The Glut Of Oil Blamed On Quiet Weather -- November 30, 2015

Extreme weather? Climate change? Global warming? Remember all those warnings about extreme weather due to climate change? In fact, not one significant hurricane has hit US soil in ten years, and now Bloomberg is reporting that the glut of US oil is, due, in part to the lack of severe Gulf storms. Who wudda thought? Bloomberg/Rigzone is reporting:

Oil bulls can say farewell to another quiet Atlantic hurricane season in the Gulf of Mexico, which ends Monday without a storm-induced price rise to lift crude from its once-in-a-generation slump.

Barely an oil worker was evacuated from the Gulf of Mexico and the biggest storm this year -- the strongest hurricane ever in the Western Hemisphere, actually -- tore through the Pacific. The subdued June-November season overlapped with a four-month stretch of oil prices averaging less than $50 a barrel, the longest run since the global financial crisis. As well, the epicenter of U.S. production has moved onshore to shale fields spanning North Dakota and Texas.

“Once upon a time we would have been watching very closely to what’s happening in the Gulf of Mexico,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “We’ve seen a few disasters from hurricanes, but the shale phenomenon has really taken the sting out of lost Gulf production.”

Aided by shale oil developments, U.S. production is at such a rate that oil stockpiles are more than 100 million barrels, or about one-third, above the five-year average, buffering the impact from hurricanes. While prices surged 44 percent in 2008 after Hurricane Ike struck, markets barely blinked four years later after Hurricane Isaac hit and curbed more than 90 percent of crude output in the Gulf of Mexico.

The hurricane season officially ends today.

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Done?

Oil & Gas Journal is reporting:

Wildlife recovery in Prince William Sound has been extensive enough to warrant closing federal and state legal actions against ExxonMobil Corp. from the March 1989 grounding of the tanker Exxon Valdez and subsequent crude oil spill into the sound, the US Department of Justice and Alaska Department of Law jointly announced.

A 1991 civil settlement required ExxonMobil to pay the state and federal governments $900 million over 10 years to reimburse past costs and fund restoration of injured natural resources. The two governments said the Exxon Valdez Oil Spill Trustee Council, which it formed soon after, used money from the settlement for significant restoration in areas where the spill had an impact.

The governments took preliminary action that year to preserve a potential reopener claim ...

During this period, however, continued wildlife monitoring showed that the harlequin ducks and sea otters which had looked vulnerable to the lingering oil in 2006, have recovered to pre-spill population levels and are no longer exposed to oil more than populations outside the spill area, the two governments said.

Based on that information, they and their departments and agencies on the trustee council decided that legal requirements for pursuing a reopener claim are not met, they said.

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A Throwaway Article

But the headline is correct, and the comments are worth Last summer, when oil prices were still above $100 a barrel, people had a theory for why they would never fall much below that number.

Many major oil-exporting countries had "fiscal break-even" oil prices - prices required to balance their budgets - near that level. The International Monetary Fund (IMF) put Saudi Arabia's at $98.

Faced with oil supply that exceeded demand, these countries would cut production to shore up oil prices and their finances, keeping crude prices high. How wrong they were.

The folly of relying on fiscal break-even figures to forecast future oil prices was driven home at the now infamous November 2014 Opec meeting, when its members, led by Saudi Arabia, refused to cut at all.

My favorite comment:

The IMF put Saudi oil price at $98 break even. That's wrong. The Saudis can make money at $5 to $7 a barrel, from what I read in a magazine for the oil industry.

In fact, the IMF is correct.

This comment is perhaps most accurate:

There is a point at which the price of oil is below the variable cost to pump it out of an existing well, that point is exceedingly low. There is a point at which it doesn't pay to drill at an already identified source of oil, that point is moderately low. There is a point at which it doesn't pay to look for new sources, that point is fairly high.

Producers are going to continue to optimize their returns by pumping out of existing wells and holding off on new drilling and new exploration, as far as balancing the budgets of nations is concerned, the price of oil will ignore their problems.