Saudi Arabia – A Kingdom In Retreat

SaudiKingdomKingdom Tower

The Kingdom is struggling with weak GDP growth, higher fees and taxes, and an economy that is unable to pay the dues to its workers, leaving thousands of workers from South Asia with an uncertain future.

When a nation is unable to provide food to its migrant workers, it says a lot about their financial condition.

The oil price crash has forced the oil-rich Kingdom to introduce austerity measures, and delay payments to already cash-strapped contractors.

“It looks like austerity has hit hard and more than we had anticipated, halting construction projects and stopping hiring,” said Jason Tuvey, Middle East economist at Capital Economics, reports the Financial Times.

Who is the Hardest Hit?…Construction laborers from India and Pakistan are most affected by the Kingdom’s hardships. This group of workers are left without a job, and without basic amenities such as insurance coverage, food, shelter and medical facilities—a situation that has improved after respective consulates stepped in to offer their own citizens aid.

Saudi’s Empty Pockets…Setting aside the Kingdom’s positive outlook, until the Saudi economy reduces its reliance on oil, the situation is likely to get worse before it gets any better. With oil prices reeling close to $42 a barrel, the Saudi economy is likely to run out of cash, according to the International Monetary Fund.

“All oil exporters will need to adjust to the new low oil price,” the IMF warned, reports the Independent. “All” in this case, includes, probably most importantly, Saudi Arabia.

Meanwhile, Saudi Arabia continues its record oil production, reaching 10.67 million barrels per day, up about 120,000 bpd on the prior month—with no signs of slowing. Although this will allow Saudi Arabia to hold onto its marketshare, which they can hardly be blamed for trying to cling to, it will no doubt add to the supply glut, and certainly will not bode well for oil prices in the short term.

In conclusion…And if oil prices continue to languish near today’s lows, it will be years before Saudi Arabia can regain its erstwhile glory.

 Source: Oil Price.com, Is Saudi Arabia About To Cry Uncle In the Oil Price War, By Rakesh Upadhyay – Aug 11, 2016

Crude Prices Rise On OPEC Statement

Barrels of Oiloil-workers

OPEC Commnets...While the Organization of the Petroleum Exporting Countries (OPEC) no longer wields the same power over global oil markets it had 40 years ago, it can still make some noise when it wants to. And Monday, OPEC wanted to.

The cartel’s new president, Mohammed Bin Saleh Al-Sada, who is also Qatar’s oil minister, said in a statement that he expects higher oil demand in the second half of 2016. These words tacked a gain of around 3% onto crude prices.

Al-Sada added that prices have experienced “steady improvement” since February following “a decline in crude oil production, supply outages and a decrease in oil inventories, while global demand for oil improved.” He also added that the recent (current?) decline in prices and higher volatility is “only temporary,” according to the press release:

These are more of an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil.

Since June 1, the price for an OPEC reference basket barrel has dropped from $44.68 to $40.08, more than 10%. The reference basket price rose by nearly $1 as of July 1, but it’s been steadily downhill since then.

In Conclusion...Is OPEC just talking its book, hoping to push up the price? While it wouldn’t be the first time that has happened, it is more probable that the cartel, like the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA), really believes that global demand will rise, global inventories of oil and refined products will fall and production will continue to slow down, especially in North America.

Jump In U.S. Oil & Gas Rig Count Impact

oilwelldrillbigLast week the  U.S. oil and gas rig count increased by 15 to a total of 462.  Canada rig count up seven to new total of 102 according to Baker Hughes report.

The biggest gains were in Texas where 15 new rigs were brought online with the Permian Basin adding eight.

At the time the rig count was released, West Texas Intermediate was trading at $43.94, but slumped by $.83 midday Friday.

In conclusion…The decline in price is attributed to a ramp-up in drilling fields that are profitable with oil below $50 per barrel, adding to supply surplus.

Serious Oil Field Worker Shortage…Soon?

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Goldman Sachs believes the American oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply.  A projected 100,000 oil jobs could be coming back.

The estimate is based on Goldman’s forecast for U.S. oil production to resume growing next year after the recent drop to two-year lows. That growth would require some 700 oil rigs to be added — and each one supports an average of 120 to 150 employees.

As more oil fields come on line and America’s oil boom gets back on track, there simply won’t be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy. This downturn was far worse than the 87,000 jobs wiped out during the last downturn in the middle of the Great Recession.

Jeff Bush, president of oil and gas recruiting firm CSI Recruiting, agrees that a “worker shortage” is coming.

“When we get back to a reasonable level of activity, there’s going to be a supply crisis of experienced personnel. I just don’t see any way around that,” said Bush.

In conclusion…Last week in this publication we discussed  “U.S. Now The Largest Global Oil Reserve.”  Somehow the industry will need to take better care of those skilled workers if they want to keep them over the long-term. The drastic swing in oil prices has extremely painful for those workers who grow accustomed to the high salaries.  Every downturn flushes out a large number of highly skilled workers.

U.S. Now Largest Global Oil Reserve

 The United States has surpassed Saudi Arabia and Russia as the global leader in oil reserves.  This from a Norwegian consultancy firm report.

“We have done this benchmarking every year, and this is the first year we’ve seen that the US is above Saudi Arabia and Russia,” Per Magnus Nysveen, head of analysis at Rystad Energy, said. He credited the rise to a sharp increase in the number of discoveries in the Permian basin in Texas over the past two years.

The report found that many, especially members of the Organization of Petroleum Exporting Countries, exaggerated the size of their reserves in self-reported surveys. Rystad Energy came to the conclusion by only recording each country’s economically viable reserves.

American oil reserves have grown dramatically in the past two years due to improvements in technology for extracting shale called fracking. Increased productivity has cut the cost of extracting oil in half in the past two years, when compared to the price per barrel.

Nysveen is forecasting the price of the barrel to bottom out soon as supply is beginning to rebalance. “At the end of the year, we will see increases again in US oil production,” he said.

In summary…The future implications of the larger reserves as positive for the US economy. As the world’s largest consumer of oil, the reserves will help cut America’s trade deficit and strengthen the dollar. Geopolitically speaking, the large reserves will prevent oil from being used as a political tool against the United States as it can remain self-sufficient.

The last eight American Presidents have promised independence from foreign oil.  In spite of much opposition, the U.S. oil and gas industry has been using innovation to change the balance of geopolitical power in our favor.

The Oil Glut is Over

Oil Glut Is Over

The Oil Glut is Over So says the world’s most powerful oil man.  The newly appointed Saudi Oil Minister Kalid Al-Falih declared the oil glut over at the Saudi Armco facilities in Houston, Texas last week.

Speaking to the Houston Chronicle about the oil crisis the and the supply glut, Al-Falih said, “We are out of it,” and noted that we would continue to see gradual upward movement in the price of oil.

The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out,” the oil minister was quoted as saying.

The Energy Information Administration (EIA) last week reported a 900,000 barrel draw on U.S. crude inventories, but that still leaves a 530.6-million-barrel stockpile that will take some time to chip away at, according to the Saudi oil minister.

“The question now is how fast you will work off the global inventory overhang. That will remain to put a cap on the rate at which oil prices recover. We just have to wait for the second half of the year and next year to see how that works out,” the Minister told the Houston Chronicle.

Al-Falih also noted on the Saudi Aramco website that due to the Saudi kingdom’s “strategic importance” it will “be expected to balance supply and demand once market conditions recover.”  As reported by Charles Kenedy of Oilprice.com.

In Conclusion…Saudi Arabia was unwilling to reduce oil production when the price colapsed  November 2014.  However, the law of supply and demand has worked to reduce supply and increase demand.  It appears that the Saudi’s impact on oil pricing is on the wane.  Nevertheless, Al-Falih recent comments may give some reason to hope for better days to come in the oil patch.

Oil Exports Surge To 100-Year High

Barrels of Oil U.S. Oil Exports

U.S. crude oil exports rose to 590,000 barrels per day in April, up 83,000 barrels from March reported by U.S. Census Bureau.  Rigzone reports this is the highest level since 1920.

The largest buyers of the crude:

  • Canada 324,000 bpd
  • Curacao 90,000 bpd
  • Bahamas 36,000 bpd

This comes just six months after the U.S. government lifted restrictions on crude exports.

The tireless lobbers against the ban- Chevron and Exxon Mobil- are the immediate beneficiaries of removing the ban.  The oil trading companies Vitol BV and Trafirua, LTD also benefited.

Israel, China, Germany, France, and Switzerland have also placed to for American energy suppliers.

Conclusion…It seems the United States benefits when other democratic countries can purchase oil and gas that doesn’t support terrorist activities like we saw this week in Orlando.  The shooter swore allegiance to the leader of ISIS, Abu Bakr al-Baghadadi, law enforcement told NBC news.

Trump Pledges U.S. Energy Independence

Trump Pledges Energy Independence Bismarck- Donald Trump pledges complete U.S. energy independence.  Further he wants to put the focus on putting workers before regulations.  This message was delivered to a crowd who are eager to make the Bakken great again.

Trump told 7,000 people at Williston Basis Petroleum Conference that his policies on energy will put drilling rigs and people back to work.

“Under my presidency, we’ll accomplish a complete American energy independence. Complete,” said Trump, prompting cheers from the crowd that lined up for blocks to get into the Bismarck Event Center.

“North Dakota, you brought us over the line folks,” he said. “I will always remember that.”

“Costly regulation makes it harder and harder to turn a profit,” Trump said. “If crooked Hillary Clinton is in charge, things will get much worse, believe me.”

Trump said he has a 100-day action plan, which includes destroying all of Obama’s executive actions. He specifically mentioned repealing the Waters of the U.S. rule and canceling the Paris climate agreement.

Trump also said he would approve the Keystone XL Pipeline, but said the U.S. should get a significant chunk of the profits.

In conclusion… Whether you like Donald Trump or hate him, at least he is talking about what he will do to help America become energy independent.  It is crazy to send our petro dollars to those who promise to destroy us.

Shale Oil Shifting Balance Of Power

Crude Oil OutagesBalancing Oil Supply…The Organization of Petroleum Exporting Countries’ abiility to balance global supply (and prices) now limited by shale oil production, a former Qatari energy minister said.

OPEC was able to balance the market in the past because because shale oil deposits and other non-OPEC nations output was insignificant, Abdullah bin Hamad told reports at the industry even in Doha.

“OPEC can’t act as swing producer because it will lose market share,” said Al-Attihay former Qatar energy minister.

Crude prices tumbled more than 75% from the 2014 peak due to the global glut in part due to U.S. shale oil production.

Market Forces…“Frankly, I don’t expect anything from the next OPEC meeting because OPEC decided not to play against the market,” IEA former executive.  “Market forces are too strong now, and you can’t play against those forces whey they are strong.”

“Just cut production by 1.5 million barrels a day and the next day the prices goes up and the other oil producers will take the whole share–there is no benefit for OPEC in that,” Al-Attiyah.

Crude Oil Outages Soaring…Escalations in sabotage, tech problems, and natural disasters are impacting world crude oil supply as documented by the EIA in the above diagram for the last 12 months.  This increase in outages most likely are a factor in the recent oil price increases to $50 a barrel.

In Summary…The closer a market looks and acts like an oligopoly (a state of limited competition,) the greater the pricing power those producers have by limiting production.  The good news is the pricing power has shifted away from OPEC to where now the market as a whole is determining pricing.  From a U.S. national security perspective, we are more secure now due to this shifting of market pricing power.

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Source: “Shale Oil Seen Stifling OPEC’s Classic Market-Balancing Act,” Wael Mahdi, Bloomberg, May 256 2016

Oil Price Spike Close?

WTI Crude Pricing

We are beginning to see the first real signs of the global oil markets moving rapidly back into balance. OPEC, which produces approximately 40 percent of the world’s oil supply, cannot meet future oil demand on their own.

Supporting data follows that supports the analysis that oil price spike may be close:

  • On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016.
  • U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016
  • Gasoline inventories declined by 1.231 million barrels’=
  • Distillate stockpiles fell by 1.647 million barrels
  • The International Energy Agency (IEA) say the annual summer spike in demand for transportation fuels has begun.
  • On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa’s biggest oil producer
  • Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more production of crude. Nigeria’s oil production was already down 600,000 barrels per day before these two incidents, primarily the result of militant attacks.
  • Latin American oil production is now down close to 500,000 bpd from year ago levels.

In conclusion…If history repeats itself, the demand spike will be even larger. In 2010, the final year of the last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010 was that IEA’s formula for calculating demand, did not consider the impact of lower fuel prices on demand. IEA may have made the same mistake this time around.