Oil Supply / Demand

[dan_s]

David Demshur, CEO of Core Labs said the following on their Q3 conference call. Core Labs is an international company that monitors closely what is happening all over the world. IMO David has a more accurate view of the supply/demand fundamentals than EIA and IEA combined.

"Core believes that worldwide crude oil supply and demand markets are close to balancing, and will balance by the end of 2016. On the crude oil supply side, U.S. production peaked at 9.7 million barrels a day in March of 2015, and has since fallen by over 1.3 million barrels per day owing to high decline curve rates associated with tight oil reservoirs.

These sharp declines from U.S. land production are continuing late in 2016, and Core believes these decreases for 2016 will probably reach 1.1 million barrels of oil per day. Lower levels of new wells and delayed production maintenance will exacerbate the fall of U.S. land production going into 2017. Remember, decline curves are linear in time, but logarithmic in scale in production decline.

An excellent example that the decline curve always wins and never sleeps and the difficulty in reversing fall in production totals in tight oil reservoirs is the Bakken [ph] formation. Bakken production is down over 233,000 barrels a day since its peak in December of 2014. Since that peak there have been 1,770 wells added to a producing base of 9,000 wells of production leading to Bakken's net 12% decline curve rate over that period from December of 2014 up through August production. However, the average productivity for Bakken producing well is down 26% since peaking in 2014. As long as Bakken completions fall below 130 per month, Bakken production will continue to fall in 2017.

Moreover, further net gains from legacy deepwater Gulf of Mexico projects will be needed to offset the significant decreases in the existing Gulf of Mexico production base. These legacy deepwater Gulf of Mexico projects may add a net 100,000 barrels a day to U.S. production in 2016, down from our earlier estimates of 160,000 barrels given earlier this year. This is only slightly offsetting the material onshore and shallow water declines. Core estimates that the current net production decline curve rate for U.S. production is approximately 11%, up from 10.1% reported last quarter. Globally Core estimates that the net crude oil production decline curve is currently at approximately 3.3%. Applying the 3.3% net decline curve rate to the worldwide crude production of approximately 85 million barrels per day means that the planet will need to produce approximately 2.8 million new barrels by this date next year to maintain current worldwide production capacity.

With limited long-term worldwide sustainable spare capacity, Core believes worldwide producers will not be able to offset the estimated 3.3 net production decline curve rate in 2016, leading to falling global production. These net decline curve rates are supported by recent IEA data indicating declining production on a global basis through the third quarter of 2016. Therefore Core believes crude oil markets will more than rationalize in late 2016 in price stability followed by price increases, some occurring as we speak, are returning to the energy complex. Remember the immutable laws of physics and thermodynamics means that the crude oil production decline curve always wins, and it never sleeps."

"On the demand side of the crude oil market, the IEA estimates increased worldwide demand in 2016 of approximately 1.3 million barrels per day. Currently, the U.S. is using approximately 10 million barrels a day of gasoline near record levels. Recent Chinese imports coupled with strong growth in India were at all time highs. In addition, China just reported a year-over-year drop of 400,000 barrels of oil per day to 3.8 million barrels of oil per day of production which is near a six-year low. Worldwide supply and demand will balance as they always have in past market disruptions."

[dan_s]

Crude prices strengthened after Russian Energy Minister Alexander Novak said on Friday that an oil production freeze deal was necessary to support prices and that he would make proposals to his Saudi Arabian counterpart this weekend.

The Organization of the Petroleum Exporting Countries is set to hold a meeting on November 30 to further discuss the details of a global output freeze.

[dan_s]

This is keeping a lid on oil prices: http://www.marketwatch.com/investing/index/dxy/charts

[dan_s]

Venezuela might default which could mean trouble for US refiners

http://www.bloomberg.com/news/articles/ ... oil-supply?

The deadline for the swap was extended three times and is due Friday, according to a company statement. A failure in exchanging the bonds could make it “difficult” for the company to make payments on its existing debt, PDVSA said.

A default would not only rattle bondholders, but also PDVSA’s suppliers and customers, with U.S. refineries among the first to feel the hit, said Lucas Aristizabal, a senior director at Fitch Ratings. Last year the OPEC member supplied almost a third of all crude oil imported on the Gulf Coast, home to the largest cluster of refineries in the world, according to the U.S. Energy Information Administration.
“If PDVSA defaults, there could be a disruption of oil supply to the U.S. as creditors may try to seize payments made in the U.S.,” Aristizabal said in a phone interview from Chicago. “Bondholders will definitely try to stake a claim on those dollars,” he said.

[dan_s]

The EIA predicts that the major shale basins in the U.S. will lose about 30,000 barrels of oil production per day in November compared to October. But that amount is the smallest monthly decline since May 2015, a sign that output could be nearing a bottom. While the Bakken and Eagle Ford are expected to lose 21,000 bpd and 35,000 bpd, respectively, the Permian is projected to add another 30,000 bpd.