Category Archives: Energy Information Agency

The Mood At The Meeting Was In A Word…Gloomy

oil-workers Oil Field Workers Testing Red Wing Boots

The mood at the Fort Worth Oilfield Christian Fellowship is normally upbeat.  They generally have speakers who have something uplifting to share.

However, on Monday the mood at the meeting was in a word… gloomy.

In looking for something positive to share I found a technical analysis chart that says crude oil price – next stop $80 or $130.  I did not put much stock in the chart as it ended on April 23, 2014.

There is a divergence of opinon whether or not the market has factored in Iran’s re-entry into the market already.  No one agrees what impact Iran will have in the short term.

In my opinion (you are free to get your own opinion if you don’t like mine), the factors moving the market are supply, demand, and speculation.  Twenty years ago, 21% of the oil contracts were purchased by speculators.  Today, oil speculators purchase 66% (or more) of all oil futures contracts.  

In looking for some good news on oil pricing, I did find one item of interest.  

Energy analysts Wood MacKenzie said last week that low oil prices have now caused the delay of 68 planned petroleum projects worldwide.  This represents $380 billion in frozen capital expenditures.

What is interesting is that this is not just represented by private sector shutting future projects.  Governments are also holding off on developing new projects.  Brazil said it will discontinue offering new offshore projects in a target area the yielded several of the biggest multi-billion barrel finds.

That should help.  But, not anytime too soon.

First Tanker Of U.S. Crude Leaves Corpus Christi

Oil Tanker Leaves Port Corpus Christi Foreign-bound oil is first since 40-year ban recently lifted.

ConocoPhilips Co. and NuStar Energy, LP loaded the tanker pumped from the Eagle Ford Shale of South Texas.  Vitol Group, Dutch oil-trading company, is buying the oil according to NuStar.

The legislation lifting the 40-year ban was signed two weeks ago.

Whether lifting the ban will help or hurt oil pricing is to be seen. But, from a foreign policy point of view it seems that the United States should help its friends when they have a shortage of oil due to unforeseen tragedies.  After all, when Hurricane Katrina hit the gulf coast and curtained oil production, the United States had to rely on foreign oil imports.

OPEC has used crude oil as a tool to hurt the United States during the 1973 Opec Oil Embargo.  Why shouldn’t we use it as a tool to help those countries who support democracy and free enterprise?

There was one unanticipated country who apposed lifting of the crude oil export ban…that was Canada.  They were counting on the Keystone Pipeline through the United States to create new markets for its crude oil from its oil sands. Well there is always someone unhappy with any political  decision.

Crude Oil Pricing Cycles

humanforecastingmodel  H.S. Dent’s Hunan Model of Forecasting

No matter how many economic cycles we live through; the tendency is to assume where we are will continue as pointed out by H.S. Dent above.

Economic Cycle is defined as:  The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

We are definitely in a contraction, i.e. recession for the oil and gas industry.  This is well displayed by the Crude Oil Price History Chart from Macrotrentds.  The chart starts from January 1946 going to the present day pricing.

Crude Oil Price History Chart

It’s interesting to note that it was March of 1980 before the pricing topped $100 a barrel.  Then the pricing trended downward to below $20 by November 1998.

The price then proceeded to bounce around $100 from October 2007 to June 2014.  Since then the trend had been primarily down.  This week oil is trading at less than $40.

In conclusion…History shows us that our Human Model of Forecasting is normally incorrect.  Do, I expect oil pricing to increase as the supply decreases.  Yes, I do.  When?  I’d be wrong if I predicted when.  The good news is the cycle hasn’t been broken for seventy years.  So, there is no apparent reason it should stop now.

Oil Markets Remain Oversupplied

Let’s look at  last week’s key figures for the oil & gas industry.  U.S. oil production is slightly up, whereas oil futures have been trading lower. Gasoline prices continue their trend downwards.

Friday, December 6, 2015 WTI closed at $39.97, down $1.11 for the week.

U.S. Oil Production

Friday OPEC’s meeting in Vienna did not give oil markets any relief. There was little expectation of an agreement on production cuts, despite the majority of OPEC members pleading with Saudi Arabia to reverse course and cut back the cartel’s output target level, which stood at 30 million barrels per day (mb/d) heading into the meeting.

In summary, here we are a year after Saudi Arabia decided to keep market share rather than cutting production to support pricing.  That decision combined with the U.S. shale industry keeping production levels up has precipitated in a nearly 50% drop in oil prices from a year ago.

Source: OPEC Won’t Cut, Markets Remain Oversupplied, OilPrice.com by Evan Kelly, December 4, 2015

West Texas Oil Production More Stable Than Saudi Arabia?

PumpingRigWTexas Pumping Rig In West Texas

Introduction…Oil production increasing in west Texas Permian Basin,  the largest U.S. shale-oil region, as the  Bakken and Eagle Ford are experiencing production declines.

West Texas two-lane county roads are congested with trucks as energy companies are searching for deals even though the oil markets are in the worst condition of decades.

On October 26, 2015 we reported (http://oilandgasinsider.com/?p=449) a Chinese investment holding company signed a letter of intent to purchase West Texas oil fields in Howard and Borden Counties for $1.3 billion.

Companies like Exxon Mobile, Corp. to Anadarko Petroleum Corp. have also searched for assets in this region the size of Syria.  Exxon purchased 48,000 acres in two deals in August and is reportedly looking for additional acquisitions.

“We’re already seeing companies targeting the Permian,” said Alen Gilmer, chief executive officer of Austin-based Drilling Info.  “If you were to look for the most stable area today to do anything, it’s going to be there.  Today you might even argue it’s more stable than Saudia Arabia.”

In summary…Oil production in the Permian is forecasted by the  EIA to rise 0.6% in December to 2.02 million barrels a day evan as drillers idled 59 percent of rigs.  The rival shale fields, the Bakken and Eagle Ford, have fallen 12 percent and 25 per cent respectively.

Source: “Oil Producers Hungary for Deals Drool Over West Texas Tiramisu,” BloombergBusiness by Dan Wethe, November 15, 2015.

U.S. Oil Production Decline Accelerates

Midland County Drilling

New EIA data shows deeper contraction in U.S. oil production than previously expected.

The EIA reported that the United States produced much less oil than expected in the first half of 2015. On the whole, the country produced 40,000 to 100,000 fewer barrels than previously reported between January and May. The August report also showed that U.S. oil production peaked in April at 9.6 million barrels per day (mb/d), before falling to just 9.3 mb/d in June.

The declines suggested that the contraction in the U.S. shale industry was deeper than the world had initially thought. And one can only assume that the decline either kept up at a similar rate, or even accelerated in the intervening months since June.

Global supplies could actually increase between now and the end of next year, despite a significant pullback in U.S. oil production. Put in this context, it appears that OPEC’s strategy of pursuing market share by forcing higher cost producers to cutback could bear some fruit. Even if it takes longer and the adjustment is not as sharp as expected, Saudi Arabia will maintain its grip on the market, pushing U.S. shale to contract.

Who is Bill Moist?

Bill Moist is President & Founder of Professional Equities, Inc., a funder of real estate; oil and gas; business projects; and trains others to take advantage of Crowdfunding. Mr. Moist is professional lecturer at Graduate Business Schools and professional organizations. In addition, he is Texas Real Estate Broker, Certified Public Accountant, Master of Science real estate tax expert, and Investor/Developer with 70+ successful projects. He can be reached on LinkedIn and ModernFundRaising.info

 

 

Sources: “Decline In U.S. Oil Production Accelerates,” OilPrice, by Nick Cunningham, September 10, 2015: “Short-Term Energy Outlook,” U.S. Energy Administration, September 9, 2015