Tag Archives: #OPEC

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.

On Saudi Pledge Oil Climbs To 17-Month High

Bloomberg: Non-OPEC Producers Join Deal to Cut Production

Introduction:  Largest oil producers strengthen commitment to tighten supply, Non-OPEC countries agree to trim output 558,000 barrel per day next year.

Oil advanced to the highest since July 2015 after Saudi Arabia signaled it’s ready to cut output more than earlier agreed and non-OPEC countries including Russia pledged to pump less next year.  WTI closed Monday at $52.83 P/B.

Futures climbed 2.6 percent in New York and 2.5 percent in London. Saudi Energy Minister Khalid Al-Falih said Saturday the biggest crude exporter will “cut substantially to be below” the target agreed on last month with members of OPEC. His comments followed a deal by 11 non-OPEC countries to join forces with the group and trim output by 558,000 barrels a day next year, the first pact between the rivals in 15 years.

U.S. oil futures have gained almost 20 percent since the Organization of Petroleum Exporting Countries agreed on Nov. 30 to cut output for the first time in eight years. Saudi Arabia, which initiated OPEC’s decision in 2014 to pump without limits, is leading efforts to regain control of the market. The OPEC and non-OPEC plan encompasses countries that produce about 60 percent of the world’s crude.

OPEC Collaboration…”The main impact of the non-OPEC collaboration is to pull the global market into balance, if not in deficit, in the second quarter of 2017, rather than in the third quarter,” said Sarah Emerson, managing director of ESAI Energy in Wakefield, Massachusetts. “On an annual average basis, this pushed the global balance into a 200,000 to 300,000 barrel-a-day deficit for the year.”

Oil prices at $60 a barrel would be “ideal” for OPEC as higher levels risk sparking a recovery in competing supplies from the U.S., Nigerian Minister of State for Petroleum Emmanuel Kachikwu said in a Bloomberg Television interview.

Conclusion…U.S. exporters rushed back to the shale patch with the largest weekly addition of oil rigs since July 2015 according to Baker Hughes.  OPEC deal cous drain almots half of the global oil surplus.

Sources:  Mark Shenk, Oil Climbs to 17-Month High on Saudi Pledge, Non-OPEC Output Cut, Bloomberg, December 11, 2016; Gran Smith, OPEC-Russia Deal Could Drain Almost Half the Global Oil Surplus, Bloomberg December 12, 2016; Non-OPEC oil producer to cut output 558,000 barrels a day, CNBC, December 10, 2016

New Shale Boom On Horizon?

w-texas-oil-boom Oil Shale Boom?

OPEC surprised the markets when for the first time in eight years’ oil production limits will be put in place at its November meeting. The September 29th announcement from OPEC sent markets up by almost $3 per barrel.   The rally continued with the WTI week closing at $48.24.

Hundreds of oil and gas bankruptcies are an ugly background for recent predictions for continued records inventory levels.

The projected changes would be caused by an unprecedented agreement between arch-rivals Saudi Arabia and Iran.

In its announcement, OPEC stated:

“In the last two years, the global oil market has witnessed many challenges, originating mainly from the supply side. As a result, prices have more than halved, while volatility has increased. Oil-exporting countries’ and oil companies’ revenues have dramatically declined, putting strains on their fiscal position and hindering their economic growth. The oil industry faced deep cuts in investment and massive layoffs, leading to a potential risk that oil supply may not meet demand in the future, with a detrimental effect on security of supply.”

“The Conference opted for an OPEC-14 production target ranging between 32.5 and 33.0 mb/d, in order to accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward.”

“What we are looking at here at the very least is a freeze,” Paul Sankey host of the conference call said. “We were looking for more OPEC production growth but now we no longer think so.”

Why did OPEC do it?

“With weaker demand predicted through 2017 they could see a rough market coming,” the analyst theorized. “Being a cartel the economics were overpowering: a 10 percent cut could give as much as a 30 percent rise in oil prices.

In conclusion...If a 30% oil price rise is realized, then oil shale could boom again.

Reference:  September 30, 2016, Will The OPEC Deal Lead To A New Shale Boom? Oil & Gas 360, www.oilandgas360.com

Possible OPEC Production Freeze

OPEC Counries

Oil prices enjoyed a bump last week,…thanks in part to a weakened dollar and some geopolitical tensions in the Persian Gulf. But a large factor in the recent rally has been the return of a possible OPEC production freeze, a subject that was last tossed around before the organization’s much-publicized, and ultimately unproductive, meeting in Doha last April. The likelihood of a freeze sent markets up on Thursday, though some less-than-confident comments from the Saudi oil minister sent them dropping back on Friday.

Whether a freeze occurs or not is likely to be the trending gossip among speculators for the next month, at a time when such talk is exerting greater-than-average pull on the crude price. But a question worth asking is whether a freeze is even possible, given the state of OPEC and the increasingly divergent interests of its fourteen members.

This new attempt at a production freeze comes as Saudi Arabia, OPEC’s largest producer and de facto leader, reaches a new production record of 10.67 million barrels, more than 400,000 more than when the last freeze was discussed, while its oil revenues continue to plummet. OPEC profits have fallen 55 percent since 2014, according to the EIA. Ecuador, Kuwait and other Gulf producers want the price to recover past $50 a barrel. If a production freeze is on the cards, it will be discussed in late September during an informal meeting of the OPEC states at the International Energy Forum in Algeria.

Iraq and Iran, OPEC’s number two and three producers, respectively, have offered tacit acceptance of a production freeze, with important caveats. S

Conclusion…So, if there is a freeze, where will production be “frozen,” exactly?  What is possible, however, is that continued talk of a freeze will continue to exert influence over the market, which has see-sawed between bearish and bullish for weeks now.

Reference: Is An Oil Production Freeze Even Remotely Possible, Oil Price, by Gregory Brew, August 29, 2016