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March

[Mar 29, 2016] Oil bust claims another 1,100 jobs across Texas

Fuel Fix

Sub-$40 oil claimed more than 1,100 jobs across Texas in recent weeks, the Texas Workforce Commission detailed on Tuesday.

The lost jobs included 500 jobs in Harris County at international supermajor BP, 608 positions at the tank car division of Trinity Rail in Gregg and Harrison counties in East Texas, 60 jobs at Cudd Energy Services in Bexar County and 65 at Rotary Drilling Tools in Fort Bend County.

BP spokesman Jason Ryan said the cuts were part of the about 4,000 upstream jobs its plans to eliminate in 2016. The company is also aiming to trim about 3,000 downstream jobs by the end of 2017.

... ... ...

BP has taken around $1.5 billion in restructuring charges over the past five quarters and expects the total to approach $2.5 billion by the end of 2016. The company has also sold $10 billion in assets since October 2013 and plans to sell an additional $3-5 billion during 2016.

Overall, the company said it has lowered the cash costs its controls by $3.4 billion in 2015 compared to 2014, and said it expects to hit $7 billion in savings by 2017.
Mar 29, 2016

Allen Kitchen

So why has the price of Gas shot up so much in the last couple of weeks? 50% jump while the price of the oil is unchanged?

Jordan Blum · Houston, Texas

http://www.houstonchronicle.com/.../Houston-motorists...

Rob Banks · Houston, Texas

Refineries are switching to summer blend. Typical this time of the year. It will peak around Memorial Day, if no other purprises. Be grateful it's still under $2.

Science-liberation For-all

Typical corporate America earning record profits but laying off people. These people getting layoffs are the same that vote republican so no real sympathy.

[Mar 29, 2016] Looks like Libya' civil war is far from over

Notable quotes:
"... The problem for the international community is while destroying ISIS is their stated priority, both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp believes it is an existential threat, so the priority for both camps is fighting each other. ..."
peakoilbarrel.com

likbez, 03/29/2016 at 10:51 pm

Looks like Libya' civil war is far from over. From Richard Galustian ( https://twitter.com/bd_richard )

The problem for the international community is while destroying ISIS is their stated priority, both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp believes it is an existential threat, so the priority for both camps is fighting each other.

[Mar 29, 2016] The Boom and Bust of Sub Prime Oil

peakoilbarrel.com

ezrydermike , 03/28/2016 at 2:43 pm

Shale Euphoria: The Boom and Bust of Sub Prime Oil and Natural Gas

Introduction

The aim of this article is to show that the shale industry, whether extracting oil or gas, has never been financially sustainable. All around the world it has consistently disappointed profit expectations. Even though it has produced considerable quantities of oil and gas, and enough to influence oil and gas prices, the industry has mostly been unprofitable and has only been able to continue by running up more and more debt. How could this be? It seems paradoxical and defies ordinary economic logic. The answer is to be found in the way that the shale gas sector has been funded. It is part of a bubble economy inflated by monetary policy that has kept down interest rates. This has made investors "hunt for yield". These investors believed that they had found a paying investment in shale companies – but they were really proving that they were susceptible to wishful thinking, vulnerable to hype and highly unethical practices that enabled Wall Street and other bankers to do very nicely. Those who invested in fracking are going to lose a lot of money.

http://www.credoeconomics.com/shale-euphoria-the-boom-and-bust-of-sub-prime-oil-and-natural-gas/

ezrydermike , 03/28/2016 at 2:46 pm
Energy policy and uninformed opinion
Kurt Cobb

"America's tradition of anti-intellectualism puts a low premium on careful thinking, allowing the substitution of slogans for analysis. The current presidential campaign should be evidence enough of how true this is.

But there is another reason for resistance to careful thinking; it can be difficult and distressing, especially if it leads to conclusions that are uncomfortable or contrary to our current beliefs. Which brings us back to John Kenneth Galbraith who once said: "The conventional view serves to protect us from the painful job of thinking."

Conventional thinking is all we are likely to get out of polls and explains why serious energy policy thinkers continue to run up against opposition to what for a long time has been sensible energy policy, namely, dramatically reducing energy use through efficiency and conservation measures and rapidly switching to renewable sources such as wind and solar–sources that do not create the triple threat of depletion, pollution and climate change posed by fossil fuels."

http://resourceinsights.blogspot.com/2016/03/energy-policy-and-uninformed-opinion.html

[Mar 29, 2016] Does Saudi Arabia's Play For Market Share Make Sense

www.zerohedge.com

Another round of disinformation from Zerohedge...

Zero Hedge

Submitted by Tyler Durden on 03/29/2016 13:26 -0400

Submitted by Dwayne Purvis via OilPrice.com,

Props to Saudi Arabia. Unlike other producers, including U.S. shale producers, it maintained financial strength and flexibility during the last boom. When it began to shift the paradigm of global supply, the kingdom was explicit about its goal - market share - even if it didn't always trumpet the proactive steps it was taking towards that goal. The now-evident objective of low prices, having been achieved and sustained, begs the question of why Saudi Arabia defended its market share.

The position of Saudi Arabia among producers in 2014 resembled the position of Germany in the European Union in prior years. Both had maintained financial strength despite the prodigal habits of other members, and both were called upon to make unique sacrifices to rescue their neighbors. Germany had closer ties to its partners and seemed to see the ultimate benefit of helping. Perhaps because it didn't have such ties, Saudi seems to have weighed the benefits differently. Indeed, Saudi had no moral obligation or economic need to sacrifice itself in order to redirect wealth to other producers.

Their actions suggest that they intended to drive prices toward a basement price -stepping supply up when prices reached the $60s, slowly tuning it down when prices hit the $40s and below, and increasing its capacity for production even as prices fell. The recent address of Saudi Oil Minister Ali Al-Naimi in Houston was straightforward and polite, but it might be crudely paraphrased as, "Get used to the low prices. Adapt or die."

The possibility of his bluffing is belied by historical actions. As recently as Monday, the OPEC report on monthly volumes showed the kingdom continuing to produce more than half a million barrels a day above its rates in late 2014. Saudi Arabia has had the will and means to drive prices, giving market forces some push.

As oil has been its only resource and industry of value, the kingdom has treated the business as the treasure that it is. The centuries-long fate of the royal family and its kingdom depends upon how they manage themselves during the era of oil, particularly the epoch of increasing demand. Surely, the highly intelligent, disciplined and motivated planners knew the short-term consequences of the actions which the rest of the world is just beginning to appreciate fully. And even last month, Minister Al-Naimi professed the acceptability of $20 oil.

Normally the benefit of market share is obvious-increased revenue and increased performance. This assumes, however, stable prices and economies of scale. If one maintains market share, or even gains a few percent, but prices drop by 50 or 70 percent, then revenue drops to half or a third of what it had been. Said differently, the Saudis could have absorbed all of the increasing production from the rest of the world, dropped their production by half to about 5 million barrels per day (mb/d) and still have had the same or more revenue than they have enjoyed during this transition. Market share is not its own reward. Evidently Saudi Arabia has some strategic plan that results in its making more money in the long run than it is losing in the short run.

Perhaps the Saudis view 'market share' not just in terms of oil production but in terms of total energy use. By 2014 shale oil had posted an acute rise in supply, and other high-cost sources like oil sands were building momentum. Natural gas and renewables were tracking their own, chronic ascent. Moreover, the high cost of oil created incentives toward alternatives, both unconventional oil and non-oil forms, and global demand growth for liquid oil was forecast to grow below historical trends due to conservation and lesser economic activity. Minister Al-Naimi has said that oil demand would peak long before supply. Before the current price crash, that peak demand was within sight, perhaps 2040 give or take a decade. High prices were slowly killing the goose that lays the golden eggs.

If the strategic focus on market share does not involve increased revenue or efficiencies, then the market power is the only compelling explanation for the strategy. With power they can perhaps maximize their own decades-long revenue stream rather than passively treat their national treasure as a cash cow, perhaps exerting some control over their own destiny rather than ceding to less economically rational sources.

The new paradigm of supply/demand balance seems to have at least two major tenants: Price should be low enough to discourage run-away supply and perhaps to encourage the use of oil. Saudi Arabia may cooperate but will not unilaterally support prices. Around these pillars are two routes back to prices which can sustain long-term supply: slow rebalancing as supply slides and demand creeps, with cooperation for widespread cuts. Or prices could recover by a challenge to the new paradigm, namely conflict to threaten or to interrupt even a small portion of supply.

A freeze in production growth as headlined in the last month would be a mostly irrelevant step on the first route or a minor step towards the second route. The large majority of OPEC production comes from countries not able or not inclined to increase production. With Iran still adamantly and publicly opposed, the idea of a freeze in supply growth is more publicity than policy change. Perhaps the most important take-away is that Saudi Arabia has signaled that its floor price is somewhere above $30.

Even if cooperation cannot be achieved, the rest of the world may not remain a hapless victim of Arabian pricing power. Oil consumers may appreciate the drop, but countries like Russia and Iran do not. T hey also have motives and objectives similar to those of Saudi Arabia; they desperately need oil revenue. Only they have different forms of power at their disposal to influence oil price.

Looney

He had me at " The centuries-long fate of the royal family and its kingdom depends upon…".

The Kingdom of Saudi Arabia was established in 1932.

Looney

Theonewhoknows

What did I say? What did I say before? "I am interested how the attempt to bankrupt Russia with low oil price will backlash the US budget and its 80% indebted shale sector (now stabbed by Saudis pushing their competition out of the market).
Read http://independenttrader.org/will-oil-price-stop-falling.html

TradingIsLifeBrah

We have seen before that the numbers provided for production do not match the numbers for oil in storage. There is less oil in storage than there should be if the production numbers were true. What Saudi Arabia is doing is they tell the world they are producing a certain amount and they actually produce much less. They get to slam the price of oil down as everyone goes off the headline numbers of massive production growth but in truth Saudi Arabia keeps their real oil for after their competitors go out of business and the price of oil goes back up. There was an article on ZH about the differences in Production and Storage numbers and "no one" can figure out what is happening. Saudi Arabia is playing chess on the oil fields.

erk

SA has barely increased it's output by 10% over the last decade, meanwhile the US increases it's output by 60% this article is obviously biased.

In.Sip.ient

If declining revenue is success, then the Saudi strategy is truly a "success"

OTOH, you gots to wonder what genius came up with that strategy...

Realistically, a simple 2% reduction in supply would triple the

price fo oil... so which "strategy" do you choose if you want

to make money on a diminishing resource???

[Mar 29, 2016] Russia could face long gradual decline in oil

oilprice.com

Russia's oil output hit a post-Soviet record of 10.9 mb/d in January 2016, but that could be a ceiling as the country's massive oil fields face decline. The bulk of Russia's oil output comes from its aging West Siberian fields, which require ever more investment just to keep output stable. The depreciation of the ruble has helped a bit, lowering the real cost of spending on production and allowing Russian companies to increase investment by one-third this year. However, some long-term projects are being pushed off due to the financial squeeze from western sanctions and low oil prices. An estimated 29 projects, amounting to 500,000 barrels per day in new production, have been delayed. With most of Russia's large oil fields having been under production since the Soviet era, and with precious few new sources of supply, Russia is facing long-term decline.

[Mar 29, 2016] Investors start shorting Texas banks

OilPrice.com

Short sellers have begun targeting Texas banks with ties to the energy industry, betting that damaged oil and gas drillers will impair their lenders as well. Short bets on regional banks in Texas increased by 35 percent so far this year. Energy loans typically make up only a small portion of most banks' lending portfolio. But for banks where energy makes up more than 4 percent of their portfolio, their share prices have plunged more than 22 percent.

[Mar 29, 2016] Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February

Notable quotes:
"... "There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning." ..."
"... Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed. ..."
finance.yahoo.com

OPEC and other major suppliers, including Russia, are to meet on April 17 in Doha to discuss an output freeze aimed at bolstering prices.

But with ballooning global inventories, signs some OPEC members are losing market share, plus little evidence of a strong pick-up in demand, analysts said oil is likely to trade in a range.

"There is a rebalancing on the way, but we are still running a surplus and stocks are building up as far as we can see," SEB commodities analyst Bjarne Schieldrop said.

"There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning."

Data on Monday from the InterContinental Exchange showed speculators hold the largest net long position in Brent futures on record. [O/ICE]

U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh straight week, while refined product inventories likely fell, a preliminary Reuters survey showed late on Monday.

Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed.

[Mar 29, 2016] Jefferies Has 3 Top Oil Stocks to Buy for a Return to $50 Oil

247wallst.com

While the recent surge of oil seems to have run into a wall at $40, one thing seems to be in place. The market lows appear to have been put in with the drop into the mid-$20s and subsequent bounce back, and at least one top firm we cover here at 24/7 Wall St. thinks the low for the cycle is in.

A new Jefferies research note says that for the first time in history global capital expenditures in the energy industry will have fallen for two consecutive years. In addition, a combination of demand growth and non-OPEC production declines could very well set the stage for a $50 price handle by the end of this year.

[Mar 29, 2016] Saudi Arabia is also prioritizing refined product exports, which fetch higher prices

Notable quotes:
"... But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share in some places, it is also taking stakes in large refineries around the world, helping it to lock in customers for its crude. ..."
oilprice.com
OilPrice.com

Over the past three years, Saudi Arabia has lost market share in nine out of the top 15 countries to which it exports oil, according to the FT. That comes despite a ramp up in production since November 2014. For example, Saudi Arabia's share of China's oil imports declined from 19 percent in 2013 to near 15 percent in 2015. Likewise, Saudi Arabia saw its market share in the U.S. drop from 17 to 14 percent over the same timeframe.

But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share in some places, it is also taking stakes in large refineries around the world, helping it to lock in customers for its crude.

Meanwhile, according to the latest data, Saudi Arabia's cash reserves dwindled to $584 billion as of February as the oil kingdom tries to keep its economy afloat and preserve its currency. That is down from a peak of $737 billion in August 2014.

[Mar 29, 2016] Government admits oil was the reason for war in Iraq

Notable quotes:
"... Iraq war and its aftermath failed to stop the beginning of peak oil in 2005 ..."
"... I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company and weapons complex interests. But the overriding interest seems to have been the neocon strategy to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli puppet the conflict will intensify. ..."
"... What I outlined above is a distilled version of writings/books by former CIA analyst Michael Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated recent material written about ISIS and its birthing at the US Army's Camp Bucca. ..."
crudeoilpeak.info
Matt Mushalik, 03/24/2016 at 3:37 pm
Tony Blair is right: without the Iraq war there would be no Islamic State
http://www.theguardian.com/world/2015/oct/25/tony-blair-is-right-without-the-iraq-war-there-would-be-no-isis

16/3/2013
Iraq war and its aftermath failed to stop the beginning of peak oil in 2005
http://crudeoilpeak.info/iraq-war-and-its-aftermath-failed-to-stop-the-beginning-of-peak-oil-in-2005

Uploaded 5/7/2007
Government admits oil is the reason for war in Iraq
https://www.youtube.com/watch?v=j7t_u641NyM Reply

Fernando Leanme , 03/25/2016 at 4:58 am
I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company and weapons complex interests. But the overriding interest seems to have been the neocon strategy to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli puppet the conflict will intensify.

What I outlined above is a distilled version of writings/books by former CIA analyst Michael Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated recent material written about ISIS and its birthing at the US Army's Camp Bucca.

[Mar 28, 2016] Major producers reduce capital spending and cut their drilling programs significantly in some instances

Notable quotes:
"... Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in January, decreasing about 11,000 barrels per day (b/d), or less than 1%, vs. the previous month, the latest analysis showed. This marks the sixth month since June 2015 that the Eagle Ford shale has continued its trend of decline. Similarly, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped slightly. It was down 12,000 b/d, or just over 1%, on a month-over-month basis in January. This continued the trend of marginal decline that began last summer. ..."
"... "A number of major producers (outside the Northeast) have stated that they will reduce capital spending and cut their drilling programs significantly in some instances," said Yahya. "Those producers will have to complete their DUCs in order to sustain their production levels. Efficiency gains are not enough anymore to help keep production volumes afloat." ..."
"... I agree Eagle Ford output has declined, especially from March 2015 to August 2015. The rate of decline has slowed since then by a factor of 2. I agree that Texas output may not have increased in Jan, I think it was probably flat to down slightly from Dec 2015. ..."
peakoilbarrel.com
Dennis,

The EIA has been underestimating oil production in Texas in 2015, and had to revise upwards its numbers when it changed its methodology, which is now based on producers' surveys. I do not exclude that the numbers for Texas production in 2015 can again be slightly revised, but:

  1. I still think that there was a downward trend in EFS last year;
  2. I doubt that production in the Eagle Ford and Texas in general has increased in January 2016.

Apart from the DPR, EIA regular monthly production statistics (based on producers' surveys); the numbers from DrillingInfo (see one of my charts) and some other sources still show a declining trend.

This includes statistics from Bentek Energy (apologies for a long quote):

Report: Production in Bakken, Eagle Ford drops slightly in January

March 7, 2016

http://www.ogfj.com/articles/2016/03/report-production-in-bakken-eagle-ford-drops-slightly-in-january.html

Production in the Eagle Ford and Bakken shale plays dropped slightly in January vs. December 2015, according to Platts Bentek, an analytics and forecasting unit of Platts.

Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in January, decreasing about 11,000 barrels per day (b/d), or less than 1%, vs. the previous month, the latest analysis showed. This marks the sixth month since June 2015 that the Eagle Ford shale has continued its trend of decline. Similarly, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped slightly. It was down 12,000 b/d, or just over 1%, on a month-over-month basis in January. This continued the trend of marginal decline that began last summer.

The average oil production from the South Texas, Eagle Ford basin in January was 1.4 million barrels per day. On a year-over-year basis, that was down about 200,000 barrels per day, or about 13%, from January 2015, according to Sami Yahya, Platts Bentek energy analyst. The average crude oil production from the North Dakota section of the Bakken in January was 1.2 million b/d, about 3% lower than year ago levels, he said.

"Current internal rates of return in both the Eagle Ford and Bakken shales are weak, under 10%," said Yahya. "And producers need to continue generating cash flow for their operations. The number of active rigs in those basins has gotten so low that it is almost a certainty that producers are dipping into their inventory of drilled but uncompleted wells. Those wells are cheaper to complete since the drilling costs are already sunk."

Yahya pointed to the new analysis conducted by Platts/Bentek of the drilled but uncompleted (DUC) wells for many of the major shale basins. According to the results, current DUC inventories total 831 wells in the Williston Basin. In the Eagle Ford Basin, there are approximately 1,022 wells that are awaiting completion. These figures refer to wells drilled between the start of 2014 and October 2015. These well inventories disregard more recent wells because of the difficulty in distinguishing between wells that have been intentionally left uncompleted and wells that are simply in the process of being completed.

"A number of major producers (outside the Northeast) have stated that they will reduce capital spending and cut their drilling programs significantly in some instances," said Yahya. "Those producers will have to complete their DUCs in order to sustain their production levels. Efficiency gains are not enough anymore to help keep production volumes afloat."

AlexS , 03/25/2016 at 8:33 am
It is important to not that the discrepancy between various estimates of oil production in the Eagle Ford is partly due to differences in the geographical area included in EFS.

The number of Texas counties included in EFS area varies from 14 to 30.

Dennis Coyne , 03/25/2016 at 8:39 am
Hi AlexS,

I agree Eagle Ford output has declined, especially from March 2015 to August 2015. The rate of decline has slowed since then by a factor of 2. I agree that Texas output may not have increased in Jan, I think it was probably flat to down slightly from Dec 2015.

George Kaplan , 03/24/2016 at 2:23 pm
Go here:

http://www.rrc.state.tx.us/oil-gas/research-and-statistics/production-data/monthly-crude-oil-production-by-district-and-field/

And open any of the month's entries. Delinquent leases is in third column – e.g.

http://www.rrc.state.tx.us/media/32807/own423_20160317_rrc180_jan2016.pdf

Dean , 03/24/2016 at 2:56 pm
Thanks!
dclonghorn , 03/24/2016 at 2:33 pm
Dean
I just posted those links on the prior thread. Here's January
http://www.rrc.texas.gov/media/32807/own423_20160317_rrc180_jan2016.pdf
Dec
http://www.rrc.texas.gov/media/32421/own423_20160212_rrc180_dec2015.pdf
Nov
http://www.rrc.texas.gov/media/32022/own423_20160113_rrc180_nov2015.pdf
dclonghorn , 03/24/2016 at 2:44 pm
First month delinquent leases dropped from 9048 in NOV to 5014 by January 16. Second month delinquent leases dropped from 1292 for Oct 15 to 817 for Dec 15.
Texas seems to be doing something to get the data in quicker. This may mean that the reported increase is due to better reporting of declining production. It is hard to say without a lease by lease analysis.
Dean , 03/24/2016 at 2:56 pm
Thanks!
Dennis Coyne , 03/24/2016 at 4:50 pm
Hi Enno,

The drop in Eagle Ford oil output, when we account for incomplete data is from about 1300 kb/d in March 2015 to 1140 kb/d in Aug 2015, since then the decline has been modest to about 1070 kb/d by Nov 2015. I used your awesome website to get the RRC numbers for the Eagle Ford and then assumed the amount of "missing" data is uniform throughout Texas, the assumption may not be valid. When I have used this method in the past it has given fairly good estimates. The estimate actually matches the DPR estimate fairly well through Nov 2015. The December and January estimates are higher than the DPR, based on my Eagle Ford Model, I think the DPR estimate is too low. Time will tell.

AlexS , 03/24/2016 at 8:02 pm
Dennis, Enno, Dean

The EIA has recently released estimates of U.S. shale gas and LTO production, which are based on DrillingInfo data.
They can be found here (excel files):
http://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm

The numbers for Eagle Ford are slightly lower than in the DPR, as the DPR data includes some conventional production in the "Eagle Ford region". Both sources show a visible declining trend in output from the peak in March 2015.

The EIA/DrillingInfo estimate for January 2016 is 1230.3 kb/d vs. 1332.5 kb/d in the latest issue of the DPR.

C+C production in the Eagle Ford (kb/d)

shallow sand , 03/24/2016 at 11:31 pm
Hey guys, Kind of busy right now, but taking a quick look.

I suggest comparing specific company EFS production on the RRC site to what is reported in the company's 2015 10K's and/or press releases.

For example, I took a quick look at MRO's 10K and press release. They break down production by region and have EFS broken out separately.

Two issues to keep in mind. First, the production amounts in the 10K, etc are net of royalties. Second, hard to know how many company operated wells have non-operated working interest owners, plus how many non-operated working interests they own that would show up under a different operator on RRC website.

However, comparing 10K/press release to RRC data may offer some clues. Also, companies typically report number of completions by area/basin also. Could compare to RRC data also.

Fernando Leanme, 03/25/2016 at 5:51 am
The LTO production drop appears to offset the offshore project increases forecasted for 2016. Remember the EIA forecasts from last year? They were forecasting beefier USA production, weren't they?
AlexS, 03/25/2016 at 6:44 am
"The LTO production drop appears to offset the offshore project increases forecasted for 2016"

Not exactly

Enno Peters, 03/25/2016 at 6:50 am
Great graphs as always Alex.
AlexS, 03/25/2016 at 7:55 am
Thanks Enno,

the latest graph is from this EIA presentation:
http://www.eia.gov/pressroom/presentations/gruenspecht_02172016.pdf

Enno, 03/25/2016 at 8:12 am
Thanks Alex,

To all following this discussion, the last slide has a revealing graph on the decline in completions in th EF.

Fernando Leanme , 03/25/2016 at 9:19 am
I'll be damned, I could swear that plot you show confirms my point. Thus far it sure looks like the offshore won't make up the losses, 2016 will be down about 0.5 mmbopd versus 2015. Time will tell if it can reverse the decline. It depends on the oil price later this year, I suppose.
Dennis Coyne , 03/25/2016 at 11:14 am
Hi Alex,

Through quarter 1 of 2016 Fernando's statement is roughly correct, remember that all forecasts tend to be incorrect.

Chart below has a revised Eagle Ford model using data from Enno's website to construct a well profile used from July 2014 forward, I used my old well profile for Jan 2010 to June 2014. From Jan 2016 to Dec 2016 the model assumes 146 new wells are completed per month. The 2014 well profile was used for first 25 months and then the old well profile from months 26 to 139. EUR is 131 kb at 24 months, 173 kb at 60 months and 209 kb at 139 months when the well is shut in at 10 b/d.

Enno's blog is at

https://shaleprofile.com/

Enno Peters , 03/25/2016 at 11:41 am
Dennis,

I think your projected 146 wells / month in 2016 is highly unrealistic.

EF, only oil wells & oil rigs:
2013 : 215 wells starting / month, avg 193 rigs, thus 1.1:1
2014 : 252 wells starting / month, avg 200 rigs, 1.26:1

Latest rig count : 37
Even if the rig efficiency improved over the last year, like we've seen in the Bakken, say to 1.5, that would still be a far cry from 146.

Dennis Coyne , 03/25/2016 at 3:58 pm
HI Enno

There are DUCs. The rig count can increase.
What is your estimate for wells completed in 2016?

I have tended to underestimate, I agree 146 may be optimistic but over 200 wells were added to the schedule in February 2016. There have been times when wells completed were 2x the rigs

Enno Peters , 03/25/2016 at 4:12 pm
Dennis,

I have no clue, but I expect it to be << 146 wells/month.

One indication is EOG :
In 2016, " EOG plans to complete approximately 150 net wells in the Eagle Ford, compared to 329 net wells completed in 2015″

EOGs output (not corrected for net revenue interest) was a little over 20% of EFs output in October. As a very simple rough estimate I therefore would take something like 5 * 150 = 750 wells = just over 60 wells / month. So, somewhere between 40 – 90 wells / month?

AlexS , 03/25/2016 at 12:05 pm
Dennis,

the chart below shows that the number of well completions in the Eagle Ford in December 2015 was around 125.
Since then, the rig count dropped significantly.
The number of well completions may have not declined as much due to the DUCs. But 146 completions on average for 2016 seems too high.

Dennis Coyne , 03/25/2016 at 3:00 pm
HI Alex S

Perhaps.

It depends on oil prices. I doubt oil prices will remain low in February 200 oil wells were added to the schedule. Note that the total wells reported on February 1 was similar to Enno's count.

Dennis Coyne , 03/25/2016 at 9:18 am
Hi AlexS,

The drillinginfo data is better, but still relies on RRC data which is incomplete.

The "oil wells on schedule data" may also be incomplete, but so far the well completion rates through Feb 2016 have not slowed much in the Eagle Ford. Output has declined less than 100 kb/d since Aug 2015 in my estimation.

Guy Minton , 03/24/2016 at 2:48 pm
"My guess is that the data processing in Texas has been improving dramatically over the past 7 months." Where have I heard that before? Oh, yeah, I said it several months ago, and got roundly pooh, poohed.

It has gotten to be a small town since they were completing 2200 wells a month in 2014. Of course it has gotten faster, and there is not going the huge increases expected on prior months that had been anticipated. The producers are faster, and so is RRC.

Let's talk about the great and mighty "drilling efficiency". I admit there has been a measurable amount of drilling efficiency, but what they are mainly deriving the most recent number from is from mainly drilling in the sweet spots. Duh, yes it looks more efficient overall, because of heavy drilling in areas that may get 250,000+ barrels the first year. That is not the norm for the Eagle Ford, for sure. From what I can tell from looking, is that the DUCs are accumulating in the areas that get less than 120,000 barrels the first year. Some of those are significantly less than 120k, so they may be completed to keep the leases before price gets to $70, but it will have to be offset by the sweet spots to keep cash flow intact. Only what they have to.

[Mar 28, 2016] Despite High Debt Levels Energy Investors Remain Undaunted

Mar 25, 2016 | OilPrice.com
Bad energy debt to exceed good energy debt. The number of energy loans that are in danger of default could jump above 50 percent this year, according to The Wall Street Journal, presenting some problems for several major banks. Lenders are starting to back away from new loans, declining to renew credit, and selling off bad debt. That could slash the available credit lines for some struggling oil and gas producers this year, potentially raising some liquidity pressure on E&P companies. (Coming to the Oil Patch: Bad Loans to Outnumber the Good )

An estimated 51 oil and gas companies have fallen into bankruptcy since early 2015. The periodic credit redetermination period is coming up, which could result in credit lines offered to energy companies being reduced by 20 to 30 percent. The total debt in the entire oil and gas sector hit $3 trillion in 2014, or about three times higher than 2006 levels.

... ... ...

Oil industry still able to access capital. Despite posting record losses in potentially seeing credit lines cut, several oil companies have returned to the equity markets, where they are still being welcomed with open arms. Reuters reports that at least 15 oil companies have announced new offerings in 2016, with minimal damage to their share prices. The companies surveyed have outperformed an oil and producers index by 3 percent on average.

But another way of looking at that statistic is that only well-positioned companies have issued new stock.

Companies like Pioneer Natural Resources (NYSE: PXD), Callon Petroleum Co (NYSE: CPE), and Oasis Petroleum (NYSE: OAS) have performed better than some of their peers since announcing new stock offerings. Shareholders seem willing to provide companies with new cash infusions.

"People would rather they have money in their pocket and survive," Irene Haas, analyst at Wunderlich Securities, told Reuters. "They'll worry about dilution later." U.S. oil and gas exploration companies have issued a combined $10 billion in new equity this year.

[Mar 27, 2016] In 2015, the seven biggest publicly traded Western energy companies replaced just 75 percent of the oil and natural gas they pumped

peakoilbarrel.com
Greenbub, 03/27/2016 at 8:27 pm
http://www.marketwatch.com/story/oil-giants-draining-reserves-at-faster-pace-2016-03-27

"In 2015, the seven biggest publicly traded Western energy companies, including Exxon Mobil Corp. and Royal Dutch Shell PLC, replaced just 75% of the oil and natural gas they pumped, on average, according to a Wall Street Journal analysis of company data. It was the biggest combined drop in inventory that companies have reported in at least a decade."

[Mar 25, 2016] An interesting article on resilience.com on shale debt

Notable quotes:
"... That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020? ..."
"... Still this is "too late to drink mineral water to cure your liver, damaged by binge drinking" type of the situation. ..."
peakoilbarrel.com

Heinrich Leopold , 03/24/2016 at 10:33 am

There is an interesting article on resilience.com on shale debt:
http://www.resilience.org/stories/2016-03-25/shale-euphoria-the-boom-and-bust-of-sub-prime-oil-and-natural-gas

That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020?

AlexS , 03/24/2016 at 10:44 am
Heinrich Leopold,

The chart from Bloomberg shows cumulative debt payments, not annual.

likbez , 03/24/2016 at 10:54 am
Alex,

Still this is "too late to drink mineral water to cure your liver, damaged by binge drinking" type of the situation.

AlexS , 03/24/2016 at 10:59 am
You think Borjomi won't help? :-)

[Mar 25, 2016] Expect big swings in the price of oil

peakoilbarrel.com

Verwimp , 03/21/2016 at 6:48 pm

@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions in last Ronpost.

Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or 2022), but I do not believe OPEC, Canada and Russia can make up that difference.

"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak Oil very soon (if not yet).

"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess: WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the price, due to real problems in China or India.

"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the cheaper one during 2016. (If you ask why?: This is just gut feeling.)

likbez , 03/21/2016 at 10:12 pm
Verwimp,

Thank you for your input. Very interesting considerations, that actually correlate with my own thoughts on the subject. Especially possible return to recession in the second half of 2017 . I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated premium. Unless "artificial WTI" shipments spoil the broth.

One question. If we assume that is the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ?

One feature of the return to recession is the collapse of junk bond market, which makes financing of both shale and oil sands more difficult. And it typically happens before the actual economic downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil prices will be only of limited help, as there is no return to "good old days" of Ponzi financing of shale.

Even speculative financing (revolving credit, aka evergreen loans) is already under threat and will remain in this condition for the foreseeble future.

So shale players might have no money to re-start "carpet drilling" again.

I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land.

Of course they may be propped by the next administration for strategic reasons. Who knows…

Verwimp , 03/22/2016 at 7:15 pm
Hi Likbez,

I don't know. Really. I'm just trying to get grip on things like most of us. I't been a tough day in here in Belgium today. A lot of game changers might come to surface very soon. I mean very soon.

I don't know.

Sincerely,
Bruno

Nathanael , 03/23/2016 at 2:14 am
This is not investment advice, but I think both of you are correct.

I've been working from an old Deutsche Bank analysis which expects big swings in the price of oil. The high prices cause demand to drop and the low prices prevent exploration from happening. Result: total oil production declines continuously.

[Mar 25, 2016] Another Denver oil company files for bankruptcy

Denver Business Journal

Citing the "dramatic decline in oil prices, the continued low prices of oil and natural gas, and the general uncertainty in the energy markets," another Denver energy company has filed for bankruptcy protection.

Emerald Oil Inc. ( NYSE: EOX) said it's filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware. Its oil and gas operations are located in the Williston Basin of North Dakota and Montana.

... ... ...

Emerald headquarters are at 200 Columbine St. in Denver and the company has 42 employees, according to YahooFinance.

It's the second Denver energy company bankruptcy filing this month: On March 18, Venoco Inc., an oil and gas company focused on pumping oil in southern California, filed a voluntary petition for Chapter 11 bankruptcy protection.

[Mar 25, 2016] Reuters on shale companies hedging:

Notable quotes:
"... The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost nine months, and down nearly two thirds from about a month ago. ..."
"... Surely they don't. They think that the oil price rally is not sustainable, so they want to lock in prices in low $40s, for 2016 and $45-50 for 2017-18. ..."
"... Locking in through 2017 scores of wells completed in 2015 that will never payout. ..."
"... "locking in the high side at these levels also locks in a long period of little cash flow " Exactly. That's why I think they will hedge only a small part of their sales at current prices. According to IHS, as of the beginning of 2016, North American E&Ps have hedged just 14% of their total oil production volumes for 2016 and 2% for 2017. ..."
"... Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization, the lower the current LOE, the newer the well and the higher the decline rate in the next year, etc. ..."
"... I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year 1. ..."
03/23/2016 at 12:13 pm

Scrambling for cover, U.S. shale producers ramp up hedging

http://www.reuters.com/article/us-usa-oil-hedging-idUSKCN0WP09X

Struggling U.S. shale producers have scrambled to sell future output at their fastest pace in about six months in recent weeks, curbing a rebound in prices and potentially prolonging the oil market's worst rout in a generation, traders say. As spot prices of crude rallied almost 60 percent from 12-year lows touched in mid-Feb, turnover in the long-dated oil contracts has soared to record highs, as producers started to lock in prices in the $40s, traders have said. Turnover in the U.S. crude contracts for December 2017 surged to record highs of over 30,000 lots this past Friday while volumes in the December 2016 delivery touched an all-time high of nearly 94,000 lots.
Combined, that equates to almost 125 million barrels of oil worth over $5 billion, a small portion of overall daily volume in U.S. crude futures, but enough to catch traders' attention.

Now, brokers and traders say that has turned into execution, with some producers willing to hedge in the high $30s or low $40s in 2016 and between $45-50 next year, levels that are just about breakeven for many.

That is also below the $50 psychological threshold that many had thought would be necessary to prompt producers to seek price protection, suggesting drillers have accepted a new reality of lower-for-longer prices as

"The cost of production has declined to the point where at mid-40s they can hedge actively to remain viable." Piling on hedges could prevent prices rallying through $45 a barrel while the extra protection may delay further U.S. production cuts, seen as key to eroding the glut

The impact of the pickup in hedging activity was most conspicuous in longer dated oil contracts.

The 2017 WTI price strip has risen only about 15 percent over the past six weeks, much lower than the prompt contract's gains, while the selling has almost erased the far forward contract's premium over spot.

The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost nine months, and down nearly two thirds from about a month ago.

John Saucer, vice president of research and analysis at Mobius Risk Group in Houston, said he saw a "material" increase in producer hedging, with most action in this and next year's contracts, but extending through the whole of 2018.

Lack of forward buying by major consumers, like the airlines, has also meant prices have not received any boost as producers have been selling, adding to the pressure on prices.

To be sure, many hope for prices to go even higher.

"If prices recovered to that range north of $60, we'll be seriously considering hedging," billionaire wildcatter Harold Hamm said on a conference call.

Eulenspiegel , 03/23/2016 at 12:22 pm
Do they really make money on these prices, since most of them where barely profitable at 100$+ oil?

Or do they just log in to make profit by pumping from their already drilled holes while ignoring front load costs?
If they would make money after hedging, why isn't there a new boom where everybody drills like mad?

AlexS , 03/23/2016 at 12:53 pm
"Do they really make money on these prices …?"

Surely they don't. They think that the oil price rally is not sustainable, so they want to lock in prices in low $40s, for 2016 and $45-50 for 2017-18.

shallow sand , 03/23/2016 at 4:47 pm
AlexS,

One wonders if much of the hedging is being required by banks.

Hedges at these levels likely locks in enough cash flow to pay LOE, taxes, G &A and interest. However, locking in the high side at these levels also locks in a long period of little cash flow for CAPEX and/or retiring debt principal.

An interesting exercise once the hedges are fully disclosed would be to insert the resulting revenue number into cash inflows in the SEC 10K, and then calculating both undiscounted and discounted future net cash flows.

Also, assume we have a Bakken well that produces 120,000 barrels after royalties, that was completed 1/1/15 and has been hedged at an average price of $47 WTI for 2015-17.

A $7 discount puts us at $40. 10% severance puts us at $36.

Our $6-9 million well has only grossed $4.3 million in its first three years. Hedging at these levels locks in many wells to no hope of payout, as we will likely need to subtract another $6-8 per barrel, or more for LOE and $2-3 more for G & A. Oh yes, and another $4-7 more per barrel of interest expense.

Locking in through 2017 scores of wells completed in 2015 that will never payout.

AlexS , 03/23/2016 at 6:44 pm
shallow sand ,

"locking in the high side at these levels also locks in a long period of little cash flow " Exactly. That's why I think they will hedge only a small part of their sales at current prices. According to IHS, as of the beginning of 2016, North American E&Ps have hedged just 14% of their total oil production volumes for 2016 and 2% for 2017.
[ http://press.ihs.com/press-release/energy-power-media/north-american-oil-and-gas-companies-face-difficult-year-2016-stron ]

In January-February, they were not hedging; and some of distressed companies were even unwinding hedges in order to raise much-needed cash.

[ http://www.reuters.com/article/us-usa-oil-producers-hedge-idUSKCN0VL224 ]

Now hedging activity is increasing, but I think most of the future production will remain unhedged.

shallow sand , 03/23/2016 at 8:59 pm
AlexS,

Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization, the lower the current LOE, the newer the well and the higher the decline rate in the next year, etc.

For example, California Resources corporation has LOE around $20 per barrel, yet lower decline rates, while US LTO is around $6-9 per barrel, but has high decline rates. Further, CRC LOE will be more stable over time. Without addition of substantial new wells, US LTO LOE will surpass that of companies like CRC in less than 5 years IMO.

Again, I am speaking in broad terms, each well is different from every other, and each varies over time.

My view is Bakken wells producing under 1000 barrels net of royalties per month have LOE of $15+ generally.

I do apologize for mixing up OPEX and LOE over the last year plus.

I guess OPEX includes royalties, lifting costs and severance taxes?

LOE is lifting and operating expense. Same is calculated on net barrels, after royalties are paid. Expenses such as severance taxes, interest and general and administrative expenses are not included in LOE.

Further, always be aware that LOE is calculated in BOE, so gas and NGLs are included. Gas is on a 6 to 1 ratio with oil.

Many US LTO are touting reduced LOE, when the reality is the company wide gas to oil ratio is increasing. One BOE of gas is selling for $6-10 at the well head right now.

CLR is a good example. Their gas to oil ratio has went from 30:70 to 40:60 in about three years. So, part of the LOE per BOE is directly offset by lower realized per BOE prices. Further, gas is usually cheaper to produce than oil on a BOE basis in the US, so this also must be factored in.

I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year 1.

[Mar 24, 2016] In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year.

peakoilbarrel.com
Longtimber , 03/23/2016 at 10:15 pm
"The U.S. mining industry-a sector that includes oil drillers-lost more money last year than it made in the previous eight."
http://davidstockmanscontracorner.com/us-energymining-losses-in-2015-wiped-out-eight-years-of-profits/
In reference to Russia's Military Threat to NATO:
"But that was all based on the world's one-time boom in oil, gas, nickel, aluminum, fertilizer, steel and other commodities and processed industrial materials."
http://davidstockmanscontracorner.com/trump-is-right-dump-nato-now/
Again Yep.. says so : "the world's one-time boom in Oil, …" Got PV yet?

Heinrich Leopold , 03/24/2016 at 10:33 am
There is an interesting article on resilience.com on shale debt:
http://www.resilience.org/stories/2016-03-25/shale-euphoria-the-boom-and-bust-of-sub-prime-oil-and-natural-gas

That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020?

AlexS , 03/24/2016 at 10:44 am
Heinrich Leopold,

The chart from Bloomberg shows cumulative debt payments, not annual.

[Mar 24, 2016] Totally wrong reporting by Australian public broadcaster in March 2016

Notable quotes:
"... Totally wrong reporting by Australian public broadcaster in March 2016 ..."
tally%20wrong%20reporting%20by%20Australian%20public%20broadcaster%20in%20March%20201

Matt Mushalik, 03/24/2016 at 3:37 pm

Totally wrong reporting by Australian public broadcaster in March 2016

18/3/2016

Oil output rises even as US rig count falls to historic lows http://www.abc.net.au/news/2016-03-18/oil-output-rises-even-as-us-rig-count-falls/7259566?section=business

[Mar 24, 2016] EIA reports that US production is down 30 thousand barrela a day

peakoilbarrel.com

Amatoori , 03/23/2016 at 1:26 pm

EIA weekly today, production down 30.000/day
Hello cliff!
http://ir.eia.gov/wpsr/overview.pdf
AlexS , 03/23/2016 at 7:03 pm
Production down 30 kb/d;
Total crude and product stocks up 6.9 million barrels (to new records);
Net crude imports up 691 kb/d in just one week (!) and 1.1 mb/d from a year ago.
Despite a glut in the local market, U.S. refiners and traders are rapidly increasing crude imports.

[Mar 24, 2016] Why We Could See An Oil Price Shock In 2016

Notable quotes:
"... Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year. ..."
"... But the 3 mb/d of new supply in 2016 will mostly come from large offshore projects that were planned years ago ..."
"... However, outside of these large-scale multiyear offshore projects, the queue of new oil fields is starting to be cleared out. By 2017, the supply/depletion balance will go deeper into negative territory. Depletion will exceed new sources of production by around 1.2 mb/d before widening even further in 2018 and 2019. ..."
"... The coming supply crunch stands in sharp contrast to the short-term picture. ..."
"... But the Rystad Energy figures show that the supply-demand balance could quickly swing back in the other direction as upstream investment has screeched to a halt. As soon as later this year, or perhaps in 2017, demand could catch up to supply. Inventories will begin falling quickly and prices will start to rise. However, since supply is inelastic in the short run, the industry may struggle to satisfy demand at stable prices. The oil markets have always suffered from booms and busts, and this is just more of the same. The current bust is sowing the seeds of the next boom. ..."
Mar 24, 2016 | OilPrice.com
The depletion of old oil wells is expected to surpass new sources of supply in 2016, as the ongoing oil price slump puts a long list of oil projects on the shelf.

Bloomberg flagged new data from the Norwegian consultancy firm Rystad Energy, which predicts that legacy production will tip the supply balance into the negative in 2016 for the first time in years.

The production from an average conventional oil field typically ramps up in the early years, plateaus and then enters a period of decline. Depletion rates vary wildly from field to field, but a rule of thumb for conventional oil fields – which make up the bulk of total global supply – is that they decline something like 6 percent per year on average. Again, those depletion rates can differ depending on location, levels of investment, etc., but one thing that is clear is that the oil industry needs to bring new oil fields online every year in order to merely keep production flat.

Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year.

But the 3 mb/d of new supply in 2016 will mostly come from large offshore projects that were planned years ago, investments that were made before oil prices started crashing. The EIA sees four offshore projects starting up in 2016 – projects from Shell, Noble Energy, Anadarko, and Freeport McMoran – plus two more in 2017. The industry completed eight projects in the Gulf in 2015. U.S. Gulf of Mexico production will climb from 1.63 mb/d in 2016 to 1.91 mb/d by the end of 2017.

However, outside of these large-scale multiyear offshore projects, the queue of new oil fields is starting to be cleared out. By 2017, the supply/depletion balance will go deeper into negative territory. Depletion will exceed new sources of production by around 1.2 mb/d before widening even further in 2018 and 2019.

A few months ago, Wood Mackenzie estimated that around $380 billion in planned oil projects had been put on ice due to the crash in oil prices. Wood Mackenzie says that between 2007 and 2013, the oil industry greenlighted about 40 large oil projects on average each year. That figure plunged to fewer than 10 in 2015.

The coming supply crunch stands in sharp contrast to the short-term picture. The EIA reported on March 23 that crude oil storage levels once again increased, surging by 9.4 million barrels last week to break yet another record. Total inventories in the U.S. now stand at 532.5 million barrels. Record high storage levels, which continue to climb, are signs of short-term oversupply. The IEA expects supply to continue to outstrip demand by about 1.5 mb/d until later this year. Oil storage levels will have to fall to more normal levels before oil prices can rise substantially.

But the Rystad Energy figures show that the supply-demand balance could quickly swing back in the other direction as upstream investment has screeched to a halt. As soon as later this year, or perhaps in 2017, demand could catch up to supply. Inventories will begin falling quickly and prices will start to rise. However, since supply is inelastic in the short run, the industry may struggle to satisfy demand at stable prices. The oil markets have always suffered from booms and busts, and this is just more of the same. The current bust is sowing the seeds of the next boom.

Of course, U.S. shale has demonstrated its ability to ramp up quickly, and those short lead times could allow new supply to come online as prices rise. But it remains to be seen if U.S. shale, more or less on its own in the short run, can meet rising demand in 2017 and 2018 as conventional oil drilling remains on the sidelines.

By James Stafford of Oilprice.com

[Mar 24, 2016] Oil and gas Debt fears flare up

Notable quotes:
"... "Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. "That was a potent mix." ..."
March 21, 2016 | FT.com

It was a classic bubble, says Philip Verleger, an energy economist. "It was irrational investment: expecting prices to rise continually. Companies that borrowed heavily when prices were high are going to have a very tough time."

...In June 2014, a barrel of Brent crude for 2020 delivery was $98. And central banks' post-crisis monetary policies pushed investors towards riskier assets, including oil and gas companies' equity and debt.

"Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. "That was a potent mix."

From 2004 to 2013, annual capital spending by 18 of the world's largest oil companies almost quadrupled, from $90bn to $356bn, according to Bloomberg data. The assumptions used to justify that borrowing were fuelled by a textbook example of disruptive technological innovation: the advances in hydraulic fracturing and horizontal drilling that made it possible to produce oil and gas from previously unyielding shales. The success of those techniques added more than 4m barrels a day to US crude production between 2010 and 2015, creating a glut in world markets that has sent prices down 65 per cent since the summer of 2014.

The expectations of sustained high prices have vanished: crude for 2020 delivery is $52 a barrel. Oil is now back to where it was in 2004, but most of the debt that was taken on in the boom years is still there.

In the US and Europe, banks have been quick to reassure shareholders that, while their losses are mounting, they are entirely manageable. French banks account for four of the 10 banks with the highest exposure. Crédit Agricole, whose $29.8bn credit exposure to energy is the second highest in Europe, has told investors that 84 per cent of the portfolio was investment grade. The disclosures were largely effective in soothing fears about energy debt.

... "It's alarming that things are getting pulled forward so much," says Julie Solar, an analyst at Fitch Ratings. "The pace of deterioration is coming quicker than what was previously disclosed."

... Since crude prices began to fall in the summer of 2014, investors in oil and gas companies have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their equities, according to FT calculations.

... At Machinery Auctioneers, Mr Dickerson has been stocking up on cut-price oilfield equipment. He bought four mobile sand containers used in fracking, with list prices of up to $275,000, for $17,000 apiece. When the industry recovers, he expects to sell them for up to $100,000 each. But before that recovery comes there are likely to be plenty more bargains on his lots.

[Mar 23, 2016] Record Loss For Petrobras As Political And Economic Crisis Worsen

Mar 23, 2016 | Zero Hedge

The state-owned Brazilian oil company announced that it lost more than 36 billion reals in the fourth quarter, or USD$9.6 billion, a 40 percent increase compared to the fourth quarter of 2014.

the company has enough cash flow from its operations to meet all of its obligations through the end of 2017 at least, even if it fails to realize the planned $14 billion in asset sales. "Even if we hit a road-bump we have sufficient cash through 2017," Bendine said. "This doesn't mean if we have good opportunities to raise cash or lengthen maturities we won't do it."

[Mar 22, 2016] The Oil and Gas Fire Sale How Bad Will Losses to Banks and Investors Be

Notable quotes:
"... From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt. ..."
March 21, 2016 naked capitalism

I strongly urge you to read the Financial Times account in full. Key points:

Distress in the oil and gas industry is acute . Many companies are being liquidated or forced to cut to the bone:

About 600 people packed on to the Machinery Auctioneers lot on the outskirts of San Antonio, Texas, last week to pick up some of the pieces shaken loose by the oil crash.

Trucks, trailers, earth movers and other machines used in the nearby Eagle Ford shale formation were sold at rock-bottom prices. One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs - worth about $400,000 new - for just $65,000.

Since the decline in oil prices began in mid-2014, activity in the Eagle Ford, one of the heartlands of the shale revolution, has slowed sharply. The number of rigs drilling for oil has dropped from a peak of 214 to 37, and businesses, from small "mom and pop" service providers to venture capital companies, are trying to offload unused equipment.

Terry Dickerson, Machinery Auctioneers' founder, says sales doubled last year, in part thanks to the oil crash. Sellers are sometimes disappointed by low prices for oil-related assets, but they have to accept reality, he says. "I feel like a funeral director," he adds. "I'm the one that has to tell them the bad news."

Lenders went on a spree . While this is a notoriously cyclical industry, the shale gas frenzy drew in a lot of newbies, particularly among investors. The fact that so many players made heavy use of borrowings, with the Fed's negative real interest rate policies all too successfully pushing lenders into risky assets, has amplified the damage. From the story:

From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt.

oil and gas borrowing binge

The hangover has only just begun :

Standard & Poor's, the credit rating agency, assesses oil companies based on an assumption of an average crude price of $40 this year. On that basis, 40 per cent of the US production and oilfield services companies it covers are rated B-minus or below. "B-minus is a very weak rating," says Thomas Watters of S&P. "You don't have a long lifeline."

Make no bones about it: a B- or worse means you are barely hanging on. To illustrate:

Linn Energy, one of the 20 largest US oil and gas producers, warned last week that it expected to breach its debt covenants. It has net debts of $3.6bn, but only $1m in borrowing capacity. Many US producers are now having their borrowing limits, which are based on the value of their reserves, redetermined by their banks. The falling value of those reserves means loan facilities will be cut back, leaving some companies without enough liquidity to stay afloat.

Even when companies can be restructured, lenders are taking big hits :

When oil and gas companies go into bankruptcy, there are often slim pickings for creditors. Quicksilver Resources, a Texas-based gas producer, went into Chapter 11 bankruptcy protection last year with about $2.4bn of debt. This year it announced sales of its US assets for just $245m, and some of its Canadian assets for $79m. Its creditors are on course for losses of about $2bn.

Do the math. That's an 83% loss of principal. The story reassuringly points out that even bigger amounts are at risk at national oil companies like PDVSA of Venezuela and Petrobras.

In a worrisome parallel to subprime risk before the crisis, investors are getting rattled by banks increasing their forecasts of losses:

"It's alarming that things [bank loan loss estimates are getting pulled forward so much," says Julie Solar, an analyst at Fitch Ratings. "The pace of deterioration is coming quicker than what was previously disclosed."…

Since crude prices began to fall in the summer of 2014, investors in oil and gas companies have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their equities, according to FT calculations.

The grim reaper tone of the article suggests that things will get worse in energy-land before they get better. The oil bust in 1980-1981, which was a regional affair in the US, was bloody and took down pretty much all of the Texas banking industry. It's hard to know from this far a remove what the trajectory will look like, particularly since even with things his visibly dire, the incumbents all have strong incentives to make things appear less bad than they are. Any reader intelligence would be very welcome.

craazyman , March 22, 2016 at 7:07 am

every real man wants to keep drilling until the money runs out. And if you can't keep drilling, you have to find a new hole. That's what they say. Some holes cost more than others, but a real man needs a hole. What does a man do now, when his hole is dry and he can't drill? Or if drilling doesn't get him where it used to? Those were the days, when a man could drill around and have it be good every time. Each real man has to face the day when just showing up with his drill doesn't work anymore. He better hope the hole he has is good. And he better not have drilled on borrowed cash, because once a hole is dry for a man there's no going back to the good times, that's for sure.

john bougearel , March 22, 2016 at 8:36 am

My dad got stuck into KYN, a high yield energy-related MLP back in 2011 – considered suitable for IRAs.
The dividend got its first 16% haircut in Dec. The div was maintained in Q1 2016. But when I took a cursory glance at the financial statements of the top five holdings that comprised 48% of this MLP, this is what I uncovered:

Collectively, these 5 companies had a combined net income of ~40m and ended 2015 with 849m in cash. One of these companies had a negative (~ -1.5b) net income. Collectively, they paid out ~13b in dividends in 2015. The funding of those 13b in dividends was largely accomplished through ~17b in financing activities, via issuing debt and selling stock. Needless to say, they are all heavily in debt and the financing activities doesn't even address financing interest expenses and the like.

The reason I mention the above is to cite the caption "companies have borrowed heavily to fund their growth" in the EIA chart above as a gross mis-characterization. Their financing activities were funding their dividends in 2015, and without access to the same funding channels in 2016, not only will the divs l be zeroed out – they will all be fighting for survival with little cash cushion and little net income to see them through to another day.

fajensen , March 22, 2016 at 11:37 am

Maybe we could use the high yield to buy Credit Default Swaps on the high-yield fund and retire on those?

Peabody Energy is going tits-up. Similar story, gorged itself on roid's in the form of cheap debt to fuel "growth" and now all of that bulk is pulling it down the drain. A -800% return on the stock in last 4 years. Impressive. Almost 99 % yield on the unsecured bonds. Chapter 11 seems to be priced in.

Dino Reno , March 22, 2016 at 9:13 am

From what I've read, the investment arms of banks have been busy issuing new stocks and bonds in energy companies with bad loans on the parent bank's books. The proceeds go to repay these outstanding bank loans, mitigating some or all the damage banks face. What's left will be largely unsecured loans that the banks could care less about since they belong to some other sucker. Of course the stocks when issued have declined sharply in price thus burning shareholders as well. It appears banks may have learned their lesson from previous meltdowns by farming out the losses.

Damian , March 22, 2016 at 9:43 am

"One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs - worth about $400,000 new - for just $65,000."

Lucky? @15 cents vs new? 86′ the bottom fishing was at 9% or less – sold in many cases by the pound

The First Liens of the Banks are seriously underwater especially in Canada. The surge in oil prices and the associated refinancing of bonds and secondary stock offerings will get some high profile company exposure off the books of the banks as they take the liquidity for a pay down – but the decline will last far beyond the momentary manipulation.

This exposure extends well beyond oil and gas to all natural resources worldwide – in 86′ the problem was isolated. The previous five years had interest rates for Treasuries north of 9% – in fact deep double digits by 85′ – so the cancer of debt issuance was more limited for that reason plus Junk Bonds 82′ to 85′ were in their market infancy and so were the Commercial Banks acceptance since the Investment Banks were unrelated entities.

This debacle will prove the integrity of the principles of Glass Steagall between Commercial and Investment Banking are absolutely necessary as the separation of Church and State.

Jim Haygood , March 22, 2016 at 11:13 am

'The grim reaper tone of the article suggests that things will get worse in energy-land before they get better.'

It's often the case that "grim reaper" articles from the MSM mark important inflection points.

BofA Merrill Lynch's High Yield spread (over Treasuries) has receded from 8.87 percent on Feb. 11th to 6.65 percent yesterday. FRED chart:

http://tinyurl.com/qcl6lyz

Merrill Lynch's junk index includes all corporate sectors. But energy is the most troubled, and arguably the driver of the spread.

April crude is at $39.91 this morning, just under the magic $40 lower bound. Translation:

"Ford's in his flivver, and all's well with the world!"

Jim Haygood , March 22, 2016 at 11:55 am

Oops, that's a stale quote - April crude expired yesterday.

May crude (CLK6) is at $41.35. Chart:

http://tinyurl.com/z92sa82

Yves Smith Post author , March 22, 2016 at 2:52 pm

Supposedly smart insiders like banks also caught the falling safe of the subprime market by buying mortgage servicers in the supposed bottom of January 2007.

Pwelder , March 22, 2016 at 5:56 pm

I think Haygood's on the right track here.

Everything in the FT piece is true, and it's a useful read. But there's a problem with the timing. This thing is likely to go into the books alongside the famous Business Week cover story on "The Death of Equities".

Two things about oil: First, the glut is not as big as you think. IMO games are being played – in effect painting the tape with big imports that show up in US storage (where the reporting is most transparent) and are hyped by players with agendas. More important, there are 10 – 15 people in the world who can collectively decide – within broad limits – where oil should trade. They can't put it back at $100 – not right away, not this year – but they can pop it $20 from here with no trouble at all. That will happen soon, because they need it to.

If you're feeling lucky you can rummage through that pile of junk debt, and find yourself an issuer that might not go bankrupt. Then buy the bonds – not the stock.

Lambert Strether , March 22, 2016 at 12:19 pm

Readers, I know (perhaps better than anyone) how addictive the horse race can be… But this is a very important post.

craazyman , March 22, 2016 at 1:05 pm

If a man lives by drilling from bed to bed on borrowed cash, it's not likely to end well. A real man knows when the holes runs dry to him and the cash is gone it's time to hit the road - because the bed don't work no more.

If you're a man who lent money to a man who's hole's ran dry and has nowhere to drill, and not even a bed, then it's time for you to look in the mirror and see the way a real man sees. The way a cowboy looks at the blue sky, out from under the shade of his hat, and thinks about God.

Left in Wisconsin , March 22, 2016 at 1:22 pm

Honest stupid question: so if a bunch of oil drillers and the bankers/investors who funded them go belly up, what does that mean for the rest of us?

craazyman , March 22, 2016 at 1:59 pm

it means there'll be a lot of holes open to drills that still have cash to spend. If your drill is tired, you can upgrade to a huge new drill and a truck for next to nothing and drive around hoping to get lucky. But if you do, make sure it's a hole you want to live with, because it might dry up on you and your drill may lose its juice. When it does, you won't want to hit the road anymore. That's a game for a man with a drill that's just getting going.

James Levy , March 22, 2016 at 3:14 pm

At the very least, it means many people with high-paying jobs going on unemployment, a lot of areas whose real estate prices rose seeing them fall, and a lot of loans not being made as credit dries up as banks try to meet their reserve obligations as they write off the loses. At worst, it means another round of bank bail-outs and even greater political anger and strife here in the home of fracking, the good old US of A.

oho , March 22, 2016 at 1:35 pm

"Honest stupid question: so if a bunch of oil drillers and the bankers/investors who funded them go belly up, what does that mean for the rest of us?"

some random things-FDIC fund dries up. your local auto parts factory starts laying off people cuz Texans aren't buying $50,000 pick-ups anymore.

Banks tighten lending standards. Your state's teachers' pension fund falls further behind cuz it had investments in "can't lose" oil deals.

Basically once again the middle class bails out the "smart money."

[Mar 22, 2016] In Canada drillers do not have enough cash flow to plug abandoned wells and ask for federal assistance

Notable quotes:
"... Millions needed to clean up sites and mitigate environmental risk ..."
"... Alberta's Orphan Well Association is now responsible for 704 wells, up from 164 last year, according to Pat Payne, the association's manager. ..."
"... We started drilling over 130 years ago and we have been decommissioning the wells for a number of years, but we're getting to a point where the number of wells being drilled are less than the number of wells that need to be decommissioned ..."
"... Right now there … isn't enough cash flow in the system to do all the wells that need to be done. ..."
peakoilbarrel.com
aws., 03/22/2016 at 8:48 am
Perhaps one might have assumed they'd clean up their own mess; the reality of politics in a petrostate.

Alberta faces growing backlog of abandoned oil and gas wells

Millions needed to clean up sites and mitigate environmental risk

By Terry Reith, Briar Stewart, CBC News Posted: Jul 14, 2015 3:00 AM

Alberta's Orphan Well Association is now responsible for 704 wells, up from 164 last year, according to Pat Payne, the association's manager.

Alberta energy minister keen on industry group's well cleanup proposal

Petroleum Services Association of Canada wants $500M in federal money to decommission inactive wells

By Canadian Press, Erika Stark, CBC News Posted: Mar 15, 2016 12:08 PM MT

"We started drilling over 130 years ago and we have been decommissioning the wells for a number of years, but we're getting to a point where the number of wells being drilled are less than the number of wells that need to be decommissioned," he said.

Salkeld stressed that PSAC's proposal isn't a bailout.

"We're in no way saying that oil companies aren't responsible," he said. "They are and they fully accept that. The regulations have increased and the costs have increased. Right now there … isn't enough cash flow in the system to do all the wells that need to be done."

[Mar 22, 2016] Drillers Cant Replace Lost Output as $100 Oil Inheritance Spent

www.bloomberg.com

Bloomberg Business

A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones.

About 3 million barrels a day will come from new projects this year, compared with 3.3 million lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will outstrip new output by 1.2 million barrels as investment cuts made during the oil rout start to take effect. That trend is expected to worsen.

"There will be some effect in 2018 and a very strong effect in 2020," said Per Magnus Nysveen, Rystad's head of analysis, adding that the market will re-balance this year. "Global demand and supply will balance very quickly because we're seeing extended decline from producing fields."

A lot of the new production is from deepwater fields that oil majors chose not to abandon after making initial investments, Nysveen said in a phone interview.

... ... ...

Companies cut capital expenditure on oil and gas fields by 24 percent last year and will reduce that by another 17 percent in 2016, according to the International Energy Agency. That's the first time since 1986 that spending will fall in two consecutive years, the agency said Feb. 22.

[Mar 22, 2016] what was the effect of cheap funding?

Notable quotes:
"... According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG, and Devon spent over 50 billion dollars more than they took in. Such a great profitability. ..."
peakoilbarrel.com

R DesRoches , 03/20/2016 at 11:23 am

The question that needs answering is what was the effect of cheap funding?

The LTO oil boom was the result of companies making a nice return at $100+ oil. At that price range production increased at a rate of one million barrels a day for three years.

If the cost of funding was say 3 to 5% higher what would have been the results?

Companies would still be making money, and they would also be borrowing, but the amount borrowed would have been lower.

At a lower amount of borrowing, production growth would not have been one million per year. One estimate that growth would have been around 750 kbd.

So after three years, U.S. Production would have been 750 kbd lower than it was.

At that growth rate world production would have stayed in balance, prices would have stayed in the $100 range, and the Saudis would not have ramped up production by 1 to 1.5 million a day.

So IMO the net effect of cheap money was to grow production more than the market could use and then crash prices.

In either case, with or without cheap money, the LTO boom would still have happened.

likbez , 03/20/2016 at 2:50 pm
I believe that $100 plus oil prices was the real fuel that fed the growth in LTO production. At that price a very good ROR was made and fund were provided.

It was simply the situation in which Wall Street needed a place to dump money provided by Fed and shale came quite handy.

According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG, and Devon spent over 50 billion dollars more than they took in. Such a great profitability.

R DesRoches , 03/21/2016 at 9:39 am
Most of the companies you talked about are Nat gas production companies. We are talking about LTO.

But Art only talked about what was spent. If you look at LTO what was gotten was in increase in production of about 4 million barrels a day of production. That is a rate of 1,460, 000,000 barrels a year.

That generates sales at $100 oil of $146,000,000,000 per year.

AlexS , 03/21/2016 at 12:20 pm
Art Berman talked about what these companies have spent (capex) and what they got (operating cashflow). During the whole period of the shale boom, shale companies' capex significantly exceeded their operating cashflows.

That doesn't mean that all that cash was "burned". Operating cashflow is what they get from today's sales. Capex is what is spent on tomorrow's production. Given that until recently production volumes were rapidly increasing, that partly justified cash overspending.

[Mar 22, 2016] There is a huge difference between daily price curve and average quarterly price curve.

Notable quotes:
"... Don't waste your time calculating something that is so fuzzy as breakeven price. Price of oil went up 55% in month and half? So demand went up that much? In middle of winter? :-) In the middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with a snap of finger. ..."
"... There is a huge difference between daily price curve and average quarterly price curve. Using average price for a longer period instead of daily price helps to smooth abrupt price movements and allow models like presented above to look more reasonable. Think about price curve as the result of juxtaposing of several sinusoid waves with different periods like in Fourier transform. Using average for a longer period essentially filters waves with a short period. ..."
peakoilbarrel.com
Ves , 03/21/2016 at 12:04 pm
Daniel,
Don't waste your time calculating something that is so fuzzy as breakeven price. Price of oil went up 55% in month and half? So demand went up that much? In middle of winter? :-) In the middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with a snap of finger.

likbez , 03/21/2016 at 10:35 pm

Ves,

Your critique is of course valid. But…

There is a huge difference between daily price curve and average quarterly price curve. Using average price for a longer period instead of daily price helps to smooth abrupt price movements and allow models like presented above to look more reasonable. Think about price curve as the result of juxtaposing of several sinusoid waves with different periods like in Fourier transform. Using average for a longer period essentially filters waves with a short period.

There was pretty long exchange between me and Alex on this subject some time ago that covered those issues.

[Mar 22, 2016] Will the next oil price slump happen in 2017 and if so how deep will it be?

Notable quotes:
"... One question. If we assume the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ? ..."
"... I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land. ..."
peakoilbarrel.com

Verwimp , 03/21/2016 at 6:48 pm

@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions in last Ronpost.

Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or 2022), but I do not believe OPEC, Canada and Russia can make up that difference.

"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak Oil very soon (if not yet).

"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess: WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the price, due to real problems in China or India.

"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the cheaper one during 2016. (If you ask why?: This is just gut feeling.)

likbez , 03/21/2016 at 10:12 pm

Verwimp,

Thank you for your input. Very interesting considerations, that actually correlate with my own thoughts on the subject. Especially possible return to recession in the second half of 2017 . I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated premium. Unless "artificial WTI" shipments spoil the broth.

One question. If we assume the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ?

One feature of the return to recession is the collapse of junk bond market, which makes financing of both shale and oil sands more difficult. And it typically happens before the actual economic downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil prices will be only of limited help, as there is no return to "good old days" of Ponzi financing of shale.

Even speculative financing (revolving credit, aka evergreen loans) is already under threat and will remain in this condition for the foreseeable future.

So shale players might have no money to re-start "carpet drilling" again.

I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land.

Of course they may be propped by the next administration for strategic reasons. Who knows…

[Mar 21, 2016] Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed

Notable quotes:
"... The key factor here is that the amount of oil to replace natural depletion of existing wells that can be extracted at prices below $70 is low to compensate natural depletion. For example, despite all this buzz about rising efficiency of shale production, the US shale does not belong to this category. ..."
"... Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed. Essentially in plain English that is a message to oil importing countries "f*ck yourself". ..."
"... The next step will be agreement to limit production based on natural decline rates and low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible now in MSM. And of course the US state department along with EU will do the best to crash such a possibility. ..."
"... In other words this shale/Saudi induced price crash just speeded up the day of reckoning by several years and will make the next spike of oil prices much closer and much higher. ..."
"... How long the oil prices can be suppressed by the threat of resumption of shale production remain to be seen, but if there will be a bounce in shale production at below $80 prices it will be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't prevent oil price rise to above $80 level. ..."
peakoilbarrel.com

likbez, 03/17/2016 at 7:35 pm

Ves,

All I am sure that none of us know what will happen.

What do you mean? Here most posters are adherents of the peak oil hypothesis. If so, this is a nonsense statement.

Bets when oil will , say, above $80 belong to the casino, but if trend is predicted right then it is clear that the prices should rise at least to the max level they reached before (above $100) within some reasonable period (say before magic 2020). And to above $70 within much shorter time period. Probably with some crazy spikes in both directions in between. When Wall Street speculators see profits around 25% a quarter they are ready to kill own mother.

The key factor here is that the amount of oil to replace natural depletion of existing wells that can be extracted at prices below $70 is low to compensate natural depletion. For example, despite all this buzz about rising efficiency of shale production, the US shale does not belong to this category.

It will be more difficult to induce the second oscillation of oil prices by repeating the same trick again with forcing debt burdened producers to produce at a loss. When oil producers were caught naked in 2014 with a lot debt to service they have no choice but to continue production. That was an interesting neoliberalism induced wealth redistribution play in which oil producing countries started to subsidize oil importing countries (aka G7) to the tune of 0.5 trillion a year. They did it instead of working together on conservation and keeping oil price at reasonable level they destabilized the system using Saudi in a bait and switch fashion. It might be an Obama attempt to bring Russia to knees, attempt to save economy from secular stagnation or sling to new recession, whatever. What is done, is done. But this racket can't run forever. And what can't run forever will eventually stops.

Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed. Essentially in plain English that is a message to oil importing countries "f*ck yourself".

The next step will be agreement to limit production based on natural decline rates and low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible now in MSM. And of course the US state department along with EU will do the best to crash such a possibility.

But if such an agreement materialize despite all efforts to block it, it will have effect of the A-bomb on Wall street speculators and the second nail into "oil price forever" myth coffin. The same speculators who drove the oil price down from this point will drive it up like there is tomorrow. And as GS trading desk change their bets, those despicable presstitutes from Bloomberg instantly will change tone and start crying loud about coming oil crisis. Financial oligarchy has no allegiance to any country, only to their own bank accounts.

In other words this shale/Saudi induced price crash just speeded up the day of reckoning by several years and will make the next spike of oil prices much closer and much higher.

How long the oil prices can be suppressed by the threat of resumption of shale production remain to be seen, but if there will be a bounce in shale production at below $80 prices it will be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't prevent oil price rise to above $80 level.

[Mar 21, 2016] IEA as the key player in staging oil price drop by creating a false impression of glut via manipulated statistics

Notable quotes:
"... Crude Mystery: Where Did 800,000 Barrels of Oil Go? Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. ..."
"... "The most likely explanation for the majority of the missing barrels is simply that they do not exist," said Paul Horsnell, an oil analyst at Standard Chartered. ..."
peakoilbarrel.com

Sarko , 03/19/2016 at 3:13 pm

Nobody talk about this?

Crude Mystery: Where Did 800,000 Barrels of Oil Go? Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude.

Some analysts say the barrels may be in China. Others believe the barrels were created by flawed accounting and they don't actually exist. If they don't exist, then the oversupply that has driven crude prices to decade lows could be much smaller than estimated and prices could rebound faster.

Whatever the answer, the discrepancy underscores how oil prices flip around based on data that investors are often unsure of.

"The most likely explanation for the majority of the missing barrels is simply that they do not exist," said Paul Horsnell, an oil analyst at Standard Chartered.

http://www.wsj.com/articles/crude-mystery-where-did-800-000-barrels-of-oil-go-1458207004

[Mar 21, 2016] Overthrowing regime of Kaddafi was essentially color revolution financed by the West and Arab monarchies

Notable quotes:
"... It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian government. The implication of this difference is that a return of Libyan oil production to prior levels is highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my breathe for that. ..."
"... The people are hungry and without hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse. ..."
"... Arab spring is a variant of a "color revolution". From Google search of the term: ..."
peakoilbarrel.com

Hickory, 03/15/2016 at 11:13 am

Minor quibble Dennis. You commented- "Libya is struggling with their own Arab Spring" I think that characterization of what is going there on is off base.

It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian government. The implication of this difference is that a return of Libyan oil production to prior levels is highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my breathe for that.

Ron Patterson , 03/15/2016 at 11:49 am
It's Ron, not Dennis. It all depends on your definition of "Arab Spring" And I see you have provided your own definition, "a popular uprising to remove an authoritarian government."

Definition of the Arab Spring Bold mine.

The Arab Spring was a series of anti-government protests, uprisings and armed rebellions that spread across the Middle East in early 2011. But their purpose, relative success and outcome remain hotly disputed in Arab countries, among foreign observers, and between world powers looking to cash in on the changing map of the Middle East….

But the events in the Middle East went in a less straightforward direction.

Egypt, Tunisia and Yemen entered an uncertain transition period, Syria and Libya were drawn into a civil conflict, while the wealthy monarchies in the Persian Gulf remained largely unshaken by the events. The use of the term the "Arab Spring" has since been criticized for being inaccurate and simplistic.

The Arabs themselves cannot agree on the definition of "Arab Spring". It is basically just an uprising of the general population protesting the hardships of their lives. I would say that the Arab Spring, in any country, is just the first stages of a failed state. I think there is no doubt that what is happening in Libya was caused by the same conditions that has caused similar uprisings throughout the Arab world. The people are hungry and without hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse.

Hickory , 03/15/2016 at 12:34 pm
Hi Ron. Good points made. Agreed.
likbez , 03/15/2016 at 5:33 pm
Ron,

Arab spring is a variant of a "color revolution". From Google search of the term:

[Mar 21, 2016] China Car Sales Suffer Biggest Crash On Record To Start 2016

www.zerohedge.com
Submitted by Tyler Durden on 03/20/2016 - 21:15

The dream of transition to a 'consuming' economy just crashed into the wall of excess debt and leverage. 2016 has started with a 44% collapse in China passenger car sales . This is the biggest sequential crash and is 50% larger than any other plunge in history. Coming at a time when vehicle inventories are near record highs relative to sales, the world's automakers - all toeing the narrative line that growth will be from China - now face a harsh reality of massie mal-investment deja vu.

[Mar 20, 2016] Some forecast just dont pan out as expected.

peakoilbarrel.com

Ron Patterson , 03/20/2016 at 7:49 am

Some forecast just don't pan out as expected. The Unexpected Threat To Our Economic Growth System

 photo IMF Forecast_zps0jdul34w.jpg

marmico , 03/20/2016 at 8:32 am
Some forecast just don't pan out as expected

Pot.Kettle.Black

[Mar 20, 2016] There has been a long history of oil price model failures.

Notable quotes:
"... There has been a long history of oil price model failures. I was wondering whether you could comment on how your model has overcome the weaknesses of earlier models. I have the impression that the oil price in the short, medium but also long term depends on many highly non-linear factors. That just makes it difficult for me to see how any model, even just theoretical, could make reasonable predictions. ..."
peakoilbarrel.com

Enno , 03/20/2016 at 5:09 am

Ian,

Thanks for the post.

There has been a long history of oil price model failures. I was wondering whether you could comment on how your model has overcome the weaknesses of earlier models. I have the impression that the oil price in the short, medium but also long term depends on many highly non-linear factors. That just makes it difficult for me to see how any model, even just theoretical, could make reasonable predictions.

Suppose there was such a model, that had a little better predictive power than the market. Wouldn't market participants then not rush in to make money using the model, which would again destroy its predictive power?

Schinzy , 03/20/2016 at 6:41 am
Hi Enno,

The idea to use autocorrelation came from just eyeballing Figure 1. Low prices seemed to be associated with constant rates of growth. If the rate of growth decreases or stops, the price pops. I gave a bunch of variables to Aude (who is a statistician) and asked her to look for correlations. She fiddled around with the data for some time trying different transformations. When she came back with what worked I slapped myself and wondered why I hadn't told her to try that first.

As I said in the introduction, this work is preliminary and there is a lot we don't know. What I believe is going on is that many variables normally associated with demand are hidden in past extraction data. Exactly which variables are included and which excluded is to be determined.

I think that if traders started using this model to estimate prices the model would work better. It would be a self fulfilling prophecy. The reason for this is that I think price speculation is not included in the variables used, so if the speculators were closer to the "right" price, there would be less variation.

If data were available it would be interesting to split the model by API density using the average price for each tranche of density. The model explained past data much better with EIA C & C data than it did with the BP data that included NGL (as Dennis thought it would).

If you have references to other price models, I am interested as well.

[Mar 20, 2016] One of the problems with using historical models to make predictions is that when disruptive technology comes along this type of model may have errors that are hard to adjust for

Notable quotes:
"... Since the EIA analysis is based on current production, changes in EURs and future areas of derisked production are not included. For example the Permian, and Three Forks have zones that have little production history and are not included. Also plays that are just opening up, like the Unita, which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good results being drilled in zones that has never see this type of drilling. ..."
"... With respect to LTO extraction, in my opinion the big revolution is that because of high initial flow rates and short investment cycles, LTO extraction has introduced boom bust economics to oil extraction. In terms of the price model LTO extraction could bring on a faster decline in oil extraction by scaring investors away from longer cycle extraction projects such as deep water. ..."
"... The Saudis recognized that LTO production growth was a product of cheap and plentiful financing. They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are overstated. The wells will not produce anything close to what the companies claim. LTO could come back if the banks and debt investors are dumb enough to lend to the companies. My guess is that any debt financing will have much higher costs and tighter covenants. Borrowing for 10 years unsecured at 4-5% probably won't be coming back. ..."
peakoilbarrel.com

R DesRoches , 03/19/2016 at 10:09 am

One of the problems with using historical models to make predictions is that when disruptive technology comes along this type of model may have errors that are hard to adjust for.

Many believe that Light Tight Oil (LTO, also known incorrectly as shale oil), is only a high priced flash in the pan, that will quickly die. Over the past few years both of these assumptions are proven to be quite wrong.

The EIA on Sept 24, 2015 came out with an updated report under "Analyisis & Projections" called "World Shale Oil Assessments"

This analysis places the U.S. LTO resource potential at 78.2 billion barrels. A detailed breakdown can be seen by clicking on "US" in the
table.

The U.S. analysis is a bottoms up analysis taking (1) the area of potential, (2) well spacing, (3) EUR per well to determine what they call the "Technically Recoverable Resource " (TRR). When doing a Peak Oil Analysis, these is what the ultimate recoverable is.

It should be noted that EURs can change quite a bit so for example for the Bakken they sub divided it into 41 subregions.

The other piece of the disruptive technology is the cost of production. Over the last few years this has come down much more than many believe. The lower costs can be seen in two ways.

The first place is in the EIAs monthly "Productivity Report" which shows that rig production in barrels per day per month, for the last five years, in the Bakken has gone from 100 to 230, and in the Eagle Ford it has gone from 100 to 300. This equates to a major reduction in costs.

The second way lower costs can be seen is what ROR the oil and gas companies are expecting. For example EOG is estimating that their ATROR for five different plays is 30% at a WTI price of $40. Just a few years ago the threshold price of LTO was throught to be $80 to $100.

Since the EIA analysis is based on current production, changes in EURs and future areas of derisked production are not included. For example the Permian, and Three Forks have zones that have little production history and are not included. Also plays that are just opening up, like the Unita, which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good results being drilled in zones that has never see this type of drilling.

Schinzy , 03/19/2016 at 10:31 am
The beautiful part of this model is that it does not take extraction cost into account. Whatever the cost of extraction, based on what is extracted, this model gives you the price.

With respect to LTO extraction, in my opinion the big revolution is that because of high initial flow rates and short investment cycles, LTO extraction has introduced boom bust economics to oil extraction. In terms of the price model LTO extraction could bring on a faster decline in oil extraction by scaring investors away from longer cycle extraction projects such as deep water. Can LTO extraction replace all other types of extraction? If extraction levels decrease, the model says the base price will decrease as well. This will accelerate the contraction phase.

R DesRoches , 03/19/2016 at 12:14 pm
I believe that what has happened in this cycle in the oil market is that an increase in U.S. production from LTO of one million barrels a day for four years caused the S/D balance to shift to over supply.

The difference in this cycle, making it longer and deeper than expected is the Saudi change in response.

From 1999 to 2013, each time there was a dip in price the Saudis cut their production by an average of 1.5 million barrels a day. This happened five times.

In 2013 as prices started down they started to cut production, but then something changed. As prices went lower instead of cutting production they increased it by over one million a day.

Was it to punish Iran or Russia. I don't think so. I believe it was to slow down the runaway freight train of US LTO production. I believe that they understand the potential of this new resource to change the oil market.

John Keller , 03/19/2016 at 3:54 pm
The Saudis recognized that LTO production growth was a product of cheap and plentiful financing. They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are overstated. The wells will not produce anything close to what the companies claim. LTO could come back if the banks and debt investors are dumb enough to lend to the companies. My guess is that any debt financing will have much higher costs and tighter covenants. Borrowing for 10 years unsecured at 4-5% probably won't be coming back.

[Mar 20, 2016] Light tight oil is not your average crude oil

Notable quotes:
"... Light tight oil is not your average crude oil. I suspect it is clogging up US inventories after the import substitution phase ended and after some modifications to US refineries were completed. This glut created the perception in markets that there is a global glut (and contributed to bring down oil prices) while it is not ..."
"... Where actually is that much-hyped global oil glut? http://crudeoilpeak.info/where-actually-is-that-much-hyped-global-oil-glut ..."
peakoilbarrel.com

Matt Mushalik , 03/20/2016 at 8:07 am

Light tight oil is not your average crude oil. I suspect it is clogging up US inventories after the import substitution phase ended and after some modifications to US refineries were completed. This glut created the perception in markets that there is a global glut (and contributed to bring down oil prices) while it is not

29/12/2015
Where actually is that much-hyped global oil glut? http://crudeoilpeak.info/where-actually-is-that-much-hyped-global-oil-glut

That shale oil surplus is the reason why the crude oil export ban was lifted but not much is exported. See slide 4 in Art Berman's latest presentation

http://www.artberman.com/wp-content/uploads/HGS-Presentation-14-MAR-2016.pdf

In fact crude imports went up again in the last months. Anyway, shale production has peaked now according to the latest drilling productivity report. The following 2014 report describes the mismatch between shale oil production and US refinery capabilities (slides 7-9)

http://www.aspeninstitute.org/sites/default/files/content/docs/ee/3_Kah.pdf

[Mar 18, 2016] Oil price rise might be wrong but it is not irrational

Notable quotes:
"... It is sometimes said the futures curve is not "forward-looking". If that means the curve is not a simple forecast and is not good at predicting what will happen to spot prices in future, the statement is correct. ..."
"... Given many market participants believe oil supplies will fall sharply, demand will increase, and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of the contango are entirely rational. Any other price response would be irrational because it would violate the requirement for inter-temporal consistency. The market could be wrong in its expectations for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational. ..."
"... If futures prices are above the spot price, the spread is negative and the market is said to be in contango. If futures prices are below the spot, the spread is positive and the market is trading in backwardation. ..."
"... In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a move from contango into backwardation). Conversely, falling spot prices will normally be accompanied by a widening of the contango (or a move from backwardation into contango). This is exactly what is happening at the moment: the market's newfound bullishness is resulting both in a rise in the spot price of Brent and a narrowing in the contango. ..."
"... In most cases, higher prices have been associated with a narrower contango, or even backwardation, while lower prices have been associated with a wider contango ( tmsnrt.rs/22p6Fmy ). ..."
"... In the current environment, the oil market is looking past short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less, or there might even be excess demand. ..."
"... Via the storage and inventory financing relationships embedded in the futures curve, the expectation of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot price of oil now. ..."
uk.reuters.com

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Chart 1: tmsnrt.rs/22p4vn8

* Chart 2: tmsnrt.rs/22p42kQ

* Chart 3: tmsnrt.rs/22p6Fmy

* Chart 4: tmsnrt.rs/22p49wG

By John Kemp

LONDON, March 17 The oil futures curve is flattening as a wave of bullishness washing across the market raises the price of near-dated contracts faster than that of contracts for deferred delivery.

Brent for delivery in May 2016 has risen more than $10 per barrel since early February, while prices for delivery in 2017 are up less than $7 over the same period.

The discount for Brent crude delivered in May 2016 compared with the average of 2017, a price structure known as contango, has narrowed from $9 to well under $6 per barrel since Feb. 11 ( tmsnrt.rs/22p4vn8 ).

The shape of the futures curve is intimately connected with expectations about supply, demand, stocks and the availability of storage ("Brent contango is hard to square with missing barrels", Reuters, March 10). So the narrowing contango implies the market now expects less oversupply and a smaller build-up in stocks in the months ahead. But market bullishness is at odds with warnings from influential analysts forecasting supply will continue to outstrip demand and stocks rise ("Oil shrugs off Goldman warning about premature rally", Reuters, March 14).

MAYBE WRONG, BUT RATIONAL

It is sometimes said the futures curve is not "forward-looking". If that means the curve is not a simple forecast and is not good at predicting what will happen to spot prices in future, the statement is correct.

But the futures market is actually very forward-looking and focused on how the balance between supply, demand, stocks and prices will evolve in the coming months and years. Via the futures curve and the mechanism of financing and storage, those expectations about medium-term supply, demand, stocks and prices are ruthlessly discounted back to the present.

Given many market participants believe oil supplies will fall sharply, demand will increase, and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of the contango are entirely rational. Any other price response would be irrational because it would violate the requirement for inter-temporal consistency. The market could be wrong in its expectations for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational.

SPOT PRICES AND SPREADS

The price of oil for delivery on a future date (e.g. calendar average 2017) can be thought of as the sum of a spot price (May 2016) and a spread (the price difference between May 2016 and the calendar average of 2017).

As a matter of convention, the spread is normally expressed as the spot price minus the futures price (it can just as easily be expressed the other way round).

If futures prices are above the spot price, the spread is negative and the market is said to be in contango. If futures prices are below the spot, the spread is positive and the market is trading in backwardation.

For example, if the future price is $50 and the spot price is $40, the future price can be analyzed as a spot price of $40 plus a spread of $10 contango.

Many real trades are arranged this way, with the customer buying (selling) near-dated futures contracts and then adjusting their position by selling (buying) the spread between the near date and the forward one. The advantage of executing trades as two transactions (spot and spread) rather than just one is that it enables dealers and customers to make best use of the greater liquidity in spot contracts. In principle, spot prices and spreads are determined independently and can move separately. In practice, there is normally a high degree of correlation between them.

In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a move from contango into backwardation). Conversely, falling spot prices will normally be accompanied by a widening of the contango (or a move from backwardation into contango). This is exactly what is happening at the moment: the market's newfound bullishness is resulting both in a rise in the spot price of Brent and a narrowing in the contango.

PRICES MOVE TOGETHER

As the market becomes more bullish, the price of contracts for short-term delivery rises faster than the price of contracts for later delivery. The result seems paradoxical since an improved outlook for supply-demand balance over the next few months and years has its biggest impact on the price of oil delivered now. In fact, this behaviour is typical for oil and other commodity markets.

Over the period from 1992 to 2016, taken as a whole, there is no correlation between the level of oil prices and the degree of contango or backwardation in the futures curve ( tmsnrt.rs/22p42kQ ).

High spot prices have coincided with backwardation (January 2008) and contango (May 2008). Low spot prices have coincided with contango (January 1999) and backwardation (April 1999).

But the large shifts in the absolute level of prices since 1992 obscure the short-term relationship between spot prices and the shape of the futures curve. A more granular analysis reveals there has been a fairly close correspondence between spot prices and the shape of the futures curve for most sub-periods since 1992.

In most cases, higher prices have been associated with a narrower contango, or even backwardation, while lower prices have been associated with a wider contango ( tmsnrt.rs/22p6Fmy ). This relationship has held in almost all sub-periods since 1992 with the exception of 2005/06 and the first half of 2008 ( tmsnrt.rs/22p49wG ).

The relationship grows even stronger if we compare the change in prices with the change in the shape of the curve.

That makes sense since an increase in spot prices is associated with a narrowing of the contango, and a fall in spot prices is associated with a widening of the contango; both respond to the expected supply-demand balance.

LOOKING BEYOND THE GLUT

Since 1992, changes in the outlook for oil production, consumption and stocks have had the biggest impact on futures contracts near to delivery rather than those with longer maturities.

As a result, spot prices have been much more volatile than the price of futures contracts with many months or years to delivery. In the current environment, the oil market is looking past short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less, or there might even be excess demand.

Via the storage and inventory financing relationships embedded in the futures curve, the expectation of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot price of oil now.

The market might be wrong to expect the supply-demand balance to tighten by the end of 2016 or early 2017. The short-term increase in oil prices could also be self-defeating if it stimulates more production and thereby perpetuates the oversupply ("New oil order: the good, the bad and the ugly", Goldman Sachs, March 11). But if the market is right to expect the supply-demand balance will tighten later in the year or in 2017, then spot prices have to rise now and the contango must narrow. Any other outcome would be time-inconsistent. (Editing by Dale Hudson)

[Mar 18, 2016] Low oil prices end 21st century gold rush

www.usatoday.com

The 21st century version of the American gold rush is coming to a swift end.
A shakeout is sweeping through the U.S. oil and gas business, putting small-time petroleum prospectors who got rich off of shale energy out of business as rock-bottom oil prices reshape the sector despite the commodity's slight uptick in recent weeks.
The pain low oil prices have sparked has spread into other corners of the energy industry. This week, coal miner Peabody Energy warned that it may have to file for bankruptcy protection and SunEdison, a developer, installer and operator of alternative energy plants said it discovered problems in its accounting processes, the latest in a string of troubles for the company.

[Mar 16, 2016] Ponzi always end when you run out of greater fools. And shale is at that point

Notable quotes:
"... I have read your comment on the last thread and I completely disagree with your point 2 that you make: "shale companies have always been growth-oriented, and the market (investors and lenders) has been rewarding them for growth rather than capital discipline." This a definition of ponzi scheme that you describe and ponzi always end when you run out of greater fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY price will not change their financials at all. ..."
"... Oil price will steadily rise as shale start running out of the sweet spots and their production start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out of sweet spots long before the price is at $80-100 range. ..."
"... If we both agree that shale is continuously drilling regardless of price and profit how can you claim (on the last thread) that shale will make new peak in production at some imaginary future higher price point? What is the basis of that assumption? ..."
"... There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along with several other factors like pipeline contracts, etc). Redistribution of wealth up should never stop :-) ..."
"... Are you sure? Which of major banks anticipates bright conditions for junk bond market, and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions from junk for 2016. In view that survival of companies is in question, inquiring minds want to know, who are those happy investors who by trying to earn some extra points (chasing yield) already lost quite a bit of money and want to lose more. Or this is just new fools from never ending global supply. But like with oil there might be that "peak fools" moment is behind us :-) . ..."
"... If WTI is on average $40-45 by the end of the 2016 how much US shale and US total production will be on December 2017? ..."
"... The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under $43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec 2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view). ..."
"... Very difficult to predict, it may be that capitulation in the US oil sector is close at hand. In that case output falls by more than I have guessed, but there is no way the EIA price forecast turns out to be correct in that case. ..."
"... If US falls by 1 Mb/d, that may be enough to balance the oil market,… ..."
"... And what do you think might happen in the rest of the world? In 2016 oil production will fall in most oil producing countries. Oil production will rise in a very few countries. The oil market may balance a lot sooner than a lot of people realize. ..."
"... You may be correct on that point. If we take the US and Canada out of the equation I think increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine. ..."
"... Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less US and Canada will be about twice the increase expected from Iran. ..."
"... Breaking it down, Iran may increase production, from February, another half a million barrels per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one million to 1.2 million bpd from their December production numbers. ..."
"... Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there is very minor one. But here is some hush – hush info from oil sands patch that there will not be any new oil sands project even if the price goes much higher in the near future without export pipeline in place. But who knows. ..."
peakoilbarrel.com
Ves , 03/15/2016 at 1:00 pm
Alex,

I have read your comment on the last thread and I completely disagree with your point 2 that you make: "shale companies have always been growth-oriented, and the market (investors and lenders) has been rewarding them for growth rather than capital discipline." This a definition of ponzi scheme that you describe and ponzi always end when you run out of greater fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY price will not change their financials at all.

Oil price will steadily rise as shale start running out of the sweet spots and their production start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out of sweet spots long before the price is at $80-100 range.

AlexS , 03/15/2016 at 1:44 pm
Ves,

What is wrong in my statement?

You asked why companies are still drilling when oil price is $37 and they are making losses? I said that I do not see economic logic, but they were doing that in the past, continue to do so now, and will continue to drill and complete wells at loss in the future.

I do not mind if you call it "ponzi scheme", but this is reality. In the first 2 months of 2016 shale companies sold about $10 in equity, diluting existing shareholders, but they found new buyers. Bondholders are happy that oil companies' bonds are up 20% in the past month and are ready to invest more. Private equity is ready to invest tens of billions in distressed companies. I do not mind if you call all them fools, but this is reality.

Did I say that this is normal? I didn't. Did I say that this will continue forever? I didn't.

Ves , 03/15/2016 at 2:16 pm
Alex,

If we both agree that shale is continuously drilling regardless of price and profit how can you claim (on the last thread) that shale will make new peak in production at some imaginary future higher price point? What is the basis of that assumption?

likbez , 03/15/2016 at 10:54 pm
Alex,
You asked why companies are still drilling when oil price is $37 and they are making losses? I said that I do not see economic logic

There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along with several other factors like pipeline contracts, etc). Redistribution of wealth up should never stop :-)

But 2016 is a completely different game. "After me deluge" type of thinking on the top run its course: they run out of money and can't get new loans. For most shale companies it was something like waking up the next morning after several days of binge drinking…

Bondholders are happy that oil companies' bonds are up 20% in the past month and are ready to invest more.

Are you sure? Which of major banks anticipates bright conditions for junk bond market, and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions from junk for 2016. In view that survival of companies is in question, inquiring minds want to know, who are those happy investors who by trying to earn some extra points (chasing yield) already lost quite a bit of money and want to lose more. Or this is just new fools from never ending global supply. But like with oil there might be that "peak fools" moment is behind us :-) .
http://knowledge.wharton.upenn.edu/article/do-junk-bond-defaults-signal-trouble-for-2016/

The iShares iBoxx $ High Yield Corporate Bond ETF, a $14.4-billion exchange traded fund that tracks the performance of the junk-bond market, posted an annual loss of 5.5%, and ended 2015 off a startling 12.4% from its February high. Likewise, the S&P U.S. Issued High Yield Corporate Bond Index lost 3.99% for the year, while BofA Merrill Lynch U.S. High Yield Index fell 5% for the year, its first annual loss since 2008.

BTW Vanguard increased the quality of bonds in their junk bond fund. And that means that they think that the storm is ahead not behind us.

Dennis Coyne , 03/15/2016 at 1:48 pm

Hi Ves,

When do you think oil will reach $90/b, if ever?

In the Bakken, the number of well completions has fallen from 185/month for the 12 months ending in March 2015 to 70 well completions in January.

If US falls by 1 Mb/d, that may be enough to balance the oil market, output in Canada may also fall, the low oil prices will eventually reduce output and oil prices will rise maybe by late 2016, eventually (probably 6 months later) oil output will gradually flatten and then rise, possibly reaching the previous peak, this will depend in part on demand for oil and the price of oil.

Ves , 03/15/2016 at 2:26 pm
Dennis,

" When do you think oil will reach $90/b, if ever?" No idea.

If WTI is on average $40-45 by the end of the 2016 how much US shale and US total production will be on December 2017?

Dennis Coyne , 03/15/2016 at 6:30 pm
Hi Ves,

The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under $43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec 2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view).

Very difficult to predict, it may be that capitulation in the US oil sector is close at hand. In that case output falls by more than I have guessed, but there is no way the EIA price forecast turns out to be correct in that case.

Ves , 03/15/2016 at 8:05 pm
Hi Dennis,
I agree on EIA price prediction in sense that I always stay away from predicting price for anything. Even for my weekly grocery shopping bag. :-)
Ron Patterson , 03/15/2016 at 2:30 pm
If US falls by 1 Mb/d, that may be enough to balance the oil market,…

And what do you think might happen in the rest of the world? In 2016 oil production will fall in most oil producing countries. Oil production will rise in a very few countries. The oil market may balance a lot sooner than a lot of people realize.

Dennis Coyne , 03/15/2016 at 5:44 pm
Hi Ron,

You may be correct on that point. If we take the US and Canada out of the equation I think increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine.

Ron Patterson , 03/15/2016 at 6:48 pm
Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less US and Canada will be about twice the increase expected from Iran.

Breaking it down, Iran may increase production, from February, another half a million barrels per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one million to 1.2 million bpd from their December production numbers.

That is my estimate, for what it's worth.

Dennis Coyne , 03/15/2016 at 7:10 pm
Hi Ron,

Thanks. I was under the impression that there were projects coming on line in that would offset some of the 1.2 Mb/d decline in non-OPEC less US and Canada. I may be wrong of course (happens all the time). :-)

Ron Patterson , 03/15/2016 at 7:32 pm
Dennis, you just have not been following the news. Yes there were projects coming on line. But those projects were cancelled.

Hey, start paying attention.

Ves , 03/15/2016 at 8:11 pm
Hi Dennis,

Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there is very minor one. But here is some hush – hush info from oil sands patch that there will not be any new oil sands project even if the price goes much higher in the near future without export pipeline in place. But who knows.

[Mar 16, 2016] bonuses earned by the CEOs of the major shale oil producers were tied to the level of production, not profits

Notable quotes:
"... Do Permian basin drillers and oil service companies get paid in pesos, $CND, or roubles considering the high level of active rigs compared to Bakken/EF from year ago? Or more likely Bakken/EF simply run out of sweet spots by end of 2015? ..."
"... It does not matter how drillers are paid. What matters is how bonuses to the top brass are calculated: The Wall Street Journal reported that the bonuses earned by the CEO's of the major shale oil producers were tied to the level of production, not profits. ..."
"... But have a look: Oil price bust started 1.5 ago. ..."
"... Does that sound like business decision? No. It is political. The whole shale is political boondoggle camouflaged as new technology/energy independence narrative. ..."
"... Oil rig count in the Permian basin is now down 73% from the peak reached on October 24, 2014 (150 vs. 562) A 73% decline is less than 84% for the Bakken or 82% for the Eagle Ford, but this is still a huge decline. ..."
"... I don't agree that is not correct comparison. You provide 2 yardsticks: 1) bigger area and 2) there are lots of conventional fields that are in my opinion completely irrelevant. These two yardsticks are irrelevant because the price is $37 and you can't make money at $37. And you could not make money for the whole last year. The profit has always been the bottom line yardstick before shale entered the picture. ..."
"... Look Canada is waaaayy bigger field than Permian basin and we have to agree on that. How many active rigs do you have in Canada? 50 rigs. Why do you think Permian basin is "exceptional" that justify 152 rigs at this very moment? It is not bigger than the whole Canada. ..."
"... The Permian companies are not generally as debt burdened, having been more likely to have raised funds through stock issuance. ..."
"... Keep in mind history, too. The Williston Basin has had times where the rig count fell to zero. Not sure what 40 year low is for Permian, but pretty sure its never been zero. It looks like in 1999 the rig count in the Permian Basin dropped as low as 51. That is for TX only. ..."
peakoilbarrel.com
Ves , 03/14/2016 at 2:32 pm
Do Permian basin drillers and oil service companies get paid in pesos, $CND, or roubles considering the high level of active rigs compared to Bakken/EF from year ago? Or more likely Bakken/EF simply run out of sweet spots by end of 2015?
likbez , 03/14/2016 at 4:02 pm
Hi Ves,

It does not matter how drillers are paid. What matters is how bonuses to the top brass are calculated: The Wall Street Journal reported that the bonuses earned by the CEO's of the major shale oil producers were tied to the level of production, not profits.

Ves , 03/14/2016 at 5:41 pm
@likebz.

You are right about top brass, but let's not forget that even in the church their top brass justify that they deserve more bonuses let alone oil capitalistic business.
I was being sarcastic with in what currency drillers and oil services are paid in Permian basin just to provoke some thoughts intrigued on that model that Verwimp posted.

But have a look: Oil price bust started 1.5 ago. Numbers of rigs in Permian basin are 8 TIMES higher now when oil price is 40-50% lower than year ago!! Does that sound like business decision? No. It is political. The whole shale is political boondoggle camouflaged as new technology/energy independence narrative.

But what is interesting now in 2016 to see is huge decline in the number of rigs in EF and Bakken that actually supposed to happen in early in 2015 if this shale business was to be credible business venture. But it did not happen in 2015. It did not happen in 2015 because it was political. Well the reason it is happening today is probably they are running out of sweet spots. What they are going to do until price reach $80? It is them the reason that price is not at higher level today. Drilling marginal spots that are left in EF/Bakken is like drilling in downtown New York. "Drill Baby Drill" only is applicable if there is something to drill for. The only shale game in town now is Permian simply because of timing. They were the last that joined the game. Banks will allow them to drill the the sweet spots at ANY price and then they will pull the plug.

AlexS , 03/14/2016 at 5:58 pm
"Numbers of rigs in Permian basin are 8 TIMES higher now when oil price is 40-50% lower than year ago!! "

????!!!!!
Oil rig count in the Permian basin is now down 73% from the peak reached on October 24, 2014 (150 vs. 562) A 73% decline is less than 84% for the Bakken or 82% for the Eagle Ford, but this is still a huge decline.

Ves , 03/14/2016 at 6:27 pm
Alex,

My bad interpreting graph from oilpro regarding the rig count. But the question is still valid: At $35 WTI why Permian has 5 times more active rigs than Bakken today drilling unprofitable oil for every single barrel that they produce for over year and half? I think is just matter of how much sweet spots are left in each of the shale basin regardless of the actual price.

AlexS , 03/14/2016 at 7:11 pm
The comparison is incorrect. Permian basin is much bigger than Bakken and includes numerous conventional fields. It always had much bigger number of drilling rigs than any other basin in the U.S.
Ves , 03/14/2016 at 10:31 pm
Alex,

I don't agree that is not correct comparison. You provide 2 yardsticks: 1) bigger area and 2) there are lots of conventional fields that are in my opinion completely irrelevant. These two yardsticks are irrelevant because the price is $37 and you can't make money at $37. And you could not make money for the whole last year. The profit has always been the bottom line yardstick before shale entered the picture.

Look Canada is waaaayy bigger field than Permian basin and we have to agree on that. How many active rigs do you have in Canada? 50 rigs. Why do you think Permian basin is "exceptional" that justify 152 rigs at this very moment? It is not bigger than the whole Canada.

Regarding yardstick that Permian is partly conventional also does not make sense because conventional does not make money either at $37 and half of Canadian production is conventional and nobody is drilling.

This shale "revolution" is political boondoggle that will have huge repercussions on US conventional in the first place and then the rest of world's high cost and mature oil production like North Sea and Alaska. But ultimately it will be US consumer that will pay the highest price as the biggest consumer per capita in the world.

shallow sand , 03/14/2016 at 4:34 pm
Ves,

One reason there is more activity could be there is a larger area. Also, the severance taxes are lower and the discounts for both oil and natural gas are lower. There could also be conventional rigs drilling in the Permian, as well as rigs drilling wells besides producers (injection, disposal, supply, observation)

It could also be that some rigs are deepening conventional wells to explore different and deeper zones. The Permian is well known for may productive formations.

The Permian companies are not generally as debt burdened, having been more likely to have raised funds through stock issuance.

Keep in mind history, too. The Williston Basin has had times where the rig count fell to zero. Not sure what 40 year low is for Permian, but pretty sure its never been zero. It looks like in 1999 the rig count in the Permian Basin dropped as low as 51. That is for TX only.

[Mar 16, 2016] 03/15/2016 at 4:46 pm

peakoilbarrel.com
Aren't we missing the monthly Bakken report?
Dennis Coyne , 03/15/2016 at 6:09 pm
Hi Watcher,

Yes we are, I would direct people to Enno Peters website.

He does a fine job on this,

Based on the latest NDIC data, total oil production in North Dakota fell to 1122 kbo/d in January, again a monthly drop of 30 kbo/d. This decline was slightly higher than I expected. The number of new wells producing dropped to 70.

https://shaleprofile.com/

[Mar 14, 2016] Theres Only One Buyer Keeping S P 500s Bull Market Alive

Resurgence of voodoo science is typical during crisis periods. "Deficits does not matter" voodoo does not work in a world were there are strong economic competitors to the USA and where euro and Yuan exists. The idea of deficit spending which Michelle Jamrisko discusses actually came from Keynesian economics, not from MMT.
Notable quotes:
"... Bridgewater's Ray Dalio, head of the world's biggest hedge fund, and Janus Capital's Bill Gross say policy makers are cornered and will have to resort to bigger deficits. ..."
"... "I have no problem with deficit spending," said Aneta Markowska, chief U.S. economist at Societe Generale in New York. "But this idea of the government printing money -- unlimited amounts of money -- and running unlimited, infinite deficits, that could become unhinged pretty quickly." ..."
"... Many more agree that it's precisely when households are cutting back that governments should do the opposite, to prevent a slump in demand. ..."
"... Most economists don't expect an imminent U.S. recession. But financial-market turmoil and America's political upheaval have added to a sense that nobody has figured out a cure for the economy's malaise. ..."
March 13, 2016 | Bloomberg Business

In an American election season that's turned into a bonfire of the orthodoxies, one taboo survives pretty much intact: Budget deficits are dangerous. A school of dissident economists wants to toss that one onto the flames, too.

It's a propitious time to make the case, and not just in the U.S. Whether it's negative interest rates, or

Calls for governments to take over the relief effort are growing louder. Plenty of economists have joined in, and so have top money managers. Bridgewater's Ray Dalio, head of the world's biggest hedge fund, and Janus Capital's Bill Gross say policy makers are cornered and will have to resort to bigger deficits.

"There's an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo," said Thomas Costerg, economist at Standard Chartered Bank in New York. "The focus is now shifting to fiscal policy."

Currency Monopoly

That's where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.

Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen -- but they're also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don't need to finance spending by collecting taxes, or even selling bonds.

The long-run implication of that approach has many economists worried.

"I have no problem with deficit spending," said Aneta Markowska, chief U.S. economist at Societe Generale in New York. "But this idea of the government printing money -- unlimited amounts of money -- and running unlimited, infinite deficits, that could become unhinged pretty quickly."

To which MMT replies: No one's saying there are no limits. Real resources can be a constraint -- how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there's plenty of room to spend without triggering inflation.

The U.S. did dramatically loosen the purse strings after the 2008 crisis, posting a deficit of more than 10 percent of gross domestic product the next year. That's since been trimmed to 2.6 percent of GDP, or $439 billion, last year.

... ... ...

Tighten Belts?

Those who push back sometimes argue that money-printing puts countries on a path that eventually leads, in a worst-case scenario, to Zimbabwe -- where money-printing debased the currency so badly that all the zeros could barely fit on banknotes. Or Venezuela, whose spending spree helped push inflation to 180 percent last year. Japan's a more mixed picture: years of deficits haven't scared off borrowers or unleashed inflation, but haven't produced much growth, either.

There's also a peculiarly American enthusiasm for balanced budgets, according to Jim Savage, a political science professor at the University of Virginia. He's traced it to the earliest days of the U.S., rooted in a "longstanding fear of centralized political power, going back to England."

Wray says there are episodes in American history when a different understanding prevailed. During World War II, he says, U.S. authorities learned a lesson that's since been forgotten -- that "we've always got unemployed resources, including labor, and so we can put them to work."

Savage says Americans have historically tended to conflate household and government debts. That category error is alive and well.

"Small businesses and families are tightening their belts," President Barack Obama said in 2010 as he announced a pay freeze for government workers. "Their government should, too."

It's not just MMT economists who winced at the comment. Many more agree that it's precisely when households are cutting back that governments should do the opposite, to prevent a slump in demand.

That argument doesn't carry much sway in Congress, though. That's one reason the Fed has had to shoulder so much of the burden of keeping the recovery alive, Societe Generale's Markowska says.

"When it comes to deciding on monetary easing, it's a handful of people in the room," she said. "It's going to take more pain to build that political consensus around the fiscal stimulus."

Wray says he'd expected attitudes to start shifting after the last downturn, just as the Great Depression gave rise to Keynesian economics and the New Deal, but "it really didn't change anything, as far as the policy makers go."

"I think it did change things as far as the population goes," he said, citing the anti-establishment campaigns of Sanders and Republican Donald Trump. It might take another crash to change minds, Wray says.

'Strange Period'

Most economists don't expect an imminent U.S. recession. But financial-market turmoil and America's political upheaval have added to a sense that nobody has figured out a cure for the economy's malaise.

Bill Hoagland, a Republican who's senior vice president of the Bipartisan Policy Center, has helped shape U.S. fiscal policy over four decades at the Congressional Budget Office and Senate Budget Committee.

He says a farm upbringing in Indiana helped him understand why "it's engrained in a number of Americans outside the Beltway that you equate your expenditures with your revenue." He also acknowledges that government deficits are different, and could be larger now to support demand, so long as there's balance in the longer term.

Most of all, Hoagland says he sees profound change under way. The "catastrophic event" of the 2008 crash may be reshaping American politics in a way that's only happened a handful of times before. And economic orthodoxy has taken a hit too.

"We're going through a very strange period where all economic theories are being tested," he said.

[Mar 14, 2016] OPEC sees lower 2016 demand for its oil, pointing to higher surplus

Reuter in firmly in the "low price forever" camp so this article is within "central tendency". The problem with this article that the accuracy of oil production reports is below 1Mb/d. So 0.76Mb/d "excess supply" might well be a statistical mirage.
finance.yahoo.com

LONDON (Reuters) - OPEC on Monday predicted global demand for its crude oil will be less than previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing the excess supply on the market this year.

Demand for OPEC crude will average 31.52 million barrels per day this year, the Organization of the Petroleum Exporting Countries said in a monthly report, down 90,000 bpd from last month's forecast.

OPEC pumped 32.28 million bpd in February, the group said citing secondary sources, down about 175,000 bpd from January.

The report points to a 760,000-bpd excess supply in 2016 if the group keeps pumping at February's rate, up from 720,000 bpd implied in last month's report.

[Mar 12, 2016] Looks like shale industry has finally cut production providing a good basis for a significant price rise in the fall of 2016

While the oil price will rise in 2016, it will stay below the level at which shale production is profitable. But drilling activity will start increasing again at price levels below breakeven. I have recently read a prediction that we need to see $60-70 WTI to see many rigs added. Completion rate will fall to around 50 new wells per month by May and might stays at that level until Dec 2016. It is unclear how many more wells can be drilled in the remaining "sweet spots" and drilling might be forced to move into more marginal areas Hovering around 100 per month during 2015, spuds plunged in February 2016 to a multi year low of 29. https://www.dmr.nd.gov/oilgas/stats/2016monthlystats.pdf.
Notable quotes:
"... In my opinion, the industry has finally cut production in earnest. This is very likely the main reason for the recent price recovery. The latest action provides a good basis for a significant price rise in the fall of 2016. ..."
peakoilbarrel.com
Heinrich Leopold, 03/12/2016 at 7:38 am
ALexS, shallow sand, Dennis

In my view actual spuds are very important for production numbers (see below chart).

Hovering around 100 per month during 2015, spuds plunged in February 2016 to a multi year low of 29. https://www.dmr.nd.gov/oilgas/stats/2016monthlystats.pdf.

In my opinion, the industry has finally cut production in earnest. This is very likely the main reason for the recent price recovery. The latest action provides a good basis for a significant price rise in the fall of 2016.

[Mar 11, 2016] Key Crisis Point Is Saudi Arabia Running Out of Gas

Notable quotes:
"... "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." ..."
"... Phil Butler, is a policy investigator and analyst, a political scientist and expert on Eastern Europe, exclusively for the online magazine "New Eastern Outlook" . http://journal-neo.org/2016/03/10/key-crisis-point-is-saudi-arabia-running-out-of-gas/ ..."
New Eastern Outlook
Saudi Arabia's ever increasingly hostile stance toward neighbors may not be as secular as some have suggested. Given the nature of the country's oil reserves, and almost unlimited production for decades, it's possible the Saudis could simply be running out of gas. Here's a candid look at the Saudi situation, one which should be thought provoking. If the world has really reached the "peak oil" threshold, a Middle East war may be inevitable.

Saudi Arabia has been a sort of model country for much internal progress since the oil embargo of 1973 catapulted the members of the organization of petroleum exporting countries (OPEC) into immeasurable profitability. Not the least of "progress" aspects derived from oil money has been the elevated living standard of the nation's people. For a bit of a history lesson on this, I revert to the bid by OPEC in the mid 70's.

The 1970's Happened

Be the end of the oil embargo imposed by OPEC, the price of oil had risen from $3 per barrel to nearly $12 globally. In the US we felt the sting even more significantly as I recall. The crisis literally shocked America, and later the 1979 "second oil shock" was to do even more catastrophic damage. This was in the aftermath of several key events, but the Nixon administration's discovery America could no longer keep up production of oil was the most significant. The story is a deep one, but Saudi Arabia coming out on top as a world energy power was the end result. It was at about this time Saudi production went into overdrive, and Saudi leaders soon became billionaires. Here's where my story gets interesting.

Americans will remember an economic theory of the US President Ronald Reagan at about this time. The so-called "Trickle Down Theory" was the catch phrase that captivated the masses then. Part joke, part real economics, the idea of the fabulously wealthy getting richer, and their win filtering down to poor people – well, it caught on big time. Reagan was one of the most popular presidents ever, and for a time his economics worked. Trickle Down worked in Saudi Arabia too, in fact all the oil-exporting nations accumulated vast wealth. That is until the bubble busted recently. I'll address the Saudi social empowerment in a moment, but the effects of OPEC on the Cold War bear scrutiny here as well. The United States' hegemony prior to the oil crisis was solely focused on the Soviet Union and China, but with OPEC's bid at emergence, Washington faced a new "third world" threat. Drastic measures were undertaken as a result, measures we see the effects of now in Syria, Ukraine, with regard to Russia and Iran, and worldwide. For one thing, NATO and the rest of the leagues of nations were forced to be far more "pro-Arab" than ever before. While this was a very good thing in many respects, nations of these coalitions refocused strategies accordingly. The Saudis and others became increasingly dependent on defense by the United States, which in turn led us to the veritable vassal state situation in Europe.

Sputtering Oil Fields

Returning to my original argument, Saudi Arabia is now going broke via an American bid to reshuffle the economic and policy deck. America's last shale reserves are being pumped dry in an effort to break Russia and other nations dependent on exporting energy resources for their economies. And while Russia could probably overcome any hardship out of sheer necessity, Saudi Arabia has nothing but oil to rely on. Saudi royalty has for decades built a civil system relying on lavish schemes and placating the masses, paid for by an unsustainable commodity. While the western press touts Wahhabi desires to eliminate vestiges of Shia religiosity within Saudi's sphere of influence as a causal point in Saudi aggressiveness of late, going broke would seem the greater fear to me. Assuming my theory has merit, let's turn to Saudi oil reserves, and to recent austerity moves by the leadership. New VAT and other taxes are in the wind, funding for external projects has slumped, and business in Riyadh has screeched to a halt in some sectors. New projects like the lavish architectural creations looming in the deserts have halted, the Saudis are not happy people like they were. Even the filthy rich there have their own forms of austerity, which involve emptying their swimming pools, swapping gas-guzzling SUVs for more economical transport, and even turning off the AC. Last month the Wall Street Journal reported that dashed oil prices have already wiped out the Saudi budgetary plan. RT reports of debt defaults already looming large, so one can only imagine what will happen if the oil truly runs out. By way of an illustration the Ghawar Field, largest in the world, is running out after about 65 years of continuous production. Reports the Saudi Aramco will be starting the CO2-EOR process to extract the last of the field's oil, they tell us this field will be depleted totally soon. Once this happens, Saudi Arabia will return to an almost medieval third world status. Either this or those billions horded by Saudi princes will have to be used to placate or to subdue the people.

GlobalScenario2004

Click on the picture to enlarge

This August, 2015 The Telegraph piece by author Ambrose Evans-Pritchard notwithstanding, Saudi Arabia going broke due to low oil prices may not be the issue really. To the point, a recent Citigroup study suggested that Saudi Arabia may actually run out of óil by the year 2030. Furthermore, a recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%! With the world having reached a threshold known as "peak oil" already, we can easily ascertain "why" the Saudis, the US hegemony, and other players seem desperate for war nowadays. For those unaware of what I am talking about, let me frame what "peak oil" really means.

Peak oil refers to an event based on M. King Hubbert's theory, where the maximum rate of extraction of oil is reached. After this date, oil capacity will fall into irreversible decline. Hubbert was one of those genius types who was a significant geoscientist noted for his important contributions to geology, geophysics, and petroleum geology. He worked with Shell Oil at their labs back in Houston, and is quoted as saying about our overall dependency:

"We are in a crisis in the evolution of human society. It's unique to both human and geologic history. It has never happened before and it can't possibly happen again. You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered."

Hubbert's "peak oil" prognosis was actually supposed to take hold back in 1995, and it is my sincere belief that it did. His science is essentially irrefutable. If you run down his theory of "peak oil" you'll inextricably come to a graphic of a bell curve of world oil production. For my part, I have taken Hubbert's math and overlaid other "depletive" curves for production and resource allocation simply to satisfy my own scientific curiosity. I studied environmental geography under one of the world's most renowned former Shell geologist, Dr. Mitch Colgan. That said, the graph you see from Hubbert's 1956 report to the American Petroleum Institute, on behalf of Shell Oil, shows Ohio oil production, which mirrors Texas, or any other region where such a resource is depleted. The "fact" the world will run out of oil is incontestable, like I said. And the Saudis have been pumping massive quantities of oil longer, and faster than anyone.

There's not space here for an exhaustive study of whether or not we've achieved the "peak oil" threshold. I would like to leave off on M. King Hubbert here with an ironic note, a case I discovered concerning his association in World War II with the US Board of Economic Warfare. Hubbert was evidently a candidate for helping this Washington D. C. agency, but was somehow deemed "ineligible" or undesirable, which in turn caused some controversy. You will no doubt find the letter from the chairman of the economic warriors interesting. I'll wager most people never even knew America has such departments. But I need to sum up.

Now What, More War?

Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like "renewable energy" and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America. Furthermore, fossil fuels 44% of the industrial sector, and coal provides 51% of the nation's electricity still. Nuclear provides this biggest chunk of electricity after coal, just to be clear here. Denial that peak oil has been reached is not only idiotic, it may end up being catastrophic. The Saudi leadership is drawing back with austerity measure against the people. Saudi militarism is on a gigantic upswing, as we see in Yemen and with the Turkey innuendo. Evidence Obama and other western leaders know of the "peak oil" crisis abounds. A recent Department of Energy request to expert Robert Hirsch in 2005 revealed a damning truth. I quote from the report, which mysteriously disappeared in PDF and other forms from the web:

"The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking."

Within the various reports by Hirsch (PDF) and other, we find statements like the one from Dr. Sadad al-Husseini, a retired senior Saudi Aramco oil exploration executive, who went on record saying, "that the world is heading for an oil shortage." The world consumes 85 billion barrels of oil each day. That's about 40,000 gallons per hour, and demand is not slowing, but increasing exponentially. Geologists have already determined that more than 95% of all the recoverable oil has already been found.

Saudi aggression in Yemen, the recent siding with Turkey, and the withdrawal of aid earmarked for military purchases by Lebanon are all clear signs of a nation in big trouble. If my theory is correct and if these Saudi oil fields are running out, then rumors of a re-Islamification of Turkey make the Saudi alliance meaningful. Oil fields in Syria and Northern Iraq may in fact be a vision of continued Saudi wealth gathering. So the deepening of strategic ties in between Turkey and Saudi Arabia, and against the Russian and Iranian interests in Syria, may reveal another unseen plan. Or at least the only feasible way any nation totally dependent on oil exports might survive in tact. Washington likes to make religion the source of all conflict, or Vladimir Putin one, but the reality is, Saudi Arabia is "probably" running out of gas.

Like I said, it's all food for thought.

Phil Butler, is a policy investigator and analyst, a political scientist and expert on Eastern Europe, exclusively for the online magazine "New Eastern Outlook".
http://journal-neo.org/2016/03/10/key-crisis-point-is-saudi-arabia-running-out-of-gas/

[Mar 11, 2016] Riyadhs Worst Nightmare Is Saudi Arabias Oil Business Going Bust

Notable quotes:
"... A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores. ..."
"... "Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes. ..."
"... To paraphrase the old song, oil makes the world go round… ..."
sputniknews.com

A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores.

Butler refers to a phenomenon called "peak oil." According to M. King Hubbert's theory, peak oil is the point in time when the maximum rate of extraction of petroleum is reached and the crude capacity will only decline.

Whether one likes it or not, peak oil has been reached, the analyst underscores.

However, while the global oil reserves are decreasing steadily, Riyadh has been pumping its crude faster than anyone.

And here is the root cause of Saudi Arabia's warmongering. To maintain its status quo, the Saudi kingdom has established an alliance with Turkey, planning to seize Syria and Iraq's oil fields.

Still, it's only half the story, since the global economy also remains petroleum-centered.

"Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes.

To paraphrase the old song, oil makes the world go round…

The question then arises, whether we are on the doorstep of new "energy wars."

[Mar 11, 2016] no title

Notable quotes:
"... Seems to be the possibility of a decrease of 200K-400K in one state over a two year period is noteworthy. ..."
"... I think that ND production could decline to 800 kb/d by year-end only if very few new wells are drilled and completed. ..."
"... I actually expect ND rig count and completion activity to rebound in the second half of the year. Therefore, oil production is unlikely to drop to 800 kb/d, in my view. ..."
peakoilbarrel.com

Dennis Coyne , 03/11/2016 at 3:30 pm

Hi everyone,

Ron just sent me an e-mail on the Bakken Data.

Bakken production down -28424
North Dakota down -30590

​He is busy today and will have a post up in a couple of days.

He sent me the chart below.
​ ​

shallow sand , 03/11/2016 at 4:06 pm
Dennis: Not to steal your thunder concerning your post, but the last two months' ND data indicate an annualized decline of approximately 30%.

Way too early to tell, but if that rate held up throughout 2016, by year end ND production would be in the low 800K range, by my math at least.

If that occurs, I question whether the 12/14 peak could be surpassed. I suppose if operators work through their DUC inventories this year, assuming prices rebound enough, 800K range is out of question, but I think below 1 million is very likely.

Seems to be the possibility of a decrease of 200K-400K in one state over a two year period is noteworthy.

AlexS , 03/11/2016 at 4:31 pm
shallow sand,

I think that ND production could decline to 800 kb/d by year-end only if very few new wells are drilled and completed.

Theoretically, the December 2014 peak could be surpassed, but only several years from now, and only if oil prices stay at relatively high levels (above $70) for at least 2-3 years.

Dennis Coyne , 03/11/2016 at 4:39 pm
Hi AlexS,

Interesting that the scenario I created matches your estimate, or Shallow sands.

I assume the completion rate falls to 50 new wells per month by May and stays at that level until Dec 2016.

AlexS , 03/11/2016 at 5:15 pm
Dennis,

I actually expect ND rig count and completion activity to rebound in the second half of the year. Therefore, oil production is unlikely to drop to 800 kb/d, in my view.

Dennis Coyne , 03/11/2016 at 4:35 pm
Hi Shallow Sand,

A Scenario below.

Check out Enno Peters site

http://shaleprofile.com/

Reply

[Mar 11, 2016] Energy Crisis As Early As 2016

This author was probably one year early in his forecasts, but the direction was right -- we might face oil shortages in 2017.
Notable quotes:
"... "In permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present, our calculation of break-even system-wide is in the $85–$100 a barrel range on a Brent basis." ..."
December 30, 2014 | OilPrice.com

Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2% more crude oil supply than demand and the price of gasoline is under $2.00/gallon in Texas. If oil supply falls too far, we could see gasoline prices doubling within 18 months. For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive up the price.

On Thanksgiving Day, 2014 Saudi Arabia decided to maintain their crude oil output of approximately 9.5 million barrels per day. They've taken this action despite the fact that they know the world's oil markets are currently over-supplied by an estimated 1.5 million barrels per day and the severe financial pain it is causing many of the other OPEC nations. By now you are all aware this has caused a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector. I believe this will be a short-lived dip in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception.

To put this in prospective, the world currently consumes about 93.5 million barrels per day of liquid fuels, not all of which are made from crude oil. About 17% of the world's total fuel supply comes from natural gas liquids ("NGLs") and biofuels.

One thing that drives the Bears opinion that oil prices will go lower during the first half of 2015 is that demand does decline during the first half of each year. Since most humans live in the northern hemisphere, weather does have an impact on demand. I agree that this fact will play a part in keeping oil prices depressed for the next few months. However, low gasoline prices in the U.S. are certain to play a part in the fuel demand outlook for this year's vacation driving season.

Related: Ten Reasons Why A Sustained Drop In Oil Prices Could Be Catastrophic

Global Demand For Hydrocarbon Based Liquid Fuels

Brent oil prices are now hovering around $60 a barrel. In my opinion, this is quite a bit lower than Saudi Arabia thought the price would go and may lead to an "Emergency" OPEC meeting during the first quarter. But for now, I am assuming that Saudi Arabia is willing to let the other OPEC members suffer until the next scheduled OPEC meeting in June.

The commonly held belief is that Saudi Arabia is doing this to put a stop to the rapid growth of production from the U.S. shale oil plays. Others believe it is their goal to crush the Russian and Iranian economies. If the oil price remains at the current level for a few months longer it will do all of the above.

My forecast models for 2015 assume that crude oil prices will remain depressed during the first quarter, then slowly ramp up and accelerate as next winter approaches. I believe that by December we will see a much tighter oil market and significantly higher prices. In a December 24, 2014 article in The National, Steven Kopits managing director of Princeton Energy Advisors states that, "In permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present, our calculation of break-even system-wide is in the $85–$100 a barrel range on a Brent basis."

Mark Mobius, an economist and regular guest on Bloomberg TV recently said he sees Brent rebounding to $90/bbl by the end of 2015.

Since 2005, only North America has been able to add meaningful crude oil supply. Outside of Canada and the United States (including the Gulf of Mexico), the rest of the world's crude oil production netted to a decline of a million barrels per day from December, 2010 to December, 2013. More than half of the OPEC nations are now in decline. We've been able to supplement our fuel supply during the last ten years with biofuels, but that is limited since we need the farmland for food supply.

Liquids Supply Since 2005

I believe the current low crude oil price could be overkill and result in the next "Energy Crisis" by early 2016. Enjoy these low gasoline prices while they last.

The upstream U.S. oil companies we follow closely are all announcing 20% to 50% cuts in capital spending for 2015. We will start seeing the impact on supply at the same time the annual increase in demand kicks in. Our model portfolio companies are all expected to report year-over-year increases in production, but at a much slower pace than the last few years.

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A study released by Credit Suisse two weeks ago shows that U.S. independents expect capital-expenditure (Capex) cuts of one-third against production gains of 10 per cent next year. This would imply production growth of 600,000 bpd of shale liquids, and perhaps another 200,000 bpd from Gulf of Mexico deepwater projects. At the same time, U.S. conventional onshore production continues to fall. I have seen estimates of 500,000 to 700,000 bpd declines within twelve months. If these forecasts are accurate, U.S. oil production growth would be barely positive next year and headed for a material downturn in 2016.

North American unconventionals (oil sands, shale and other tight formations) have been almost all of net global supply growth since 2005. If unconventional growth grinds to zero and conventional growth is falling outright, the supply side heading into 2016 looks highly compromised. At today's oil price, only the "Sweet Spots" in the North American Shale Plays and the Canadian Oil Sands generate decent financial returns to justify the massive capital requirements needed to continue development. Global deepwater exploration is rapidly coming to a halt.

Were demand growth muted, this might not matter. Demand for liquid fuels goes up year-after-year. It even increased in 2008 during the "Great Recession" and ramped up sharply during 2009 and 2010 despite a sluggish global economy. Low fuel prices are increasing demand today and my guess is that, with U.S. GDP growth now forecast at 5% in 2015, we could see demand for fuels increase by close to 1.5 million barrels per day this year. The current IEA forecast is for oil demand to increase by 900,000 bpd in 2015.

If this plays out, the oil markets will be heading into a significant squeeze in the first half of 2016.

The last extended period of low oil prices was 1985 to 1990. In 1985, when oil prices collapsed similar to what's happening now, the world had 13 million bpd of spare capacity, with 7 million bpd in Saudi Arabia alone. OPEC was well-positioned to comfortably meet any increase in demand.

Today, just about all of the world's discretionary spare capacity resides in Saudi Arabia and amounts to an estimate 2 million bpd. Lou Powers, an EPG member and author of "The World Energy Dilemma," has said that Saudi Arabia will have difficulty maintaining production at over 10 million bpd for an extended period. If we do swing to a supply shortage, Saudi Arabia may find itself in the position of needing to run the taps full out for much of 2016. In such an event, the world will be headed right back into an oil shock and we will see much higher oil prices than $100/bbl.

[Mar 11, 2016] IEA sees signs oil price might have bottomed out

businesstimes.com.sg
The oil price may have finally bottomed out, the International Energy Agency (IEA) said Friday, noting its "remarkable recovery" over recent weeks.

In its monthly report, the IEA said talk among oil producers to freeze production amounts to "a first stab at co-ordinated action" with the presumed aim of pushing oil up to US$50 a barrel, compared with about US$40 now.

Among other factors restraining oil supply the IEA said that Iran's return to the market had been "less dramatic than the Iranians said it would be".

[Mar 11, 2016] Goldman Sachs cuts crude oil price forecasts for this year and next

businesstimes.com.sg

THE BUSINESS TIMES

The bank said it expects Brent prices to average US$39 a barrel in 2016 and US$60 a barrel in 2017, down from its previous forecasts of US$45 and US$62 a barrel respectively.

Goldman also trimmed its 2016 West Texas Intermediate (WTI) price forecast by US$7 to US$38 a barrel, and its 2017 price forecast by US$2 to US$58 a barrel.

Predicting a slower recovery into next year and sharper oil production declines in 2016, the bank said it does not foresee production hitting previous peaks until mid-2018.

[Mar 11, 2016] Oil boom fuelled by junk debt faces wave of defaults

Notable quotes:
"... Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according to a note Thursday. ..."
THE BUSINESS TIMES
Investors are facing US$19 billion in energy defaults as the worst oil crash in a generation leaves drillers struggling to stay afloat.

The wave could begin within days if Energy XXI Ltd, SandRidge Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders. Those are three of at least eight oil and gas producers that have announced missed debt payments, triggering a countdown to default.

"Shale was a hot growth area and companies made the mistake of borrowing too much," said George Schultze, founder and chief investment officer of Schultze Asset Management in New York, which has been betting against several distressed energy companies.

"It's amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse."

Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according to a note Thursday.

A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn't respond to requests seeking comment.

"Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection," Energy XXI said in a March 7 public filing.

Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that would convert its unsecured debt and preferred shares into common stock. For the plan to work, shareholders must approve it at a March 14 meeting and enough bondholders need to participate by the March 16 exchange deadline.

"Absent a successful completion of the recapitalisation plan, the company will have no alternatives other than to seek protection through the bankruptcy courts," Walter Goodrich, chairman and chief executive officer, said on a March 9 conference call.

[Mar 11, 2016] International Rig Count Oil price spike might come as early as August or September 2016

Notable quotes:
"... Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months as I understand this is the time they suppose to be drilling. ..."
"... AND since US + Canada are the ones that been keeping world production up we all need to hope for some serious Iran drilling in the coming months (won't happen though). Price spike here we come my and my guess this is in August/September. ..."
peakoilbarrel.com
AlexS, 03/11/2016 at 1:33 pm
Oil rigs 386 -6
Gas rigs 94 -3

Horizontal 375 -14
Vertical 55 -3
Directional 50 +8

Oil rigs in key LTO basins:

Permian: 150 -6
Bakken 32 -1
Eagle Ford 37 -3
Niobrara 15 unchanged

Although the overall decline in oil rigs is slowing, key tight oil basins have lost 10 oil rigs.

Also note a significant decline in horizontal rigs.

Horizontal rigs drilling for oil:
– down from 311 to 301 for the week.
– down 120 units (-28.5%) from the end of 2015
– down 814 units (-73%) from the peak on November 26, 2014

Amatoori, 03/11/2016 at 2:44 pm
Oh Canada

Canadian Rig Count is down 31 rigs from last week to 98, with oil rigs down 22 to 28, and gas rigs down 9 to 70.

Canadian Rig Count is down 122 rigs from last year at 220, with oil rigs down 57, and gas rigs down 65.

Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months as I understand this is the time they suppose to be drilling.

AND since US + Canada are the ones that been keeping world production up we all need to hope for some serious Iran drilling in the coming months (won't happen though). Price spike here we come my and my guess this is in August/September.

Everyone will be like: I thought we had a surplus? WTF happened?

[Mar 11, 2016] North Dakota – update until 2016-01 – Visualizing US shale oil production

shaleprofile.com
Based on the latest NDIC data, total oil production in North Dakota fell to 1122 kbo/d in January, again a monthly drop of 30 kbo/d. This decline was slightly higher than I expected. The number of new wells producing dropped to 70.

I have added 2 tabs in the above presentation; one that shows the top operators, and another one that shows the gas and water production that is produced together with the oil, in North Dakota. By using the arrows you can browse through the 5 tabs.

Drilling activity has continued to drop sharply during the last months. There were 88 wells spudded in December, 61 in January, and based on preliminary data it looks like just 30 wells were spudded in February. This sharp drop surprised me, as the drop is even more steep than the drop in rigs. This indicates that the drilling efficiency has dropped again these months.

... ... ...

[Mar 11, 2016] Manking probably has 50 years to go on fossil fuel

Notable quotes:
"... If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and under the seas and oceans. ..."
peakoilbarrel.com
R Walter, 11/08/2015 at 12:21 pm
With regard to peak oil book publications:

Permanent Oil Schock, L.F. Ivanhoe

"The two basic factors of the world's oil supply are (1) geologic (discoveries) and (2) economic (distribution). Petroleum geologists have done such a good job of finding oil that it looks as easy as growing crops, and our engineers deliver the petroleum like clockwork. Consequently, the public and many planners consider global distribution to be the only supply problem and attribute all price swings to simple economics. They erroneously ignore critical long-term geological facts and assume that cash spent = oil found. This premise is invalid where no oil exists or where prospects are poor. Most people are unaware that the global quality of geological/oil prospects has declined so much that the amount of new oil found per wildcat well has dropped 50% since a 1969 peak. Discoveries of the most critical but easiest to find giant fields (each with over 500 million bbl of recoverable oil) are now stalled at 315 known worldwide. We are simply no longer finding enough new crude oil to replace the world's huge consumption of 20 billion bbl (840 billion gal) per year."

http://www.searchanddiscovery.com/abstracts/html/1987/annual/abstracts/0571a.htm?q=%2BtextStrip%3Aopec+textStrip%3Astatistics

Looks like the troubles are here to stay.

R Walter, 11/09/2015 at 11:32 am
2200 Gb would be 300 billion metric tons.

2,200,000,000,000/7.3=301,369,863,014 metric tons of total oil extracted, yet of be extracted, past production and future production.

If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and under the seas and oceans.

The metric system is of an advantage when calculating the numbers, IMO.

Thanks to Robert Wilson for the links to L.F. Ivanhoe's findings and conclusions, appreciate it.

R Walter, 11/09/2015 at 11:32 am
2200 Gb would be 300 billion metric tons.

2,200,000,000,000/7.3=301,369,863,014 metric tons of total oil extracted, yet of be extracted, past production and future production.

If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and under the seas and oceans.

The metric system is of an advantage when calculating the numbers, IMO.

Thanks to Robert Wilson for the links to L.F. Ivanhoe's findings and conclusions, appreciate it.

Schinzy, 11/08/2015 at 6:28 pm
https://www.project-syndicate.org/commentary/debt-threatens-global-economy-by-richard-kozul-wright-2015-11#9bVidMsfaVX73OEz.99

Global debt has grown some $57 trillion since the collapse of Lehman Brothers in 2008, reaching a back-breaking $199 trillion in 2014, more than 2.5 times global GDP, according to the McKinsey Global Institute. Servicing these debts will most likely become increasingly difficult over the coming years, especially if growth continues to stagnate, interest rates begin to rise, export opportunities remain subdued, and the collapse in commodity prices persists.

Much of the concern about debt has been focused on the potential for defaults in the eurozone. But heavily indebted companies in emerging markets may be an even greater danger. Corporate debt in the developing world is estimated to have reached more than $18 trillion dollars, with as much as $2 trillion of it in foreign currencies. The risk is that – as in Latin America in the 1980s and Asia in the 1990s – private-sector defaults will infect public-sector balance sheets.

Dennis Coyne, 11/08/2015 at 6:48 pm
Hi Schintzy,

If global growth stagnates, interest rates won't rise by much. So high interest rates and low GDP growth is not a very realistic scenario. Very poor monetary policy could accomplish it (like Volcker in the 80s), but we may have learned something since then about monetary policy.

[Mar 11, 2016] Peak Oil Review A Midweek Update - March 10

www.resilience.org

Chinese crude imports hit a record of 8 million b/d in February despite severe economic problems and contracting imports and exports. One reason for the surge may have been the extremely low oil prices in January which attracted more buying for strategic stocks and to refine for exports. China's small independent refiners were only recently allowed to import oil for their needs rather than procuring it domestically.

[Mar 10, 2016] Convertion into kilowatt hours of various type of fuels

peakoilbarrel.com

R Walter , 03/08/2016 at 1:15 pm

Back to some ciphering:

https://www.eia.gov/tools/faqs/faq.cfm?id=667&t=2

Kilowatt-hour generated per unit of fuel used:

1,927 kWh per ton, or 0.96 kWh per pound, of coal
99 kWh per Mcf (1,000 cubic feet) of natural gas
578 kWh per barrel, or 13.76 kWh per gallon, of petroleum

https://www.eia.gov/tools/faqs/faq.cfm?id=667&t=2

You will need approximately 20 Mcf of natural gas to equal one short ton of coal for generation of electricity. 20×99 equals 1980 kWh.

3.5 barrels times 42 gallons at 7.2 pounds per gallon is 1058 pounds of oil.

You need half as much oil by weight to generate the same amount of electricity with a short ton of coal.

You will need about 3.5 barrels of oil for every short ton of coal to generate an equal amount of electricity.

CO2 emissions per barrel of oil: 1 barrel: 317kg of CO2 (min.)

http://numero57.net/2008/03/20/carbon-dioxide-emissions-per-barrel-of-crude/

317kg is 699.3 pounds of CO2 or 2447.5 pounds, when an amount of oil is generated to electricity equal to the amount of coal used, 3.5 barrels to 2000 lbs of coal.

CO2 emissions per short ton of coal: Complete combustion of 1 short ton (2,000 pounds) of this coal will generate about 5,720 pounds (2.86 short tons) of carbon dioxide.

http://www.eia.gov/coal/production/quarterly/co2_article/co2.html

https://www.linkedin.com/pulse/energy-from-coal-oil-natural-gas-carbon-dioxide-emissions-joseph-cook?forceNoSplash=true

Natural Gas 122 pounds of carbon dioxide/1000 cu.ft http://cdiac.ornl.gov/pns/faq.html so Natural Gas equivalent of 1 ton of coal equals 2306 pounds of CO2

https://www.linkedin.com/pulse/energy-from-coal-oil-natural-gas-carbon-dioxide-emissions-joseph-cook?forceNoSplash=true

By eliminating the use of natural gas and oil, coal can be burned to produce the usable energy, more than likely electricity. The emissions will be close to the same amounts. Purdy good sarcasm there.

Would you rather have a ton of coal or 3.5 barrels of oil?

3.5 barrels of oil will cost you $129.50.

A ton of good coal will be about 52 dollars in today's world of money. $16.50 for Wyoming brown coal, good old Oklahoma crude refined into diesel and gasoline is the preferred choice, not Wyoming brown coal. Just the way it is in the real world.

You have to pay 77.50 usd for the convenience. It is much less trouble to buy gas than to convert coal to a usable energy for personal transportation, so you'll pay the extra money for the ease of use and the better energy source, crude oil. You demand to use gasoline and reject coal except to be burned at power plants to generate electricity.

Determine the amount of coal used in by the billions of tons, you can estimate the amount of tonnage of CO2 emitted. One billion tons of burned coal will emit 2,860,000,000 tons of CO2 into the atmosphere. 7.3 billion tons consumed worldwide each year, or 20,878,000,000 tons of CO2 emitted into the atmosphere in a year's time.

Pollutants are going to exist when coal and fossil fuels are used to make the machine go, civilization will collapse without fossil fuels.

That's when overshoot sets in, not enough coal and oil will take its toll. Meanwhile, the post-modern era keeps chugging along burning all the coal and oil it can.

Oldfarmermac , 03/08/2016 at 4:48 pm
This is a brief excerpt from a REUTER'S article now two years old.

xxxx

Saudi power generators pay about $4 per barrel for their oil, industry data show.

That works out at a running cost of $0.006 per kilowatt hours (kWh) in 2010, excluding all other capital, fixed and operating costs.

But accounting for the opportunity cost of exporting crude oil at international prices of $113 per barrel raises the economic cost of oil-fired power generation to $0.13 per kWh, ignoring all non-fuel costs.

A simplified solar cost calculator developed by the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) estimates the cost of solar power at $0.07 per kWh under Saudi conditions.

That assumes a capacity factor of 33 percent as can be expected in sunnier locations in southern Saudi Arabia and a full capital cost of $1.5 per watt, a conservative estimate for utility-scale installations.

xxxx

So they are already building solar farms, not very many yet, with the juice priced competitively with oil at somewhere around fifty to sixty bucks. New solar farms will get cheaper. Oil will be going up.

It's a NO BRAINER, run the ac on sun power, and sell that oil!!!! Once it goes up again, of course.

They may be holding off waiting for the price of solar to fall even farther. That's why I don't have a personal system yet, it is cheaper on me to buy grid juice from one year to the next and wait for panel and inverter prices to go down some more, using my generators for emergency backup.

HVACman , 03/08/2016 at 5:06 pm
"99 kWh per Mcf (1,000 cubic feet) of natural gas"

Small technical clarification about NG kWh/MCF. That is about 34% net thermal/kWh conversion efficiency, which would apply to a conventional old-school steam turbine natural-gas power plant. You just don't see those built anymore. Just about everyone has gone to CCGT (Combined Cycle Gas Turbine) plants for new generating capacity. which are closer to 60% conversion efficiency.

Almost all coal plants are more conventional type pure steam power plants and don't use CCGT technology. The newer coal plants do have some efficiency improvements, though, including heat recovery and using super-critical operating steam pressures. But all the new air pollution equipment for coal also takes an efficiency toll on these plants that NG plants just don't have to pay.

That CCGT efficiency upgrade really changes the equations cited for converting "equivalent" MCF of NG to tons of coal for generating the same electrical energy.

[Mar 10, 2016] The Top Ten RBN Energy Prognostications for 2016

Notable quotes:
"... We hated to disappoint all those hopeful condensate exporters last year, but the handwriting was on the wall. Regardless of unfettered export regs, if it is worth more here than it is there, then you ought to keep it here. Only about 100 Mb/d of newly legal condensate exports left U.S shores in 2015, because the economics were upside down. A harbinger of things to come for crude exports? Absolutely. ..."
RBN Energy
5. It is nice that condensate exports are legal, but the economics of condensate exports don't make much sense.
We hated to disappoint all those hopeful condensate exporters last year, but the handwriting was on the wall. Regardless of unfettered export regs, if it is worth more here than it is there, then you ought to keep it here. Only about 100 Mb/d of newly legal condensate exports left U.S shores in 2015, because the economics were upside down. A harbinger of things to come for crude exports? Absolutely.

[Mar 10, 2016] Turks cannot support financially and politically the whole Iraqs Kurdistan entity where the oil is coming from

Notable quotes:
"... Turkey announced today that the Kurdish pipeline should be back online in about a week. There's been a major mine-sweeping effort going on there since the break. ..."
"... Turks can fix the pipeline but Turks cannot support financially and politically the whole Iraq's Kurdistan entity where the oil is coming from. You still got eat even when the oil is $30 :), so the Kurds are doing bidding process on who will help pay the most. Iraqis central government has an offer dangling to take care of Kurdish government employees in exchange for re-routing that kurdish oil through central government for sale. ..."
"... But Turks have way bigger problems than one pipeline. They are in real bind and are pushed real hard from both Russians and Americans. When it is all said and done they could be in process of being dismembered. ..."
"... The only leverage that Turks have is over Euro elite that still needs them for their dirty work in ME. Notice how Ms. Markel can easily find 3 billion for Turkey (refugees will not see a single penny of it) while last year Euro pensioners in Greece/Spain/Italy/France all they got is austerity. ..."
"... It is a class war and it has always been like that. ..."
"... The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all the way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a pipeline that joins it at the Turkish border, so the pipeline carries Kurdish oil too. It's in Iraq's interest to have it open but since SE Turkey is essentially a war zone that can be hard to bring about. ..."
peakoilbarrel.com
Synapsid , 03/09/2016 at 8:04 pm
Ves,

Turkey announced today that the Kurdish pipeline should be back online in about a week. There's been a major mine-sweeping effort going on there since the break.

The PKK denies blowing up the pipeline. Who knows?

Ves , 03/09/2016 at 11:34 pm
Synapsid,

Turks can fix the pipeline but Turks cannot support financially and politically the whole Iraq's Kurdistan entity where the oil is coming from. You still got eat even when the oil is $30 :), so the Kurds are doing bidding process on who will help pay the most. Iraqis central government has an offer dangling to take care of Kurdish government employees in exchange for re-routing that kurdish oil through central government for sale.

But Turks have way bigger problems than one pipeline. They are in real bind and are pushed real hard from both Russians and Americans. When it is all said and done they could be in process of being dismembered.

The only leverage that Turks have is over Euro elite that still needs them for their dirty work in ME. Notice how Ms. Markel can easily find 3 billion for Turkey (refugees will not see a single penny of it) while last year Euro pensioners in Greece/Spain/Italy/France all they got is austerity.

It is a class war and it has always been like that.

Synapsid , 03/10/2016 at 12:56 am
Ves,

The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all the way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a pipeline that joins it at the Turkish border, so the pipeline carries Kurdish oil too. It's in Iraq's interest to have it open but since SE Turkey is essentially a war zone that can be hard to bring about.

I suspect that Iraqi Kurdistan could support itself from sale of the oil they produce if they were allowed to just sell it and not have the money come from Baghdad–and if they straightened out their own corrupt economy.

[Mar 10, 2016] Anadarko Petroleum cutting 17 percent of workforce

Fuel Fix

Executives of the Woodlands-based oil explorer had said last month it would reduce its capital spending by half this year amid low oil prices and evaluate its staffing needs as it reduces activity.

... ... ...

After an 18-month oil bust, energy layoffs are nothing new. Oil producers, their suppliers, service providers and equipment makers, along with refineries and pipeline operators, have so far cut more than 320,000 jobs worldwide, according to Houston consultancy Graves & Co., which has tracked industry layoffs since the downturn began.

Within the United States, Anadarko produces oil and gas in Colorado's DJ Basin, in the Permian Basin in West Texas, in the Gulf of Mexico and elsewhere. After ConocoPhillips, it's the second-largest independent U.S. oil company, which means it doesn't have its own refining assets like Chevron Corp. and Exxon Mobil Corp.

... ... ...

It's about the same size reduction that Apache Corp. made last year. Houston-based Apache cut more than 1,000 employees, or 20 percent of its workforce, through direct reductions and asset sales in 2015, which included its liquefied natural gas assets in Canada and Australia and its upstream unit in Australia.

David Walters · Houston Community College

All that bold talk a year ago how Houston's economy is so much more diverse is facing its first real test.

Glenn Gustafson · University of Houston

Trouble in the oil bidness always means tough times for Houstonians. Best wishes to those who have/will lose jobs because of this.

Douglas James Fusilier · Spring, Texas

Thank God I'm still holding on. I feel for all my colleagues who have lost jobs in this downturn.

Terry Smith · Publisher/General Manager at Amazing Publishers

Fourth largest oil company and they only have about 6,000 employees?

[Mar 10, 2016] Oil Price Crash Was Not Saudi Arabia's Fault

Notable quotes:
"... The most significant event of the last decade regarding crude oil has been the rise of U.S. shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit, consistently rising demand and improved technological methods of fracking led to the current production rate, which would have increased further had OPEC cut their production. ..."
OilPrice.com

Quite simply, the Saudis want to maintain their market share, but their means to control that are dwindling.

The whole internet is jam-packed with analysis portraying Saudi Arabia and OPEC as villains for the oil price collapse. On a closer look, however, the Saudi's could have taken no reasonable steps to avert this situation. This is a transformational change that will run its full course, and the major oil producing nations will have to accept and learn to live with lower oil prices for the next few years.

Why the Saudi's are not to blame

(Click to enlarge)

As seen in the chart above, barring the period during the last supply glut, the Saudi's have more or less maintained constant oil production, increasing production only modestly at an average of roughly 1 percent per year.

The most significant event of the last decade regarding crude oil has been the rise of U.S. shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit, consistently rising demand and improved technological methods of fracking led to the current production rate, which would have increased further had OPEC cut their production.


[Mar 10, 2016] ESAI Libyan production will not recover

Notable quotes:
"... All of this is to say that the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy can work out a compromise. In the meanwhile, the competing governing factions will have to defend themselves against not only other claimants to legitimacy but also ISIS and other smaller groups that have begun to attack Libyan oil production and export facilitates with increasing regularity. ..."
"... The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya not only helping to continue the instability and political stalemate there but also spreading unrest further in Northern Africa. ..."
March 9, 2016 | bakken.com

Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc. (ESAI)

... ... ...

While there are ongoing negotiations, or attempts at negotiations pushed by Washington and key European states, so far it does not look at all hopeful. In the meanwhile, the efforts of the West are focused on two issues. First is conducting strikes against ISIS leaders and key operatives who might be either planning on targeting Western targets or who might be consolidating control over parts of Libya. Second is keeping refugees from flowing into southern Europe (whether they are Libyans or Africans who are taking advantage of the lack of governance in Libya to launch from its shores).

News reports indicate that the United States, France, the United Kingdom and Italy all have Special Forces on the ground in Libya largely to support intelligence gathering and targeting ISIS cells or leaders. The recent U.S. airstrikes two weeks ago against ISIS leaders and a training camp in Libya may or may not reflect this small ground presence, but the attacks indicate that Washington is focusing on elements of the terrorist group that might be planning attacks on Western targets. The news information on the French aircraft carrier also hints that any strikes that Paris may carry out will be against those potentially plotting against French targets. All of this is to say that the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy can work out a compromise. In the meanwhile, the competing governing factions will have to defend themselves against not only other claimants to legitimacy but also ISIS and other smaller groups that have begun to attack Libyan oil production and export facilitates with increasing regularity.

The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya not only helping to continue the instability and political stalemate there but also spreading unrest further in Northern Africa.

Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc. (ESAI)

[Mar 10, 2016] EIA Inventory Report and Oil Market Analysis 3 9 2016

(Video)
Notable quotes:
"... The rising clamor at home from the crashing shale sector and the banks that financed it; the resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's entrance into the Syrian take-down attempt having put Russia into a new position of influence in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian resistance to demands that they agree to limit production; Kuwait refusing to limit production; Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily: financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears, - these factors have led Western leaders to stop suppressing the price of crude. ..."
Zero Hedge

Al Tinfoil ,|

IMHO, the rise in crude prices is evidence that the West has blinked and is giving up on its attempt to bankrupt Russia in order to make Putin kowtow to the West.

The rising clamor at home from the crashing shale sector and the banks that financed it; the resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's entrance into the Syrian take-down attempt having put Russia into a new position of influence in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian resistance to demands that they agree to limit production; Kuwait refusing to limit production; Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily: financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears, - these factors have led Western leaders to stop suppressing the price of crude.

The commodities traders and their algos will now be allowed to manipulate up the prices. Fundamentals of excess supply and weak demand do not matter, and have not mattered for a long time. Futures contracts, refinery shutdowns for fires or scheduled maintenance, pipeline ruptures, and rumors of international instability can all be used to increase crude prices.

The oil bulls are being let loose!

[Mar 10, 2016] Oil market rally could 'rip people's faces off'

finance.yahoo.com

While some investors are predicting that market expectations for oil at $50 a barrel might be too fast, and too soon , Bill Smith, chief investment officer and senior portfolio manager at Battery Park Capital, told CNBC the energy sector will find equilibrium by the second quarter of 2016. And it will not be pretty for those holding bearish trades.


Speaking to CNBC's " Squawk Box ", Smith said if indeed oil prices stabilize, much-battered energy stocks will follow crude prices higher.


"It's going to be a short covering rally that rips people's faces off," said Smith. "It's going to be ugly."


Battery Park Capital has assets under management worth $340 million. Short-selling refers to selling an asset in the hope of buying it back at a lower price later. The recovery in oil prices has been supported by reports suggesting that oil producers are planning to work together to reduce excess supply in the market.


Earlier this week Reuters, citing New York-based oil industry consultancy PIRA , reported major OPEC producers were discussing a new price equilibrium of around $50 a barrel.


Broadly, Smith was less upbeat about the U.S. economy. He said while the economy wasn't heading into recession, it wasn't growing either.

.. View gallery
Oil market rally could &#39;rip people&#39;s faces&nbsp;&hellip;
Nick Oxford | Reuters. Investors betting on falling shares of energy companies could have their &quo …

"We don't have the building blocks to bust out and go on a growth trajectory," he said, adding there's no reason for runaway inflation at this point in time.


Government data showed core inflation rose 1.7 percent in the 12 months ended in January. The U.S. Federal Reserve 's inflation target is at 2 percent.


But Smith said he doesn't see any reason why the Fed would raise interest rates just yet, even due to currency risks.

Last December, the Fed raised interest rates from near zero percent for the first time since 2006. Following the rate hike, the dollar initially found strength against major currencies around the world before losing some momentum earlier this year. But the move also created a major sell-off in global stock markets in January.


The Federal Open Market Committee is due to meet next on Mar. 15 - 16.


Smith said, "Every time they even talk about raising rates, the dollar rips higher and it's just creating chaos globally. So, I would much rather see them sit on the sidelines now."

[Mar 10, 2016] Is It All Over Now? Producers Lose Their Appetite For Bakken Crude Output by Sandy Fielden

Notable quotes:
"... A number of signs point to the decline in production continuing during the rest of 2016 unless there is an extended oil price recovery. For a start, the number of new permits to drill wells in North Dakota is at a seven year low – indicating a low appetite for drilling (more on that in a minute). Second, there were 1183 inactive wells in the state in December - about 30% above normal for this time of year. The operators have essentially abandoned these inactive wells – usually because they are losing money. Many of these inactive wells are older and had very low production rates - less than 35 b/d. Such older wells are known as "stripper" wells and their costs are long ago written off – so operators usually keep them running unless transport and maintenance costs exceed the value of the crude – i.e. prices get too low. ..."
"... The strongest indicators of a slowdown in Bakken production come in the reduction in drilling rigs operating in North Dakota and a parallel decline in the number of well completions. We'll look at the rig count first then get to completions. ..."
"... The combination of the potential tax incentive early in 2015 and the extension of the one year limit in October led to a growing backlog of DUC wells in North Dakota that is now having an impact on production forecasts ..."
"... It seems that those producers who can afford to are increasingly opting not to complete Bakken wells but instead to leave DUC wells "on the shelf" as a kind of storage play – waiting for prices to improve. ..."
"... Many smaller companies do not have the luxury of waiting and many of these are likely to be either already casualties of the price crash or living on borrowed time (see Zombies ). ..."
"... The summary chart shows that at $30/Bbl - to achieve a consistent IRR above 20% (for even the highest cost wells) - producers need to target wells with an IP of at least 1500 b/d. Looking at historic drilling and production records, NDPA found only 63 wells – concentrated in McKenzie, Mountrail and Dunn Counties that had IP rates of 1500 b/d or higher. Those 63 wells represent just 1% of the 6000 Bakken wells that would breakeven if wellhead prices were between $55 and $70/Bbl. In short the analysis makes clear that only a fraction of existing wells would breakeven or produce an acceptable IRR at today's low crude prices. ..."
"... The expectation that oil prices might remain low for a long time is rapidly sinking in for U.S. shale producers. Many smaller operators have already fallen victim to bankruptcy but now even those with a strong balance sheet are recognizing that continued drilling and production no longer make financial sense. As a result all expectations are that U.S. shale production will tumble this year (although despite the suggestion in today's title it is not quite "all over" yet). The situation on the ground in North Dakota that we have reviewed today indicates that the slowdown is gaining momentum. The extent of any decline in production is still hard to forecast accurately – clouded as it is by the unknown impact of an increase in DUCs. As 2016 progresses you can be sure that we'll be keeping a close track on the trends for you. ..."
rbnenergy.com
For the past, year many shale oil producers have defied the expectations of many and kept output at or near to record levels in the face of falling oil prices and much tougher economics. Improvements in productivity, cost cutting and a concentration on "sweet spot" wells that generate high initial production (IP) rates have all helped cash strapped producers survive. But with oil prices so far in 2016 stuck in the $35/Bbl and lower range and with the worldwide crude storage glut still weighing on the market – producers are finally pulling back. Today we look at how increased pressure on North Dakota producers is putting the brakes on Bakken crude production.

In December 2015, crude production in North Dakota Bakken fell by 2.5% to 1,152 Mb/d (from 1,182 Mb/d in November). That December output is down 6% from the record 1,227 Mb/d produced a year earlier in December 2014. Lynn Helms – Director of the North Dakota Industrial Commission (NDIC) Department of Mineral Resources commented in a February 2016 press conference that the December 2015 drop in production was the first significant decline in North Dakota crude output not explained by other factors such as weather. A number of signs point to the decline in production continuing during the rest of 2016 unless there is an extended oil price recovery. For a start, the number of new permits to drill wells in North Dakota is at a seven year low – indicating a low appetite for drilling (more on that in a minute). Second, there were 1183 inactive wells in the state in December - about 30% above normal for this time of year. The operators have essentially abandoned these inactive wells – usually because they are losing money. Many of these inactive wells are older and had very low production rates - less than 35 b/d. Such older wells are known as "stripper" wells and their costs are long ago written off – so operators usually keep them running unless transport and maintenance costs exceed the value of the crude – i.e. prices get too low. A third indicator of declining producer interest in the Bakken is the large number of producing wells in North Dakota currently being transferred (sold) by one operator to another – 697 wells as of February 17, 2016 according to Helms. Some large producers such as Occidental Petroleum that is selling 346 wells - are leaving the North Dakota Bakken oil patch altogether. Others that are staying in the Bakken have sold off wells to other operators to raise cash – including Whiting Petroleum Corp (the largest Bakken producer – selling 331 wells) and EOG Resources, grandfather of the crude-by-rail phenomenon.

The strongest indicators of a slowdown in Bakken production come in the reduction in drilling rigs operating in North Dakota and a parallel decline in the number of well completions. We'll look at the rig count first then get to completions. As of March 8, 2016 the rig count in North Dakota stood at 33 – down 85% from the all time high (218) in May 2012. The green shaded area in Figure #1 shows the North Dakota rig count since January 2013 (right axis). The number of rigs operating hovered between 180 and 195 from January 2013 to December 2014 before dropping off a cliff from January 2015 onwards. By the end of 2015 the average rig count was down to 64 and the number fell to an average of 52 in January 2016. The NDIC has not released the February average rig count yet – but their daily count was down to 35 at the end of February. Just 16 producers operated those 35 rigs with only eight companies operating more than one rig – headed by ExxonMobil affiliate XTO who still had 5 rigs and followed by Continental Resources, Hess and Conoco Phillips running 4 each. In the past week XTO and Hess have each dropped one more rig.

Figure #1 Source NDIC, RBN Energy (Click to Enlarge)

Turning now to completions – by which we mean when the first oil is produced through wellhead equipment into tanks from a new well. As we have described previously – completion occurs in shale wells after the well is drilled and the hydrocarbons are stimulated to flow by hydraulic fracturing (see I Cannot Complete With Your Tax Scheme). When oil prices were riding high any delays in completions were usually practical rather than deliberate – caused by a lack of fracking crews able to complete new wells. Producers had every incentive to complete wells to get cash flowing to help finance more new drilling. But in an era of falling oil prices completion timing has become a big deal for producers because waiting for a hoped for increase in prices before producing oil has become a strategy for protecting future revenue. In North Dakota that strategy has led to a steady increase in wells that are drilled but uncompleted (the DUCs) since the start of 2015. We previously discussed how the North Dakota Legislature provided incentives for producers to hold off completions in the first half of 2015 while they waited for low prices to trigger a tax break (see Tax Scheme). Those tax incentives did not pan out due to a jump in oil prices in May 2015. However the issue of completions in North Dakota stayed on the front burner when producers began to ask for waivers from State mandated completions one-year after drilling (see Incomplete). In October 2015 the NDIC decided to issue waivers to allow producers to delay completions by up to two years from drilling. The combination of the potential tax incentive early in 2015 and the extension of the one year limit in October led to a growing backlog of DUC wells in North Dakota that is now having an impact on production forecasts in 2016. Figure #1 shows NDIC data for well completions - that have been falling (blue line left axis) and wells waiting on completion that have been increasing since mid-2014 (red line left axis). As of the end of December 2015 there were 945 DUC wells in North Dakota – down from an all time high of 1080 in September 2015 but 26% higher than the 750 DUCs the previous December (2014).

It seems that those producers who can afford to are increasingly opting not to complete Bakken wells but instead to leave DUC wells "on the shelf" as a kind of storage play – waiting for prices to improve. A couple of weeks ago (February 27, 2016) the largest Bakken producer - Whiting Petroleum - stated in an earnings report that they would suspend well completions in the Bakken in April 2016 until prices rebound. In the meantime they will maintain 2 drilling rigs in North Dakota – basically increasing their DUC inventory with no new production. Another large Bakken producer Continental Resources announced plans in their January 2016 guidance to defer completing most Bakken wells in 2016 - increasing DUC inventory from 135 at year-end 2015 to 195 at year-end 2016. Note that we are just highlighting DUCs in North Dakota here but this phenomenon is widespread in the oil shale sector and has also impacted natural gas drilling in the Northeast. The strategy is only feasible for those production companies that have reasonably robust balance sheets and can afford to wait before completing wells. Many smaller companies do not have the luxury of waiting and many of these are likely to be either already casualties of the price crash or living on borrowed time (see Zombies). It remains to be seen to what extent large increases in DUCs during 2016 will accelerate expected declines in output that have been forecast based on ever lower rig counts and low prices.

The economic realities that are pushing operators to withdraw rigs and avoid completions in once bustling plays like the Bakken are aptly illustrated by a video presentation from the Director of the North Dakota Pipeline Authority (NDPA) Justin Kringstad at the end of December 2015. The presentation is an update on analysis Justin provided earlier in the year that is designed to show how lower oil prices impact the number of wells in North Dakota that would produce an internal rate of return (IRR) between 10 and 20% based on different drilling cost scenarios. The analysis is specific to the Bakken but otherwise similar to the models RBN uses for production forecasting that were explained in detail in out January 2015 Drill Down Report "It Don't Come Easy" available to our Backstage Pass subscribers. We are in the process of updating this analysis to reflect current drilling economics.

The chart in Figure #2 shows a summary of the NDPA's December analysis with Bakken wellhead crude priced at $30/Bbl. That equates roughly to a West Texas Intermediate (WTI - the U.S. Domestic benchmark) price of $35/Bbl less transportation discounts to get crude to market from North Dakota. As of yesterday (March 8, 2016) WTI prices on the CME/NYMEX futures exchange closed at $36.50/Bbl. The blue bars on the chart indicate the % IRR that a producer might expect based on a range of 30-day average initial production (IP) scenarios between 400 B/d and 1500 b/d (numbers along the top of the chart). For each IP scenario there are 3 alternate well drilling and completion cost cases - $6 Million, $7 Million and $8 Million (indicated on the bottom axis).

Figure #2; Source: NDPA (Click to Enlarge)

As you can see the blue bars get higher from left to right as the well IP increases – because the higher the IP rate the faster the oil revenues accrue towards the IRR. The IRR rates are also higher when the drilling and completion costs are lower. The summary chart shows that at $30/Bbl - to achieve a consistent IRR above 20% (for even the highest cost wells) - producers need to target wells with an IP of at least 1500 b/d. Looking at historic drilling and production records, NDPA found only 63 wells – concentrated in McKenzie, Mountrail and Dunn Counties that had IP rates of 1500 b/d or higher. Those 63 wells represent just 1% of the 6000 Bakken wells that would breakeven if wellhead prices were between $55 and $70/Bbl. In short the analysis makes clear that only a fraction of existing wells would breakeven or produce an acceptable IRR at today's low crude prices.

The expectation that oil prices might remain low for a long time is rapidly sinking in for U.S. shale producers. Many smaller operators have already fallen victim to bankruptcy but now even those with a strong balance sheet are recognizing that continued drilling and production no longer make financial sense. As a result all expectations are that U.S. shale production will tumble this year (although despite the suggestion in today's title it is not quite "all over" yet). The situation on the ground in North Dakota that we have reviewed today indicates that the slowdown is gaining momentum. The extent of any decline in production is still hard to forecast accurately – clouded as it is by the unknown impact of an increase in DUCs. As 2016 progresses you can be sure that we'll be keeping a close track on the trends for you.

"It's All Over Now" was written by Bobby and Shirley Womack and first released by The Valentinos in 1964. The Rolling Stones had their first number-one hit (in the U.K.) with a cover version in July 1964 – also a hit for the band worldwide.

[Mar 10, 2016] NE gas production will fall by the end of the year, just for slightly different reasons

Notable quotes:
"... As the winter '15/16 season winds down, the Northeast is set to experience lower seasonal demand, putting into question whether or not current production levels are sustainable with the amount of capacity leaving the producing states – Ohio, Pennsylvania, and West Virginia. ..."
"... This feature will look into whether or not production can find a home from the combined OH, PA, and WV "Tri-State" area, considering the seasonal swing in demand, and high storage levels reducing injection demand. It will also explore whether maxed-out outflow corridors can handle an incremental supply surplus. ..."
peakoilbarrel.com
Toolpush, 03/09/2016 at 8:21 pm
It seems Bentek agree with Art Berman that US or at least the NE gas production will fall by the end of the year, just for slightly different reasons.

Risk to Northeast Production this Summer

Wednesday, March 09, 2016 – 4:17 PM

As the winter '15/16 season winds down, the Northeast is set to experience lower seasonal demand, putting into question whether or not current production levels are sustainable with the amount of capacity leaving the producing states – Ohio, Pennsylvania, and West Virginia. Bentek's latest CellCAST shows production averaging 23.5 Bcf/d for the remainder of 2016, about a 1 Bcf/d increase from the current year-to-date average of 22.4 Bcf/d.

This feature will look into whether or not production can find a home from the combined OH, PA, and WV "Tri-State" area, considering the seasonal swing in demand, and high storage levels reducing injection demand. It will also explore whether maxed-out outflow corridors can handle an incremental supply surplus.

Please continue to read on page two for further analysis.

[Mar 10, 2016] resource nationalist are quickly running out of money

Notable quotes:
"... We all are living under neoliberalism , aren't we? And current fascinating developments with Bernie and Trump is nothing more than unorganized protest of shmucks against " masters of the universe " - neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7 capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man) ..."
"... The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to Marx delusions "the lower classes are never, even temporarily, successful in achieving their aims". ..."
"... The key idea of neoliberalism is redistribution of wealth up from shmucks to international (predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose money on oil and that they are selling it below the cost. What is important that the "masters of the universe" became richer. And sustainability is provided by grabbing asset of distressed countries and companies when they go too deeply in debt slavery. So the key idea here is get those countries and companies "conditioned" enough to grab them on a cheap. In old days that was called "shock therapy" now it is called "disaster capitalism". ..."
"... Destabilization as in "drop of oil prices to unsustainable levels" can be extremely profitable (see The Shock Doctrine: The Rise of Disaster Capitalism. ). This is the way the neoliberalism enforces its Washington consensus rules on other countries, especially resource nationalists like Putin's Russia. ..."
"... This was not done in case of "shale bubble" and other countries were implicitly stimulated by it to rump up production as well as by regime of high oil prices and cheap Western credits. Now we have a real crisis when "resource nationalist" are quickly running out of money. If Washington is able to crush them, it is also will show the other countries who are trying to oppose neoliberal globalization "who is the boss". It is not accidental that all establishment candidates in the current presidential race are extremely, pathologically jingoistic and are ready to bomb yet another half-dozen of countries in short order after coming to power. In this sense differences between H, C and R are superficial. They all are servants of neoliberal oligarchy in Washington and Wall Street (for H in the opposite order). ..."
peakoilbarrel.com
likbez, 03/09/2016 at 6:59 pm
clueless,

Art Berman looks at the numbers and says oil should go back to $30, or even lower. It does take capitalism time to work.

This looks like too theoretical post well outside the scope of this blog, but still there are some basic facts that everybody needs to be aware of.

  1. We all are living under neoliberalism, aren't we? And current fascinating developments with Bernie and Trump is nothing more than unorganized protest of shmucks against "masters of the universe" - neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7 capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man)

    The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to Marx delusions "the lower classes are never, even temporarily, successful in achieving their aims".

  2. The key idea of neoliberalism is redistribution of wealth up from shmucks to international (predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose money on oil and that they are selling it below the cost. What is important that the "masters of the universe" became richer. And sustainability is provided by grabbing asset of distressed countries and companies when they go too deeply in debt slavery. So the key idea here is get those countries and companies "conditioned" enough to grab them on a cheap. In old days that was called "shock therapy" now it is called "disaster capitalism".

  3. Destabilization as in "drop of oil prices to unsustainable levels" can be extremely profitable (see The Shock Doctrine: The Rise of Disaster Capitalism.). This is the way the neoliberalism enforces its Washington consensus rules on other countries, especially resource nationalists like Putin's Russia.

    The countries and companies in question were gently pushed to increase the production to the level that assured the crisis to happen. While this sounds like another conspiracy theory, and can well be such, the simple logic suggests that in XXI century the elite understands the natural dynamics of capital accumulation well enough to freeze too enthusiastic Ponzi schemers before they do the major damage, if they want it. At least suppress them enough to avoid "Minsky moment."

    This was not done in case of "shale bubble" and other countries were implicitly stimulated by it to rump up production as well as by regime of high oil prices and cheap Western credits. Now we have a real crisis when "resource nationalist" are quickly running out of money. If Washington is able to crush them, it is also will show the other countries who are trying to oppose neoliberal globalization "who is the boss". It is not accidental that all establishment candidates in the current presidential race are extremely, pathologically jingoistic and are ready to bomb yet another half-dozen of countries in short order after coming to power. In this sense differences between H, C and R are superficial. They all are servants of neoliberal oligarchy in Washington and Wall Street (for H in the opposite order).

    It can well be that US shale was a part this Brzezinski's The Grand Chessboard " gambit and now is a pawn sacrificed in a wider geopolitical game.

[Mar 09, 2016] Russias exposure to low oil prices has been mitigated by the depreciation of the ruble relative to the dollar, given ruble-denominated production costs, and by Russias taxation regime for the oil sector

peakoilbarrel.com
Ron Patterson , 03/09/2016 at 7:51 am
Now here is a type of headline you don't see very often. Bold mine.

Russia may be running out of oil

Oil production in Russia will inevitably decline by 2035 according to an Energy Ministry report seen by the Vedomosti business daily. The different scenarios predict an output drop from 1.2 percent up to 46 percent two decades from now.

The document, obtained by the newspaper and confirmed by a source in the ministry, says by 2035 existing oil fields will be able to provide Russia with less than half of today's production of about 10.1 million barrels per day.

The shortfall should be met by increased production from proven reserves, according to projections by the Energy Ministry.

In the best case for oil producers, short-term growth remains possible only until 2020, according to the report. After that, production will contract. The figures vary from 1.2 percent to 46 percent, depending on prices, taxation and whether or not anti-Russian sanctions will be in force.

A slight increase in production is possible only for smaller companies like Slavneft and Russneft, while the market leaders are facing the depletion of existing deposits. Added to an unfavorable tax environment, their production is set to fall by 39-61 percent.

To counter the decline in oil production, the Energy Ministry proposes giving private companies access to the Arctic shelf, to soften the tax regime and support for small and medium-sized independent companies.

The Ministry also suggests promoting the processing of high-sulfur and super viscous heavy oil with the introduction of preferential rates of excise duties on fuel produced from such oil.

Desperate times call for desperate measures.

AlexS , 03/09/2016 at 8:37 am
This forecast published by "Vedomosti" is for crude only and excludes condensate (around 520 kb/d in 2015). It was not yet officially released. Condensate production growth in 2014-15 was higher than crude only. There are gas condensate fields in the far north of West Siberia that should start production in the next few years.

The worse case assumes very low oil prices and sanctions remaining for the whole period. Is $30-40 oil a realistic scenario to 2035?

Base case implies 2035 crude production only 2.1% below 2015 levels

"Reasonably favorable" scenario: crude production in 2020-2030 slightly above 2015 levels;
2035: 1.6% below 2015.

Russian crude (ex condensate) production scenarios.
Source: Vedomosti newspaper based on the Energy Ministry data

AlexS , 03/09/2016 at 8:48 am
Meanwhile, the EIA in its Short-Term Energy Outlook has revised upwards estimates and projections for Russian oil production in 2015-17.

From the report:

"Russia is one example of production exceeding EIA's expectations. Fourth quarter 2015 oil production in Russia is 0.2 million b/d higher than in last month's STEO, with initial data indicating it has remained at high levels in early 2016. This higher historical production creates a higher baseline level that carries through the forecast period. Russia's production is expected to increase by 0.2 million b/d in 2016 and then decline by 0.1 million b/d in 2017. Russia's exposure to low oil prices has been mitigated by the depreciation of the ruble relative to the dollar, given ruble-denominated production costs, and by Russia's taxation regime for the oil sector."

The EIA is the last of the key international energy forecasting agencies to revise the numbers for Russia (others are IEA, JODI and OPEC)

Dean , 03/09/2016 at 10:06 am
Besides what Alex already said, I want to add another important point: the recovery of oil-in-place in Russia is very low compared to international averages, around 20-25%. This is why there is a lot of potential just by improving extraction from current fields.

P.S. Then, there is shale oil, really a lot of it, but it requires much higher prices for it to be developed, and economically it makes more sense to first increase the % extracted of oil-in-place

[Mar 09, 2016] EIA oil price predictions are just spam

Notable quotes:
"... EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production. ..."
"... Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. ..."
"... And that talk of 500k from Iran waiting to flood the market is bogus story from the beginning and it was just used to perpetuate "glut" narrative. ..."
"... Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis regarding the quotas. ..."
"... As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current. Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy job that EIA performs with this metric :-) ..."
"... BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor of oil prices dynamics as they are often used by producers and by hedge funds for hedging and offsetting other bets. Probably worse then a typical "oil expert" predictions :-) ..."
peakoilbarrel.com
shallow sand, 03/09/2016 at 10:02 am
ND rigs at 33. Burlington has one to stack. My estimate is rigs will bottom at 26-27.

EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production.

Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. All are anecdotal, but are not signifying worries of tanks topping.

Ves, 03/09/2016 at 1:03 pm
re Iraq and Iran,

Also add 600k disruption from Iraq Kurdish area due to complete change in geopolitics in that area, that 600k is NOT coming back to the market until there is deal and safe infrastructure on moving that oil towards the south terminals through areas controlled by Iraq government. And that talk of 500k from Iran waiting to flood the market is bogus story from the beginning and it was just used to perpetuate "glut" narrative.

Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis regarding the quotas.

I would just watch March 20th meeting and try to decode the statements from the meeting.

likbez, 03/09/2016 at 3:31 pm
ShallowS,

EIA oil price projections are unrealistically low IMO

As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current. Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy job that EIA performs with this metric :-)

BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor of oil prices dynamics as they are often used by producers and by hedge funds for hedging and offsetting other bets. Probably worse then a typical "oil expert" predictions :-)

[Mar 09, 2016] Everyone including Saudi Arabia and Kuwait, is losing money at current prices with the industry is losing around two billion per day

peakoilbarrel.com

clueless, 03/09/2016 at 3:55 pm

Economics 101 for Dummies – an OFM type of a post.

Art Berman looks at the numbers and says oil should go back to $30, or even lower. It does take capitalism time to work. But, EVERYONE, including Saudi Arabia and Kuwait, is losing $20/bbl or more. Those two countries are losers because they have already spent the money before it came in. So, the industry is losing $2 billion per day minimum. Probably $1 trillion/year at current prices. It will change. Relatively fast.

Look at the reverse. Suppose that a loaf of bread went up to $100 in the US. 99.999% of the population would be screaming for government price controls. OFM would be getting no sleep. Why is that? Because he would be baking bread 24/7.

Before the crash of the Soviet Union, TV reported stories of shortages of everything in their Union. It supposedly took 3 months of labor for a typical factory worker, saving 100% of his/her earnings, to have enough money to buy a cloth coat. That was unsustainable. Why? Because you could quit your job, stay home and knit a coat a week and get 12 times your salary.

Heck, even the French farmers were smart enough that when milk prices went below the cost of production, they just dumped it in the streets.

These US corps that are selling stock to shore up their balance sheets are not stupid. They will not start drilling again until their stock prices are well above where they diluted existing shareholders.

Greenbub , 03/09/2016 at 4:56 pm
Yes, they are stupid. If they were smart, they would have done the stock offerings when the share price was exponentially higher.
shallow sand , 03/09/2016 at 5:12 pm
Clueless.

I think the release of the LTO company annual reports let the cat out of the bag, so to speak.

At $50.28 WTI, no one can make a go of it, if you just read the financials on these companies. The companies will deny that and say all kinds of stuff, but the proof is in the SEC reports. Sure, they can get by for a long time in survival mode, but $50 as a long term price absolutely doesn't work. Actually around $80 WTI is needed long term to have a viable LTO business, with there obviously being a range around that price, depending on many company specific factors.

When something like 70% of XOM's upstream estimated net future cash flows disappear, and their proved reserves drop 24%, from the previous year, just imagine what happens to all of their lesser peers. Many had to show huge production and development cost cuts to even have net future cash flows at $50.28, and then we dropped to $30 the first two months of 2016? Again, can get by awhile but long term, no way.

No business media report on this stuff, and very few retail investors discuss this stuff. But you can bet the institutional people look at reserves and estimates of future cash flows. Seeing how bad those looked, and knowing that those are likely the BEST CASE SCENARIOs the independent reservoir engineering firms would allow, it had to have an affect. I do not think it is a coincidence that we were bombed with LTO 10K in February and the price has rocketed up since. The traders realized they overshot. They believed the company "break even hype" too much, and the 10K confirmed it is a lot of hype.

That is why I was so surprised when EOG came out and said what they did about economic at $30, after the release of their 10K. Unless the 10K is wrong, they have $0 net future cash flow at $32 WTI and $1.70 HH. Some heavy hitters had to get into EOG's ear in order for them to say that. My conspiracy mind says political people, but likely it was Goldman Sachs types? It was just too "Red, White and Blue" talk coming from them,( i.e. we MUST be cost competitive with KSA and "win" this war).

I am not saying the low oil price nightmare that US producers have experienced is over, short term is a tough one. But, absent some major demand decreases or major OPEC production increases, low prices cannot last as the EIA is currently predicting.

likbez says:

03/09/2016 at 10:55 pm

ShallowS,

I think the release of the LTO company annual reports let the cat out of the bag, so to speak.

I am with you, but let me to assume the position of "devil advocate". Your statement above is true if you view "the small picture". But if you view "the large picture" the situation is slightly different. Here are my admittedly unprofessional (aka naïve) view:

1. In a sense "the cat out of the bag" is the necessary conditions for the recovery of oil prices, as only an incompetent, or a stooge now can talk about prices below $70 as sustainable for shale industry. But jury is out whether it is sufficient. May be the extinction of shale companies is in the cards, may be they will quietly kept afloat by extending loans and by sale of shares for an additional year. Life is complex thing and economics reflects life in more then one way.

2. That's true that individual shale companies are forced into unsustainable position (aka charge of light oil brigade in the "death valley", see https://en.wikipedia.org/wiki/Charge_of_the_Light_Brigade ). They fight bravely but the cards were against them. But for the county as a whole, low oil prices are a powerful economic doping, which probably helped the USA to avoid recession in 2016. Obama administration probably has a hand in staging the drop via Saudi as they openly admit (http://oilprice.com/Energy/Oil-Prices/Did-The-Saudis-And-The-US-Collude-In-Dropping-Oil-Prices.html )

3. IMHO low oil prices are critical to prevent slide from "secular stagnation" back into a new Great Recession. So keeping oil prices low in 2016 is one way of kicking the can down the road for Obama administration. Which definitely would prefer postpone possible economic problems connected with the recovery of oil price to the next administration.

4. Putin made a move against the current oil price "status quo" and being a powerful geopolitical player he managed to keep in line such possible detractors as Azerbaijan and Iran. So on March 20 oil price might get a boost like many suggested as shortages of oil might became reality much sooner the some people expected (Saudi suggested that excluding Iran the drop can be closer to 0.5Mb/quarter (1 Mb/d for the second half of 2016) then the current estimate of $0.3Mb/quarter). Their own production is dropping too:
Nov. 30, 2015 10.04M
Oct. 31, 2015 10.14M
Sept. 30, 2015 10.19M
Aug. 31, 2015 10.29M
July 31, 2015 10.29M

5. Saudi position about continuation of their predatory oil pricing game is now fuzzy as on one hand they still want to suppress growth of their regional rivals and Russia but on the other hand losing $100 billion a year is not an attractive option either. In no way Saudis ever considered US shale oil industry as a geopolitical competitor. As a nuisance yes, as a possible (and in a certain sense welcome, from the global economy health view, with a special emphasis of G7 economies health) player in the limiting of upper bound of the price of oil to the $80-$100 band for a decade, yes. But as a geopolitical competitor in the global oil market, I think, no. This is all MSM lies. IMHO neither quality, not quantity, nor status of the USA as an oil importer allow shale to play a significant role in the global oil market. The same is true for shale gas.

[Mar 09, 2016] China oil consumption in 2016

peakoilbarrel.com
Heinrich Leopold , 03/08/2016 at 1:57 am
shallow sand,

China did increase its oil imports over the last few months to over 30 mill tons per month (see below chart). Together with natgas and cyclical hydrocarbon imports this adds up to 40 mill tons of hydrocarbons per month, which is around 10 mill barrels per day.

Slowly the fundamentals are building up for an oil price rise, although I think we will get a pullback over summer.

clueless , 03/08/2016 at 12:01 pm
"The data also showed China's February crude oil imports jumped 20 percent on year to their highest ever on a daily basis, driven by import quotas and stockpiling."

From a China article today.

Heinrich Leopold , 03/08/2016 at 12:35 pm
clueless,

In addition to the surge of oil imports, natgas is up year over year 100%, copper 50%, copper ore and extractives up 92%. The increase is all up in volume as imports in dollar terms are still very low due to low prices. However these numbers are huge as China is one of the largest importers in the world.

To me this looks like the early sign of a nascent commodity recovery.

AlexS , 03/08/2016 at 2:56 pm
3 main drivers of China's higher oil imports are:

1) state and commercial stockpiling
2) robust gasoline demand (not closely correlated with economic growth, as opposed to weak diesel demand).
3) rising fuel exports

"Fuel exports in February rose 71.8 percent on a daily basis compared to the same month last year, reaching 2.99 million tonnes, or 721,700 bpd, after hitting a record 975,500 bpd in December, as China continues to export more diesel amid weakening domestic demand for the industrial fuel."

http://www.reuters.com/article/us-china-economy-trade-crude-idUSKCN0WA0A2

Synapsid , 03/08/2016 at 6:15 pm
Alex S,

"…as China continues to export more diesel amid weakening domestic demand for the industrial fuel."

Plus: There's increasing demand in China for gasoline as more cars are built and sold. More gasoline coming from refineries means more diesel coming from refineries, as they produce both.

The small "teapot" refineries are being given permission to import gasoline now, I believe, so that will help reduce overproduction of diesel, and the government has imposed a price floor too; that helps reduce the panic exporting.

Heinrich Leopold , 03/09/2016 at 12:56 am
AlexS,

The driving forces of Chinese oil imports are exploding car registrations:
http://www.tradingeconomics.com/china/car-registrations

The Chinese car market is much bigger than the US car market. And also growing much faster.

When a commodity cycle starts, metals (gold, silver, base metals…) are first to soar. Oil is actually the last to rise as oil in most cases brings a commodity cycle to its end due to higher inflation.

Yes, China exports diesel and gasoline, yet it also imports oil products of 2.66 mill tons per month.
http://info.hktdc.com/hktdc_offices/mi/ccs/index_static_type/ChemicalImport.htm

Net exports are close to zero.

There is little doubt that China is in the early stage of a massive upswing. Anyone who hopes for higher oil prices should hope also for a Chinese recovery. Oil prices will not go up without a Chinese recovery.

AlexS , 03/09/2016 at 3:01 am
Heinrich Leopold

Changes in China's imports and exports of crude and refined products are obviously important.

But what really matters for global supply/demand balance is
1)China's oil consumption.
2) China's oil production

China's demand for diesel, which is an indicator of economic activity, is weakening.

Demand for gasoline, which is an indicator of growing car ownership, is robust.

Overall, demand growth is slowing.

But this is partially offset by projected decline in oil production in 2016, the first in many years.

China: demand by product
source: IEA OMR Feb 2016

Enno , 03/09/2016 at 3:09 am
Thanks Alex. Indeed quite a reduction in growth compared with the last years.
Heinrich Leopold , 03/09/2016 at 3:19 am
AlexS,

As the demand growth in 2015 has been way underestimated in 2014, it is again underestimated for 2016.

The IEA numbers for 2016 are just an estimate and not yet a fact. Car registrations and import numbers reveal way higher numbers are likely for China in 2016.

A strong sign of a Chinese recovery is the recent strength of the yuan, record high of new loans (2500 bn yuan) and strong money suppley (+14%).

AlexS , 03/09/2016 at 6:14 am
Heinrich Leopold,

You are right, the IEA has significantly increased its estimate of China's oil demand for 2015.
Last year, incremental demand was actually higher that in the previous 4 years.
I also agree with you that IEA likely underestimates China's demand growth in 2016.
But this growth will still be slower than last year; it will not accelerate.
Growing imports reflect buying by the government and oil companies for stockpiling and increasing exports.

China's y-o-y oil demand growth, 2000-2016
source: IEA

AlexS , 03/09/2016 at 6:27 am
As I said above, there is also a serious structural shift in China's oil consumption.
It is now driven by gasoline, which is due to growing private car ownership.
By contrast, demand for diesel, which is mainly consumed in the industry and construction, has sharply decelerated.
And this seems to be a long-term trend, as China is gradually changing its economic model from export-oriented, based on heavy industries and construction, to a more focused on private consumption.

China: y-o-y growth in gasoline consumption
source: IEA

AlexS , 03/09/2016 at 6:30 am
China: y-o-y growth in diesel consumption
source: IEA

Dennis Coyne , 03/09/2016 at 7:40 am
Hi AlexS,

It is possible that diesel fuel is being used more efficiently by the Chinese economy. For example diesel is essentially the same as heating oil and as China develops less will be used for heating buildings as natural gas pipeline infrastructure expands, there might also be some switching to heat pumps for heating. These switches take time and there is a significant time lag between high oil prices (from 2011 to mid-2014) and when we see the long run demand effects.

Also the expansion of auto sales tends to increase employment and economic activity throughout the economy.

For these reasons I think a focus on total oil demand makes more sense than a focus on only diesel demand.

AlexS , 03/09/2016 at 12:01 pm
Dennis,

Yes, there is an effect of fuel substitution.
I'm not sure if a lot of diesel is used for heating in China (I think they are mostly using LPG, coal, firewood, etc.), but certainly there are sectors of the economy where it can be substituted or used more efficiently.

For example, in the 2000s, a lot of diesel and residual fuel was used for power generation, as despite a rapid growth in generation capacity China often experienced serious power shortages. In particular, that explains a spike in oil consumption in 2004. China now has sufficient generation capacity, so diesel use for power generation in the commercial and residential sectors is diminishing.

But more important is a structural shift in China's economy and energy consumption patterns. The country is undergoing a gradual transition to an economy oriented toward private consumption. The share of less energy-intensive sectors, such as services, in GDP is increasing. Fixed investment/GDP ratio is declining from 40-50% to more sustainable levels, which means relatively slower growth and less infrastructural developments. All this should lead to a less energy-intensive economy and relatively lesser use of industrial fuels, including diesel.

By contrast, gasoline demand is driven by rising living standards, growing middle class, and hence rapidly increasing car ownership. Gasoline consumption will continue to grow at a high rate, even though economic growth is slowing.

Dennis Coyne , 03/09/2016 at 3:28 pm
AlexS,

Nice analysis, agree 100%.

islandboy , 03/09/2016 at 8:20 am
Here's the deal. China may actually be the country where EVs take off in a big way first (if you leave Norway out of it). The following insideevs.com piece rates China as the number one EV market in the world. I don't understand the metrics used by the author for the countries below China on the list but, it is hard to deny that China is the fastest growing market for EVs or that the highest absolute numbers of EVs are being sold in China.

World's Top 7 Electric Vehicle Adoption Countries for 2015

1. China

up from #3; local sales 207,000, plus a lot more buses and commercial trucks. Claim to fame: easily overtook USA this year for the global volume title; increased 300% over 2014; most sales locally made by a diverse domestic industry; makes and deploys the vast majority of the world's EV Buses.

China has once again proven that despite its huge size, it can turn its economy and industry on a dime. They've been doing this every few years now, in a manner rivaling what the USSR and USA accomplished during World War II.

As always, when you crank out an omelette this big, eggs will break. Indeed, the sooty fallout of last decade's massive industrial push is one big reason why China is in such a hurry now to clean up its energy grid, and its car and bus fleet. Hopefully they are learning some lessons, and not just causing problems just as big downstream.

This concern is important. For example, in January Amnesty International published a meticulous report, showing that China's Huyaou Cobalt company buys cobalt mined off of Congolese child and slave labor. It then sells the cobalt directly or indirectly to Li-ion battery makers, including BYD and interestingly, Korean LG Chem and Samsung. This must stop.

That said.

It is simply mind-boggling, that in 2012 China had all of 3,000 EV sales. The US was already at 52,000 at the time. Three years later, they have apparently crossed 200,000 sales for the year, with 35,000 EV sold in December 2015 alone.

China To Increase Annual Purchase Ratio To 50% Electric Cars For Some Government Departments

he Chinese government intends to further augment plug-in electric vehicle sales by increasing purchases from various government departments.

The latest move sets buying guidelines of more than 50% of new purchases to be NEVs (New Energy Vehicles – electric or plug-in hybrid).

What this means for future gasoline consumption growth in China is anybody's guess but, it appears to me that EVs are in the early stages of an exponential growth phase.

[Mar 09, 2016] Exposing The Oil Glut Where Are The 550 Million Missing Barrels!

Notable quotes:
"... "Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the Organization for Economic Cooperation and Development (OECD). Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries. That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics..." ..."
oilprice.com
March 09, 2016 | OilPrice.com

If any of you have seen my early writings on OilPrice.com, you would know I have been steadfast in my criticism of the media exaggerating the extent of the oil glut. Furthermore, I have also documented the pattern of exaggeration from both the EIA/IEA with their statistics.

I realize that no one is perfect, forecasting the future is notoriously difficult, and these entities have their difficulties in obtaining reliable and timely data to make accurate predictions. However, the IEA in particular has a track record of overstating oil supplies – even back in 1999 the agency was questioned for exaggerating a supply glut, and now it seems to have occurred again.

Related: Chevron Protects Dividend, Cuts Another 36 Percent Off Spending

(Click to enlarge)

The chart above shows the "missing barrels," unexplained oil volumes that have shown up in IEA data over time. John Kemp from Reuters, who has done some of the best coverage of the market, put together this data to illustrate the problem with the reported data. He recently wrote this piece, confirming all my suspicions of the past. In it he states the following:

"Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the Organization for Economic Cooperation and Development (OECD). Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries. That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics..."

Related: Six Reasons The Current Oil Short Covering May Have Legs

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So, in other words, OVER HALF of the supposed glut that the IEA has reported is unaccounted for. Not 5 or 10 percent, but greater than a whopping 50 percent. Does anyone believe that half of the glut is just missing?

In the article John explains that it could be in hidden or unaccountable locations. But that doesn't seem credible. It is hard to believe that HALF of the entire world's excess supply cannot be justified with the data? At $40 oil, that is some $22 billion in oil that is squirreled away somewhere that millions of people simply don't know where it is?

Related: How Algorithmic Trading Makes Money On Energy

Yet does anyone care to even question such non-sense? No, of course not, just like every other government statistic that is taken at face value and traded on by headline-driven algorithms. There used to be a time when Wall Street did real research, but that appears to be gone now. Either demand has been understated by the IEA, or supply has been vastly overstated...any rational person would conclude the same.

Please view my video channel for further insight on this topic: https://www.youtube.com/channel/UCkA46F9sbOLfDVM0V17sZcw

By Leonard Brecken for Oilprice.com

[Mar 09, 2016] Where has the oil gone? Missing barrels and market rebalancing by John Kemp

Notable quotes:
"... Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the Organisation for Economic Cooperation and Development (OECD). Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries. ..."
"... That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics ("Oil Market Report", IEA, Feb. 2016). ..."
"... The last time the miscellaneous to balance item was this large and positive (implying an oversupplied market) was in 1997/98 when the issue triggered fierce criticism of the IEA's statistics. Critics accused the IEA of over-estimating supply, under-estimating demand, contributing to perception of a glut, depressing prices, and causing unnecessary hardship to the oil industry ("There Are No Missing Barrels", Simmons, 1999). Senator Pete Domenici, chairman of the U.S. Senate Budget Committee, asked the General Accounting Office to investigate the IEA's statistics and the question of missing barrels. In a report published in May 1999, GAO concluded "missing barrels are not a new condition, and the amount and direction of missing barrels have fluctuated over time". "At any point in time, the historical oil supply and demand as well as the stock data reported by IEA could be overstated or understated by an unknown magnitude." It was not possible to "quantify how much of the missing barrels are due to statistical limitations and how much are the result of physical oil storage in unreported stocks". In 1997/98 episode, the IEA concluded most of the missing barrels went into non-OECD storage and uncounted OECD inventories ("Oil Market Report", IEA, June 1999). ..."
"... The question of what has happened to the missing barrels, and whether some of them exist at all, is critical because it could affect how quickly the oil market rebalances. ..."
Mar 08, 2016 | Reuters.com
Where has the oil gone? Missing barrels and market rebalancing: Kemp Fuel pumps are pictured at a gas station in Sidi Allal El Bahraoui, Morocco, February 7, 2016. REUTERS/Youssef Boudlal Fuel pumps are pictured at a gas station in Sidi Allal El Bahraoui, Morocco, February 7, 2016. Reuters/Youssef Boudlal Where has the oil gone? Missing barrels and market...X By John Kemp LONDON (Reuters) - Global oil production exceeded consumption by just over 1 billion barrels in 2014/15, according to the International Energy Agency (IEA).

Production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015 (tmsnrt.rs/1pvIEw8).

Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the Organisation for Economic Cooperation and Development (OECD). Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries.

That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics ("Oil Market Report", IEA, Feb. 2016).

Missing barrels are recorded in the "miscellaneous to balance" line of the IEA's monthly Oil Market Report as the difference between production, consumption and reported stock changes. The miscellaneous item reflects errors in data from OECD countries, errors in the agency's estimates for supply and demand in non-OECD countries, and stockpile changes outside the OECD that go unrecorded. IEA data currently shows a miscellaneous to balance item of 0.5 million barrels per day in 2014 and 1.0 million barrels per day in 2015. Missing barrels have been a feature of IEA statistics since the 1970s ("International Energy Agency: How the Agency Prepares its World Oil Market Statistics", U.S. General Accounting Office, 1999).

Over time, errors have occurred in both directions, and have ranged up to 1 million or even 2 million barrels per day (tmsnrt.rs/1pvIBjQ). Most of the time, the oil market ignores the miscellaneous to balance item, but it tends to become controversial when it becomes very large, either positive or negative.

ERRORS AND OMISSIONS

The last time the miscellaneous to balance item was this large and positive (implying an oversupplied market) was in 1997/98 when the issue triggered fierce criticism of the IEA's statistics. Critics accused the IEA of over-estimating supply, under-estimating demand, contributing to perception of a glut, depressing prices, and causing unnecessary hardship to the oil industry ("There Are No Missing Barrels", Simmons, 1999). Senator Pete Domenici, chairman of the U.S. Senate Budget Committee, asked the General Accounting Office to investigate the IEA's statistics and the question of missing barrels. In a report published in May 1999, GAO concluded "missing barrels are not a new condition, and the amount and direction of missing barrels have fluctuated over time". "At any point in time, the historical oil supply and demand as well as the stock data reported by IEA could be overstated or understated by an unknown magnitude." It was not possible to "quantify how much of the missing barrels are due to statistical limitations and how much are the result of physical oil storage in unreported stocks". In 1997/98 episode, the IEA concluded most of the missing barrels went into non-OECD storage and uncounted OECD inventories ("Oil Market Report", IEA, June 1999).

In the current episode, it is also very likely some of the 550 million barrels unaccounted for in 2014/15 have gone into unreported storage outside the OECD. China's government is known to have been filling its Strategic Petroleum Reserve. More barrels are likely to have gone into commercial storage in China and in other countries outside the OECD. But it is at least possible some of the missing barrels have been caused by the IEA over-estimating oil supplies or under-estimating demand.

CLEARING THE OVERHANG

The question of what has happened to the missing barrels, and whether some of them exist at all, is critical because it could affect how quickly the oil market rebalances. The IEA and most other forecasters predict the oil market will remain oversupplied throughout 2016 and the first half of 2017, ensuring stockpiles continue growing. In its "Medium-Term Oil Market Report", published last month, the IEA predicted consumption would not exceed supply on a full-year basis until 2018. Some analysts argue the market will need to eliminate the excess supply and work down some proportion of the inherited stocks before oil prices can rise sustainably. With the oil market expected to remain in surplus throughout 2016 and "already awash in oil" the IEA has said that "it is very hard to see how oil prices can rise significantly in the short term." To the extent the miscellaneous to balance item reflects oil that has gone into unreported storage, it will take longer to clear the overhang of stocks that built up in 2014/15 and continue to build in 2016. But to the extent the missing barrels are the result of over-estimating supply and under-estimating demand, or have been absorbed into China's strategic stocks, the overhang could clear more quickly.

POSSIBLE PRODUCTION FREEZE

Following the 1997/98 episode, the missing barrels that accumulated in unreported non-OECD storage were drawn down in 1999, according to the IEA ("Oil Market Report", IEA, Dec 1999). In December 1999, the IEA wrote: "The weight of (the) evidence is that the missing barrels did exist and that they have now returned to the market." "The return was triggered by the reversal in the shape of the forward price curve and the need for additional barrels following OPEC's effective production limitation" which began in March 1999. By the end of 1999, the oil market was seeing excess demand and prices were rising. But the rapid recovery depended on very strong economic growth in North America and Asia (after the East Asian financial crisis in 1997/98). It also depended on substantial production cuts by OPEC in conjunction with production restraint from non-OPEC countries.

And it was both heralded and caused by a shift in the forward price curve from contango to a state of backwardation (which made oil less profitable to store). The events of 1999 illustrate the factors needed to clear an inherited glut of oil (strong demand, production restraint and a shift in the shape of the forward price curve). Current circumstances share some similarities with 1998/99 but there are also important differences which should not be overlooked. The current stock build has been caused by oversupply thanks to the shale revolution rather than a slowdown in demand as in the 1997/98 Asian financial crisis. The winter of 1997/98 also saw a strong El Nino, which suppressed oil demand as it has this winter.

The current oversupply is not as bad as it was in the earlier episode, and the missing barrels problem is much smaller. The smaller (relative) surplus should make rebalancing faster this time around. In 1997/98, the market was oversupplied by 2.1 million barrels per day compared with total demand of around 74 million barrels per day, according to the IEA. In 2015, the oil market was also oversupplied by 2.0 million barrels per day but consumption was running at more than 94 million barrels per day, around 25 percent higher. At present, oil demand is growing strongly, just as it was in 1999, though there are concerns about the health of the global economy.

The major oil exporting countries have not so far agreed to cut production, unlike 1998/99, but there has been discussion about a possible production freeze. Futures prices remain resolutely in contango, which is both a symptom of excess stockpiles and creates a financial incentive to continue holding them. There is no sign of the market moving into backwardation yet, which would indicate the supply-demand balance was shifting and would also create a financial incentive to release oil from storage. Several key OPEC and non-OPEC producers have announced a provisional production freeze which could speed up the rebalancing, assuming it is implemented. But it might not be enough to eliminate the glut quickly; outright production cuts may be needed to accelerate the process, depending on what happens to demand and production from other countries.

(Editing by David Evans)

[Mar 09, 2016] March 2016 EIA STEP removed another 200 thousand bbl from US 2016 oil production

Notable quotes:
"... U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016 and to 8.2 million b/d in 2017. ..."
"... EIA expects U.S. crude oil production to decline from 9.1 million b/d in the first quarter of 2016 to an average of 8.0 million b/d in the third quarter of 2017. Production of 8.0 million b/d would be 1.7 million b/d below the April 2015 level, which was the highest monthly production since April 1971. Production is expected to begin increasing modestly in the fourth quarter of 2017, as productivity improvements, lower breakeven costs, and anticipated oil price increases are expected to end more than two years of declines in the Lower 48. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators. ..."
"... EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production. ..."
peakoilbarrel.com
AlexS, 03/09/2016 at 9:23 am

The EIA has further reduced its forecast for U.S. oil production in 2016-17 (by 200-300 kb/d for 2017).
Apparently this is related with lower oil price assumptions, which are based on futures prices, and the recent cuts in E&P companies capex guidance.

From the report (STEO, March 2016):

"U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016 and to 8.2 million b/d in 2017. The forecast reflects an extended decline in Lower 48 onshore production driven by persistently low oil prices that is partially offset by growing production in the federal Gulf of Mexico.
EIA estimates total U.S. production has fallen 0.6 million b/d since April 2015, to an average of 9.1 million b/d in February, with the entire production decline coming from Lower 48 onshore. With WTI prices currently below $40/b and projected to remain below that level through the first half of 2017, EIA expects oil production to decline in most Lower 48 onshore oil production regions.

The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs. The prospect of higher interest rates and tighter lending conditions will likely limit the availability of capital for many smaller producers, giving rise to distressed asset sales and consolidation of acreage holdings by more financially sound firms.

EIA expects U.S. crude oil production to decline from 9.1 million b/d in the first quarter of 2016 to an average of 8.0 million b/d in the third quarter of 2017. Production of 8.0 million b/d would be 1.7 million b/d below the April 2015 level, which was the highest monthly production since April 1971. Production is expected to begin increasing modestly in the fourth quarter of 2017, as productivity improvements, lower breakeven costs, and anticipated oil price increases are expected to end more than two years of declines in the Lower 48. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

Projected crude oil production in the Gulf of Mexico rises during the forecast period, and oil production in Alaska falls."

U.S. C+C production: STEO March 2016 vs. Feb. 2016

AlexS, 03/09/2016 at 9:36 am

Projections for Lower 48 states (ex GoM) production in 2017 were revised down by 310 kb/d in 2017,
including a 350 kb/d revision for 4Q17.
EIA now expects Lower 48 output to decline from the peak of 7.73 kb/d in March 2015 to 5.84 kb/d in October 2017 (-1.88 kb/d)

Lower 28 states (excl. GoM) C+C production: STEO March 2016 vs. Feb. 2016

AlexS, 03/09/2016 at 9:40 am

WTI oil price assumptions (based of futures prices)

shallow sand, 03/09/2016 at 10:02 am

ND rigs at 33. Burlington has one to stack. My estimate is rigs will bottom at 26-27.

EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production.

Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. All are anecdotal, but are not signifying worries of tanks topping.

[Mar 08, 2016] Oklahoma Sets New Limits For Oil And Gas Drillers To Halt Earthquakes by Nick Visser

Notable quotes:
"... The U.S. Environmental Protection Agency says Oklahoma's massive energy business can produce up to 2 billion gallons of wastewater a day. ..."
www.huffingtonpost.com

03/08/2016 12:56 am ET

Oklahoma officials on Monday told oil and gas producers to dramatically scale back underground disposal of wastewater that has led to a dramatic surge in the number and intensity of earthquakes.

The new restrictions, imposed by the Oklahoma Corporation Commission, will require drillers to cut the amount of underground-injected wastewater by 40 percent from the peak in 2014. The move represents a shift in strategy for the state, which had initially targeted individual wells linked to seismic activity, said Matt Skinner, a spokesman for the commission.

"We've built the case we need based on broad correlations rather than specific," Skinner said. "We can't look at a single well and say, 'You did this.'"

The New York Times notes the restrictions are technically recommendations that may force energy companies to produce less oil and gas. They follow a similar move for wells in northwest Oklahoma imposed by the state last month.

Earthquakes in the industry-friendly state, recently linked to drillers' injection of wastewater deep underground, have risen from a few dozen annually in the mid-2000s to more than 6,000 last year. The waste is a byproduct of petroleum production, forced from the ground with oil and gas. Energy companies have been injecting the material thousands of feet underground into an area called the Arbuckle formation.

A website tracking quakes across the state shows a near constant stream of seismic events. Oklahoma was hit with its third-strongest earthquake in recorded history, a magnitude 5.1 event, just last month.

Skinner said the restrictions are a proactive approach by the state. The 5,000-square-mile area in central Oklahoma covered by the new rules includes areas where earthquakes aren't happening.

Skinner said the injections aren't directly caused by the method of producing oil and gas called fracking. The U.S. Environmental Protection Agency says Oklahoma's massive energy business can produce up to 2 billion gallons of wastewater a day.

Michael Field ·

Stanford University

Gov. Fallin, maintained that the cause of the tremors was unclear, and the state Legislature refused to consider legislation, but she abandoned her position as the number of quakes rapidly increased. The political leadership was not jolted into action until January, however, when a series of small earthquakes damaged homes and interrupted power in Edmond, an Oklahoma City suburb home to many in the state's political and financial elite - from the NYT

Like · Reply · 15 · 11 hrs

Show 7 more replies in this thread

Kelvin Forde ·

Kissimmee, Florida

People in Oklahoma will not wise up until it's too late and.they get a massive earthquake that destroys most of their major cities. They blindly listen to the republican leaders who like the ones in flint michigan tell them there is nothing to worry about meanwhile their leaders are getting enormous kickbacks from the oil and gas company. GOP= greed over people.

Shirl Hopkins

lol, a friend's daughter moved there. now my friend is a nervous wreck wiith her daughter constantly on the phone, scared cuz of the earthquakes. she moved there cus okla is a really religuous state. lol

Like · Reply · 15 · 18 hrs

Felicia Middlebrook ·

Harvard University

Yep, the Church of the Almighty Greenback is really big in OK.

Rebecca Hargens ·

Raymond, Wisconsin

Never ceases to amaze me. For years people stated that fracking causes earthquakes. Coincidence the big oil companies said. Totally unrelated. Yeah, right. The more fracking, the more earthquakes. What does one expect when the one thing that is allowing the earth to move on itself without friction is being sucked out, processed, and put into our engines. Don't know what is worse, trying to figure out what to do with the toxic byproducts above the ground or the crap left below it and is leeching down to our aquifers. Lovely what we are doing to ourselves.

Kathy Keslick ·

LSU

I think it's more likely that the wastewater is lubricating the fault lines and creating more movement than normal.

Like · Reply · 4 · 13 hrs

Mach Crit

It's not like this issue wasn't known for decades. The USGS report on the cluster earthquakes in the Denver area in the '60's, were a direct result of wastewater injection into a 12,000 foot well at the Rocky Mountain Arsenal. When the injection pumping stopped, so did the earthquakes. http://earthquake.usgs.gov/.../states/colorado/history.php

Donald Fields ·

American University

They claim that the injection wells are sealed off from the groundwater, but I don't believe they can actually justify that statement

Show 6 more replies in this thread

Craig Emory ·

Lincoln - Way Central High School

Beyond stupid, when you're screwing up the earth so bad you're causing EARTHQUAKES! don't you think it's time to stop! Fools won't get the hint until Oklahoma is just a hole in the ground.

Like · Reply · 11 · 13 hrs

James Hodl ·

Southern Illinois University Carbondale

Oklahoma has never been a very logical place. One resource Oklahoma has plenty of is wind, and the state contains the headquarters and plants for two manufacturers of wind generation systems. Yet the state government for years has favored oil and gas over wind energy to the point that it allows utilities to charge monthly hookup rates to homes with personal wind- and solar-generation equipment that negate any savings from using those systems.

Billy Burke ·

Southern Maine Community College

"The new restrictions, imposed by the Oklahoma Corporation Commission, will require drillers to cut the amount of underground-injected wastewater by 40 percent from the peak in 2014"

Do we even know if its wastewater they are pumping back into the ground?

Whats to stop them from pumping other checmicals back into the ground?

Like · Reply · 2 · 12 hrs

Clayton Burgess ·

Works at New Heights Rock Gym

The wastewater also contains the chemicals in that were used in the fracking fluid. The well is fractured with a sandy, saline/chemical solution. Those specific chemicals will depend in part on what, if any, clays were present in the reservoir rock that the company will want to disolve to increase the ability of the oil to migrate through the reservoir rock. Depending on the clays present, the particular chemicals used can be pretty nasty. As far as chemical contamination goes, the top of the Anadarko Basin, where the waste is injected, is over three miles below the surface. Fresh water is generally very near the surface. I have not seen any research that suggests that the waste water in the Anadarko could migrate upwards. It is very saline, so its density should restrict its ability to move upwards. That is why fresh groundwater is near the surface and very deep ground water tends to be saline. That is not to say that I am comfortable with the waste water being there.

Like · Reply · 10 hrs

Ruby Cowan

We don't know, and i'm sure there are no requirements or oversight. Just imagine what's being pumped, and what it may be doing to wells and aquifers.

Like · Reply · 4 · 8 hrs

Craig Moore ·

Works at Billings Pump & Irrigation aka Billings Pipe & Pump Supply Company

Ruby Cowan I'm just foing to guess things but that is OK because they are my guesses. That is what you just said.

Like · Reply · 7 hrs

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Robert Brown

Wait... What!!???? Republicans putting new regulations on businesses? What happened to "If the government would just take the handcuffs off of American businesses, it would be a perfect world?" What, Oklahoma? Didn't get quite the perfect world you thought you would? Maybe you ought to consider suing Ayn Rand... (You know, the fiction writer who wrote your instructions on how to govern...)

Like · Reply · 1 · 6 hrs

Brian Amberg

These aren't actual regulations. This is the part where conservative pols ask the industry to play nicely. If you thought they were actually going to create standards and rules and consequences for bad behavior you can stop being suprised now. This "ask" of theirs has fewer teeth than the tooth fairy.

Ed Fritz ·

San Jose, California

Huh...40%

I wonder how they cam to the conclusion that 40% would do the trick. That only a 40% reduction of the 100% of waste water shoved and pumped into the underground rocks and soil would be enough to completely stop the damage they are doing - the earthquakes they are causing.

But, "The New York Times notes the restrictions are technically recommendations that may force energy companies to produce less oil and gas."...OR, the oil companies may just simply ignore those "recommendations" and just keep doing what they are doing in the "industry-friendly state".

Kempo Kutter ·

Oklahoma City, Oklahoma

if companies like Sandridge didnt bring in all the disposal water from Arkansas and try and dispose of it here, there wouldnt be a problem.

The earthquakes started when Arkansas banned disposal wells and companies built disposal wells in Oklahoma on known fault lines (with the theory that its already a big crack, just fill it with water) and try and force two states salt water into the area of one state.

Since the disposal wells that were on known fault lines (just took the closer of 10), earthquakes dropped significantly.

Like · Reply · 4 hrs

Rico Fortunado ·

Barkin' Down the Wrong Tree at DanceHall Racket

Just "guidlines" no consequences for not following them. Where do they expect frackers to dispose of the poison? Simple they'll just dispose of it in some other unregulated fashion... problem solved, eh? How about banning the release of benzene, toluene and the dozens of other carcinogens used in fracking into the environment. That apparently is too much to ask in a country that kisses corporate *ss the way we do.

Sam Scovill ·

Oklahoma City, Oklahoma

"Skinner said the injections aren't directly caused by the method of producing oil and gas called fracking."

He's technically right, but the fact of the matter is that the saltwater is coming from formations that can only be targeted by fracking. It's like saying drilling for oil doesn't directly cause global warming.

James Gherson

Of course they do it NOW............
Now that the price of oil is in the toilet........
They were content to do nothing before.......
I guess money really IS more important than anything, INCLUDING common sense........

Paul Deemer ·

Greenville, South Carolina

Oklahoma and Texas will be uninhabitable wastelands in another 20 years from fracking. Their water supplies will be so poisoned they won't be able to drink the tap water. Hope it was worth it. But don't be crying to Federal Government yo bail you out.

Viola Perry ·

Munich, Germany

I just read where the EPA claimed that the fracking does not cause earthquakes. Our government is lying to us. Corruption knows no bounds.

Like · Reply · 1 · 11 hrs

Mach Crit

The USGS is quite clear on the damages from cluster earthquakes in the Denver area as a direct result of wastewater injection wells from the 1960's at the Army's Rocky Mountain Aresenal.

Historic Earthquakes
Denver, Colorado
1967 08 09 13:25
Magnitude 5.3

The main damage occurred in Northglenn, a northern suburb of Denver, but minor damage occurred in many area towns. At Northglenn, concrete pillars were damaged at a church; foundations, concrete floors, and walls cracked; windows broke; and tile fell at a school. This was the largest of a series of earthquakes in the northeast Denver area that were believed to be induced by pumping of waste fluids into a deep disposal well at the Rocky Mountain Arsenal. The Colorado School of Mines recorded more than 300 earthquakes from this zone during 1967. Felt north to Laramie, Wyoming, south to Pueblo, west to Vail, and east to Sterling.

[Mar 08, 2016] EIA Short-Term Energy Outlook for March 2016

EIA tried to play inventory card to talk down oil prices. This is wrong. Inventory matter only during initial priod of "oil glut". One and a half yeay into the oil price crash they are reflecting maily grid of Wall Street operators then anything else.
Notable quotes:
"... With large global oil inventory builds expected to continue in 2016, oil prices are expected to remain near current levels. Forecast Brent prices average $34/b in 2016, $3/b lower than forecast in last month's STEO. ..."
"... Prices reach an average of $45/b in the fourth quarter of 2017, as the oil market becomes relatively balanced at that point, with the potential for inventory draws beyond the forecast period. ..."
"... WTI futures contracts for June 2016 delivery, traded during the five-day period ending March 3, averaged $37/b, while implied volatility averaged 50%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in June 2016 at $24/b and $58/b, respectively. ..."
www.eia.gov
Brent crude oil spot prices increased by $1/b in February to a monthly average of $32/b. Accelerating reductions in the U.S. rig count and market reactions to news of a potential OPEC/non-OPEC supply freeze gave support to oil prices in February that offset the downward price pressure from ongoing growth in global oil inventories and uncertainty over the strength of global oil demand growth.

With large global oil inventory builds expected to continue in 2016, oil prices are expected to remain near current levels. Forecast Brent prices average $34/b in 2016, $3/b lower than forecast in last month's STEO.

Global oil inventories are expected to grow by an average of 1.6 million b/d in 2016 and by 0.6 million b/d in 2017, both higher than in last month's STEO. Inventory builds are higher in this month's STEO as a result of recent updates to historical data showing continued resilience from non-OPEC oil producers in the current low-price environment and as a result of a reduction in forecast global oil demand growth. Higher forecast inventory builds and slower market rebalancing contribute to a more limited price recovery in 2017 than previously forecast, with Brent prices forecast to average $40/b, $10/b lower than in last month's STEO. Prices reach an average of $45/b in the fourth quarter of 2017, as the oil market becomes relatively balanced at that point, with the potential for inventory draws beyond the forecast period.

Forecast West Texas Intermediate (WTI) crude oil prices average the same as Brent crude oil prices through the forecast period. The price parity of WTI with Brent in the forecast period is based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, as transportation differentials are similar to move the crudes from their respective pricing points to that market.

The expectation of continuing large inventory builds is a major source of uncertainty in the price forecast, as the capacity of global oil storage to absorb builds of the forecast magnitude is unknown. If global storage capacity becomes stressed, the cost of storage will rise to reflect more expensive marginal storage options such as floating inventories on crude oil tankers. The higher storage costs would lower near-month crude oil prices. Additional uncertainty stems from the pace of global economic growth and its contribution to oil demand growth, and also from the responsiveness of oil producers to sustained low oil prices.

The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the price outlook (Market Prices and Uncertainty Report) . WTI futures contracts for June 2016 delivery, traded during the five-day period ending March 3, averaged $37/b, while implied volatility averaged 50%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in June 2016 at $24/b and $58/b, respectively.

The 95% confidence interval for market expectations widens over time, with lower and upper limits of $20/b and $81/b for prices in December 2016. At this time last year, WTI for June 2015 delivery averaged $54/b, and implied volatility averaged 46%. The corresponding lower and upper limits of the 95% confidence interval were $36/b and $80/b.

[Mar 08, 2016] I suspect farmers were buying diesel fuel in the past several weeks for field work coming up in the next two months.

peakoilbarrel.com
R Walter, 03/07/2016 at 7:03 am
I suspect farmers were buying diesel fuel in the past several weeks for field work coming up in the next two months.

Two million farmers buying 2100 gallons of diesel fuel is 42,000,000,000 gallons, 1,000,000,000 barrels of diesel fuel; there it was, gone.

A thousand gallon on farm diesel tank, pour some into the tractors, trucks, all which will hold another thousand gallons easy, you have your demand in storage waiting to be burned doing field work. The pickups have a one hundred gallon tank in the pickup bed for some more fuel, fill those too. Fill the combine too, add some stabilizer, you're ready to go.

Plus a can of starting fluid for cold starts, just what you need to start a cold diesel engine.

Might as well order it before the price starts to rise in April. No sense in spending another fifty cents per gallon, that is another 21 billion dollars and might as well have it in the bank account for some fertilizer and soybean seed.

Just a hunch.

[Mar 08, 2016] How to Play This Short-Covering Rally in Oil by Daniel Dicker

realmoney.thestreet.com

... ... ...

My point is that in the energy space, shockingly, money continues to pour in whenever it's being requested.

The facility of even the most distressed oil company to raise capital, and the least distressed feeling the need to do so, combined with the short covering move in oil futures, rightly spooked the equity shorts everywhere in the oil sector. You might be waiting to see a stock go, rightly, to zero, but if companies are continually able to extend their timelines on that at will, the possibility that oil will recover in time to save them obviously increases the risk in the short position.

The short-covering panic affected the sector stocks differently, of course -- those with the strongest balance sheets and lowest short commitment rallied the least; those on the other side of the spectrum -- the ones most likely (still) to face Chapter 11 (like SeaDrill) rallied spectacularly.

But now where are we? There's been a long-overdue, short-covering rally that I've been expecting. So what? And now what?

Here are some things I can say:

Oil has bottomed. We won't see any of the $10 or $20 targets that some have picked. Unless the momentum algorithms regroup and again begin to accumulate (which is easily trackable), we won't even see another $26 retest again, in my view. The contango (again trackable) would have to begin to spike outwards as well.

Oil still isn't ready to get long-term bullish, yet, either. While this short covering could easily take prices back to $40, that still only gets oil from a ridiculously, unsustainably low price to merely an unsustainably low price. We still need to see a whittling away of producers and drillers before any rally can be sustained. Drillers like SeaDrill have managed to "add wick to their time bomb fuses" but we still await a few of those bombs to explode before we'll be convinced the bear market is turning for good.

[Mar 08, 2016] US Oil Rig Count Points To A Sharp Decline In Production

Notable quotes:
"... Brent prices are expected to climb from an average of $40 per barrel in 2016 to between $65 and $70 per barrel by the end of the decade. ..."
"... The price expectations are based on an email survey sent to more than 2,500 energy professionals working in oil and gas, banking, hedge funds, research, professional services, trading and specialist media earlier this month. ..."
"... That's great -- Now unwashed public knows the future. I think it is true the forecasts they got are tightly clustered because it is simply easier to answer what is expected from you (aka to give a "politically correct" answer) and avoid any personal responsibility ;-). Also such surveys have some propaganda value as they form people expectations. I am less sure whether they correctly report the true distribution of answers as some people are not shills and outliers are important. ..."
peakoilbarrel.com
AlexS , 03/07/2016 at 9:56 am
Reuters oil price survey:

Oil prices expected to recover to around $70 by 2020: Kemp

http://www.reuters.com/article/us-oil-prices-kemp-idUSKCN0W91L3

Oil prices are expected to rise gradually over the next five years but will remain well below the pre-crash level, according to a survey of professionals who follow the oil industry.

Brent prices are expected to climb from an average of $40 per barrel in 2016 to between $65 and $70 per barrel by the end of the decade.

The price expectations are based on an email survey sent to more than 2,500 energy professionals working in oil and gas, banking, hedge funds, research, professional services, trading and specialist media earlier this month.

More than 800 responded.

The results are more bullish than the futures strip, where Brent is currently trading around $50 per barrel on average in 2020.

In the survey, there is a high degree of consensus about prices for the rest of 2016. Most forecasts for 2016 are tightly clustered between $35 and $45 per barrel. Nearly all lie between $30 and $50.

Brent prices have averaged just $33 per barrel so far in 2016, so most respondents expect prices to be slightly firmer in the remainder of the year.

But in the latter years covered by the survey there is far less consensus about what will happen, reflecting uncertainty about how far and how fast prices might recover from the crash.

The central forecast rises progressively by $5 to $10 per year between 2017 and 2020, but the range of expectations also becomes successively more dispersed.
Most respondents expect prices to rise to around $65 to $70 per barrel by 2020. But as many as a quarter think prices will remain stuck below $55, while another 25 percent think they will have risen to more than $80 by then.

Despite market chatter about a looming supply crunch as a result of cuts in investment spending, only 7 percent of respondents expect Brent prices to climb back to $100 or more by the end of the decade.

likbez , 03/07/2016 at 11:03 am

Alex,

I would greatly prefer the quotes with which you personally agree instead of the whole article.

There are several warning signs about this article:

The price expectations are based on an email survey sent to more than 2,500 energy professionals working in oil and gas, banking, hedge funds, research, professional services, trading and specialist media earlier this month.
More than 800 responded.

Quick question: What is the average level of those professionals and how many of them are talking their books ?

Now another typical and dirty MSM trick in forming public expectations (very similar to use of polls in elections):

Most forecasts for 2016 are tightly clustered between $35 and $45 per barrel.

That's great -- Now unwashed public knows the future. I think it is true the forecasts they got are tightly clustered because it is simply easier to answer what is expected from you (aka to give a "politically correct" answer) and avoid any personal responsibility ;-). Also such surveys have some propaganda value as they form people expectations. I am less sure whether they correctly report the true distribution of answers as some people are not shills and outliers are important.

I would like to ask a related and no less important question: the approximate number of bankruptcies among US LTO producers and amount of junk bond written off in 2016 if this forecast materialize.

I do not know where the oil prices will be in a year or two, but IMHO it is important to view skeptically Reuters info in general and their oil price survey in particular. Typically their value is zero or less. Reuters clearly belongs to the "low oil price forever" camp (like most MSM). Jeffrey Brown recently reminded us about similar position of The Economist (another respectable completely reliable MSM :-) in 1999:
http://peakoilbarrel.com/the-ieas-oil-production-predictions-for-2016/#comment-558646

In any case, here is an excerpt from the March, 1999 Economist Magazine cover story on oil prices:

Here is a thought: $10 might actually be too optimistic. We may be heading for $5. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a "normal" market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range.

Generally this is the same situation as with S&P500 annual forecasts. Bought analysts from crooked firms talk their books.

[Mar 07, 2016] Interesting we are seeing a crude oil rally in March, as in 2009 and 1999

Notable quotes:
"... Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold. ..."
"... There are some that are saying this is due to a massive short squeeze ..."
"... Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off. ..."
peakoilbarrel.com
Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold.
Marcus , 03/07/2016 at 5:27 pm
There are some that are saying this is due to a massive short squeeze as happened recently with iron ore, but I had not thought about the March correlation.
twocats , 03/07/2016 at 5:46 pm
Last April didn't include the most important presidential election this country has seen in decades. If either of the two insurgent candidates wins it could deliver a mortal blow to the empire. Anyone who thinks they know why the price of oil is rallying is living in crazy-town.

Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off.

[Mar 07, 2016] What A Falling Rig Count Can Do For Oil Prices

OilPrice.com

The more recent descent of oil prices below $30 per barrel is inducing another period of contraction in drilling activity, which is clearly visible with the rig count in free fall.

Individual shale basins are feeling the pinch to various degrees. The Eagle Ford shale in South Texas, for example, had over 200 rig counts as of late 2014. That figure has fallen to just 46 as of early March. Oil production from the Eagle Ford has declined by 0.5 million barrels per day since the middle of last year. The Permian Basin in West Texas had over 500 oil and gas rigs at the end of 2014, a level that has plunged to just 158. Oil production from the Permian has finally come to a halt, and could begin to decline through this year.

There tends to be a lag between movements in the oil price and the resulting effects on the rig count. As a result, the rig count may not rebound immediately even if oil prices rise. That means that with production in the U.S. now declining, the declines should continue at a steady pace until oil prices post a sustained rally.

[Mar 07, 2016] Contraction In U.S. Shale Pushes Oil To $40

OilPrice.com

Oil speculators are becoming more bullish on oil prices. Hedge funds are rapidly liquidating their short bets, as fears of sub-$20 oil have all but vanished for now. According to data from the CFTC, net-short positions fell by 15 percent for the week ending on March 1. "We might see the real bottom being behind us," Ed Morse, head of global commodity research at Citigroup Inc., said on Bloomberg TV on March 4.

In addition, although a lot of questions remain, OPEC representatives are planning on meeting with Russia's energy minister between March 20 and April 1 to follow up on their production "freeze" agreement. An outright cut to production remains a long-shot, especially since Saudi Arabia's oil minister Ali al-Naimi all but ruled it out at the IHS CERAWeek conference in Houston in late February. It is hard to imagine OPEC and Russia shifting course from the production freeze, but any agreement to take additional action represents an upside risk to oil prices.

Given the mounting evidence, it seems that the oil price rally is finally here, then? Maybe. But it is also possible that bullish sentiment is starting to outstrip the fundamentals, even if the fundamentals are trending in the right direction.

[Mar 07, 2016] Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45?

Notable quotes:
"... Anyone who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). ..."
peakoilbarrel.com
shallow sand, 03/07/2016 at 5:19 pm
Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold.
Marcus, 03/07/2016 at 5:27 pm
There are some that are saying this is due to a massive short squeeze as happened recently with iron ore, but I had not thought about the March correlation.
twocats, 03/07/2016 at 5:46 pm
Last April didn't include the most important presidential election this country has seen in decades. If either of the two insurgent candidates wins it could deliver a mortal blow to the empire. Anyone who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off.

[Mar 07, 2016] Will Russia End Up Controlling 73% of Global Oil Supply

OilPrice.com
Though Iran hasn't committed to a production freeze, since it wants to ramp up production to pre-sanction levels, Russian Energy Minister Aleksander Novak has noted that "Iran has a special situation as the country is at its lowest levels of production. So I think, it might be approached individually, with a separate solution."

With all the major Gulf nations agreeing, Iraq, which is without a credible political leadership, will also likely follow suit if Russia assures them of stronger support against ISIS.

If the above scenario plays out, Russia will emerge as the de facto leader of the major oil producing nations of the world, accounting for almost 73 percent of the global oil supply.

Related: It's Time For Canadian Oil To Re-Shuffle, Re-shape And Rebound

Along with this, Russia has been in the forefront of plans to move away from Petrodollars, and Moscow has formed pacts with various nations to trade oil in local currencies. With this new cartel of ROPEC (Russia and OPEC nations), a move away from petrodollars will become a reality sooner rather than later.

Russia is smart. Vladimir Putin is genius. Moscow senses the opportunity that is almost tangibly floating about in the low crude price environment and appears to be ready to capitalize on it in a way that would reshape the geopolitical landscape exponentially.

[Mar 07, 2016] How Traders Benefit from the Crude Oil Contango Market - Market Realist by Gordon Kristopher

Feb 5, 2016 | marketrealist.com

contangoEnlarge Graph

Cost of storing crude oil

Crude oil traders like Vitol Group and BP (BP) take advantage of the broader contango market. These traders buy front-month crude oil futures contracts and take delivery upon their expiration. They store this crude oil in Cushing, Oklahoma, and then sell it at higher prices in six months. Industry surveys estimate that leasing costs at large tanks in Cushing were 25–35 cents per barrel per month compared to the 12-month contango price of $8.27 per barrel, as shown in the chart above. Thus, the storage cost of crude oil for 12 months could be $4.20 per barrel at most, keeping administrative fees and other pumping costs at $1 per barrel for 12 months. This means traders could make a profit of $3 per barrel.

Further, the EIA (U.S. Energy Information Administration) estimates that storing crude oil in large oil tankers for several months is expensive. It estimates that the trade will be unviable until contango conditions reach $10–$12 per barrel. Citigroup suggests that if oil prices fall below $30 per barrel, it would be unviable to store crude oil at sea.

Effect on crude oil tankers

However, long-term oversupply and the broader contango market have benefited oil tankers like Nordic American Tankers (NAT), Teekay Tankers (TNK), Frontline (FRO), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).

The steep contango conditions in the ultra-low sulfur diesel market provide opportunity for contango traders and supertankers. Ultra-low sulfur diesel inventories in the United States have risen more than total motor gasoline inventories since the middle of June 2014.

ETFs and ETNs like the United States Oil Fund (USO), the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), the VelocityShares 3X Long Crude Oil ETN (UWTI), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) are also influenced by the rises and falls in crude oil prices.

In the next part of this series, we'll shift our focus to the US crude oil rig count.

[Mar 07, 2016] What is it like being an oil trader?

Notable quotes:
"... The trader's life is also made trickier by the volatility in the market, which has seen prices rise and fall by several dollars a barrel in a day. "Over the last two or three years we've seen a huge increase in volatility and that's probably due to moving more from a physical group of companies trading to a financial-based scenario," he says. ..."
"... "It's the momentum of these big hedge funds and financial institutions, which makes the market move by percentage points rather than the 30 or 40 cents you used to get three or four years ago." ..."
"... Those sudden, big movements make it difficult for traders to be off-duty. "You can never leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says. ..."
www.bbc.com

24 February 2008 | BBC News


Oil traders never stop talking to each other. Oil traders have to weigh up a great deal of information


The most popular software among oil traders is not an oil trading package or even a news service such as Reuters - it is Yahoo Instant Messenger.

"Trading oil is about getting information and knowing where the market is," says Eivind Lie who runs the trading desk at the Norwegian oil company StatoilHydro's offices in London.

"So being a trader your life is pretty much either on Yahoo or on the telephone trying to get an overview of the market."

Keeping in touch

While people trading shares or currencies can get a lot of their information from analysts' notes and computerised trading systems, the oil trader still relies on chatting to a wide range of people, ranging from other traders to specialist oil trading journalists, to try to find out what is going on in the world.

Everything from war or natural disasters to more mundane events such as seasonal changes to temperatures or elections can affect oil prices, so for the traders it pays to be informed.

Richard Wickham, one of the crude oil traders at Statoil, makes his first call to the office on the way to the station after he has dropped his children off at the nursery.

Then as soon as he gets to the office he will read price reports and messages from Statoil staff who have been trading in the US and Asia and talk to the London-based analyst.

After that, the less formal process of talking to people really gets going.

"Collating information is more than half the job," Mr Wickham says.

"Executing trades is almost small in comparison - if you don't have the information you're blind," he says, staring at the four computer screens on his desk, which display a bewildering array of graphs, figures, reports and message windows.

There is little else on the desk besides family photographs and a strategically-placed Norwegian dictionary, for when he is trying to understand messages from the company's head office in Stavanger.

Distressed cargoes

Statoil is one of the world's largest exporters of oil and, with oil topping $100 a barrel on supply concerns, its products are in great demand.

Yet it has a relatively small trading desk in London, with just a handful of traders. "If it's a weak market then we have to go out and sell it more actively, if it's a strong market they come and buy it from us," Mr Lie says. Currently, demand is strong, though the traders are nevertheless on the phone, talking to other traders, analysts and brokers.

Everyone in the market for physical oil - as opposed to paper market traders, who do not want to end up owning any oil - is looking for that precious piece of information that will allow them to sell oil for more, or buy it for less.

"From our side, as the seller of oil, we want to get to know the buyer's position," Mr Lie says. "Are they short of oil, do they really need more?" The holy grail for buyers is to find a seller having difficulty selling a shipment. "If you get too close to the delivery date, when it's taken aboard a ship in the North Sea, and it's not sold, then the buyers know that we have what's called a 'distressed cargo', so they will try to get a cheap price for that," he adds.

Volatile market

It may be a good time to be a seller of oil, but the way oil is traded means it can still be nerve-wracking. "There are a lot of market price contracts where I would sell you oil today, but we price it the day the ship loads, which might be in three of four weeks time," says Sally Clubley, an independent oil consultant who trains oil traders.

"So we've done the deal today, but we don't know the price today and there's a lot of oil traded on that basis."

The trader's life is also made trickier by the volatility in the market, which has seen prices rise and fall by several dollars a barrel in a day. "Over the last two or three years we've seen a huge increase in volatility and that's probably due to moving more from a physical group of companies trading to a financial-based scenario," he says.

"It's the momentum of these big hedge funds and financial institutions, which makes the market move by percentage points rather than the 30 or 40 cents you used to get three or four years ago."

Those sudden, big movements make it difficult for traders to be off-duty. "You can never leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says.

"It really is a 24-hour job because they don't trust anybody else with it."

Mr Lie agrees.

"I think some of the traders always carry their phones, even on vacations," he says. "It's a lifestyle more than a job so you have to enjoy it."

[Mar 07, 2016] Energy policy expert says oil slump is a 'bust'

www.daily-times.com

FARMINGTON - It's officially a "bust."

That's the verdict from Daniel Fine, one of Gov. Susana Martinez's senior advisers on energy policy. The U.S. oil and gas industry - and the San Juan Basin - is in a "bust" period, Fine said Tuesday at an inter-tribal energy conference at San Juan College's School of Energy.

"This is what a bust is. You lose the workforce," said Fine, who is associate director at New Mexico Center for Energy Policy at New Mexico Tech. "Loss to the country and to the Southwest will be the workforce. It will be decimated at levels of less than $30 a barrel (of crude oil)."

And 2015 was a year of layoffs and cutbacks.

Since the collapse of oil prices on the commodities market in fall of 2014, the number of workers laid off from local oil and gas companies - from the large corporations to the smaller independents - has been in the thousands.

"We're in a 'bust.' So be ahead of the curve, and think ahead in this business by at least six months," Fine told the Native American and non-tribal energy leaders and business people in the Merrion conference room at the new $15.8 million school.

He said looming federal regulations such as the the U.S. Bureau of Land Management's proposed Onshore Oil and Gas Orders Nos. 3, 4 and 5 along with proposed updates to its rule aimed at reducing "fugitive" atmospheric methane from oil and gas operations were doubling the pain already caused by low crude oil prices. He said that a third of all U.S. oil and gas producers - especially those burdened with debt - will inevitably go bankrupt.

But Fine's sobering analysis wasn't without one ray of hope for the industry.

He said that if the Organization of the Petroleum Exporting Countries, or OPEC, decides to reduce the supply of crude oil at its June 2 meeting in Vienna, crude oil prices could climb back up to the $50 a barrel. Commodities prices, he said, were now solely driven by foreign markets and out of the hands of U.S. operators.

And to help ease the impending pain to tribal energy companies - and establish a precedent for others - Fine suggested tribal energy leaders request exemptions from the federal government over the proposed new rules.

With just two rigs drilling in the San Juan Basin, Fine said that people might find a modicum of comfort by taking the long view.

He recommended everyone in the room read the 2002 book, "Gas: The Adventures into the History of one of the World's Largest Gas Fields - The San Juan Basin of New Mexico."

Written by local independent oilman Tom Dugan and geologist Emery Arnold, the book takes readers on a journey forward from the basin's first commercial oil and gas wells in the early 1920s and through major boom-and-bust cycles in the 20th Century.

Dugan, president of the Dugan Production Corp. in Farmington, said he agrees with Fine on the current state of the industry.

"Definitely it's a bust," Dugan said. "What I'm saying is that it's the worst of them all. It's the hardest bust I've been through and I have been in this business for 57 years."

Never before have multiple agencies of the federal government proposed new oil and gas rules during a "bust" period, he said. Complying, he added, would be a lot more feasible if those rules had come along when natural gas was around $5 per million BTU and a barrel of crude oil was selling near $100.

Dugan said the dovetailing of low commodities prices and the new federal rules - along with the advent of horizontal drilling - have spurred him to consider picking up his pen to write a new edition of "Gas."

He said he still stands by a prediction he first made in his book that the San Juan Basin will deliver salable natural gas for another 100 years.

And that, eventually, a "boom" is bound to happen.

"It will come back," he said. "I just wish I knew when."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.

[Mar 07, 2016] Looks like the range of oil prices below $70 which represents the "death valley" for US LTO production also exists for UK North Sea fields.

peakoilbarrel.com
likbez, 03/06/2016 at 10:56 pm
Looks like the range of oil prices below $70 which represents the "death valley" for US LTO production also exists for UK North Sea fields.

Most fields might degrade at natural depletion rate already in 2016. Which is up to 22%.

Investment in the UK's embattled oil and gas industry is expected to fall by almost 90 per cent this year, raising urgent industry calls for the Government to reform its North Sea tax regime to safeguard the industry's future, reports

The Telegraph.

RT reports that if Brent price in 2016 stays in 0-70 range capex in the North Sea fields might be reduced by almost 90%.

According to the report of the British Association of oil and gas industry, with current prices, almost half of the oil fields in the UK produce oil at a loss.

Google translation of the RT article (abridged, and slightly edited)
https://russian.rt.com/article/150621

The fall in oil prices has a negative impact on the UK economy. According to the report of the British Association of oil and gas industry, the country plans to reduce by 90% investments in the development of offshore fields in the North Sea. According to the expert in the field of oil industry of Mamdouh Salamah, for the United Kingdom will be cheaper to import crude, not to invest in new projects.

With current prices, almost half of the oil fields in the UK produce oil at a loss.

An expert in the field of oil industry Mamdouh Salama believes that in this situation for the United Kingdom would be more profitable to import oil, not to invest in new projects. According to him, for resumption of capital investments, the level of oil prices should be higher than $60-70 per barrel.

"Given the fall in oil prices it's more profitable for the UK to import crude oil and refine it locally, rather than invest in the North sea fields" said Salam.

[Mar 07, 2016] US Oil Rig Count Points To A Sharp Decline In Production

Peak Oil Barrel
likbez, 03/06/2016 at 10:56 pm
Looks like the range of oil prices below $70 which represents the "death valley" for US LTO production also exists for UK North Sea fields.

Most fields might degrade at natural depletion rate already in 2016. Which is up to 22%.

Investment in the UK's embattled oil and gas industry is expected to fall by almost 90 per cent this year, raising urgent industry calls for the Government to reform its North Sea tax regime to safeguard the industry's future, reports

The Telegraph.

RT reports that if Brent price in 2016 stays in 0-70 range capex in the North Sea fields might be reduced by almost 90%.

According to the report of the British Association of oil and gas industry, with current prices, almost half of the oil fields in the UK produce oil at a loss.

Google translation of the RT article (abridged, and slightly edited) https://russian.rt.com/article/150621

The fall in oil prices has a negative impact on the UK economy. According to the report of the British Association of oil and gas industry, the country plans to reduce by 90% investments in the development of offshore fields in the North Sea. According to the expert in the field of oil industry of Mamdouh Salamah, for the United Kingdom will be cheaper to import crude, not to invest in new projects.

With current prices, almost half of the oil fields in the UK produce oil at a loss.

An expert in the field of oil industry Mamdouh Salama believes that in this situation for the United Kingdom would be more profitable to import oil, not to invest in new projects. According to him, for resumption of capital investments, the level of oil prices should be higher than $60-70 per barrel.

"Given the fall in oil prices it's more profitable for the UK to import crude oil and refine it locally, rather than invest in the North sea fields" said Salam.

[Mar 07, 2016] EIA The Drilling Productivity Report for March 2016

Oil production from major U.S. shale fields is expected to fall by 106,000 barrels a day in April from March to total 4.871 million barrels a day. but this is nothing but an optimistic forecast as EIA usually overestimate production on the down slope. So it can well be closer to 0.2Mb/d drop.
www.eia.gov
The Drilling Productivity Report uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil and natural gas wells to provide estimated changes in oil and natural gas production for seven key regions. EIA's approach does not distinguish between oil-directed rigs and gas-directed rigs because once a well is completed it may produce both oil and gas; more than half of the wells produce both.

While shale resources and production are found in many U.S. regions, at this time EIA is focusing on the seven most prolific areas, which are located in the Lower 48 states. These seven regions accounted for 92% of domestic oil production growth and all domestic natural gas production growth during 2011-14.

[Mar 06, 2016] Exxon would not buy the LTO players because of crashing debt

Notable quotes:
"... He points out that his billionaire owner has given him $250 million (quarter of a billion) to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings indeed. ..."
"... I should add that the company does not deal in LTO–conventional only. LTO isn't the only area hurting. ..."
peakoilbarrel.com
John S, 03/06/2016 at 11:41 am
EXXON: Industry Mired In Debt Has Destroyed Value "Encumbered U.S Oil Resources"

http://fuelfix.com/beaumont/2016/03/02/exxon-mobil-ceo-downturn-cuts-into-returns-production-goals/

Well, there you have it…….Exxon won't bail out the LTO players.

Synapsid, 03/06/2016 at 4:42 pm
John S,

Channeling Rockman over at PO.com here:

He points out that his billionaire owner has given him $250 million (quarter of a billion) to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings indeed.

That quarter of a billion will be raised to one billion dollars if the new acquisitions justify it. If there isn't enough available, though, the owner will close the company.

Synapsid, 03/06/2016 at 4:45 pm
John S,

I should add that the company does not deal in LTO–conventional only. LTO isn't the only area hurting.

[Mar 05, 2016] Many think lower for much longer. It could very well be that once the hype in the US turns, oil price could go up quickly

Notable quotes:
"... These figures are backed up by EIA. There is some horizontal Mississippian production in KS, and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year. ..."
"... Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the world? I am an American through and through. But, I will admit that, not only do we have very short attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the rest, but I at least realize there are many places where production has absolutely tanked. ..."
"... Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly. ..."
"... WTI is up almost 40% since 2/11/15, 15 trading days. ..."
"... IMHO for "things go quickly" we need a trigger event that suddenly becomes a focus of news coverage. Some large bankruptcy. Whatever. May be March 20 meeting in Moscow can serve as a trigger for some short squeeze, despite the measure to be taken is an old news. But just the level of determination of oil producing countries on this meeting might be interpreted as an important market signal. ..."
"... The time lag between rig counts and actual production stands around 2 to 4 years for the general oil production index, which includes conventional and unconventional off- and onshore production (see below chart). In my view the time lag for shale is just six months and for conventional production it is at least 18 months. As an example in 2005 a doubling of the rig count did not raise oil production until 2009. ..."
peakoilbarrel.com
shallow sand, 03/04/2016 at 11:43 pm
Looking at the primarily conventional states again.

Per Kansas Geological Survey

These figures are backed up by EIA. There is some horizontal Mississippian production in KS, and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year.

Per the Utah Department of Natural Resources, Division of Oil, Gas and Mining:

Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the world? I am an American through and through. But, I will admit that, not only do we have very short attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the rest, but I at least realize there are many places where production has absolutely tanked.

Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly.

WTI is up almost 40% since 2/11/15, 15 trading days.

As AlexS pointed out, there will likely be at least a 6 month lag until US activity pick up. He thinks longer, and it makes sense. Balance sheets need major repair. Believe me, speaking from personal experience here.

I do not foresee a straight shot up, but the world has lost a lot of oil due to this crash IMO.

likbez, 03/05/2016 at 1:51 am
ShallowS,

Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly.

I think Obama administration might object, as they need another 10 months to drive into the sunset :-)

Dominant (sustained by propaganda machine) myths like "oil glut", "storage overflow", fight for market share and mass overproduction by oil producing countries (except, of course, the USA, where shale producers suffer under brutal attack from Saudi Arabia :-) have now a life of their own and are difficult to change even when completely detached from reality.

IMHO for "things go quickly" we need a trigger event that suddenly becomes a focus of news coverage. Some large bankruptcy. Whatever. May be March 20 meeting in Moscow can serve as a trigger for some short squeeze, despite the measure to be taken is an old news. But just the level of determination of oil producing countries on this meeting might be interpreted as an important market signal.

Heinrich Leopold, 03/05/2016 at 6:49 am
shallow sand,

The time lag between rig counts and actual production stands around 2 to 4 years for the general oil production index, which includes conventional and unconventional off- and onshore production (see below chart). In my view the time lag for shale is just six months and for conventional production it is at least 18 months. As an example in 2005 a doubling of the rig count did not raise oil production until 2009.

If rig counts stay low until the end of this year, production is set for a huge decline over the next year. Some interpret the still high production at low rig counts as a miracle improvement in rig productivity. If this is the case, the rig productivity must have been extremely low about four years ago when a high rig count gave a then still low production. So where does the huge turnaround come from?

[Mar 04, 2016] In their fanatical crusade against Russia, the EU countries have opted for a catastrophic energy policy that has rendered them global economic growth laggards

peakoilbarrel.com

Ulenspiegel, 03/03/2016 at 7:10 am

"The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which would have given its members cheap energy and relief from Vladimir Putin's stifling economic and political leverage."

That is nonsense. The issue is that Russia has quite limited leverage: They can not replace the European customers on short notice – pipeline chain producer to certain custrumers – and they urgently need the income.

The more interesting question for Russia is how to cope with a customers who may reduce the demand for NG by 1% per year for the next few decades.

Ves, 03/03/2016 at 8:25 am
"The issue is that Russia has quite limited leverage: They can not replace the European customers on short notice"

Leverage is always mutual in the gas trade that involves long term contracts and long gas supply lines. It is like marriage :-)

"The more interesting question for Russia is how to cope with a customers who may reduce the demand for NG by 1% per year for the next few decades."

I am not sure that this is the case.
"Gazprom's gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters in 2015 with a 8.2 percent increase compared to 2014."

Stavros H, 03/04/2016 at 2:51 pm
@Ulenspiegel : No it is anything BUT nonsense.

The EU's domestic production of natural gas, including non-EU member Norway, is already in terminal decline and will be declining into the future by almost 2% per year until it reaches zero.

Unless the EU can find alternative sources of natural gas at competitive prices, Russia remains the only economical option, hence the extremely high stakes over the Syrian War.

Moreover, the EU's "Green Energy" policies are an outright, insolvent disaster. Windmills and solar panels can never and will never compete with hydrocarbons and don't let any muppet claim otherwise. If wind and solar were anywhere remotely viable sources then why would anyone give a toss over the Middle East at all? The degree to which "alternative energy" is uneconomical can be seen from the EU's extremely high energy costs, far and away the highest in the world. In their fanatical crusade against Russia, the EU countries have opted for a catastrophic energy policy that has rendered them global economic growth laggards. All this, just so that Russia's gas exports could be kept at the absolute minimum.

What Russia seeks to achieve vis-a-vis Europe, is to force/encourage/compel the EU to integrate by as much as possible with Russia. What NATO (and especially the US and Euro-Atlanticists) most fear is that a Russia rich in capital and technology would be the world's dominant geopolitical player.

This is what is at stake in the current Global Hybrid War.

[Mar 04, 2016] Prices below 70 dollar per barrel now represents death valley for shale in which only the dead cat bounce of production is possible

Notable quotes:
"... There will be no more waving of hands and their always new breakeven price OCD type of messages from shale crowd but very quiet departure in the sunset. ..."
"... Quantity at some point turns into quality. Now there two ranges of oil prices that matter for shale: 0-70 and 80- infinity . With "hope" range 70-80 in between. ..."
"... Strengthening of oil prices within the range 0-70 probably no longer matter much for indebted shale companies and their production and by extension rig count. Investment climate changed and will remain generally very cautious in this range, taking into account the possibility of yet another price slump (for example, if the price recovery overshoot; or Libya civil war ends). Mad drilling with negative cash flow is probably the thing of the past. Taking over the companies by lenders will be a more common practice than rescuing them. ..."
"... I think range 0-$70 now represents "death valley" for shale in which only the "dead cat bounce" of production is possible. Investors might not return in-full before the price reach about $80 and stays at this level for a while. Because, those who were burned and balanced on losses around 60% on their loans (40 cents on a dollar) probably understand, that it just does not make any economic sense. Any belief in "shale miracle" if such existed is now busted. ..."
"... What we have now is as Ves said, "a very quiet departure into the sunset". Of cause, we can play with numeric ranges, but you got the idea. ..."
"... IMHO it does not matter how shale E&P companies behave. Cards are stack against them and they are in a trap. It's Minsky moment for them, when euphoria is gone and the harsh reality started to assert itself. So the meaning of the number of rigs now is very similar to sweating of the patient in the famous anecdote when a doctor asks the nurse "Did the patient sweat before dying? Oh, yes. Very good, very good". ..."
"... My point is that for "below $70 range" ( +-$10) shale companies will remain in a "slow dying" mode. Availability of "sweet spots" does not improve with the age of the field. Loans availability is either gone or severely cut and cash flow is either negative or barely enough for the maintenance and for "evergreen" loans interest payments (speculative mode of production according to Minsky). Most of them suffer from the high level of existing debt. ..."
"... At $50.28 WTI companies lost record amounts and generally have PV10 all categories equal to long term debt, with radical reductions in future estimated production costs and development costs. But all are eager to show they can operate lower than their peers. Also, the stock market seems to get ahead of itself. Look at today, for example. ..."
"... Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE in price is needed, but likely will not occur in 2016. ..."
peakoilbarrel.com
AlexS, 03/04/2016 at 1:26 pm
Despite strengthening oil prices, U.S. oil and gas rig count is down 13 units.
Oil rigs: -8
Gas rigs: -5

Horizontal rigs: -8
Directional: -5
Vertical: unchanged

All key LTO basins have lost oil rigs:
Permian: – 6 (to 156)
Bakken: -3 (33)
Eagle Ford: -1 (40)
Niobrara: -1 (15)

Cana Woodford: +5 oil rigs ; -4 gas rigs (apparently same rigs were re-classified)

Ves, 03/04/2016 at 1:40 pm
Thanks for the oil post :-)

I think everything is clear. Rigs are going down regardless of this uptick in the price since bottom of $26 because it is clear that if there is sustainable price for the majority of world production, contribution has to come from Opec and non-Opec. There will be no more waving of hands and their always new breakeven price OCD type of messages from shale crowd but very quiet departure in the sunset.

likbez , 03/04/2016 at 1:50 pm
Alex,

Despite strengthening oil prices, U.S. oil and gas rig count is down 13 units.

Quantity at some point turns into quality. Now there two ranges of oil prices that matter for shale: 0-70 and 80-infinity. With "hope" range 70-80 in between.

Strengthening of oil prices within the range 0-70 probably no longer matter much for indebted shale companies and their production and by extension rig count. Investment climate changed and will remain generally very cautious in this range, taking into account the possibility of yet another price slump (for example, if the price recovery overshoot; or Libya civil war ends). Mad drilling with negative cash flow is probably the thing of the past. Taking over the companies by lenders will be a more common practice than rescuing them.

I think range 0-$70 now represents "death valley" for shale in which only the "dead cat bounce" of production is possible. Investors might not return in-full before the price reach about $80 and stays at this level for a while. Because, those who were burned and balanced on losses around 60% on their loans (40 cents on a dollar) probably understand, that it just does not make any economic sense. Any belief in "shale miracle" if such existed is now busted.

What we have now is as Ves said, "a very quiet departure into the sunset". Of cause, we can play with numeric ranges, but you got the idea.

George Kaplan, 03/04/2016 at 2:02 pm
The E&P companies have set their budgets and placed drilling contracts. What the price of oil does over the next three to six months won't make much difference to the rig count. It may influence completions though as they can be conducted on a faster turn around.

ND has lost three rigs and is likely to lose up to another ten rigs in the coming weeks as Whiting and Continental shut down drilling, QEP and Hess reduce to one or two rigs only, and maybe a couple of the smaller private companies go bust.

likbez , 03/04/2016 at 4:52 pm
George,

The E&P companies have set their budgets and placed drilling contracts. What the price of oil does over the next three to six months won't make much difference to the rig count.

IMHO it does not matter how shale E&P companies behave. Cards are stack against them and they are in a trap. It's Minsky moment for them, when euphoria is gone and the harsh reality started to assert itself. So the meaning of the number of rigs now is very similar to sweating of the patient in the famous anecdote when a doctor asks the nurse "Did the patient sweat before dying? Oh, yes. Very good, very good".

For conventional oil it is a completely different game and there can be some Renaissance.

My point is that for "below $70 range" ( +-$10) shale companies will remain in a "slow dying" mode. Availability of "sweet spots" does not improve with the age of the field. Loans availability is either gone or severely cut and cash flow is either negative or barely enough for the maintenance and for "evergreen" loans interest payments (speculative mode of production according to Minsky). Most of them suffer from the high level of existing debt.

Also their costs rise with the rise of oil price if only because they consume a lot of diesel fuel (if we assume EROEI 5 you need 8 gallons of diesel per barrel of oil, so effectively your barrel contains only 42-8=34 gallons). Only a fraction of the price rise improves their economic conditions (a large part of the "increased efficiency", lower cost of production blah-blah-blah was based on the same effect but acting in the opposite direction). The problems also might start when investors realize that they have a better chance to recoup their investments by taking a hold of assets in a rising oil price environment…

shallow sand, 03/04/2016 at 2:06 pm
AlexS, note that in the 1998-99 price crash, oil rigs did not bottom until a few months after the OPEC cut.

This time may be different, remains to be seen.

At $50.28 WTI companies lost record amounts and generally have PV10 all categories equal to long term debt, with radical reductions in future estimated production costs and development costs. But all are eager to show they can operate lower than their peers. Also, the stock market seems to get ahead of itself. Look at today, for example.

Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE in price is needed, but likely will not occur in 2016.

farmboy, 03/04/2016 at 2:47 pm
Canada oil rig count is slowing down drastically and ahead of the normal seasonal slowdown if I remember correctly.

Oil -33 (50)
Gas –13 (79)

[Mar 04, 2016] If the US Has Too Much Oil. So Why Are Imports Rising

Notable quotes:
"... Bullshit. Imports are rising because oil from shale is shitty shitty oil. It is barely better than condensate. ..."
"... Refineries dont make much money on very light crude, API 45. It doesnt produce a very high volume of fuels. It is feedstock material, and there is a limited market for feedstock. Much of US LTO production is greater than API 45. ..."
www.zerohedge.com

Zero Hedge

Despite domestic production declining and demand surging, the EIA reported oil inventories surge by more than 10 million barrels, or more than three times what was expected.

The 10.4 million barrel increase was mostly due to a near record increase in imports of 490,000 b/d (3.4 million barrels weekly) and an adjustment swing of 352,000 b/d (2.5 million barrels weekly) by the EIA. The latter has been a repeated pattern to exaggerate the levels of inventory, a pattern going back to 2015. Thus, over half of the said increase in inventory was driven by higher imports and an arbitrary adjustment that seems routine by the EIA. Domestic production actually fell by 25,000 B/D in the week ending on February 26. Also gasoline inventories fell 455,000 barrels, or nearly 5 percent, as capacity utilization rose 1 percent. Total gasoline supplied, which is a gauge of demand over last 4 weeks, has risen a whopping 7 percent.

Now the real question is with U.S. production declining and inventories at record levels, why are refiners still importing at such heights? The 8.2 million barrels per day imported in the week came very close to the record in December, missing by some few percentage points. U.S. commercial domestic crude oil stocks are now nearly 17 percent above last year levels. None of this adds up: We are producing less, inventories are rising, while demand is at records and yet we are using more imported oil?

SelfGov

Bullshit. Imports are rising because oil from shale is shitty shitty oil. It is barely better than condensate.
fiatmadness

And yet the US started exporting this month (Exxon to Sicilly)

Richard Head

US refiners are largely set up to process heavier crude than WTI.

gookempucky

Although raw shale oil can be immediately burnt as a fuel oil, many of its applications require that it be upgraded. The differing properties of the raw oils call for correspondingly various pre-treatments before it can be sent to a conventional oil refinery . [35]

Particulates in the raw oil clog downstream processes; sulfur and nitrogen create air pollution . Sulfur and nitrogen, along with the arsenic and iron that may be present, also destroy the catalysts used in refining. [36] [37] Olefins form insoluble sediments and cause instability. The oxygen within the oil, present at higher levels than in crude oil , lends itself to the formation of destructive free radicals . [32] Hydrodesulfurization and hydrodenitrogenation can address these problems and result in a product comparable to benchmark crude oil . [31] [32] [38] [39] Phenols can be first be removed by water extraction. [39] Upgrading shale oil into transport fuels requires adjusting hydrogen–carbon ratios by adding hydrogen ( hydrocracking ) or removing carbon ( coking ). [38] [39]

Shale oil produced by some technologies, such as the Kiviter process , can be used without further upgrading as an oil constituent and as a source of phenolic compounds . Distillate oils from the Kiviter process can also be used as diluents for petroleum-originated heavy oils and as an adhesive-enhancing additive in bituminous materials such as asphalt

johnnycanuck

Some possibilities.

shortonoil

Refineries don't make much money on very light crude, API >45. It doesn't produce a very high volume of fuels. It is feedstock material, and there is a limited market for feedstock. Much of US LTO production is greater than API 45.

http://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/images/eneene/...

http://www.thehillsgroup.org/

[Mar 04, 2016] shale gas production will peak in 2017 nationwide and then begin a rapid productivity decline

peakoilbarrel.com

ezrydermike , 03/04/2016 at 12:29 pm

from Desmogblog of all places…

"It was a tumultuous week in the world of hydraulic fracturing ("fracking") for shale oil and gas, with a few of the biggest companies in the U.S. announcing temporary shutdowns at their drilling operations in various areas until oil prices rise again from the ashes."

http://www.desmogblog.com/2016/02/28/top-drillers-us-shut-down-fracking-operations-oil-prices

ezrydermike , 03/04/2016 at 12:33 pm
And if the sordid news for the frackers were not bleak enough on the bottoming out of oil prices, David Hughes - a former oil industry geoscientist and current fellow with the Post Carbon Institute - recently delivered sworn testimony to the North Carolina Utilities Commission that shale gas production will peak in 2017 nationwide and then begin a rapid productivity decline.

http://desmogblog.com/sites/beta.desmogblog.com/files/J%20David%20Hughes%20Affidavit-2-19-16.pdf

AlexS , 03/04/2016 at 1:26 pm
Despite strengthening oil prices, U.S. oil and gas rig count is down 13 units.
Oil rigs: -8
Gas rigs: -5

Horizontal rigs: -8
Directional: -5
Vertical: unchanged

All key LTO basins have lost oil rigs:
Permian: – 6 (to 156)
Bakken: -3 (33)
Eagle Ford: -1 (40)
Niobrara: -1 (15)

Cana Woodford: +5 oil rigs ; -4 gas rigs (apparently same rigs were re-classified)

[Mar 04, 2016] EIA has a tendency to underestimate production in rising conditions, but will overestimate in falling conditions

peakoilbarrel.com

kamakiri , 03/01/2016 at 4:54 am

"The EIA continues to underestimate US oil production in its forecasts."

I think they have a tendency to underestimate in rising conditions, but will overestimate in falling conditions.
http://cdn.oilprice.com/images/tinymce/2016/ThisSC2.jpg
from this article:
http://oilprice.com/Energy/Energy-General/Is-The-EIA-Too-Optimistic-On-US-Oil-Output.html

Their weekly estimates appear to lag actual inflections by 2-3 months.

[Mar 03, 2016] The 2016 wave of bankruptcies might change the financial reclesness of US shale companies a bit

Notable quotes:
"... I wonder if all the bankruptcies might change the culture a bit. It sure will make finding money to burn more difficult and investors may look beyond the investor presentations to the 10k and the bottom line and reward fiscal discipline. ..."
"... Hard to know for sure. The banks may pull back and the bond investors may require very high interest rates and industry behavior might change as a result. ..."
"... If the entire Shale industry goes bankrupt, they will have trouble with financing new wells in my opinion. So increasing output will be difficult without financing. ..."
"... If the assets are bought by companies using there own cash (no bank or bond financing), they will not throw money away on wells that will never break even. ..."
peakoilbarrel.com

Dennis Coyne , 03/01/2016 at 1:29 pm

Hi AlexS,

Maybe so. I wonder if all the bankruptcies might change the culture a bit. It sure will make finding money to burn more difficult and investors may look beyond the investor presentations to the 10k and the bottom line and reward fiscal discipline.

Hard to know for sure. The banks may pull back and the bond investors may require very high interest rates and industry behavior might change as a result.

AlexS , 03/01/2016 at 2:59 pm
Dennis,

a quote from and article:

"once the entire U.S. shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round."

http://oilprice.com/Latest-Energy-News/World-News/BP-Claims-That-Oil-Storage-Limit-Is-Far-Nearer-Than-We-Realize.html

Dennis Coyne , 03/02/2016 at 9:44 am
Hi AlexS,

If the entire Shale industry goes bankrupt, they will have trouble with financing new wells in my opinion. So increasing output will be difficult without financing.

If the assets are bought by companies using there own cash (no bank or bond financing), they will not throw money away on wells that will never break even.

[Mar 03, 2016] Falling U.S. Oil Production Reduces Global Supply Overhang by Euan Mearns

Mar 01, 2016 | OilPrice.com

... ... ...

This article first appeared on Energy Matters.

The following totals compare Jan 2016 with December 2015:

... ... ...

Still High Noon for the Oil Price

On the bear side we know that:

On the bull side we know that:

By Euan Mearns

[Mar 03, 2016] Oil rises after dollar weakens

Fuel Fix

Oil rose to an eight-week high in New York after U.S. production declined and a weaker dollar boosted the attractiveness of commodities.

Futures rose as much as 1.9 percent. Output fell for a sixth week to 9.08 million barrels a day, the lowest level since November 2014, according to the Energy Information Administration. Crude inventories rose, keeping supplies at the highest in more than eight decades. OPEC members will meet with Russia and other producers in Moscow on March 20 to resume talks on an output cap, Nigeria's oil minister said.

"The mood has changed in the market and we are a little bit more optimistic about the future," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "The market is shaking off the big inventories builds that we saw in recent weeks."

Oil is still down about 5 percent this year on speculation a global glut will be prolonged amid brimming U.S. stockpiles and the outlook for increased exports from Iran after the removal of sanctions. Exxon Mobil Corp. scaled back production targets and said drilling budgets will continue to drop through the end of next year as the oil market shows no signs of a significant recovery.
West Texas Intermediate for April delivery rose 41 cents to $35.07 a barrel at 11:19 a.m. Eastern time on the New York Mercantile Exchange, after reaching $35.32. The contract rose 26 cents to $34.66 on Wednesday, the highest close since Jan. 5. Total volume traded was about 2 percent above the 100-day average.

Brent for May settlement gained 22 cents to $37.15 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude was at a premium of 46 cents to WTI for May.

The Bloomberg Dollar Spot Index fell 0.5 percent, after earlier gaining 0.1 percent.

U.S. crude stockpiles expanded by 10.4 million barrels to 518 million, according to a report from the EIA Wednesday. Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation's biggest oil-storage hub, rose for a fifth week to a record 66.3 million barrels.

The market's saying "You can't ignore fundamentals," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "With the massive amount of supplies that we have, the market should go lower. I think prices will go back to below $30 in a few weeks."

Others are more optimistic. There will be a "dramatic price movement" when the meeting between OPEC members and Russia takes place, Nigerian Petroleum Minister Emmanuel Kachikwu said at a conference in Abuja on Thursday. Saudi Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.

Exxon's output will be the equivalent of 4 million to 4.2 million barrels a day through 2020, compared with the previous target of 4.3 million as soon as next year, Chairman and Chief Executive Officer Rex Tillerson said at the company's annual strategy session in New York on Wednesday. Capital spending will fall about 25 percent this year to $23.2 billion and will decline again in 2017.

[Mar 03, 2016] The meeting of oil-producing countries will be held on March 20th in Russia

Notable quotes:
"... The meeting of oil-producing countries will be held on March 20th in Russia, the Minister of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives of countries who are OPEC members and countries that are not members in the organization. Mr. Kachikwu noted that producers seek to restore oil prices to $50 per barrel ..."
peakoilbarrel.com
Ves, 03/03/2016 at 8:36 am
SS,

here is some good news. You have heard it first from me here on POB 2 weeks ago. We are moving in direction of restoring the prices to acceptable level that major producers can live temporarily.

"The meeting of oil-producing countries will be held on March 20th in Russia, the Minister of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives of countries who are OPEC members and countries that are not members in the organization. Mr. Kachikwu noted that producers seek to restore oil prices to $50 per barrel."

[Mar 03, 2016] Russia can not replace the European customers but US neocons are trying to kick Russia out of Europe

Notable quotes:
"... Instead, it reprieved the fading remnants of the military-industrial-congressional complex, the neocon interventionist camp and Washingtons legions of cold war apparatchiks. All of the foregoing would have been otherwise consigned to the dust bin of history. ..."
"... The Saudis geopolitical goal is to contain the economic and political power of the kingdoms principal rival, Iran, a Shiite state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion to its regional power status and was already engaged in a proxy war against Tehran in Yemen, highlighted by the Saudi genocide against the Iranian backed Houthi tribe. ..."
"... But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar Assad. In fact, some of them have said that if the United States is prepared to go do the whole thing, the way weve done it previously in other places [Iraq], theyll carry the cost. Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): With respect to Arab countries offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly yes, they have. The offer is on the table. ..."
"... Gazproms gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters in 2015 with a 8.2 percent increase compared to 2014 ..."
peakoilbarrel.com
Longtimber , 03/02/2016 at 7:35 pm
Stockman's Tales of western intervention into the ME Oil Puzzle.
"The Trumpster Sends The GOP/Neocon Establishment To The Dumpster"
"And most certainly, this lamentable turn to the War Party's disastrous reign had nothing to do with oil security or economic prosperity in America. The cure for high oil is always and everywhere high oil prices, not the Fifth Fleet"

http://davidstockmanscontracorner.com/the-trumpster-sends-the-gopneocon-establishment-to-the-dumpster/

likbez , 03/02/2016 at 10:50 pm
Longtimber,

Thank you.

It goes all the way back to the collapse of the old Soviet Union and the elder Bush's historically foolish decision to invade the Persian Gulf in February 1991. The latter stopped dead in its tracks the first genuine opportunity for peace the people of the world had been afforded since August 1914.

Instead, it reprieved the fading remnants of the military-industrial-congressional complex, the neocon interventionist camp and Washington's legions of cold war apparatchiks. All of the foregoing would have been otherwise consigned to the dust bin of history.

Yet at that crucial inflection point there was absolutely nothing at stake with respect to the safety and security of the American people in the petty quarrel between Saddam Hussein and the Emir of Kuwait.

Compare with the recent article by Robert F. Kennedy, Jr. in Politico:
http://www.politico.eu/article/why-the-arabs-dont-want-us-in-syria-mideast-conflict-oil-intervention/

Having alienated Iraq and Syria, Kim Roosevelt fled the Mideast to work as an executive for the oil industry that he had served so well during his public service career at the CIA. Roosevelt's replacement as CIA station chief, James Critchfield, attempted a failed assassination plot against the new Iraqi president using a toxic handkerchief, according to Weiner. Five years later, the CIA finally succeeded in deposing the Iraqi president and installing the Ba'ath Party in power in Iraq. A charismatic young murderer named Saddam Hussein was one of the distinguished leaders of the CIA's Ba'athist team.
… … …

The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which would have given its members cheap energy and relief from Vladimir Putin's stifling economic and political leverage. Turkey, Russia's second largest gas customer, was particularly anxious to end its reliance on its ancient rival and to position itself as the lucrative transect hub for Asian fuels to EU markets. The Qatari pipeline would have benefited Saudi Arabia's conservative Sunni monarchy by giving it a foothold in Shia-dominated Syria. The Saudis' geopolitical goal is to contain the economic and political power of the kingdom's principal rival, Iran, a Shiite state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion to its regional power status and was already engaged in a proxy war against Tehran in Yemen, highlighted by the Saudi genocide against the Iranian backed Houthi tribe.

Of course, the Russians, who sell 70 percent of their gas exports to Europe, viewed the Qatar/Turkey pipeline as an existential threat. In Putin's view, the Qatar pipeline is a NATO plot to change the status quo, deprive Russia of its only foothold in the Middle East, strangle the Russian economy and end Russian leverage in the European energy market. In 2009, Assad announced that he would refuse to sign the agreement to allow the pipeline to run through Syria "to protect the interests of our Russian ally."
… … …

But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar Assad. "In fact, some of them have said that if the United States is prepared to go do the whole thing, the way we've done it previously in other places [Iraq], they'll carry the cost." Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): "With respect to Arab countries offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly yes, they have. The offer is on the table."

Ulenspiegel , 03/03/2016 at 7:10 am
"The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which would have given its members cheap energy and relief from Vladimir Putin's stifling economic and political leverage."

That is nonsense. The issue is that Russia has quite limited leverage: They can not replace the European customers on short notice – pipeline chain producer to certain customers – and they urgently need the income.

The more interesting question for Russia is how to cope with a customers who may reduce the demand for NG by 1% per year for the next few decades.

Ves , 03/03/2016 at 8:25 am
"The issue is that Russia has quite limited leverage: They can not replace the European customers on short notice"

Leverage is always mutual in the gas trade that involves long term contracts and long gas supply lines. It is like marriage :-)

"The more interesting question for Russia is how to cope with a customers who may reduce the demand for NG by 1% per year for the next few decades."

I am not sure that this is the case.

"Gazprom's gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters in 2015 with a 8.2 percent increase compared to 2014."

[Mar 03, 2016] Iraqs oil exports in February fall below planned levels

Notable quotes:
"... Iraq's Oil Ministry said Tuesday that crude exports averaged 3.225 million barrels a day in February ..."
March 2, 2016 bakken.com

by SINAN SALAHEDDIN | Associated Press

BAGHDAD (AP) - Iraq's Oil Ministry said Tuesday that crude exports averaged 3.225 million barrels a day in February, far below levels planned to provide the nation with badly needed cash for ongoing military operations against Islamic State extremists.

Last month exports grossed about $2.2 billion, based on an average price of about $23 per barrel, ministry spokesman Assem Jihad said in a statement. Iraq's 2016 budget is based on an expected price of $45 per barrel with a daily export capacity of 3.6 million.

January's daily exports averaged 3.283 million barrels, bringing that month's revenues to $2.261 billion.

The figures do not include oil being independently exported from Iraq's self-ruled northern Kurdish region since mid-2015, preventing the government from reaping revenues of nearly 600,000 barrels a day.

Iraq holds the world's fourth largest oil reserves, some 143.1 billion barrels, and oil revenues make up nearly 95 percent of its budget. But like other oil-reliant countries, Iraq's economy has been severely hit by plummeting oil prices since 2014.

This year's budget stands at nearly 106 trillion Iraqi dinars, or about $89.7 billion. It runs with a deficit of over 24 trillion dinars (about $20.5 billion) that are planned to be relieved through loans from local and international lenders.

In the summer of 2014, Iraq was plunged into its worst crisis in the aftermath of the withdrawal of U.S. troops at the end of 2011. The Islamic State group - which emerged out of al-Qaida's branch in Iraq - blitzed across vast swaths of Iraqi territory, including the country's second largest city, Mosul, and captured nearly a third of Iraq.

Iraq introduced austerity measures earlier this year - eliminating government posts, merging some ministries, halting spending on construction projects and imposing new taxes to pay for civil servants and fund its military.

[Mar 02, 2016] Bankers Petroleum which operates the biggest on shore oil field in Europe, Patos-Marinza in Albania, will rest 3 rigs out of 6 in 2015.

Notable quotes:
"... They say it is because of the low price. They have increased oil production 10% per year in the last years, due to the horizontal wells, but for next year they foresee no production increase. I have seen profiles of their horizontal wells and within 12-18 months their production is 50 % less. ..."
"... Their water injection activity has caused a lot of propery damage in the area, but the government has turned a blind eye. ..."
peakoilbarrel.com

Rita , 12/23/2014 at 12:32 pm

Bankers Petroleum which operates the biggest on shore oil field in Europe, Patos-Marinza in Albania, will rest 3 rigs out of 6 in 2015.

They say it is because of the low price. They have increased oil production 10% per year in the last years, due to the horizontal wells, but for next year they foresee no production increase. I have seen profiles of their horizontal wells and within 12-18 months their production is 50 % less.

Their water injection activity has caused a lot of propery damage in the area, but the government has turned a blind eye. A whole village with uninhabitable houses and people having nowhere to go. If they protest the police arrests them. Local people think Bankers is producing oil through undergroung blasts (could it be?). Maybe this slowdown will spare some houses.

Bankers is also good at manipulating balance sheets looking unprofitable for 5 years now, so the state budget won't feel much of the slow down. No word of this slow down in the Albanian media. They only pound thea good news.

[Mar 02, 2016] Bakken LTO needs $80 WTI, minimum, to be a good investment

peakoilbarrel.com
shallow sand , 03/01/2016 at 11:53 am
I read that CLR will return to activity if prices reach $45. At least that is the headline.

Assuming 200K gross barrels of oil from a CLR Bakken well in 60 months, 160K net with 20% royalty, with a $7 discount to WTI, per CLR recent 10K, such a well will only gross $6 million dollars in 60 months.

So after 60 months CLR will still be over $1 million short of reaching the cost of the well, BEFORE, considering 10% severance tax, OPEX, G & A and interest. Also, none of the land acquisition, permitting , seismic, etc is considered.

Why do the MSM ignore this. It seems so elementary to me.

Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't need any exotic presentations to figure this out.

Ves , 03/01/2016 at 1:09 pm
SS,
Don't pay attention to headline. They are just part of deception game. Shale production is adjusting, US on shore is adjusting. Today I have briefly scanned that Russian paper is stating that Russian big oil have a meeting today where among the topics are "freeze" (previously discussed with Saudis, Qataris) and even some possible cuts. Pieces are coming together although it looks like at snail pace from the perspective of someone like you that is caught in this bullshit politics. But it is coming.
likbez , 03/01/2016 at 3:10 pm
ShallowS,

Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't need any exotic presentations to figure this out.

Exactly!

Bakken oil production is more like mining coal than it is drilling for oil ("Red Queen effect"). All company operating in this areas have crushing debt levels. Obtaining revolving credit line when prices are below $80 might become very difficult as Bakken has the highest marginal cost of production. So this slump will last longer for Bakken then for other plays.

Also "carpet bombing" drilling is new and might have some additional effects that we now can't predict. I would give three years on restoring investor confidence. Click to Edit Request Deletion (56 minutes and 59 seconds)

Longtimber , 03/01/2016 at 12:36 pm
Thanks Shallow for digging thru these filings and Uncovering what should be clear --
Fernando posted this yearly cash flow matrix ROI for the Powerwall which shows that Energy stored via Electro-Chem can not compete yet with the Delta of baseline vs peak power rates. When I point this out to people this they think I'm clueless. Anyway – Need something like this for wells in different plays or companies to point out the Insanity. Perhaps I missed it or i'm actually clueless.

R DesRoches , 03/01/2016 at 1:00 pm
Three Big Shale Plays Decline Rate Going To a More Than One Million Barrels A Day!

Using Ron Patterson's updated rig counts per play, I used that data along with production data from the EIA Productivity Report to calculate the expected overall decline rate per play.

All data is per month.

The Bakken has 36 rig running, and has a "New Well Production Per a rig" of 725 barrels per day, and a decline rate ("Legacy Production Change) of 58,000 b/d.

New production (rig times rate) is 26,000 b/d so the net decline rate (new – decline rate) is 32,000 b/d

Doing the same calculation for the Eagle Ford
Rig = 41
Production per rig = 800
Baseline Decline rate = 110,000

Net decline rate = 77,000'b/d per month

Permian
Rigs = 162
Production per rig = 425
Baseline decline rate = 83,000 b/d

Net decline rate = 14,000 b/d per month

Adding the net decline rate for the three plays we have an overall decline rate of 123,000'barrels a day per month.

That comes out to a yearly rate of 1.47 million barrels a day.

We are not at that rate today as it takes time for dropping a rig to effect production rates. I would expect to see thus overall rate by some time this summer. It is much larger than anyone is expecting.

[Mar 02, 2016] Picken thinks that Saudi cannot produce more than 10 million billion barrels per day

Notable quotes:
"... Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am sure he knows that. ..."
"... Pickens may not have the capability of writing Of Fossil Fuels and Human Destiny and The Grand Illusion , but when it comes to that oil barrel, man – he knows very well whats coming! ..."
peakoilbarrel.com

Petro , 12/23/2014 at 11:00 pm

To all:

…this is a gem:

https://www.youtube.com/watch?v=uwGz4foNsx8

one doesn't see this often on msm…. must have slipped through the cracks…somehow…

Happy Holidays to All!

Be well,

Petro

P.S.: if someone else already linked this, my apologies!

Ron Patterson , 12/23/2014 at 11:26 pm
Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am sure he knows that.
Huckleberry Finn , 12/24/2014 at 12:02 am
Joe Kernan is a complete moron. He was mocking T.Boone, who was predicting higher prices all the way from $30 to $140 in 2004-2008. At current growth rates, Saudi's will consume an additional 1 million barrels per day of their own consumption in 5 years. Ditto for Russia. Gonna be very interesting.
Petro , 12/24/2014 at 1:31 am
…"I am sure he knows that."…

-Yes he does, Ron! Yes he does!

That's precisely why he reacted with the lexicon and facial expression he did when his "old buddy" Joe "challenged" his point of view and tried to portray him as a "same ol', same ol' " charlatan!

Pickens may not have the capability of writing "Of Fossil Fuels and Human Destiny" and "The Grand Illusion", but when it comes to that oil barrel, man – he knows very well what's coming!

And the imbecile Joe got it (or was told) at the end that you do not mess with T.Boone…so we have to end on football and the "come again when in NYC…" bullshit.

"Well someone else agrees with me"

I would argue with some accuracy that a few more than "someone" do indeed agree with you Ron, but your ultimate proof of vindication and sign that what you narrate about is close…very close, stands with the fact that idiots akin to Joe Kernan, Ron Insana, etc. feel confident and knowledgeable enough on mocking Matt Simmons…

-As Mr. Joseph Kennedy said: "…when the shoe shine boy gives you stock tips, cash out and stuff the mattress…".

Be well,

[Mar 02, 2016] Exxon cuts capex 25 percent

peakoilbarrel.com

Toolpush ,

03/02/2016 at 8:42 am
Exxon, cut capex 25% in 1916, no mention of XTO .

http://news.exxonmobil.com/press-release/exxonmobil-focuses-business-fundamentals-paced-disciplined-investing

ExxonMobil Focuses on Business Fundamentals; Paced, Disciplined Investing

ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015. The company continues to selectively advance its investment portfolio, building upon attractive longer-term opportunities.

Enno Peters , 03/02/2016 at 9:07 am
That's really old news Toolpush. Through which sources do you get your news in Australia?
Toolpush , 03/02/2016 at 9:19 am
Enno,

Either the speed of electrons has slowed down, or Exxon is recycling old news. I first heard it as breaking news on CNBC, live, not a replay. lol
Looked it up on Noodls, which took me to the Exxon page. Time stamped as Mar 2, 2016 – 08:11 a.m. EST.

03/02/2016 | Press release ExxonMobil Focuses on Business Fundamentals; Paced, Disciplined Investing – See more at: http://www.noodls.com/viewNoodl/32408933/exxon-mobil-corporation/exxonmobil-focuses-on-business-fundamentals-paced-discipli#sthash.MLFZO9sV.dpuf

So if this is old news, it is recycled old news by Exxon? Why? I will leave that to smarter minds than me!

You are doing great work, on your blog. thanks for all your hard work.

[Mar 02, 2016] Crude Tumbles Into Red After Putin Comments

Zero Hedge
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  • Tue, 03/01/2016 - 11:50 | 7256850 Huh Reeeally

    So, max oil production when there has been falling demand causes low prices which is good for consumers, what could go wrong?

    If you're Syria you're the pipeline hub to enable either NATO or Russian control of european gas supplies.

    If you're Ukraine, well, everything has gone wrong, hasn't it? Innocence of the masses VS effective propaganda...

    If you're Yemen then your border is contiguous with that of a large Saudi oil field, not to mention a competing brand of Islam.

    If you're Iraq then, well, you've been totally f*d over since Bush Sr., sorry about that.

    If you're Libya and want to sell oil in gold Dinars, and your name is Kadaffy (I know, but who cares how it's spelled?) then you should have known better. Doesn't matter if you have a huge aquaifier and can give away land and irrigate it, or provide free university education.

    I guess I should be glad I'm just a simple consumer! Wait, I'm paying for all this shiite!!!

    Tue, 03/01/2016 - 11:53 | 7256869 inosent

    Short term, the trade was to sell w/34.69 APR 16 as a stop. There is still the trend, mojo to the downside, which has not yet broken. The shot game is to hold feb high, and plunge to new lows, so March is a thich red monthly bar that closes near the lows. I think the trigger price is Feb highs, and it isn't too far away prev year sett, meaning a break of feb = touching the prev yr sett, and going positive for the year, which is an epic event, esp in this setting. Right now the market is trapped inside of the 2/16/2016 shadow, w yday close conspicuously settling (once again) inside that shadow @.75, with the top of yday bar @.98, last trade 90.

    the news is bad, but the news is bs. just a headline. the news is only a story, the truth is somewhere else. so trading on old news wears out and the paradigm shifts. pretty soon they talk about how the world's population break 8 BB, so many ppl, so much demand, all that stuff. then you stare at a chart that is in love with the upper right hand corner of the chart, instead of the lower.

    It's hard to see it, and believe me, impossible to feel it, esp with all this short sniping and juking ower, threatening, etc, but, and I get the velocity of money thing, I had not really taken that fully into consideration, but nonetheless, the money supply flying around out there is still 4x greater today that it was in 2009, where the prices were higher than they are now. On the surface of it, that seems crazy to me.

    So, theoretically, commods across the board are front running a collapse in money supply (which has not happened yet) bcz, if I have this right, the ponzi scheme of this money system requires fresh debt to cover old % obligations, and those % obligations touch innumerable amounts of debt instruments, govt, corp, down to mom and pop private.

    As ZH hammers away on all the time, the question is, exactly where is the fresh money supply supposed to come from to cover? If ZIRP failed for lack of takers, and one could argue that failure is real because of the existence of NIRP, where the banks just go into your acct and simply take your money to cover their obligations, and if NIRP is only a temporary bandaid (TM, haha) solution, the argument goes that if there is not enough liquidity in the system, these obligations cannot be covered, and as we saw in 2008, when that happens, the par value of the bonds pretty much hits zero, and when that happens, then the money supply crashes, because as we know, debt is money.

    Assuming Putin is not (at least completely) right about the selling politically motivated, with the hidden hand behind it the US Treasury, trying to destroy Mother Russia (that has to at least be a factor), what I would say that we are looking at, considering the extreme, mind blowing divergence between oil prices and the stock market indices, is at least the possibility the market has just priced in the coming money supply wipe out, the worst case scenario.

    So let's say the money supply crashes from today's levels to 2009, that is a big drop, for sure, but oil already played that , to the extreme of hitting $26 (!). That would definitely have an impact on stock prices, but if oil was at $35 @2009 MS levels, why would it be @10?

    Of course, when the money supply crashes, moving away from the current, seemingly impenatrable MS ceiling, this then leaves a lot of room for fresh injections of money supply, to get the game started all over again - but not after a lot of ppl get whatever they had in equity totally wiped out.

    But, under my analysis here, assuming that scenario, oil was way out in front, so they wont be trading on that anymore because it happened. That is old news, for real. And in that scenario, oil production gets wiped out, but the demand (static as it generally is, increasing only with a steady rise in population, in broad terms), this would force oil prices much higher.

    And what if the bet on money supply crash is wrong, and the central banks pull a rabbit out of their hat? That is supportive of oil prices as well.

    Finally, setting aside all else, assuming our crazy world just keeps on keeping on, and the fraud of headlines continues to mask the truth that things are far better in the world than the headline dictates, and that no new technology has come into play that makes oil obsolete, the most basic and primitive analysis has one looking at $26 v 0 and $26 v $150. You tell me, where is the risk?

    Getting to new all time highs in a commod can take a very long time, I grant you that. But no matter how I slice it, while sellers might get some love down here for, what, $10, $15, they are starting to play a game of market roulette, where instead of one bullet in the chamber, there are like 3 or 4.

    Thus, (150 - 25) / 2 = $62. (150 - 15) / 2 = $67. In other words, the lower the prices go, the higher the mid point in the range between old all time high, and last printed low. Some would argue the $150 oil was an anomaly, but I say it has to be accounted for, and the underlying factors that led to it are still in play, and not likely to change for years to come. Even if there is an equity crash back to 2009 lows, what does anybody thing the odds are that the fed res system will be abolished and the hands that control the money system will change?

    If that happens, then the FRN becomes extinct, and then perhaps we see a repricing across the board, where everybody gets a massive haircut. But that is a separate issue. Apples and oranges, and a different risk discussion. Hence, in the present context, I see oil back in the mid 60s, hard to say when, 2 years? Who knows. But if the context doesn't change, I am far more focused on that $150 than the $10, because if the context doesn't change, even if there is a MS crash, as oil is way out in front of it, they can just rebuild the MS and put everybody right back where they were in 2007, or even worse - meaning oil trades @ $200 p/bbl, back to peak oil headlines, incessent demand, etc.

    You cant see it now. 5 years? 7? Yeah, it wont look like this. Leave it to the markets and the news and all the BS of the day distract you from seeing a once in a lifetime opportunity. But, that is what makes a market a market. Everybody has their own ideas, and definitions of risk, and execute accordingly.

    As always, the best trader wins.

    [Mar 02, 2016] US shale oil production might going to fall off of a cliff over the next 2 to 6 months

    Notable quotes:
    "... Jean Laherrere had a post on POB that indicated a 20 to 30 month lag between rig count and production, during the expansion phase. ..."
    "... However if true it would suggest production is going to fall off of a cliff over the next 2 to 6 months. ..."
    peakoilbarrel.com
    George Kaplan, 02/29/2016 at 2:20 pm
    Jean Laherrere had a post on POB that indicated a 20 to 30 month lag between rig count and production, during the expansion phase.

    Empirically the curves seemed to match but I don't get why the delay is that high or the correlation so close.

    However if true it would suggest production is going to fall off of a cliff over the next 2 to 6 months.

    http://peakoilbarrel.com/bakken-oil-peak-jean-laherrere/

    [Mar 02, 2016] All this idiotism with drilling while having negative cash flow will eventually stop.

    peakoilbarrel.com
    likbez , 03/02/2016 at 1:29 am
    Alex,
    The IEA expects $80 by 2020

    All this idiotism with drilling while having negative cash flow will eventually stop.

    And unless supply of "free money" is somehow restored it can be resumed only when the price go above approximately $80 per bbl. Because for non-crazy investors this is a real, not MSM fantasy land break even point for shale producers if you calculate all the costs (and they are not static: the higher oil price is, the higher the costs). OK, +- $10 depending on the area.

    Think about it as "shale conundrum" or Catch 22 situation.

    And about the value of EIA price "forecasts" of three and four (2020-2016=4) years ago ( STEO Mar2012 and Mar 2013). Are they really worth electrons with which they are painted on the our screens ?

    [Mar 02, 2016] In the summer of 2016 Russia might face lack of gasoline

    peakoilbarrel.com
    AlexS, 03/02/2016 at 5:46 am
    Russia's crude and condensate production in February was 10,840 kb/d (preliminary estimate), up 2.1% year-on-year, and down 25 kb/d (0.2%) from January level.

    source: Russian Energy Ministry

    ERRATA, 03/02/2016 at 8:20 am
    http://www.19rus.info/index.php/ekonomika-i-finansy/item/44314-rossiyan-preduprezhdayut-ob-ostrom-defitsite-benzina-s-1-iyulya

    Russians warn of the acute shortage of petrol from July 1
    --------
    http://www.the-village.ru/village/situation/situation/231679-benzin

    In the summer of 2016 Russia will face with lack of gasoline.

    [Mar 02, 2016] Hedge funds turn bullish on Brent but not WTI by John Kemp

    Reuters
    Hedge funds and other money managers held a combined net long position in the three main crude oil futures and options contracts amounting to 383 million barrels on Feb. 23.

    The combined net long position has increased in eight of the last 11 weeks from a recent low of 230 million barrels on Dec. 8. (tmsnrt.rs/1XUWJih)

    But the increase in hedge fund and other money manager net long positions has been concentrated in Brent rather than WTI. (tmsnrt.rs/1XUWS5i)

    The net long position in Brent futures and options traded on ICE Futures has jumped by more than 100 million barrels to 320 million barrels from 183 million barrels.

    The net long position in WTI futures and options traded on ICE and the New York Mercantile Exchange has risen less than 20 million barrels to 63 million barrels from 47 million barrels. (tmsnrt.rs/1XUWVy1)

    Extreme pessimism about the near-term outlook for prices, which reached its height in December and early January, seems to have dissipated a little.

    There is more confidence that the long-awaited rebalancing of supply and demand is now underway in earnest which could help stabilize stockpiles and prices later in 2016.

    U.S. shale producers seem to be finally cracking under the strain from low prices, with more than 100 oil drilling rigs idled over the past month, and many producers now openly talking about producing less in 2016.

    [Mar 02, 2016] There will be no large increase on shale oil production until the price stays over 70 dollars bbl for a while.

    peakoilbarrel.com
    Guy Minton, 02/29/2016 at 3:16 pm
    That interrupts the logic, and is not to be considered. It is not important that upstream companies are out of bucks, and nobody will lend them any. Drilling will continue to be done with cash available until which time, the coffers start filling. May take some time to put into completing those wells that are only profitable at 80. Be quacking for quite a while. However, that interrupts the logic of lower for longer, so it is not to be considered.
    Guy Minton, 02/29/2016 at 11:10 pm
    You don't have to be an economist or a CPA to figure out how difficult it will be for oil companies to again be growing at this point. It is mostly going to be funded by internal cash flow. Let's assume that EIA'S estimate of the average Eagle Ford's EUR to be 168,000 bbls, and somewhat meaningful. So, maybe the average first year's production to be 75,000 bbls.

    At 100 a barrel, they recover the cost of the capex, plus a little more. They can drill another well with positive cash flow. Probably describes the average DUC. At 80 a barrel, they are in negative cash flow. Probably, a profitable well, but negative cash flow.

    They did not make back enough money to drill a new well the first year. Later, next year, but not by the end of the year. So amount available for capex goes down.

    At 40, they may, or may not recover the cost of the well. If the DUC is an average Eagle Ford EUR, then it could sit for quite a while if lower for longer is the logic.

    That is the main reason you won't see large scale ramp ups on production until it stays over 70 for a while. A large percentage of the area is average, or less than average.

    [Mar 02, 2016] Why the next world war will be fought over food

    peakoilbarrel.com
    Jeffrey J. Brown, 12/22/2014 at 2:19 pm
    A somewhat surprising article in Fortune:

    Why the next world war will be fought over food
    http://fortune.com/2014/12/21/why-the-next-world-war-will-be-fought-over-food/

    [Mar 01, 2016] Whether CRC can survive 2016 remain to be seen

    Notable quotes:
    "... Id say this crash will pretty well end much hope of conventional onshore in US regaining 2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry the day. ..."
    "... Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million ..."
    "... Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel ..."
    "... I am not critical of CRC, just pointing out what they say their base decline is with no new wells. ..."
    peakoilbarrel.com

    shallow sand , 02/29/2016 at 11:23 pm

    dclonghorn, and anyone else interested.

    California Resources Corporation released earnings today. They disclosed they plan to neither drill nor complete a well in 2016. They stated that they believe their base decline rate to be 10-15%. They produced 102K barrels in Q4 2015. That is their net. I think gross they produce about 20% of oil produced in California.

    Interestingly, Denbury Resources, who has operations in different area, but like CRC, has primarily secondary and tertiary recovery, but of different kinds (CO2 v steamflood being the major one) is forecasting 10-15% reduction in production from 2015. Again, forecasting minimal to zero new wells.

    Of course, decline is different than shutting in production.

    I'd say this crash will pretty well end much hope of conventional onshore in US regaining 2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry the day.

    Todd , 03/01/2016 at 4:36 am
    Highlights:

    At current prices, CRC expects that available liquidity plus expected operating cash flows will be sufficient to fund its capital program and 2016 commitments.

    The Company recently received 100% approval from its bank group to amend its credit facilities

    The amendment requires cash in excess of $150 million be applied to repay outstanding revolving loans, reduces the revolving commitments to $1.6 billion and imposes certain other restrictions.

    "Expect to see us(CRC) demonstrate financial discipline to maintain sufficient liquidity through 2016. We plan to continue building economically viable drilling inventory, while managing our activity consistent with our principle of living within cash flow."

    Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million

    Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel

    shallow sand , 03/01/2016 at 9:55 am
    I hope CRC makes it. I think they unfairly got stuck with too much debt and are a victim of the shale bubble.

    I am not critical of CRC, just pointing out what they say their base decline is with no new wells.

    [Mar 01, 2016] EIA sophisticated form of deception of mathematically challenged public

    Notable quotes:
    "... In other words EIA operating with four meaningful digit on the data with error margin at or above 1% is just a sophisticated form of deception of (mathematically challenged) public creating an impression of precision were it does not exist. ..."
    peakoilbarrel.com

    likbez , 03/01/2016 at 9:49 am

    If we assume error margin 1% for EIA data that means that EIA data should be rounded to two meaningful digits before making any conclusions.

    That makes minimum meaningful difference 100,000 bbl. Everything below that should be considered to be statistical noise.

    In other words EIA operating with four meaningful digit on the data with error margin at or above 1% is just a sophisticated form of deception of (mathematically challenged) public creating an impression of precision were it does not exist.

    And if the addition is below the error margin it can't be considered statistically meaningful because the value 9,262 is in reality an interval from 9.162 to 9.362 within which the precise value lies.

    Jeffrey J. Brown , 03/01/2016 at 9:54 am
    I generally try to use two significant figures, e.g., global C+C production increased from 74 million bpd in 2005 to 78 million bpd in 2014.

    [Mar 01, 2016] Russia is ready for the implementation of the freeze of oil production

    peakoilbarrel.com
    likbez, 03/01/2016 at 8:25 pm
    Looks like Russian bear after being hit in the head and robbed at gun point starts slow awakening from hibernation. The honchos of Russian oil companies are now officially onboard for the freeze and some of them want more drastic measures. They have a discussion of "stabilization of Russian economy" (which means stabilization of oil prices) with President Putin, which means that Putin got his marching orders from oil oligarchs, some of which wants "quid pro quo" from the government (not to increase taxes on oil despite budget deficit). Details are scarce. But previously hapless head of Rosneft Igor Sechin lamented about the situation he drove his company into, being completely unprepared to the oil price crush. May be he got promises of additional loans to keep the company afoot.

    Generally Russian performance in this crises leaves to me the impression of complete incompetence on high level. Especially unimpressive is Alexander Novak – the Russian Minister of Energy. He speaks like a typical neoliberal. This is when more centralized economy should score points and they instead were taken for the ride and continued to buy the US Treasuries. Why not to buy Russia oil for the strategic reserve instead, like China did ? I think Russia still does not have any state strategic oil reserves (the only major country in such a position).

    Russia is ready for the implementation of the freeze of oil production

    Slightly edited Google translation

    Izvestia.ru

    President Vladimir Putin and the heads of major Russian oil companies discussed implementation of decisive measures to stabilize the Russian economy in view of increased volatility of world markets.

    As a start Russia is ready to join the group of countries within and outside OPEC, which approved the proposal to freeze the level of production of oil in 2016 at January level. Such production limits can be implemented by a joint agreement of key countries, that is already was put on table on Feb 16, 2016 by Saudis, Russia, Qatar and Venezuela and now is at the stage of multilateral discussion with other oil exporting countries. The final decision is expected somewhere in March on a new meeting of Ministers of oil producing countries.

    This meeting at the Kremlin was chaired by Vladimir Putin and was attended by all key representatives of the Russian oil industry - the Chairman of the Board of "LUKOIL" Vagit Alekperov, the General Director "Surgutneftegaz" Vladimir Bogdanov, the head of Board "Gazprom oil" Alexander Dyukov, the President of the company "Bashneft" Alexander Korsik, the General Director of Zarubezhneft Sergey Kudryashov, the head of "Tatneft" Nail Maganov, President of "Rosneft" Igor Sechin, the head of the Independent oil and gas company Eduard Khudainatov.

    In addition, the Russian minister of energy Alexander Novak and the head of the presidential administration Sergei Ivanov, as well as aide to President Putin Andrei Belousov also participated in this meeting.

    This year Alexander Novak held a series of meetings with Ministers of oil-producing countries. In February, the negotiations in the Qatari capital and it was proposed to fix the production at the level of January. In January, Russia produced 46,006 million metric tons of oil with gas condensate. This is 1.5% more than in January 2015. Average daily production amounted to 10.9 million barrels.

    Before the meeting, when everybody was sitting at the table, Vladimir Putin held a short private consultation with Alexander Novak. After that Putin opened the meeting with the following statement:

    "As the Minister reported to me, some of you have more radical suggestions (for the countries - exporters of oil. - Izvestia) for the stabilization of oil markets, but about this particular measure (fixation of production at the level of January. - "The news") as I understand something close to a consensus already exists.

    The purpose of our meeting today is to hear from each of the heads of the companies represented here personally the opinion of each of you on the subject of the discussion. How do you really feel about the current situation and measures that need to be taken ?"

    CEOs of major Russian companies remained silent while journalists were present. Only the General Director "Tatneft" Nail Maganov and Chairman of the Board "Gazprom oil" Alexander Dyukov start grinning, because these companies in January of this year recorded a growth of production relative to January of last year (by 4.2% and 5.6% respectively, according to the Central Department of Control of Fuel and Energy Complex).

    After those introductory remarks journalists were asked to leave the meeting.

    The meeting did not last long. After the meeting ended, Minister Alexander Novak in a press conference said to journalists that all heads the Russian companies who were present supported this international initiative. He stated that:

    The implementation of this freeze should give a positive impulse on oil markets. It increases the predictability of behaviors of key market participants, which should lead to the reduction of volatility…

    Today, the total surplus of world oil production is estimated to be around 1.5 million barrels per day. If you freeze the level of production on the level of January, 2016 and the demand increases by 1.3 million to 1.5 million barrels a day, the oversupply in the market will be eliminated at the end of the year. And we already saw some signs of stabilization of the market after this measure was announced.

    Alexander Novak also noted that this freeze may not only reduce price volatility but also shorten the period of depressed oil prices to the end of 2016, when in his opinion oil prices can return to the $50-60 per barrel range. He noted that as of today 15 oil producing countries have publicly declared his readiness to sign the agreement.

    According to the Minister, they represent around 73% of world oil production. The exact format of the agreement, in which the key is the method of monitoring of compliance, is yet to be determined.

    The sighing of the freeze agreement can happen at another meeting of oil ministers in March. According to Alexander Novak, even if Iran does not join the agreement, the market will still stabilize, as Iran still has a very low level of production and can't increase it fast. Due to this countries-signers of the agreement can make an exception for Iran and increase its ceiling over the January 2016 level.

    Freezing production at least will stop flooding the market with new volumes of oil in the delusionary pursuit of "market share", commented on the event the analyst of FC "Discovery Broker" Andrei Kochetkov. It will more be influenced by the financial strength of companies and countries as well as the real costs of production from the depleting fields. On average, traditional oil wells lose 3-5% of production volume each year, he said. Accordingly, if the flow of new investments in the field slow down to a halt, the global market might lose another 3-4 million barrels per day of the production at the end of the year. This drop even if less drastic as stated will increase the pressure on oil prices said the expert.

    There should not be any major problem for Russian companies with freezing the production of oil on January, 2016 level said the head of the analytical company of the Small Letters Vitaly Kryukov. We should not fear that this measure damage our fields, given that in Western Siberia production continues to fall, he said.

    That, of course, might lead to less drilling in some places but will not affect the commissioning of new projects that were under construction. For example, LUKOIL is expected to launch new projects this year in the Caspian sea, but at the same time they are quickly losing the volume of production in Western Siberia.

    The second topic discussed at the meeting with the President was the taxation of Russian oil companies. The heads of the companies have asked the head of state in the medium term, not to raise taxes and to keep the current system of taxation while the current turmoil with oil prices exist. In his after the meeting interview Alexander Novak stated that Vladimir Putin is now aware about the position of the heads of Russian oil companies on this subject, but this issue still needs to be discussed inside the government.

    [Mar 01, 2016] EUR of Ballen Wells is around 320000 bbl

    Notable quotes:
    "... corporate commercial shill ..."
    "... Those are unrealistic ..."
    "... With the tax credit! ..."
    "... consider Ilambiquateds previous mention of what I call, The Shopper-Shafter, for apparent programmatic-mining of reciepts for patterns to optimize prices as high as possible to help shift the baselines in the race to the bottom. Have I got that right, Il? May I suggest you somehow incorporate Kardashian as spokesperson and have her riding the new bigger/better/badder Toyota Priapus in a Race to the Bottom Sweepstakes! ..."
    peakoilbarrel.com
    shallow sand , 12/22/2014 at 4:03 pm
    Carl Martin: Is an average EUR of 750,000 net bbl of oil per well accurate in the Bakken? It doesn't appear that it is when one looks through the public information put out by the State of North Dakota. Further, it doesn't appear generally that Continental has the wells capable of hitting this figure. EOG and Whiting are the primary companies to have the wells capable of 750,000 net bbl EUR, based upon public data.

    I have read on this site that 320,ooo gross bbl EUR is more probable overall in the Bakken, although I am sure if people have agendas they can skew the numbers. I think at least a few of the people who post here appear to have strong enough math/science/engineering backgrounds to make some pretty reasonable calculations and are making an unbiased attempt to be as accurate as possible.

    Trying to figure out what is accurate and what is not is more difficult than what you let on, IMO. It does appear that substantially lower oil prices may provide some answers.

    shallow sand , 12/22/2014 at 4:12 pm
    Oops. The 750,000 number is BOE, so that does make a difference. The 320,000 figure I referenced is BO, not BOE.
    shallow sand , 12/22/2014 at 4:59 pm
    BTW, CLR just cut CAPEX budget to $2.7 billion. This is the second cut they have announced in about 3 months.
    Watcher , 12/22/2014 at 5:21 pm
    There is that. 2.7 Billion at $10 million/well, from the CLR Nov investor briefing, is 270 wells. For the whole year.

    Avg flow year 1 is about 450 bpd? So incremental revs in 2015 would be 270 X 450 X $30 (net of Bakken Sweet minus royalties, taxes) = $3.65 million, for the whole field for the whole year from new wells.

    Maybe Warren Buffett will do what he did for BoA. They created a special preferred issue for him to buy $5 B of. Paid 8% dividend or something. Hell, he may get more of Harold's money than the ex.

    Thirunagar , 12/23/2014 at 1:18 am
    "Avg flow year 1 is about 450 bpd? So incremental revs in 2015 would be 270 X 450 X $30 (net of Bakken Sweet minus royalties, taxes) = $3.65 million, for the whole field for the whole year from new wells."

    err I think you forgot that a year has 365 days? That comes out to more than 1.3 billion dollars even at these depressed prices!

    Dennis Coyne , 12/23/2014 at 9:52 am
    The average well flow for the first year is about 233 b/d, not 450 b/d (second month output is usually highest at about 400 b/d), the average well produces roughly 85 kb in year 1.

    Using Watcher's figure of 270 wells and call refinery gate oil prices $60/b, transport costs $12/b, OPEX plus other costs $8/b leaving $40/b, then we need to pay taxes and royalties of roughly 25% on wellhead revenue of $48/b, so we need to subtract another $12/b and we get to $36/b net. If 270 average wells are drilled we get about 23 million barrels of oil in year 1 for a net of $826 million. The wells cost about $9 million each for a total of $2.4 billion. Looking at a single well, we need 250 kb for simple payback (ignoring the time value of money), but the average Bakken well takes at least 8 years to reach 250 kb of output, typically a "good well" pays out in 18 months or less. At two years the average Bakken/Three Forks well in North Dakota produces about 130 kb which is about $4.3 million in net revenue and far short of a $9 million payout level.

    Carl Martin , 12/23/2014 at 11:01 am
    SS,

    No, the 750,000 boe is just a reference to CLR's claim, that they have eight years of drilling activities, that can produce that much per well. TRANSLATION: The current low oil price environment is easily weathered by simply high grading. Any company with similar property can do the same. But, many of the newer, smaller Bakken dotcoms have no such property, so their very existence is in great danger.

    It is nowhere near the average Bakken EUR.

    By the way, unlike so many others here, I don't guess anything, and have very few opinions of my own. I mostly just repeat what is generally accepted knowledge about the shale industry, because no one has so far been able to prove any of it to be wrong.

    It's just that none of my researched information supports any PO theory at all. That's the rub.

    Fernando Leanme , 12/23/2014 at 1:50 pm
    So at what cost does oil have to be produced in the future? Where are we find this oil? And are you so negative about renewables you think they won't be competitive with oil at $500 per barrel in today's dollars?
    WebHubTelescope , 12/26/2014 at 3:58 am

    "I have read on this site that 320,ooo gross bbl EUR"

    I have been using just under 300,000 for the diffusional model I put together a few years ago.

    What is nice about making early projections is that you can see how production plays out.

    Fernando Leanme , 12/22/2014 at 5:43 pm
    So where do we get the oil when the better shale zones are drilled and declining? Chinese shales?
    Dennis Coyne , 12/22/2014 at 5:56 pm
    Hi Carl,

    Enno Peters collects data on all North Dakota wells from the NDIC, the EUR of the average Bakken well between 2011 and 2014 is about 325 kb of oil, if you add in natural gas and convert to barrels of oil equivalent(boe), it increases to 406 kboe, but note that the extra 80 kboe is very low value relative to crude.

    Note that the typical well in an investor presentation is not the same as an average well. Maybe CLR only drills above average wells. :)

    Carl Martin , 12/23/2014 at 11:29 am
    Dennis,

    I don't dispute your average EUR numbers, as I don't have the neccesary info to do so. Besides that, they sound about right to me. But you need to be careful about getting too hung up in the word or concept of average. After all, what do you think is the average gender in the US in Dec. 2014?

    Investor presentations ALWAYS show their best results, and almost never reveal all the failures, that bring their averages down. This is just business as usual. But, it is okay because they are always moving up the learning curve, so by showing their best results now, they are giving a clear indication of where they expect their average results to one day be.

    Also, if you want to understand this industry, it does no good to focus on average companies, you need to look at the leaders, because they are the trend setters. Ultimately everything is based upon best practices, and EOG is presently the undisputed best at everything. They just don't keep investors very well informed. Therefore, I still get most of my info from CLR.

    This sentence of yours is not as silly as you might think. "Maybe CLR only drills above average wells." In a sense, "they do." That is to say, that they have no monster wells, that I know of, they choke a lot more than others, and they have used their standard 10,000 foot lateral and 30 frack stages well design over most of the Bakken, even when it didn't make economic sense to use it. It is because they use their standard well as a measuring stick. Now they have a fixed point for reference to compare different areas of the Bakken.

    That's why they know exactly what they are talking about, and why I accept most everything they say. You obviously don't. But, you have never given a good reason for not doing so, other than the results they are claiming don't show up in the data bases you are using. Why don't you just send them an email and try to clear up a major misunderstanding on your part? Then everyone at this website will be able to move forward.

    Dennis Coyne , 12/24/2014 at 4:10 pm
    Hi Carl,

    Continental wells with first month of output between Jan 2009 and Oct 2014 have an average cumulative output over 70 months of 186 kb, this is slightly below the average Bakken well over the same period for all wells completed(925 wells).

    There is a lot of hype in investor presentations.

    The Continental wells will produce considerably less oil that the 480 kb claimed (only 80% of the 600 boe EUR is oil) in investor presentations. The EUR is more in the 250- 300 kb range for the average Continental well.

    shallow sand , 12/24/2014 at 4:50 pm
    Thank you again, Dennis, for the information you provide.
    Mike , 12/24/2014 at 5:15 pm
    AAAAAmen!
    Dennis Coyne , 12/24/2014 at 6:13 pm
    Happy holidays to all!
    Fernando Leanme , 12/25/2014 at 5:30 am
    I wonder if they have run flow meters to check how much flow they get from the toe of a 10 thousand foot lateral. You seem to follow this closely, are those wells slugging?
    Dennis Coyne , 12/25/2014 at 3:18 pm
    Hi Fernando,

    It is not clear who you are asking.
    I do not know what slugging is.

    Fernando Leanme , 12/27/2014 at 6:10 pm
    Dennis, sometimes very long wells in three phase flow can have phase segregation in the horizontal section. This causes liquid slugs to accumulate, which tend to move up the well in slug flow. This can be avoided by placing the heel higher than the toe. But I've never worked with a 10 thousand foot well. And I was wondering if they had sensors to confirm the toe is producing.
    FreddyW , 12/25/2014 at 5:53 am
    I came to the same conclusion as you Dennis. The Continental wells are actually bellow average. I have attached a graph showing the production profile for Continental wells from January 2010 to October 2014. I also included the average Bakken well profile for 2010 for reference. The first 3 year cumulative oil + gas production for an average Continental well is about 170.000 boe. No one knows what the EUR will be, but EIA suggests that 50% of the oil has been produced during that time ( http://www.eia.gov/forecasts/aeo/tight_oil.cfm ) which gives an EUR of about 340.000 boe.

    Carl, you are saying yourself that they only show the best results and don´t tell about their failures. So why should we then believe in anything they tell us? I have learned that you should never ever trust in what companies tell in their presentations. Especially not smaller companies which are dependent on cheap credits. It is actually quite disturbing that companies can make such exaggerations and get away with it.

    I however agree with you Carl that there are still drillable locations left in sweetspots. But perhaps some companies start to run out of them. That would affect total Bakken output, which I am mostly interested in.

    Dennis Coyne , 12/25/2014 at 1:26 pm
    Hi FreddyW,

    Along the same lines I did the chart below. Cumulative well profiles.

    FreddyW , 12/25/2014 at 6:16 pm
    Thanks Dennis. It´s good that we are several people who can look at the data from different angles.
    Dennis Coyne , 12/25/2014 at 3:27 pm
    I posted a chart for average Bakken cumulative output per well by company for four large companies over the Jan 2009 to Oct 2014 period( about 1/3 of all ND bakken/Three Forks wells drilled(3462 wells).
    The "avg" well is for all Bakken/Three Forks wells in North Dakota over the same period with a cumulative of 197 kb per well over the first 58 months of output.

    Chart came out a little small the first time so I will try it again.

    Dennis Coyne , 12/25/2014 at 8:56 pm
    I put together data for more companies, about 75% of total wells, too many for a clear well profile so I am using a bar chart with 54 month (4.5 year) cumulative output for the average well for each company over the Jan 2009 to Oct 2014 period. The average Bakken well is shown for comparison. Companies with more than 200 wells over the chosen period are presented below.

    shallow sand , 12/25/2014 at 10:59 pm
    Dennis, thanks so much for this information!

    Surprised by QEP, they don't get the hype the others do. Always assumed EOG had the most productive wells in the Balkan due to Parshall. Must have wells in other areas which bring the average way down.

    I wish TX reported by well as opposed to by lease. Would be really interesting to see the same info for EFS and Permian horizontal wells.

    Really seems irresponsible for these companies to claim EUR oil at 600,000+. I guess they assume the wells will produce 40-60 bbl per day for 25 years. Will be interesting to see if they do.

    shallow sand , 12/25/2014 at 11:00 pm
    Bakken. Spell check got me I guess?
    toolpush , 12/25/2014 at 11:16 pm
    Dennis,

    It looks like the quote from the other day, "Continental must drill all above average wells", may need some adjustment. To "Continental must drill all below average wells"?

    Dennis Coyne , 12/26/2014 at 8:10 am
    Hi all,

    I show the North Dakota Bakken/Three Forks cumulative average well profiles by company for the Jan 2009 to Oct 2014 period, total wells for this set of companies is 6472 wells of about 8054 wells completed (drilled and fracked) for all companies operating in the North Dakota Bakken/Three Forks (80%). This is where I got the data for the bar chart. QEP energy is the high well profile and OXY is the low well profile, the middle dashed line is the average well profile for all companies (including those not presented in the chart).

    Ronald Walter , 12/21/2014 at 5:01 pm
    https://www.dmr.nd.gov/OaGIMS/viewer.htm

    zoom in, you'll see well numbers, locations, horizontals.

    Updated on 12/16/2014.

    Watcher , 12/21/2014 at 6:07 pm
    Initial Monday numbers, Sydney open, Japan pre open 8 AM, oil down 52 pennies to low $57s. Dollar a bit strong across the board.
    coffeeguyzz , 12/21/2014 at 6:12 pm
    Exactly, Mr. Walter. If one uses the ND DMR Gis map to get a micro view, then glance at 'bigger picture' using either Mr. Hughes' colored dots or – more informatively – the aforementioned ND slides, it should be clear that the high productive/sweet spots (red – Hughes, yellow/white – DMR) have a lot of drilling yet to go.
    Watcher , 12/21/2014 at 6:32 pm
    dood, you have not one square inch left to go at $55.

    And I think you know it.

    Mike , 12/21/2014 at 7:30 pm
    Watcher, I'd say the dance floor is getting a little crowded, wouldn't you?

    coffeeguyzz , 12/21/2014 at 8:05 pm
    That's a great graphic that shows many things. The spacing on virtually every one of those wells is st least 1,200′ apart. The successful down spacing will prompt a near doubling of those wells if the 700′ spacing proves widely workable. The designs of the fracs are more and more purposefully geared to extend no farther than 300′ or so from the wellbore.
    The underlying Three Forks formation has at least two or three productive layers that the USGS actually claims to be larger in recoverable hydrocarbons than even the middle Bakken.
    Crowded dance floor? If Shania walked in, room would be made garonteeed.
    Watcher , 12/21/2014 at 8:18 pm
    I have a geologic theory to propose on the basis of no evidence. Doug, listen up. Mike, ditto.

    So we drilled and fracked a lot of laterals. Then we are going to shut down. For a year or three. We're going to near zero output. Loss of 3.5 mbpd, up the imports to keep people fed, etc.

    People come back and say, the price is up. Let's get going again.

    But down there 10,000 feet we have four counties that have been pin cushioned and nanopores down there having been subjected to 3-5 yrs of explosion type vibrations. And there are lots and lots of empty pores now, from wells drilled and emptied.

    If we give the nanopores in the undrilled pl