Home » Posts tagged 'oil prices' (Page 3)

Tag Archives: oil prices

What started the entire correction, in my view, was the carry trade on buying the Euro ahead of more quantitative easing (QE) and the Fed playing games by talking up a recovery and threatening to raise rates. That created a double whammy on a strong U.S. dollar beginning in the summer of 2014 when oil prices peaked.

At the same time, U.S. producers did manage to ramp up output even further in the second half of 2014, at a time of rising inventories. By the first half of 2015 things began to self-correct as inventories began to fall. Oil prices started to make a recovery but reversed as OPEC flooded the market with more oil, which began in late 2014. Meanwhile the nuclear deal with Iran opened up the prospect of a new source of supply, a fact that was overhyped by the media.

Demand remained strong for gasoline despite the weakening global economy, much to the media’s surprise. Inventories rose in absolute terms, but in terms of days of supply, storage remained at much more modest levels, only eclipsing the upper end of the historic five-year range in 2016.

It now appears that the dollar’s strength is starting to reverse, in part due to the perception that the EU central bank implemented a much more aggressive monetary policy easing than expected, leading speculators who went long on the dollar to believe that the trade is over.

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

Canadian Oil Slammed By Low Prices, Pipeline Woes

March 2, 2016

Canadian Oil Slammed By Low Prices, Pipeline Woes

Canada has been particularly hit hard during the downturn in oil prices. A major oil-producing country, Canada rode the commodity wave upwards over the past decade, but has suffered from the downturn.

The economy briefly dipped into a recession in 2015. Even after growth resumed, Canada’s GDP slowed the most out of all G7 nations. The unemployment has rate ticked up, especially in Alberta where most of its oil and gas production is concentrated. And the Canadian dollar has plunged in value to its lowest level in over a decade.

The problems for Canada’s oil industry are compounded by several factors. First, Canada’s oil is more costly to produce than other regions, particularly when compared to oil produced in United States where Canada competes for pipeline capacity and market share. Similarly, Canada’s oil sector is also struggling to build enough pipelines to get their oil to market. With elevated levels of production in the U.S., Canadian producers have very few options to move their product. Pipeline routes to the east and west coasts for export abroad are limited, vexing Alberta producers.

That has led to a third problem that puts Canadian producers at a disadvantage to some of their peers: Canadian crude oil sells at a steep discount to more widely recognized benchmarks like WTI. In mid-January, for example, when WTI dropped to $30 per barrel, heavy tar sands in Canada traded at just $8 per barrel temporarily. Canada’s oil, at a lower quality and produced at a higher cost, needs to be discounted in order to entice buyers.

Job losses have proliferated across the oil patch. Earlier this week, Nexen Energy, a Calgary-based subsidiary of China’s Cnooc, announced that it would lay off another 120 workers because of low oil prices.

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

Hottest Year Ever Recorded + Collapsing Oil Prices = Broken Fossil Fuel Economy

February 2, 2016

Hottest Year Ever Recorded + Collapsing Oil Prices = Broken Fossil Fuel Economy

“I read the news today, oh boy.” —John Lennon

Two overlapping news stories in the past few weeks must focus our attention on the need to move away from fossil fuels as quickly as possible and to transition our global economy to a more just and resilient system, especially for the world’s poor and vulnerable peoples.

First, it was widely reported that 2015 was the hottest year ever recorded in human history. Specifically, the global temperature was not just higher than ever, but it rose faster than ever and the 5-year period, 2011-2015, was also the hottest 5-years ever. Climate change is real, is happening right now and seems to be accelerating in speed and intensity with every passing year.

The fossil fuel economy is broken and is collapsing around us. Photo credit: Kristian Buss

Second, global oil prices continue to collapse, now below $30/barrel. This sent world stock markets down and had a number of negative impacts on human rights issues around the world. A New York Times article last month reported the devastating impact that falling oil prices are having on poor and marginalized people in Russia. Oil is Russia’s biggest export commodity, makes up more than 15 percent of the Gross Domestic Product and around 50 percent of its federal budget. As oil prices dropped, the Russian government began making cuts to social spending, focusing on cuts to the poorest people first. Retirees, teachers, factory workers—all have seen large cuts to their incomes and struggle to get by.

Near-disastrous news stories are also pouring out of other countries that export large amounts of oil. News from Nigeria, Angola, Ecuador and Brazil is describing serious economic problems, with cuts to social spending for poor people first in line to make up for government shortfalls from oil revenues.

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

Chart Of The Day: 155 Years Of Real ($2015) Oil Prices——-Average=$47

January 27, 2016

Chart Of The Day: 155 Years Of Real ($2015) Oil Prices——-Average=$47

Doom and Gloom for North American Oil Producers

December 30, 2015

Doom and Gloom for North American Oil Producers

Lower Oil Prices

To the dismay of U.S. shale producers, oil prices continue their long slow slide into the abyss. Perhaps the current price of $35 per barrel – an 11 year low – is the final destination. More than likely, however, it’s a brief reprieve before the next descent.

excess natural gas burns southeast of Baghdad Photo credit: Mohammed Ameen / Reuters

Oil exporters, including Saudi Arabia and Russia, have maintained high production rates. Their goal is to bankrupt U.S. shale companies and preserve market share. At the same time, oil demand is tapering as the global economy cools.

1-World3 Global crude oil and condensate (c+c) production as of June 2015. In record high territory.

The combination of high production and declining demand has resulted in excess supply, and lower prices. The trend of lower prices won’t change until either demand increases or production decreases. At the moment, it doesn’t appear that either of these factors will change any time soon.

So how low can oil prices go? If you recall, in the late-1990s, oil prices dropped below $20 per barrel. Goldman Sachs thinks we’ll see $20 per barrel oil again.

Obviously, oil prices can’t go to zero. However, this offers little consolation for the many oil companies that borrowed gobs of money from Wall Street to leverage development of fracked wells that require $60 per barrel oil to pencil out.

2-Russia3 Contrary to widespread expectations, Russian production has proved more than resilient in the face of low prices. The decline in the ruble and high export taxes on oil (which are based on threshold prices) have left Russian producers in a competitive situation.

Declining Hedges

So while it isn’t possible for oil prices to go to zero. It is possible for the stock prices of oil companies to go to zero. In fact, over the next 12 months there could be a rash of bankruptcy’s that results in delisted, worthless shares.

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

Lower Oil Prices Are Shaking the World

December 26, 2015

Lower Oil Prices Are Shaking the World

The long-term effects will echo for a decade or more.

Oil prices fell by over half from June 2014 to January 2015 (Brent: $110 to $50), then another one-third since (to $35). Natural gas and coal prices have also plunged, partially due to the same forces but also from substitution.

These are the results from a modest slowing of demand growth and — more importantly — the decision of the Saudi Princes to wage the first financial waragainst next-gen oil producers, those that tap oil sands, shale fields, and deep ocean deposits.

This is how Bloomberg put it:

Saudi Arabia won’t be satisfied with another temporary rebound in oil prices, such as the one that occurred last spring: Their U.S. competitors would just increase output again. They must inflict permanent damage by demonstrating to investors that with shale, they can’t bet on any kind of predictable return.

This will not end quickly; the list of casualties will be long. Goldman found $1 trillion in “stranded” or “zombie” investments in oil fields — a year ago at $70 oil. At $35 oil the total would be much larger.

The end will come with the bankruptcy or restructuring of many next-gen oil corporations, followed by a newly empowered (and perhaps expanded) OPEC cutting production to bring spare capacity back to average (3 or 4 million b/day) — providing a valuable production cushion for the world economy’s supply of this vital input. The long-term effects will echo for a decade or more: a higher cost of capital for and depressed risk-taking in the petroleum and coal industries.

The bond market has already begun to price in the coming bankruptcies of oil and natural gas Exploration and Production companies. But the geopolitical implications remain largely unexplored.

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

Oil Prices and Global Growth

December 14, 2015

Oil Prices and Global Growth

CAMBRIDGE – One of the biggest economic surprises of 2015 is that the stunning drop in global oil prices did not deliver a bigger boost to global growth. Despite the collapse in prices, from over $115 per barrel in June 2014 to $45 at the end of November 2015, most macroeconomic models suggest that the impact on global growth has been less than expected – perhaps 0.5% of global GDP.

The good news is that this welcome but modest effect on growth probably will not die out in 2016. The bad news is that low prices will place even greater strains on the main oil-exporting countries.

The recent decline in oil prices is on par with the supply-driven drop in 1985-1986, when OPEC members (read: Saudi Arabia) decided to reverse supply cuts to regain market share. It is also comparable to the demand-driven collapse in 2008-2009, following the global financial crisis. To the extent that demand factors drive an oil-price drop, one would not expect a major positive impact; the oil price is more of an automatic stabilizer than an exogenous force driving the global economy. Supply shocks, on the other hand, ought to have a significant positive impact.

Although parsing the 2014-2015 oil-price shock is not as straightforward as in the two previous episodes, the driving forces seem to be roughly evenly split between demand and supply factors. Certainly, a slowing China that is rebalancing toward domestic consumption has put a damper on all global commodity prices, with metal indices also falling sharply in 2015. (Gold prices, for example, at $1,050 per ounce at the end of November, are far off their peak of nearly $1,890 in September 2011, and copper prices have fallen almost as much since 2011.)

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

Shale Gas Rig Count Could Implode Here If Prices Don’t Rebound

November 24, 2015

Shale Gas Rig Count Could Implode Here If Prices Don’t Rebound

The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million each to sell gas at a loss into an over-supplied market.

We first evaluated the Haynesville Shale in 2009 and the conclusion then was the same as it is today: the average well by top operators will produce about 4 Bcf and is not commercial at gas prices below $6 or $7 per Mcf. The play has two insurmountable geological problems. First, the shale is not brittle and, therefore, does not respond well to hydraulic fracturing. Second, the reservoir is over-pressured and compacts when gas is produced.

We have heard fairy tales from operators over the years about how they will improve the miserable performance of Haynesville Shale wells. These included choking back production, re-fracking old wells and, recently, drilling 10,000 foot laterals. None of these approaches worked because bad geology cannot be improved with expensive technology.
We evaluated well performance for the 5 biggest producers in the play based on cumulative gas production and the number of producing wells
(Table 1).

Table 1. Key operators in the Haynesville Shale play based on number of producing wells and cumulative gas production. Source: Drilling Info and Labyrinth Consulting Services, Inc.

We did standard rate vs. time decline-curve analysis by operator and by year of first production to forecast average well reserves (an example is shown in Figure 1).

Figure 1. Example of Haynesville Shale decline-curve analysis showing standard log of rate vs. time, rate vs. cumulative production and log of rate vs. log of time plots for a group of XTO Energy wells with first production in 2011. Source: Drilling Info and Labyrinth Consulting Services, Inc. (click image to enlarge)

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

Oil Majors Sacrifice Production To Protect Dividends

September 26, 2015

Oil Majors Sacrifice Production To Protect Dividends

The French oil company Total released a downward revision to its production forecast, lowering its target from 2.8 million barrels per day (mb/d) in 2017, to 2.6 mb/d, a sign that low oil prices continue to cut into long-term oil production for even the largest companies.

Total’s CEO said part of the reason for the more modest target was spending cuts, amid falling oil prices. Lower investment will lead to lower output in the future. The other part of the problem is delays to projects that the company already has in the works.

It is no secret that low oil prices are eating into the resources that major oil companies have to use at their disposal. Less revenue from lower oil prices leaves less capital to invest. But, the oil majors do have choices, and for now they are choosing to find savings in their capital spending budgets in order to protect their dividend policies. Dividends are seen as sacred, something that cannot be touched for fear of losing their sterling reputation with major investors. That means that even profitable oil projects get the axe in order to protect payouts to shareholders.

There are few exceptions to this approach, save for Italian oil giant Eni, which became the first oil major to slash its dividend in March of this year. “We are building a much more robust Eni capable of facing a period of lower oil prices,” CEO Claudio Descalzi said at the time, explaining the company’s decision to trim its dividend. Eni’s share price plummeted in the days following the news, but has not performed noticeably worse than its peers in the intervening months.

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

Peak Oil Has More To Do With Oil Prices Than You May Think

September 20, 2015

Peak Oil Has More To Do With Oil Prices Than You May Think

The Origins of Peak Oil Awareness

The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.

Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas. He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was 150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd) extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in the US, Hubbert’s base case estimate was that oil production in the US would reach maximum production in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum production rate of 34 million bpd.

Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels (about which he expressed doubts), peak production would occur in 1970, a delay of five years from his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with precisely calling the US peak, but few know that he was actually skeptical that the peak would take place as late as 1970.

The US has now surpassed Hubbert’s most optimistic estimate for US oil production. Through 2014, cumulative US production stands at approx. 215 billion barrels, with a remaining estimated proved reserve of 48.5 billion barrels (but with the caveat that this reserves estimate is based on crude prices near $100/bbl).

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

Why Did Oil Prices Just Jump By 27 Percent In 3 Days?

September 3, 2015

Why Did Oil Prices Just Jump By 27 Percent In 3 Days?

Oil prices have posted their strongest rally in years, jumping an astounding 27 percent in the last three trading days of August.

While much of the recent price movement defies reason and is enormously magnified by speculativemovements by traders to take and cover their bets on oil, still, there were a series of rumors, events, and fresh data that helped contribute to the spike.

For example, on August 31, the oil markets woke up to the news that Russian President Vladimir Putin will meet his counterpart from Venezuela to discuss “possible mutual steps” to stabilize oil prices. The meeting will take place in China on September 3. Venezuelan President Nicolas Maduro has alreadycalled for an emergency meeting of OPEC, a call that has fallen on deaf ears, at least in the most important country of Saudi Arabia.

It is still highly unlikely, but the one country that might be able to change the minds of Saudi oil officials is Russia. Again, even if Russia promised to cut back oil production to boost prices (which it has not shown a willingness to do), Saudi Arabia has little trust in Moscow to follow through on those promises. Similar understandings to cooperate in the past have fallen apart, making coordinated action unlikely.

Moreover, it is not at all clear that Russia’s best move is to cut back on production. Sure, it wants higher oil prices, but selling less oil will arguably offset price gains. And the depreciation of the ruble has cushioned the blow of low oil prices – Gazprom just reported a 29 percent gain in net profit for the second quarter compared to a year earlier, largely due to a weaker ruble. So, Russia is eager for oil prices to rebound, but the Kremlin is not as desperate as Venezuela.

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

Canada’s economy: 5 reasons not to panic

August 28, 2015

Canada’s economy: 5 reasons not to panic

Cheap gas, solid hiring and a strong housing market help Canadians weather the financial storm

A recent spate of frightening economic headlines paints a dire picture of the economy, but an examination of some basic gauges of Canadians’ financial health demonstrates it’s not all doom and gloom.

News of plummeting oil prices, the struggling stock market and a loonie that recently dipped below the 75-cent US level for the first time in more than a decade have Canadians on edge and fearful for their their futures, as economists debate whether this country is in a recession.

But already, things are looking up. The North American and global stock markets surged on Thursday, oil rebounded to above $42 US a barrel and the Canadian dollar recovered to above the 75-cent line.

While the effects of the economic downtown on Canadians should not be downplayed, there are plenty of reasons not to panic — hiring remains steady, home values are up, gas prices are down, people are generally managing their debt responsibly and most Canadians have nice nest eggs of savings and investments.

1. Most people are working

Hiring has remained steady in Canada despite a shrinking economy. (CBC)

The most recent job numbers from Statistics Canada show that employment in Canada is steady and job growth is modest.

In July, the economy created 6,600 additional jobs, and the unemployment rate remained at 6.8 per cent for the sixth straight month.

“Make no mistake, this is not a strong report … but it’s also not notably weak,” BMO chief economist Douglas Porter told CBC News at the time. “While many have been quick to label this year’s economic performance a recession, the job numbers just haven’t backed that up.”

As of July, Canada had added 100,000 jobs in 2015, despite a major downturn in the oil and gas sector.

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

Has The E&P Industry Lost Touch With Reality?

July 28, 2015

Has The E&P Industry Lost Touch With Reality?

The U.S. rig count increased by 19 this week as oil prices dropped below $48 per barrel–the latest sign that the E&P industry is out of touch with reality.

Getty Images from The New York Times (July 26, 2015)

The last time the rig count increased this much was the week ending August 8, 2014 when WTI was $98 and Brent was $103 per barrel.

What are they thinking?

In fairness, the contracts to add more rigs were probably signed in May and June when WTI prices were around $60 per barrel (Figure 1) and some felt that a bottom had been found, left behind in January through March, and that prices would continue to increase.

Figure 1. Daily WTI crude oil prices, January 2-July 24, 2015. Source: EIA and NYMEX futures prices (July 21-24).

(click image to enlarge)

Even then, however, the fundamentals of supply, demand and inventories pointed toward lower prices–and still, companies decided to add rigs.

In mid-May, I wrote in a post called “Oil Prices Will Fall: A Lesson in Gravity”,
“The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.”

In mid-June, I wrote in a post called “For Oil Price, Bad Is The New Good”,
“Right now, oil prices are profoundly out of balance with fundamentals. Look for a correction.”

Oil prices began falling in early July and fell another 6% last week. Some of that was because of the Iran nuclear deal, the Greek debt crisis and the drop in Chinese stock markets. But everyone knew that the first two were coming, and there were plenty of warnings about the Chinese stock exchanges long before July.

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

This Week In Energy: Oil Prices Hinge On Two Financial Crises

July 11, 2015

This Week In Energy: Oil Prices Hinge On Two Financial Crises

It has been an eventful week. Two major financial crises are destroying the bullish case for oil.

The Greek crisis continues, although there are signs that some semblance of a solution is at hand. Europe had demanded a new proposal and set this Sunday as the absolute final deadline, ruling out any further extensions. Greek Prime Minister Alexis Tsipras offered a new proposal to European creditors on its debt situation and appeared willing to accept most European demands in exchange for some debt relief.

Greece has asked for a three-year bailout, and will make further concessions on austerity, cutting spending in key areas of its economy. But in perhaps a surprise move, creditor nations are looking at offering some debt relief. The international pressure on Europe has grown, with calls to offer some debt relief to a country that is mired in five years of recession (or depression), has 25 percent unemployment, and cannot pay its bills. Even the European Council’s President, former Polish Prime Minister Donald Tusk, has joined international calls for debt relief, as part of a loan package. The German Chancellor has been adamantly opposed to debt relief, but with the White House leaning on Europe to act, further austerity in exchange for some debt relief offers all sides a face-saving way out of the crisis. That could pave the way for a financial lifeline to Greece, hours before a hypothetical Grexit from the Eurozone.

Meanwhile, Greece announced a 2 billion euro plan with Russia over the Turkish Stream Pipeline, a natural gas pipeline that would run beneath the Black Sea, carrying Russian gas to Europe. Greece’s energy minister announced preliminary plans for the project on July 8, just as Greece was entering into the final days of its standoff with Europe over its debt mess.

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

Why A U.S Shale Slowdown Will Hardly Effect Oil Prices

June 22, 2015

Why A U.S Shale Slowdown Will Hardly Effect Oil Prices

Just last week I wrote on the possibility of a renewed downturn in oil prices, owing to the fact that huge volumes of supplies could potentially come online in places like Iraq, Libya, and Iran. That is still the case.

But let’s look at the other side of the coin. Despite the surprising resilience of U.S. shale, production could be now entering an extended period of decline. The EIApredicts that output in the major shale regions could decline by 91,000 barrels per day in July.

An ongoing and deeper contraction is likely. The EIA also reports a dramatic decline in well completions since October of last year. When prices starting falling, especially after the November 2014 OPEC meeting, rig counts started vanishing from the field and drilling companies began completing fewer wells.

(Click to enlarge)

That is important because shale wells suffer from rapid decline rates in their production profiles. After about the first year, the initial burst of oil largely peters out, and the decline rate is precipitous. As a result, a large number of fresh wells need to constantly be completed just to keep output flat.

With the number of well completions down, falling production from wells that were drilled in the past start to become more obvious. This “legacy decline” is now overtaking new production, most likely forcing overall net production to have dipped into negative territory in May.

(Click to enlarge)

The volume of legacy declines will only increase as it will increasingly reflect the huge volume of production that came online in 2013 and 2014. All of that recent production won’t be replaced as drillers sit on the sidelines. That means the decline in total production will only accelerate in the months ahead.

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

Tag Archives: oil prices

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

1. Most people are working

Post navigation

Latest Posts