AuthorTopic: Oil Price Crash: Who Cooda Node?  (Read 121267 times)

Offline RE

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Re: Oil Price Crash: Who Cooda Node?
« Reply #735 on: May 05, 2017, 08:04:44 PM »
Quote
Indeed they will own it all.  But what is it they "own" here?  The assets are irredeemable debt.

They will own a controlling interest in the company, if not ALL of the shares.

Of course they will.  But the company they own makes no money!  That is why it went BK in the first place!  Does having this company now "owned" by the CB make it profitable?  ???  :icon_scratch:  No of course it doesn't.

You don't make a company profitable just by switching who owns it.

RE
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Offline RE

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Self-Sabotage: What Are US Oil Producers Thinking?
« Reply #736 on: May 06, 2017, 01:11:19 AM »
http://wolfstreet.com/2017/05/06/self-sabotage-what-are-us-oil-producers-thinking/

Self-Sabotage: What Are US Oil Producers Thinking?
by Dan Dicker • May 6, 2017 • 1 Comment   


This image truly sums up
their complete idiocy right now.

By Dan Dicker, Oil & Energy Insider:

It’s absolutely maddening watching the first quarter results float in from the large-cap energy companies. And the one image I continue seeing in my mind that I can’t shake is of lemmings going over a cliff:

This image alone truly sums up the complete idiocy of virtually all of the U.S. oil producers right now; they are showing no creativity or independence, doing what everyone else is doing, despite the fact that this behavior is leading them all to a very, very sad moment, if not their own ultimate demise.

What has become increasingly clear to me is that without a change in the mass behavior of major and mini-major oil exploration and production companies (E+Ps), we’re still a long way from the end of the oil bust, and therefore from the next oil boom.

Oil has been overproduced since late in 2013. That glut decimated oil prices in 2014, finally bottoming at a low price below $30 and now recovered towards $50, but still well below a price that enables anyone to make a decent profit except for the conventional Middle East producers – and even THEY need a far better margin to support their national budgets.

But how have oil companies reacted? Did they stop drilling oil at a loss? No, not really – instead they cut their budgets for investments in new projects, trimmed costs to the bone and called on technology to make getting a barrel of oil out of the ground as cheap as possible.

Then, having merely cut the SPEED of their losses, they patted themselves on the back, planned on INCREASED production, got Wall Street to restructure and reinvest in their losing ways, and sat back and waited for oil prices – and their profits – to recover.

Oil producers didn’t plan on this self-destructive strategy. They all needed continued cash flow to service bond issues and dividends. They also reflexively continued to pump oil at a loss to fulfill the wrongheaded expectations of analysts – and shareholders, where production growth is, for no good reason, the gold standard for progress.

The end result, however, has been incredibly self-destructive. Gluts have stubbornly refused to clear, pushing global rebalancing time lines further and further into the future – and putting hard caps on oil prices.

The latest quarterly reports are showing just how disastrous this lemming-like behavior has been for virtually all U.S. independent E+P’s. Check out the reaction to Noble Energy’s (NBL) latest quarter – down 6%. Devon Energy – down 2%. Apache – down 4%.

And the ever snake-bit Anadarko Corp. – last week the victim of a Colorado house fire caused by waylaid Anadarko wells leaking and exploding, killing two – is now bearing up under another disappointing quarter. Down more than 9%!

So, now what? What do you do with these lemmings, taking their money and most assuredly ours, over the cliff with them?

There are those that have walked over the edge with all the others, but have still managed to deploy at least a partial parachute – and finding these better equipped creatures will be my job over the next several columns, as oil resets for a second (or third) move that necessarily must force at least a few more oil producers to stop selling ever increasing amounts of oil on the market at a loss.

For now, we are in no rush – for a while, we’ll sit back – content to watch the lemmings plummet downwards without us. By Dan Dicker, Oil & Energy Insider

And now we have a gasoline glut as we enter the “summer driving season.” Read… What Crack Spreads Say about Oil Prices
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Offline RE

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Could Oil Drop To $42?
« Reply #737 on: May 08, 2017, 01:50:38 AM »
Does a Bear shit in the woods?  Is the Pope Catholic? ???  :icon_scratch:

RE

http://oilprice.com/Energy/Energy-General/Could-Oil-Drop-To-42.html

Could Oil Drop To $42?
By Nick Cunningham - May 05, 2017, 2:34 PM CDT Oil Rig


The 5 percent selloff in oil prices on May 4 serves as a painful reminder that the oil market is still woefully oversupplied. But why such a deep and sudden decline in prices on a single day?

Of course, things are not looking great for oil, with inventories still at such extraordinary levels. But the size of the price decline on May 4 was made much larger because of technical moves in the market.

The initial spark is thought to come from the poor EIA report and growing worries about Chinese demand for all sorts of commodities. But oil prices broke through key resistance levels – 50 and 200-day moving averages – which tend to spark deeper selloffs. Over Thursday night, WTI saw a flash crash, a sudden plunge from $45.36 per barrel to just $43.76 in a matter of minutes, according to CNBC. Prices moved back up a few hours later but remained at $45 per barrel when trading opened on Friday on the U.S. East Coast.

High-volume trading can commence after prices passed a certain threshold, automatic selling that kicks in when prices become too volatile. But with resistance levels broken, further declines to $42 per barrel are possible, according to John Kilduff of Again Capital. Seaport Global Securities echoed that sentiment, arguing in a research note that WTI faces technical resistance at $45.90 per barrel, but that the next level lower would be at $42.70.

Others went further. "That opens the door to not only lower $40s, but possibly into the $30s," Todd Gordon of TradingAnalysis.com said Thursday on CNBC's "Trading Nation." His voice is notable because in November 2015 he predicted that oil would drop to $26 per barrel, which it did early last year.

"It is now-or-never for oil bulls," The Schork Report said. "They either put up a defense here or risk further emboldening the bears for a run at the $40 threshold."

Just a few weeks ago, sentiment was decidedly bullish, with declines in inventories starting to pick up pace, adding to the growing confidence in an OPEC extension. But now the OPEC extension is being taken for granted, and questions are emerging about whether or not a six-month extension will even be enough. After all, the markets, at this point, are assuming an extension is a done deal. Yet prices continue to fall.

In the futures market, the contango deepened dramatically in short order, reflecting a sharp drop in confidence that inventories will rebalance later this year. Expectations now point to a “normalization” of oil inventories at some point in early 2018 rather than the third or fourth quarter of 2017.

If six more months of keeping the cuts in place are not enough, maybe OPEC should cut deeper? Sources form the cartel threw cold water on such an idea, leaving the market disappointed on Thursday, accelerating the selloff that was already underway.

John Kilduff of Again Capital told CNBC that when the OPEC extension is announced, it could add $2 or $3 to the price of crude oil, a rather unimpressive gain given the magnitude of what OPEC is trying to pull off.

This development highlights the waning influence of OPEC. The cartel engineered 1.2 mb/d of cuts for six months and has posted an impressive compliance rate. And they even brought along 558,000 bpd from non-OPEC countries. But shale is already on its way back, taking up market share ceded by OPEC. Meanwhile, demand is looking rather weak – Chinese demand, U.S. gasoline demand, U.S. auto sales and broader economic growth all pose serious question marks. When the group announced their deal in November, they surely expected to declare Mission Accomplished by June. In recent weeks, they have come to realize that an extension would be needed to bring inventories down.

But by early May, an extension is starting to look like the absolute minimum needed. Extending won’t boost prices while a failure to extend will certainly cause them to crash. OPEC is in the unenviable position of making deeper sacrifices on the production side without much reward on price. The alternative is to produce flat out and risk causing a price meltdown again. A lose-lose situation.

Still, a price meltdown is probably a worse situation for them, so an extension still looks likely. “I don’t think they have many options,” Amrita Sen, chief oil analysts at Energy Aspects Ltd., said in a Bloomberg interview.

"So far OPEC's strategy to draw down inventories has not worked," Neil Beveridge, senior analyst at AB Bernstein in Hong Kong, wrote in a note. "It seems obvious to us that OPEC will need to keep the cuts in place for longer than the next six months if their strategy is to have any chance of success."

The flip side of all the technical trading over the past week is that many of the bullish bets have been liquidated already. Without an enormous volume of outstanding bullish bets, the threat to the downside has been taken care of. Which is to say that oil prices could stabilize prices in the mid-$40s.

And not everybody is so gloomy. Citi and Goldman Sachs predict that oil is probably bottoming out, and in any event, the recent selloff was a technical anomaly. The real story is that the markets are continuing to move towards balance, they say. “It’s all technicals,” Citi’s Ed Morse said. “There’s nothing fundamental, nothing has changed in the market.” Both see oil prices rising in the months ahead. In fact, WTI and Brent are showing signs of life on Friday, regaining some lost ground during midday trading.
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Offline RE

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OPEC is out of options: How low can oil prices go?
« Reply #738 on: May 09, 2017, 04:12:32 AM »
http://money.cnn.com/2017/05/08/investing/opec-oil-prices-slump/

Market Movers
OPEC is out of options: How low can oil prices go?


by Ivana Kottasová   @ivanakottasova May 8, 2017: 12:11 PM ET
Why OPEC is cutting oil production

OPEC is running out of options.

The price of crude has plummeted 13% in recent weeks to below $46, suggesting that the cartel's efforts to vanquish cheap oil are falling short.

OPEC and other major producers had been enjoying higher prices since agreeing in November to slash production, a strategy designed to rid global markets of excess supply.

Now, the magic appears to be wearing off.

The cartel has responded to the sharp decline in prices by suggesting that cuts could be extended far beyond their original mid-year deadline.

"I am confident the agreement will be extended into the second half of the year and possibly beyond," Saudi energy minister Khalid Al-Falih said Monday, according to Reuters.

But with American producers increasing production, extending the freeze may not be enough to stabilize prices or send them higher.

Energy ministers from OPEC members are set to meet on May 25. Here's a look at their options:

Extend the cuts

OPEC and other major producers agreed to production cuts only after prices dropped as low as $26 in 2016. Getting all the major players on the same page took months of negotiation.

For a while, the strategy appeared to be working, with prices drifted north of $54 earlier this year. That's right in the cartel's sweet spot of $50 to $60 per barrel -- just high enough for OPEC countries to budget comfortably, but low enough to keep other key producers on the sidelines.

The cartel has a new problem, however -- and one that it cannot easily control: American shale producers.

U.S. oil producers have returned to the market with force, doubling the number of rigs in operation over the past year. Years of low prices have forced them to become much more efficient.

Analysts at UBS estimate that U.S. producers can now make money as long as prices remain above $40 per barrel. That's down from $65 in early 2014.

Related: Oil stocks are the biggest losers of 2017

The upshot is this: OPEC and other major producers can agree to extend their production cuts, but if prices remain above $40, American producers will keep pumping.

And that means excess supply is likely to remain a problem for the foreseeable future.

Squeeze the Americans

OPEC could reverse course and increase production in an effort to squeeze U.S. producers out of the market.

"If they decide not to extend cuts and ramp production back up we would probably see prices fall," said Tom Pugh, commodities economist at Capital Economics.

Pugh said that such a strategy would surprise investors, and send prices below $40.

The strategy, however, failed miserably the last time it was tried by the Saudi-led cartel. The group pumped without concern for price starting in 2014, and U.S. producers did idle operations.

But it also had a disastrous effect on the government budgets of OPEC members, forcing them to implement austerity measures.

While many Gulf countries have since implemented reforms to reduce their reliance on oil, other major producers including Russia and Nigeria won't want to risk another price war.

Do nothing

Investors are now expecting OPEC and its allies to extend their production cuts.

"They have got themselves between a rock and a hard place, because they have now talked about extending the agreement so much," said Pugh. "If they don't do it, we could see prices drop to the low forties again."

Related: Oil prices have plunged 15% in 3 weeks

If no deal materializes, the cartel could decide to muddle through in hopes that stronger demand in the second half of the year will reduce some of the supply glut.

Doing nothing would amount to a major policy shift, but perhaps one that's worth trying.

"I think [OPEC] are now acutely aware that they don't have the kind of influence they used to have 10 years ago, and that shale is now the swing producer in the market," Pugh said
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Offline Palloy2

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Re: Oil Price Crash: Who Cooda Node?
« Reply #739 on: May 09, 2017, 06:28:37 PM »
Quote
"... that [US] shale is now the swing producer in the market," Pugh said.

Only if they have redefined the meaning of "swing producer", which is supposed to mean the producer who changes production rates (up and down) to keep the price of oil stable.  US shale producers are NOT doing that.  They are producing, and not doing the necessary exploration investment for the future, simply to make enough money to pay the minimum payments on their debts.

I don't believe they have become so good at fracking that they have brought down the break-even cost from $65 /b to above $40 /b, like UBS says.  They are being subsidised with free money to keep them operating and avoid the meltdown, not because they are a good business proposition.
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Offline RE

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Re: Oil Price Crash: Who Cooda Node?
« Reply #740 on: May 09, 2017, 06:51:08 PM »
Quote
"... that [US] shale is now the swing producer in the market," Pugh said.

Only if they have redefined the meaning of "swing producer", which is supposed to mean the producer who changes production rates (up and down) to keep the price of oil stable.  US shale producers are NOT doing that.  They are producing, and not doing the necessary exploration investment for the future, simply to make enough money to pay the minimum payments on their debts.

I don't believe they have become so good at fracking that they have brought down the break-even cost from $65 /b to above $40 /b, like UBS says.  They are being subsidised with free money to keep them operating and avoid the meltdown, not because they are a good business proposition.

Agreed on both points.

I definitely do not think they have break-even down to anywhere NEAR $40, if that were true they would not be needing to keep accessing the credit markets to stay floating.  The TBTF Banks simply cannot allow any medium size E&P to go BK, and for the E&P to keep servicing the old debt, it has to keep drilling and pumping, and hopefuly selling at some price the Konsumers can still afford to pay.

From my POV, the Glut will continue well into 2018, and if they can even keep the price up in the mid-$40 range they will be lucky.  If it breaks down into the $30 handle, serious shit will go down.

RE
« Last Edit: May 09, 2017, 06:53:21 PM by RE »
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Offline Palloy

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Re: Oil Price Crash: Who Cooda Node?
« Reply #741 on: June 06, 2017, 01:53:47 AM »
Quote
http://qz.com/637318/epiphanies-and-economics-whats-pushing-workers-out-of-oil-and-gas-and-pulling-them-into-renewables/
The executives leaving oil and gas behind for jobs in clean energy
Edinburgh, Scotland

http://www.efficientenergysaving.co.uk/solar-irradiance-calculator.html
shows that in Edinbrugh in December the solar irradiance averaged over the last 10 years on a horizontal panel is 0.38 kW.h/day .  They don't go into it, but obviously it is more efficient if your panel faces South and is tilted at the Latitude angle (56° for Edinburgh).  This increases the solar interception by (1 / Cosine(56°)) = 1.79 . So for an average day in December a 1 square metre tilted panel would receive 0.38 * 1.79 =  0.68 kW.h/day . For June the figure would be 8.3 kW.h/day .  Clearly 1 square meter is not going to be enough to run a house.

If the house is heated by fossil fuels (I had an anthracite-burning enclosed system and changed to a gas system, which was much better) then the electricity demand will be much less, but we are phasing out fossil fuels, aren't we, so how much electricity demand for a home in Edinburgh heated by solar electricity?  I don't know, but it doesn't matter does it, because we are going to have our electricity tied in to the grid, at the extra expense of a grid-tied metering system, but with the advantage of the feed-in-tariff.

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Offline RE

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JP Morgan Slashes Its 2018 Oil Price Forecast By $11
« Reply #742 on: June 08, 2017, 12:13:27 AM »
RE got this one right too, long before JP Morgan & Goldman.  How come nobody is paying me megabucks for my analysis? ???  :icon_scratch:

RE

http://oilprice.com/Energy/Energy-General/JP-Morgan-Slashes-Its-2018-Oil-Price-Forecast-By-11.html

JP Morgan Slashes Its 2018 Oil Price Forecast By $11
By Tsvetana Paraskova - Jun 07, 2017, 5:00 PM CDT Oil Barrels


The U.S. shale-vs-OPEC-cuts tale has been the predominant theme in oil markets this year, and like the cartel’s output cut, it will be rolling over into next year as well.

Major banks, the same that at the time of the initial OPEC deal were seeing the markets tightening and glut eliminated as soon as the second or third quarter this year, have started slashing their oil price forecasts for this year and next, as the six-month OPEC deal failed to rebalance the markets and cuts were extended into March 2018.

U.S. shale production is expected to continue growing through this year and into next year. Meanwhile, JP Morgan sees OPEC’s extension deal as having no exit strategy, with the cartel not communicating what its end game is.

“Neither the length of the extension, nor the compliance rate of its participants, concerns me as much as OPEC’s lack of an exit strategy. If OPEC really has the courage behind their convictions, then the optimal decision would have been to extend cuts through the end of 2018,” Ebele Kemery, head of energy investing at JP Morgan, said on the day on which OPEC announced they would roll over the cuts.

Major investment banks hastened to revise further down their oil price projections, seeing a flow of supply hitting the market as soon as production cuts expire in March 2018. Add the second U.S. shale boom to this, and it looks like the glut will return with a vengeance in 2018.

Last week, Goldman Sachs cut its Brent price forecast for this year to US$55.39 per barrel from its previous estimate of US$56.76 a barrel. It also revised down its WTI projections to US$52.92 from US$54.80 a barrel. Just days before that, Goldman said that it sees the oil glut returning after OPEC’s deal expires.

For 2018, it was JP Morgan that made the most drastic cut to its oil price projections, expecting not only U.S. shale to continue roaring back at OPEC, but also the cartel’s deal falling apart by the end of this year.

JP Morgan slashed its 2018 WTI forecast by US$11—from US$53.50 to US$42. The price projection for Brent was also axed, by US$10, from US$55.50 to US$45.

Related: The World’s Top Oil Consumers

“We assume that the OPEC/non-OPEC deal collapses at the end of 2017, as cheating becomes untenable for core OPEC members. Consequently, the 2018 oil market balance now points to rapid builds in inventories which, absent continued OPEC support, should depress oil prices,” David Martin, executive director at JP Morgan, said in the bank’s note, as quoted by Business Insider Australia.

On the other hand, U.S. crude output is expected to keep growing for several quarters due to lower breakeven costs and higher investment, according to JP Morgan.
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To compare, as of January 30, 2017, merely a month into OPEC’s production cuts, JP Morgan’s global outlook 2017 suggested that “oil markets look set to tighten further in the coming quarters as better than expected compliance from OPEC ensures drawdowns in oil inventories.” The bank had expected back then Brent at US$58.25 for 2017 and at US$60 for 2018, and WTI - at US$56.25 a barrel in 2017 and US$58 in 2018.

In the oil markets, however, four months is a very long time, during which it became evident that OPEC’s efforts failed to draw down the glut in six months, and failed to lift prices. And now JP Morgan is the bank warning that oil prices may go substantially lower—not only compared to previous price projections, but also compared to the current price of oil.

JP Morgan also sees OPEC losing more than it gains with the output cut deal.

Related: The Dark Side Of The Oil Tech Boom

“As we have previously flagged, the longer-term consequences of OPEC’s actions will likely prove unpleasant for the cartel’s members,” JP Morgan’s Martin said.

Other analysts do not see the current cuts balancing the oil market next year.

“If OPEC wants to keep the market balanced next year, they will probably need to extend the production cut to all of 2018,” Martijn Rats, managing director at Morgan Stanley in London, told Bloomberg in an email.

Currently, the expected surge in supply after the OPEC deal ends, coupled with continuous U.S. production gains, does not bode well for oil prices to move much higher in 2018 than they are now.

By Tsvetana Paraskova for Oilprice.com
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Offline RE

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Opec’s self-inflicted wounds have made oil malaise worse
« Reply #743 on: June 09, 2017, 12:19:11 AM »
https://www.ft.com/content/6830d8c4-4c4e-11e7-919a-1e14ce4af89b

 Opec’s self-inflicted wounds have made oil malaise worse
US shale the cheap culprit but oil group’s mis-steps also a key factor


by: David Sheppard, Energy Markets Editor

Tensions have risen across the Middle East over Qatar and Iran, Opec has just extended oil supply cuts until at least next March and crude inventories in the US have fallen in eight out of the past nine weeks.

Brent crude oil, in response, has just closed at its lowest level this year, languishing well below $50 a barrel.

Oil’s malaise has left bulls nursing not just wounded profit and loss accounts but irritated scalps from all the head scratching going on.

Surely, the argument goes, the price must turn soon if oil stocks keep drawing down while the threat of a flare up in the world’s key energy producing region is at the highest level since the Arab uprising in 2011?

But there is a growing chorus of voices who think that oil’s prolonged weakness is justified and, much to Opec members’ dismay, may prove more enduring than they had dared to believe at the start of 2017.

Back then oil was buoyed along by a hedge fund community lining up to bet that the worst of the commodity rout was behind us, with Opec’s supply cuts in tandem with Russia enough to speed the end of a three-year supply glut.

But that sentiment, and the record level of speculative buying it promoted, has turned decidedly sour.

The chief culprit is, of course, US shale, whose spectacular recovery since the start of this year poses a near existential threat to Opec’s ambitions of managing the market.

US shale producers, led by activity in the Permian Basin, have shown they can grow rapidly at $50 a barrel, with the number of rigs drilling for oil in the US rising for a record 20 straight weeks and more than doubling from the level of a year ago, according to energy services company Baker Hughes.

The second key reason is Opec’s own failure to manage expectations properly. After actively wooing hedge funds at the start of the year, the cartel has only left traders demanding more, especially after stock draws disappointed in the first three months of the year.

Saudi Arabia and Russia then front-ran the May 25 Opec meeting by announcing they backed a nine-month extension to supply cuts when the market had only expected six.

But by announcing this days before the ministerial gathering in Vienna they allowed expectations of a further bullish surprise to build, with many traders expecting them to announce a deeper cut to production.

When no such deal emerged the nine-month extension was greeted by traders as a huge let-down rather than the upgrade to the original six-month plan it was. Crude has dropped 10 per cent since then.

Opec, though initially impressing the market with a high level of compliance with its cuts since January, also bears the mark of self-inflicted wounds by not reducing exports as quickly as production and by selling oil out of storage.

Sentiment among oil traders has been left “putrid” in the words of consultancy Energy Aspects, which advises many hedge funds.

This is arguably the biggest threat to any oil bull or industry executive hoping for a quick turnround in prices.

In any market sentiment matters but in commodities — where the intrinsic value of a barrel of crude or bushel of wheat cannot be measured like a listed company’s balance sheet or price-to-earnings ratio — it is crucial.

Few traders are willing to bet on a quick recovery, with shale supplies now seemingly able to cap prices in the low $50s. The ratio of risk to reward is simply unattractive for all but the most nimble short-term funds. Many are still bruised by the blow-up in the billion barrel speculative position they collectively amassed at the start of the year.

Even if the market supply and demand balance is finally starting to slowly tighten, the risk for the last remaining oil bulls is traders will turn their attention to finding the lower bounds of the price range shale producers can operate in.

Tensions in the Middle East become easier to ignore without further escalation when physical inventories are still weighed down by three years’ worth of excess production that can easily be brought out of storage.

That could mean a testing period below $50 or even $40 a barrel until either the US rig count stops rising or Opec is forced into more drastic action, such as increasing the size of the supply cuts.

Only then might the malaise afflicting the oil price finally start to lift.

david.sheppard@ft.com
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Offline RE

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OPEC Looks Totally Bewildered by the Oil Market
« Reply #744 on: June 26, 2017, 12:36:59 AM »
Gotta feel bad for the Saudi Princes.  :(  What to DO here?  ???  :icon_scratch:

Maybe sell a Gold Hub Cap off the Rolls-Royce?  Rent out the Private Jet?


RE

https://www.bloomberg.com/gadfly/articles/2017-06-25/opec-looks-totally-bewildered-by-the-oil-market

OPEC Looks Totally Bewildered by the Oil Market
By Julian Lee
Saudi Kingdom Council / Handout/Anadolu Agency/Getty Images
Energy
Julian Lee

Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

June 25, 2017 3:00 AM EDT

It may be too soon to write OPEC's obituary, but the oil producer club appears in urgent need of late-life care. It shows little understanding of where it is, how it got there or where it's going. While it still manages to collect new members here and there, its core group looks more fragile than at any point in nearly 30 years.

The historic output agreements, put together so painstakingly last year, are failing. Nearly 12 months of shuttle diplomacy culminated in two deals that would see 22 countries cut production by nearly 1.8 million barrels a day. Implementation has been better than for any previous output cut, with compliance put at 106 percent in May. A resounding success? Hardly.

We're now in the final month of those deals and oil prices are lower than when they were agreed. Not only have producers sacrificed volume, but they earn less for each barrel they do produce.
Nothing Gained
Crude has fallen back below levels last seen before OPEC's November output deal
Source: Bloomberg
Note: Brent crude

The recent extension of the deals just leaves output restraint in place for another nine months, the best response OPEC could muster. Deeper cuts were barely mentioned. Assertions to do "whatever it takes" ring hollow.

Indeed, there's no appetite for the big cuts that would demand real sacrifices in countries such as Russia, where normal seasonal factors helped it lower production in the first half of the year. Just sticking to current output levels could be difficult for the rest of 2017: early maintenance work has helped several OPEC members meet their targets but that can't continue. Then there's the problem of recovering output from Libya and Nigeria, both exempt from the cuts.

The malaise runs much deeper, though. Beneath a veneer of unity, rifts are developing among core Middle East members. The Saudi-led confrontation with Qatar could create the most serious split since Iraq invaded Kuwait in 1990. As I wrote last week, Iraq might be in Mohammed bin Salman's sights next, as Iran's influence there grows and Baghdad lags the rest in implementing output cuts.
Iraq's Over-production

As if the internal failings weren't enough, OPEC seems to have lost touch with reality. Ministers say higher prices are needed to pay for investment in future production capacity, issuing dire warnings of a future supply crunch. They said the same thing to justify prices soaring above $100 a barrel in 2008. It wasn't true then, and it may not be true now.

The oil industry has responded to the price slump by slashing costs. Projects that needed $100 crude to break even have magically been redesigned to be profitable at half that level.

OPEC has completely misjudged the North American shale industry and seems not to understand how it is still evolving rapidly. It's a little like trying to explain the internet to my 85-year-old mother, or my 12-year-old daughter trying to explain social media to me. As consultant Morten Frisch tells me, drilling horizontal sidetracks from abandoned wells in the Permian Basin is yielding a 91 percent internal rate of return on a $7 million investment and delivering 1,500 barrels a day of crude. He predicts large production increases from vertical wells in previously produced areas in the Permian.

Having failed to use the good times to invest for a future of low oil prices, OPEC is facing a crisis of old age. It is falling apart internally, confounded by the world and increasingly irrelevant.
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Offline Palloy2

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Re: Oil Price Crash: Who Cooda Node?
« Reply #745 on: June 27, 2017, 05:29:01 PM »
With WTI at $43 /b and the DB's tipping point not until $35 /b, we're laughing all the way to the bank.
Open another bottle of Champagne!

https://www.bloomberg.com/news/articles/2017-06-27/oil-at-35-is-tipping-point-for-high-yield-deutsche-bank-says
Oil at $35 Is Tipping Point for High-Yield, Deutsche Says
By Natasha Doff
27 June 2017

Westpac's Rennie Says Oil Markets Are Too Bearish


Oil is less than $10 per barrel away from a level where it could begin wreaking havoc across the high-yield bond market.

When crude drops below $35 a barrel, the debt-to-enterprise value ratios of high-yield energy companies typically climb above 55 percent, according to Deutsche Bank AG strategists including Oleg Malentyev. That would increase risk premiums and affect the wider high-yield market, they said.

“Oil weakness to this point is problematic directly to energy valuations but is not yet a cause for credit-loss concerns in energy or the broader high-yield market,” the strategists said in a research note. “We are getting closer to the point where this narrative could begin to change.”

Junk-bond investors are on the lookout for any signs of contagion from oil’s latest foray into a bear market after a plunge in the commodity last year sent yields to the highest level in more than four years. The average yield on the Bloomberg Barclays Global High Yield Index advanced 14 basis points to 5.33 percent last week, while WTI crude’s drop below $43 a barrel caused at least three companies to scrap bond and loan sales.

Yields on sub-investment energy bonds could add another 50 to 75 basis points to their advance of one percentage point in the past month, according to the Deutsche Bank strategists, who have an underweight recommendation on the sector. If debt-enterprise value ratios stay below 55 percent, a major spillover into the broader high-yield space is unlikely, they said.

Oil recovered some of its losses on Tuesday, with WTI futures adding 0.8 percent to $43.73 a barrel on estimates that U.S. crude inventories continued their decline from record levels seen earlier this year.
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Offline luciddreams

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Re: Oil Price Crash: Who Cooda Node?
« Reply #746 on: June 27, 2017, 05:41:57 PM »
I filled up today and paid $1.65 per gallon. 

Offline RE

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Are More Bankruptcies On The Way For U.S. Oil?
« Reply #747 on: July 22, 2017, 12:20:30 AM »
Yes.

I'll bet on the Train Wreck option from Irina.

RE

http://oilprice.com/Energy/Energy-General/Are-More-Bankruptcies-On-The-Way-For-US-Oil.html

Are More Bankruptcies On The Way For U.S. Oil?
By Irina Slav - Jul 17, 2017, 6:00 PM CDT Oil


Something that’s been whispered about in the last few months is now being talked about loudly: U.S. oil drillers’ debts. There have been a few notable warnings that shale boomers might want to slow down their production boost lest they bring on another price crash, but the truth seems to be that they can’t do it: they have debts to service.

Now that international oil prices are once again on a downward spiral, drillers are facing a new challenge, according to Bloomberg: their bondholders are no longer optimistic.

Shareholders were the first to start doubting the recovery as it became increasingly evident that OPEC’s production cut agreement is failing to have the effect that everyone—or almost everyone—expected. Energy stocks have generally been on a slide since the start of the year.

Now creditors are joining shareholders. In June, Bloomberg data shows, junk bonds in the energy industry lost 2 percent. To compare, last year energy junk bonds were up 38 percent despite 89 bankruptcies in the sector. The S&P 500 Energy Sector Index has shed 16 percent since the start of the year. According to one Bloomberg Intelligence analyst, energy sector bonds are beginning to trade like stocks, and that’s not good news for the companies issuing them. Bonds are as a rule are much more stable than stocks, and bondholders are a calmer breed than shareholders because the latter get hurt if profits shrink or the company files for bankruptcy. That the former are getting jittery is a signal that there may be more bad news on the horizon.
Related: The Only Way OPEC Can Kill U.S. Shale

Perhaps the worst such news would be OPEC and its partners deciding to change their price-influencing strategy and follow the advice of Commerzbank’s head of commodities research, Eugen Weinberg: turn the taps back on. That would be a bold move, and whether OPEC would make it is very far from certain. Yet it seems to be the only one that would work against shale.

The elephant in the shale room is that despite remarkable advancements in cost-cutting, shale drillers have needed to borrow heavily in the last few years—first to grow, and then to survive the downturn. Last year, Moody’s warned that oil and gas drillers and service providers face a debt load of US$110 billion maturing by 2021. Next year alone, the industry would have to repay US$21 billion. By 2021 this will grow to US$29 billion. What’s more, Moody’s said, 65 percent of that debt is speculative-grade, or junk.

Shale drillers have entered a vicious circle, succinctly described by oil analyst Michael Fitzsimmons. They boost production because they need to make money to repay their debts. This production growth fuels the global glut and pressures prices, so the drillers actually make less money than they would otherwise. Debt-servicing expenses rise, so drillers need to continue pumping more to make up for lower profit margins.

t’s an interesting situation in world oil: U.S. drillers are in all likelihood acutely aware that they would fare better if they slowed down their production growth, as prices will certainly rebound as they do every time Baker Hughes reports a decline in the weekly rig count. Yet, it seems they can’t afford to slow down with all this debt looming on their horizon.

The global competitors, OPEC, Russia, and their smaller partners must also be aware that they can do more harm to U.S. shale if they start pumping at maximum capacity. Only they probably can’t afford this, either, not with their budget gaps that were widened by the first stage of the war on shale when OPEC employed the same tactic. What happens next will be interesting to watch—be it increased prices or a train wreck.
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Offline RE

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Is Oil About to Collapse?
« Reply #748 on: December 12, 2017, 12:57:16 AM »
https://wolfstreet.com/2017/12/09/is-oil-about-to-collapse/

Is Oil About to Collapse?
by Martin Tiller • Dec 9, 2017 • 54 Comments   
US producers simply don’t play along with OPEC and Russia.
By Martin Tiller, Oil & Energy Insider:

WTI really does look like it is about to collapse. Let’s be clear, I am not necessarily talking about a return to the sub-$30 of the beginning of 2016 here, but a return to the more recent lows around $42 before too long is distinctly possible, and if that happens, who knows where we go from there? There are, as I have noted in the past, reasons to believe that the long-term path of oil is still upward, but more immediately there is one dominant factor that keeps adding downward pressure, large and still growing supply from North American shale producers.

Some say, as in this FT piece, that there are signs that U.S. shale production has peaked, but then that was also supposed to be the case in 2015 and 2016. I am sure that if I could bother to go back further I would find that the same thing was said in previous years too. The fact is though, that as the EIA chart below shows, after dropping off as price declined at earlier this year, U.S. crude production is growing again and will be higher this year than last and is expected to be higher again in 2018.


The chart below indicates why American producers are pumping at a growing rate. WTI has been recovering ever since the low of $26.05, and is now at levels not seen since June of 2015.

There are reasons for that recovery, most notably the production cuts agreed by OPEC countries and others including Russia and improving global growth, but those bullish factors are now fully priced in and the effect of that is to encourage U.S. E&P companies to, to borrow a phrase, drill, baby, drill!


I have been waiting for the expansion in North American production to slow and for demand growth to dominate pricing, but it hasn’t happened. It seems there are only two thing that will potentially bring that about… a lack of available drill sites, or a big drop in price. Anybody who has witnessed the actions to date of the current U.S. Presidential Administration and Congress will know that the first is not about to happen soon, which leaves us with the second.

When OPEC and other signatories to the deal got together recently in Vienna they announced that there was almost total adherence to the scheduled cuts. That was greeted by most people, including, I will freely admit me, as a positive for oil prices. It is certainly rare based on the results of other agreements to cut and therefore impressive, but there is a basic problem. Now that the appropriate level of cuts has been achieved, production in the participating countries will at best remain at current levels. U.S. production, however, continues to increase exponentially.

There are, as I said, some bullish factors, and there is always the chance of a major unforeseen event disrupting supply; but all else being equal, the next big move in oil will be caused by the most basic driver of price for any commodity; the balance between supply and demand. As it stands, every increase in demand and attempts at reduction in supply outside the U.S. is being more than compensated for by increases in domestic production, and eventually the price must reflect that, despite a continued positive outlook for economic growth.

That is especially true if further cracks start to appear in the production cuts agreement. Russia already rumbled some dissatisfaction at the last meeting of the parties to the cuts, and if crude prices simply stall for a while and U.S. exports continue to increase it is unlikely that the Russians will continue with a policy whose net effect is to enrich U.S. oil companies.

There is, then, a chance of an event that would cause a collapse in oil prices, but that may not even be needed. The simple mechanics of pricing, supply, and demand need only to do their thing and the result will be a drop in oil prices that justifies the use of words like “collapse.” By Martin Tiller, Oil & Energy Insider

Blaming “a significant decline in orders,” GE Power started implementing layoffs in two locations in the US. Read… US Demand for Electricity Falls Further: What Does it Mean?
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Offline RE

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Legendary Oil Tycoon T. Boone Pickens Shuts Main Fund
« Reply #749 on: January 12, 2018, 11:19:20 AM »
TBP should have been reading Steve on Economic Undertow.

RE

https://www.bloomberg.com/news/articles/2018-01-12/onetime-oil-wildcatter-t-boone-pickens-closing-energy-fund

Legendary Oil Tycoon T. Boone Pickens Shuts Main Fund
By Meenal Vamburkar
and Margot Habiby
January 12, 2018, 4:34 AM AKST Updated on January 12, 2018, 8:02 AM AKST

    Oil trading no longer intriguing for 89-year-old investor
    Pickens planning to focus on entrepreurship, philanthropy


Photographer: Michael Nagle/Bloomberg

Legendary oil tycoon T. Boone Pickens is closing his hedge fund, saying oil trading has lost its luster.

Instead, the onetime Texas oil wildcatter wrote in a LinkedIn post that he wants to invest in “personal passions like promoting unbridled entrepreneurship and philanthropic and political endeavors.”

Pickens, 89, also cited his health in the post, writing, “I’m still recovering from a series of strokes I suffered late last year, and a major fall over the summer.” He added, “It’s time to start making new plans and setting new priorities.”

Though he achieved much of his fame for corporate takeover bids in the 1970s and 1980s, Pickens earned much of his wealth in the energy futures market after turning 75 in 2003, making billions through his Dallas-based BP Capital LLC by correctly betting on rising prices for oil and natural gas.

Pickens joins a number of big-name hedge fund managers who have closed their doors in the past year. Andy Hall, the trader known as “God,” shut his main fund in August after it slumped almost 30 percent in the first half of last year.
Hard Decade

John Griffin of Blue Ridge Capital, Hutchin Hill Capital’s Neil Chriss and Eric Mindich of Eton Park Capital Management have also called it quits. While the number of hedge funds shutting operations declined last year, there were still 66 more firms closing than starting, Eurekahedge data show.

Pickens was managing more than $4 billion at the start of 2008 before one of his funds was almost completely wiped out and a second plunged 64 percent. Undaunted, he sought out new investors the next year for new hedge funds that invested in stocks and futures. As of the end of 2016, BP Capital Fund Advisors had about $335.1 million under management.

“All the funds have been shuttered and the money returned to investors,” other than investments Pickens specifically listed in his LinkedIn post, Jay Rosser, his spokesman, said in an email. Pickens said he will continue to be an owner and investor in the TriLine Index Solutions energy index series and the BP Capital TwinLine Energy Fund.
Energy Volatility

Pickens probably fell victim to diminished volatility in energy markets, according to Rob Thummel, who helps manage $16 billion in energy assets at Tortoise Capital Advisors LLC. “It’s a sign that oil volatility is probably not coming back for a while, and that’s what traders are looking for,” Thummel said by phone. “It’s not as lucrative.”

In the latest Forbes Magazine listing, Pickens’s net worth is listed at $950 million in 2013, reflecting losses from the 2008 financial crisis, hundreds of millions Pickens spent on philanthropy (including about $500 million to Oklahoma State University, his alma mater) and investments in wind energy, part of his plan to end U.S. dependence on Middle East oil.

In December, Pickens put his 65,000 acre (26,305 hectares) Mesa Vista Ranch in the Texas Panhandle up for sale, with an asking price of $250 million, according to the Dallas Morning News.

Pickens was probably known best as a corporate raider in the 1980s before he became a billionaire energy investor and television pitchman for wind and natural gas.

“There’s no one, probably other than Warren Buffett, who’s seen and actually lived through all these cycles in oil,” Thummel said.

— With assistance by Saijel Kishan, David Wethe, and Laurence Arnold
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