Category Archives: Bloomberg

Shale Expansion Dominates Competition

U.S Shale oil drilling rig

Introduction…U.S. Shale drilling budgets increases ten times faster than the rise of international oil companies’ budgets. This as OPEC is meeting May 25th to decide to continue production cuts.

U.S. shale producers are taking advantage of the production cut that OPEC and 11 non-OPEC nations struck in mid-November.

The comparison…Drillers in North America plan a combined capital expenditure of US$84 billion this year, an increase of 32 percent compared to last year, according to Barclays analysts, quoted by Bloomberg.

By comparison, the budget programs for international projects are seen up just 3 percent in 2017, Barclays reckons. Among the five supermajors, it’s only Exxon that is planning higher capital spending this year, of US$22 billion, up by 16 percent from 2016. The other four are either keeping investment budgets flat, or as in Chevron’s case, are reducing the expenditure.

“The level of capital budget increases really surprised us,” Wood Mackenzie research analyst in Houston, Roy Martin, told Bloomberg in a phone interview.

“The specter of American supply is real,” he noted.

In summary…The U.S. shale spending plans and growing production highlight the difficult position in which OPEC is caught – while the cartel is cutting production and trying to talk oil prices up, the shale drillers are reaping profits from the most profitable plays (hey, Permian) and reinvesting them in increased capital programs to pump more.

Reference:  Tsvetana Paraskova, “U.S. Shale Spending Dwarfs Competition: Grows 10 Times Faster,” OilPrice.com, 11 May 2017

Past Energy Independence To Global Dominance

 Trump Signs Order To Expand Offshore Driling

Introduction…May 1, 2017 President Trump signs order to expand offshore drilling.  That day the President said, “Our country is blessed incredible natural resources including abundant offshore oil and gas reserves.  But the Federal Government has kept 94% of these reserves closed to exploration. This deprives our country of thousands of jobs and billions of dollars in wealth…This executive order begins the process of opening offshore areas to energy exploration.  It reverses the previous administrations Artic leasing ban…This helps create a much brighter future for our country…This is a very important day.”

U.S. Energy-dominant…The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said (last) Monday.

Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time.

In conclusion…“In 1983, I was told we’re going be out of oil and fossil fuels definitively in 2003. That’s not true,” Zinke said at the Offshore Technology Conference in Houston. “And, you know, I always say God’s got a sense of humor — he gave us fracking. And fracking is a game-changer — certainly a global game-changer.”

Source: Laura Blewitt, “Trump’s U.S. Looks Past Energy Independence to Global Dominance,” Blomberg, 1 May 2017

Coming Oil Shortage In 2017?

Oil shortage…Global oil markets will swing from surplus to deficit in the first half of 2017 as OPEC and other producers follow through on an agreement to cut supply, according to the International Energy Agency.

Oil stockpiles will decline by about 600,000 barrels a day in the next six months as curbs by OPEC and its partners take effect, said the agency, which had previously assumed inventories wouldn’t drop until the end of 2017. Russia, the biggest producer outside OPEC to join the deal, will gradually implement the full reduction it promised, according to the IEA.

Oil has gained about 17 percent since the Organization of Petroleum Exporting Countries agreed on Nov. 30 to trim output for the first time in eight years, an accord expanded on Dec. 10 with the participation of 11 non-members including Russia and Kazakhstan.

“Before the agreement among producers, our demand and supply numbers suggested that the market would re-balance by the end of 2017,” the Paris-based agency said in its monthly market report. “If OPEC promptly and fully sticks to its production target” and other producers cut as agreed, “the market is likely to move into deficit in the first half of 2017.”

Stockpile declines…The stockpile declines will only occur if OPEC reduces supply enough to meet and maintain a target of about 32.7 million barrels a day, the agency said. The organization pumped a record 34.2 million a day in November, making the cut required to reach its target even bigger, according to the IEA, which advises 29 nations on energy policy.

In summary…There are some signs the market is already starting to tighten. While inventories of crude and refined oil in industrialized nations remain 300 million barrels above their five-year average, they dropped for a third month in October, the longest run of declines since 2011, according to the IEA.

Source: Grant Smith, OPEC Deal To Create Oil-Supply Deficit Next Half, IEA Says, Bloomberg, 13 December 2016; Jeremiah Carver, From oil glut to oil deficit in 2017, Oilpro.com, 13, December 2016