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Archive for February, 2016

What Really Controls Oil Prices?

By on 29 Feb 2016 in analysis, notable posts with 0 Comments
What Really Controls Oil Prices?

(Forbes) World oil prices are controlled by the amount of crude oil stored at Cushing, Oklahoma. That’s because Cushing is the pricing point for WTI (West Texas Intermediate) oil prices, the most-traded oil futures contract in the world.

Cushing Storage Rules World Oil Prices.

WTI (and Brent) oil prices have good negative correlation with the volume of crude oil stored at Cushing.

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U.S. shale’s message for OPEC: above $40, we are coming back

By on 29 Feb 2016 in news, notable posts with 0 Comments
U.S. shale’s message for OPEC: above $40, we are coming back

(Reuters) For leading U.S. shale oil producers, $40 is the new $70.

Less than a year ago major shale firms were saying they needed oil above $60 a barrel to produce more; now some say they will settle for far less in deciding whether to crank up output after the worst oil price crash in a generation.

Their latest comments highlight the industry’s remarkable resilience, but also serve as a warning to rivals and traders: a retreat in U.S. oil production that would help ease global oversupply and let prices recover may prove shorter than some may have expected.

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Total president on investment crunch

By on 29 Feb 2016 in quotes with 0 Comments

“The problem is going to be the money. Where is the money going to come from? A lot of people who have burned their fingers on (U.S. shale) are going to be reluctant to reinvest.”

Arnaud Breuillac, president of exploration and production at French oil giant Total.

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Peak Oil Review – 29 Feb 2016

By on 29 Feb 2016 in Peak Oil Review with 1 Comment

Oil had a good week for a change with New York futures rising 3.2 percent to close at $32.78 and London climbing 6.3 percent to close at $35.10. This time, there was more than just wishful thinking behind the price increase as pipeline outages shut in 600,000 b/d in Kurdistan and 250,000 b/d in Nigeria to cut global exports by 850,000 b/d. In both cases, it is unclear as to just when the pipelines will reopen. In Nigeria, the outage was due to an underwater leak while the situation in Kurdistan likely is related to one of many wars taking place in the region.

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Why Oil Booms And Busts Happen

By on 25 Feb 2016 in analysis, notable posts with 0 Comments
Why Oil Booms And Busts Happen

(oilprice.com) What if I told you that there was a period in history where oil demand declined by 5 million barrels per day and non-OPEC supply increased by 5 million barrels per day, yet oil price rallied more than 50 percent? Would you believe me?

If your answer is yes, then you guessed right. This was the period from 1979 to 1985; it was a period during which global oil demand declined from over 61 million barrels to 56 million barrels and non-OPEC supply increased from 32 million barrels to 37 million barrels. Yet prices rallied from $17 a barrel in 1979 to $26 a barrel in 1985, while reaching as high as $35 in 1981.

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Oil Price And Its Effect On Production

By on 25 Feb 2016 in analysis, notable posts with 0 Comments
Oil Price And Its Effect On Production

(peakoilbarrel.com) The JODI Oil World Database came out a few days ago. The data is through December 2015. The JODI C+C production numbers differs somewhat from the EIA numbers. The JODI OPEC numbers are crude. Also there are a few very small producers that do not report to JODI so their numbers will be slightly less than the EIA. But otherwise they are pretty accurate.

Also, JODI, for some reason, does not count all of Canada’s oil sands production. So for Canada I use Canada’s National Energy Board numbers instead.

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Why Oil Fell To $30

By on 24 Feb 2016 in analysis, notable posts with 0 Comments
Why Oil Fell To $30

(Forbes) One of the questions I am most frequently asked is “What factors led to the precipitous drop in oil prices?” Some have suggested that this is all OPEC’s fault, while others have blamed either surging U.S. shale oil production or falling demand.

I addressed the demand issue back in December in The Fallacy of Peak Oil Demand . To summarize, since 1983, annual global demand for crude oil has only fallen twice; a small decline in 1985 and another decline in 2009 in response to the financial crisis. The growth rate for crude oil has been remarkably consistent, adding an average of almost exactly a million barrels per day (bpd) for more than 30 years.

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IEA warns consumers of spike in oil prices

By on 22 Feb 2016 in news, notable posts with 0 Comments
IEA warns consumers of spike in oil prices

(BBC) The International Energy Agency (IEA) is warning consumers not to let cheap oil lull them into a false sense of security amid forecasts of a price spike by 2021. In a report , the IEA said it expects prices to start recovering in 2017. But it forecasts that will be followed by a sharp jump in price as supply shrinks following under-investment by struggling producers.

Brent crude touched a 13-year low of $28.88 a barrel in January. It has since recovered somewhat, but is still far below a high of $115 in June 2014. On Monday the price was up around 4.9% at $34.62.

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U.S. Banks Growing Hesitant To Loan Money To Energy Firms

By on 22 Feb 2016 in news, notable posts with 0 Comments
U.S. Banks Growing Hesitant To Loan Money To Energy Firms

(oilprice.com) BNP Paribas, France’s largest bank, announced that it would no longer lend money to struggling oil and gas companies in the United States. “Given the current environment in the oil and gas markets and the short to medium term outlook, BNP Paribas has decided to halt the redevelopment of its reserve-based lending business,” BNP said in a statement. The bank will continue to work with its existing borrowers, but won’t lend to new ones.

The French bank was concerned that default rates among energy companies would rise, sources told Reuters. It was the second time that the bank pulled out of lending to energy companies in the U.S. – it sold a unit to Wells Fargo in 2012 before reentering the space in 2014 when oil prices shot into triple-digit territory.

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Molson Coors says weak economy affecting beer sales in oil-producing provinces

By on 22 Feb 2016 in news, notable posts with 0 Comments
Molson Coors says weak economy affecting beer sales in oil-producing provinces

(Toronto Sun via Reuters) Oil workers just aren’t drinking like they used to. Molson Coors Brewing Co. blames a sluggish economy for a big drop in beer sales in Alberta, Newfoundland and Labrador, and Saskatchewan. Customers are abandoning higher-priced premium beers for economy brands, the beer giant says.

“The consumer is under pressure,” Stewart Glendinning, chief executive of Molson Coors Canada, said Thursday during a conference call on the company’s fourth-quarter and 2015 results.

“And if you add to that the fact that consumer debt in Canada is at an all-time high, it’s made for quite a difficult recipe in some of those provinces.”

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Oil investment is weakest in 30 years

By on 22 Feb 2016 in news, notable posts with 0 Comments
Oil investment is weakest in 30 years

(CNN) A history of oil’s booms and busts. The oil price crash has squeezed investment in the industry to the weakest levels in 30 years. Capital expenditure on global oil exploration and production is expected to fall 17% in 2016, following a 24% drop in 2015, according to the International Energy Agency’s medium term outlook.

That will be the first time since 1986 that upstream investment has fallen for two consecutive years, the agency said, warning that the collapse could be storing up problems for consumers further down the track.

“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not too distant future,” said IEA Executive Director Fatih Birol on Monday.

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Veterans of 1980s oil glut say this price slump, too, will last

By on 22 Feb 2016 in news, notable posts with 0 Comments
Veterans of 1980s oil glut say this price slump, too, will last

(The Fuse) When Sheikh Ali Khalifa al-Sabah of Kuwait thinks about today’s plunging oil prices, his mind drifts back to the mid-1980s, when he was forced to sell some of his country’s crude for as little as $5 a barrel.

As Kuwait’s oil minister at the time, Sheikh Ali had to sell a cargo or two at that price just to keep up cash flow to a country that depended upon oil revenues. “It wasn’t because I wanted to; it was because it was the market price,” he recalls.

“We really had no alternative.”

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IEA Reiterates Underinvestment Risk

By on 22 Feb 2016 in news, notable posts with 0 Comments
IEA Reiterates Underinvestment Risk

(The Fuse) Today at IHS CERAWeek in Houston, Texas, the International Energy Agency (IEA) released the 2016 Medium Term Oil Market Report, urging that consumer countries not be drawn into a false sense of complacency given the current low prices and the global glut in supply—even as the likelihood of a price spike in the medium-term remain slim. Last year, oil capital expenditures (capex) declined by 24 percent, and this year we expect an additional 17 percent. This is historic, because in the last 30 years we have never seen oil investment decline in two consecutive years. “It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall,” said IEA Executive Director Fatih Birol.

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Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped

By on 22 Feb 2016 in news, notable posts with 0 Comments
Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped

(Bloomberg) The global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency.

While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021.

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Quote of the week: Miswin Mahesh, an analyst at Barclays Plc in London

By on 22 Feb 2016 in quotes with 0 Comments

About the proposed production freeze announced last week by Russia, Saudi Arabia, Qatar and Venezuela: “The four producers involved are already producing close to their peak. The freeze is the oil-market equivalent of calling for a cease-fire when they’re running out of ammo.”

Miswin Mahesh, an analyst at Barclays Plc in London

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Peak Oil Review – 22 Feb 2016

By on 22 Feb 2016 in Peak Oil Review with 1 Comment

The oil markets climbed through Thursday last week in hopes that the Saudi-Russian “pact” to freeze oil output would lead to lower production and higher prices. After it became clear on Thursday that countries adhering to the pact were already pumping oil as fast as they could and had little to no interest in lowering production unless forced to by geology, the markets began to fall. In New York, where futures had traded close to $26 a barrel the week before last, prices peaked at nearly $32 before falling back to close Friday at $29.64. London followed a similar pattern, climbing from $30 to nearly $36 before falling away to close at $32.91. This was the third mini price spike we have had in the past year based on stories that an agreement was in the offing that might cut production.

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Natural Gas Price Increase Inevitable In 2016

By on 21 Feb 2016 in notable posts, viewpoints with 0 Comments
Natural Gas Price Increase Inevitable In 2016

(Forbes) Every week, the EIA proclaims a new record for natural gas production. But their own forecasts show that the U.S. will be short on supply by October of this year. A price increase is inevitable beginning later in 2016.

The popular myth is that gas production will continue to increase and that prices will remain low for years. In the myth, price has no effect on production. The reality is that price matters and production is down 1.2 bcfd1 since September 2015 (Figure 1)

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Texas Oil Production Still on a Plateau

By on 21 Feb 2016 in analysis, notable posts with 0 Comments
Texas Oil Production Still on a Plateau

(peakoilbarrel.com) The Texas RRC Oil and Gas Production Data is out. There appeared to be no decline in December production and may have even been a slight increase.

The Texas RRC data is incomplete and only gives an indication as to whether Texas production increased or decreased. The data appears to droop because each month the the Texas Railroad Commission receives a little more data and the totals increase, little by little, month by month, until after many months the data is complete.

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Is Saudi Arabia Winning The War Against Shale?

By on 18 Feb 2016 in analysis, notable posts with 0 Comments
Is Saudi Arabia Winning The War Against Shale?

(Rigzone) Saudi officials insist the kingdom’s oil production strategy is not aimed at putting U.S. shale producers out of business, a message that has been repeated to visiting U.S. policymakers.

The United States remains the kingdom’s most important security partner, and Saudi officials do not want to be seen to be deliberately trying to halt the shale revolution.

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Peak Oil Review – 15 Feb 2016

By on 15 Feb 2016 in Peak Oil Review with 0 Comments

Oil prices plunged for four days last week, settling at a recent low of $26.21 in New York, a drop of nearly 30 percent since the start of the year, and $30.06 in London a 20 percent drop this year. The inevitable rebound came on Friday with a vigorous jump for the day of $3.23 or 12.3 percent in New York to close at $29.44, and $3.30 or 11 percent to $33.36 in London. This time the rebound was started by rumors out of the UAE that OPEC, while not considering a production cut, might be willing to consider halting further increases in production. This rumor was seen by traders as a willingness on the part of OPEC to take charge of the oil supply situation for the first time since the crisis began. Another factor contributing to the decline was the long weekend in the US and the unwillingness of traders to be caught in short positions with prices so low. As one analyst said, “every time someone in OPEC comes out and says we are willing to cooperate, there is always a knee-jerk reaction on the part of oil traders.” “No one wants to be caught selling futures at the bottom of the move.”

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Quote of the week: Steven H. Pruett, CEO of Elevation Resources, an oil company based in Midland (TX)

By on 15 Feb 2016 in quotes with 0 Comments

Due to the oil price crash and the industry’s crushing debt load, “The oil industry will be permanently damaged.”

Steven H. Pruett, CEO of Elevation Resources, an oil company based in Midland (TX)

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Bankruptcies Hit Alarming Levels in Oilfield Services Sector

By on 10 Feb 2016 in news, notable posts with 0 Comments
Bankruptcies Hit Alarming Levels in Oilfield Services Sector

(The Fuse) In 2015, almost 40 oilfield services companies, with more than $5 billion in debt, went bankrupt. More are expected this year.

While bankruptcies among independent shale producers have received the most attention , the oilfield services sector is in dire straits. The carnage from the low oil price in the shale patch has been widespread, with companies that provide technology, transportation, and supplies to producers getting slammed.

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Fundamentals Point Toward Oil-Market Balance: IEA Too Pessimistic

By on 9 Feb 2016 in analysis, notable posts with 2 Comments
Fundamentals Point Toward Oil-Market Balance: IEA Too Pessimistic

(artberman.com) Fundamentals point toward market balance but pessimism is dragging oil prices down. IEA has apparently succumbed to this negativity but their data suggests that things are getting better, not worse.

In a business-as-usual world in which nothing unusual happens, the world will be close to market balance some time in 2016. If anything unusual happens, all bets are off and oil prices could rebound much faster than anyone imagines.

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IEA sees global oil glut worsening, OPEC deal unlikely

By on 9 Feb 2016 in news, notable posts with 0 Comments
IEA sees global oil glut worsening, OPEC deal unlikely

(Reuters) The world will store unwanted oil for most of 2016 as declines in U.S. output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output, the International Energy Agency said.

The agency, which coordinates energy policies of industrialised countries, said that while it did not believe oil prices could follow some of the most extreme forecasts and fall to as low as $10 per barrel, it was equally hard to see how they could rise significantly from current levels.

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Research Paper: Oil Price Instability and Policy Uncertainty in an OPEC World

By on 9 Feb 2016 in analysis, notable posts with 0 Comments
Research Paper: Oil Price Instability and Policy Uncertainty in an OPEC World

(The Fuse) Two years ago some oil market prognosticators were worried (or happy) that oil could go to $150 a barrel or more. The unexpected collapse in oil prices appears driven by the desire of some OPEC members to reduce competition by opening the spigots. The fall from $115 a barrel to as little as $30 a barrel has discouraged investment in drilling. Oil rig count in the United States is down by two-thirds from its peak. Middle East rig count has not fallen. In this paper we review the rise of U.S. oil production driven by the fracking revolution. Oil price volatility impacts many business sectors and affects federal macroeconomic policy as the Federal Reserve tries to encourage low unemployment and price stability. The history of 40 plus years of oil volatility continues to damage U.S. economic performance.

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