AuthorTopic: Oil Price Crash: Who Cooda Node?  (Read 130449 times)

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🛢️ Natural Gas Prices Fall Below Zero In Texas
« Reply #780 on: November 29, 2018, 01:34:13 AM »
https://oilprice.com/Energy/Gas-Prices/Natural-Gas-Prices-Fall-Below-Zero-In-Texas.html

Natural Gas Prices Fall Below Zero In Texas
By Nick Cunningham - Nov 28, 2018, 6:00 PM CST


Surging U.S. oil production in the Permian basin has helped crash oil prices. But the Permian is also home to skyrocketing natural gas production, and output is growing so fast that drillers are trying to give it away for free. When they can’t, they just burn it off into the atmosphere.

Unlike in the Marcellus shale, where natural gas is the main target, drilling in the Permian is focused entirely on crude oil. Natural gas is a nice bonus that comes along with the oil. But the drilling frenzy in West Texas and New Mexico has resulted in a glut of this associated natural gas. There is a pipeline bottleneck for crude oil, but there is also a shortage of pipeline space for natural gas.

The glut has become so bad that next-day prices for gas at the Waha hub in the Permian have plunged to a record low, falling to as low as 25 cents per MMBtu. In some instances, producers have actually sold some gas at negative prices. That means that a company is paying someone else to take the gas off of their hands. On Tuesday, the lowest price recorded was -25 cents/MMBtu (to be clear, that is negative 25 cents), according to Natural Gas Intelligence (NGI). It was the second consecutive day that prices were in negative territory.

“That’s right, someone was paid to buy gas in the Permian on Monday,” RBN Energy LLC analyst Jason Ferguson said, referring to NGI’s pricing data. “While we’d like to tell you this was some sort of transient, one-off event that led to a day of dramatically low gas prices, that isn’t likely the truth of the matter.

Ferguson went on to add that there is little prospect of a recovery until next year. “The Permian gas market is flooded with associated gas and won’t see significant new takeaway capacity until the start-up of Kinder Morgan’s Gulf Coast Express pipeline in late 2019,” Ferguson said, according to NGI. “The problem is here to stay, at least for a few months. Take a deep breath if you trade the Permian gas markets.”

The negative prices are down sharply from the average price this year at $2.16/MMBtu at the Waha hub.
Related: Natural Gas Drives Saudi Geopolitical Pivot

The predicament also stands in sharp contrast to natural gas traded elsewhere. Nymex prices for December delivery are trading around $4.40/MMBtu, up sharply over the past month due to low inventories and cold weather.

Ironically, the inauguration of new oil pipelines is making the gas glut worse. According to RBN, the startup of the expansion of the Sunrise oil pipeline, owned by Plains All American Pipeline LP, added takeaway capacity for oil. That has allowed for more drilling and completions, which has led to more produced gas.

The supply glut has had other effects beyond low prices. Drillers often vent, flare or otherwise leak natural gas during their drilling operations, which has both environmental and fiscal consequences. A report from the Wilderness Society and Taxpayers for Common Sense, finds that between 2009 and 2015 drillers on public lands wasted 462 billion cubic feet (Bcf) of natural gas, or enough gas to meet the needs of 6.2 million households for a year. At an average price of $3.65/MMBtu over that time period, the wasted gas adds up to about $1.7 billion.

The federal government under President Obama tried to force drillers to capture this wasted gas. In 2016, the Bureau of Land Management (BLM) finalized regulations on venting, flaring and leaks at oil and gas facilities on public lands. However, BLM under Trump has rolled back these standards, relying instead on a patchwork of uneven regulations at the state level.

Some states do better than others on regulation. Colorado, for instance, “set the standard for reducing gas waste when it finalized first-in-the-nation methane capture requirements in 2014. The state has shown that there are easy and cost-effective ways to address methane pollution,” according to the report from the Wilderness Society and Taxpayers for Common Sense.
Related: Aramco’s $500 Billion Global Expansion

At the other end of the spectrum is New Mexico. New Mexico has wasted more natural gas than any other state, about 570,000 tons annually, according to the report. The state wastes about $182 to $244 million worth of gas each year, or enough gas to satisfy the needs of every resident in New Mexico each year. It is no surprise that New Mexico has some of the weakest standards on methane emissions, a problem now that BLM is removing the federal standards and leaving regulation up to the states.

Meanwhile, the problem is only getting worse with soaring production in the Permian. The rate of flaring in New Mexico climbed by 2,244 percent between 2009 and 2013.

Negative prices for natural gas offers very little incentive for drillers to capture that methane.

By Nick Cunningham of Oilprice.com
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🛢️ Oil falls below $50 a barrel for the first time in over a year
« Reply #781 on: November 30, 2018, 12:01:52 AM »
Gas prices here now under $3.00

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https://www.cnn.com/2018/11/29/business/oil-prices-50-dollars/index.html

Oil falls below $50 a barrel for the first time in over a year

By Chris Isidore, CNN Business

Updated 7:21 AM ET, Thu November 29, 2018


New York (CNN Business)US crude oil fell below $50 a barrel Thursday for the first time in more than a year.

Oil's recent slide has shaved more than a third off its price. Crude fell more than 1% Thursday to as low as $49.41 a barrel. The last time oil closed below $50 was in October 4, 2017.

Concerns about oversupply have sent oil prices into a virtual freefall: Crude hit a four-year high above $76 a barrel less than two months ago.

Traders looking for a rebound in the price of oil were hoping that Russian President Vladimir Putin and Saudi Arabian Crown Prince Mohammed bin Salman might reach an agreement about production cuts when they meet at the G20 meeting this weekend. But Putin said Thursday the current depressed price of oil suits him just fine, dashing hopes of further cuts in production.

Investors are worried that US production is increasing as economic activity overseas slows. As the price of oil rose earlier this year, US shale oil production surged. The United States passed Saudi Arabia to become the world's largest oil producer.

US gasoline prices have also started to fall. A gallon of gas dropping 30 cents on average over the past month, according to AAA. That's an 11% drop.
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🛢️ What Crashing Refining Margins Mean For Oil Markets
« Reply #782 on: December 03, 2018, 01:26:19 AM »
https://oilprice.com/Energy/Crude-Oil/What-Crashing-Refining-Margins-Mean-For-Oil-Markets.html

What Crashing Refining Margins Mean For Oil Markets
By Nick Cunningham - Dec 02, 2018, 6:00 PM CST


Oil prices have plunged to one-year lows, but refiners in certain parts of the U.S. are not benefitting from cheaper crude.

According to new data from the EIA, refining margins for motor gasoline have fallen to five-year lows. “Flattening year-over-year growth in gasoline demand in the United States, combined with high levels of refinery output, have contributed to low or negative motor gasoline refining margins for refiners along the East and Gulf Coasts,” the EIA said on November 27. Gasoline refining margins have been declining since August.

In November, U.S. gasoline demand is expected to have averaged 9.2 million barrels per day (mb/d), down 262,000 bpd from a year earlier.


Meanwhile, prices for distillates, such as diesel, are much higher. The discrepancy is notable, and the markets for gasoline and distillates have diverged sharply this year. The forthcoming 2020 International Maritime Organization regulations on sulfur content in maritime fuels is set to push extremely dirty heavy fuel oil out of the mix for ship-owners. One of the most important replacements for fuel oil be diesel and gasoil – in other words, distillate demand is set to spike at the start of 2020. In anticipation of these regulations, distillate prices are seeing upward pressure.

With diesel prices on the rise and gasoline prices heading in the other direction, refiners might want to maximize diesel output. However, things aren’t that simple. As the EIA notes, for every barrel of crude oil processed in a refinery, it tends to yield twice as much gasoline as it does diesel. “As a result, although gasoline margins have been low recently, refiners cannot completely stop making gasoline in favor of other petroleum products, such as distillate,” the EIA said.


But because diesel prices are favorable, refiners are simply churning out product as quickly as possible, which is exacerbating the emerging supply glut of gasoline.
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This wouldn’t necessarily be a huge problem except that gasoline demand has stalled out in the United States. Part of that is the hangover from higher fuel prices earlier this summer. In essence, refiners are chasing diesel, dumping gasoline onto the market, at a time when consumers have been pulling back. The result has been gasoline supply outpacing demand, which translated into unusually large storage levels.

Typically, as peak summer demand season gives way to autumn, refiners go offline for maintenance, which leads to a drawdown in gasoline stocks. But the combination of higher-than-usual refining runs and weak demand meant that gasoline inventories held up through October.

Related: Legendary Oil Trader Expects Crude Prices To Rebound

To complicate matters further, much of the surging oil production the Permian basin is light in quality, which means that it tends to be better suited for gasoline production rather than distillates.

The recent plunge in crude oil is starting to trickle down into lower pump prices, which could yet provide a bit of a spark to demand. Indeed, in the most recent data release from the EIA, gasoline stocks edged down ever-so-slightly, continuing a downward trend since October. Still, gasoline inventories are at the upper end of the five-year average range at 224.6 million barrels for the week ending on November 23.

But the upshot of the differences between gasoline and diesel markets is that refining margins for gasoline have steadily declined over the past few months. The EIA forecasts margins to “remain low during the winter before rebounding and following their normal seasonal patterns heading into the 2019 summer driving season.”

It will be interesting see how this affects various refiners and even the integrated oil companies. During the oil market downturn that began in 2014, the oil majors suffered from low crude prices, but did better than pure-play upstream producers because they had their refining units to cushion the blow. Cheap crude stoked demand for motor fuels, and the oil majors benefiting from very large margins on refining.

This time around, the narrowing margins for gasoline is ill-timed since it is also occurring alongside a downturn in crude prices. As the EIA notes, this is likely temporary. But it wasn’t so long ago that most analysts and industry executives saw 2018 shaping up to be a hugely positive year. The simultaneous meltdown in refining margins and crude oil prices could dash those hopes.

By Nick Cunningham of Oilprice.com
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🛢️ Oil Prices Crash As OPEC+ Scrambles At 11th Hour
« Reply #783 on: December 07, 2018, 03:45:21 AM »
https://oilprice.com/Energy/Oil-Prices/Oil-Prices-Crash-As-OPEC-Scrambles-At-11th-Hour.html

Oil Prices Crash As OPEC+ Scrambles At 11th Hour
By Nick Cunningham - Dec 06, 2018, 11:45 AM CST


OPEC Flag

Oil prices crashed early Thursday, as OPEC failed to reveal a solid agreement in Vienna, at least not yet. After hours of meetings, OPEC cancelled its news conference, awaiting the Russian delegation set to arrive on Friday.

The oil price crash offers the group a reminder that the market is banking on a sizable cut.

OPEC met on Thursday and Russia’s oil minister Alexander Novak arrives on Friday, where he can essentially tell Saudi Arabia what to do. The rest of OPEC, save for the UAE and Kuwait, are either unable or unwilling to go along with production cuts.

Saudi Arabia clearly wants to reduce oil output to balance the market, and it will have to do the lion’s share of cutting. Russia is much less concerned about a specific outcome, and has only expressed interest in a symbolic cut. That gives Moscow an extraordinary amount of leverage at the OPEC+ meeting.

Early Thursday, Al-Falih struck a confident tone in the face of uncertainty, suggesting that Saudi Arabia is not desperate for a deal, which is likely a bit of bravado in an attempt to put pressure on the rest of the group. “If everybody is not willing to join and contribute equally, we will wait until they are,” he told reporters. Brent fell below $60 per barrel during midday trading.

President Trump offered his two cents on Wednesday on the eve of the meeting.

Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!

In reality, Saudi Arabia is pushing hard for a deal. After several hours of closed door meetings, the OPEC delegates emerged without offering too much in the way of detail. Still, there were rumors swirling in Vienna (as is usual) that the group is zeroing in on a production cut of about 1 million barrels per day (mb/d). But the lack of an announcement on Thursday unnerved market traders.
Related: U.S. Oil Majors To Break “The Contract Of The Century”

Nevertheless, there really isn’t a wide set of possible outcomes. Most analysts seem to think that the OPEC+ meeting will end with a production cut that lies in a relatively narrow range. According to S&P Global Platts, the group is considering options between 500,000 bpd and 1.5 mb/d.

Al-Falih also told reporters that a cut of roughly 1 mb/d should be enough to balance the market. Bloomberg reported on Thursday that “a consensus was emerging” around a cut of that size, including Russia’s contribution. “We want to come up with something that will balance the market but we don't want to shock the market,” Falih told reporters in Vienna.

Oil traders likely already baked in that amount as a baseline, so if OPEC+ reduces only by that amount, the markets probably won’t be overly impressed.

In fact, anything less would be viewed as a major disappointment. The markets are already pricing in 1 mb/d and hoping for more. “As ministers gather… the general belief is that some kind of cut will be agreed–anywhere between 1 and 1.5 million barrels a day,” said Tamas Varga, oil analyst at PVM brokerage, according to the Wall Street Journal.
Related: Is This The Most Crucial Factor For Oil In 2019?

The sticking point seems to be how much Russia will cut. If Russia cuts by around 150,000 bpd, as Moscow prefers, then the overall cut would be closer to the 1 mb/d range. If Russia cuts by 250,000 to 300,000 bpd, for which Saudi Arabia is asking, then the total cut could rise to 1.3 mb/d, according to Reuters. “The cut will be between 1.0 and 1.3 million bpd. We just have to see how it will be distributed,” an OPEC delegate said. Iran, Libya and Venezuelan want exemptions from the cuts, and it isn’t clear if the group resolved this disagreement.

The larger amount “would be enough to rebalance the oil market next year – i.e. to avoid an oversupply,” Commerzbank said in a note on Thursday. “In this case Brent would rise slightly, though it would fall to below $60 if production is cut by a lesser amount.”

Rystad Energy went even further. “To surprise the market in a bullish fashion, we believe cuts approaching 2 million bpd would have to be announced. Should OPEC+ announce a 1.5 million bpd cut, we believe the market reaction would be neutral at first, but gradually pave the way for a recovery in oil prices above the $70 level for Brent in 2019,” Bjornar Tonhaugen, head of oil market research at Rystad Energy, said in a statement. “[A]nything less than 1 million bpd of 2019 supply would be interpreted negatively by the market.”

By Nick Cunningham of Oilprice.com
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🛢️ Morgan Stanley Slashes Oil Price Forecast For 2019
« Reply #784 on: December 11, 2018, 12:01:16 AM »
https://oilprice.com/Energy/Oil-Prices/Morgan-Stanley-Slashes-Oil-Price-Forecast-For-2019.html

Morgan Stanley Slashes Oil Price Forecast For 2019
By Irina Slav - Dec 10, 2018, 12:00 PM CST


Morgan Stanley has cut its Brent crude price forecast for 2019 by US$10 a barrel to US$68.50 in the latest sign yet that the OPEC+ production cuts announced after a tense series of meetings might fail to impress an already supervolatile market.

The investment bank, Forex Live reports, acknowledged that the OPEC+ agreement to remove 1.2 million bpd from the global oil market beginning in January will have a positive effect in as much as it would calm worry about a looming oversupply, but this upside for prices will be limited. Morgan Stanley warned that the highs Brent and WTI enjoyed in October before they took a nosedive are hardly in the card for the next four quarters.

Even so, Morgan Stanley saw the oil production cut as “likely sufficient to balance the market in 1H19 and prevent inventories from building”, according to a Reuters report. At the end of June 2019, the investment bank expects Brent to climb to US$67. 50 a barrel, versus an earlier forecast for US$77.50 a barrel.

Bernstein Energy seems to agree with Morgan Stanley. Reuters quoted the brokerage as forecasting the average price per barrel of Brent crude next year to remain about US$70. “Our key conclusion is that oil prices will be well supported around the $70 per barrel level for 2019,” Bernstein said.

Not everyone is optimistic, however. Reuters also quoted an Emirates NBD bank analyst as saying the cuts would not be enough to offset growing production from non-participants in the cuts. Edward Bell said he expected “a market surplus of around 1.2 million bpd in Q1 with the new production levels.” With the U.S. producing at a rate of 11. 7 million bpd and most indicators suggesting further increases, the oversupply scenario may well play out, sinking prices even lower.

By Irina Slav for Oilprice.com
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🛢️ Shale Under Pressure As Oil Falls Below $50
« Reply #785 on: December 18, 2018, 12:25:32 AM »
https://oilprice.com/Energy/Crude-Oil/Shale-Under-Pressure-As-Oil-Falls-Below-50.html

Shale Under Pressure As Oil Falls Below $50
By Nick Cunningham - Dec 17, 2018, 6:00 PM CST


The OPEC+ cuts still are not doing very much to boost oil prices, dashing hopes for many U.S. shale producers. With companies in the process of formulating their budgets for 2019, the prospect of $50 oil sticking around raises questions about the heady production figures expected from the shale patch.

The IEA expects U.S. oil production to grow by 1.3 million barrels per day (mb/d) in 2019. But oil prices could significantly impact those projections. “Total U.S. shale oil growth is highly sensitive to WTI prices in the $40-60 range,” Morgan Stanley wrote in a December 13 note. The investment bank said that shale producers are growing more sensitive to prices below $60 but less sensitive to price spikes above $60. “If WTI remains around current levels (~$50/bbl), US growth should start to slow.”

The investment bank said that larger companies, such as ConocoPhillips or Occidental Petroleum, are less sensitive to price swings than smaller E&Ps. On the other hand, some companies could begin to slow production if prices linger at low levels. Morgan Stanley pointed to Apache Corp., Murphy Oil, Newfield Exploration, Oasis Petroleum, Whiting Petroleum and Chesapeake Energy. “With low oil prices, we see these companies slowing production growth in 2019 to spend within cash flow (or minimize outspend), [free cash flow] levels fall or turn negative, and leverage metrics move higher.”
Related: Equinor Starts Up Major Gas Field In Norwegian Sea

Other analysts also see price sensitivity from the shale sector. “We expect 5-10% capex growth on average at $59 WTI, which should yield production growth of nearly 1.3mn b/d,” Bank of America Merrill Lynch wrote in a note. “However producers may budget for lower oil prices given the recent decline in prices and increase in uncertainty.”

BofAML went on to add: “We believe the $50 to $60 price range for WTI yields highly variable E&Ps budgets. In a mid to low $50s WTI scenario, producer budgets would likely come in flat to lower YoY and would likely lower US production growth to somewhere closer to 1mn b/d for next year.”

There is one major obstacle that the shale sector faced in 2018 that could start to dissipate: pipeline constraints.

U.S. shale producers and pipeline companies have deployed a variety of methods to mitigate the impact of pipeline constraints.

The higher-than-expected production figures from U.S. shale this year largely come down to the ability of producers and pipeline companies to work around the swelling bottleneck, particularly in the Permian. Pipeline operators have used drag reducing agents to speed up the flow of oil through the lines, allowing them to ship more oil than the nameplate capacity suggests. Also, the Plains All American Sunrise pipeline came online ahead of schedule, which also relieved some congestion. No major outages occurred in 2018, which has been “an element of luck” given the high throughput rates, the IEA said in its Oil Market Report.

More projects are set to come online in 2019, which should reduce the pressure on oil producers. The Bridgetex and the Sunrise expansions will add 40,000 and 175,000 bpd in the first half of 2019, respectively. Another 100,000 bpd will come from the Cactus 2, while Enterprise Products Partners could add 200,000 bpd by converting a natural gas liquids pipeline to crude oil.
Related: These Countries Found The Most Oil In 2018

That should be close to enough to avoiding production impacts. “Takeaway capacity growth will therefore closely track output growth in the Permian, but it will still lag behind until the second half of 2019, when the 675 kb/d EPIC project comes online,” the IEA said.

To be sure, the midstream challenges are not entirely resolve just yet. Pipeline “congestion at the Cushing hub should persist during 1H19, keeping pressure on WTI timespreads and differentials to Brent relatively wide,” Bank of America Merrill Lynch said in a note.

Also, the margin is tight – the multiple pipeline projects slated for operation in 2019 need to stay on schedule, while the midstream sector needs to avoid any unexpected outage. “Operators can ill afford major pipeline or refinery shutdowns during that time, as this would only exacerbate the shortage,” the IEA cautioned.

However, by the end of 2019, there will be very few midstream constraints holding back the shale industry. New planned export terminals will also clear the path for oil to be shipped overseas in ever rising volumes. “[P]ipeline and export projects slated for completion by 2020 should unchain North American oil production growth early in the next decade,” Bank of America Merrill Lynch wrote.

By Nick Cunningham of Oilprice.com
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🛢️ Oil Prices Fall Sharply on Oversupply Worries
« Reply #786 on: December 18, 2018, 05:59:12 AM »
https://www.wsj.com/articles/oversupply-worries-drag-oil-prices-sharply-lower-11545130115

    Markets Commodities Oil Markets

Oil Prices Fall Sharply on Oversupply Worries
Brent crude futures are down 3%; WTI futures are 3.3% lower


Crude Oil Jan 2019Source: SIX

8 p.m.Dec. 174 a.m.8noon4 p.m.8Dec. 184 a.m.47.548.048.549.049.550.050.551.051.552.0$52.5
Dec 17, 2018 7:15 p.m.x$49.38

By Christopher Alessi
Dec. 18, 2018 5:48 a.m. ET

LONDON—Oil prices continued a steep slide early Tuesday, as concerns that slowing global growth could further hinder demand for crude outweighed production cuts by the Organization of the Petroleum Exporting Countries.

Brent crude, the global oil benchmark, was down 3% at $57.80 a barrel on London’s Intercontinental Exchange. West Texas Intermediate futures, the U.S. standard, were down 3.3% at $48.24 a barrel on the New York Mercantile Exchange.

Both benchmarks have fallen roughly 35% from four-year highs reached at the start of October and are at their lowest levels in more than a year.

“The current price fall is greatly aided by the general fall in global equities due to persistent concerns about economic growth, including the U.S.-China trade dispute,” which has led to “fears of downward revisions in global oil demand growth,” according to Tamas Varga, analyst at brokerage PVM Oil Associates Ltd.

Prices are also being weighed down by signs of rising U.S. and Russian crude production.

In its drilling productivity report Monday, the U.S. Energy Information Administration estimated that U.S. shale oil production would rise from December by 134,000 barrels a day to reach 8.17 million barrels a day in January.

Russia, meanwhile, said its crude output had climbed to a record 11.42 million barrels a day in December.

“This appears to be raising doubts on the market that Russia will in fact cut its production from January as agreed with OPEC,” analysts at Commerzbank said in a note. “It is at least likely to take some months until Russia has fully implemented the agreed cuts.”

OPEC and its partners agreed at the start of December to begin curbing crude output by 1.2 million barrels a day, starting in January. The deal, announced Dec. 7, had initially bolstered crude prices but failed to ignite a sustained rally amid skepticism by investors that the cut would be enough to rebalance an increasingly oversupplied oil market.

Even with the planned OPEC-led cut, global oil inventories are expected to continue to build into 2019, said Michael Hewson, chief market analyst at brokerage CMC Markets.

“Ultimately, it’s going to take a lot longer for that surplus to be worked off in the event that we do get a cut in the new year,” he said.

The International Energy Agency last week said that commercial oil stocks in Organization for Economic Cooperation and Development countries rose by 5.7 million barrels in October, to stand at 2.872 billion barrels—marking the first time commercial petroleum inventories were above the closely watched five-year average since March.

Analysts and investors are looking ahead Tuesday to weekly U.S. oil inventory data from the American Petroleum Institute.

Write to Christopher Alessi at christopher.alessi@wsj.com
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🛢️ Oil Prices Crash To 1-Year Lows
« Reply #787 on: December 19, 2018, 03:05:20 AM »
https://oilprice.com/Energy/Energy-General/Oil-Prices-Crash-To-1-Year-Lows.html

Oil Prices Crash To 1-Year Lows
By Tom Kool - Dec 18, 2018, 2:00 PM CST


Rising global inventories are weighing on crude prices, pushing oil to one-year lows.





- Regulations from the International Maritime Organization (IMO) are set to take effect in January 2020, lowering the allowed limit of sulfur emissions from maritime fuels.

- Sulfur concentration will drop from 3.5 percent on the open seas to just 0.5 percent.

- These regulations will affect 3.9 million barrels per day of maritime fuels. The regulations will increase the demand for low-sulfur distillates at a time when demand is already high.

Market Movers

• Crestwood Equity Partners (NYSE: CEQP) was upgraded to Buy from Neutral by Goldman Sachs, with a $43 per share price target. That came as EQT Midstream Partners (NYSE: EQM) was downgraded to Neutral from Buy.

• BP (NYSE: BP)  signed an agreement with Angola’s Sonangol for the development of its offshore Platina field, a step that pushes the British oil giant closer to a final investment decision.

• Royal Dutch Shell (NYSE: RDS.A) is in talks to purchase Endeavor Energy Resources for $8 billion, or about half as much as Endeavor had hoped to sell for earlier this year, according to Bloomberg.

Tuesday, December 18, 2018

Oil prices crash to a one-year low. Oil prices plunged by more than 4 percent on Monday, and the selloff continued in early trading on Tuesday, pushing WTI down below $48 per barrel. The proximate cause this time was a report of rising U.S. oil inventories at a time when global equities were sharply down. “A large part of the move (lower) is due to a broader market sell-off, with both U.S. and Asian equity markets coming under pressure,” Warren Patterson of ING, told Reuters. “Specifically for the oil market, there are no clear signs yet of the market tightening,” he added.
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Stock market turmoil. U.S. equities fell sharply on Monday, and the selloff continued in Asia on Tuesday. Concerns about slowing growth in China and elsewhere are starting to magnify investor anxiety. Chinese President Xi Jingping gave a speech Tuesday, declining to offer new stimulus measures or proposals to ratchet down trade tensions with Washington. Asian markets fell after the address.

ConocoPhillips backs carbon tax. ConocoPhillips (NYSE: COP) will reportedly join ExxonMobil (NYSE: XOM) in putting money into a lobbying effort backing a carbon tax. The oil majors have huge stakes in natural gas, which stands to benefit from a light carbon tax.

Qatar to invest $20 billion in U.S. energy. Qatar said on Sunday that it would spend $20 billion on U.S. energy assets over the next five years. One of the initiatives will be to revive the Golden Pass LNG terminal in Texas. The investment would also presumably yield political benefits – Qatar has been the target of an economic blockade by Saudi Arabia, a move that received tacit backing by some in the Trump administration. Qatar’s investment plans for the U.S. could create new American ties. Meanwhile, Qatar also plans on buying three offshore oil blocks in Mexico from Eni (NYSE: E).

Related: The Race Is On: Big Oil Rushes To Supply The 1 Billion Disconnected

New discoveries up in 2018. The oil and gas industry is expected to log the largest set of new discoveries this year since 2015. Discovered resources stand at about 8.8 billion barrels of oil equivalent, and could close out the year at about 9.4 billion boe, according to Rystad Energy. “We at Rystad expect this discovery trend to continue into 2019 with many promising high-impact wells targeting vast potential,” Palzor Shenga, senior analyst on Rystad Energy’s Upstream team, said in a statement.

New oil and gas projects jump in 2019. The number of new oil and gas projects to move forward next year could jump five-fold from 2015 levels, according to a report from Wood Mackenzie. At the same time, industry spending could remain mostly flat at $425 billion, down sharply from the $770 billion in global spending back in 2014. Many oil and gas companies have cut costs and can do more with less. But WoodMac says that the industry is still far short of the $600 billion in spending needed to meet future demand.

Oilfield services look to rebound. Offshore oilfield services and contractors have seen four consecutive years of declining revenues, but could bounce back in 2019. More than 100 projects could move forward in 2019, and an estimated $210 billion could be spent on offshore oilfield services next year, according to Rystad Energy. “The offshore service market is like a super tanker: It takes time to accelerate. The uptick in new projects in 2017, 2018 and now 2019 will be enough to turn revenue growth positive to mid-single digits as offshore capex is set to increase due to the recent years of capital commitments,” Audun Martinsen, head of oilfield service research at Rystad Energy, said in a statement.

Successful offshore wind bidding. The U.S. government held a highly successful bidding round for offshore wind projects off the coast of Massachusetts last week. The winning leases could support 4.1 gigawatts of wind, and the auction took in $405 million in winning bids. The winners were Equinor Wind US; Mayflower Wind Energy, LLC, a 50-50 joint venture between Shell and EDP Renewables; and Vineyard Wind, LLC, a 50-50 joint venture between Copenhagen Infrastructure Partners and Avangrid Renewables, according to Greentech Media.

Pennsylvania to curb emissions from oil and gas. Pennsylvania’s governor unveiled proposed regulations to cut smog-forming pollutants and force companies to plug methane leaks. The proposal comes as the federal EPA has sought to roll back emissions regulations.

Related: Morgan Stanley Slashes Oil Price Forecast For 2019

Mexico hopes to boost oil and gas production by 50 percent. Mexico’s government aims to boost oil and gas output by 50 percent over the next six years. The new government wants to revive Pemex and has planned to increase the state-owned oil company’s exploration budget by 10 percent. “It’s a new Pemex rescue,” President Lopez Obrador said.

California mandates electric buses. California regulators passed a rule that will require public transit agencies to phase out gas and diesel-powered transit buses. By 2029, agencies will only be allowed to purchase zero-emissions buses, with the phase-out completed by 2040. There will be interim targets as well, so electric buses could begin rolling out across California in the near future.

ExxonMobil becomes top Permian driller. ExxonMobil (NYSE: XOM) was late to the game but now has the most drilling rigs in the Permian basin. The development highlights the lure of the Permian as well as the shale-focused strategies deployed by the oil majors.

Enbridge completes takeover of Spectra Energy Partners. Enbridge (NYSE: ENB) completed its $3.3 billion acquisition of Spectra Energy Partners, creating one of the largest midstream companies in North America.

European Union agreed to cut carbon emissions from cars. The EU agreed to a goal of cutting carbon emissions from cars by 37.5 percent within a decade, with an interim target of 15 percent by 2025. Germany’s auto manufacturers opposed strict requirements and warned that the new goals do little to provide incentives for the switch to electric cars.

By Tom Kool for Oilprice.com
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🛢️ OPEC in a ‘Whatever It Takes’ Moment to Prop Up Oil Prices
« Reply #788 on: December 24, 2018, 01:47:07 AM »
https://www.bloomberg.com/news/articles/2018-12-23/u-a-e-says-opec-could-mull-deeper-cut-if-1-2m-b-d-not-enough

OPEC in a ‘Whatever It Takes’ Moment to Prop Up Oil Prices
By Mohammed Sergie
December 23, 2018, 2:12 AM AKST Updated on December 23, 2018, 12:00 PM AKST


Suhail Mohammed Al Mazrouei
Photographer: Stefan Wermuth/Bloomberg

    Iraq, Kuwait, U.A.E. affirm Saudi’s call to extend OPEC+ deal
    Group’s president hints that deeper cuts could be considered

In this article
CL1
WTI Crude
45.55
USD/bbl.
-0.04-0.09%

OPEC hasn’t even started implementing its new six-month agreement to cut output, and already members responsible for most of the reductions have pledged to extend or even deepen it.

Officials from Iraq, Kuwait and the United Arab Emirates agreed with Saudi Arabia’s expectation that the group, along with Russia and other oil producers, will extend the agreement for another six months. The U.A.E.’s energy minister, while stressing that the 1.2-million barrel-a-day cut will clear an inventory buildup in the first half, hinted additional curbs could be discussed.

“The planned cuts have been carefully studied, but if it doesn’t work, we always have the option to hold an extraordinary OPEC meeting and we have done so in the past,” Suhail Al Mazrouei, who is also OPEC president, said in Kuwait. “If we are required to extend for another six months, we will, if it requires more, we always discuss and come up with the right balance.”

Last week, oil capped its biggest weekly decline since 2016 on concerns that weakening economic growth and surging U.S. supply will lead to a surplus next year, overwhelming OPEC’s efforts to stabilize the market. The slide continued even after the Organization of Petroleum Exporting Countries and its partners surprised traders with the size of the supply reduction announced on Dec. 7.

Futures sank 11 percent last week in New York, the most since January 2016. The benchmark Brent crude traded below $54 a barrel, the lowest since September 2017.

Read: OPEC’s Sequel to Blockbuster Oil Deal Faces Struggle in 2019

At a press briefing in Kuwait, Iraqi, the U.A.E. and Algerian energy ministers took turns repeating the message that OPEC will deliver its 800,000 barrels per day cut and continue their cooperation with other producers to balance supply and demand.

Iraq’s oil minister Thamir Ghadhban said his country’s new membership into the OPEC+ monitoring committee “indicates that we are serious about meeting our commitments that will exceed what we’ve complied with in the past.”

Thamir Abbas Al Ghadhban, center, on Dec. 6.
Photographer: Stefan Wermuth/Bloomberg

OPEC cuts may end up being deeper than agreed because of planned maintenance and production snags in some member countries, Al Mazrouei said. Conflict, sanctions and aging oil fields have been factors that dragged on output in Libya, Nigeria, Iran and Venezuela in recent years.

Saudi Arabia has volunteered to take the lead in trimming production by more than it has agreed. The world’s biggest oil exporter plans to pump 10.2 million barrels a day in January rather than the 10.3 million allotted to it in the OPEC+ agreement.

“Over-conformity is not new to Saudi Arabia,” said the kingdom’s OPEC governor Adeeb Al Aama. “Our conformity with the previous cuts was 120 percent between January 2017 and May 2018.”
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🛢️ Argus Remains Bullish On Oil As Prices Plunge Below $45
« Reply #789 on: December 25, 2018, 12:00:23 AM »
https://oilprice.com/Energy/Energy-General/Argus-Remains-Bullish-On-Oil-While-Prices-Fall-Below-45.html

Argus Remains Bullish On Oil As Prices Plunge Below $45
By Tsvetana Paraskova - Dec 24, 2018, 2:00 PM CST


Although the oil market will remain oversupplied in the first quarter of 2019, the OPEC+ producer cuts will start to work in the second quarter and gradually rebalance the market to the point of Brent Crude hitting $80 a barrel in Q4 2019, according to energy information provider Argus Media.

The market needs time to work through the current oversupply, Azlin Ahmad, editor for crude oil at Argus Media, told CNBC on Monday.

The OPEC+ combined production cut of 1.2 million bpd takes effect in January 2019 for an initial six-month period, with a possible review in April.

According to Argus Media, Brent Crude prices will trade at around $65 a barrel in Q1, some $68 in Q2, in the low $70s in Q3, and breaking above $80 per barrel in the fourth quarter next year, according to Ahmad.

On Monday afternoon at 01:30 p.m. EST, Brent Crude was down 4.42 percent at $51.71, and WTI Crude was trading down 4.41 percent at $43.58, as concerns about slowing economic and oil demand growth persist.

While some banks have drastically cut their oil price forecasts for next year, Swiss bank UBS expects Brent Crude to rebound to $70 and even $80 a barrel over the next 12 months. The head of asset allocation for APAC at UBS, Adrian Zuercher, told CNBC last week that while supply of crude oil was still abundant, this could soon change as the OPEC+ production cuts enter into effect.

While the recent oil price drop suggests many don’t believe these cuts will be as effective as the first ones in 2017, Zuercher noted a report by the Wall Street Journal that Saudi Arabia plans to cut more than initially expected, and the fact that Venezuela’s production would likely continue downwards as would Iran’s under the weight of U.S. sanctions.

By Tsvetana Paraskova for Oilprice.com
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🛢️ Oil prices fall about 3 percent as US stock markets retreat
« Reply #790 on: December 27, 2018, 10:22:51 AM »
The PPT got a one day bounce for $80B in new debt money.  Now back to the regularly scheduled CRASH.

RE

https://www.cnbc.com/2018/12/27/oil-markets-crude-supply-global-economy-in-focus.html

Oil prices fall about 3 percent as US stock markets retreat

    Oil prices fall about 3 percent after rebounding 8 percent in the previous session.
    Prices come under pressure from concerns over a faltering global economy and worries about a glut in crude supply.
    Both Brent and WTI have lost more than a third of their value since the beginning of October and are heading for losses of around 20 percent in 2018.

Published 11 Hours Ago Updated 38 Mins Ago Reuters

   
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
Getty Images

Oil prices fell on Thursday after rebounding 8 percent in the previous session, with futures pressured by concerns over a faltering global economy and worries about a glut in crude supply.

Brent crude oil was down $1.70, or 3.1 percent, at $52.77 a barrel by 12:25 p.m. ET. U.S. light crude oil was $1.24 lower at $44.98, a loss of 2.7 percent.

Prices surged on Wednesday, tracking heavily with a spike in the U.S. equities market after President Donald Trump's administration attempted to shore up investor confidence.

However, U.S. stocks retreated on Thursday, dragging oil prices down with them.

"In the absence of major oil specific headlines, the petroleum complex has become 'attached to the hip' of the equities amidst this week's extreme price moves that have been developing in both directions," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
2019 Playbook: Oil and Energy
2019 Playbook: Oil and Energy 
5 Hours Ago | 01:23

Both Brent and WTI have lost more than a third of their value since the beginning of October and are heading for losses of around 20 percent in 2018.

"Fear of a bear market remains in place," said Johannes Gross at Vienna-based consultancy JBC Energy.

Concerns about slowing global economic growth have dampened investor sentiment in riskier asset classes and pressured crude futures.

Market participants have grown worried about an oversupply of crude. Three months ago it looked as if the global oil market would be undersupplied through the northern hemisphere winter as U.S. sanctions removed large volumes of Iranian crude. But other oil exporters have compensated for any shortfall, filling global inventories and depressing prices.

OPEC met earlier this month with other producers including Russia and agreed to reduce output by 1.2 million barrels per day, equivalent to more than 1 percent of global consumption.

But the cuts won't take effect until next month and oil production has been at or near record highs in the United States, Russia and Saudi Arabia, with the U.S. pumping 11.6 million bpd of crude, more than both Saudi Arabia and Russia.
UBS expects 'quite sharp gains' in oil in 2019
UBS expects 'quite sharp gains' in oil in 2019 
14 Hours Ago | 02:52

Russian Energy Minister Alexander Novak said on Thursday that the country will cut its output by between 3 and 5 million tonnes in the first half of 2019 as part of the deal. It then will be able to restore it to 556 million tons (11.12 million barrels per day) for the whole 2019, on par with 2018, he added.

Although U.S. sanctions have put a cap on Iran's oil sales, Tehran has said its private exporters have "no problems" selling its oil.

"Markets need more concrete evidence on improving fundamental metrics and to bring the supply-demand relationship back to balance before oil prices can reach a real bottom," said Margaret Yang, market analyst for CMC Markets.

Data on the U.S. market will appear in the next couple of days with figures from the American Petroleum Institute on Thursday and a report from the U.S. Energy Information Administration on Friday.

A Reuters survey estimated that U.S. crude inventories dropped 2.7 million barrels in the week to Dec. 21.
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🛢️ Bloodbath In Oil & Gas Stocks Could Continue
« Reply #791 on: January 04, 2019, 12:18:46 AM »
https://oilprice.com/Energy/Energy-General/Bloodbath-In-Oil-Gas-Stocks-Could-Continue.html

Bloodbath In Oil & Gas Stocks Could Continue
By Nick Cunningham - Jan 03, 2019, 6:00 PM CST


For much of 2018, investors probably thought they had a strong bet in the energy complex. But that bet badly turned sour in the final 60 days of the year.

The spot energy index in the S&P Goldman Sachs Commodity Index (GSCI) gained 25 percent between January and October. But with the books closed on 2018, the index ended the year down 21 percent. The S&P GSCI “is a weighted average of commodity prices intended to reflect global commodity production quantities and futures contracts’ trading volumes,” according to the EIA. Energy was not the only commodities sub-sector in the GSCI index posting losses in 2018, just the worst-performing one.


Of course, that is largely just a reflection of the sharp decline in oil prices. But the share prices of most oil and gas companies are also largely based on oil price movements. So, the steep slide in oil prices in the final two months of 2018 led to disaster for investors in energy stocks.

“The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place,” Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote in a commentary.

The energy sector was at or near the bottom of the S&P 500 for the second year in a row, Sanzillo pointed out. And that was true even within segments of the oil and gas industry. For instance, companies specializing in hydraulic fracturing fell by 30 percent, while oil and gas supply companies lost 40 percent. “The fracking boom has produced a lot of oil and gas, but not much profit,” Sanzillo argued.
Related: Moody’s: The Shale Band Is Back, And Here To Stay

Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.
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The last great hope for the oil industry is to pile into petrochemicals, as oil demand for transportation is headed for a peak. But profits in that sector could also prove elusive. “The industry’s rush to invest in petrochemicals to maintain demand for oil and gas is likely to continue, but the profit potential in this sector is more limited than oil and gas exploration, and is likely to keep the energy sector at or near the bottom of the S&P 500,” Sanzillo concluded.

In the meantime, the strategy for oil and gas executives to appease investors is to focus on “quick cash, quarterly payouts and fast talk,” Sanzillo says. “Either way the stocks lack a long-term value rationale.”

Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading.
Related: 2019 Could Make Or Break OPEC

“Two-thirds of projections made by the fracking companies between 2014 and 2017 in America’s four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota,” reporters for the WSJ wrote. “Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm.”

Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out.

The upshot is that shale companies will have to step up spending in order to hit the promised production targets. However, so many of them have struggled to turn a profit, and the recent downturn in oil prices has put even more pressure on them to rein in costs.

That raises questions about the production potential not just from individual shale companies, but also from the U.S. as a whole.

By Nick Cunningham of Oilprice.com
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🛢️ OPEC Is Losing Its Stranglehold On Oil Prices
« Reply #792 on: January 06, 2019, 12:12:32 AM »
https://oilprice.com/Energy/Crude-Oil/OPEC-Is-Losing-Its-Stranglehold-On-Oil-Prices.html

OPEC Is Losing Its Stranglehold On Oil Prices
By Robert Rapier - Jan 05, 2019, 2:00 PM CST


Many articles have been written this past year about the impending demise of OPEC. Shale oil, it has been argued, has ended the cartel’s stranglehold on oil prices.

There’s some truth to that argument, but it also understates OPEC’s dominant position in the oil market.

I often try to imagine the decisions I would make, given OPEC’s situation and the unexpected emergence of U.S. shale oil production. For decades, OPEC has had the luxury of looking at the global supply and demand outlook, and raising or cutting production as they saw fit.

Shale Oil Emerges

But then the U.S. unexpectedly became the world’s fastest-growing supplier of new oil production.

(Click to enlarge)

Oil Supply Growth 2008-2017

Of the 10.3 million BPD of new oil production since 2008, the U.S. supplied 6.2 million BPD (60 percent). The world’s two other major oil-producing countries, Saudi Arabia and Russia, saw their production increase by 1.7 million BPD and 1.2 million BPD respectively since 2008.

This surge of new oil production from the U.S. put OPEC under a lot of pressure to either cut production to balance the market, or to defend market share. I thought it was in their best interest to cut production, but instead in 2014 they made the decision to defend market share. I deemed that OPEC’s Trillion Dollar Miscalculation.

Prices Collapse

Five weeks after that Thanksgiving 2014 announcement, oil prices had dropped into the $40s (after already sliding from ~$100/bbl to the upper $70s over the prior four months). Indeed, OPEC realized its dilemma, and in 2016 the cartel made an agreement with several non-OPEC countries (most importantly, Russia) to cut oil production by 1.8 million BPD.
Related: 2019 Could Make Or Break OPEC
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That was a significant cut, and oil prices ultimately recovered back to the $70-$80/bbl range. But as I noted in an article last year, U.S. production growth could potentially offset those production cuts in a little over a year.

They did. In the past 12 months, U.S. oil production has grown by 1.95 million BPD. This continued growth again puts OPEC in the position of either cutting production to balance the markets, or in potentially letting the price crash. The latter approach had some limited success in 2016, as U.S. production did dip in response to the price war. But as soon as prices recovered, so did U.S. production.

OPEC’s New Paradigm

But OPEC still produced 42.6 percent of the world’s oil in 2017. Add Russia to the mix, and the two entities controlled 55 percent of global oil production and nearly 80 percent of the world’s proved oil reserves in 2017.

Total production from OPEC and Russia is more than 50 million BPD. In theory, they should have substantial pricing power, but the rapid growth of U.S. shale oil production continues to give them headaches.

Related: Oil Rises On Hopes Of A U.S.-China Trade Deal

It is certain that the U.S. oil production surge broke OPEC’s stranglehold on global oil prices. If the shale oil boom in the U.S. hadn’t happened, OPEC and Russia would have enjoyed the fruits of $100/bbl oil for the past decade. The U.S. trade deficit would have ballooned.

So now OPEC has to look at the supply/demand picture and try to estimate just how much further U.S. production can expand. If we are reaching the limits of shale production growth, then OPEC can go through a couple of cycles of production cuts, and they will be back in the driver’s seat.

But if U.S. production can expand for another decade, OPEC will have lost complete control over oil prices. In that case, U.S. production will likely only slow when electric vehicles are starting to take a serious bite out of global oil demand.

Speaking of which, oil demand continues to grow at more than 1 million BPD every year. That helps mitigate the impact of U.S. production growth. But as long as U.S. production grows annually at a faster pace than global demand — which it has several times in recent years — OPEC is going to have to live with either production cuts (which also help prop up marginal U.S. producers) or lower prices.

By Robert Rapier
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🛢️ Canada’s Natural Gas Crisis Is Being Ignored
« Reply #793 on: January 07, 2019, 12:22:58 AM »
https://oilprice.com/Energy/Gas-Prices/Canadas-Natural-Gas-Crisis-Is-Being-Ignored.html

Canada’s Natural Gas Crisis Is Being Ignored
By Tsvetana Paraskova - Jan 06, 2019, 10:00 AM CST


“Alberta and its natural gas producers face a daunting crisis,” Alberta’s Natural Gas Advisory Panel said in a report in December, highlighting the challenges that natural gas producers in Alberta face in market access and pricing for their commodity.

Industry officials and analysts say that the situation with the steep natural gas discounts in Canada to the U.S. Henry Hub benchmark is similar to the huge discounts of Canada’s heavy oil benchmark—the Western Canadian Select—to the U.S. benchmark West Texas Intermediate (WTI).

The record-low oil prices in Canada have attracted a lot of media attention in the past few months, but the steep discounts and volatile prices of Alberta’s natural gas have received less attention, although the pricing and problems are similar.

“It’s absolutely a similar situation,” Advantage Oil and Gas president and chief executive Andy Mah told the Financial Post.

Like oil, natural gas prices have also been suffering from the steep discounts, but the attention has been on oil “because of the slower decline in natural gas prices,” Mah told Geoffrey Morgan of the Financial Post. 

According to Samir Kayande, director at RS Energy, the natural gas prices discounts have been plaguing the industry for longer and the problem has been “far worse than it is for oil.”

“Gas is such a forgotten commodity now,” Kayande told the Financial Post.

Alberta’s government has recently taken drastic measures to prop up the price of heavy oil in Canada, but it has yet to address the distressed natural gas pricing.
Related: Oil Rises On Hopes Of A U.S.-China Trade Deal

Natural gas “is just as important (as oil), it’s just not getting the same kind of attention as oil” but that could soon change, a government official told the Financial Post.

Late last year, Alberta said it had started negotiations to invest in additional crude by rail capacity to move 120,000 bpd out of the province for three years beginning in late 2019.

In the most drastic measure yet, the province of Alberta mandated an oil production cut of 325,000 bpd for three months starting January 2019, to clear the current glut and lift Canadian oil prices.
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The glut and the resulting low oil prices cost Canadians US$58.6 million (C$80 million) a day, Premier Rachel Notley said in early December.

According to Advantage Oil and Gas’s CEO Mah, the natural gas price discount costs Canada around US$16.9 million (C$23 million) in lost revenues a day, or US$6.6 billion (C$9 billion) per year.

Alberta has taken steps to address the natural gas price discounts, although they have not been as drastic and as intervening as the ones to ensure higher prices for Western Canada’s oil.

Last month, Alberta set up a Liquefied Natural Gas (LNG) Investment Team “to work directly with industry on reducing barriers for securing final investment decisions on export projects that will increase the value of Alberta’s natural gas resources.”
Related: OPEC Oil Exports To The U.S. Fall To Five-Year Low

“Whether we’re talking about oil or natural gas, the details are different but the story is the same. Albertans are getting pennies on the dollar because we can’t get our resources to international markets, and our biggest customer has become our biggest competitor. We can’t sit on the fence like previous governments did. We must take the bull by the horns and fight for the full value of our natural gas,” Alberta’s Minister of Energy Margaret McCuaig-Boyd said.

The creation of the LNG Investment Team is in response to a recommendation in Alberta’s Natural Gas Advisory Panel report published in December.

“Traditional markets for Alberta natural gas are oversupplied. Prices, and therefore industry and government revenues, are crushingly low and have been increasingly volatile locally since the summer of 2017,” the report said.

“Our dominant export market is now our primary competitor, and western Canadian gas will struggle to retain, let alone grow, its market share within North America. This reality represents an existential threat to western Canadian gas production if not addressed emphatically by Canadian natural gas producers, pipeline companies, and governments,” according to the panel.

The panel came up with 48 recommendations to the Government of Alberta, including to “consider direct Government of Alberta participation as a long-term shipper or credit provider.”

By Tsvetana Paraskova for Oilprice.com
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🛢️ What’s Behind Oil’s Slow Flash Crash?
« Reply #794 on: January 18, 2019, 01:58:40 AM »
https://oilprice.com/Energy/Oil-Prices/Whats-Behind-Oils-Slow-Flash-Crash.html

What’s Behind Oil’s Slow Flash Crash?
By Philip Verleger - Jan 17, 2019, 6:00 PM CST


Crude oil prices declined forty percent between October 1 and Christmas Day in 2018. The decrease has been variously attributed to the United States’ failure to follow through on its tough sanctions on Iran, unexpected increases in US oil production, oil-exporting countries not cutting production sufficiently, and/or realizations that global economic growth was slowing.

These explanations are all relevant. However, none can explain a decline that matches in magnitude the decrease that occurred after OPEC’s November 2014 meeting. At that time, the organization surprised the world by ending its self-imposed limits on its crude oil output. Nothing like that happened in the fourth quarter of 2018.

The best historical precedent for the precipitous drop in oil prices happened in equity markets in October 1987. On Black Monday, October 19, a “flash crash” dropped share prices twenty-two percent in a single day. In a report named for then-Secretary of Treasury Nicholas Brady, financial experts explained that the equity price decline was started by bad economic news but then magnified by futures contract sales made by institutions employing portfolio insurance strategies. Following the parameters of their option-pricing models, the firms that underwrote the insurance policies had to sell futures as prices fell. Their actions pushed share prices down further.

A similar phenomenon caused a “slow flash crash” in oil, one in which prices declined from $85 to $50 per barrel over the last months of 2018. Prices had been bid up during the summer by end users and speculators anticipating the impact of the United States’ renewed sanctions on Iran and the continued expansion of global demand. The expectations of a decrease in oil supply were dampened when forecasters began to lower projections for global growth and then dashed when the US granted greater-than-expected exceptions to its Iran sanctions.

The initial crude oil price decline threatened to put many of the puts written to US independent oil producers, as well as puts sold on the NYMEX and to Mexico, in the money. The parties that had sold the puts responded by selling futures, as dictated by their option-pricing models.

We know now that there were a very large number of these “price insurance policies.” The SEC filings of US independent oil producers reveal that these companies had purchased insurance on one hundred fifty million barrels of oil in the fourth quarter of 2018 and more than three hundred million barrels of 2019 production. In addition, there were perhaps one hundred thousand NYMEX WTI puts outstanding on November 1, 2018. The firms that had sold these instruments did as their financial models dictated when oil prices went down. They sold futures, adding to the downward pressure.
Related: U.S. Oil Outlook Slammed By Lower Prices

The price decline accelerated, just as in 1987, because there were few buyers. Investors and speculators that might have jumped into oil saw no opportunities last fall, just as their equity counterparts in 1987 failed to see buying opportunities. In 2018, falling crude oil prices, uncertainty regarding what steps OPEC might take, and the lack of clarity regarding US sanctions on Iran pushed everyone to the sideline. The share prices of all major oil companies declined in concert with the major stock indices and oil futures prices.

The lack of buying interest increased oil price volatility dramatically. The CBOE volatility index tripled from October to November as computers seeking to cover price insurance contracts tried to sell. As volatility rose, the models instructing the computers ordered even more contracts to be sold. It was a vicious cycle, just as in 1987.
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The “slow oil flash crash” may have been exacerbated by the oil markets being open on days when traders in the physical market were on vacation. WTI dropped more than $4 per barrel on the day following Thanksgiving and almost $3 on December 24. While oil traders take time off, computers do not. Some of the large declines were recovered. However, the decreases had boosted volatility and thus added more pressure to sell.

Reforms to trade regulations were made in equity markets following the 1987 flash crash. Those interested in more stable oil prices may want to review linkages between financial and physical oil markets. A change in trading rules, however, will not address the basic problem that confronts oil markets today, which is caused by the bilateral nature of commodity markets that dictates there must be one long for every short. The problem is that increasing demand to hedge from independent producers is not matched by increasing demand to buy futures by investors, consumers, and speculators. There is, in short, a “lack of longs.”

The greater demand for hedging can be quantified by comparing the increase in merchant short positions and swap dealer short positions with the rise in oil production published in the US Energy Information Administration’s “Drilling and Productivity” report. In 2007, producers may have hedged four months of production. Eleven years later, at the end of 2018, they may have hedged eight months of production—if one believes all merchant and swap dealer short open interest was taken out to hedge US fracking production, an admittedly extreme assumption.
Related: Trump Takes Aim At Maduro, Threatens Oil Embargo

The point, though, is that, on average, producers in 2018 had hedged a higher share of their production than in earlier years. At the same time, production had increased fivefold, which boosted the short side of the futures market for hedging tenfold.

The market’s long side did not expand as significantly over the eleven-year period, although it surged in 2007 and early 2008 at the peak of the commodities super cycle. From 2007 to the end of 2018, the long positions of money managers increased just fivefold.

Such an imbalance becomes a particular hazard for the oil market whenever those holding long positions for speculative reasons are disappointed, as was the case in October 2018. To no one’s surprise, prices usually decline at such times. In this case, though, the computers at the banks and institutions underwriting the price insurance to US independent producers were sitting on the sidelines, just waiting to sell. The consequence of their getting off the sideline became visible at the end of 2018.

The question for the future is how to deal with this development, especially since the increase in US production will create even greater pressure from the computers charged with hedging the price insurance written to the US independent producers. In coming articles, I will offer thoughts on how to assess (and plan) for the impact of increased volatility. I will also offer suggestions on steps oil-exporting countries might take to counteract the actions of the computers.

By Philip Verleger for Oilprice.com
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