It is beginning to look like the new trading range for WTI is $50.00 to 52.50. That works for me. What will it take to push oil prices higher?
> Decline in OECD crude oil inventories. As I have posted many times, as the refineries ramp back up post-Harvey, we should see large draws from U.S. crude oil inventories. Gasoline inventories will probably build through October. Refiners need to switch to producing more heating oil in November.
> The IEA's "Oil Market Report" for October will be published next week. It should give the market a bullish up date on OECD inventories.
> OPEC's resolve to extend the output cuts through 2018.
----------------------------------------------
Investing.com - Crude oil prices remained higher on Thursday, as optimism dominated markets following news of a far larger-than-expected decline in U.S. stockpiles and the potential extension of output cuts by the Organization of Petroleum Exporting Countries.
Prices remained supported after the U.S. Energy Information Administration reported on Wednesday that crude oil inventories fell by 6.023 million barrels in the week ended September 29, compared to expectations for a decline of around 756,000 barrels.
However, traders were disappointed to learn that U.S. crude oil exports jumped to 1.98 million bpd last week, surpassing the 1.5 million bpd record set the previous week. < I'm puzzled as to why this is a "disappointment". It happened because of the big gap between WTI and Brent. BTW upstream companies that sell their production in South Louisiana get LLS prices, which are very close to Brent. LLS = Louisiana Light Sweet.
Elsewhere, Brent oil for November delivery on the ICE Futures Exchange in London was up 39 cents or about 0.70% at $56.19 a barrel, off the previous session's two-week lows of $55.39.
The commodity benefitted from comments by Russian President Vladimir Putin on Wednesday saying that a pledge by OPEC and other producers, including Russia, to cut oil output to boost prices could be extended to the end of 2018, instead of expiring in March 2018.
In addition, Saudi Energy Minister Khalid al-Falih said on Thursday that deals between his country and Russia have helped stabilize crude prices and that global energy markets will be able to handle supplies of U.S. shale oil next year thanks to an increase in demand. < Plus, growth of U.S. oil production have slowed to a crawl.
Oil prices have been well supported in recent weeks amid growing optimism that the crude market was well on its way towards rebalancing as data showed strong compliance from major producers with their supply cut agreement.
In May, OPEC and non-OPEC members led by Russia agreed to extend production cuts of 1.8 million barrels per day for a period of nine months until March 2018 in a bid to reduce global oil inventories and support oil prices.
Elsewhere, gasoline futures climbed 1.55% to $1.606 a gallon, while natural gas futures gained 0.58% to $2.955 per million British thermal units
Oil Price - Oct 5
Oil Price - Oct 5
Last edited by dan_s on Fri Oct 06, 2017 5:28 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - Sept 5
The Houston Chronicle article below explains why $50/bbl oil price will not be enough to fund the production needed to meet global demand growth. Global demand for oil based products will exceed 100,000,000 barrels per day by the end of 2019. It is already over 97 MMBbls per day.
9/13/2017 per IEA Oil Market Report: "Global oil demand grew very strongly year-on-year in 2Q17, by 2.3 mb/d (2.4%). For 2017, we have revised upwards our growth estimate to 1.6 mb/d. OECD demand growth continues to be stronger than expected, particularly in Europe and the US."
Drillers Choke Off Dollars to Permian Basin Operations
October 4, 2017
From the Houston Chronicle
Rising production costs, high acreage prices and a shareholder push for financial discipline have dramatically slowed the land rush in the Permian Basin, one of the world’s most active oil fields.
Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion, energy research firm Wood Mackenzie reports.
Shortly after OPEC announced plans to curb global crude supplies, oil prices rose and drillers made a flurry of acquisitions in the Permian, willing to pay high prices to lease land that sits atop multiple stacked layers of oil-soaked rock that could ultimately yield another 70 billion barrels of crude in coming decades. But that multibillion-dollar push, prodded along by outside investors, couldn’t last forever.
“The market was throwing money at them to buy things,” said Greig Aitken, head of upstream oil and gas mergers and acquisitions at Wood Mackenzie.
Land prices rose so high that new entrants found it difficult to make returns on their investments, often paying more than $30,000 an acre. As a surge of drilling got underway and companies dispatched more rigs and fracking equipment across the vast plains, labor and equipment costs also began to climb, eating into the industry’s bottom line.
Plus, companies faced labor shortages after the oil downturn and much of their functioning equipment had been cannibalized for parts.
Investors, meanwhile, have grown impatient with an industry that has prioritized rapid growth over returns, and some of those groups have begun pushing companies to spend within their means, rather than relying on debt or other outside capital to drill new wells.
“It’s just taken the edge off the Permian,” Aitken said.
Last week, Anadarko Petroleum Corp., The Woodlands-based oil producer, made one of the most pronounced moves yet to appease shareholders, announcing plans to spend $2.5 billion to repurchase shares through the end of next year. The company, analysts said, may be only the first to shift funds directly away from their investment budgets; most, however, have already signaled they’ll spend less than anticipated on developing oil fields this year.
“The investor base has become fatigued,” with shale drillers that still can’t cover their spending with cash flowing from their oil and gas operations, Mizuho Securities analyst Timothy Rezvan said. “Companies have started to walk back aggressive, multiyear production growth guidance.”
In the years of $100-a-barrel oil, companies drilled wells at breakneck speed across the country and promised double-digit growth, fueled at different times by a mix of junk-rated bonds and stock sales to Wall Street investors, as technological breakthroughs opened up once-inaccessible sources of oil and natural gas.
This year, oil prices dropped below $50 a barrel, burning investors who had bet on a strong recovery after two brutal years in which the industry axed hundreds of thousands of jobs and scores of U.S. oil companies went bankrupt. The crude-price decline was, in part, because of forecasts of rising oil production from U.S. oil fields – most prominently, the Permian Basin.
“Hedge funds have been hit hard trying to bet on the oil recovery,” said James Sullivan, an analyst at Alembic Global Advisors in New York.
Analysts say the conservative shift in market sentiment could signal the beginning of a new chapter for the U.S. shale-oil industry, one in which companies place a greater emphasis on shareholder returns. It takes years to build any kind of business, making investments and sacrificing upfront returns to become profitable over time. The shale industry, analysts said, is no different.
“At some point, the plan was always to harvest this investment,” Morningstar analyst David Meat said in Chicago. “We’re just seeing the early stages of getting to that point. It’s distorted by the fact that we’re coming out of a downturn.”
9/13/2017 per IEA Oil Market Report: "Global oil demand grew very strongly year-on-year in 2Q17, by 2.3 mb/d (2.4%). For 2017, we have revised upwards our growth estimate to 1.6 mb/d. OECD demand growth continues to be stronger than expected, particularly in Europe and the US."
Drillers Choke Off Dollars to Permian Basin Operations
October 4, 2017
From the Houston Chronicle
Rising production costs, high acreage prices and a shareholder push for financial discipline have dramatically slowed the land rush in the Permian Basin, one of the world’s most active oil fields.
Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion, energy research firm Wood Mackenzie reports.
Shortly after OPEC announced plans to curb global crude supplies, oil prices rose and drillers made a flurry of acquisitions in the Permian, willing to pay high prices to lease land that sits atop multiple stacked layers of oil-soaked rock that could ultimately yield another 70 billion barrels of crude in coming decades. But that multibillion-dollar push, prodded along by outside investors, couldn’t last forever.
“The market was throwing money at them to buy things,” said Greig Aitken, head of upstream oil and gas mergers and acquisitions at Wood Mackenzie.
Land prices rose so high that new entrants found it difficult to make returns on their investments, often paying more than $30,000 an acre. As a surge of drilling got underway and companies dispatched more rigs and fracking equipment across the vast plains, labor and equipment costs also began to climb, eating into the industry’s bottom line.
Plus, companies faced labor shortages after the oil downturn and much of their functioning equipment had been cannibalized for parts.
Investors, meanwhile, have grown impatient with an industry that has prioritized rapid growth over returns, and some of those groups have begun pushing companies to spend within their means, rather than relying on debt or other outside capital to drill new wells.
“It’s just taken the edge off the Permian,” Aitken said.
Last week, Anadarko Petroleum Corp., The Woodlands-based oil producer, made one of the most pronounced moves yet to appease shareholders, announcing plans to spend $2.5 billion to repurchase shares through the end of next year. The company, analysts said, may be only the first to shift funds directly away from their investment budgets; most, however, have already signaled they’ll spend less than anticipated on developing oil fields this year.
“The investor base has become fatigued,” with shale drillers that still can’t cover their spending with cash flowing from their oil and gas operations, Mizuho Securities analyst Timothy Rezvan said. “Companies have started to walk back aggressive, multiyear production growth guidance.”
In the years of $100-a-barrel oil, companies drilled wells at breakneck speed across the country and promised double-digit growth, fueled at different times by a mix of junk-rated bonds and stock sales to Wall Street investors, as technological breakthroughs opened up once-inaccessible sources of oil and natural gas.
This year, oil prices dropped below $50 a barrel, burning investors who had bet on a strong recovery after two brutal years in which the industry axed hundreds of thousands of jobs and scores of U.S. oil companies went bankrupt. The crude-price decline was, in part, because of forecasts of rising oil production from U.S. oil fields – most prominently, the Permian Basin.
“Hedge funds have been hit hard trying to bet on the oil recovery,” said James Sullivan, an analyst at Alembic Global Advisors in New York.
Analysts say the conservative shift in market sentiment could signal the beginning of a new chapter for the U.S. shale-oil industry, one in which companies place a greater emphasis on shareholder returns. It takes years to build any kind of business, making investments and sacrificing upfront returns to become profitable over time. The shale industry, analysts said, is no different.
“At some point, the plan was always to harvest this investment,” Morningstar analyst David Meat said in Chicago. “We’re just seeing the early stages of getting to that point. It’s distorted by the fact that we’re coming out of a downturn.”
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - Sept 5
“People have not been paying any attention to geopolitical risk. We could be looking at an ‘October Surprise’,” said Helima Croft, commodity chief at RBC and a former U.S. intelligence analyst.
--------------------------
Associated Press / The Telegraph - Ambrose Evans-Pritchard
October 2, 2017
Three geostrategic crises threaten to erupt in the petroleum world at the same time this month, raising the risk of a sudden loss of oil supply just as the global economic expansion drives up demand.
Unrelated dramas swirling around the OPEC states of Iran, Iraq, and Venezuela are coming to a head, potentially locking in 2 million barrels a day (b/d) of crude deliveries and profoundly altering the market mechanics.
“People have not been paying any attention to geopolitical risk. We could be looking at an ‘October Surprise’,” said Helima Croft, commodity chief at RBC and a former U.S. intelligence -analyst.
“Any one of these three could be incredibly bullish for oil prices, and you cannot rule them out,” said David Fyfe, chief economist for the oil trading giant Gunvor.
Brent crude prices are flirting with a 30-month high near US$58 as output cuts by OPEC and a Russia-led group of producers gradually clear the global crude glut. Excess inventories in the OECD states have dropped by 35 per cent since February.
Synchronised recovery in all major areas of the world economy has lifted demand growth to 1.6 million b/d this year. China is slowing gently as fiscal stimulus fades but that is a story for next year.
The elephant in the room is the nuclear deal with Iran
The elephant in the room is the nuclear deal with Iran. Traders are betting that Donald Trump will overrule his top advisers and “decertify” the country on Oct. 15, leading to fresh sanctions. This would put 1 million b/d of Iranian exports in jeopardy.
The U.S. president denounced the six-power nuclear deal with Iran as an “embarrassment” at the United Nations late last month. “It’s one of the worst and most one-sided transactions the U.S. has ever entered into,” he declared.
Iran’s foreign minister, Mohammad Javad Zarif, said over the weekend that his country is braced for the collapse of the deal. “My assumption and guess is that he will not certify and then will allow Congress to take the decision,” he said.
RBC said that Congress may sabotage the deal with “poison pills’ on ballistic missile bill or the terror free skies act, which entail catch-all sanctions.
Europe, China, and India may not be willing to go along with a fresh embargo but the consequences for the oil markets would remain much the same. A unilateral move by Washington would mean that any company – anywhere in the world – would become a financial pariah if it breached the U.S. Treasury rules.
“Boardrooms would decide this. A company like Total would not want to face being locked out of the U.S. capital markets,” said Croft. No global bank would cross Washington lightly after the ferocious fines imposed last time for those who flouted sanctions.
A breakdown of the nuclear deal would restore the forgotten “risk premium” in oil prices. Markets would be left scrambling to figure out how Iran, the U.S., Israel, and Saudi Arabia would all react.
The oil markets are now more tightly coiled than at any time since the energy slump began in late 2014
Trump is engaged in a yet another showdown with Venezuela, where U.S. sanctions are squeezing the country’s oil industry. Foreign reserves have fallen a wafer-thin US$9.8 billion. The system is close to collapse.
The state oil group PDVSA must roll over US$3.5 billion of debt in October and November. It has stopped investing and is running out of drilling equipment. Oil output is falling by 200,000 to 300,000 b/d a year.
The government has been selling “hunger bonds” at 31 cents on the dollar to buy time. Each rollover deadline has become a nail-biting saga. “They have nothing left for infrastructure. All their money is going toward debt service,” said Mrs Croft.
Default could occur at any moment. The Chinese have stopped bailing out the Maduro regime. The question is whether Russia will continue to act as a lender of last resort – at a fee, snapping up oil acreage at fire-sale prices. Gunvor warned that default would cause foreign suppliers to cut off credit and set off a downward spiral. For that reason the government will go to great lengths to avoid it. The regime has purged opponents within the PDVSA management. “Our base case is that it will be a gradual erosion rather than a catastrophic collapse,” said Mr Fyfe.
The more immediate showdown is in Iraq, where Baghdad is tightening the screws on Kurdistan after separatists voted for independence in referendum. Iraq insists on control of all exports, including 550,000 b/d sent via a Turkish pipeline from the Kurdish sphere in Kirkuk.
The Turkish president, Recep Tayyip Erdogan, has threatened to “close the valves” if need be. “They are not forming an independent state. We will work to ensure the games being played in the region will fail,” he said over the weekend.
Erdogan is furious with the Kurdish leader, Masoud Barzani, whom he has cultivated as a political ally in the past – albeit an awkward one. Yet it is far from clear whether Turkey would impose an oil blockade since it earns pipeline transit fees and consumes almost 150,000 b/d of the shipments itself. “I think it is mostly sabre-rattling,” said Mr Fyfe.
Turkey has few energy sources, relies on Kurdish gas, and is trying to establish its credibility as a future energy transport hub. Adding to the complications, Russian has emerged as a protector of the Kurds through Rosneft.
The dispute may simmer down but the region remains a powder keg. Hardliners in the Iraqi parliament are pushing for military intervention. Former premier Nouri al-Maliki is plotting a comeback as the warrior champion of Iraqi unity. “There is always a risk that the rhetoric becomes so inflamed that no side can easily back down, and avenues for a peaceful off-ramp are effectively closed off,” said RBC.
Edward Morse from Citigroup said Nigeria, Libya, Iraq, Iran, and Venezuela are all pumping at full capacity and cannot easily raise output. “There could be a supply gap emerging,” he said.
Yet OPEC’s longer-term headaches have not gone away. U.S. shale-frackers lock in future sales with derivative contracts whenever prices reach a band of US$50 to $55 dollars. Output would surge if crude hit US$60. Frackers have almost 5,500 drilled but uncompleted wells (DUCs) that can be brought on stream quickly. < The word "surge" is an exaggeration. At most, I see U.S. production increasing by 200,000 BOPD if WTI went to $60/bbl tomorrow. - Dan
Energy consultants Woodmac says new techniques on old conventional projects have reduced the decline rates from 7 per cent to around 5 per cent, where they are expected to remain for several years. This matters since it delays the onset of the next cycle in global crude prices. It will take longer for the $500 billion drop in oil and gas investment over the last two years to hit output.
Fyfe says OPEC’s woes will intrude again next year as projects in Brazil and Kazakhstan planned long ago come on stream.”We think OPEC and Russia may have to cut even further,” he said.
Yet geopolitics can upset the oil market in a heartbeat. The calculus will change if the political bombs in Iran, Iraq, and Venezuela start to detonate, and may be dramatic if they all go off at the same time. “That would be OPEC’s get out jail free card,” he said.
--------------------------
Associated Press / The Telegraph - Ambrose Evans-Pritchard
October 2, 2017
Three geostrategic crises threaten to erupt in the petroleum world at the same time this month, raising the risk of a sudden loss of oil supply just as the global economic expansion drives up demand.
Unrelated dramas swirling around the OPEC states of Iran, Iraq, and Venezuela are coming to a head, potentially locking in 2 million barrels a day (b/d) of crude deliveries and profoundly altering the market mechanics.
“People have not been paying any attention to geopolitical risk. We could be looking at an ‘October Surprise’,” said Helima Croft, commodity chief at RBC and a former U.S. intelligence -analyst.
“Any one of these three could be incredibly bullish for oil prices, and you cannot rule them out,” said David Fyfe, chief economist for the oil trading giant Gunvor.
Brent crude prices are flirting with a 30-month high near US$58 as output cuts by OPEC and a Russia-led group of producers gradually clear the global crude glut. Excess inventories in the OECD states have dropped by 35 per cent since February.
Synchronised recovery in all major areas of the world economy has lifted demand growth to 1.6 million b/d this year. China is slowing gently as fiscal stimulus fades but that is a story for next year.
The elephant in the room is the nuclear deal with Iran
The elephant in the room is the nuclear deal with Iran. Traders are betting that Donald Trump will overrule his top advisers and “decertify” the country on Oct. 15, leading to fresh sanctions. This would put 1 million b/d of Iranian exports in jeopardy.
The U.S. president denounced the six-power nuclear deal with Iran as an “embarrassment” at the United Nations late last month. “It’s one of the worst and most one-sided transactions the U.S. has ever entered into,” he declared.
Iran’s foreign minister, Mohammad Javad Zarif, said over the weekend that his country is braced for the collapse of the deal. “My assumption and guess is that he will not certify and then will allow Congress to take the decision,” he said.
RBC said that Congress may sabotage the deal with “poison pills’ on ballistic missile bill or the terror free skies act, which entail catch-all sanctions.
Europe, China, and India may not be willing to go along with a fresh embargo but the consequences for the oil markets would remain much the same. A unilateral move by Washington would mean that any company – anywhere in the world – would become a financial pariah if it breached the U.S. Treasury rules.
“Boardrooms would decide this. A company like Total would not want to face being locked out of the U.S. capital markets,” said Croft. No global bank would cross Washington lightly after the ferocious fines imposed last time for those who flouted sanctions.
A breakdown of the nuclear deal would restore the forgotten “risk premium” in oil prices. Markets would be left scrambling to figure out how Iran, the U.S., Israel, and Saudi Arabia would all react.
The oil markets are now more tightly coiled than at any time since the energy slump began in late 2014
Trump is engaged in a yet another showdown with Venezuela, where U.S. sanctions are squeezing the country’s oil industry. Foreign reserves have fallen a wafer-thin US$9.8 billion. The system is close to collapse.
The state oil group PDVSA must roll over US$3.5 billion of debt in October and November. It has stopped investing and is running out of drilling equipment. Oil output is falling by 200,000 to 300,000 b/d a year.
The government has been selling “hunger bonds” at 31 cents on the dollar to buy time. Each rollover deadline has become a nail-biting saga. “They have nothing left for infrastructure. All their money is going toward debt service,” said Mrs Croft.
Default could occur at any moment. The Chinese have stopped bailing out the Maduro regime. The question is whether Russia will continue to act as a lender of last resort – at a fee, snapping up oil acreage at fire-sale prices. Gunvor warned that default would cause foreign suppliers to cut off credit and set off a downward spiral. For that reason the government will go to great lengths to avoid it. The regime has purged opponents within the PDVSA management. “Our base case is that it will be a gradual erosion rather than a catastrophic collapse,” said Mr Fyfe.
The more immediate showdown is in Iraq, where Baghdad is tightening the screws on Kurdistan after separatists voted for independence in referendum. Iraq insists on control of all exports, including 550,000 b/d sent via a Turkish pipeline from the Kurdish sphere in Kirkuk.
The Turkish president, Recep Tayyip Erdogan, has threatened to “close the valves” if need be. “They are not forming an independent state. We will work to ensure the games being played in the region will fail,” he said over the weekend.
Erdogan is furious with the Kurdish leader, Masoud Barzani, whom he has cultivated as a political ally in the past – albeit an awkward one. Yet it is far from clear whether Turkey would impose an oil blockade since it earns pipeline transit fees and consumes almost 150,000 b/d of the shipments itself. “I think it is mostly sabre-rattling,” said Mr Fyfe.
Turkey has few energy sources, relies on Kurdish gas, and is trying to establish its credibility as a future energy transport hub. Adding to the complications, Russian has emerged as a protector of the Kurds through Rosneft.
The dispute may simmer down but the region remains a powder keg. Hardliners in the Iraqi parliament are pushing for military intervention. Former premier Nouri al-Maliki is plotting a comeback as the warrior champion of Iraqi unity. “There is always a risk that the rhetoric becomes so inflamed that no side can easily back down, and avenues for a peaceful off-ramp are effectively closed off,” said RBC.
Edward Morse from Citigroup said Nigeria, Libya, Iraq, Iran, and Venezuela are all pumping at full capacity and cannot easily raise output. “There could be a supply gap emerging,” he said.
Yet OPEC’s longer-term headaches have not gone away. U.S. shale-frackers lock in future sales with derivative contracts whenever prices reach a band of US$50 to $55 dollars. Output would surge if crude hit US$60. Frackers have almost 5,500 drilled but uncompleted wells (DUCs) that can be brought on stream quickly. < The word "surge" is an exaggeration. At most, I see U.S. production increasing by 200,000 BOPD if WTI went to $60/bbl tomorrow. - Dan
Energy consultants Woodmac says new techniques on old conventional projects have reduced the decline rates from 7 per cent to around 5 per cent, where they are expected to remain for several years. This matters since it delays the onset of the next cycle in global crude prices. It will take longer for the $500 billion drop in oil and gas investment over the last two years to hit output.
Fyfe says OPEC’s woes will intrude again next year as projects in Brazil and Kazakhstan planned long ago come on stream.”We think OPEC and Russia may have to cut even further,” he said.
Yet geopolitics can upset the oil market in a heartbeat. The calculus will change if the political bombs in Iran, Iraq, and Venezuela start to detonate, and may be dramatic if they all go off at the same time. “That would be OPEC’s get out jail free card,” he said.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group