Category Archives: Oil Pricing

Serious Oil Field Worker Shortage…Soon?

oil-workers

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.

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.

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.

What’s Driving Oil Price Rally?

internatioanlrigcount

Oil prices plunged to their lowest levels in more than a decade earlier this year, but have since rallied by more than 70 percent from their February lows. Now oil is at a crossroads: the market is balancing, but not quickly enough. Oil traders are gaining confidence, but with oil trading at $45 per barrel, is the risk more to the upside or downside? Will the rally continue or will prices fall back again? And what about the long-term? Will today’s investment cuts lead to future shortages?

Brent crude oil for July delivery traded as high as $48.29 on Friday before dropping to below $47 a barrel on various reports that OPEC production had increased in April. The December futures contract traded as high as $49.65 on Friday, not a large spread, but as close as Brent futures have been to $50 a barrel in some time.

Part of the reason for that is that Brent prices well above $50 a barrel are not in Saudi Arabia’s interest. The kingdom has invested tens of billions of dollars in driving high-cost producers (mostly in the United States) to shut down production, and the effort has paid off. But if Brent rises much past $50 a barrel, the Saudis’ leverage diminishes, unless it also raises production to drive prices down again.

Neil Atkinson,  the Head of the Oil Markets Division at the International Energy Agency based in Paris responded recently to questions asked by oilprice.com: It can be argued that the sell-off to below $30/bbl was an over-reaction to the downside. The bounce bck to $45/bbl is partly explained by the strike in Kuwait, production interruptions in Nigeria, UAE and Iraq, and the growing perception that US shale oil production is declining. The bounce back is also due to the fact that investors are more forward looking than they used to be and the possibility of the market returning to balance around the turn of the year is a supportive factor.

He continues: The IEA has warned consistently that inadequate investment today could sow the seeds of a price shock tomorrow if there is a major change to the expected supply/demand balance. Towards 2020 there is the possibility that, if annual global oil demand growth were to exceed the 1.2 mb/d level forecast by the IEA and there was a geo-political event leading to a major supply shortfall, there could be insufficient spare production capacity to fill the gap. The resultant price spike would be detrimental for the world economy.

In conclusion… Current demand supply curve is not the only factor in oil pricing.  The decline in world rig count, the cancelation of many billion dollar plus projects by the majors, and the expected growth in future oil demand are all impacting the futures markets.  Maybe Mr. Atkinson is correct in his analysis that the $30/bbl pricing was an over-reaction to the downside.

Where Is U.S. Exporting Oil?

Export Tanker Crude Leaving The U.S.

It has only been three months since the U.S. lifted a 40-year ban on oil exports.  So, it may be surprising that American crude is flowing to virtually every corner of the market and remaking the world’s energy map.

Overseas sales, which started on December 31 with a small cargo aboard the Theo T tanker have been picking up speed.  Exxon Mobil, China Petroleum, and Chemical Corp have joined independent traders Vitol Group and Trafigura in exporting American crude.

“The flurry of export activity is helping support spot oil prices in the U.S. relative to contracts for later delivery,” said Amrita Sen, chief oil analyst at Energy Aspects, Ltd in London.

American stockpiles are at unprecedented levels, so oil takers laden with U.S. crude have docked in, or are headed to France, Germany, the Netherlands, Israel, China, and Panama.  Oil traders said other destinations are likely.

One reason behind the rise in exports is cheap pipeline and railway fees to move crude from the fields in Texas, Oklahoma, and North Dakota into the ports of the U.S.  Another reason is that the U.S. prices have been trading at a discount to Brent crude, allowing traders to move oil from one shore of the Atlantic to another at a profit.

Source: “The U.S. Is Exporting Its Oil Everywhere, Javier Blas, BloombergBusiness, March 17, 2016

Prices Stabilize On Oil Production Freeze

TexasOilPriceStabelize

West Texas Oil Production

“Since the Saudis and Russia reached an agreement to freeze output, volatility in the market has eased and oil prices have stabilized with the focus shifting back to fundamentals,” said Hong Shug Ki, a senior analyst at Samsung Futures, Inc.  “More stable oil prices are expected in the coming months, possibly up to the $40 level…”

West Texas Intermediate crude climbed more than 30 percent since dropping to lowest level in 12 years.  The pricing on Monday was just short of $36 per barrel.

A contributing factor may be that U.S. production slid for the sixth straight week ended February 26 to 9.08 million barrels a day, the lowest level since November 2014, according to the Energy Information Administration.

Key members of OPEC intend to meet with other producers in Russia this month to renew talks on the freeze deal according to Emmanuel Kachikwu, Nigerian Minister For Petroleum Resources.

Saudi Oil Minister To Face U.S. Rivals

 Western Midland Oil Rig

This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years.

While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market’s most influential policymaker.

During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game.

“OPEC, instead of cutting production, they increased production, and that’s the predicament we’re in right now,” Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.

It will be Naimi’s first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries’ shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall.

This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years.

While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market’s most influential policymaker.

During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game.
“OPEC, instead of cutting production, they increased production, and that’s the predicament we’re in right now,” Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.

It will be Naimi’s first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries’ shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall.

Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom’s market share against fast-growing, higher-cost producers.

It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel.

“I’d just like to hear it from him,” said Alex Mills, president of the Texas Alliance of Energy Producers. “I think it should be something of concern to our leaders in Texas and in Washington,” if in fact his aim is to push aside U.S. shale producers, Mills said.

Last week’s surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels – near record highs – did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30. <O/R>

Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal.

Many U.S. industry executives understand that all is fair in love, war and the oil market, but “the Saudis have probably overplayed their hand,” said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy (SFYWQ.PK), which filed for bankruptcy late last year.

It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel.

“I’d just like to hear it from him,” said Alex Mills, president of the Texas Alliance of Energy Producers. “I think it should be something of concern to our leaders in Texas and in Washington,” if in fact his aim is to push aside U.S. shale producers, Mills said.

Last week’s surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels – near record highs – did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30.

Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal.

Many U.S. industry executives understand that all is fair in love, war and the oil market, but “the Saudis have probably overplayed their hand,” said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy (SFYWQ.PK), which filed for bankruptcy late last year.

Summary…While Naimi has said this was not an attempt to target any specific countries there was much discussion in both Russia and OPEC of the rise of the U.S. shale producers.  It is not too difficult to believe they would be happier if the shale producers gave up thier market share.

Oil Is Still In Demand

oildemand-forecasts Everything about the oil market – 2015 and 2016 – is peculiar.  Oil prices have plummeted, yet production has not.  This is defying textbook economics.  In some big oil producing regions, output is actually rising.  Demand is up too, yet prices keep falling.

How to make sense for this?  This particular price collapse is unlike the others, so history is not an accurate guide.

The variable that seems to apply to this particular price collapse is supply and lots of it.  Supply has been outpacing demand, which is why any rally since the downturn is short-lived.  Prices are down 35% in the last year and about 70% in the last year and a half.

Much of the theory for weak demand is blamed for oil pricing collapsing.  It is far more sensible to blame rising supplies.  As supply glut builds, oil prices could fall even if global demand stays or rises.  On last Tuesday, the World Bank sliced its 2016 forecast from and average crude prices of $37 a barrel, from its previous forecast of $52.

Almost $400 billion of crude oil projects have been suspended.  The IEA says energy-project spending fell 20% last year and is on similar course this year.

The best cure for low oil prices is low oil prices as economists say.

Source: Oil is still in demand -it’s the glut that is hurting price by Eric Reguly, The Globe And Mail, January 29, 2016

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.