AuthorTopic: Oil Price Crash: Who Cooda Node?  (Read 138360 times)

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🛢️ The Next Big Threat For Oil Comes From China
« Reply #795 on: February 01, 2019, 01:16:57 AM »
The Chinese are TOAST!


The Next Big Threat For Oil Comes From China
By Philip Verleger - Jan 31, 2019, 6:00 PM CST

Dalian China

There is a widespread concern in the world regarding China’s decelerating economic growth. The slowdown, if it continues, threatens economic activity almost everywhere. Growth in Germany, for example, has already cooled due to its exports of high-quality machinery to China dropping precipitously.

Those in the oil market also worry about China. The country’s economic growth has been a key driver of global crude oil consumption. Indeed, China accounts for one-third of the International Energy Agency’s projected 2019 increase in world oil use.

Weak Chinese economic growth is not the end of the oil market’s prospective ills, however. Few recognize the additional trouble on tap from the Chinese independent refiners affectionally known as “teapots.” The danger occurs because lower oil demand growth in China comes just when independent refining capacity there is rising. The capacity growth has been financed primarily by debt, most likely supplied by China’s alternative lenders. As demand slows, these refiners will turn to international markets, dumping products in Singapore, the Americas, or Europe to earn hard cash. In doing so, they could plunge the global refining industry into a serious recession and drive crude prices down sharply.

This will not be the first time that refineries in Asia caused a crisis in the oil sector. In 1997, Korean refiners did the same during the Asian financial collapse. That incident is described in the December 1997 Oil Market Intelligence (OMI). The report begins by noting that Korean refiners had begun to seek exports markets before the crisis hit “mostly to employ 620,000 b/d of new refining capacity that came on stream since late 1966.” The effort intensified as domestic consumption collapsed:

But once the won started its second descent in two years—it dropped over 94% against the dollar between July 1 and December 10 [1997], much of it in early December—the push to export became more desperate because the five big refiners could not recoup in domestic product prices the staggering dollar price of crude oil feedstock. (“Economic Crisis Spills Over onto Oil Markets,” Oil Market Intelligence, December 1997, p. 11.)

The article noted that Korean refiners were trying to sell products to China, Taiwan, and Japan. It added that Korea’s exports to China rose fourfold between January and October, while its share of the Chinese gasoil import market went from seven to twenty-six percent. The Asian refining center in Singapore lost market share, falling from seventy-five to twenty-six percent.
Related: Oil Rallies As Saudis Cut Exports To The U.S.

The OMI report also observed ominously that “shippers and traders report that Korean refiners are lowering prices to meet their need to expand that share.”

The gasoil market suffered significantly. The OMI editors explained that Korea’s use was declining (consumption dropped one hundred fifty thousand barrels per day, or thirty-three percent, in December 1997 from December 1996), causing refiners to push gasoil to China. Those sales pressured margins at refineries in Singapore. The editors added, “If its [Korea’s] five refiners can keep importing crude oil—and the government is now talking of using foreign exchange reserves to finance crude purchases and overcome private credit squeezes—it is likely to keep pumping out the product to its neighbors.”

Looking back twenty years, one sees this is what happened. Figure 1 traces the price of gasoil and premium gasoline in Singapore by month from January 1997 to December 1999. Spot gasoil prices plunged from a peak of $32.50 per barrel in December 1996 to a low of $13.80 in October 1998. Distillate cracks measured against spot Dubai crude dropped from $9 per barrel in December 1996 to zero in 1999.

Arbitrage carried the impact of the Korean fire sale across the globe. Gasoil prices fell fifty-eight percent in Singapore from December 1996 to October 1998. In the US Gulf Coast market, they declined fifty-eight percent from December 1996 to February 1999. In Europe, the decline was fifty-one percent.

Korea’s fire sale of products precipitated a crude price decrease. As I have written often, product prices often lead crude prices. This was the case in the Asian crisis. Energy Intelligence Group data show that the netback on Dubai crude at Singapore declined from $23 per barrel in December 1996 to $9 in February 1999. Spot crude prices followed, as did prices for export contracts linked to spot crude prices.

Chinese independent refiners may be emulating the action of Korean refiners in 1997 and 1998. The Wall Street Journal warned on January 23 that the economic slowdown in China could curb Chinese gasoline consumption, which would “mean a flood of exports to the rest of Asia.” The WSJ author, Kevin Kingsbury, added that regional refining margins could be pressured.

Kingsbury explained that the economic slowdown would reduce growth in China’s oil consumption as refining capacity there increased:

Nomura forecasts demand growth of 0.5% this year, slowing from an estimated 4% last year. At the same time, Chinese refineries will increase production capacity by some 6%, according to Fitch Solutions.

Related: Chevron Looks To Double Permian Production By 2022

He also noted that export quotas for gasoline, jet fuel, and fuel oil rose thirty-five percent last year. Further increases are expected for 2019 “so Chinese refiners can maintain production.”

In this regard, a January 24 report from Bloomberg is concerning. In it, Jack Wittels wrote that “a fleet of giant newly built oil tankers is gearing up to ship diesel out of East Asia.” Five new tankers are positioned off China’s coast, each with a capacity of two million barrels. Two additional tankers will shortly join the “armada.” Four of the parked vessels are already loaded or loading. The products will likely move to Europe, where margins are high.

These will not be the last shipments from China. In past economic downturns, the decrease in petroleum product consumption has lagged the falloff in economic activity. For example, the December 1997 OMI began its discussion of problems in Asia with this observation: “a few short months ago it seemed that Asia’s economic woes were unlikely to affect oil demand in a major way, and that the financial crisis could be contained in Thailand, Malaysia, Indonesia and the Philippines.” The article then continued ruefully, “Neither proposition looks valid anymore.”

The increased exports from China will reduce refining margins across the globe just as margins are being squeezed by a gasoline surplus and as refiners get ready to meet the IMO 2020 standard. This situation could have serious impacts on US and European refiners. Profits could come under intense pressure, particularly at firms that have been boosting product exports from the United States to Europe and the Americas.

Attention must stay riveted on China for the rest of 2019. The volume of product exports from its refineries will keep rising if its economy continues to falter, as many believe it will. The country’s problems, and problems for the world refining industry, will be compounded if the United States and China cannot resolve their trade war.

In this regard, further news on Wednesday, January 29, was ominous. Platts reported that China’s refiners are looking beyond Asia to boost exports. In 2018, Chinese gasoline exports rose twelve percent from 2017 and gasoil exports seven percent. There could be much larger increases in 2019 as more refining capacity comes on stream, especially if China’s domestic consumption stays the same or decreases.

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🛢️ U.S. Natural Gas Prices Plummet, Defy 'Polar Vortex 2019'
« Reply #796 on: February 03, 2019, 11:58:17 PM »

2,110 viewsFeb 3, 2019, 07:05pm
U.S. Natural Gas Prices Plummet, Defy 'Polar Vortex 2019'
Jude Clemente
Jude Clemente
I cover oil, gas, power, LNG markets, linking to human development.
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    The U.S. natural gas market ignored the Polar Vortex 2019 last week and prices have plummeted
    In recent days, many areas in the country have seen record 50 to 60 degree temperature rises

Ice floats on the Chicago River in Chicago, Illinois, U.S., on Wednesday, Jan. 30, 2019. Bitter cold is taking hold across the upper Midwest to the Northeast, prompting warnings to stay indoors. The National Weather service said the temperature in Chicago dropped on Wednesday morning to minus 19 degrees, breaking the previous record low for the day set in 1966. Photographer: Daniel Acker/Bloomberg© 2019 Bloomberg Finance LP

The U.S. natural gas market ignored the Polar Vortex 2019 last week and prices have plummeted

This is especially incredible since on Wednesday, total U.S. gas demand easily hit an all time record of 150 Bcf/d, half of which was for heating.

The previous total demand record was January 1, 2018, when we devoured 143 Bcf/d but the market was spared because it was a holiday (i.e., less industrial facilities were in operation).

Up until this past week, U.S. gas demand this January was averaging about 110 Bcf/d.

Although hub pricing spiked to winter highs in some areas such as Chicago Citygate, where the city saw its 2nd coldest day in history, prompt month for NYMEX futures settled Friday at its lowest price since July 23.

Even though we have recently seen the coldest weather of the winter (Arctic Blast and Polar Vortex 2019), gas prices have collapsed 25% over the past 14 trading days. Interestingly, this is in stark contrast to oil prices, which were up nearly 20% and had their best January on record.

Overall, gas prices this winter 2018-2019 have been highly volatile, with daily expirations ranging from $4.84 per MMBtu back in mid-November to $2.73 on Friday. Last winter, gas prices from November 1 to February 1 were in a tighter range of $2.60 to $3.63.
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January spot gas prices in the more expensive Northeast regions were 50-75% lower than last January.

Even factoring in the recent freeze, six of the past eight weeks have been warmer than normal.

After a rise in gas prices before the Arctic Blast hit a few weeks ago, the market shrugged off the historic cold we saw this past week.Data source: CME Group; JTC

A decreasing gas storage deficit has helped ease supply concerns. Although we now stand at 13%, right before Polar Vortex 2019 we stood at 11% below the five-year average for inventory, compared to 20% below back in early-December after the coldest November since 1976.

Moreover, we knew that Polar Vortex 2019 would only be a two-day event, and a rapid rise in temperatures was widely forecast.

In recent days, many areas in the country have seen record 50 to 60 degree temperature rises

Things have warmed up amazingly quickly: "Long Johns to Short Sleeves: Rapid Thaw Follows Polar Blast."

This helps explains why the market tanked. Heating demand is expected to fall back significantly to below average 45-47 Bcf/d over the next two weeks.

The price collapse is also surprising, however, because the U.S. gas production range has been lowered, now in the 83-85 Bcf/d range, compared to closer to 85-87 Bcf/d back a few months ago. The market has ignored freeze offs and production losses.

With U.S. gas production up a whopping 13% last year, traders have become more confident about supply. EIA has output up another 8-10% this year.

The coming withdrawal is projected at 260 Bcf, compared to the 150 Bcf five year average. This will easily be the highest pull of the year, but still well below the 359 Bcf all time record withdrawal that we had to start 2018, indicating just how quickly temps have already warmed up.

Another rally for gas is slipping away. With a warm start to February, and the final month of winter (March) now being the prompt month, the gas market has its bearish sights on low demand April.
Gallery: 12 Tips For Staying Productive During the Bleak Winter Months
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Jude Clemente
Jude Clemente

I am Principal at JTC Energy Research Associates, LLC. I hold a B.A. in International Relations from Penn State University, with a minor in Statistical Analysis. I got my M.S. in Homeland Security from San Diego State University, with a focus on Energy Security, and an MBA ...
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🛢️ The Natural Gas Price Plunge Isn’t Over Yet
« Reply #797 on: February 07, 2019, 12:56:50 AM »

The Natural Gas Price Plunge Isn’t Over Yet
By Nick Cunningham - Feb 06, 2019, 5:00 PM CST

Natural gas prices started the winter season with a bang, but could end it with a whimper.

Henry Hub natural gas prices spiked last November to multi-year highs, nearing $5/MMBtu. The extraordinary drawdown in inventories left the U.S. with the smallest cushion of gas supplies in over 15 years. A cold snap threatened to push gas supplies to dangerously low levels, and eyeing that thin margin, prices jumped and volatility spiked.

The surge in prices was brief, however. Winter got off to a mild start, and demand was relatively muted as well. The record-setting cold at the end of January saw demand spike once again, but the market barely budged. Everyone knew that the Polar Vortex, though intense, was only going to be around for a limited period of time.

A massive upswing in temperatures occurred at the start of this month, with much of the country thawing out. Now, although we have a few weeks left of the high-demand winter season, the end is within sight. After all, Punxsutawney Phil didn’t see his shadow.

With spring just around the corner, the risk to the gas market is just about over. “There is simply not enough winter heating demand left to drive end-March storage below 1 Tcf,” Barclays wrote in a note. “Rebounding production and weak cash prices during recent cold spells also eroded our confidence in another rally.”

The investment bank lowered its pricing forecast for the first quarter of 2019, predicting average Henry Hub prices at $2.98, down sharply from its previous estimate of $3.51/MMBtu. For the full year, the bank expects prices to average $2.81/MMBtu.

As it stands, front-month natural gas prices were trading as low as $2.67/MMBtu on Wednesday.

Rising upstream production should lead to “smoother seas,” Barclays argued. “We still see prices falling modestly this summer, as production growth dominates balances.”
Related: Hedge Funds Drop Shorts On Crude Oil

“Since October, we have been warning about higher volatility, but with heating demand on a downward slope and acute storage scarcity largely out of the picture, we believe volatility should decline towards historical averages into this summer,” Barclays added.

One notable development is the emergence of a stronger inverse relationship between WTI prices and the price of natural gas. The higher WTI goes, the worse off it is for natural gas prices. That may seem counter-intuitive since the two fuels have, at times, had a positive correlation. A general rise in commodity prices, whether due to a booming economy, or asset price inflation, or supply shortages, can affect both oil and gas in the same way.

However, the difference now is the surge in associated gas production. The more U.S. shale companies step up shale drilling in pursuit of oil, the more natural gas comes out of the ground as a byproduct. As such, when WTI rises and the industry throws more oil rigs into the field, it tends to lead to higher levels of gas output, pushing prices down. Barclays says that with associated gas account for roughly 40 percent of total gas production in the Lower 48, the negative correction “is likely to persist or even strengthen in the coming year.”

Because of this link to the oil market, the fate of oil prices will have significant influence over the behavior of natural gas. For instance, if U.S. oil production growth slows to just 0.6 million barrels per day – well below the 1.2 mb/d the EIA is forecasting – that would push natural gas prices up roughly $0.50/MMBtu relative to Barclays’ baseline scenario, due to lower associated gas supply.

On the other hand, if the shale industry surprises and adds a rather massive 1.4 mb/d of new oil supply, that would lead to a surge of associated gas production as well, pushing Henry Hub prices down by $0.20/MMBtu relative to the reference case.

Overall though, prices should be muted this year. Winter demand season is coming to an end and shale gas production continues to rise. That will allow inventories to be replenished, dramatically reducing the volatility and risk associated with tight supply conditions.

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🛢️ U.S. Sanctions, OPEC Cuts Create Rare Oil Price Shakeup
« Reply #798 on: February 12, 2019, 12:45:30 AM »

U.S. Sanctions, OPEC Cuts Create Rare Oil Price Shakeup
By Tsvetana Paraskova - Feb 11, 2019, 12:00 PM CST

Due to tighter supply of medium and heavy sour crude oil, Middle Eastern benchmarks for sour crude grades have been trading higher than Brent Crude prices since the beginning of February in a rarely seen development in global oil prices.

On February 1, the cash Dubai crude price edged above Brent Crude for the first time since August 2015, according to S&P Global Platts data.

Three key factors have been tightening the global supply of heavy crude grades, thus pushing the prices of Dubai spot and DME Oman crude futures higher this month, traders and analysts tell Reuters.

First, OPEC is currently on a mission to cut supply again in a bid to rebalance the market and lift prices, and many OPEC producers do pump and cut from medium to heavy grades. 

Then there are the latest U.S. sanctions on Venezuela’s oil—typically of the heavy variety—which drives demand for heavy grades from other regions as buyers seek alternatives. This has also helped push the Dubai and Oman benchmark prices higher than Brent Crude’s—an unusual occurrence on the market, where lower-sulfur, sweet grades from the Atlantic basin and the North Sea are typically more expensive than the sour grades from the Middle East or Latin America.
Related: Green New Deal Critics See Red

The third key reason for Middle Eastern sour crude to trade higher than Brent is the uncertainty over whether the U.S. will extend waivers (if any) to Iran’s oil buyers when the current exemptions expire in early May.

According to traders who spoke to Reuters, prices of the U.S. Mars grade and of sour grades from Latin America like Colombia’s Castilla have jumped as interest has also significantly increased after the United States announced sweeping sanctions on Venezuela’s oil sector at the end of January.

After the sanctions were imposed, the heavy sour grade Castilla and Vasconia, a medium sour grade from Colombia, saw their prices jump last week to their highest since September 2017, as per S&P Global Platts data.

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🛢️ Fifty Shades Of Shale Oil
« Reply #799 on: February 13, 2019, 12:42:15 AM »

Fifty Shades Of Shale Oil
By Nawar Alsaadi - Feb 12, 2019, 6:00 PM CST

The rise of U.S. tight oil production over the last several years has upended the oil market and challenged OPEC’s hold on oil prices. This seemingly relentless growth in U.S. tight oil production has created the impression that oil prices will remain forever capped as each price spike is met by a massive wave of US tight oil supply.


U.S. tight oil supply has grown from a mere 500K barrels in 2010 to just under 6M barrels in 2018. Following the oil crash of late 2014, U.S. tight oil growth experienced a brief pause in 2015-2016 before resuming its growth in 2017 and climbing to a new high by 2018. This latest growth spurt to a new record is even more impressive when we take in consideration the fact that WTI averaged $65 a barrel in 2018 as compared to $95 a barrel in the three years (2012-2014) preceding the oil crash.

(Source: OPEC WOO – 2018)

Most observers attribute this strong shale industry performance to technology and improved drilling and completion practices. We are told that American oil and gas companies have become more efficient. The widespread utilization of pad drilling, the introduction of longer laterals, pumping ever more sand per foot, closer and better well spacing, and smart fracture targeting are often mentioned as the driving factors behind the industry record beating performance. This narrative of technological prowess and innovation is an attractive one, but a deeper examination of the data reveals a different picture.


This fallacious narrative of the U.S. tight oil industry overcoming the oil price crash of 2014 through innovation and better efficiency is the product of bundling various tight oil basins under one umbrella and the presentation of the resulting production data as a proof U.S. shale resiliency.

To properly understand the impact of the oil price crash of 2014 on U.S. tight oil production one must focus on shale basins with sufficient operating history prior to the oil price crash and examine their performance post the crash. To that end, the Bakken and the Eagle Ford are the perfect specimen. The Bakken and the Eagle Ford are the two oldest tight oil basins in the United States, with the former developed as early as 2007 and the latter in 2010. Examining the production performance of these two basins in the 4 years preceding the oil crash and contrasting it to the 4 years subsequent to it, offers important insight as to the resiliency of U.S. tight oil production in a low oil price environment.

Related: Oil Jumps As Saudis Plan Further Production Cuts

(Source: OPEC WOO 2018)

Both the Bakken and the Eagle Ford grew at a phenomenal rate between 2010 and 2014. The Eagle Ford grew from practically nothing in 2010 to 1.3M barrels by 2014, while the Bakken grew five fold from 190K barrels to 1.08M barrels. Following the collapse in oil prices in late 2014, the Bakken and Eagle Ford growth continued for another year, albeit at a slower pace, as the pre-crash momentum carried production to new highs. However, by 2016, both the Bakken and the Eagle Ford went into a decline and have hardly recovered since. It took the Bakken three years to match its 2015 production level, meanwhile the Eagle Ford production remains 22% below its 2015 peak. During the pre-crash years these two fields grew by a combined yearly average of 600K to 700K barrels from 2012 to 2014. Post the oil price collapse, this torrid growth turned into a sizable decline by 2016 before stabilizing in 2017. Growth in both fields only resumed in 2018 at a combined yearly rate of 210K barrels, a 70% reduction from the combined fields pre-crash growth rate.   

The dismal performance of these two fields over the last few years paints a different picture as to U.S. tight oil resiliency in a low oil price environment. The sizable declines, and muted production growth in both the Bakken and the Eagle Ford since 2014 discredit the leap in technology and the efficiency gains narrative that has been espoused as the underlying reason beyond the strong growth in U.S. oil production. As we expand our look into other tight oil basins, it becomes apparent that it was neither technology or efficiency that saved the U.S. tight oil industry, although these factors may have played a supporting role. In simple terms, the key reason as to the strength of U.S. production since the 2014 oil crash is better rock, or rather, the commercial exploitation of a higher quality shale resource, namely the Permian oil field.

(Source: OPEC WOO 2018)

The Permian oil field, unlike the Bakken and the Eagle Ford, was a relative latecomer to the U.S. tight oil story. It was only in 2013, only a year before the oil crash, that the industry commenced full scale development of that giant field’s shale resources. Prior to 2013, the Permian lagged both the Bakken and the Eagle Ford in total tight oil production and growth. As can be seen from the preceding graph, the oil crash had only a minor dampening effect on the Permian oil production growth. By 2017, Permian tight oil growth resumed at a healthy clip, and by 2018, Permian tight oil production growth shattered a new record with production skyrocketing by 860K barrels in a single year to 2.76M barrels. This timely unlocking and exploitation of the Permian oil basin masked to a large degree the devastation endured by the Bakken and the Eagle Ford post 2014. In essence, the U.S. tight oil story has two phases masquerading as one: the pre-2014 period marked by the birth and rise of the Bakken and Eagle Ford, and the post-2014 period, marked by the rise of the Permian. To speak of the U.S. tight oil industry as one is to mistake a long-distance relay race for the accomplishment of a single runner. 
Related: Which Oil Giant Generates The Most Cash?

The performance divergence between the Bakken, Eagle Ford, and the Permian has major implications as to the likelihood of U.S. tight oil production suppressing oil price over the medium and long term. A close examination of U.S. tight oil production data leads to a single indisputable conclusion: without the advent of the Permian, the U.S. tight oil industry would have lost the OPEC lead price war. Hence, it’s a misnomer to treat the U.S. tight oil industry as a monolith, in many ways, the Bakken and the Eagle Ford tight oil fields are as much a victim of the Permian success as the OPEC nations themselves.   


This discordant panoply of shale fields known as the U.S. tight oil industry has been the key source of global non-OPEC oil supply growth over the last several years and is expected to be for years to come:

Considering that the majority of U.S. tight oil production growth is generated by a single field, the Permian, changes in the growth outlook of this basin have major implications as to the evolution of global oil prices over the short, medium and long term. Its important to keep in mind that the Permian oil field, despite its large scope, is bound to flatten, peak and decline at some point. While forecasters differ as to the exact year when the Permian oil production will flatten, the majority agree that a slowdown in Permian oil production growth will take place in the early 2020s.

According to OPEC (2018 World Oil Outlook), the Permian basin oil production curve is likely to flatten by 2020, with growth slowing down from 860K barrels in 2018 to a mere 230K barrels by 2020:

(Source: OPEC WOO 2018)

There are many factors that can accelerate or delay the projected flattening phase, but there is no doubt that sooner or later Permian oil production will flatten. An eventual plateau in Permian oil supply effectively translates into a flattening of non-OPEC global oil supply, the importance of this event can’t be overstated. The year the Permian flattens is the year OPEC will regain control of the market, this seminal event will have major implications on long term oil prices. There is no doubt that Saudi Arabia and Russia are aware of the Permian growth and flattening dynamic and are co-managing their oil supply over the short term and medium term to allow for an orderly entrance of U.S. tight oil supply, aka Permian oil supply, into the market. It’s indeed telling that OPEC is attempting to extend its alliance with Russia for another three years, exactly the time window required for growth in the Permian oil field to flatten and for pricing power to return to it.

The U.S. tight oil story is far more complex than meets the eye, and the oil market, like any market, is prone to the appeal of simple narratives and false conclusions. Those willing to drill behind the headlines stand to capitalize on the treasures buried in the details.   

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🛢️ Goldman: ‘Shock And Awe’ OPEC Cuts To Send Oil Higher Soon
« Reply #800 on: February 14, 2019, 01:53:50 AM »
If the Squid is predicting UP for the low hanging fruit, count on it going down.


Goldman: ‘Shock And Awe’ OPEC Cuts To Send Oil Higher Soon
By Tsvetana Paraskova - Feb 13, 2019, 3:00 PM CST

GS office Brasil

Goldman Sachs expects Brent Crude prices to hit US$67.50 a barrel in the second quarter of the year as ‘shock and awe’ production cuts by OPEC and increased supply disruptions couple with healthy demand and seasonal inventory declines to drive prices higher.

“Producers are adopting a ‘shock and awe’ strategy and exceeding their cut commitment,” the investment bank said in a research note from February 12.

“The production losses to start 2019 are already larger than we expected,” Goldman says, noting that more disruptions could be coming, due to the U.S. sanctions on Venezuela’s oil industry.

“Disruptions have increased with risks that Venezuela’s production decline accelerates following the introduction of additional U.S. sanctions related to the Venezuelan oil industry,” Reuters quoted the investment bank as saying.

Oil fundamentals are clearly improving and are already visible in the larger-than-seasonal drop in inventories, according to Goldman Sachs.

At the start of the year, the investment bank had reduced its outlook for oil prices this year citing abundant supply. Back in early January, Goldman expected Brent Crude to average US$62.50 a barrel this year, down from an earlier projection of US$70 a barrel. WTI Crude, according to Goldman Sachs, will average US$55.50 a barrel, compared with an earlier estimate of US$64.50 a barrel.
Related: Oil Rises Despite Rising Oil, Product Inventories

Now projecting second-quarter oil prices, Goldman sees Brent Crude hitting US$67.50 next quarter, compared to US$62.87 early on Wednesday, up 0.72 percent on the day.

Earlier this week, OPEC’s largest producer and de facto leader Saudi Arabia signaled even deeper cuts in production and exports of the Kingdom for March. In an interview with the Financial Times, Saudi Arabia’s Energy Minister Khalid al-Falih said that the Saudis would cut production to around 9.8 million bpd in March, some 500,000 bpd below the commitment in the OPEC+ deal that began in January.

The cartel’s secondary sources showed on Tuesday that total OPEC production in January dropped by 797,000 bpd from December to average 30.81 million bpd. Saudi Arabia cut production by 350,000 bpd to 10.213 million bpd, and its Arab Gulf allies Kuwait and the United Arab Emirates (UAE) also cut output substantially. 

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🛢️ World’s Largest Offshore Oil Field Partially Shut Down
« Reply #801 on: February 16, 2019, 01:17:44 AM »
Very convenient timing for this "accident".  ::)


World’s Largest Offshore Oil Field Partially Shut Down
By Irina Slav - Feb 15, 2019, 9:30 AM CST

The Safaniyah oil field in Saudi Arabia—the world’s largest—is producing at a reduced capacity after a ship’s anchor cut a main power cable, Reuters reports citing a knowledgeable source. An earlier report from MarketWatch quoted information from Energy Intelligence suggesting production at the filed had completely stopped, sparking worry about global heavy oil supply.

The worry was justified: with Venezuela sliding more deeply into chaos and with new U.S. sanctions reducing the flow of Venezuelan heavy crude to refineries, another heavy crude-producing field outage is exactly what the market does not need.

Safaniyah has a production capacity of over 1 million barrels of heavy crude: reason enough for the market to get excited or worried, or both. However, now that there is more information about the possible cause of the outage and its extent, this excitement or worry might calm down.

With or without a field outage, however, Saudi Arabia has once again played the star role in helping oil prices recoup some of the losses suffered late last year. The Kingdom has been reducing its production by more barrels than it was obliged to, leading an almost 800,000-bpd OPEC-wide production decline last month.

Saudi Arabia plans to reduce its crude oil production further, to 9.8 million bpd in March, Energy Minister Khalid al-Falih said in an interview for the Financial Times. This compares with more than 11 million bpd produced in November. Exports, Al-Falih said, will also fall substantially over this month and next, to an average of 6.9 million bpd from 8.2 million bpd in November.

In the more immediate term, however, Brent jumped above US$65 a barrel after beginning today’s trade with a slide below this level. The credit was due the news of the partial production outage at Safaniyah, but earlier reports from this week about OPEC’s output cuts also helped.

At the time of writing, however, Brent crude was trading at US$64.84 a barrel, with WTI at US$54.59 a barrel.

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🛢️ Why natural gas prices could fall in the near-term
« Reply #802 on: March 07, 2019, 12:21:04 AM »

Why natural gas prices could fall in the near-term
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March 6, 2019 1:04pm NYSE:UNG

From James Hyerczyk: Natural gas futures edged higher early in the session on Wednesday, but prices retreated as the buying slowed and sellers increased their presence. The price action suggests the futures market is being well-supported by aggressive speculative buying, but that weakness in the spot market may be exerting some selling pressure.

At 12:33 GMT, April natural gas is trading $2.873, down $0.012 or -0.42%.
Short-term Weather Outlook

According to the NatGasWeather forecast for March 6 through March 12, “Frigid cold continues across much of the central, northern and eastern US with lows again dropping into the -10s to 20s, but with conditions to close the week moderating. This weekend will bring warmer conditions across the East. After a cold start across Texas and the South today, temperatures will rapidly warm the next several days into the 60s to 80s. The West remains cool and unsettled as weather systems bring rain and snow. A new cold shot will race across the northern US early next week followed by rapid warming Great Lakes and Northeast. Overall, national demand will be high-very high this week, then easing this weekend.”
Traders Shifting Focus to Supply Worries

Bespoke Weather Services is saying, “Despite weaker cash prices Tuesday, futures remained well-supported, as the market shifted focus to the low stock situation. The current cold snap continued to drive tighter balances Tuesday, and the lack of warmer than normal pattern in the medium-range supports an end-of-season storage scenario under 1.1 Tcf.”

“…Balances should ease off at least somewhat over the next few days as the nation, especially the South, moderates quickly in the wake of the current strong cold,” Bespoke said. “Given how tight spreads are, we think this would increase risk of a pullback in April prices, although we see it as unlikely that any pullback goes lower than the $2.80 level.”
Daily Forecast

Traders continue to toy with the technical target area at $2.812 to $2.871. Reaction to this zone is likely to determine the near-term direction of the April natural gas market.

With the return of warmer temperatures, we’re looking for weakness to develop on a sustained move under $2.871. If the selling pressure increases then look for the selling to possibly extend into $2.812.

April natural gas will be particularly vulnerable to a break under $2.812. This move could trigger a steep break into $2.731 to $2.691.

The United States Natural Gas Fund L.P. (UNG) was trading at $24.94 per share on Wednesday afternoon, down $0.49 (-1.93%). Year-to-date, UNG has gained 6.95%, versus a 4.49% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #52 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of FX Empire.
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🛢️ Get your natural gas in Texas for a dime, prices fall to record low
« Reply #803 on: March 21, 2019, 08:08:50 AM »

Business News
March 20, 2019 / 4:28 AM / a day ago
Get your natural gas in Texas for a dime, prices fall to record low

3 Min Read

(Reuters) - Next-day natural gas prices for Wednesday at the Waha hub in West Texas plunged to a record low due to an equipment failure in New Mexico that stranded gas in the Permian basin.
FILE PHOTO: A rig contracted by Apache Corp drills a horizontal well in a search for oil and natural gas in the Wolfcamp shale located in the Permian Basin in West Texas, U.S. on October 29, 2013. REUTERS/Terry Wade/File Photo

Spot prices at the Waha hub collapsed to an average of just 12 cents per million British thermal units (mmBtu) for Wednesday.

That fell below the contract’s prior all-time low of 21 cents in February and compares with an average of $1.72/mmBtu so far this year, $2.10 in 2018 and a five-year (2014-2018) average of $2.80, according to data available on the Refinitiv Eikon going back to 1991.

The equipment failure was on El Paso Natural Gas Pipeline Co LLC’s Lordsburg and Florida compressor stations. That failure, which caused El Paso to declare a force majeure, cut the operational capacity through the stations by about 0.2 billion cubic feet per day to around 0.4 bcfd starting on Tuesday.

El Paso, which is a unit of Kinder Morgan Inc, said the reduction will remain in effect until further notice.

The Permian is the biggest oil-producing shale basin in the United States and since much of that oil comes out of the ground with gas, it is also the nation’s second-biggest shale gas producing region, behind Appalachia in Pennsylvania, West Virginia and Ohio.

With production of both oil and gas more than doubling to record highs over the past five years, the pipeline infrastructure in the Permian has not been able to keep up with the rapid growth in output.

That has caused the basin’s existing oil and gas pipes to become constrained and forced some producers to burn or flare off some of the gas associated with oil production.

Those gas constraints have trapped gas in the Permian and depressed Waha prices, boosting the discount Waha trades at below the U.S. Henry Hub benchmark in Louisiana.

That spread reached $2.79/mmBtu for Wednesday, its widest since December. That compares with an average discount of $1.21 so far this year, $1.06 in 2018 and a five-year (2014-2018) average of 34 cents.

Several new pipelines are being built or developed to enable more gas to flow out of the Permian, including Oneok Inc’s WesTex and Roadrunner projects, Kinder Morgan’s Gulf Coast Express and Permian Highway projects and NAmerico Energy Holdings’ Pecos Trail.

Drillers will, however, have to wait until late 2019 and beyond for those projects to enter service.

Reporting by Scott DiSavino; Editing by Chizu Nomiyama
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Natural Gas Prices Are Crashing Everywhere as Market Suffers ‘Winter Hangover’

By Christine Buurma
and Naureen S Malik
March 29, 2019, 12:35 AM AKDT Updated on March 29, 2019, 8:55 AM AKDT

    Collapse comes as developers plan massive LNG export projects
    Output from U.S., Australia and Russia is flooding the market

In this article
Generic 1st 'NG' Future
WTI Crude
Generic 1st 'XW' Future

Natural gas prices are collapsing across the globe as supplies from the U.S. to Australia flood the market, sparking concern some exporters will have to curtail output and raising questions about new investments.

While prices typically ease at this time of year as mild weather in the northern hemisphere crimps demand, a boom in output of the heating and power-plant fuel is exacerbating the slump. The crash comes as the world’s biggest energy companies are set to gather at the LNG2019 conference in Shanghai next week, with many considering whether to move forward with a wave of massive, multibillion-dollar liquefied natural gas export projects.
Global gas prices are converging as demand slackens and export supply rises

Global trade is already shifting as lower prices wipe out the economics of sending U.S. gas to Asia and boost Europe’s appeal as a market. New LNG production from Australia, Russia and the U.S. has helped to push prices in Asia more than 50 percent lower this year after a warmer-than-normal winter. Even as concern about climate change drives a shift to cleaner-burning gas from coal, demand isn’t growing fast enough to absorb the supply surge.

“The gas market obviously is undergoing a winter hangover” after warm weather curbed demand, said Francisco Blanch, head of global commodities and derivatives research at Bank of America Corp. in New York. “We are getting a glut across the board and we don’t see that changing all that much.”

Asia’s LNG benchmark, the Japan-Korea Marker, has more than halved since the start of the year to $4.375 per million British thermal units as of March 26. It’s fallen to a rare discount to European prices, as U.K. National Balancing Point futures traded at around $4.50 on Friday, down 44 percent this year in their worst quarter in a decade. U.S. gas futures are down more than 8 percent this year, heading for the worst quarterly loss in two years.

The gas crash stands in stark contrast to oil prices, which are heading for their best quarter since 2002 as OPEC and its partners curtail production amid a decline in output from Iran and Venezuela. Since gas is produced as a byproduct of crude drilling in places like West Texas’s Permian Basin, the oil rally threatens to exacerbate the gas glut.
Supply Frictions

European gas prices are also dropping relative to the U.S., and if the spread narrows further, American exporters may be forced to cut output, according to Societe Generale SA. The market is collapsing just as more Gulf Coast terminals designed to send LNG overseas are poised to start up, creating the first real test of buyers’ appetite for U.S. cargoes.

“Prices could keep falling and stay low for weeks, perhaps until sometime closer to the middle of the year, after the market has adjusted and overcome frictions on the supply, demand and shipping sides,” Citigroup Inc. analysts including Anthony Yuen wrote in a March 28 note to clients.

European prices may need to fall more than 15 percent to make U.S. LNG into the region uneconomic and help rebalance an oversupplied system this summer, BloombergNEF analysts said in a report this week.

    What BloombergNEF Says

    “If sufficient demand to balance the LNG market cannot be found at around $4, then Asian and European prices may have to move low enough to reduce supply by eliminating U.S. export profitability and motivating export capacity holders to cancel exports and scale back global supply.”

    -- John Twomey, European power and natural gas analyst
    Click here to view the piece.

Winter Demand

So much production is flooding the market that prices may not begin a sustained rebound until heating demand starts to pick up during the northern hemisphere winter, said Meg Gentle, chief executive officer of Tellurian Inc., which is planning a $28 billion export terminal in Louisiana.

The short-term pain may seem at odds with expectations that several developers are now set to announce billions of dollars in investments for new export facilities. That’s because the medium-term outlook calls for the current surplus to shift into a deficit early next decade, which can only be avoided if projects are sanctioned now.
Feast to Famine?

Global LNG glut seen fading without new projects

Source: BloombergNEF as of Sept. 2018

The impacts of this situation on U.S. projects “might raise questions at LNG2019 for the U.S. developers trying to sell LNG export capacity,” Citigroup analysts wrote in the note. “Ultimately, customers are likely to look past this near-term dynamic.”

Global consumption is forecast to grow 1.6 percent over the next five years, with China accounting for a third of global demand growth to 2022, according to the International Energy Agency. Gas is expected to surpass coal as the world’s second-largest energy source, after oil, by 2030 amid a push to cut emissions.

“I have full confidence that the market will expand” to accommodate rising LNG production, Tellurian’s Gentle said. “We will see it not only for power generation but going into the residential and transport sectors.”
(Updates with U.S. gas price in fifth paragraph and oil’s impact in the 6th.)
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🛢️ Texas Natural Gas Prices Plunge To All-Time Low
« Reply #805 on: April 04, 2019, 02:06:07 AM »
Soon they'll pay you to burn it.  ::)


Texas Natural Gas Prices Plunge To All-Time Low
By Tsvetana Paraskova - Apr 03, 2019, 1:00 PM CDT

Natural gas prices at the Waha hub in West Texas plummeted to record low negative levels on Wednesday, as pipeline constraints and problems at compressor stations at one pipeline stranded gas produced in the most prolific U.S. shale oil basin.

Real-time or next-day prices at the Waha hub in Texas have stayed at negative levels since March 22, so drillers have had to pay companies with capacity to ship the gas via pipeline.

On Wednesday, the spot Waha hub prices plunged to minus $3.38 per million British thermal units (MMBtu), from minus 2 cents for Tuesday, data from the Intercontinental Exchange (ICE), cited by Reuters, showed.

Adding to the chronic pipeline constraints for both oil and gas in the Permian basin, last month equipment failures at two compressor stations along the El Paso Natural Gas Pipeline in New Mexico resulted in El Paso declaring a force majeure and reducing the takeaway capacity of the pipeline.

Gas production in the Permian has been rising in lockstep with crude oil production, and even though gas takeaway capacity has attracted less media attention, pipeline constraints for natural gas are similar to those of crude oil pipeline capacity.
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The natural gas takeaway capacity constraints have resulted in more gas flaring in the Permian on the one hand, and in a record-high spread between the Waha gas hub price and the U.S. benchmark Henry Hub in Louisiana, on the other hand.

On Wednesday, the differential jumped to an all-time high of US$6.14 per MMBtu, beating the previous record of US$5.85 from February 1996, according to data from ICE and Refinitiv Eikon compiled by Reuters.

To compare, the spread averaged just over US$1 per MMBtu throughout 2018.

In the Permian, drillers have been literally burning profit because of pipeline constraints. Surging volumes of natural gas have become a kind of a side product that drillers prefer to burn off instead of shutting in wells and missing out on monetizing the oil production gushing out in the Permian. Company executives admit that they wouldn’t flare as much gas as they do if they had a choice.

By Tsvetana Paraskova for
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🛢️ The World’s Cheapest Natural Gas
« Reply #806 on: April 06, 2019, 04:56:25 AM »

The World’s Cheapest Natural Gas
By Nick Cunningham - Apr 04, 2019, 7:00 PM CDT

Natural gas prices fell into record negative territory in the Permian basin, dragged down by booming oil production and a limited ability to move gas out of the region.

Unlike in other places, such as the Marcellus and Utica shales, natural gas in West Texas is produced as a byproduct. This “associated gas” is essentially an afterthought, a surplus and almost irrelevant product that comes out of the ground due to the relentless pursuit of crude oil. Precisely because the natural gas is not the target is exactly why more gas continues to be produced regardless of what prices do.

This dynamic helps explain how natural gas prices at the Waha hub in West Texas can fall to -$3.38/MMBtu – yes, negative $3.38 – as they did on Wednesday, which means that producers are paying others to take their gas. Javier Blas of Bloomberg News tweeted that prices may have reached as low as -$6/MMBtu.

While there has been a critical bottleneck for oil – a lack of pipelines from the Permian to the Gulf Coast led to steep discounts last year – the constraint on gas is even more pronounced. Waha prices near El Paso have been low for months, but the most recent plunge has been exacerbated by equipment problems at two compressor stations in New Mexico, according to Reuters. Waha prices have been in negative territory since March 22. Reuters notes that the spread between Waha and Henry Hub – which has been trading at around $2.70/MMBtu – reached a record high of $6.14/MMBtu on April 3.

The situation should clear up a bit when one of the compressors comes back online, expected on April 5. The other returned to service on March 31, Reuters reports. Seasonal lulls in heating demand are also weighing on gas prices.

There are pipelines in the works, but the first projects won’t be completed until later this year. “We foresee the pricing issue directly tied to takeaway constraints lasting at least until October 2019, when Kinder Morgan's Gulf Coast Express pipeline is slated to start-up,” Wood Mackenzie said in a commentary on April 3. “Today, the bottleneck is so tight that even slight hiccups can cause massive price swings.”
Related: Shale Is In A Deep State Of Flux

WoodMac said there are some gas pipelines from Texas to Mexico that are scheduled to come online in the second quarter, which could ease the bottleneck, while stronger domestic demand in the summer months may also help.
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A glut of gas may not affect oil operations because “flaring regulations allow for enough wiggle room for producers to meet output targets,” Barclays wrote in a note. Texas regulators issue permits that allow companies to flare gas for up to 180 days, and the Texas Railroad Commission “rarely denies these,” the investment bank noted. Beyond that, drillers can obtain extensions.

The 180-day grace period could be long enough for companies to bide their time until new pipelines come online. “With the Gulf Coast Express in-service target roughly six months away, new wells brought online today might not even need to go through this extension process,” Barclays concluded.

It may seem absurd to produce gas and then pay someone to take the gas off your hands, but Permian drillers continue anyway because they are really after the oil. The cost of offloading natural gas at a loss does not necessarily scramble the economics of drilling. “Even with negative gas prices, the vast majority of Permian wells remain profitable to operate. Their economics are driven almost entirely by oil prices, not natural gas,” Barclays said. “With current operating margins of about $30/b, Permian gas prices would have to drop to -$20/MMBtu or so before the typical well would be shut in for economic reasons.”

It should be noted that while individual wells may be profitable, small and medium-sized shale companies are largely still posting losses. For instance, a Reuters analysis found that all but seven of 29 shale companies spent more than they earned last year.

Ultimately, drillers will press forward on drilling in order to hit their oil production targets. That means that gas output could continue to climb, which means gas prices will likely remain depressed.

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🛢️ Saudis Threaten ‘Nuclear Option’ To Kill Petrodollar
« Reply #807 on: April 08, 2019, 12:04:30 AM »

Saudis Threaten ‘Nuclear Option’ To Kill Petrodollar
By Nick Cunningham - Apr 07, 2019, 6:00 PM CDT

Saudi Arabia threatened to use the “nuclear option” of undermining the petro-dollar if the U.S. moves forward with the NOPEC bill.

The U.S. Congress has been mulling legislation, known as the NOPEC bill, which would allow the Justice Department to take antitrust action against OPEC for manipulating the oil market. Specifically, the bill would remove sovereign immunity countries have from such action, allowing the U.S. government to sue. In theory, the law would prevent OPEC from coordinating production cuts.

It’s still unclear if the Congress will pass the bill, and it’s also not guaranteed that Trump will sign the bill if it reaches his desk. Moreover, even if he did sign it, it’s also not a done deal that the Justice Department would take punitive action.

Nevertheless, Saudi Arabia clearly views the threat as a serious one. Reuters reports that Saudi Arabia has threatened to sell its oil in currencies other than the U.S. dollar if the bill becomes law. Such a move would have enormous implications.

The global oil market is almost entirely conducted in dollars, which provides the foundation for dollar domination in the global financial system. Introducing new currencies in the oil trade could undercut demand for the dollar, diminish American influence over global finance, weaken American influence over sanctions, and thus, undercut its geopolitical reach. It’s hard to assess how serious Saudi Arabia is, but the implications of such a move are far-reaching and hard to overstate.

“The Saudis know they have the dollar as the nuclear option,” a source familiar with the matter told Reuters. Another source put it this way: “The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart.”

Some version of the NOPEC legislation has floated around for years, but past U.S. presidents from both parties have opposed the measure over fears that it would damage the U.S.-Saudi relationship. This time around, the situation is different, for several reasons. First, Saudi Arabia has seriously damaged its standing in Washington through its war in Yemen and over the murder of Saudi journalist Jamal Khashoggi. With goodwill evaporating, its grip on the U.S. Congress has weakened.
Related: What’s Next For Algeria As Bouteflika Steps Down

The House and Senate just passed a bill that cuts off U.S. aid for the Saudi war in Yemen, a historic rebuke to Saudi Arabia as well as a historic move to weaken the American executive branch’s authority over war. President Trump will likely veto the bill, but a few years ago, such a vote was unthinkable. Saudi Arabia’s missteps contributed greatly to the passage of the bill.
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Another reason why the odds of NOPEC becoming law are greater than ever are because of the unpredictable nature of Trump himself. He has embraced the Saudi government, but he also uses OPEC as a punching bag. Although the Saudis, to a large degree, control OPEC decisions, they are distinct entities in Trump’s mind. Only a few days ago he tweeted: “Very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high. Thank you!”

To the extent that oil prices are high and Trump feels that gasoline prices become a political liability, he may feel more compelled to sign a NOPEC bill.

That brings us back to the Saudi threat to undermine the dollar. If Riyadh actually carried out such a threat to switch away from the dollar for oil sales – which is definitely not a sure thing – it would have some eager partners. China, Russia, Iran and even the European Union have all at times supported some alternative to the dollar-based international order. The Trump administration’s excessive use of sanctions, and its bullying of key allies in Europe, have many governments ready for currency substitutes.

As Reuters notes, Russia has tried to sell oil in euros while China setup a yuan-denominated oil contract in Shanghai to rival the dollar. Iran has also eagerly tried to promote oil sales in other currencies in order to skirt U.S. sanctions. The EU setup a special purpose vehicle to help European companies continue to do business with Iran, and it also recently set up a working group to promote the euro as an alternative to the dollar.
Related: The Energy Solution That Could End The Border Wall Debate

To date, those efforts have done little to undercut dollar domination. But a Saudi decision to diversify away from the dollar would be the most powerful move yet.

However, there are plenty of reasons why this scenario won’t play out. The bill may not pass the U.S. Congress to begin with. But even if it became law, the Saudis have plenty of obstacles standing in their way, not the least of which is their currency peg with the dollar. Riyadh is also dependent on the U.S. military alliance, and dumping the dollar would put that in jeopardy. Those reasons alone might deter Saudi Arabia from moving forward with currency alternatives.

A separate threat, which is arguably more doable from the Saudi standpoint, would be to produce oil at maximum levels to crash prices. OPEC officials have reportedly been telling Wall Street executives that they would be forced to take such action if the NOPEC bill becomes law. “NOPEC legislation won’t serve the U.S. interest,” OPEC Secretary General Mohammad Barkindo said in March in Houston at the CERAWeek Conference.

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🛢️ Is This The End Of The OPEC Deal?
« Reply #808 on: April 12, 2019, 12:31:16 AM »

Is This The End Of The OPEC Deal?
By Nick Cunningham - Apr 11, 2019, 6:00 PM CDT

Oil prices ran into a brick wall on Thursday, falling more than 1 percent on news that U.S. inventories jumped and OPEC may be considering an exit from its production cuts.

Reuters reports that some OPEC officials are privately rethinking the extension of their production cuts beyond June. To date, the prevailing consensus has been that OPEC+ would need to keep the cuts in place through the end of this year in order to rebalance the market.

But the swiftness of the rebalancing effort has surprised most analysts, and has even surprised OPEC itself. Of course, while the group has kept 1.2 million barrels per day (mb/d) off of the market since the start of this year (give or take), U.S. sanctions have knocked even more supply offline in Venezuela and Iran. In March, Venezuela’s oil production plunged by 289,000 bpd, falling to just 732,000 bpd, according to OPEC’s secondary sources. It’s a staggering figure. The widespread blackout, the economic and political crisis, and harsh U.S. sanctions have crushed Venezuela’s oil sector.

Meanwhile, Iran’s output has held up a bit better, but has still suffered from significant declines since last year. The expiration of waivers that the U.S. granted to eight countries importing Iranian crude expires in just a few weeks. As of now, Trump officials appear to be split on whether or not to take a hard line by letting the waivers expire.

In a sign of how hawkish the Trump administration has become, Secretary of State Mike Pompeo is now viewed as being at the softer end of the spectrum in regards to Iran policy. Pompeo has a long reputation as a hardliner on Iran, so the fact that his department is the one trying to moderate White House policy is telling. Notably, Pompeo’s State Department is worried about rattling the oil markets if the administration is too aggressive on Iran, according to Bloomberg.
Related: Trump’s Executive Order Is A Gamechanger For Oil Shipping

Meanwhile, OPEC is watching all these events very closely. Saudi oil minister Khalid al-Falih has repeatedly suggested in recent months that the OPEC+ production cuts would likely be extended. The group seems to want to err on the side of overtightening, especially after last year when OPEC+ abandoned the production cuts and the oil market crashed.
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This time around, OPEC+ will have the benefit of being able to react after the mercurial U.S. President makes a decision on Iran sanctions waivers. The surprise issuance of waivers last year is one of the main reasons why prices crashed in the fourth quarter.

If the U.S. takes a hard line, and knocks more Iranian supply offline, and Venezuela continues to see supply losses mount, OPEC could decide to increase production from current levels, according to Reuters. That report follows comments from Russian President Vladimir Putin a few days prior that seemed to suggest that Russia is growing wary of keeping supply off of the market. Putin said that he does not support an uncontrolled increase in prices. Russian energy minister Alexander Novak added that there would be no need to for an extension of the cuts if the market had reached a balance.
Related: Goldman: Oil Prices Won’t Reach $80

Meanwhile, on Wednesday, the EIA also reported another surprise uptick in crude inventories. Taken together – Russia’s skepticism, U.S. inventories and now the possibility that OPEC would consider a production increase – the news took the steam out of the recent rally in prices. “Now there is a suggestion that OPEC may surprise us and raise production pre-emptively if we get a price spike,” Phil Flynn, an analyst at Price Futures Group in Chicago, told Reuters.

Still, no decisions have been made and nothing is inevitable. In a sign that members of the OPEC+ coalition are not all on the same page, the UAE’s energy minister Suhail bin Mohammed al-Mazroui seemed to try to tamp down speculation that Russia was losing the will to cooperate. “Russia will not increase its output unless in coordination with the rest of OPEC and OPEC+ countries,” Mazroui said. “I believe in the wisdom of Russia, and I believe that Russia has benefited from this agreement... I don’t see any reason for Russia not to continue with us.”

The higher oil prices rise, the more the cracks in the cooperative arrangement will emerge. All it will take is another supply disruption in Iran, Venezuela or Libya to kill off the deal.

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🛢️ Soaring Permian Output To Cap Oil Rally
« Reply #809 on: April 13, 2019, 12:00:02 AM »

Soaring Permian Output To Cap Oil Rally
By Tim Daiss - Apr 12, 2019, 11:00 AM CDT

The U.S. crude oil production juggernaut continues to move forward. In 2018, U.S. production increased 17 percent over the previous year in a dynamic that is impacting both geopolitics as well as setting a new course for American global diplomacy.

Annual U.S. crude oil production reached a record level of 10.96 million barrels per day (b/d) in 2018, 1.6 million b/d higher than 2017 levels. In December 2018, monthly U.S. crude oil production reached 11.96 million b/d, the highest monthly level of crude oil production in U.S. history, the EIA said on Tuesday. Moreover, U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tight rock formations using horizontal drilling and hydraulic fracturing, hence the U.S. shale oil revolution. The EIA now projects that U.S. crude oil production will continue to grow this year and in 2020, averaging 12.3 million b/d and 13.0 million b/d, respectively.

Lone Star state leads the pack

Not surprisingly, Texas is still leading U.S. production, similar to the lead it took up to the 1970s when the state was largely responsible for allowing the U.S. to play the then-role of global oil markets swing producer before ceding that role to a Saudi Arabia-led OPEC for the next four decades. Texas accounted for 40 percent of the national total oil production last year. The state has held the top position in nearly every year since 1970, the EIA added, with the brief exception of 1988, when Alaska produced more crude oil than Texas, and from 1999 through 2011, when production from the Federal Offshore Gulf of Mexico region was higher.
Related: Is This The End Of The OPEC Deal?

Crude oil production in Texas averaged 4.4 million b/d in 2018 and reached a record-high monthly production level of 4.9 million b/d in December. Texas’s 2018 annual production increased almost 950,000 b/d. This growth has been largely driven by output in the Permian region in west Texas. For its part, Permian production represented nearly 60 percent of the total increase in overall U.S. oil output last year.

Latest data

Oil production increases in the Permian region, which spans parts of Texas and New Mexico, also drove a 215,000 b/d, or 45 percent production increase in New Mexico in 2018. This level was the second-largest state-level growth in 2018 and accounted for 13 percent of the total U.S. increase, setting a new annual record production level in New Mexico.

The EIA in its most recent Short Term Energy Outlook said yesterday that U.S. crude oil production averaged 12.1 million barrels per day (b/d) in March this year, up 0.3 million b/d from the February average. EIA also forecasts that U.S. crude oil production will average 12.4 million b/d in 2019 and 13.1 million b/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico.

Gathering oil markets headwinds

U.S. oil production for its part, is the main factor, along with global economic growth concerns, that is keeping global oil prices from spiking even higher than they have so far this year. Both global oil benchmark, London-traded Brent and U.S. benchmark, NYMEX-traded West Texas Intermediate (WTI) futures are hitting highs amid growing geopolitical turmoil as well as Saudi Arabia and the OPEC+ group of producers continuing to trim oil output in an effort to reduce global supplies further and keep upward pressure on prices. Oil prices hit a five-month high on Monday, with WTI surging above $64 per barrel and Brent topping $71 per barrel.


Stellar U.S. production is acting as a counterweight on the supply side of the global oil markets equation, offsetting, at least to a degree, geopolitical problems and more output reductions in Libya as that country is embroiled in fighting around Tripoli, as well as U.S. sanctions against Iran and Venezuela. Without strong U.S. oil production, prices would likely have maxed out north of $100/barrel by now, similar to 2008 when prices hit a record high above $140/barrel.
Related: Shale Jobs In Jeopardy Despite Oil Price Rally

No win situation for Trump

On Monday, the Trump administration, in a move that pleased Saudi Arabia, labeled the Iranian Revolutionary Guards as a terror group, further increasing tensions between Washington and Tehran. "This unprecedented step, led by the Department of State, recognizes the reality that Iran is not only a State Sponsor of Terrorism, but that the IRGC actively participates in, finances, and promotes terrorism as a tool of statecraft,” President Trump declared in a statement. “The IRGC is the Iranian government’s primary means of directing and implementing its global terrorist campaign." On Tuesday, Iran responded in kind. Iranian President Hassan Rouhani denounced the U.S. as the actual “head of global terrorism,” while labeling U.S. forces in the Middle East as a terror group.

What now remains to be seen for global oil markets is whether Trump will extend waivers for customers of Iranian oil. The president, however, has put himself in a no-win situation. If he grants more waivers as he did last fall, he will continue to create problems in his once cozy relations with Saudi Arabia, who was taken back last year when he granted the first set of waivers. However, in doing so he will add more barrels to global oil supply and help keep a lid on prices. If the president removes waivers for Iranian oil, then more barrels will be removed from global oil markets, with the knock-on effect of increasing both oil prices and gasoline prices at home just as the 2020 presidential election cycle kicks in.

By Tim Daiss for
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