AuthorTopic: Oil Price Crash: Who Cooda Node?  (Read 138671 times)

Offline K-Dog

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Who dunnit?  Any bets here?

RE

Iran's Zarif calls oil tanker incidents "suspicious", wants regional talks


My money's on an entity identified in three letters.

Give me a C.

As you might expect, in the MSM about the ONLY country not mentioned as possibly responsible is the FSoA.  ::)

They're ginning up for War, no doubt about it.  Now they say they have pics of Iranians removing mines from the ships.  Right.

Add an "I" after the "C".

RE

And horses eat hAy.
Under ideal conditions of temperature and pressure the organism will grow without limit.

Offline RE

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Who dunnit?  Any bets here?

RE

Iran's Zarif calls oil tanker incidents "suspicious", wants regional talks


My money's on an entity identified in three letters.

Give me a C.

As you might expect, in the MSM about the ONLY country not mentioned as possibly responsible is the FSoA.  ::)

They're ginning up for War, no doubt about it.  Now they say they have pics of Iranians removing mines from the ships.  Right.

Add an "I" after the "C".

RE

And horses eat hAy.

A Caviar Inspired Appetizer.

RE
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Offline K-Dog

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The Urban Dictionary is controlled by the Deep State.
« Reply #857 on: June 14, 2019, 12:04:04 AM »
Seriously, they have been fucking with me for years.

Quote
Top definition

k-dog
A mine sniffing dolphin who works for the Navy. A dolphin with a stupid camera on it's fin who looks for mines.
That K-dog can sure find mines!
by Keith (I'm no friggin dolphin!) Dowling April 08, 2003

The next definition there is no better and this one does not go back to 2003.

<a href="http://www.youtube.com/v/VTa6JVq4nNQ" target="_blank" class="new_win">http://www.youtube.com/v/VTa6JVq4nNQ</a>


Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!               Not Guilty!




Can you believe this.  A thousand pound triangle with perfect vertical alignment like a downloaded 'gif' arrow 12 feet above the waterline magically appears.
« Last Edit: June 14, 2019, 12:26:01 AM by K-Dog »
Under ideal conditions of temperature and pressure the organism will grow without limit.

Offline RE

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🛢️ Oil Tanker Explosions: The CIA version Unravels (already!)
« Reply #858 on: June 14, 2019, 04:21:42 PM »
The Consumer Idiots Agency is getting very bad at fabricating bullshit.  ::)

RE

Japanese oil tanker owner disagrees with US military that a mine caused blast near Iran
Published 6 hours agoUpdated 35 min ago
Amanda Macias
@amanda_m_macias
   

Yutaka Katada, president of shipping company Kokuka Sangyo Ltd. points to a picture of their tanker Kokuka Courageous, one of two that were hit in suspected attacks in the Gulf of Oman, during a news conference in Tokyo, Japan June 14, 2019.
Kyodo | Reuters
   
Key Points

    The Japanese owner of one of the oil tankers attacked near Iran on Thursday says the vessel was struck by a projectile and not by a mine.
    “We received reports that something flew towards the ship,” says Yutaka Katada, president of Kokuka Sangyo.
    On Thursday, U.S. Central Command said that the Japanese oil tanker, Kokuka Courageous, had an “unexploded limpet mine on their hull following an initial explosion.”


WASHINGTON — The Japanese owner of one of the oil tankers attacked near Iran on Thursday said the vessel was struck by a projectile and not by a mine, which is what U.S. officials assessed as the source of the blast.

“We received reports that something flew towards the ship,” Yutaka Katada, president of Kokuka Sangyo, said at a press conference Friday. “I do not think there was a time bomb or an object attached to the side of the ship,” he said, adding that a projectile landed above the waterline.

On Thursday, U.S. Central Command said in a statement that the Japanese oil tanker, Kokuka Courageous, had an “unexploded limpet mine on their hull following an initial explosion.”

The Pentagon did not immediately respond to CNBC’s request for comment.
watch now
VIDEO02:24
Tanker attacks an example of supply concerns hitting prices: Expert

President Donald Trump said Friday that if Iran were to block the Strait of Hormuz, “it’s not going to be closed for long,” but did not elaborate on what potential steps the U.S. would take in response. “They’re not going to be closing [the strait],” Trump reiterated during a telephone interview on “Fox & Friends.”

Earlier this year, Iran threatened to close the strait in response to a U.S. decision to end waivers on reimposed sanctions for companies that export oil from Iran. The Strait of Hormuz is the world’s most important oil choke point. It’s a gateway for almost a third of all seaborne crude oil.

America’s top diplomat, Secretary of State Mike Pompeo, blamed Iran for Thursday’s attacks without citing specific evidence as to why Tehran was responsible.

“Iran is lashing out because the regime wants our successful maximum pressure campaign lifted,” Pompeo said Thursday. “No economic sanctions entitle the Islamic Republic to attack innocent civilians, disrupt global oil markets and engage in nuclear blackmail.”

“The international community condemns Iran’s assault on the freedom of navigation and the targeting of innocent civilians,” he said, adding that the U.S. will defend its forces, interests and partners.
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Offline RE

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Chief Suspect: Corporate Imbeciles of Amerika

RE

<a href="http://www.youtube.com/v/1M9mkITgnvI" target="_blank" class="new_win">http://www.youtube.com/v/1M9mkITgnvI</a>
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Offline RE

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🛢️ U.S. Natural Gas Prices Have Collapsedl
« Reply #860 on: June 24, 2019, 01:20:36 AM »


2,369 viewsJun 23, 2019, 07:14pm
U.S. Natural Gas Prices Have Collapsed
Jude Clemente

    The prompt month NYMEX gas contract is down over 16% so far in June
    Yet, do not sleep on July and August: the summer heat is surely coming


Business and sing of landmark concept, Wall Street "WALL ST" sign over American national flags in front of NYSE stock market exchange building background. The New York Stock Exchange locate in economy district,

U.S. natural gas prices have collapsed since Memorial Day.

The prompt month NYMEX gas contract is down over 16% so far in June

Natural gas is at its lowest price level since May 2016.

Now around $2.20 per MMBtu, gas this time last year was ~$3.00.

Nobody saw this coming, especially when prices in mid-November spiked to nearly $5.00.

In addition, the ~$2.53 level had offered strong technical support for the past three years, making this collapse utterly unpredictable.

There are no contracts on the forwards curve above $3.00 until January 2024.

Technical support and resistance are now respectively at $2.10, $2.15 and $2.23, $2.28.

Yet, the RSI has fallen below 30, meaning the market is oversold and a limited rebound in price is expected.

Since Memorial Day, U.S. natural gas prices have plummeted. Data source: CME Group; JTC

With the first day of summer last Friday, it has indeed been a very subdued start to the summer gas market.

Mild weather to say the least: seven weeks in, and five of them have been cooler than last year.

For the week ending June 15, U.S. weather was 32% cooler than last year and 15% percent cooler than normal.

Over the past few weeks, demand has been flat in the 75-80 Bcf/d range.

Interestingly, production has been level as well, fluctuating at 86-87 Bcf/d.

And such low prices obviously discourage bringing new output online, but I still expect us to surpass 90 Bcf/d in the coming months.

For reference, the biggest changes for this year's gas fundamentals as compared to last are much higher domestic production (up 10%) and LNG demand (up 55%).

Other than those two, the other gas sectors are remarkably the same.


U.S. natural gas supply and demand are continually breaking records. Data source: EIA; JTC

The U.S. gas storage deficit has therefore continued to drastically improve.

We had a 115 Bcf injection reported on Thursday, well above the concensus of 104 Bcf, pulling prices down further.

In fact, this marked the 12th consecutive above-average build for gas inventories and the seventh triple-digit build of the year.

By comparison, the last two injection seasons had only one triple-digit build each.

U.S. gas storage now stands 11% above where it was this time last year and 8% below the five-year average.

Just a few months ago, we were 33% below the five-year average.

The East and Midwest regions are respectively now just 2% and 5% below their five-year averages.

So at 2,203 Bcf of gas in storage, the deficit to the five-year average has fallen to just 199 Bcf, versus a 505 Bcf deficit back at the end of March when the injection season started.

The coming weeks seem bearish as well.

Expected coming injections stand at 99 Bcf and 84 Bcf, as compared to their five-year averages of 84 Bcf and 70 Bcf.

Yet, do not sleep on July and August: the summer heat is surely coming

The U.S. gas market should tighten a bit as we enter the hottest parts of the summer - although the upside is limited for now.

Gas-based electricity will be incentivized by low regional basis prices, and demand growth will also come from LNG and Mexican exports.


At 33% at the end of March, U.S. gas storage is now just 8% below the five-year average. Data source: EIA; JTC
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Offline RE

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🛢️ Failing Trade Talks Could Send Oil To $30
« Reply #861 on: June 27, 2019, 03:00:59 AM »
Limbo time again!

RE

https://oilprice.com/Energy/Energy-General/Failing-Trade-Talks-Could-Send-Oil-To-30.html

Failing Trade Talks Could Send Oil To $30
By Nick Cunningham - Jun 26, 2019, 6:00 PM CDT


The U.S. and China appear to be making progress on trade talks ahead of the G20 meeting, but should they fail, the fallout for the oil market could be significant.

If the U.S. and China cannot come to an agreement and the trade fight escalates, oil prices could plunge to $30 per barrel, according to Bank of America Merrill Lynch.

That is because the Trump administration has threatened to impose tariffs on $300 billion worth of Chinese imports, which would cover just about every Chinese good coming into the country. The economic pain on the global economy would be substantial, but the impact would be especially damaging on China. In response, Beijing might feel compelled to let the yuan weaken in an effort to prevent a collapse of exports.

That, in turn, would severely cut down on oil demand. Since crude is priced in dollars, a weaker yuan would make oil vastly more expensive in China.

Moreover, if the fragile U.S.-China trade talks fall apart, China would have little incentive to follow American directives. As a result, it may scoff at demands to cease purchasing oil from Iran. The combined effects of a weaker global economy, dwindling Chinese demand following a weakening of the currency, and Chinese imports keeping Iranian oil exports online would lead to a cratering of oil prices to $30 per barrel, Bank of America’s global head of commodities Francisco Blanch said in a Bloomberg interview.

The comments echo conclusions the investment bank made in a mid-June report, although its worst-case scenario for oil prices seems to have grown more pessimistic. “A further escalation in US tariffs on Chinese goods could jointly drive global economic growth a lot lower and encourage Iran-China co-operation,” Bank of America analysts wrote. “If Chinese refiners start to purchase Iran oil in large volumes on a sustained basis as US tariffs rise again, WTI could drop to $40/bbl.” That’s what the bank said in mid-June. Now, it says the downside could be as low as $30 per barrel.
Related: Oil Industry Boosts Spending… But There’s A Catch

To be sure, Bank of America does not say the scenario is necessarily likely, but it is a potential worst-case outcome for oil.

Much hinges on what happens on the sidelines of the G-20 summit. “Our global demand growth projections of 0.93mn b/d and 1.00 mn b/d for 2019 and 2020 are roughly aligned with our economists' GDP forecasts,” Bank of America analysts wrote. “Yet there is a risk we end up being too optimistic if the US-China trade relationship deteriorates further.”

For now, oil prices have rebounded on U.S.-Iran tension. The war of words between Trump and top Iranian officials is a reminder that the prospect of a military confrontation is far from remote.

The latest inventory data also provided a jolt to oil prices. News that API inventories fell sharply last week boosted prices in early trading on Wednesday as it appeared to ease fears of a surplus.

But these one-off data points are trivial compared to the outcome of the Trump-Xi summit. Meanwhile, in the days following U.S.-China talks, OPEC+ will meet in Vienna, where it will likely extend the production cuts.

“An extension of the production cut agreement by another six months appears a done deal,” Commerzbank said in a note. “Russia’s Energy Minister Novak yesterday emphasized the success of collaboration so far and described international cooperation as more important than ever.”
Related: The Last Truly Underdeveloped Oil Frontier In The Middle East

But an extension of the cuts is just the bare minimum needed to keep prices from falling. With the cuts already largely baked into oil price assumptions, there is likely little upside available to prices from an extension. Moreover, even as OPEC+ restrains output, they have significantly built back a measure of spare capacity. OPEC now has about 3.2 million barrels per day (mb/d) held in spare capacity, according to the International Energy Agency. “This is welcome news for consumers and the wider health of the

currently vulnerable global economy, as it will limit significant upward pressure on oil prices,” the IEA wrote in its June Oil Market Report.

In other words, while several major events affecting the fate of the oil market will take place in the coming days, only a major trade breakthrough has the potential to significantly boost oil prices. Secretary of Treasury Steven Mnuchin told CNBC on Wednesday that a trade deal is within reach. “We were about 90% of the way there and I think there’s a path to complete this,” he said. However, those comments should be taken with a grain of salt, especially since a trade deal appeared imminent multiple times over the past few months.

Absent a resolution to the U.S.-China trade standoff, the risks appear skewed more to the downside than the upside.

By Nick Cunningham of Oilprice.com
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🛢️ The Dark Outlook For Non-OPEC Oil
« Reply #862 on: July 01, 2019, 01:37:11 AM »
Methinks the outlook is pretty dark overall.  It's the Dimming Bulb Effect.

RE

https://oilprice.com/Geopolitics/International/The-Dark-Outlook-For-Non-OPEC-Oil.html

The Dark Outlook For Non-OPEC Oil


The Dark Outlook For Non-OPEC Oil

The period from 2010 to 2014 witnessed the highest sustained oil price environment in recent memory, with Brent averaging $110 a barrel and WTI $95 a barrel. This high oil price era ushered a period of unprecedented capital investment in oil and gas extraction, as global capital investments rose from $500B in 2010 to $700B by 2014 (do note some of the increase is due to cost inflation, hence, the magnitude of the capital spending increase, and its subsequent decease, is tampered to some extent by changes in unit cost).

(Click to enlarge)

(Source: Bank of America Merrill Lynch)

Taking in consideration the 3 to 5 years time lag between increased capex and a production response, the impact of the 2010-2014 O&G capital investment surge had been poised to impact global oil production later in the decade:

(Click to enlarge)

(Source: Goldman Sachs)

The delayed response between investments in supply and the resulting new supply has historically been the key reason as to the low correlation between spot prices and global oil supply. It’s only natural that once an oil company has invested billions of dollars in a developing a given oil resource, production would ensue upon completion of so project regardless of price.

Where did all the oil go?

Based on the above overview, one would expect global non-OPEC oil production to have surged over the last three years, and so despite the collapse in oil prices. Looking at the latest EIA STEO, at first glance one would conclude that indeed non-OPEC oil production has surged over the last several years from 60.2M barrels in January 2015 to 65M by May 2019, an increase of 4.8M barrels in 3.5 years. However, a closer look at the data reveals a different picture. Related: Oil Flat Despite Middle East Tensions

The Non-OPEC supply basked is a heterogenous basket of every oil producing country outside of OPEC, the majority of which generate their oil supply from conventional resources, namely onshore and offshore conventional fields. The only two non-OPEC countries that generate the majority of their oil supply from non-conventional resources are: Canada (Oil Sands and Tight Oil) and the US (Tight Oil). Unlike conventional oil production and oil sands production, tight oil production is a short cycle resource, said another way, the time lapse between investing in new tight oil supply and the resulting oil is about six months, a much shorter time frame as compared to other competing sources of supply. In this context, obtaining an accurate picture as to the state of global non-OPEC oil supply, one must exclude US oil production (most of which is from tight oil) from the data.

Non-OPEC supply (with and without US production):

(Click to enlarge)

As can be seen from the above, non-OPEC supply (excluding US) has held at an almost perfectly flat 45.4M barrels from January 2015 to May 2019. The reason this has been the case is that production increases in countries such as Canada, Brazil and Russia have been offset by declines in countries such as Mexico, China and Colombia. Basically, the entire growth in non-OPEC supply since January 2015 (4.8M barrels) has been generated by the US alone. This bears repeating: 100% of non-OPEC supply growth over the last 3.5 years has come from a single country: The United States.

Why should investors care?

The aforementioned state of affairs is highly troubling for a number of reasons. First, the US tight oil industry has been a money losing proposition for years, with the top 40 shale oil and gas producers spending $200B more than they brought in over the last decade according to the Wall Street Journal. These sustained loses have soured investors on the industry and sharply reduced its access to external  funding. Furthermore, issues with well spacing, slowdown in productivity improvement and a diminishing inventory of high quality locations are tempering the industry future growth expectations.  This is not to say that US shale oil production is about to collapse, but its expected rate of growth over the next 3 years is unlikely to match the robust rate growth we witnessed over the last 3 years. Related: The “Polar Silk Road” Could Be A Gamechanger For Natural Gas

The second reason investors should take notice of the flattening in non-OPEC supply (ex-US) despite record investments in the previous bull investment cycle is the evolution in non-OPEC supply decline rate:

(Click to enlarge)

(Source: Wood Mackenzie)

According to a recent Wood Mackenzie study, average non-OPEC oil production decline rate (excluding US tight oil) has held steady at 5.1% since 2015. This is the result of heavy investments made during the boom years and a host of temporary production decline mitigation measures undertaken post the oil price collapse. Wood Mackenzie expects this steady decline rate to exceed 6% by 2021. An increase in the non-OPEC decline rate from 5.1% to 6.3% may seem trivial, but when applied against a 45.4M production base, it translates into 550K in additional annual declines. Most notably such an acceleration in the non-OPEC (ex-US) decline rate is set to take place against a backdrop of a substantial decline in new non-OPEC mega projects supply additions:

(Click to enlarge)

(Source: Goldman Sachs)

The bottom line

What this analysis indicates is that the impact of the late 2014 oil price collapse is about to hit non-OPEC oil supply from two fronts: through an increase in the global non-OPEC decline rate and through a significant deceleration in new non-OPEC mega projects supply additions. The combined impact of these two forces will exceed 1m barrels in lost production per year by 2021. As non-OPEC oil supply commences its inevitable decent by 2021, the burden of compensating for production declines and meeting demand growth (which remains robust despite the advent of EV cars) will fall on two sources: US tight oil and OPEC.

Can US Tight Oil and OPEC shoulder the burden?

US tight oil growth is projected to slowdown materially by 2021 as many of the factors highlighted earlier come into play. Even, Rystad Energy, one of the most optimistic research outfits on US tight oil, expects a slowing in US tight oil growth by the early 2020s:

(Click to enlarge)

The mismatch between the projected flattening in US tight oil production growth and the expected decline in non-OPEC supply leaves OPEC as the sole source of additional supply.  

Theoretically, OPEC has the capacity to materially increase supply in the coming years to compensate for the diminishing role of US shale. Saudi Arabia, UAE and Kuwait are supposedly in position to increase production by 1.5M to 2M barrels in relatively short order. Nonetheless, the cartel capacity to increase supply is limited by a number of factors such as the political will to lower oil prices, and the increasing loss of production due to a number of adverse geopolitical developments: the imposed sanctions on Iran, the political turmoil in Venezuela, the raging civil war in Libya, and unrest in Nigeria.    

The oil market has been lulled in complacency by the phenomenal surge in US tight oil production, this historic, and potentially destructive deployment of capital, has masked to a large degree the incredible fragility of non-OPEC (ex-US) oil supply. As shale oil growth flattens by 2021 and non-OPEC (ex-US) supply exits its 45M barrels plateau, the oil baton will revert back to OPEC, an organization that has been repeatedly written off as a relic of history, and yet has proven again and again its paramount role in dictating the direction of oil prices.   

By Nawar Alsaadi for Oilprice.com

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Offline RE

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🛢️ Why Natural Gas Prices Collapsed
« Reply #863 on: July 06, 2019, 09:05:13 AM »
https://oilprice.com/Energy/Natural-Gas/Why-Natural-Gas-Prices-Collapsed20700.html

Why Natural Gas Prices Collapsed
By Nick Cunningham - Jul 04, 2019, 6:00 PM CDT


U.S. natural gas prices have collapsed since the end of winter, even as inventory levels remain below average levels for this time of year.

Henry Hub prices spiked in the fourth quarter of 2018 due to record levels of demand, cold weather, and historically low inventories. But prices remained elevated, over $4/MMBtu, for only a brief period of time. Production continued to soar, so traders were not overly concerned about market tightness.

As peak winter demand season drew to a close in March, prices continued to ease, and prices have eroded steadily in the last few months. Prices dipped below $2.30/MMBtu recently, hovering in that range for the first time in roughly three years. As recently as December, prices were twice as high as they are now.

What’s going on? The main driver of the bearish market is production, which continues to ratchet higher, even as shale gas drillers are suffering from financial strain. Production from the Marcellus shale alone was up about 15 percent in May from the same period a year earlier.

Gas markets also go through seasonal swings, seeing a peak in demand in winter and to a lesser degree in summer, while consumption falls sharply in spring and fall. But swings in temperatures from year to year can lead to significant disruption. A cool start to the summer this year led to lower demand than otherwise would be the case, allowing inventories to build back up.

In the last week in June, U.S. natural gas storage levels stood at 2,390 billion cubic feet (Bcf), up 89 Bcf from a week earlier. Storage was still 152 Bcf below the five-year average but 249 Bcf higher than last year, which helps explain why prices recently fell off a cliff. Stocks have replenished, at least relative to last year.

The multi-year low for natural gas prices are likely to deal a further blow to the coal industry, already caught in a death spiral. At least three coal companies have filed for bankruptcy since May, potentially putting 2,000 mining jobs at risk. Coal has a hard time competing with natural gas prices this low.
Related: The Real Reason Why ExxonMobil Won’t Go Ahead With $53 Billion Iraqi Megaproject

But low gas prices is also bad news for the gas industry itself. Recently, a former executive at EQT, one of the country’s largest shale gas producers, said that fracking has been an “unmitigated disaster” for the industry, depressing prices and leading to consistent losses. “And at $2 even the mighty Marcellus does not make economic sense,” Steve Schlotterbeck, the former EQT executive said at an industry conference last month. “There will be a reckoning and the only questions is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system.”

The gas rig count continues to decline, recently falling to 173 in the last week of June, down from over 200 at the start of the year.

Meanwhile, overseas gas markets are also suffering from oversupply and low prices. A wave of new LNG export terminals are coming online in 2019, and LNG prices have tumbled. In the all-important market in East Asia collapsed this year, with JKM prices falling below $5/MMBtu, the lowest level in years. Traders clearly do not see things improving much going forward. While front-month JKM prices are trading at $4.58/MMBtu right now, contracts for August 2023 are only trading at $5.93/MMBtu. Oversupply could stick around for years, if this outlook bears out.

In Europe, too, gas markets are oversupplied. Higher volumes of LNG are arriving on European shores at a time when Russia is hoping to defend market share. “As two of the world’s largest gas producers, Russia and the US are natural competitors in what seems to be a race to the bottom, not only in the lucrative Asian market but now also in Europe. Both countries have sent increasing amounts of gas to Europe despite the low price environment,” Carlos Torres-Diaz, head of gas markets research at Rystad Energy, said in a statement.

“Some US exporters are not covering their operational costs. Nevertheless, US exports to Europe during the first five months of 2019 increased by 6.9 Bcm versus the same period last year,” Torres-Diaz said.

By Nick Cunningham of Oilprice.com
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🛢️ IEA: Huge Oil Glut Coming In 2020
« Reply #864 on: July 15, 2019, 12:26:35 AM »
https://oilprice.com/Energy/Energy-General/IEA-Huge-Oil-Glut-Coming-In-2020.html

IEA: Huge Oil Glut Coming In 2020
By Nick Cunningham - Jul 14, 2019, 6:00 PM CDT


The oil market saw a rather significant surplus in the first half of 2019, much larger than previously expected. Looking forward, supplies are set to tighten in the second half of the year, but that may only be a hiatus before the glut returns.

Global oil supply exceeded demand by about 0.9 million barrels per day (mb/d) in the first six months of this year, according to the International Energy Agency’s latest Oil Market Report. This retrospective look upends the prevailing sentiment that occurred just a few weeks ago. For instance, the IEA said that the oil market saw a surplus of about 0.5 mb/d in the second quarter, while the agency previously thought there was going to be a 0.5 mb/d deficit.

“This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter,” the IEA said. “Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.”

The extension of the OPEC+ cuts through the first quarter of 2020 removes a major uncertainty, but the IEA said it “does not change the fundamental outlook of an oversupplied market.”

The conclusions echo those of OPEC itself, which said in its own report published a day earlier that the “call on OPEC” will be significantly lower next year. Rising U.S. shale production will exceed additional demand both this year and next, which means that the market could see a significant surplus in 2020. In other words, OPEC+ faces a conundrum: Keep its current production cut deal intact and face a worsening glut, or cut further.
Related: Oil Prices Rise Amid Further Rig Count Decline

“On our balances, assuming constant OPEC output at the current level of around 30 mb/d, by the end of 1Q20 stocks could increase by a net 136 mb. The call on OPEC crude in early 2020 could fall to only 28 mb/d,” the IEA said. OPEC produced 29.83 mb/d in June.

OPEC put demand for its oil at a higher 29.3 mb/d next year, which, to be sure, is a rather significant discrepancy from the IEA figure. However, the conclusion is the same – OPEC may be forced to slash production further if it wants to head off a price slide. OPEC’s figures imply that it may need to cut output by 560,000 bpd; the IEA implies a deeper 1.8 mb/d reduction might be needed.

The IEA was diplomatic, saying that the threat of a renewed surplus “presents a major challenge to those who have taken on the task of market management.” Notably the IEA did not downgrade its demand forecast, sticking with growth of 1.2 mb/d for this year. Days earlier, the U.S. EIA downgraded its demand estimate to 1.1 mb/d. The Paris-based IEA was more optimistic about a rebound in economic growth, even as it downgraded its second quarter demand growth figure by a whopping 450,000 bpd to just 800,000 bpd year-on-year.

All three of the major forecasters – OPEC, IEA and EIA – see robust supply growth from U.S. shale. The specific figures vary, but they generally see non-OPEC production (with U.S. shale accounting for most of the total) growing by around 2 mb/d this year, and by even more next year. In other words, non-OPEC supply growth for both 2019 and 2020 exceed demand.
Related: Oil & Gas Discoveries Rise In High-Risk Oil Frontiers

The one bit of uncertainty in those forecasts is the unfolding slowdown in the U.S. shale industry. As Bloomberg reported, “pipeline limits, reduced flow from wells drilled too close together, low natural gas prices and high land costs” are putting a squeeze on Texas shale drillers. Financial results are bad, and have been rather grim for quite some time. Despite huge increases in production (or, because of such extraordinary growth) North American oil companies have burned through $187 billion in cash since 2012.

The big question is whether or not the blistering rate of growth begins to slow as investors sour on the industry. Right now, there is only patchy evidence of this, with the rig count down and the pace of growth seemingly on the wane. Bloomberg cited more than a half dozen shale drillers that have dramatically scaled back their production growth forecasts as they slow the pace of drilling. It remains to be seen if, in the aggregate, U.S. output begins to flatten out.

If that occurs, it would be a massive relief to OPEC, which would find its task of rebalancing a bit easier. Otherwise, by 2020, the cartel may be forced to cut production by even more than it already has.

By Nick Cunningham of Oilprice.com
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🛢️ Shale Investors Fear Bloodbath As Earnings Season Kicks Off
« Reply #865 on: July 16, 2019, 12:00:41 AM »
https://oilprice.com/Energy/Energy-General/Shale-Investors-Fear-Bloodbath-As-Earnings-Season-Kicks-Off.html

Shale Investors Fear Bloodbath As Earnings Season Kicks Off
By Nick Cunningham - Jul 15, 2019, 6:00 PM CDT


The oil majors and shale E&Ps will soon begin publishing second quarter results, which will round out a picture of how the industry fared in the first half of 2019.

Shale drillers find themselves at a troubling crossroads. Since 2012, North American oil and gas companies have eviscerated $187 billion in cash flow. Production has soared but the profits have not materialized. For years investors shoveled more capital their way, and the money was dutifully injected into the ground. More oil came up, but again, the financial returns did not follow.

Wall Street is losing patience. “Investor sentiment continues to be negative heading into 2Q,” Goldman Sachs wrote in a note. “Meetings with investors this week indicated that generalist portfolio managers are largely hiding and not seeking.”

By “hiding,” the bank said that investors were sticking with midstream and integrated companies, and also clean energy. They are “not seeking” oilfield services companies, which are particularly out of favor. That doesn’t mean that they are shunning shale altogether, but Goldman’s assessment was that most investors are sticking with “quality,” and the bank cited EOG Resources, Pioneer Natural Resources, as well as the majors, including Chevron and ExxonMobil, as examples.

More notably, Goldman said that while analysts have a wide variety of opinions on things like oil production growth levels, “increasingly specialists are not debating whether stocks go up or down but are flat vs. go down.” In other words, if shale drillers do everything right – they keep capex in check and still produce as much as expected – their share prices will merely stay flat.
Related: Fracking Under Fire In California

On the other hand, if companies need fresh capital injections, decide to spend more, or report disappointing production figures, then their stocks will sink, Goldman warned. There isn’t a huge upside to shale stocks; at best they will tread water.

To be sure, not all investors are of this view. Some see the forthcoming interest rate cut from the U.S. Federal Reserve, slowing oil production growth, “broad economic strength” and higher demand as bullish factors for oil prices and for stocks in the sector.

Goldman said that investors will particularly watch “whether companies that spend meaningfully more than 50% of annual budget in 1H will meaningfully reduce activity during 2H19 and whether this will be a drag on 1H20 production levels.” Also, they will focus on “shale decline rates and the impact on 2020 capex/cash flow.”

The industry is in the midst of a wave of consolidation. The decision by Callon Petroleum to buy Carrizo Oil & Gas is a telling example of the trouble that some shale drillers find themselves in. As Liam Denning at Bloomberg Opinion noted, Carrizo’s decision to sell out at a time when its share price was at a multi-year low suggests that it saw little chance that it would be able to drill its way out of its financial predicament. That’s a departure from the past, when companies sought fresh capital and another round of drilling.
Related: Why Oil Tankers In The Middle East Shouldn’t Hire Mercenaries

t the same time, Callon’s shareholders weren’t pleased either, with its share down 15 percent on Monday after the news was announced. Shareholders have punished companies that take on new spending. The same dynamic was apparent when Occidental Petroleum succeeded in its quest to buy Anadarko Petroleum two months ago.

Unprofitable shale drillers are likely going to head for the exits one way or another, and investors are calling for consolidation, but the path forward is going to be rocky.

In the meantime, most energy forecasters still see huge increases in supply going forward. The IEA, EIA and even OPEC see trouble ahead for the market, with the “call on OPEC” declining in 2020 as yet another wave of shale production comes online. New Permian pipelines set to start up later this year will pave the way for more output.

However, a surge in production, and another supply glut, will not help out shale E&Ps or their tormented shareholders.

By Nick Cunningham of Oilprice.com
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