Natural gas has been the worst performing commodity of the year so far, and the bad news is far from over, with some experts seeing prices falling below $2
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Natural gas has been the worst performing commodity of the year so far, and the bad news is far from over, with some experts seeing prices falling below $2
"Changes in seasonal temperatures are a pivotal factor for natural gas markets, and warmer winters mean weaker demand."
Os temas que fazem a actualidade Moçambicana e Internacional em várias áreas de interesse. Os destaques do dia.
"O Centro de Integridade Pública (CIP) considera que há excesso de optimismo em relação ao valor das mais-valias que deverá advir da transacção de activos de gás do Rovuma, entre a norte americana Exxon Mobil e a italiana Eni. A instituição sustenta a sua posição recordando que existe a possibilidade de negociação à porta fechada, tal como ocorreu em 2013, em que a Eni só aceitou pagar as devidas mais-valias depois de um encontro realizado entre o então Presidente de Moçambique, Armando Guebuza, e o ex-presidente da multinacional Italiana, Paolo Scaroni."
Rosneft sees a lack of will among the main signatories to the OPEC/non-OPEC deal and U.S. shale production as the main risks to a possible extension of the global supply cut deal
" OPEC is scheduled to decide on a possible extension in May, estimates and guesses are many, and now Rosneft has expressed its view via emailed answers to questions by Reuters.
In a stable market scenario, Fitch estimates that by the end of this year, oil prices will fall to $52.50, but then rebound to $55 and $60 in 2018 and 2019
“The recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting a portion of recent oil price gains,” the credit rating agency’s report released on Monday says. “We therefore expect average oil prices for the year to be below those in January and February.”
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Inside Opportunities with Michael McDonald. OilPrice.com
After last year’s rapid recovery from the depths of the oil market’s plunge, many investors went into 2017 expecting black gold to keep rising in value. So far, it is not working out that way. The energy markets have been sideways at best for most of 2017, and energy firms as a whole are not performing all that well.
The Energy Select Spdr ETF (XLE) encapsulates this issue well – XLE is down to around $72 a share versus north of $78 in December. The ETF is a good broad measure for most of the energy stocks out there. Despite the fact that oil itself has only fallen modestly, many energy firms have underperformed in the market over the last few months.
The underperformance of energy stocks may be because investors expected oil prices to keep rising, and the current price level is still too low for most stocks to make much money. Or it could be that the equity market investors are simply more pessimistic than commodities players are.
Whatever the reason, at least over the last few months, the energy trade is not working out the way many investors had hoped. For now, the easy gains seem to be gone, leaving investors to wonder what they should do from here.
The outlook for oil for the rest of 2017 is decidedly uncertain and the case for further price increases is getting weaker. While OPEC has shown remarkable discipline in its supply cuts, investors must be wondering whether the Cartel is still as relevant as they once were.
The U.S. is producing markedly more oil than it was a few months ago, and shale drillers are just starting to come back into growth mode en masse. Moreover, U.S. producers are now operationally stronger, more efficient, and better at coping with low prices than they were a few years ago. All of this may well lead to the U.S. regaining its crown as the world’s largest oil producer.
Equally importantly, news came out on Thursday that Russian supply cuts are not materializing to the degree that was expected. Russia’s February output was unchanged versus January at 11.11 million barrels per day. That corresponds to price cuts of 100,000 barrels – one-third of what Russia promised OPEC. The Russian failure might start to undermine compliance across OPEC and spell serious trouble for the Cartel’s cohesion.
The case for oil prices rising from here rests largely on significant demand by speculators, a recovering global economy, and unusually large maintenance outages from Asian refining operations in the Spring. These factors may or may not be enough to boost oil during the rest of 2017 – the outlook from here is balanced which is why oil has not moved much of late.
Against this backdrop investors need to tailor their investments accordingly. In particular, investors have to contend with the possibility that many energy firm stocks are going to struggle going forward unless oil prices break out to the upside.
Investors should be looking at the strongest companies in the space. Oil companies that score high on value metrics at this stage are probably also value traps in many cases. The market is rewarding those firms with the most feasible production by giving them higher valuations. Those stocks with strong price momentum are likely to do well going forward based on the historical evidence.
Investors who are not comfortable betting on stocks that have already run higher might consider looking at various options strategies as an alternative. Straddles and calendar spreads both look like attractive strategies in the current environment. Straddles should benefit once oil breaks out in either direction, while calendar spreads offer a great way to mitigate overall market exposure while still benefiting from higher volatility down the road in oil and energy stocks as a whole.
Whatever strategy energy investors choose to adopt, it is clear that the energy market recovery story is looking a lot shakier than it did three months ago.
"Whatever strategy energy investors choose to adopt, it is clear that the energy market recovery story is looking a lot shakier than it did three months ago"
Workers were required to evacuate from the Libyan oil export station as fighting near the Es Sider port escalated severely
"Fighting near Es Sider port escalated to the point that workers had be evacuated from the Libyan oil export station, according to reports emerging from the area."
ExxonMobil will invest $5 billion in Guyana for an oil production and extraction venture in the Liza area of the Stabroek offshore drilling block
Falling demand and consistent refinery runs have caused gasoline inventories to reach unexpected levels, significantly increasing downward pressure on crude
"Oil prices are stuck in a holding pattern, waiting for more definitive data on what comes next. OPEC compliance is helping keep prices afloat, but rising U.S. oil production is acting as a counterweight."
Russian energy minister Novak has said that his country’s oil output in February will be lower than in January
"Russia’s oil production in February will be lower than the January output, with Moscow cutting more than the 117,000 bpd cut it made last month, Russia’s Energy Minister Alexander Novak said on the sidelines of an event in Sochi on Monday."
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Politics, Geopolitics & Conflict
• U.S. President-elect Donald Trump has nominated Exxon CEO Rex Tillerson for Secretary of State, sparking outrage on all sides of the political spectrum. What unites the opponents of Tillerson’s nomination is the belief that he has uncomfortably close ties with Russian President Vladimir Putin and will work to end sanctions against Russia because of his loyalty to his current employer, Exxon. Others, however, argue that if Tillerson becomes Secretary of State, Trump will use him to convince Russia to back down from its strengthening alliance with Iran. This latter suggestion6 is unrealistic. Trump is not equipped to convince Putin of anything, and he will not be successful in any battle of wits with the Russian president.
• Brazil’s government has been shaken by another corruption scandal that could see investment-friendly President Michel Temer lose his job. The scandal is part of an ongoing investigation against a number of politicians and large business leaders accused of graft practices that brought down the senior management of state-owned energy giant Petrobras. Yet Petrobras was not alone in the corruption: construction firm Odebrecht has also been implicated in participation in the bribery network. Now, one Odebrecht executive is accusing Temer and members of his party of collecting millions of dollars in exchange for defending the company’s interests in Congress. The news has caused a fresh wave of protests among Brazilians, who were already pretty agitated by a bill aimed at capping public spending that the country’s Senate passed earlier this week. It is still not known whether any international company was involved in this new scandal. Just in October, international oil companies were hoping to see a huge benefit from the change of government in Brazil. The Brazilian Congress voted to open up the country’s oil sector to significantly more investment from international oil companies, liberalizing the lucrative pre-salt plays particularly. Foreign companies, under new legislation, will now be allowed to be pre-salt operators. All eyes will be on the risk to this new liberalization from continuing political instability.
• The battle for Syrian Aleppo is largely over and the evacuation of civilians and members of rebel groups has begun, according to various sources in both camps. A ceasefire was negotiated by the Syrian army, Russia and Iran with the rebel groups still holding parts of the city, but according to media reports, the initial deal collapsed and the rebels and the army exchanged fire. The Syrian regime and Iran were not satisfied with some of the details of the ceasefire, brokered nominally by Russia and Turkey. A revised version of the deal was negotiated later and evacuation started. Assad’s win in Aleppo will strengthen his control over the country and could very slightly tip the scales of Middle Eastern geopolitics in favor of Iran and away from Saudi Arabia. More than 3,000 people have been evacuated in buses and ambulances from the city.
Deals, Mergers & Acquisitions
• Kinder Morgan is working on the sale of its Permian assets, which could bring in some $10 billion as the shale play in Texas continues to gain prominence in the energy industry as the most lucrative one in the U.S. Barclays is advising the midstream major, according to unnamed sources. Kinder Morgan itself declined to comment on the possible sale.
• Italy’s Eni has sold a 30 percent stake in the offshore license block that contains the giant Zohr field in Egypt to Russian Rosneft. The Russian company will pay Eni $1.125 billion and will reimburse it for past expenditures, which, for the 30 percent stake, amounts to about $450 million. Rosneft also has an option to acquire a further 5 percent in the project.
• China’s Sinopec, the world’s largest refiner of crude, is mulling over the purchase of Gulf Keystone Petroleum, an energy firm operating in the autonomous Kurdistan region in Iraq. The target has run into financial problems because of delayed payments for exports from the Kurdistan Regional Government (KRG), on top of the oil price crash that brought it to the brink of insolvency. At the moment, Gulf Keystone’s value is around $360 million. Meanwhile, Sinopec is also considering the listing of its retail business in Hong Kong. The IPO could fetch as much as $10 billion for the company.
• Statoil is selling its oil sands operations in Alberta to local energy company Athabasca Oil Corporation. The value of the deal is around US$625 million and includes a yet undeveloped deposit plus a demonstration plant. The Norwegian company will pay 80 percent of the price in cash and will also buy shares in Athabasca, which will give it a 20 percent stake. The deal will result in a writedown of $500-550 million for the seller.
• Independent energy firm Gulfport Energy is buying acreage in the SCOOP region in Oklahoma for $1.85 billion. The seller is Vitruvian II Woodford, a portfolio company of Quantum Energy Partners. The acreage at the moment produces 183 million cubic feet of natural gas equivalent.
Tenders, Auctions & Contracts
• PDVSA, Venezuela’s troubled state-owned energy firm exported an average 742,535 bpd of crude to the U.S., a 23 percent increase on October. Still, compared to a year earlier, the daily rate of exports was lower. The biggest buyer of the heavy crude was PDVSA’s U.S. business unit, Citgo Petroleum. Valero Energy, Phillips 66, and Chevron were also among the buyers. There has been no improvement in Venezuela on the economic, humanitarian and political front since the opposition and the government launched a dialogue mediated by the Vatican and UNASUR. In fact, the crisis has only worsened.
• Brazil’s Petrobras has signed definitive terms for a $5 billion, 10-year financing agreement with China Development Bank Corp and an oil supply accord with Chinese companies. This will help somewhat to secure more stable revenue streams. It also agreed to sell 100,000 barrels of oil per day for the next decade to China National United Oil Corp, China Zhenhua Oil Co Ltd, and Chemchina Petrochemical Co Ltd subject to "market conditions"
• Russia’s Yamal LNG project, led by Novatek, Russia's largest independent gas producer, says it has received almost $800 million in funding from Italian bank Intesa Sanpaolo in a 14.5-year credit line. This will enable the company to launch production next year. Earlier this year, Yamal LNG obtained $12 billion in financing from Chinese lenders. The total value of the project has been calculated at $27 billion. Japanese and French funding is also a possibility. However, some of Novatek’s moves may put it at odds with state-run giant Gazprom. Novatek’s expansion plans on the Yamal peninsula, which is currently controlled by Gazprom, as such may run into some roadblocks and the Kremlin may not allow Novatek to obtain four licenses there it is seeking.
Discovery & Development
• Anadarko has dropped an exploration license for the shallow waters off the coast of New Zealand’s North Island but it has not given up completely on the country. The company said it will continue to reprocess seismic survey data from another license block, in the Canterbury Basin, in the eastern part of the South Island. For this license block, Anadarko has asked for a delay from the New Zealand government.
• Israel’s giant Leviathan gas field could start producing commercial amounts of gas late in 2019, according to a development plan just approved by the project partners, which include Noble Energy as operator, and three Israeli firms: Delek Drilling, Avner Oil, and Ratio Oil. According to the plan, initial production from Leviathan should be 12 billion cu m a year, with investments in this first phase of production seen at $3.5-4 billion.
• GDF Suez has delivered Turkey’s first floating LNG plant, Neptune, to the coast of Izmir, where it will be stationed. The facility has a capacity of 5.3 million tons of LNG and should feed into Turkey’s gas network some 20 million cu m of gas on a daily basis.
• An internal report from BP leaked to Greenpeace has revealed the company, which had to pay over $60 billion in fines and compensations for the Deepwater Horizon disaster from 2011, is sub-par in safety at its downstream operations. The report lists at least two almost critical occurrences that could have caused deaths and calls for urgent attention to improving BP’s engineering data management practices to avoid further accidents of a critical nature.
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“U.S. President-elect Donald Trump has nominated Exxon CEO Rex Tillerson for Secretary of State, sparking outrage on all sides of the political spectrum. What unites the opponents of Tillerson’s nomination is the belief that he has uncomfortably close ties with Russian President Vladimir Putin and will work to end sanctions against Russia because of his loyalty to his current employer, Exxon. Others, however, argue that if Tillerson becomes Secretary of State, Trump will use him to convince Russia to back down from its strengthening alliance with Iran. This latter suggestion6 is unrealistic. Trump is not equipped to convince Putin of anything, and he will not be successful in any battle of wits with the Russian president”
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"We'll take one prepackaged bankruptcy to go." That was the upshot of an announcement yesterday from oilfield services company Seventy Seven Energy (SSE)--the
'In January SSE was threatened by the New York Stock Exchange with de-listing its stock (see Seventy Seven Energy’s Stock Threatened with Delisting from NYSE). One of SSE’s ongoing problems is that Chesapeake Energy, itself not in all-that-great-a-shape, provides nearly three-fourths (70%) of SSE’s revenue.'
Who Will Be Left Standing At The End Of The Oil War
This is a financial cold war—nothing more, nothing less.
While there are billions of reasons to cut output, and every major producing country is reeling from the loss of revenues, some are weathering the current bust better than others, but the devil is in the details, and the details contain tons of variables.
Production cost and breakeven figures that analysts enjoy bandying can trap you in bubble of black-and-white mathematics that is a few brush-strokes shy of a full picture.
Breakeven prices are hard to pin down, and harder yet because they fluctuate. OPEC governments downsize their budgets, cut social spending and put big projects on hold to lower the breakeven price. Independent producers likewise cut spending and delay development to get closer to a feasible breakeven. So the breakeven is elusive.
Saudi Arabia and Kuwait enjoy some of the lowest production costs in the world, at about $10 and $8.50, respectively, according to Rystad Energy data. Production in the UAE costs just over $12 per barrel, which is pretty much the same as in Iran, though Iranian officials say they will eventually be able to produce for as low as $1 per barrel from their central fields.
But these are just the costs of lifting oil out of the ground. State-owned oil companies often have many more responsibilities than just producing oil. They underpin generous spending levels by their governments, and thus any estimate of a "breakeven" price should include the cost of those obligations.
It's hard to come up with a real breakeven point for Saudi oil, for example, because it is responsible for funding the royal palace and indirectly, a large number of social programs that include everything from education to housing and energy subsidies. It's hard to measure costs when this oil has to pay for all the luxuries of the Saudi royal family.
According to Quartz, if you add in all these costs that U.S. shale producers don't have, we're looking at a breakeven point of around $86 per barrel for Saudi oil. That's just one opinion, but it's a poignant one. So is the royal family ready to give up its luxuries? Or will they sacrifice things such as healthcare and education first? The fact that the government is considering taking parts of Saudi Aramco public does not bode well.
The Iranian perspective, newly off sanctions, is entirely different. It's probably more concerned about regaining the market share it lost under sanctions than it is about low prices. In June, Iran will launch a new grade of heavy crude that will compete with Basra crude, and which the Iranians will surely seek to undercut in price in order to win Asian market share from Iraq and the Saudis.
For Nigeria, Libya and Iraq, the breakeven point is the point at which they can fund the fight against Boko Haram, a civil war and the Islamic State, respectively. Right now, they can't. And that's with per barrel production costs of around $31/$32 in Nigeria, $23/$24 in Libya, and $10/$11 in Iraq.
Then we have Venezuela, where production costs hover just over $23 per barrel on average, but where disaster is imminent. Debt defaults here are looming, and inflation is soaring, while recent moves to drastically devalue the currency and raise gas prices by over 6,000 percent for the first time in decades are harbingers of highly destabilizing unrest. For Venezuela, the breakeven point is particularly elusive because the country's oil is very heavy and very dirty—and thus very expensive to extract and refine.
Breaking the back of U.S. shale?
From the Saudi perspective, the end game here is to break the back of U.S. shale.
The average production costs for the U.S. is about $36 per barrel, but Rystad Energy estimates that some the key U.S. shale plays have a $58-per-barrel breakeven point. This, too, varies section by section, and even well by well, so it's hard to get a concrete picture.
Here is the breakeven picture in more detail, courtesy of Rystad Energy:
IMG URL: https://oilprice.com/images/tinymce/2016/rystadA.png
Plenty of shale areas are still profitable even with oil below $30, according to Bloomberg Intelligence—just ask Texas, where the Eagle Ford shale play's Dewitt County patch, for instance, can turn a profit even with crude below $23. Other counties, though, might need $58 to be profitable.
It's all about hedging right now for U.S. shale producers. The larger percentage of oil output that's protected by hedging, the longer the lifeline.
Last week, Denbury Resources Inc. (NYSE: DNR), for instance, said it had increased its fourth-quarter hedges to cover 30 Mbbl/d at around $38/bbl.
So far, "there is little evidence of production shut-ins for economic reasons," according to Wood Mackenzie's vice president of investment research, Robert Plummer. "Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices."
The breakeven is quite simply the line in the sand that determines whether extracting a barrel of oil is profitable or not. And this line in the sand is vastly different for private American producers than it is for kingdoms such as Saudi Arabia.
Everyone is hurting, some more than others. Venezuela is already on its knees. But even $30 oil isn't enough to bring the other bigger players down or to end the cold oil war. Saudi Arabia has some $600 billion in financial reserves; Russia is worried enough only to start talking to OPEC; U.S. producers are holding strong and are fairly calm, closely measuring the pace of desperation most recently indicated in the word game over an output freeze.
The variables of the breakeven game favor U.S. shale. But Saudi Arabia won't give up the cold war path easily because its ultimate goal is to preserve its market share at all costs.
Article Source: http://oilprice.com/Energy/Crude-Oil/Who-Will-Be-Left-Standing-At-The-End-Of-The-Oil-War.html
By Charles Kennedy for Oilprice.com
Our live blog is tracking reaction to news that Russia and select OPEC members have agreed to an oil output freeze amid a global supply glut.
We'll also bring you the latest reaction to Anglo American's $5.6 billion net loss.''
Both Russia and Saudi Arabia, the world’s largest oil producers are fed up with low oil prices, but are their interests sufficiently congruent to agree to simultaneous moves to balance the market?
January 27, however, Russia announced, in a roundabout way, its willingness to cut. According to Bloomberg, the Russian Energy Ministry issued a statement that “Energy Minister Alexander Novak and the heads of Russia’s biggest oil companies discussed the possibility of working with OPEC.” The article also reported that Deputy Prime Minister Yury Trutnev told President Vladimir Putin that:
“There was a series of meetings with other governments last week on the issue of oil prices during the World Economic Forum in Davos, Switzerland. Oil exporters are talking about coordination because the current price is “unacceptable” to justify spending on exploration and field development”.
60 Reasons Why Oil Investors Should Hang On
Inventories will continue to rise, but the momentum is slowing.
The following are some observations as to how we got here and how we're gonna get out.
9 reasons why oil has taken so long to bottom:
1. OPEC increased production in 2015 to multiyear highs, principally in Saudi Arabia and Iraq where production between the two added 1.5 million barrels per day (mb/d) to inventories after the no cut stance was adopted.
2. Russian production increased in 2015 to post Soviet highs.
3. Long planned Gulf of Mexico production began coming on in late 2015.
4. An overhang of 3,000 or 4,000 shale wells that were drilled but uncompleted ("ducks") entered a completion cycle in 2015.
5. Service companies and suppliers went to zero margin survival pricing (not to be confused with efficiency). The result has been an artificial boost to completions that cannot be sustained.
6. Resilience among a few operators in the Permian who felt the need to thump their chests, creating the rally that killed the rally last spring (disclosure: I own stock in Pioneer Resources but am going to dump it if they don't cut it out!).
7. The dollar strengthened.
8. Iranian exports are coming.
9. And, finally, China.
5 Demand-Side Reasons Why We Need to Hang-On:
1. Chinese oil demand is up year-over-year by 8 percent. It is expected to slow in 2016 to as low as 2 percent (maybe) but it is still growth in a tightening market.
2. Watch Chinese car sales. They were sluggish in early 2015 but finished very strong in what could be a 2016 V-shaped recovery.
3. The Indian economy is on a tear. The IMF has it as the world's fastest growing large economy. GDP growth was 7.3 percent in 2015 and is projected to be 7.5 percent in 2016. That trumps Chinese growth. Although India's oil demand is only one-third that of China, it is the growth picture that should be better covered by analysts and headlines. India is about to be the world's most populous nation with a middle class that is likely to double over the next 15 years. 40 cars now service 1,000 people but that is rapidly changing. And this is not something that will occur sometime, someday in the future. 2015Indian consumption grew by 300,000 barrels per day (bpd).
4. U.S. consumption has been increasing with higher employment and lower fuel costs. Truck and full size SUV sales have been extraordinary.
5. Europe, the world's largest oil market, is in a decade long decline but not as steeply as it was. Asia demand is strong with Vietnam's GDP growing 7.5 percent in 2015. Middle East countries are seeing increases in consumption. And as a final observation, go back one year when most oil analysts were looking at supply as the means to a correction. Demand was thought to be too inelastic and would thus take too long to play out. But it was demand that responded first. When the story is written, it will be demand that outplayed supply 2 to 1 on our way to parity. Thereafter, if we go into imbalance, it will be the damage done to supply that really moves prices.
16 Supply-Side Reasons Why We Need to Hang On
1. Earlier in 2015 global supply exceeded demand by about 2.2 mb/d according to the EIA. Others had it at 2.5 mb/d. The EIA now has it down to 1.3 mb/d and change. We are still nowhere near an inflection point but we are converging.
2. The rig count in OPEC's GCC countries has not corrected down with prices. It is mostly maintenance drilling and somewhat additive in Saudi Arabia. The level of production that we have seen lately likely means the GCC is close to or at capacity.
3. There is near universal acknowledgement that there will be another 300,000 to 500,000 bpd decline in U.S. productionthis year. It could be more given the struggles of the onshore conventional market which alone should give up 150,000 bpd. Shale's steep decline rates will easily make up the rest even against increasing Gulf of Mexico production.
4. Global non OPEC, non U.S. production will decline by 300,000 to 400,000 bpd in 2016 according to the IEA. This number could increase as marginal production at current low prices comes off line due to lifting costs.
5. After an upside surprise in 2015 Russian production, there is a building consensus that 2016 results will be off with further declines thereafter. Russian oil giant Lukoil is stacking contractor rigs which will show up fairly soon in the numbers. State backed Rosneft is showing financial strain.
6. Pemex production is down 10 percent.
7. North Sea production, which has increased over the last few years, will slip in 2016.
8. Long-term Canadian oil sands projects will come on in 2016 as will some production in Brazil, but even collectively the amounts are small. It's probable too that some of the oil miners will put a hold on production due to lower product costs (about $15/bbl less than WTI) and extraordinarily high lifting and processing costs (some of the sands are subjected to subsurface CO2 drives, others are surface mined).
9. Anticipated Iranian exports are here, but the projections are all over the place from the Iranian government's claim of 1 million b/day in 6 to 12 months to Rystad Energy's claim of 150,000 b/day. Even the middle ground argument of 500,000 b/day assumes Iran can get back to their long term trend line, which had been declining during the 5 years prior to 2011 sanctions. Fields are in poor repair and the gas drives essential to production have been mostly abandoned. All in, it's most likely that production will stutter step up to the trend line due to delays caused by political process and infrastructure funding. This, like all things, will take longer than expected but watch out for early sales. You will be seeing more inventory than production as Iran unloads the 30 to 45 million barrels of oil in storage. Allow some time to work off stocks to get an idea of the actual production numbers which will likely disappoint.
10. Depending on the source, $140 to $200 billion of expenditures has come off of long term projects in 2015 with calls for another $40 to $150 billion in cancellations and postponements in 2016. This won't be made up by renewables. The current and projected crude and natural gas prices have dis-incentivized consumers from wind and solar. Governments after the Paris accord may throw money around but consumers will likely not follow until commodity prices make them.
11. All said, these capex cuts will result in a loss of at least 5 mb/d in long-horizon production. These are the goliath type projects that we absolutely need to match to current plus anticipated consumption increases.
12. Existing wells have natural decline curves. Some hold up better than others but all said the global yearly decline rate without additional drilling is right around 4 mb/d.
13. Hedged bets started coming off in late 2015 and will continue in early 2016. Accompanying this could be the capitulation in activity and production that the market has been looking for.
14. Global capex declines have occurred here and there over the past 20 years but always rebound the following year. For the first time in recent history, the global oil complex has charted two consecutive years of declining budgets. 2014 showed a small constriction but 2015's 20 percent capex decline is unprecedented in terms of size and is the highest by percentage in 20 years. And right now, 2016 doesn't look like it's going to have much bounce to it.
15. The world seems to be moving closer to a supply side disruption. Middle East wars, skirmishes and terrorist attacks are increasing in size and frequency. Libyan oilfields are a constant target. Nigerian installations are vulnerable. ISIS controls most of Syria's small oilfields. Yeminis missiles are targeting Saudi oil installations and would have hit their targets in December launches had the Saudi's not shot most of them down. Iraqi production is somewhat safe, but only somewhat. Venezuela's PDVSA is teetering in its ability to pay for the imported diluents needed to export its crude. Tankers are stacking up in the Jose Petroterminal demanding payment up front before unloading up to 3 million b/month of naphtha. And then there's the torched embassies, mass beheadings, a resurgent Shiite state and a hardening Sunni stance amid a claw back of freebies to Saudi Arabia's citizens. It's not good. Not at all. Our best hope is that price rebalancing will occur quickly through supply and demand metrics rather than bloody supply-side shocks.
16. At $25 oil, the Bakken is at $13 to $15 after transportation which puts operators up there underwater after lifting costs, taxes and carrying royalty owner costs. Sub $30 oil will not only kill development drilling, but it will be where production stops. In cases where operators are committed to selling natural gas produced alongside oil there may be a reason to continue due to supply obligations, but otherwise what's the point? If you want to lose money buy a boat. It's more fun.
6 Things to Ignore
1. This is not the 1980's with 14+ mb/d spare capacity. In 2016, we are oversupplied by about 1.5 percent and it will be at zero by early to mid-2017. The last time we were at zero was late 2013/early 2014 when WTI was at $100 and Brent up around $105+.
2. Lower for longer is true but $29 oil is not. This is a classic over-sold scenario and likely somewhere in the realm of capitulation. Operators and service companies can find a footing at $50 oil. We won't prosper but we'll survive. $100 may be a long way off and that's because ridiculously high, sustained oil prices only leads to ridiculously low sustained oil prices. But who wants $100? It will only get us back to $30. The industry makes no sense at the top or the bottom. The high middle is best.
3. Demand is dropping. Not true. Demand growth may be slowing but not by much. Consumption is up and it is increasing.
4. Chinese demand is down. The rate of growth may slow in 2016 but it will still be up year-over-year. A 6.8 percent Chinese economy is consuming more oil now than a 10 percent economy was 5 years ago. A lot more.
5. We're going to float the lids right off our oil tanks. Don't worry. You can sleep tight. We're not.
6. Efficiency gains are offsetting the declining rig count. This one is always amusing. Give me the rig count and higher density fracking and you take all the recent efficiency gains and let's see who gets invited to the bank's Christmas party.
6 Things You Shouldn't Ignore
1. Q1 oil prices are going to be ugly. Try and ignore them if you can. The market will remain uncertain over Iran as it determines and adjusts to how much oil is coming on.
2. Hedges coming off will not bode well for producers and the service companies looking to them for a lifeline.
3. Spring debt redeterminations may knock the wind out of the E&Ps. If capitulation hasn't already occurred, it will then.
4. China. The sinking Shanghai Composite Index is oil's anchor.
5. Pioneer and other chest thumpers getting too aggressive. Any recovery will be short lived if they jump the rig count as they did in the short-lived Spring 2015 rally. Traders are fixated on even meaningless moves in the rig count. Best to play it cool. We all want to work but operators need to practice some restraint.
6. Lack of capitulation. There will be no recovery until there is general agreement that the shorts cannot drag the market any lower. The Saudi's, with Russia following, can always point to a large U.S. failure as proof that they did not blink first.
14 Things We Owe Ourselves:
1. The water wars of 3 or so years ago are mostly solved. Recycling frac water is now a "gimme". Marcellus operators like Shell and Cabot are able to boast of 99 percent recycle rates. We still have hurdles with deep well brine injection but the issues are getting defined and will be addressed.
2. Progress is being made on recognizing and reducing methane emissions from well sites. Ultimately, this could slow drilling in places like the Bakken until infrastructure is in place, but it will also move operators to effectively use lease gas to power operations.
3. No government agency provided directives for Halliburton and Pattison to build dual fuel frac fleets that run on clean burning lease gas. They just did it in cooperation with their customers.
4. We've proven than natural gas is beyond abundant.
5. There have been fewer bankruptcies than anticipated.
6. No one has been arrested yet for fracking.
7. Harold Hamm was still able to write a billion dollar personal check.
8. Aubrey McClendon was still able to raise fresh money.
9. T. Boone Pickens overshot the mark with an $80 call but his optimism helped us – a lot.
10. Even President Obama jumped in and did us a favor with the elimination of the 40 year old export ban. It might have been done grudgingly but we got it.
11. LNG exports will set sail by March 2016.
12. Coal miners displaced by the current administration's EPA in Kentucky and West Virginia have been finding work in oil and gas fields. Hopefully they'll find more soon enough.
13. We can celebrate the abrupt end of the glossy multicolored booklets from fawning jewelers and art auctioneers arriving in the mail.
14. David Einhorn's crass and predictable "mother fracker" short on Pioneer Resources was a yawn. The stock even climbed after the news. If this was a political statement, which was my read of the subtext, then short the stock now big guy.
The inevitable will occur. Supply and demand will cross. The question is will Wall Street notice? Some of the analysts caught the cross in early 2014 but most didn't. For full disclosure, I missed it too.
The question this time around is will we see it coming and if so will it be an orderly reaction? Or will the market miss the coming wake-up call and instead deliver a severe supply disruption with skyrocketing prices and a political response along the lines of windfall profits taxes? My worry is that everything takes longer than you think, from recognizing coming imbalances in the global crude complex to painting the house. In the meantime, just hang on and keep your equipment running. You're going to need it. Until then, all the best of luck.
Article Source: http://oilprice.com/Energy/Energy-General/60-Reasons-Why-Oil-Investors-Should-Hang-On.html
By Dan Doyle for Oilprice.com
There will be no recovery until there is general agreement that the shorts cannot drag the market any lower. The Saudi's, with Russia following, can always point to a large U.S. failure as proof that they did not blink first.
Leading news site for global finance, economics, market, and political analysis.
Over the weekend, we gave the Dallas Fed a chance to respond to a Zero Hedge story corroborated by at least two independent sources, in which we reported that Federal Reserve members had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.
Moments ago the Dallas Fed, whose president since September 2015 is Robert Steven Kaplan, a former Goldman Sachs career banker who after 22 years at the bank rose to the rank of vice chairman of its investment bank group - an odd background for a regional Fed president - took the time away from its holiday schedule to respond to Zero Hedge.
This is what it said...'
War Between Saudi Arabia And Iran Could Send Oil Prices To $250
The rift between Saudi Arabia and Iran has quickly ballooned into the worst conflict in decades between the two countries.
The back-and-forth escalation quickly turned the simmering tension into an overt struggle for power in the Middle East. First, the execution of a prominent Shiite cleric prompted protestors to set fire to the Saudi embassy in Tehran. Saudi Arabia cut off diplomatic relations and kicked out Iranian diplomatic personnel. Tehran banned Saudi goods from entering Iran. Worst of all, Iran blames Saudi Arabia for an airstrike that landed near its embassy in Yemen.
Saudi Arabia's Sunni allies in the Arabian Peninsula largely followed suit by downgrading diplomatic ties with Iran. However, recognizing the dire implications of a major conflict in the region, most of Saudi Arabia's Gulf State allies did not go as far as to entirely sever diplomatic relations, as Saudi Arabia did. Bahrain, the one nation most closely allied with Riyadh, was the only one to take such a step.
Many of them are concerned about a descent to further instability. Nations like Kuwait and Qatar have trade links with Iran, plus Shiite populations of their own. Crucially, Qatar also shares a maritime border with Iran as well as access to massive natural gas reserves in the Persian Gulf. These countries are trying to split the difference between the two belligerent nations in the Middle East. "The Saudis are on the phone lobbying countries very hard to break off ties with Iran but most Gulf states are trying to find some common ground," a diplomat from an Arab country told Reuters. "The problem is, common ground between everyone in this region is shrinking."
The effect from the brewing conflict on oil is murky, but for now it is not having a bullish impact. In the past, geopolitical tension in the Middle East, especially involving large oil producers, would add a few dollars to the price of oil. This risk premium captured the possibility of a supply disruption into the price of a barrel of crude. However, recent events barely registered in oil trading. That is because the global glut in oil supplies loom larger than any potential for a supply disruption. Oil dropped to nearly $30 per barrel on January 12 and oil speculators are not paying any attention to the tension in the Middle East. Also, the conflict could simply manifest itself in an intensified battle for oil market share. Iran has put forth aggressive goals to ramp up oil production in the near-term. And Saudi Arabia continues to produce well in excess of 10 million barrels per day while discounting its crude in several key markets, particularly in Europe in order to box out Iran.
But what if the current "Cold War" between Saudi Arabia and Iran turned hot?
Saudi Arabia has a variety of reasons to not back down, not the least of which is the very real sense of being besieged on multiple fronts. An article in The New Statesman by former British Ambassador to Saudi Arabia, John Jenkins, clearly laid out the threats that Saudi Arabia sees around every corner: extremists at home; a growing Iran; toppled allies from the Arab Spring; low oil prices; and a fractured relationship with the United States. The nuclear deal between Iran and the West was confirmation on the feeling in Riyadh that it is becoming increasingly insecure.
Already the two rivals have engaged in proxy battles in Yemen and Syria, supporting opposite sides in those wars. A full on direct military confrontation would be something entirely different, however. It would have catastrophic consequences for oil markets, even when taking into account the current supply overhang. Dr. Hossein Askari, a professor at The George Washington University, told Oil & Gas 360 that a war between the two countries could lead to supply disruptions, with predictable impacts on prices.
"If there is a war confronting Iran and Saudi Arabia, oil could overnight go to above $250, but decline [back] down to the $100 level," said Askari. "If they attack each other's loading facilities, then we could see oil spike to over $500 and stay around there for some time depending on the extent of the damage."
While not impossible, war is speculative at this point. Also, $250 and $500 per barrel are numbers pulled out of thin air, and may seem a bit sensationalist. But despite the glut in global oil production – somewhere around 1 mb/d – the margin from excess to shortage is thinner than most people think. OPEC is producing flat out and spare capacity is actually remarkably low right now. The EIA estimated that OPEC spare capacity stood at just 1.25 mb/d in the third quarter of 2015, the lowest level since 2008.
As a result, even though it remains a remote possibility, direct military confrontation between Saudi Arabia and Iran could well put oil back into triple-digit territory in short order.
Article Source: http://oilprice.com/Energy/Oil-Prices/War-Between-Saudi-Arabia-And-Iran-Could-Send-Oil-Prices-To-250.html
By James Stafford of Oilprice.com
While not impossible, war is speculative at this point. Also, $250 and $500 per barrel are numbers pulled out of thin air, and may seem a bit sensationalist. But despite the glut in global oil production – somewhere around 1 mb/d – the margin from excess to shortage is thinner than most people think. OPEC is producing flat out and spare capacity is actually remarkably low right now. The EIA estimated that OPEC spare capacity stood at just 1.25 mb/d in the third quarter of 2015, the lowest level since 2008...'
Oil prices continue their progress lower, with the Brent benchmark falling as investors monitor developments in China and tensions in the Middle East.
Oil prices continued lower on Wednesday, with the Brent benchmark sliding to an 11-year low as investors monitored developments in China and tensions in the Middle East.
Brent for February delivery LCOG6, -3.54% dropped $1.57 , or 4.3%, to $34.85 barrel, setting it on track for its lowest settlement price since the summer of 2004, according to FactSet data.
The Offshore Drilling Industry In 2016 @offshorebroker #investorseurope
Offshore drilling stocks were under heavy pressure in 2015.It looks like the next year won't be easier.I share my views about the offshore drilling industry in
The Offshore Drilling Industry In 2016 @offshorebroker #investorseurope
As the year end approaches, it's time to look at the results of the offshore drilling industry and try to envision its fate in 2016. This year was extremely tough both for the industry and for the companies' stocks. Here's a snapshot of drillers and their performances.
OPEC sees further fall in non-OPEC oil supplies @investorseurope offshore stockbrokers
OPEC trimmed its estimates for supplies from outside the group in 2016 on Thursday as it expects the plunge in prices to takes its toll on the U.S. oil industry and other rival producers in the coming months. But its own output is rising.
OPEC sees further fall in non-OPEC oil supplies @investorseurope offshore stockbrokers
The report is OPEC’s first since it abandoned its production target of 30 million barrels a day at its meeting last week and doubled down on its decision last year to pump aggressively in the face of falling oil prices. The group’s report on Thursday signaled that plan had shown some success in driving out American production that requires higher prices, but the market overall hasn’t recovered, with Brent crudeLCOF6, +0.52% slumping below $40 a barrel in recent days.
Oil prices plummet to seven-year lows on global supply glut @offshorebroker investorseurope
Oil prices slid on Tuesday, approaching seven-year low points on a global supply glut and weak demand growth. Crude futures had already slumped Monday after the OPEC oil producers cartel last week refused to slash record high output, in a market dogged by oversupply.
Oil prices plummet to seven-year lows on global supply glut @offshorebroker investorseurope
Brent North Sea crude for January also hit the lowest point since February 2009, at $40.41 a barrel. It later traded at $40.46, down 27 cents.
David Roche, president and global strategist at Independent Strategy, argues the trend in the oil market is changing and it will touch $30 a barrel next year.
Oil prices will continue to slump @investorseurope Structural Change in Energy Markets
Russia, in fact, has been ramping up output this year, extracting oil at a post-Soviet record high of around 10.7 million barrels a day and adding to the supply glut on world markets.
Like OPEC, Moscow has kept production high to defend its market share.
OPEC Persian Gulf members such as Saudi Arabia and Kuwait, which can profitably pump oil at today's low prices, drove the group's strategy shift last year to allow prices to fall to defend market share.
But Russia and Venezuela are much more hard pressed. Both have plunged into recession in the wake of the oil price collapse.
Venezuela appears near an economic breaking point. It imports the vast majority of the basic goods it consumes with oil money, which accounts for 96 percent of its foreign currency
But that cash is now drying up, leading to shortages of consumer goods and a severe recession. Prior to arriving in Beijing, Maduro made a stop in Vietnam in search of financial help "during difficult times," AVN said..
Russia vies with Saudi Arabia as the top oil producer in the world, while Venezuela boasts the largest untapped oil reserves in the Western hemisphere. Both countries are highly dependent on proceeds from the sale of oil to feed government revenues and drive growth in their economies.
It's not the "breakeven" price, but the "cash cost" that really matters.
'Cash cost is basically what it takes to keep oil production going, not what it takes to make oil production profitable or for a government to hit its budget projection. If you drop below your cash cost on a project, you've got to turn out the lights.
As you can see on the far right, the Canadian oil sands and the US shale basins are very expensive to tap. Meanwhile in the Middle East, the Saudis, the Iraqis, and the Iranians basically stick a straw in the ground, and oil comes out..'