Sunday, July 30, 2017

Why I Love To Blog -- It's An Existential Issue -- July 30, 2017

Has Saudi Arabia stopped the bleeding?

Source: Trading Economics.

Posted by John Kemp, via Twitter, early Monday morning, July 31, 2017:

Lies, Damned Lies, And Statistics

John Kemp's headline over at Twitter: SAUDI CRUDE OIL EXPORTS have been running well below 2016 level since start of year and kingdom has pledged < 6.6 million b/d in August. 

What is not said in that headline is that Saudi had record production in 2016. From late 2014 to late 2016 Saudi tried to break US shale by opening the spigots; their production actually never dropped until early 2017. So, saying their exports were well below 2016 may not be saying a whole lot. Then, in the graph, they compare current exports to the 10-year average, which, of course, is greatly affected by the surge in production/exports from 2014 to 2016. If one eliminated 2014 - 2016 data, the 10-year line would be (much?) lower and Saudi exports would still be greater than the 10-year average. Lies, damned lies, and statistics. 

The real problem, however, is not Saudi. In the big scheme of things they probably are trying to right the ship. The problem is the other OPEC countries, notably Iraq and Iran.

Now Bloomberg Is Calling It An Existential Issue
As long ago as November 11, 2015, I said that low oil prices were an existential issue for Saudi Arabia and I've said it since on numerous occasions.

I see that others are reading the blog. LOL.

From Bloomberg today: OPEC's existential sucker punch.
You wait decades for an existential crisis, then two come along at once. At least that's how it must feel for OPEC's beleaguered ministers. In the short term the market for their oil is being eroded by rising production outside their control. Looking further ahead, oil demand itself is under threat from the electrification of road transport. OPEC may not yet be dead, but its days are surely numbered.
The most obvious short-term threat to the group comes from the rapid rise in U.S. shale oil, but the risks have expanded to include other areas like Brazil's prolific sub-salt discoveries and more recent finds further north along the east coast of South America.
The writer says "OPEC's days are numbered." For me, OPEC = Saudi Arabia. In math, if A=B and B=C, then A=C. Just saying.

Some data points from the article:
  • Asia turning to US crude oil to offset OPEC cutbacks
  • China was the biggest foreign buyer of US crude in April (most recent EIA data) -- overtaking Canada for the second time this year (does this say more about Canada or China?)
  • Indian refiners are finding an appetite for US grades that compete directly with OPEC
  • Saudi was hoping that Asia would stay true to OPEC
  • little letup in US oil production
  • lower 48 crude oil production hit 9 million bopd for the first time in nearly two years
  • big oil is learning to live with "lower for longer"
  • last quarter, Shell generated almost as much cash from its operations at $50/bbl as it when oil was above $100/bbl
  • big oil is getting "fit"; OPEC is not: they have not made the cuts they need to survive if prices persist at these levels
Then a lot of political correctness talk about EVs. Trivial. 

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