Tag Archives: #OPEC

How Will 2018 Oil Supply Growth Impact Pricing

Issue 133 – Shale oil boom

Introduction…OPEC said last Monday it sees a surge in oil supply driven by rising U.S. output. However, it also sees demand in 2018 to grow faster than expected.

Production growth…The cartel sees non-OPEC production growing by 1.4 million barrels per day, up 250,000 BPD from its earlier estimate.  The United States accounts for more than half of the revision increase.  The U.S. supply growth now expected to be 150,000 barrels per day.

Demand Growth…OPEC now expects the world’s oil demand to grow by 1.59 million barrels per day, up 60,000 BPD from last month.  The total global oil consumption would be 98.6 million BPD.

OPEC sees the drivers of this demand growth as the steady rising economic activity around the world.  This creates a strong demand for transportation fuels like gasoline and jet fuel.  Also, contributing is the growing petrochemical industry which turns byproducts from oil and natural gas into chemicals.

Conclusion… The global economic growth is creating more demand for oil and gas consumption.   If this demand growth will keep up with the supply growth is yet to be seen.  However, OPEC is painting a scenario where oil profits and pricing will remain high in 2018.

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Source: Tom Christopher, “OPEC hikes its 2018 forecast for oil supply growth on a flood of US crude,” USA Today, 12 Feb 2018

You’ll never guess who is buying U.S. oil and plastic?

Issue 132 – Damen Double Hull Oil Tanker

Introduction…Sharp drops in U.S. imports of crude oil destroyed the biggest market for OPEC producers.  Now, the surging U.S. oil exports banned just two years ago by Washington challenges the last region OPEC dominates…Asia.

U.S. oil shipments...U.S. oil shipments to China had a massive increase and in turn, have been helping Washington with reducing the nation’s huge deficit with China.

This seismic shift is reflected in the recent figures that show the U.S. now produces more oil than Saudi Arabia and will likely outproduce the no. 1 spot Russia holds by the end of the year.

Data in Thomson Reuters Eikon shows U.S. crude shipments to China went from nothing before 2016 to a record 400,000 barrels per day (bpd) in January, worth almost $1 billion. Additionally, half a million tonnes of U.S. liquefied natural gas (LNG) worth almost $300 million, headed to China from the U.S. in January.

And then there is plastic…In 2007 ExxonMobil expected the U.S. plastic industry to vanish due to the high cost of production.  Enter the Frackers who fill our pipelines with natural gas.  Now the Port of Hoston is undergoing significant upgrades to handle the wave of plastic resins that will add half a million tons annually in export volume.  Most of that volume is headed to China.

Conclusion…The frackers may have saved much of America’s manufacturing.  And as we see here today, the low cost of natural gas and other petroleum products once again makes America an attractive export manufacturing location.

Sources:  Peter Tirschwell, “More vessel capacity key to Houston’s resin export dominance,” JOC.com, 20 May 2017; Henning Gloystein, “How souring U.S. exports to China are transforming the global oil game,” Reuters, 9 Feb 2018.

2017: Oil Price Review

 Issue 126 – 2017 in review

Introduction…2017 produced a year of unpredictable oil pricing.  We saw a low of $43 to a high of $60 per barrel for WTI.  Brent traded in the range of $45 to a high of $65 per barrel.  It was a year of reducing oil inventory with Russia taking that lead among OPEC and other oil-producing states.  Global inventories did decline and now OECD inventories are very close to the OPEC target.  One interesting observation is the markets generally ignored geopolitical risks.

Here are top ten events that impacted 2017 oil pricing:

  1. OPEC output cut agreement in late 2016 helped stabilize prices.
  2. Several large U.S. oil inventory buildups stimulated price declines.  This decline was compounded by the settling of traders long positions.
  3. Prices rise in March as supply-demand come in balance.
  4. Inventories rise world-wide during refinery maintenance.
  5. Crude inventories drop and prices balance.
  6. Expectations that OPEC will extend and deepen production cuts grows prices.
  7. Prices fall after OPEC cuts not increased and shale production costs decrease.
  8. Prices rise in early summer as refinery production increases.  Evidence that OPEC production cuts are still working.
  9. Hurricane Harvey hits Texas August 25th taking 3.5 MMbbl/d offline.  Even with the extensive damage, recovery of affected refiners is swift due to improved hurricane management.
  10. 2016 output cuts are extended through December 2018 supporting highest price levels for the year 2016.

In conclusion…2016 saw considerable oil price swings.  It is interesting to note that geopolitical concerns seemed not to impact pricing.  Rather, oil pricing was primarily impacted by the old law of supply versus demand.  Or at least the expectation of future supply and demand.

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References: “Crude Oil Price Index,” http://www.nasdaq.com/markets/crude-oil; Ashley Petersen, “What Affected Oil Prices: 2017 in Review,” Oil and Gas Investor, 29 Dec 2017

U.S. To Dominate World Oil Markets

Issue 122 – U.S. Historic Oil Surge

Introduction…The U.S. will be a dominant force in global oil and gas markets for years to come as the shale oil boom becomes the biggest supply surge in history.  This predicted by the International Energy Agency (IEA,)

The report...U.S. production surge to equal Saudi Arabia expansion at its highest point.  The natural gas increases will surpass the former Soviet Union.  This stated in the annual World Energy Outlook.  This boom will turn the U.S. from an oil importer to the biggest exporter of fossil fuels.

“The United States will be the undisputed leader in global oil and gas markets for decades to come,” IEA Executive Director Fatih Birol said Tuesday in an interview with Bloomberg television. “There’s big growth coming from shale oil, and as such there’ll be a big difference between the U.S. and other producers.”

Conclusion...The United States oil and gas production has come a long way since OPEC was able to create the 1973 Oil Embargo.  A sleeping giant was awakened causing the massive development of shale oil and gas fracking.

Source: Grant Smith, “U.S. to Dominate Oil Markets After Biggest Boom in World History,” Bloomberg Markets, 13 November 2017.

What Researchers Say About Ethanol CO2

 Issue120  – The environmental problem with Ethanol

Introduction..A new study from the University of Wisconsin researchers shows that crop expansion in the U.S. from 2008 to 2012 emitted 115 million tons of CO2 and that much of that can be attributed to biofuels.  It was during that time period that policy-driven biofuels production increased.

Why the increase…The researchers said that the carbon emitted from land clearing of soils runs contrary to the intent to reduce climate change and rather increases it instead.  It can take hundreds of years to recapture carbon stored in the soil.

An earlier report in this newsletter…The Intergovernmental Panel On Climate Change (“IPC.”) in its Reports (WGI and WGIII) said, “Biofuels have direct, fuel‐cycle GHG emissions that are typically 30–90% lower than those for gasoline or diesel fuels. However, since for some biofuels indirect emissions—including from land use change—can lead to greater total emissions than when using petroleum products, policy support needs to be considered on a case by case basis” (IPCC 2014 Chapter 8).  To read continue reading click here.

In conclusion…Did you catch that both reports said that the production of corn-based Ethanol can increase pollution?  The original purpose of Ethanol was to reduce our dependence on OPEC produced oil.  Now the frackers have done that and changed the balance of oil production power in the world.  And since it appears Ethanol production can lead to greater emissions, it’s now time to end this Federal Government subsidy and let the markets work.

What is the future of oil?

 Issue 119 – Marcellus Shale Development Expansion

Introduction…Renewable energy will have tremendous growth in the future.  However, one source of energy growth is expected to be the fastest growing power source to 2040.  This source is expected to contribute the most to future energy demands.

The source…According to The World Oil Outlook 2017 report, developed by the Organizaton of Petroleum Exporting Counties, stated shale natural gas and shale oil – will be the power source of the future.  Shale oil has been promoted as the most important non-OPEC energy source, with gas accounting for a growing percentage of energy consumption.

Conclusion…Past reports have said OPEC doesn’t like shale oil as it has been a strong competitor. So, this report appears to be an honest study of the future of the worlds energy sources.

OPEC Losing War With Fracking

OPEC Meeting Discussing Production Cuts- 98th Issue

Thanks to the shale revolution, U.S. production is up and costs have dropped significantly. Yet, OPEC is trying to increase prices by cutting its production.

First shale oil and now offshore deep-water oil are reducing their costs of production, making it more difficult for OPEC’s policies to have the intended effect. Shale oil production costs have come down significantly over the past several years, making its production profitable at below $40 a barrel.

Now, deep-water oil production is expected to bring down its costs to between $40 and $50 per barrel by early next year from an average break-even price of about $62 in the first quarter of this year and $75 in 2014. OPEC expects to keep oil prices between $50 and $60 a barrel by extending its production cuts for another nine months—keeping roughly 2 percent of global oil production off the market to increase prices.

Where is this going…As U.S. oil production increased in recent years, OPEC oil got edged out of the lucrative American oil market. America imported about 60 percent of its oil in 2007, but by 2014, the U.S. only imported 27 percent of its oil, according to government data. And now in 2016, net U.S. oil imported droped to 25% of its oil.  The rising U.S. oil production reduced demand for Saudi oil abroad, too, keeping prices low.

The Organization of the Petroleum Exporting Countries lost $76 billion in 2016 due to low oil prices caused by rising U.S. oil production, according to a report published May 15th by the U.S. Energy Information Administration.

In summary…Every U.S. President, since the 1973 Arab Oil Embargo has calling for U.S. energy independence.  Now the Frackers have accomplished just that by finding a way to be profitable in these low energy prices.  God bless the Frackers.

Source:  Tom Stepstone, “OPEC Cuts Production in Losing War with Fracking,” OIlPro, June 8, 2017;  Andrew Follett,  “OPEC Lost $76 Billion Last Year Due to US Fracking,” The Daily Signal, 16 May 2017

Saudi Arabia Oil Riches Decline Force Social Change

Saudi Arabia Amid Change- 95th Issue

Introduction…This blog has been documenting the shift in economic power from OPEC and its partners, to the frackers in the United States.  Even at a $50 per barrel price, plus or minus, U.S. producers have cut production cost nearly in half and billions of dollars are pouring into new production.

But, in Saudi Arabia, the low energy prices have forced painful change even in what may be the world’s most conservative.  Woman are joining the workforce and music can be found in the streets.  Even in what may be the world’s most conservative country. The government has stripped the notorious religious police of their power and the more than 3,000 guardians of morality, who terrorized women for wearing makeup and arrested unmarried couples for walking next to each other on the street, are a rare sight these days.

But what does it mean that Saudi King, the guardian of the holy cities of Mecca and Medina, has reined in the feared moral police?  And why have the fundamentalists gone silent rather than lament the loss of values?

Is the fairy tale ending?…The primary reason is the disappearance of Saudi Arabia’s fairy-tale riches. The kingdom is experiencing the deepest crisis since oil first produced in 1938.  The current low prices have led to a 50% drop in revenue.  In 2015, the government budget deficit ballooned to 90 million euros, and the country’s borrowing began.

In conclusion…Saudi Arabia was the pillar in the Middle Eastern order that no longer exists.  This order was destroyed by the Arab Spring, and the wars in Iraq, Syria, and Yemen (neighboring states.)  Now, Iran and Saudi Arabia are fighting over power in the region.  These events are threatening stability in the kingdom.

Source: Susanne Koelbl, “Tasting Freedom.  Saudi Arabia Experiments with Reform Amid Economic Downturn,” Spiegel Online International, 17 May 2017

$25 Trillion Investment Needed

  West Texas Drilling Rig

Introduction...We’ve been documenting the massive cuts in new oil and gas drilling programs.  Now we are seeing the results.  The world needs to invest US$25 trillion in new oil-producing capacity over the next 25 years to meet growing demand, Saudi Aramco’s chief executive Amin Nasser said at the World Economic Forum in Davos last Tuesday.

Demand is still healthy and oil “will be with us for decades”, CNBC quoted Nasser as telling a Wall Street Journal panel at the Davos forum. The global oil and gas industry needs to expand and requires more investment, Nasser said.

In summary…Wood Mackienzie sees E&P global spend rise with about 3 percent in 2017 to around $450 billion. According to WoodMac’s Malcolm Dickson, ‘’companies will get more bang for their buck,”as internal rates of return jump from 9 to 16 percent, comparing 2014 to 2017.

Source: Tsvetana Paraskova, $25 Trillion Invesement Needed To Meet Future Oil Demand, OilPrice.com, 17 Jan 2017

Saudi Arabia Oil Production Cuts Push Oil Up

 U.S. Oil Production Falls

Introduction…Oil prices rose on Friday as a result of a strong draw to U.S. oil inventories and early signals that OPEC is following up on their pledge to cut output

Oil prices are set to end the week slightly up from where it started, following a few rocky days of trading. After a sharp correction, earlier in the week, oil regained ground on a steep fall in crude oil inventories. Still, the gains would have been much larger if not for the fact that U.S. gasoline stocks rose sharply. Nevertheless, oil is starting off the year on a positive note, and early signs of OPEC compliance (more below) are buoying the market.

Tesla gigafactory starts up. Tesla (NYSE:TSLA) announced that its gigafactory has started commercial production of batteries at its much-hyped gigafactory in Nevada. The inauguration of mass battery production marks a new era for the energy industry. The gigafactory could lower the cost of batteries for electric vehicles as well as home energy storage systems. Tesla says that at peak production, slated for 2018, the factory will add as much battery capacity to the global market as the rest of the world currently produces.

U.S. to become net-energy exporter. The EIA released its Annual Energy Outlook 2017, with projections out through 2050. The report estimates that the U.S. will become a net-energy exporter in the years ahead under most of its possible scenarios. That is largely due to falling oil imports and rising natural gas exports. The higher energy prices go, the quicker the U.S. becomes a net-exporter.

In Conclusion…It’s too early to tell which OPEC and Non-OPEC countries will stay with the recent production cuts agreed to.  However, it appears that Saudii Arabia is meeting its lower target.  Time will tell who is cheating.