Oil prices, which have been falling since mid-May, fell more than $2 on Friday to settle at $65.06 in the US and $73.44 in London. For now, the chief concern is that the OPEC + coalition will raise or lift the production cap this coming Friday and allow as much as another 1.5 million b/d of crude to enter the market. Additional pressure on oil prices is coming from the looming Sino-American trade war which could damage the global economy and lower the demand for oil. The announcement that Beijing might impose a hefty tariff on the 360,000 b/d of crude that the US has been sending to China in recent months did not help the situation nor did the continual increase in US shale oil production despite the bottleneck on getting crude out of the Permian Basin. While the renewed US sanctions on Iran may eventually reduce its ability to export oil, these sanctions do not start up until later this year so that it will be well into 2019 before we have some idea of their effectiveness.
“Climate change is a global problem with grave implications: environmental, social, economic, political and for the distribution of goods.”
Pope Francis, who will meet with Big Oil execs the week of June 11, from a 2015 statement
Oil futures traded in a narrow range last week, at circa $65 a barrel in New York, and $76 in London. The standoff between higher and lower oil prices continues apace. Those saying that prices will soon be higher are looking at the rapid decline of Venezuela’s oil production; the damage to Iran’s oil exports that could come from the new US sanctions; and the mounting obstacles to further rapid increases in US shale oil production. Those seeing lower prices ahead are citing the likelihood that OPEC+ will increase production later this month and the dangers to global demand stemming from the possible trade wars.
“Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil. Meanwhile, consumption has totaled 360 billion barrels. This 250 billion barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends.
“It is understandable why people would be complacent about this scenario. After all, didn’t the world face similar risks a decade ago, only to have shale oil save the day? But it isn’t clear that there is another ‘shale oil miracle’ that is ready to save the day. There are indeed more high-cost oil resources out there that can be developed, but these projects take a long time to complete. That’s why we can look out two to three years and see an impending supply crunch. The longer investments in the industry remain depressed, the more unavoidable this scenario becomes.”
Robert Rapier, a chemical engineer and industry commentator (3/23/18, in Forbes magazine)
In a short trading week, oil prices closed mixed with London futures holding steady but New York declining on higher US oil output. US oil prices continue to fall well behind world prices, as booming shale oil production deals with pipeline constraints, leading to the biggest discount to North Sea Brent in three years. On Thursday, the discount climbed to over $11 a barrel. The weekly US stocks report showed that while oil production grew by 44,000 b/d, a drop in US imports and a surge in exports to 2.1 million b/d resulted in a decline in US commercial crude inventories of 3.6 million barrels from the week before last.
“”My estimate is that about 70% of the good quality drilling locations [in the Bakken and Eagle Ford shale plays] have already been drilled. So you’re left with Tier 2, and Tier 3 quality geologic locations, and there’s a really steep drop-off in the amount of oil you get per well with those locations.” Even though technology and well completion techniques have improved per-well yields, “that doesn’t offset bad rock. I expect by the August [earnings conference] calls, to see some independents temper their 2018 growth forecasts. They’ll couch it in terms of unavailability of service equipment, difficulty getting crews or logistical issues, but that will be code for ‘I’m having disappointing well results because I’m having to drill Tier 2 and 3 geologic locations’.”
Mark Papa, former CEO of shale producer EOG Resources and currently CEO of small-cap Centennial Resource Development.
Quote of the Week “”My estimate is that about 70% of the good quality drilling locations [in the Bakken and Eagle Ford shale plays] have already been drilled. So you’re Continue Reading
“Despite the welcome improvements in efficiency and innovation from companies operating in the North Sea, the ongoing decline in our offshore gas production has meant that the UK has gone from being a net exporter of gas in 2003 to importing over half (53%) of gas supplies in 2017 and estimates suggest we could be importing 72% of our gas by 2030.”
Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, and James Brokenshire, the Secretary of State for Housing, Communities, and Local Government, in a joint statement
Brent crude traded briefly at $80.18 a barrel on Thursday before slipping back to close the week at $78.51. This was the highest that London oil futures have traded since November 2014. New York futures closed the week at $71.28 which is more than $7 a barrel lower than London giving another push to US crude exports. The price jump came amidst a burst of bullish news including a larger-than-expected drop in US petroleum stocks of 1.3 million barrels of crude and a drop of 3.8 million barrels of gasoline. The short-lived spike also came just after a new Goldman report saying the US shale oil production can’t possibly make up for the potential loss of oil from the new Iran sanctions and that prices are likely to move higher.
“Debt has made things seem affordable by selling our energy future forward. This led to the miracle of tight oil and shale gas… The best years are behind us. The growth is done.”
Art Berman, geologist, commenting on shale oil production in Texas
Oil prices rose more than 3 percent last Wednesday after President Trump abandoned the Iranian nuclear deal and announced the “highest level” of sanctions against Tehran. The price surge stalled on Friday, however, after it looked likely that Europe would try to maintain the deal with Iran, which could keep that country’s crude exports on global markets. Crude futures closed the week just below multi-year highs with London at $77.12 and New York at $70.70, up 2.8 percent and 1.2 percent respectively.
“Hopefully we won’t see the continued exodus of quality workers and equipment from the Gulf.”
Matt McCarroll, Fieldwood Energy CEO, commenting on a “new attitude” toward US Gulf of Mexico operators among federal government regulators and the White House.
Oil prices continued to climb last week and are now up nearly $8 a barrel in the past month with NY futures at $69.72 and London $74.87. US oil futures are now at their highest in more than three years, as global supplies remain tight and the market awaits new US sanctions against Iran which seem likely to be imposed later this week. According to the EIA, US domestic oil production continues to climb — up by another 33,000 b/d the week before last — and US drillers added nine oil rigs to the count last week. Thus the struggle between increasing US shale oil production and deteriorating geopolitical situations around the world continues.
“The migration towards the electrification of society is unstoppable.”
Lord John Browne, former CEO of BP
With only two weeks to go before President Trump decides whether the US will withdraw from the Iran nuclear treaty, the oil market’s chief concern is about what could happen if the US reimposes sanctions. Even though Washington would have few, if any, allies helping to reimpose sanctions on Iran, the US carries considerable weight in the world banking system by threatening to deny access to the US to anyone doing business with Tehran. Conventional wisdom holds that renewed sanctions would slow Iranian oil exports and drive prices higher.
In Canada, Kinder Morgan Canada Ltd wants to almost triple the capacity of its Trans Mountain pipeline from Alberta to the Pacific province of British Columbia, which strongly opposes the idea on environmental grounds. Prime Minister Justin Trudeau said, “I have asked the finance minister to engage in discussions, financial discussions, with Kinder Morgan and that’s exactly what is going on. We will ensure that this pipeline gets built in a way that upholds and protects the interests of Canadians. “This pipeline will get built.” (4/20)
In the last two weeks, London oil futures have increased by $7 a barrel, closing last week at $74.06. New York futures closed circa $5.50 below London. This price differential is making US crude very popular on the world markets so that exports are setting records and drawing down US crude stocks. Behind the price surge is the steady drop in world crude stocks; strong demand from Asia as China’s economy grows faster than forecast; the likelihood that OPEC will continue its production cut on into next year; and the possibility that the Trump administration will abandon the nuclear treaty and impose new sanctions on Iran. There also are the deteriorating situations in Venezuela where production seems likely to drop by hundreds of thousands of barrels per day this year, and in Libya where the incapacitation of the country’s military strongman could result in a drop in oil production as local militias reassert themselves.
“US dry gas production is projected to rise to an all-time high of 81.7 billion cubic feet per day (bcfd) in 2018, but US consumption is also expected to hit an all-time high of 78.2 bcfd in 2018. With exports rising to record highs as well, it does not leave a lot of extra gas to go into storage.”
Scott DiSavino, Reuters
“We feel the current [natural gas] market has become far too complacent and that prices are simply too low to account for demand growth and the amount of gas needed in storage for the next winter heating season.”
Martin King, director institutional research at GMP FirstEnergy in Calgary
Oil prices rose by nearly $5 a barrel on concerns that a US and allied attack on Syrian military installations would lead to a wider war. Futures prices closed Friday at $67.39 in New York and $72.58 in London setting multi-year highs. After the markets closed, strikes on Syrian chemical facilities were launched. Initial reports suggest that considerable care was taken to avoid harming Syrian civilians or Russian and Iranian interests. A relatively benign response from Moscow suggests that this attack alone will not lead to more serious hostilities in the immediate future that could drive oil prices higher.
“Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil. Meanwhile, consumption has totaled 360 billion barrels. This 250-billion-barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends. It is understandable why people would be complacent about this scenario. After all, didn’t the world face similar risks a decade ago, only to have shale oil save the day? But it isn’t clear that there is another “shale oil miracle” that is ready to save the day. There are indeed more high-cost oil resources out there that can be developed, but these projects take a long time to complete. That’s why we can look out two to three years and see an impending supply crunch. The longer investments in the industry remain depressed, the more unavoidable this scenario becomes.”
Robert Rapier, oil industry writer/commentator (4/3)
Oil futures have fallen about $3 a barrel from two weeks ago when London prices were close to $70. New York futures closed out last week circa $62 and London $67. Prices held steady until Thursday when President Trump announced another round of the tariff war with China sending prices down $1.50 a barrel on Friday. So far neither side has actually imposed any new tariffs, leaving observers to wonder whether Washington and Beijing are simply posturing before negotiations, or a major trade war is in the offing. Other than the possibility of a trade war, the trashing of the Iran nuclear treaty, increasing tensions in the Middle East, and the Korean situation, most of the news lately has suggested higher prices are in the offing.
[In Europe] “One in every three cars registered in February 2018 was an SUV. Small and mid-size SUVs led the growth for the segment in February, whilst compact SUVs also had a strong month.”
Green Car Congress
After an up-and-then-down week, oil and gas markets closed slightly higher Thursday ahead of the Easter holiday weekend. All major U.S. and European stock exchanges and markets were closed Friday for Good Friday, which coincides with the Passover holiday that starts Friday at sundown.
CEO of EOG Resources on the future of US Shale & Research Physicist at the Princeton Plasma Physics Lab in New Jersey on Nuclear Fusion Reactors
“Mark Papa, the former CEO of EOG Resources, and who has probably been presented more technical data pertaining to shale oil than anyone, believes that shale oil growth potential may be over-stated as the prime areas of the Eagle Ford and Bakken are already drilled up. The question is how far does the Permian have left. Probably a couple of years.”
Randy Evanchuk, P. Eng., retired from oil operations in 2015
“Now that I have retired, I have begun to look at the whole [nuclear] fusion enterprise more dispassionately, and I feel that a working, every-day, commercial fusion reactor would cause more problems than it would solve.”
Daniel Jassby, a research physicist who worked on nuclear fusion experiments for 25 years at the Princeton Plasma Physics Lab in New Jersey (3/19)
The most significant news driving the oil markets last week came from Washington, where major policy and personnel shifts drove the markets down and up last week. Crude posted its biggest weekly gain since July on Friday as President Trump changed his national security team, fueling speculation sanctions on Iran will be re-imposed. Earlier in the week, the President’s imposition of new tariffs on imports had observers talking about a tariff war that could cut the demand for oil as economies slipped. Indications from the Saudis and Russians that the OPEC production freeze could be extended into 2019 helped lift prices earlier in the week.