Thursday, March 17, 2016

Emergency Meeting; Iran Problem Solved; Moving From Production Freeze To Out-Right Cut -- March 17, 2016

March 17, 2016: one SeekingAlpha contributor is calling this an emergency meeting with this summary:
  • a Saudi source confirms emergency meeting
  • 15 OPEC and non-OPEC producers to attend
  • the Iran "problem" appears to be solved
  • producers' talk can support prices
  • they may even try for a cut to get relief 
That was posted yesterday. Two key words. The first "key word" was "emergency." I can't disagree. The Mideast moves extremely slowly; the next regularly scheduled OPEC meeting is this June; they easily could have waited. June is but a few months away and they could always have done things "behind doors" but now, all of a sudden, April 17th.

Second "key word": did you all catch that? Up until now it's been all about a "production freeze." All of a sudden we see the word, "cut."

And as noted on the blog the last couple of days, "the Iran problem appears to have been solved."

I think the contributor is posting with a bit of hyperbole, along my lines (LOL) but it's getting very, very interesting.

More from the linked article:
The 2016 Saudi budget assumes an average oil price just above $60. They have been bleeding $20 billion per month. They cannot possibly believe that this has been worth the small increase in market share they gained.
If other producers can collectively manage a cut of one million barrels per day, perhaps they will agree to a small 250,000 b/d cut. Together, they could get the price above $50/bbl, maybe even to $60/bbl.
The problem with Iran not participating seems to be understood due to the cut forced on them by the sanctions. The Saudis can agree to a small cut and save face.
The eventual response by the U.S. oil shale industry will take time, and they can deal with that in due course. Right now, they need relief from the bloodbath.
Let's look at that again: The 2016 Saudi budget assumes an average oil price just above $60. What has been the average price in 2016 so far, almost a full quarter in to the year? $35? That would be generous, but let's call it $35 and let's say, oil is at $50 by end of second quarter. How high would oil need to be to get an average of $60 for the year?

$60 x 12 months = $720
$35 x 3 months = $105
$40 x 1 month = $40
$45 x 1 month = $45
$50 x 1 month = $50
105+85+50 = 240
720 - 240 = 480
480/6 = 80
35, 35, 35, 40, 45, 50, 80, 80, 80, 80, 80, 80 = added together = 720 / 12 = $60 average.

Every month we fail to meet those thresholds means the price of oil must go up in December to get an average of $80/bbl.

I don't see any possible way we get to an average of $60 for the entire year, against which the Saudi budget is apparently set, $60-oil for the year.

But most interesting, historically it's been said a gazillion times, the Saudi set their annual budget based on $100 oil. If that's accurate, and if it's accurate the Saudis are setting this year's budget on an average of $60 oil, they are in deep doo-doo.

Saudi Arabia getting ready to monetize some of their midstream/downstream assets tells me one thing: it's going much more badly for Saudi Arabia than they appear to be letting on. If they thought this was going to be a short-term problem, they would try to weather the storm. Saudi says they've seen this before -- booms and busts -- but I don't recall them needing to borrow money (do you remember the $10 billion loan they were considering -- by a group of men whose religion does not condone lending) or monetizing their assets in the past. But I have a short memory and am probably wrong.

To what degree did the recent Putin announcement that his mission was accomplished have to do with this. Perhaps nothing, but in the Mideast, coincidences cannot be easily dismissed.  Quid pro quo? Russia? Saudi Arabia?

Stranger things have happened. After all, even SecState Kerry now says ISIS actions "genocidal."

Saudi, Be Afraid, Be Very Afraid

Looking for something else, I ran across these wells. Note the "test date," the IP, and the cumulative production. Thirty-second soundbite: if they want, drillers can get 200,000+ bbls of oil in less than two years from one well in the better parts of the Bakken. And I think 200,000+ bbls is a conservative estimate.
  • 25736, 2,347, Enerplus, Snow 149-93-07A-12H,  Mandaree, t6/15; cum 233K 1/6;
  • 28414, 2,204, BR, Shenandoah 44-36MBH ULW, Keene, 4 sections, t3/15; cum 229K 1/16;
  • 28334, 1,297, CLR, Salers Federal 7-2H, Antelope, t11/15; cum 90K 1/16;
  •  27457, 1,870, HRC, Fort Berthold 148-95-26B-35-9H, Eagle Nest, 47 stages, 4.7 million lbs, t1/15; cum 150K 1/16; choked way back; and still flaring;
  • 27859, 823, EOG, Parshall 57-0806H, Parshall, ICO (1920), 55 stages; 18.4 million lbs,  t12/14; cum 293K 1/16;
A digression:
This phrase originated in the 1986 horror film The Fly, written by the Canadian David Cronenberg and starring Jeff Goldblum (as Seth Brundle) and Geena Davis (as Veronica Quaife). The shortened expression 'be very afraid' was already in use in the USA prior to 1986; for example, it was used in the television series All My Children in 1970.  
Quaife is a reporter working on the teleportation story. When it becomes clear that Brundle is starting to turn into an insect, he pleads with one of the characters "don't be afraid" and Quaife's response is:
"No. Be afraid. Be very afraid."

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