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Smart Money Is Piling Into Oil

Smart Money Is Piling Into Oil

oil field dusk

Oil prices jumped to five-month highs this week, pushed higher by a bullish cocktail of supply outages, geopolitical unrest and a sputtering shale sector.

The most recent factor is the sudden eruption of the long simmering feud in Libya between rival factions. The attack on Tripoli by the Libyan National Army (LNA), a militia led by Khalifa Haftar, led to a spike in oil prices on Monday as the market priced in the possibility of supply outages.

One oil export terminal near Tripoli is the most obvious asset at risk. “If this port were to be shut down due to the fighting, this could see a delivery outage of up to 300,000 barrels per day,” Commerzbank said in a note on Tuesday. “The oil market is already undersupplied, so if supply from Libya also falls away the supply deficit will become even bigger.” Brent jumped to $71 and WTI to $64 on the news, the highest level in five months.

Intriguingly, speculators have only recently turned bullish on crude oil in terms of their positions in the futures market. “Indeed, our money-manager positioning index implies that speculative funds only moved from neutral to positive on oil in the latest week,” Standard Chartered wrote in a report on April 9. The investment bank argued that major investors only began to properly factor in geopolitical risk in the last few days, having overlooked risk for much of this year. Standard Chartered analysts said that the “supply security” of Libyan oil is “low,” and that output could decline in both the short and medium term. 

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

Platts Survey: OPEC Oil Production Down To More Than 4-Year Low

Platts Survey: OPEC Oil Production Down To More Than 4-Year Low

oil drilling

Over-delivering Saudi Arabia and blackouts in Venezuela helped push OPEC’s crude oil production down by 570,000 bpd from February to 30.23 million bpd in March—the lowest production from the cartel in more than four years, according to the monthly S&P Global Platts survey published on Friday.

OPEC’s de facto leader and biggest producer, Saudi Arabia, saw its production drop in March to the lowest level since February 2017. The Saudis delivered on their promise to cut more than pledged in the pact and slashed output by another 280,000 bpd last month, with March production at 9.87 million bpd, according to the S&P Global Platts survey.

Venezuela, for its part, saw its production drop to a 16-year-low, at 740,000 bpd, due to the massive blackouts that crippled oil production and exports in March, the Platts survey found.

OPEC’s second-biggest producer Iraq cut its production by 100,000 bpd from February to 4.57 million bpd in March, according to the survey. This, however, was still slightly above Iraq’s 4.512 million bpd production cap under the deal.

After an initial plunge following the U.S. sanctions on its industry, Iran’s production has been holding relatively steady over the past couple of months, and the Islamic Republic pumped 2.69 million bpd in March, the Platts survey showed.

The resumption of operations at Libya’s biggest oil field, Sharara, pushed Libya’s production up to 1.06 million bpd in March, according to the survey.

Earlier this week, the monthly Reuters survey showed that OPEC’s oil production in March 2019 fell to its lowest level since February 2015, as Saudi Arabia cut more than it had pledged and Venezuela continued to struggle amid U.S. sanctions and a major blackout.

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

Reuters: OPEC’s Oil Production Drops To Lowest Since 2015

Reuters: OPEC’s Oil Production Drops To Lowest Since 2015

oil storage

OPEC’s oil production in March 2019 fell to its lowest level since February 2015, as Saudi Arabia cut more than it had pledged under the output cut deal and Venezuela continued to struggle amid U.S. sanctions and a major blackout, the monthly Reuters survey showed on Monday.

The combined production of all 14 OPEC members stood at 30.4 million bpd last month, down by 280,000 bpd compared to February and the lowest level of OPEC production since February four years ago, according to the survey.  

Production in March beat the previous four-year-low record of the cartel’s oil production from February 2019. As per Reuters survey last month, OPEC’s oil production fell by 300,000 bpd in February compared to January to stand at 30.68 million bpd.  

The figures in the survey for March suggest that Saudi Arabia continues to over-deliver in its share of the cuts, as it has promised multiple times since the new OPEC+ deal began in January 2019.

Under the OPEC/non-OPEC agreement for a total of 1.2 million bpd cuts between January and June, Saudi Arabia’s share is a cut of 322,000 bpd from the October level of 10.633 million, to reduce output to 10.311 million bpd.

The rate of compliance from the eleven OPEC members bound by the pact—with Iran, Venezuela, and Libya exempted—also suggests that the Saudis and their Arab Gulf partners are deepening the cuts.

The eleven OPEC members with quotas had a combined compliance of 135 percent in March, surging from 101 percent in February, according to the Reuters survey tracking supply to the market and based on shipping data and information provided by sources at oil companies, consulting firms, and OPEC.

The survey did not provide figures for the Saudi production, but estimated that exempt Venezuela—under U.S. sanctions and suffering from a major power blackout in March—saw its oil production plummet by 150,000 bpd in March compared to February.

NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer

NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer

While Mexico suffered the bloodiest year of violent deaths in 2018, even bigger trouble may be ahead for the embattled country.  For the first time in more than 50 years, Mexico has become a net importer of oil.  This is undoubtedly bad news for the Mexican Government as it has relied upon its oil revenues to fund a large percentage of its public spending.

However, it wasn’t always this way.  After the discovery of the huge Cantarell Oil Field in the Gulf of Mexico in 1976, Mexico’s oil production surged from 894,000 barrels per day to a peak of 3.8 million barrels per day (mbd) in 2004.  That year, Mexico’s net oil exports exceeded 1.8 mbd.

Unfortunately, the downturn of Mexico’s oil production was mainly due to the peak and decline of the Cantarell Oil Field, which topped out at 2.1 mbd in 2004 and is now below 135,000 barrels per day:

With the rapid decline in Cantarell’s oil production, Mexico’s net oil exports also plummeted from 1.8 mbd in 2004 to only 314,000 barrels per day in 2017.  However, the situation for Mexico’s net oil exports continued to deteriorate in 2018 as its domestic oil supply fell to a new low at the end of the year.

According to several sources, the BP 2018 Statistical Review, IEA’s OMR Reports, and the EIA’s data on World Oil Production, Mexico became a net oil importer in November 2018:

I find it strange that this has not yet been mentioned in the news as it is a very critical factor for the future of Mexico.  Now, I would like to qualify that the data I am using is accurate.  I found Mexico’s total petroleum production and consumption data from the EIA, the U.S. Energy Information Agency’s World Oil Production Browser, the IEA’s, the International Energy Agency OMR Reports, and BP’s 2018  Statistical Review.

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

Pulling the plug on fossil fuel production subsidies

Pulling the plug on fossil fuel production subsidies

How long would the fossil fuel economy last if we took it off life support?

Or to state the question more narrowly and less provocatively, what would happen if we removed existing subsidies to fossil fuel production?

Some fossil fuel producers are still highly profitable even without subsidies, of course. But a growing body of research shows that many new petroleum-extraction projects are economically marginal at best.

Since the global economy is addicted to energy-fueled growth, even a modest drop in fossil fuel supply – for example, the impact on global oil supplies if the US fracking industry were to crash – would have major consequences for the current economic order.

On the other hand, climate justice demands a rapid overall reduction to fossil fuel consumption, and from that standpoint subsidies aimed at maintaining current fossil fuel supply levels are counterproductive, to say the least.

As a 2015 review of subsidies put it:

“G20 country governments are providing $444 billion a year in subsidies for the production of fossil fuels. Their continued support for fossil fuel production marries bad economics with potentially disastrous consequences for the climate.” 1

This essay will consider the issue of fossil-fuel production subsidies from several angles:

  • Subsidies are becoming more important to fossil fuel producers as producers shift to unconventional oil production.
  • Many countries, including G20 countries, have paid lip service to the need to cut fossil fuel subsidies – but action has not followed.
  • Until recently most climate change mitigation policy has been focused on reducing demand, but a strong focus on reducing supply could be an important strategy for Green New Deal campaigners.

Ending subsidies to producers can play a key role in taking the fossil fuel economy off life support – or we can wait for the planet to take our civilization off life support.

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

The EIA’s Optimistic Outlook

The EIA’s Optimistic Outlook

Most of the data below is taken from from the EIA’s Short-Term Energy Outlook. The data through February, 2019 is the EIA’s best estimate of past production and all data from March 2019 through December 2020 is the EIA’s best estimate of future production. However in most cases February production is highly speculative so I drew the “projection” line between January and February.

Understand the above chart is Total Liquids, not C+C as I usually post. As you can see the EIA expects world petroleum liquids to keep climbing ever upwards.

This is the EIA’s data for OPEC all liquids with Production data from April 2019 through December 2020.

Notice the EIA expects OPEC production to keep declining through December 2020. Also they expect total liquids to decline slightly faster than crude only. This is interesting since neither condensate nor other liquids are subject to OPEC quotas.

About two years ago I made note that the EIA expected Non-OPEC to plateau but they expected OPEC to keep increasing into the future. Now they have completely reversed themselves as they expect all future growth, at least for the next two years, to come from Non-OPEC countries.

The below  chart is from the EIA’a Monthly Energy review and is C+C through November 2018.

Virtually all crude oil increase since 2016 has come from three countries, USA, Russia and Canada. The spike upward (circled) in October and November 2018 was partially due to OPEC prepping for cuts. Every OPEC country made heroic efforts to increase productio during those two months in order to increase their quota. Quotas were set in December.

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

Is This A Precursor For Peak Oil Demand?

Is This A Precursor For Peak Oil Demand?

oil barrels

The $1 trillion sovereign wealth fund of Norway may sell off all of its shares in oil producers.

The move is a shot across the bow for the oil industry. A $1 trillion fund, built on oil itself, now sees the future of oil as too risky.

Norway’s sovereign wealth fund is not getting out of the oil business entirely. The government has only recommended exiting oil and gas exploration and production companies (i.e., upstream producers). The reason why the fund wants to pursue divestment is that it views the long-term oil market as volatile, unpredictable, and at this point, vulnerable to permanently low prices. “The goal is to make our collective wealth less vulnerable to a lasting fall in oil prices,” Norway’s finance minister, Siv Jensen, said. The fund currently holds about $37 billion in oil and gas stocks.

Based on that logic, the government wants to avoid the exposure to producers, since they will be the companies most impacted by changes in oil prices.

But the divestment is also one of the most powerful symbols yet regarding the potential for peak oil demand. The notion of permanently low oil prices is predicated on a peak and decline in consumption. And if a $1 trillion sovereign wealth fund views oil as inherently risky going forward, other investors could begin to fret. It’s worth noting that oil and gas stocks fellimmediately after the announcement.  

On the other hand, the selloff could also be viewed in the narrow interests of Norway itself. The sovereign wealth fund was built by oil revenues, so the divestment is a bit ironic. Critics might point out that it is a bit rich for a country that has been, and still is, funded by oil revenues to be taking such a stand on the future of the oil business.

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

12 Empty Supertankers Tell Us Everything We Need To Know About The Oil Market

12 Empty Supertankers Tell Us Everything We Need To Know About The Oil Market

As the US battles with its OPEC+ rivals over the direction of global oil prices (Trump wants to keep oil prices subdued, while Saudi Arabia and Russia, reeling from years of prices too low to balance their budgets, are desperately hoping to push them higher with another round of production cuts), 12 supertankers sailing across the Atlantic can tell us a lot about the changing supply dynamics in the global oil market.

The tankers have been traveling a route spanning thousands of miles with no cargo other than some seawater needed for ballast. Of course, in normal times, the ships would be filled with heavy, high sulfur Middle East oil for delivery to refineries in places like Houston or New Orleans.

Tanker

But these aren’t “normal” times. Following the OPE+ agreement to cut 1.5 mb/d, the ships are sailing cargo-less – forgoing profits on half of their journey – just so they can pick up the light crude that US shale producers – which briefly turned the US into a net-exporter of oil for the first time late last year – have been relentlessly pumping, according to Bloomberg.

WTI

That’s quite a sacrifice for the owners of the ships, which are traveling 21,000 with nothing to show for it.

The 12 vessels are making voyages of as much as 21,000 miles direct from Asia, all the way around South Africa, holding nothing but seawater for stability because Middle East producers are restricting supplies. Still, America’s booming volumes of light crude must still be exported, and there aren’t enough supertankers in the Atlantic Ocean for the job. So they’re coming empty.

“What’s driving this is a U.S. oil market that’s looking relatively bearish with domestic production estimates trending higher, and persistent crude oil builds we have seen for the last few weeks,” said Warren Patterson, head of commodities strategy at ING Bank NV in Amsterdam.

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

Oil Markets Could See Deficit In 2019

Oil Markets Could See Deficit In 2019

valve Iraq

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

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

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

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

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

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

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

There’s No Sugarcoating Canada’s Oil Crisis

There’s No Sugarcoating Canada’s Oil Crisis

Cenovus rig

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

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

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

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

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

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

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

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

Canada’s Crude Oil Production Cuts Are Unsustainable

Canada’s Crude Oil Production Cuts Are Unsustainable

Canada oil

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

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

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

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

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

The Shale Oil Revolution Actually Reflects a Nation in Decline

Shutterstock

The Shale Oil Revolution Actually Reflects a Nation in Decline

Faster consumption + no strategy = diminished prospects

Here in the opening month of 2019, as the US consumes itself with hot debate over a border wall, far more important topics are being ignored completely.

Take US energy policy. In the US press and political circles, there’s nothing but crickets sounding when it comes to serious analysis or any sort of sustainable long-term plan.

Once you understand the role of energy in everything, you can begin to appreciate why there’s simply nothing more important to get right.

Energy is at the root of everything. If you have sufficient energy, anything is possible. But without it, everything grinds to a halt.

For several decades now the US has been getting its energy policy very badly wrong.  It’s so short-sighted, and rely so heavily on techno-optimism, that it barely deserves to be called a ‘policy’ at all.

Which is why we predict that in the not-too-distant future, this failure to plan will attack like a hungry wolfpack to bite down hard on the US economy’s hamstrings and drag it to the ground.

Shale Oil Snafu

America’s energy policy blunders are nowhere more obvious than in the shale oil space, where it’s finally dawning on folks that these wells are going to produce a lot less than advertised.

Vindicating our own reports — which drew from the excellent work of Art Berman, David Hughes and Enno Peters’ excellent website — the WSJ finally ran the numbers and discovered that shale wells are not producing nearly as much oil as the operators had claimed they were going to produce:

Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast

Jan 2, 2019

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

Oil’s Wild Price Swings Set to Create Global Chaos

Oil’s Wild Price Swings Set to Create Global Chaos

Volatility is here to stay — and the political and economic implications will touch us all.

As the current global oil glut shakes up petro states around the world, oil prices are becoming more volatile than Donald Trump tweets.

Neither Canada, now the dumb owner of a marginal 65-year-old pipeline, nor Alberta, a key exporter of bitumen, a cheap refinery feedstock, has paid much attention to this revolution.

As a consequence Canada has no strategy to deal with the new normal of highly volatile oil prices.

Government incompetence explains the hew and cry in Alberta about its overproduction crisis and the various proposals to solve it, ranging from the purchase of rail cars (a bad idea) to the decision to order companies to cut production of heavy oil by about 325,000 barrels a day (a sensible idea).

Alberta’s panic attack is based on the idea that bitumen from the province’s oilsands producers is selling at a discount because of a lack of pipeline capacity.

The reality is that the dramatic 30-per-cent drop in oil prices since the beginning of October, from more than US$70 to US$50, is upsetting oil exporters, producers and markets around the world.

Different kinds of oil fetch different prices, based on their quality and transportation costs. And all are experiencing dramatic price drops. Alberta’s bitumen, a cheap refinery feedstock, is not the only crude languishing during a global market glut.

Refineries in Japan and Korea, for example, scooped up cheap U.S. oil earlier this year.

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

“Energy Dominance,” what does it mean? Decoding a Fashionable Slogan

“Energy Dominance,” what does it mean? Decoding a Fashionable Slogan

“Now, I know for a fact that American energy dominance is within our grasp as a nation.” Ryan Zinke, U.S. Secretary of the Interior (source)

“All Warfare is Based on Deception” Sun Tzu, “The Art of War”

Over nearly a half-century, since the time of Richard Nixon, American presidents have proclaimed the need for “energy independence” for the US, without ever succeeding in attaining it. During the past few years, it has become fashionable to say that the US has, in fact, become energy independent, even though it is not true. And, doubling down on this concept, there came the idea of “energy dominance,”introduced by the Trump administration in June 2017.  It is now used at all levels in the press and in the political debate.

No doubt, the US has good reasons to be bullish on oil production. Of the three major world producers, it is the only one growing: it has overtaken Saudi Arabia and it seems to be poised to overtake Russia in a few years. (graphic source).

This rebound in the US production after the decline that started in the early 1970s is nearly miraculous. And the miracle as a name: shale oil. A great success, sure, but, if you think about it, the whole story looks weird: the US is trying to gain this “dominance” by means of resources which, once burned, will be forever gone. It is like people competing at who is burning their own house faster. What sense does it make?

Art Berman keeps telling us that shale oil is an expensive resource that could be produced at a profit only for market conditions that are unrealistic to expect. So far, much more money has been poured into shale oil production than it has returned from the sales of shale oil.

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

The Battle For Syria’s Oil Region

The Battle For Syria’s Oil Region

Syria oil

The Syrian Civil War has gone through several phases over the course of seven years and it now appears to be entering another one. Government forces have regained control over much of Syria with Russian air support and Iranian ground forces. Only Idlib and the territories east of the Euphrates river remain out of the hands of President Assad’s regime. With the U.S. planning an imminent withdrawal from Syria, things could soon shift again.

Control over Eastern Syria is important for the government in Damascus for political and economic reasons. President Assad has on numerous occasions stated his desire to establish control over the entire Syrian territory in order to strengthen the image of a strong and stable regime. Before the war, Syria produced 387,000 barrels per day of which 140,000 bpd were exported. Most of this oil came from Eastern Syria, which is now under the control of the U.S.-backed SDF. Currently, the Syrian oil industry is a shadow of its former self due to the civil war.

A weakened IS led to government forces progressing from the west, while the SDF expelled the Islamic fundamentalists from the north. The Euphrates river has become the natural border between the SDF and the Syrian military. After a serious incursion on February 7th, 2018, during which approximately 300 Syrian soldiers and Russian mercenaries died attacking U.S. and SDF forces on the eastern shores, it has become relatively calm in the region. Related: Saudis Tread On Thin Ice As Prices Slide

The success of the SDF is a direct consequence of cooperation with Washington. The U.S. is the guarantor of security through the presence of 2,000 special forces and continuous air support.

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

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