Concerns are rising that the predictions of the oil markets coming back into balance later this year are wrong and that lower oil prices are ahead. Oil production is not falling as fast as predicted. Some outages are coming to a close and the growing glut of oil products could be as bad as last year’s crude glut. Many analysts now are talking about prices falling below $40 in the next few months and a few are even talking about a return to the $30 level. Although US crude stocks have been falling of late, the growth in the inventories of refined products continues to grow. Europe is running out of storage space for refined products which would force a cut in refining and result in lower demand for crude. Increased refining to support the summer driving season in the US has only another few weeks to run before the increased demand for gasoline comes to an end. The US oil rig count was up for the 6th time in 7 weeks and North Dakota reported that its oil production increased slightly in May.
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(Bloomberg) U.S. oil producers continue to revive drilling in the shale patch, adding rigs for the fourth consecutive week in the longest streak of increases since August.
Rigs targeting crude in the U.S. rose by 14 to 371, after 27 had already been added since the start of the month, Baker Hughes Inc. said on its website Friday. Natural gas rigs declined by 1 to 88, bringing the total for oil and gas up by 15 to 462.
(oilprice.com) Crude oil prices hit a 10-week low on Tuesday, but one piece of data from Saudi Arabia could provide a glimmer of hope for those longing for an oil price rally. Saudi Arabia is burning through some of its oil inventories as exports combined with scorching domestic demand exceed its total production. In 2015, Saudi Arabia built up crude storage levels to a record high, as the kingdom stepped up production in the face of a global supply surplus.
(oilprice.com) It’s a safe bet that investors are getting increasingly tired of all the conflicting forecasts about oil and gas prices. Some argue that oil is heading back to $20 thanks to the continuing excess supply. Others claim that the excess is overestimated and crude is well on its way to reach $80 or more by the end of the year. The likely truth, as usual, is somewhere in the middle, at least for the time being.
(artberman.com) Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps, ever. That is because the global economy is exhausted.
The current oil-price rally is over as I predicted several months ago and prices are heading toward $40 per barrel.
Oil has been re-valued to affordable levels based on the real value of money. The market now accepts the erroneous producer claims of profitability below the cost of production and has adjusted expectations accordingly. Be careful of what you ask for.
Meanwhile, a global uprising is unfolding.
(fuelfix.com) HOUSTON – After the energy bust, the future of U.S. shale oil will depend greatly on how quickly drilling technology can evolve over the next 25 years, the Energy Information Administration says.
Rapid technological change and high energy prices could help domestic drillers push shale oil production to 12.9 million barrels a day by 2040, up from last year’s 4.9 million barrels a day, the EIA said Monday in an early look at some of its long-term projections due in a report later this month.
(oilprice.com) There has been a lot of pessimism among oil investors in recent months, and indeed the bear market over the last couple of years in black gold has destroyed many nest eggs. With that said, oil investors who have run for the hills could find themselves regretting that decision in the months and years to come.
(artberman.com) Rig count matters. Saying that it doesn’t is like a realtor saying that location doesn’t matter.
Rigs Don’t Produce Oil
The holiest mystery of shale plays is that so much production is possible with ever-fewer rigs.
But if we look at the number of producing wells, the mystery evaporates. That’s because rigs don’t produce oil and gas. Wells do.
Horizontal wells in a few tight oil plays tell most of the story for U.S. production. Figure 1 shows the rig count and number of producing wells for the Bakken, Eagle Ford, Permian, Niobrara, Mississippi Lime and Granite Wash plays. Figure 1. Tight oil horizontal rig count and number of producing wells. Source: Baker Hughes and Labyrinth Consulting Services, Inc. Although rig counts decreased dramatically beginning in late 2014, the number of producing wells continued to increase until very recently. This may be a technical triumph for the drilling industry but it is no cause for oil producers to celebrate.
(rigzone.com) The layoffs continue in oil and gas as two more companies announce workforce reductions in Texas. Weatherford Artificial Lift Systems and Sun Fab Industrial Contracting are reducing staff by 90 and 125 employees, respectively, according to data sent to the Texas Workforce Commission.
Weatherford Artificial Lift Systems, a subsidiary of Weatherford International, is cutting 90 jobs at its manufacturing operations facility in Katy, Texas due to “a loss of business opportunities.”
(Bloomberg) The new Saudi oil minister, Khalid Al-Falih, says the oil glut is over. That means the kingdom’s war against U.S. shale producers is coming to an end, too. Who won it is a tough question to answer; on balance, it’s probably the Saudis, but they have paid a huge price, and the surviving U.S. frackers have also benefited.
(Reuters) Oil rallied on Monday, lifted by a wave of investor confidence and a weaker dollar after polls showed a diminishing chance that Britain may vote to leave the European Union later this week.
August Brent crude futures were up 90 cents at $50.07 a barrel by 0843 GMT, set for a gain of 6 percent in two trading days. NYMEX crude for July delivery, which expires on Tuesday, was up 80 cents at $48.78 a barrel.
(Reuters) Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding OPEC and Saudi Arabia with their resiliency.
That shale giants Hess Corp ( HES.N ), Apache Corp ( APA.N ) and more than 25 other companies have beaten back OPEC’s attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared.
(Bloomberg) Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak.
Then came the bust. Almost half of Ultra’s reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion.
(oilprice.com) The disruptions in global oil supplies are at their highest level since 2011. That comes from an updated assessment from the EIA, which shows total disruptions in oil production at more than 3.6 million barrels per day in May (mb/d), the highest monthly total since the EIA began tracking the data in January 2011. The outages hit major oil supplies across the world. At its worst, Canada saw more than 1 million barrels per day knocked offline because of the wildfires near Fort McMurray. That production is starting to come back online, however, and was always thought to be a temporary disruption.
(The Economic Times) India has surpassed Japan to become the world’s third-largest oil consumer, with its oil demand galloping 8.1 per cent in 2015, according to BP Statistical Review of World Energy released today.
With demand of 4.1 million barrels per day, India is the third-largest consumer behind US (19.39 million bpd) and China (11.96 million bpd). India accounted for 4.5 per cent of world oil consumption in 2015.
(Hellenic Shipping News) Iraq is pumping more oil than ever before, even as ISIS-fueled chaos grips parts of the Middle Eastern country.
Iraq, which relies on oil to fund nearly its entire government, increased daily oil production to an all-time high of 4.5 million barrels in May, according to estimates from research firm JBC Energy.
(The Telegraph) McKinsey has slashed their forecasts for the world’s energy use even as global economic growth climbs Global oil demand could peak by the end of the next decade even as global economic growth climbs.
The latest downward revision to forecasts, from consulting firm McKinsey, could leave major new investments uneconomic if demand for energy fails to meet expectations.
(Forbes) When Wood Mackenzie reported in the Fall that $1.5 trillion in potential global oil projects were uneconomic oil cost $51 a barrel, about what it costs now. The industry is making big cuts in CAPEX and upstream investments, and more than $200 billion in oil and gas investments evaporated in 2015. There’s still about 1.3 million b/d of surplus oil on the global market, and just the other day “OPEC Fails to Reach Agreement on Oil Production Ceiling.”
(New Scientist) THIS is a curious time to publish a biography of M. King Hubbert. The story of how this brilliant but irascible Shell geologist accurately forecast in 1956 that US oil production would peak and go into terminal decline by 1970 is by now well worn. Worse, after the supply crunch of 2008 that sent the price soaring to $147 per barrel and was widely mistaken for the global peak, the world is now swimming in oil once more, and the price languishes at around $50.
(Bloomberg) OPEC’s meetings in Vienna have for decades offered a heady mix of wealth, power and intrigue. The latest one may feel more like a wake.
The closest OPEC came to operating like a true oil cartel was in the early 1970s. Back then, it controlled more than half the world’s oil supply and was more or less aligned in trying to manage pricing and, for many members, throwing off the remnants of colonialism.
(seekingalpha.com) If you have been following what we have been writing you will know that we have become bullish on oil (NYSEARCA: USO ) prices for the next few years.
As with most of our opinions we have arrived at this one by listening to what some of the world’s best investors are saying about oil and why they are saying it.
We believe that Jeremy Grantham is another voice worth paying attention to, and it turns out that he too believes oil is going higher, perhaps significantly so. Source: GMO.
(Reuters) Brent oil futures climbed above $50 a barrel on Thursday for the first time in nearly seven months as a global supply glut that plagued the market for nearly two years showed signs of easing.
Oil prices have rallied in recent weeks as a string of outages, due in part to wildfires in Canada and unrest in Nigeria and Libya, knocked out nearly 4 million barrels per day of production.
(oilprice.com) A report by Rystad Energy has revealed that new oil discoveries in 2015 totaled 12.1 billion barrels, which is the least amount of new oil discovered in a single year since 1952.
Last year was also the fifth year in a row in which the amount of new reserves discovered was smaller than in the previous year.
E&Ps have slashed their exploration budgets repeatedly in a bid to weather the effects of the oil price drop. They’ve laid off hundreds of thousands of staff and have focused on staying afloat, lacking not just the money, but also the motivation to look for new oil when profitability is questionable.
(Bloomberg) Global crude supplies will start to dwindle in as little as two years, boosting prices, as the industry cuts investment to weather the worst market collapse in a generation, according to Statoil ASA.
Oil companies reduced capital expenditure last year and are likely to cut it further this year and next, Statoil’s Chief Financial Officer Hans Jakob Hegge said in an interview in London. Lower spending means there could be a “significant effect” on crude supply after 2020, he said.
(artberman.com) The global oil market is returning to balance based on the latest data from the EIA. That should mean higher oil prices but how high must prices be to save the industry?
Data suggests that oil producers need prices in the $70-80 range to survive. That is unlikely in the next year or so. Without more timely price relief, the future looks grim for an industry on life support.
“What we are experiencing today is far beyond headwinds; it is unsustainable. My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now.”
Jeff Miller, President of oil services company Halliburton