North Dakota Production Increases Month-Over-Month -- December 9, 2015

Closing the poll on the sidebar at the right. North Dakota crude oil production increased month-over-month. The question was whether October production would be more/less than September production?

• more: 30%
• less: 68%
• no change: 2%

I was going to vote for "more" but I wouldn't have bet more than a cup of coffee. Perhaps, "too close to call" would have been better.

Regardless, at John Kemp, his tweet, North Dakota's oil production is holding up better than most forecasters predicted. North Dakota oil production up 5,000 bopd in October vs September, to 1.17 million bopd.

I haven't seen the figures yet, but I would bet a cup of coffee that Eagle Ford production decreased during the same period.

******************************

Brent Vs WTI

Going forward, I think there is going to be more emphasis on "difference" between Brent vs WTI. I've talked about it before, though infrequently and briefly. But I think Brent vs WTI will become more relevant going forward. Here's one example, though the source has a "conflict of interest." is reporting:

The future supply security of Brent is at risk amid continuing cuts to the oil service capacity, according to analysts at Rystad Energy. While the global market is currently oversupplied with crude, Rystad Energy research shows that investment decisions for only 8 billion barrels were made in 2015, even though the oil industry needs to replace 34 billion barrels of crude every year. This amount is less than 25 percent of what the market requires long-term.

Rystad Energy numbers show that prior to the post OPEC meeting oil price decline, the number of jobs in the oil service industry was already cut by 16 percent for the top 50 oil service companies. These oil service companies had aggregated revenues of $300 billion and 950,000 employees in 2014. To date, 150,000 employees have been laid off from these 50 companies alone, and an estimated 250,000 oil service employees from the top 400 oil service companies have been fired globally.

Global exploration and production spending declined by 20 percent in 2015 and is expected to fall another 11 percent in 2016, marking the first consecutive annual decline since the mid-1980s.

Rystad Energy forecasts spending to reduce by a further 70 billion next year and has warned that additional spending cuts in 2016 could occur following the current post-OPEC meeting oil price slide. Jarand Rystad, managing partner at Rystad Energy, commented in a Rystad statement:

Oil prices continue to fall after OPEC failed to reach an agreement on output targets and decided to remove its obsolete output ceiling last week. This decision occurs at a time when oil companies are in the process of taking final decisions on spending programs for next year.

We see that for most new developments oil prices are below life cycle costs. As oil companies need to pay dividends and have incompressible taxes and royalties, the majority of upstream players are destroying value as we speak and do whatever they can to cut costs.

As a result, billions of barrels of crude are not being matured while global consumption growth is still very robust. Thus, a new shortage of crude is likely to come a few years down the road. When this happens, the oil service capacity will not be there to support the growth at the pace needed. There is then a risk that we will face a new era of steep cost inflation which again will drive up oil prices too much and negatively impact the global economy.

From wiki:

Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.

Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes (also known as the BFOE Quotation). The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum.

The other well-known classifications (also called references or benchmarks) are the OPEC Reference Basket, Dubai Crude, Oman Crude, Urals oil and West Texas Intermediate (WTI).

Brent is the leading global price benchmark for Atlantic basin crude oils. It is used to price two thirds of the world's internationally traded crude oil supplies.

It looks like we have three demand regions:

• the US -- supplied by Bakken, Permian, Eagle Ford, western Canada, Mexico, Venezuela
• Europe -- supplied by Brent, Mideast
• China -- supplied by Mideast, Russia

Timing will be very interesting. The buzz in Washington is that Congress will eventually allow US exports of oil but in exchange for huge demands made by politicians. It will take awhile for the ban on US oil exports to become law -- if the timing is right, it could happen just about the time we see huge Brent supply issues as predicted by Saudi Arabia.

This is where I stand:

• $30 - $40: trading range for WTI through May, 2016
• $45 - $55: trading range during driving season, from May on, 2016
• $60 - $65: trading range after 2016 and lasting for quite some time (measured in years)