at the mercy of Trump’s twitter account these days. On Friday, stocks and commodities fell sharply after China announced an increase in tariffs on U.S. goods. In response, Trump announced yet another 5 percent increase in the suite of tariffs on Chinese goods, although, notably, he waited until after financial markets had closed for the week.

Over the weekend at the G-7 Conference in France, Trump sent mixed messages on the trade war, suggesting he had “second thoughts,” with his team subsequently clarifying that his second thoughts regarded his regret he hadn’t hiked tariffs by an even greater amount. Nevertheless, traders took comfort in his comments about wanting to make a deal with China, in addition to his assertion that China had called him up asking for a return to negotiations.

Stocks opened up on a positive note on that news. However, it should be noted that Chinese officials said that they were “not aware of” the phone call that Trump alluded to. When pressed by reporters about the nature of the phone call, Trump said: “I don’t want to talk about calls. We’ve had calls. We’ve had calls at the highest levels.”

If we’ve learned anything over the past few months, it is that these events turn on a dime. The incoherent strategy from the White House, and the complete lack of an official policymaking process, makes it impossible to predict how events will unfold. It is odd then that financial markets were so sanguine at the start of the week.

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

Debunking ‘Lower Oil Supply Will Raise Prices’

Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

In fact, as I write this, Brent oil price is currently quoted as $60.48, which is back in the range of December 2018 and January 2019 low prices. Also, reducing production doesn’t seem to be reducing inventories. Figure 3 suggests that they are now higher than they were before the reduction in oil supply took place.

Figure 3. Figure from the OPEC Monthly Oil Market Report for August 2019 showing OECD commercial oil stocks.

Why aren’t oil prices rising and oil inventories falling, if oil production has fallen?

The basic issue is that the economy is very much interconnected under the laws of physics, because energy is required for every activity that is considered part of GDP. Energy is required for any kind of heat or any kind of movement. Energy is even required for electricity. Without energy from the sun, food can’t grow; without supplemental energy of some kind (such as using electricity to heat an electric stove or burning animal dung or sticks), it becomes impossible to cook food or smelt metals.

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

Persian Gulf Conflict Could Send Oil Beyond $325

Persian Gulf Conflict Could Send Oil Beyond $325+

Drone

The possibility of Iran attempting to close the Strait of Hormuz to tanker traffic has increased significantly in recent weeks, as has the possibility of a Persian Gulf War, especially with the Islamic Republics’ intentional destruction of a U.S. surveillance drone on June 20.

This act provides weight to Tehran’s threat that it will inflict a heavy toll on U.S. allies in the region if attacked by American forces and will not allow these same countries to export their oil if it can’t export its own.

The memory remains remarkably fresh in Iran of the 1951-53 oil embargo that toppled the democratically-elected government of Prime Minister Mohammed Mossadegh – and the CIA installing the despot Mohammad Reza Pahlavi, the so-called Shah of Iran, in his place.

The impact on oil markets of an Iranian closure of the Strait of Hormuz would be enormous.

Strait of Hormuz Closure

The leadership of the Iranian Navy and the Revolutionary Guard Navy, knowing they could never challenge the U.S. in a conventional naval contest, have been accumulating considerable asymmetric and other capabilities to enable the Islamic Republic to close the Strait of Hormuz since the “tanker war” in the Persian Gulf during the 1980-88 Iran-Iraq War.

These capabilities include thousands of sea mines, torpedoes, advanced cruise missiles, regular-sized and mini-submarines, and a flotilla of small fast-attack boats, most of which are concentrated in the strait region. Related: Oil Prices Set For Worst Weekly Drop In Five Weeks

Pentagon planners believe Iran would use all of these capabilities in an integrated fashion to both disrupt maritime traffic in the Strait of Hormuz and attempt to deny American and allied forces access to the region. Iranian naval forces are viewed as a “credible threat” to international shipping in the strait.

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

TROUBLE AT THE BAKKEN: Oil Production Finally Peaking?

TROUBLE AT THE BAKKEN: Oil Production Finally Peaking?

Is the mighty Bakken Shale Oil Field finally peaking?  Well, according to the data from the folks at the North Dakota Department of Mineral Resources, oil production in the Bakken has been flat for the past six months.  And, to make matters worse, production has been flat even though oil prices increased from a low of $42 in January to the mid $60’s in April.

So, something seriously wrong is going on in North Dakota.  What a difference in the Bakken’s recent oil supply compared to the field’s heyday when production surged from 300,000 barrels per day in 2011 to over 1.1 million barrels per day in 2014.  Furthermore, the oil price the shale companies in the Bakken are receiving is now $48 a barrel versus the West Texas Intermediate price of $57.

If we look at the past seven months, the North Dakota Bakken has only added 36,000 barrels per day (bd) of new oil production compared to 114,000 bd during the same period last year:

As we can see in the chart above, the output from Sep 2017 to Apr 2018 enjoyed an upward trend, while the Sep 2018-Apr 2019 has been flat.  You can see this better in Enno Peters chart from ShaleProfile.com.  I highly recommend followers check out his site as he provides updates on the top shale oil and gas fields in the United States using state data from over 100,000 wells.

These charts from ShaleProfile.com show the annual change production by different colors.  Here we can see that Bakken oil production increased steadily from 2011 to 2014, plateaued in late 2014 and 2015, declined in 2016, raised in 2017-2018, and has plateaued once again in 2019. The likely culprit for the plateau in Bakken oil production has to do with the lower oil price and the reduction of investment funds available to the shale companies that continue to spend more money than they make.

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

Two Events That Will Determine Oil Prices

Two Events That Will Determine Oil Prices

offshore rig

Two big events over the next two weeks will determine the trajectory for oil prices in the second half of the year. One of those events will take place in Japan, the other in Austria.

U.S. President Donald Trump will meet Chinese President Xi Jingping on the sidelines of the G-20 conference next week in Osaka, Japan. Nothing less than the health of the global economy hangs in the balance.

Both leaders have powerful forces pulling them in opposite directions. On the one hand, both have a domestic political constituency invested in confrontation, or, at least, in not backing down from a trade fight. Neither wants to lose face. Trump campaigned on taking on China, and at least part of his political base may be disappointed if he comes home short of victory. In Beijing, Xi is also under tremendous pressure. The protests in Hong Kong leave him little room for error, and being seen as backing down to Trump would be highly damaging.

However, both leaders are also under pressure to end the trade war. Trump has a presidential election right around the corner, and farm country has been hit hard by sinking agricultural prices related to tariffs. China’s economy has also been hit hard by American tariffs, so Xi would likely be relieved to reach a compromise.

The stakes are high. The global economy is slowing down. Manufacturing data is weak, the auto market has slumped badly, trade volumes are sharply down globally. If the talks fail and the U.S. and China decide to escalate the pressure – Trump has threatened to hike tariffs on $300 billion of Chinese goods – a full-blown recession is possible.

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

Escalating Trade War Signals More Pain For Oil

Escalating Trade War Signals More Pain For Oil

Offshore tanker terminal

Trump backed off his proposed trade war with Mexico in the face of intense pressure from business groups and even his own party, but his faith in tariffs remains unbowed. In fact, Trump may have internalized a lesson that presents further risks to the global economy and to oil markets.

“If we didn’t have tariffs, we wouldn’t have made a deal with Mexico,” Trump said on Monday. “We got everything we wanted.”

The proposed 5 percent tariff on Mexico was suspended because Trump said that the Mexican government agreed to a series of demands to tighten up migration through the country. However, press reports suggest that some of the provisions in the deal, such as Mexico agreeing to buy agricultural goods, are a mirage, while others, such as expanding border security, were agreed to months ago.

Leaving those pesky details aside, Trump was triumphant. Indeed, even though the White House saw pushback from business groups and the Republican-controlled U.S. Senate, in Trump’s mind the whole episode seems to have reaffirmed his strategy.

With the U.S.-China trade war unfinished, the U.S. President feels emboldened to take a hardline on Beijing.

“The China deal’s going to work out,” Trump said in an interview on CNBC. “You know why? Because of tariffs. Because right now China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”

Moreover, he says that the tariffs to date have been successful. “We’ve never gotten 10 cents from China. Now we’re getting a lot of money from China, and I think that’s one of the reasons the G.D.P. was so high in the first quarter because of the tariffs that we’re taking in from China,” he told reporters on Monday. 

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

The Biggest Losers In The Shale Slowdown

The Biggest Losers In The Shale Slowdown

shale

Schlumberger saw its debt rating downgraded by S&P due to the unfolding slowdown in drilling by U.S. shale companies.

The largest oilfield service company in the world has seen its earnings hit as the shale industry goes through a soft patch. S&P cut Schlumberger’s debt rating to A+, down from AA-. Meanwhile, Halliburton saw its outlook downgraded from “stable” to “negative.”

“Oilfield services companies will no longer be able to generate the high operating margins they did in 2014,” Carin Dehne-Kiley, an analyst at S&P, wrote in a report. “The oilfield services industry has fundamentally changed due to permanent efficiency and productivity gains realized by E&P companies as well as investor sentiment calling for E&P companies to live within cash flow and limit production growth.”

The sharp fall in oil prices late last year, which stretched into the first quarter of 2019, led to a rapid erosion in the U.S. rig count. The oil rig count fell by 5 to 797 for the week ending on May 24. The rebound in oil prices this year has not led to a corresponding bounce back in the rig count.

Shale companies have pulled back, making modest spending cuts amid the soft patch. Moreover, the U.S-China trade war may have killed off yet another rally, with gloom spreadingacross the industry. Another lengthy downturn would likely deepen the modest austerity measures implemented by shale producers, which would further weigh down the oilfield services sector.

Lower drilling activity translates into less interest in the variety of services that Schlumberger offers. A depressed market for equipment, labor and other services means that companies like Schlumberger have less leverage in pricing negotiations with oil producers. Several years on from the massive oil market bust in 2014, Schlumberger has been trying to claw back the steep discounts it was forced to offer to producers. 

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase