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The EU embargo on seaborne Russian crude oil exports and the G7 price cap on Russian oil are both less than a month away.
While a global economic slowdown and weak oil demand in China have capped prices, looming supply disruptions will likely send oil prices higher.
A lack of refinery capacity and crude oil disruptions will drive the price of fuels higher as well, particularly the price of diesel.

Less than a month from now, an embargo on seaborne Russian crude oil exports to the European Union will come into effect. As a result, global oil supply is set to tighten considerably as Russia is the biggest oil and fuels exporter in the world. And the market is preparing.

Hedge funds once again like oil, and are buying it on the futures market in considerable volumes, according to Reuters’ John Kemp. Last week, the buying reached 22 million barrels of Brent crude and 15 million barrels of West Texas Intermediate.

India is buying Russian crude at a discount, so it is buying a lot: its share of Middle Eastern oil imports fell to the lowest in 19 months in September, according to new data. Russia overtook Saudi Arabia as India’s number-two supplier after Iraq.

China is also buying Russian oil and not giving any indications it’s going to stop when the embargo enters into effect. The same is true of the G7 price cap for Russian crude that should also be coming into effect in a few weeks. China has already stated this will not change its current oil-buying habits.

Yet, with an EU embargo and a G7 price cap, what will almost certainly happen by the end of the year is that oil will become more expensive than it is now. Perhaps more worryingly, fuels – especially diesel…

…click on the above link to read the rest…

NOPEC Bill Won’t Bring Oil Prices Down

October 13, 2022

NOPEC Bill Won’t Bring Oil Prices Down

Washington responded angrily to OPEC+’s decision to cut output.
U.S. legislators have suggested the introduction of a bill called NOPEC in order to reduce OPEC’s power.
NOPEC could send oil prices higher and end the dominance of the petrodollar.

“Nobody f*cks with a Biden,” said the U.S. president, and the oil ministers of the member countries of the Organization of the Petroleum Exporting Countries (OPEC+) replied, “Hold my beer.” OPEC+ then proceeded to approve production cuts of 2 million barrels per day, despite a full court press by the administration in the weeks leading up to the decision, and raised the price of oil for the U.S., lowered it for Europe, and left it unchanged for Asia. According to National Security Advisor Jake Sullivan, “the President is disappointed by the shortsighted decision by OPEC+ to cut production quotas” and “the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC+’s control over energy prices,” neglecting to mention that Biden administration decisions to cancel the Keystone XL pipeline and to stop issuing new oil and gas leases on public lands gave OPEC+ the upper hand.

Apparently, a fist bump only gets you so far.

There followed a lot of “how dare they!” by the great and good, but OPEC+ was having none of it. The day before the announcement, the Saudi energy minister dressed down a Reuters reporter for shoddy work by his colleague who claimed that Russia and Saudi Arabia (the Kingdom) conspired to price oil at $100 per barrel, and later explained OPEC+ was being proactive as the West is attacking inflation with higher interest rates which, in turn, may cause a recession and drive down oil demand (and price)…

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

World Should Brace for Global Oil Shortage and Skyrocketing Price Due to Worsening Crisis

November 1, 2021

World Should Brace for Global Oil Shortage and Skyrocketing Price Due to Worsening Crisis

According to economists, chronic underinvestment in new oil supply since the 2015 crisis, as well as pressure on oil and gas corporations to reduce emissions and even “keep it in the ground,” would likely lead to global oil output peaking sooner than initially projected.

This would be a positive outcome for green energy proponents, net-zero agendas, and the environment if it weren’t for one simple fact: oil demand is recovering from the pandemic-induced dip and is on track to reach a new annual average record as early as next year.

Nearing Peak Oil Consumption?

Analysts have predicted that peak oil consumption will arrive sooner than envisaged just a few years ago, thanks to the energy transition and numerous government initiatives for net-zero emissions.

However, based on current oil and gas investment trends, global oil production may peak before global oil demand, creating a supply imbalance resulting in increased market volatility, price spikes, and perhaps fundamentally higher oil prices by the middle of this decade.

In a report published by Reuters this week, Morgan Stanley’s research department noted, “On present trends, global oil production is projected to peak much earlier than demand.”

“The planet establishes limits on how much carbon may be safely released. As a result, oil consumption must peak, according to Morgan Stanley analysts.

The problem with the globe is that oil consumption is not peaking, despite wishful thinking, investment pressure, and other factors. According to most forecasts, it will not peak until the end of this decade at the earliest.

OPEC Report

According to OPEC’s latest annual estimate, global oil consumption will continue to climb through the mid-2030s, reaching 108 million barrels per day (BPD), then plateauing until 2045.

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

Global Food Prices Set To Soar As The Oil And Gas Crunch Continues

October 27, 2021

Global Food Prices Set To Soar As The Oil And Gas Crunch Continues

Oil and gas prices have risen dramatically this year as a result of underinvestment and recovering demand.
Higher fuel prices are weighing on global food supply chains, with transportation and farming costs continuing to climb.
The hardest hit will, once again, be those living in developing economies that are still struggling to recover from the impact of the pandemic.

The potential for a knock-on effect of rising fuel prices to be felt by other industries is becoming more likely, as oil and gas prices continue to rise to an all-time high, companies are finding it hard to maintain their costs and may have to shift this burden to the consumer any day now.

Petrol prices have risen higher and higher this year, as oil makes a comeback in 2021 following a difficult year of pandemic restrictions and low demand. This has, of course, been aided by the OPEC+ curbs on production that restricted oil output across member states for the first half of 2021. And while production levels are slowly rising, some countries are finding it difficult to reach new OPEC targets as they revive their oil and gas industries, meaning the global shortage continues.

Looking at the price of gasoline over the last 20 years, you can see that the global average has doubled, from $0.60 a litre in 2001 to $1.20 a litre today. This year, in particular, the increase in demand as economies open back up following over a year of restrictions, added to a supply shortage across much of the world, means prices are nearing an all-time-high.

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

In the wake of the COVID-19 crisis, Europe must prepare for life after oil

May 14, 2020

In the wake of the COVID-19 crisis, Europe must prepare for life after oil

For the first time in history, in the wake of the corona crisis, US oil prices have gone negative thanks to record lows in global oil demand. This pandemic has revealed deep-seated structural vulnerabilities in our fossil fuel-dependent economy. The most important scientific concept needed to understand these vulnerabilities is ‘Energy Return on Investment’ (EROI).

EROI measures how much energy is used to extract energy from a particular resource. What’s left is known as surplus ‘net energy’ which supports goods and services outside the energy system. The higher the ratio, the more surplus energy is left for the economy. That surplus is running increasingly thin.

In the early 20th century, the EROI of fossil fuels was sometimes as high as 100:1, meaning that a single unit of energy would be enough to extract a hundred times that amount. But since then, the EROI of fossil fuels has dramatically reduced. Between 1960 and 1980, the world average value EROI for fossil fuels dropped by more than half, from about 35:1 to 15:1. It is still declining – latest estimates put the value at between 6:1 and 3:1.

This has exerted a ‘brake’ on the rate of economic growth for the world’s advanced industrial economies, which has decreased since the 1970s. Europe is a locus-point for these trends. By the turn of the century, all conventional oil producers across the continent – except perhaps Italy – were past their peak production.

The pandemic was a pin that burst this oil bubble

Globally, conventional crude oil has entered a long plateau for the past decade and a half. To meet demand, the industry shifted to more expensive unconventional forms, with US shale supplying over 70% of global oil supply growth.

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

Alberta’s Problem Isn’t Pipelines; It’s Bad Policy Decisions

December 5, 2018

Alberta’s Problem Isn’t Pipelines; It’s Bad Policy Decisions

Bitumen prices are low because the province has ignored at least a decade of warnings.

Rachel Notley in front of an oil rig — In 2007, an Alberta government warned that bitumen prices could eventually fall so low that the government’s royalty revenues — critical for its budget — would be at risk. Photo via Government of Alberta.

The Alberta government has known for more than a decade that its oilsands policies were setting the stage for today’s price crisis.

Which makes it hard to take the current government seriously when it tries to blame everyone from environmentalists to other provinces for what is a self-inflicted economic problem.

In 2007, a government report warned that prices for oilsands bitumen could eventually fall so low that the government’s royalty revenues — critical for its budget — would be at risk.

The province should encourage companies to add value to the bitumen by upgrading and refining it into gasoline or diesel to avoid the coming price plunge, the report said.

Instead, the government has kept royalties — the amount the public gets for the resource — low and encouraged rapid oilsands development, producing a market glut.

With North American pipelines largely full, U.S. oil production surging and U.S. refineries working at full capacity, Alberta has wounded itself with bad policy choices, say experts.

The Alberta government and oil industry is in crisis mode because the gap between the price paid for Western Canadian Select — a blend of heavy oil and diluent — and benchmark West Texas Intermediate oils has widened to $40 US a barrel.

Some energy companies have called on the government to impose production cuts to increase prices.

The business case for slowing bitumen production was made by the great Fort McMurray fire of 2015.

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

IT BEGINS… Rapidly Falling Oil Prices First Guts Tar Sands, Then Shale Oil

December 4, 2018

IT BEGINS… Rapidly Falling Oil Prices First Guts Tar Sands, Then Shale Oil

The rapidly falling oil prices have finally claimed the first victim, but it won’t be the last. The Alberta Canadian government announced late yesterday for a substantial cut in tar sands oil production to stem the hemorrhaging low oil price. The price paid for tar sands oil has fallen a stunning 77% from its peak just two months ago.

While the Canadian tar sands oil price has fallen the most, various U.S. benchmarks are also experiencing substantial discounts to the standard West Texas Crude Oil price. For example, the price paid for Bakken oil has dropped by 42% from its peak in October. This is terrible news for the shale oil producers in North Dakota.

However, as bad as the situation is becoming for the U.S. oil industry, it isn’t as bad as the disaster taking place in Alberta, Canada. According to the Zerohedge article, Alberta Orders “Unprecedented” Oil Output Cut To Combat Crashing Prices:

So in a long-awaited and according to local energy traders, overdue response, Canada’s largest oil producing province ordered what Bloomberg called “an unprecedented output cut”, an effort to ease a worsening crisis in the nation’s energy industry and adding to global actions to combat a recent price crash ahead of this week’s OPEC+ summit where oil exporters will similarly seek to slash output.

… The plan, which was announced late on Sunday, will reduce production of raw crude and bitumen from Alberta by 325,000 barrels a day, or 8.7% from January until excess oil in storage is drawn down. The reduction would then drop to 95,000 barrels a day until the end of next year at the latest.

…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…

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…

Why Oil Prices Could Still Go Lower

October 29, 2018

Why Oil Prices Could Still Go Lower

Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months.

The panic attack was caused largely by Trump’s August 7 announcement that sanctions would be re-imposed on Iran. Anxiety about the effect on oil supply and prices was reasonable but the reaction was hysterical.

From August 15 to October 1, Brent December futures spreads increased $3.01 (175 percent) from $1.72 to $4.73. Brent prices increased $15.53 (22 percent) from $70.76 to $86.29 (Figure 1).

(Click to enlarge)

Figure 1. Brent Dec spreads collapsed from $4.73 to $1.52 since Oct 1 & are now less than when price rally began after announcement to re-impose Iran sanctions in mid-August. Front-month Brent down from $86.29 to $76.17 but still higher than $70.76 Aug 15 price. Source: Barchart and Labyrinth Consulting Services, Inc.

Then spreads and prices collapsed. By October 24, spreads had fallen from $4.73 to $1.52, less than when the price rally began. Front-month Brent price decreased from $86.29 to $76.17. Prices and spreads recovered slightly on October 24 closing at $76.89 and $1.76, respectively.

It seems unlikely that the correction is over. The timing depends on how long it takes for markets to fully recover from what Vitol’s Ian Taylor calls the supply fear factor. After 6 weeks of fear, markets must adjust to the reality that the “oil market is adequately supplied for now.”

Clearly markets are concerned about more than just Iran. Falling or uncertain output from the problem children Venezuela, Libya and Nigeria, and take-away constraints from the Permian basin are critical.

Iran, however, is different because it is a completely artificial supply crisis. It was a choice made by Donald Trump and his advisors. Markets are used to the uncertainty of its problem children but not to the apparent certainty of an executive decision. The reaction was consistent with the cause—certain and linear.

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

U.S. Shale Has A Glaring Problem

October 22, 2018

U.S. Shale Has A Glaring Problem

Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of U.S. shale companies are still struggling to turn a profit.

A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute detail the “alarming volumes of red ink” within the shale industry.

“Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting negative free cash flows through June,” the report’s authors write. The 33 small and medium-sized drillers posted a combined $3.9 billion in negative cash flow in the first half of 2018.

The glaring problem with the poor financial results is that 2018 was supposed to be the year that the shale industry finally turned a corner. Earlier this year, the International Energy Agency painted a rosy portrait of U.S. shale, arguing in a report that “higher prices and operational improvements are putting the US shale sector on track to achieve positive free cash flow in 2018 for the first time ever.”

The improved outlook came after years of mounting debt and negative cash flow. The IEA estimates that the U.S. shale industry generated cumulative negative free cash flow of over $200 billion between 2010 and 2014. The oil market downturn that began in 2014 was supposed to have changed profligate spending, pushing out inefficient companies and leaving the sector as a whole much leaner and healthier.

“Current trends suggest that the shale industry as a whole may finally turn a profit in 2018, although downside risks remain,” the IEA wrote in July.

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

Saudi Arabia Won’t “Weaponize” Oil Prices, Energy Minister Says

October 22, 2018

Saudi Arabia Won’t “Weaponize” Oil Prices, Energy Minister Says

With Saudi Arabia moving to quell international outrage over the brutal killing of journalist Jamal Khashoggi by firing a handful of top intelligence officials and arresting more than a dozen Saudi nationals for alleged ties to the killing, Energy Minister Khalid al-Falih told Russia’s TASS news agency, in an attempt to reassure Russia and oil importers around the world that the kingdom’s threats to “weaponize” oil by cutting production and sending oil prices to $200 a barrel were little more than empty rhetoric, published by a “rogue” op-ed writer one imagines.

Khalid said during the interview that Saudi Arabia has “no intention” of triggering a replay of the 1973 oil embargo which rocked the American economy by sending oil prices 4x higher, creating the first of a handful of “oil shocks” that become emblematic of the economic malaise that persisted for much of the 1970s in the US.

“There is no intention,” Khalid al-Falih told Russia’s TASS news agency when asked if there could be a repetition of the 1973-style oil embargo.

Saudi Arabia has historically been reluctant to use its energy policy as a tool to meddle in international politics (the country only reluctantly went along with the OPEC embargo against the Western countries and Japan that backed Israel during the six-day war).

“This incident will pass. But Saudi Arabia is a very responsible country, for decades we used our oil policy as responsible economic tool and isolated it from politics,” Falih said.

Falih’s mandate from the Saudi government is to stabilize oil markets and “contribute to economic development”, something that would in all likelihood grind to a halt if the kingdom helped send oil prices to $200 a barrel. Though, notably, Falih said he couldn’t offer any guarantees about the price of oil.

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

$100 Oil Is A Distinct Possibility

September 25, 2018

$100 Oil Is A Distinct Possibility

An oil price spike is starting to look increasingly possible, with a rerun of 2008 not entirely out of the question, according to a new report.

The outages from Iran are worse than most analysts expected, and bottlenecks in the U.S. shale patch could prevent non-OPEC supply from plugging the gap. To top it off, new regulations from the International Maritime Organization set to take effect in 2020 could significantly tighten supplies.

Put it all together, and “the likelihood of an oil spike and crash scenario akin to the one observed in 2008 has increased,” Bank of America Merrill Lynch wrote in a note. BofAML has a price target for Brent at $95 per barrel by the end of the second quarter 2019. In 2008, Brent spiked to nearly $150 per barrel.

The supply picture is looking increasingly worrying, with Venezuela and Iran the two principal factors driving up oil prices in the fourth quarter. Notably, the bank increased its estimate of supply losses from Iran 1 million barrels per day (mb/d), up from 500,000 bpd previously.

U.S. shale can partially make up the difference, but the explosive growth from shale drillers is starting to slowdown, in part because of pipeline bottlenecks. BofAML sees U.S. supply growth of 1.4 mb/d in 2018 but only 1 mb/d of growth in 2019.

That means that there isn’t the same upward pressure on WTI as there is on Brent, largely because infrastructure bottlenecks in the shale patch keep supplies somewhat stuck within the United States. And it isn’t just in West Texas where the constraints are causing problems. “[B]ottlenecks in the Permian basin could well extend to other areas such as the Bakken or the Niobrara, and we do not even rule out temporary export capacity constraints in the Gulf Coast as domestic output overwhelms logistics,” BofAML said in a note.

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

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

September 4, 2018

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

Thanks to increasing demand and upcoming U.S. sanctions against Iran, oil prices have been rising and some analysts are forecasting that they will surge even higher in the months ahead. Unfortunately, that would be very bad news for the U.S. economy at a time when concerns about a major economic downturn have already been percolating. In recent years, extremely low gasoline prices have been one of the factors that have contributed to a period of relative economic stability in the United States. Because our country is so spread out, we import such a high percentage of our goods, and we are so dependent on foreign oil, our economy is particularly vulnerable to gasoline price shocks. Anyone that lived in the U.S. during the early 1970s can attest to that. If the average price of gasoline rises to $4 a gallon by the end of 2018 that will be really bad news, and if the average price of gasoline were to hit $5 a gallon that would be catastrophic for the economy.

Very early on Tuesday, the price of U.S. oil surged past $70 a barrel in anticipation of the approaching hurricane along the Gulf Coast. The following comes from Fox Business…

U.S. oil prices rose on Tuesday, breaking past $70 per barrel, after two Gulf of Mexico oil platforms were evacuated in preparation for a hurricane.

U.S. West Texas Intermediate (WTI) crude futures were at $70.05 per barrel at 0353 GMT, up 25 cents, or 0.4 percent from their last settlement.

If we stay at about $70 a gallon, that isn’t going to be much of a problem.

But some analysts are now speaking of “an impending supply crunch”, and that is a very troubling sign. For example, just check out what Stephen Brennock is saying…

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

King Trump Shouts at the Ocean: Stop the Waves

July 6, 2018

King Trump Shouts at the Ocean: Stop the Waves

Trump believes all he has to do to make things happen is to issue an ultimatum. One Tweet will explain.

✔

The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!

4:46 PM – Jul 4, 2018

Image modified from King Cnut and the Waves.

Hello Mr,. President gas prices are up because of your absurd embargo on Iran.

And here’s the deal: The more effective your embargo, the higher gas prices will go.

I have a suggestion. Please study Econ 101.

Meanwhile, please note that shouting at waves will not produce results.

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