Carpe Diem Post On The Shale Revolution; Peak Oil Theorists Take Note -- March 1, 2016

Be sure to check out today's Carpe Diem post on the shale revolution.

Saudi Arabia: A Failing Kingdom -- March 1, 2016

A reader sent me this link. I haven't had a chance to read this thoroughly but it looks like one of those articles that if you have any interest in geo-politics, and you have time to read only one article tonight or Wednesday, this may be the article. Archived, because this is the kind of article that sometimes gets lost.

Link here: http://www.mauldineconomics.com/download/saudi-arabia-a-failing-kingdom.

A reader sent this graphic to me. Based on the date of Brent in the original graphic, I assume this data was prepared back in 2014. I have added a thicker red line showing the futures price for March, 2016, Brent oil, from this source.

 

My hunch is that with all the commitments Saudi Arabia has accrued since 2014; the amount of money it has lost; the war in Yemen; the fact it cannot rely on the US any more and needs to beef up its security, etc., etc. that $104 figure might be a tad higher now.

Venezuela is a basket case now, of course, and whatever price oil goes to in the near future isn't going to come close to helping Venezuela.

Libya is a failed nation. One must assume that much of its income from oil is unaccounted for and ends up in bank accounts overseas.

 

Iran? Who knows? It appears they can get along without selling any oil? LOL. 

Six (6) New Permits; Whiting Reports A Big Well Wednesday -- March 1, 2016

Six (6) new permits --

• Operators: CLR
• Field: Elm Tree
• Comments: a new 6-well pad in Elm Tree; Elm Tree oil field has been updated;

Two wells coming off confidential list Wednesday:

• 29696, 2,645, Whiting, P Bibler 155-99-16-31-7-16H3A,  Stockyard Creek, 4 sections, 30 stages, 4.2 million lbs, t9/15; cum 109K 12/15;
• 31826, SI/NC, EOG, Austin 454-1510H, Parshall, no production data,

Kaiser-Francis renewed two permits, a Solo permit and a Lady4 permit, both in Stark County (#25097, #25098).

Two producing wells were completed:

• 31044, 797/PNA, XTO, Homer 14X-32AXD, Grinnell, 4 sections, t1/16; cum --
• 31583, 794, Newfield, Larsen 152-96-16-21-5HLW, Westberg, 4 sections, t1/16; cum --

Whiting canceled one permit, a Gregory Wright Federal permit in McKenzie County.

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696, see above, Whiting, P Bibler 155-99-16-31-7-16H3A,  Stockyard Creek:

Date	Oil Runs	MCF Sold
12-2015	20609	31855
11-2015	26122	33401
10-2015	18103	20711
9-2015	32346	7209

Something For The Saudis To Think About This Week -- CLR With Six (6) More Permits In The Elm Tree Oil Field -- March 1, 2016

The six (6) new permits as of today, a new six-well pad:

Date	Permit	Operator	Name Of Well	Field	Location
1 Mar 16	32573	CLR	Tarentaise Federal 1-19H	Elm Tree	Lot 4 19-153-94 387 FSL 325 FWL
1 Mar 16	32574	CLR	Tarentaise Federal 2-19H1	Elm Tree	Lot 4 19-153-94 432 FSL 325 FWL
1 Mar 16	32575	CLR	Tarentaise Federal 3-19H	Elm Tree	Lot 4 19-153-94 477 FSL 325 FWL
1 Mar 16	32576	CLR	Tarentaise Federal 4-19H2	Elm Tree	Lot 4 19-153-94 522 FSL 325 FWL
1 Mar 16	32577	CLR	Tarentaise Federal 5-19H	Elm Tree	Lot 4 19-153-94 567 FSL 325 FWL
1 Mar 16	32578	CLR	Tarentaise Federal 6-19H1	Elm Tree	Lot 4 19-153-94 612 FSL 325 FWL

This is the general area (ovals A and B) where two new CLR 6-well pads will be sited, in the far left side of the graphic. Permits issued today were for the area in oval A; permits for oval B were issued March 4, 2016. Based on the configuration, it looks like the wells will run west to east. If true, it certainly raises a number of questions.

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Cattle

Check out the breeds of cattle at wiki:

• Tarentaise cattle
• Simmental cattle
• BueLingo cattle; a great picture at this site.

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Snack Time

Sophia just heard that Donald Trump is going to win in Texas today. Or maybe it was Ted Cruz. Or maybe Ms Alyssa just announced that it was time for snacks.

US Sets Crude Oil Production Record -- March 1, 2016

Tweeting now: Petrobras to cut more rig contracts.

Tweeting earlier today:  International oil producers expected to confirm in March output freeze conditionally agreed between major exporters, Algeria's energy minister says.

According to CNN Money:

The U.S. pumped an average of 9.43 million barrels per day last year, according to new government figures. That's the highest level since 1972 and represents an impressive growth of 89% since 2008.

The crash in oil prices has caused production to slow a little in recent months. But shale oil producers have held up far better than many feared.

From EIA:

2-Minute Soundbite On Current State Of Affairs -- Crude Oil, Globally -- March 1, 2016

Updates

Later, 8:19 p.m. Central Time: see this link, also.  
 

Original Post

 

In a comment, a reader sent me the following note. It summarizes my thoughts exactly; I wish I could have been / would have been as articulate and succinct.

Here is the reader's note (some editing; original comment at this post):

1. Every oil well/field in the world is declining at 3% per year (or more).

2. The current world production is just 1% more than consumption (95 millions bbls daily, 94 consumed).

3. OPEC and Russia are producing as much as they can (Saudi Arabia might be holding back some heavy oil).

4. The GNP of all OPEC countries depends heavily on oil sales; most of Russia export income comes from oil. $90 plus per barrel is needed to keep OPEC & Russian economies at 2014 levels (according to Reuters, et al).

5. U.S. rig count has declined from nearly 2000 to less than 500 in the last two years. Our production is now beginning to decline.

6. To attract investors and give them a reasonable return, WTI will need to rise to $60 plus. $45 to $60 dollars will help in sweet-spots, but will not likely keep U.S. daily production above 10 million barrels. [Comment: nor will $45 to $60 help the Saudis or the Russians, much.]

7. $30 or less per barrel oil will likely lead to economic and political unrest in the Middle East and this could easily spread worldwide. Also, if oil production falls too much, price will quickly spike which could also likely lead to a collapse in the world economy. [We are already seeing this in Venezuela; there won't be social unrest as such in Canada, but they, too, will be severely hurt.]

Summary: We are on a slippery slope. Unless world oil demand decreases, which is not a good sign for the health of global economy, oil prices need to get back to levels that will sustain the free world oil industry and keep the GNP of many oil producing countries from remaining at unsustainable levels with political, economic, social, military, problems. $60 to $85 oil is needed for any level of normality in today’s world. When and how this works out is a multi-trillion dollar question.

My comments later, perhaps.  But that's about as good as I've seen in a 2-minute soundbite. Some will argue that Saudi Arabia and Russia are producing at near capacity, but I tend to agree with that.

$60-oil will be a huge help to US shale oil industry, but perhaps not enough to get big projects back on line. In addition, $60 oil will "help" Russia and Saudi Arabia, but the latter budgets for $100 oil and thus even $60-oil will not be seen as high enough. Consistently, Saudi Arabia suggests a minimum of $100/bbl; most recently in Houston the SA finance minister again said that "$100-oil is reasonable." Perhaps $60-oil helps stem the bleeding in Saudi Arabia but doesn't get them out of the woods, as they say.

I think the most interesting "new" development in the Bakken and perhaps all tight oil plays in the US (I don't know how Texas, Oklahoma are handling the glut), is the observation that companies, like EOG, appear to be drilling DUCs much more often that would seem prudent, but .... that leads to another discussion.. maybe later.

A huge thank you to the reader for sending that long note.

Later:  

Another reader sent this graphic to me shortly after the above was posted. Based on the date of Brent in the original graphic, I assume this data was prepared back in 2014. I have added a thicker red line showing the futures price for March, 2016, Brent oil, from this source.

My hunch is that with all the commitments Saudi Arabia has accrued since 2014; the amount of money it has lost; the war in Yemen; the fact it cannot rely on the US any more and needs to beef up its security, etc., etc. that $104 figure might be a tad higher now.

Venezuela is a basket case now, of course, and whatever price oil goes to in the near future isn't going to come close to helping Venezuela.

Libya is a failed nation. One must assume that much of its income from oil is unaccounted for and ends up in bank accounts overseas.

Iran? Who knows? It appears they can get along without selling any oil? LOL. 

Oil Patch Worries? Not For Some -- March 1, 2016

Pick-up sales in Texas doing well:

Ford Motor Co U.S. sales chief Mark LaNeve said on Tuesday that pickup truck sales in Texas have been robust despite the drop in oil prices.

Several auto dealership groups have said sales of pickup trucks as well as German luxury car sales in Texas have been pressured by lower energy prices.

Corvettes in Williston:

• 20 Corvettes available in Williston
• something tells me one can get as good a deal on Corvettes in Williston as anywhere in the US right now

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I Tend To Disagree

The Washington Post says Disneyland is "screwing" the American family.

Many years ago I thought entrance tickets to Disneyland were excessive, but not anymore. The price of tickets vary based on age, the day you go, and discounts available, but basically plan on $100/day/person. Active duty military, their families, and military retirees can get greatly discounted tickets.

Staying at a non-Disneyland motel in the immediate area will cost a family upwards of $200/night. Compare the amenities of that low-cost motel with what you get for a full day at Disneyland. And I do mean a full-day: I forget when the gates open, but 10:00 a.m. (for sure, some tickets provide early opening times) and lasts well past 9:00 p.m., after dark for the fireworks display.

Unless you live in southern California, air fare will cost $100 to $500/family traveling from inside the US. Compare the experience of that air flight with your day in Disneyland.

$100 for ObamaCare won't go far covering your monthly health care insurance premium. And compare you medical experience with your day in Disneyland.

A rental car? With insurance? Maybe $75/day for a few hours driving; compare that experience with Disneyland.

Compare the price of Disneyland with any cruise ship to the Caribbean.

Compare the price of Disneyland with any of the other theme parks or water parks in southern California and one will see Disneyland still offers the best "bang for the buck."

I think the writers at The Washington Post are forgetting that Disneyland is a unique experience. Americans must think so, too, and accept the price: some days Disneyland is so full, they have to close the gates before noon for new arrivals. And I've never been there when the traffic on "Main Street" is almost shoulder-to-shoulder.

A 3-day hopper for $255 is unbeatable for what one gets at Disneyland. A family of four ($1,000) will get three full days in the best two theme parks in the United States, or perhaps #2, second to DisneyWorld in Florida.

Trouble In Paradise -- March 1, 2016

From Yahoo!Bloomberg:

At least 100 workers at the construction site for Tesla Motors Inc.’s battery factory near Reno, Nevada, walked off the job Monday to protest use of workers from other states, a union official said.

Local labor leaders are upset that Tesla contractor Brycon Corp. is bringing in workers from Arizona and New Mexico, said Todd Koch, president of the Building and Construction Trades Council of Northern Nevada.

Business Insider Provides Update On Saudi's Sad Situation; Another Nominee For The 2016 Geico Rock Award -- March 1, 2016

From Business Insider:

Saudi Arabia, whose economy has taken a beating in recent months thanks to the crash in oil prices, just got another terrible piece of news.

On Monday, HSBC economists Simon Williams and Razan Nasser dropped a note on the country's foreign-exchange holdings, and things look pretty dire for the oil-reliant nation.

It shows that FX reserves dropped by more than $14 billion (£10.1 billion) in January, falling to their lowest level in nearly three years.

The amount of reserve assets held by the Saudi government now stands at $602 billion (£434.5 billion), nearly $150 billion (£108.3 billion) down from its recent peak in late 2014, just before oil prices started plummeting.

Here's the chart:

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Why Saudi Arabia can't control the oil supply any more. Link here. This was taken directly from Mauldin's Economics.

• 1. The US
• 2. OPEC cheating
• 3. US - Iran deal
• 4. US production in the market (I'm not sure how this is different from #1)

What this means for Saudi Arabia:

Even with a 25% budget cut, Saudi Arabia would have just three to five years of reserves and borrowing available at $30 oil. We note that several respected investment banks are projecting that oil will fall to $20 this year. [Old news; not gonna happen.]

If a crisis in Europe or China were to even slightly reduce global demand, $20 oil seems a very real possibility.

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Another Nominee For the 2016 Geico Rock Award?

I can't make this stuff up. The Peak Oil blog is still up. I don't know if the linked story is even worth reading, but just the fact that Peak Oil is still up and running is beyond the pale.

Heavyweight oil producer group OPEC stepped into the ring with young upstart US shale back in November 2014 and delivered its best shot.

Led by prizefighter Saudi Arabia, it decided not to cut output in hopes of arresting the slide in prices, but, in an attempt to floor the relatively high-cost producer, declared it would defend its ground.

Fast forward 13 months and unconventional crude supply is down but not out. And OPEC, whose membership has been split down the middle by a policy aimed at clawing back market share from what has proved to be a resilient opponent, must be wondering whether it has all been worth it — especially after having read the International Energy Agency’s latest medium-term forecasts.

The IEA expects US light tight oil output to start recovering in 2018 after a 600,000 b/d decline in 2016 and a further 200,000 b/d drop next year. It sees US light tight oil reaching 5 million b/d by 2021, up from 4.23 million b/d in 2015 as oil prices recover and technology continues to improve.

Indeed, OPEC is now in a predicament of its own making. It and Saudi Arabia have regularly stipulated over the past 13 months that OPEC will not cut output unilaterally but is willing to work with independent producers towards a stable market. But no one has shown willing to cut production and the talk now is of an output freeze, as proposed by non-OPEC Russia, Saudi Arabia and two other OPEC members, Venezuela and Qatar.

We Start "Super Tuesday" At Record Post-Boom Low Of Active Rigs -- March 1, 2016; GM Slumps

US auto sales are crushing expectations -- Business Insider. GM's headline not so good.

Ford posts best February US retail sales in 11 years. Link here. 

Auto sales: live.

• Fiat Chrysler: +11.8% (+9.2% expected)
• Nissan: +10.5% (+7.2% expected)
• Ford: +20.2% (12.6% expected)
• GM: -1.5% (+5.1% expected) 
• Honda: +12.8% (8.8% expected)
• Mazda: -16%
• Volkswagen: (-13%)
• Toyota: +5.2% (+4.9% expected)

Iditarod race starts March 5. Kelly Maixner, of Beach, ND, will be competing again. In 2015, Maixner finished in 13th place, and his competitive spirit was rekindled.

On Saturday, he and his 16-dog team will hit the trail in his sixth start and, this year, he says he has the team to make a serious run at winning it all.

From his home in Big Lake, Alaska, Maixner said the team he is taking to the starting line in Anchorage is more mature and experienced than other teams with which he has run. In previous races, his team consisted mostly of 2- to 4-year-olds. This year, his oldest dog is 7 and the youngest, 3.

Maixner's bio can be found here.

Minot's new air terminal opened today: The Dickinson Press reports --

Minot’s new $43 million airport terminal opened Monday morning with a 5 a.m. Delta Airlines flight to Denver.

The new terminal is triple the size of the former terminal and is one of the most modern in the country with new technology and spaciousness for travelers.

The overall airport improvement of $75.7 million also includes a new apron, snow removal building and parking lot. The terminal can also add additional gates in the future to accommodate further growth in boardings.

Active rigs:

	3/1/2016	03/01/2015	03/01/2014	03/01/2013	03/01/2012
Active Rigs	35	119	192	183	204

RBN Energy: Torn Between Two Fossil Fuels—Update On The Natural Gas Challenge To Coal Generation.

For the first time ever, U.S. natural gas-fired power plants are routinely generating more electricity than their coal-fired counterparts, at least during the spring, summer and fall. Prior to 2015 coal held a clear lead over natural gas in power generation but last year they were neck and neck at 33% of fuel consumed for power generation according to the latest Energy Information Administration (EIA) statistics released Friday (February 26, 2016). This is partly due to tightening federal environmental rules, but another major driver is very low natural gas prices, which have been averaging below $2/MMBtu. Coal prices have been falling too as coal markets respond to stronger-than-ever competition from gas, but not enough to prevent a lot of coal-to-gas switching in the power sector. Today, we update last fall’s analysis of the death-match battle between coal and natural gas with a look at how persistently low gas prices may keep gas on top.

In April 2015, U.S. power plants fired by natural gas produced more electricity than coal-fired plants—that had never happened before. Coal retook the lead in May and June, but since then gas has remained on top, and in some months gas’s edge over coal has been significant. In October, for example, gas-fired units generated 35% of the nation’s power, compared with 31% for coal, and in December--the latest month for which EIA statistics are available—the score was gas 34%, coal 28%. What a difference a year makes. In October 2014, coal-fired generation held a huge 38%-to-27% edge over gas, and the following month coal’s margin over gas was a still-significant 35% to 31%. As we discussed back in September 2015 – the last time we looked at the contest (see Torn Between Two Fossil Fuels) - as recently as 2008 coal-fired units were producing more than twice the electricity that gas units did. Since then, U.S. production of natural gas has continued growing, natural gas prices (which spiked to more than $13/MMBtu in 2006) have fallen (and become less volatile), and federal rules on power plant emissions have been tightened considerably, with possible implementation of the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP)—a potential game-changer for coal and gas—looming.

Last September we also discussed the final version of the CPP (whose implementation the U.S. Supreme Court blocked on February 9, 2016 with a “stay” until legal challenges to the CPP play out), which calls for reducing the power sector’s carbon dioxide (CO2) emissions by 32% from their 2005 levels by 2030, mostly through the expanded use of wind and solar power. If the CPP is implemented, EPA expects coal’s share of total generation to decline to 27% in 2030 (from an average of 33% in the 12 months ended December 2015) and gas’s share to inch up to 33% (from 32% in the December 2014-November 2015 period). 

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Notes From All Over

Only 15 percent say they have benefited from ObamaCare -- Politico:

Twenty-six percent of U.S. adults say they have been personally harmed by the healthcare law since its passage — a fraction that likely reflects those in the poll who said they have noticed rising healthcare costs in the last several years.

And while the majority of adults said they believed their healthcare costs were “reasonable,” many said those costs were becoming less affordable over time.

Housing starts off slowly in the New Year -- WSJ:

Sales of previously owned homes slowed in January, a reflection of the rising prices and tight supplies that could constrain the housing market this year.

Existing-home sales fell 4.9% last month from December to a seasonally adjusted annual rate of 4.82 million, the National Association of Realtors said on Monday, the slowest pace in nine months.

I'm not sure how this got past the Los Angeles Times censor. Perhaps the economy is not as good as the LA Times would have us believe. Why millennials are still staying away from home ownership: no jobs and not much availability in price range needed.

Shale production to decline significantly. On November 7, 2015, I posted that Bakken oil production will fall to 750,000 bopd (from current one million bopd) by the end of 2016. Apparently January, 2016, North Dakota crude oil production will slide to 850,000 bopd (reader-sources; not verified; no link). WSJ:

Some of America’s biggest shale producers are beginning to ratchet back oil and gas production for the first time in years, bending to the reality that a global glut will keep prices depressed.

The production cuts, announced as shale companies reported dismal earnings in recent days, stand in stark contrast to the past year, when many U.S. drillers kept the taps turned on even as oil prices plunged from nearly $100 a barrel to about $30. American oil satisfies 10% of the world’s daily needs, putting U.S. production on par with output from Russia and Saudi Arabia.

The Organization of the Petroleum Exporting Countries continues to pump at full tilt, further pressuring higher-cost operators such as U.S. shale producers. Last week, Saudi Arabia oil minister Ali al-Naimi bluntly told a roomful of energy executives in Houston that the supply problem will only be resolved when low prices force companies to stop producing the oil that is most expensive to extract and sell.

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February Car Sales

Ford posts best February US retail sales in 11 years. Link here.  

• U.S. sales of 217,192 Ford Motor Company vehicles up 20 percent versus last year 
• Ford brand SUVs post best-ever February sales – Edge increases 91 percent, Explorer jumps 18 percent and Escape gains 14 percent 
• Ford F-Series has best February performance since 2006, with sales up 10 percent; Transit sales up 70 percent – best February van performance since 1979 
• Lincoln total sales jump 30 percent – MKX sales increase 109 percent, providing Lincoln with its best February SUV performance in 15 years

WSJ: Fiat Chrysler U.S. Auto Sales Jump 12%. Presidents Day promotions and pent-up demand fuel strong results. (Forecast: +9.2% expected.)

Analysts are forecasting a blockbuster month for U.S. new-car sales. Edmunds and TrueCar are predicting auto makers will post their highest February volume in more than 15 years, with the annualized selling rate expected to hit or exceed 17.5 million.

Fiat Chrysler sold 182,879 vehicles in January, compared with 163,586 for the month last year, extending the Italian-U.S. auto maker’s sales gains streak to 71 months. Jeep brand sales shot up 23%, with the Cherokee, Wrangler, Patriot and Compass recording their best February ever. Dodge brand sales, meanwhile, picked up 12% with the Journey and Challenger also logging their best-ever sales for the month. 

Jeep's sales rise 23 percent:

Sales for Jeep's six SUV models rose 23 percent, the company said on Tuesday, matching the gain for Ram pickup trucks. Fiat Chrysler posted its best February sales in a decade and its 71st consecutive year-over-year monthly gain.

24/7 Wall Street: Ford Motor sales to surge 12% in February --

Automakers will be releasing February sales numbers on Tuesday, March 1, and most industry analysts are expecting solid gains compared with February of 2015. Kelley Blue Book has pegged volume growth for Ford Motor Co.  at 12.4% on sales strength of its full-size pickups and sport utility vehicles (SUVs). KBB also estimates that Ford’s market share will increase year over year from 14.3% to 14.7%.

Analysts at Edmunds.com think that Ford will do even better, growing volume by 17.1% year over year in February and by nearly 22% compared with January 2016. The analysts also see Ford adding 1.2% to its market share in February, rising from 14.3% a year ago to 15.5%.

Automotive News: February US sales pace may be highest for month since 2000.

U.S. auto sales, after being slowed last month by winter storms, are on pace to reach the highest level for any February since 2000, some forecasts released this week show.

Purchases delayed from January and a bevy of Presidents Day deals are likely to push February sales up about 8 percent. That would result in a seasonally adjusted, annualized selling rate of 17.7 million units, up from 17.6 million in January and 16.4 million a year ago.

TrueCar said it expects sales this month to climb 6.6 percent higher than February 2015, with a SAAR of 17.5 million. Kelley Blue Book was more optimistic, projecting a 9 percent gain and a SAAR of 17.9 million.

The February 2000 SAAR came in at 18.9 million.

January and February are typically the two weakest months of the year. Since 1989, February sales have been an average of 13 percent better than January, but this year’s forecasts call for a month-over-month increase of about 18 percent. Sales tend to pick up significantly in March as the traditional spring selling season begins.

Auto sales: live.

Analysts forecast that auto sales rose at a seasonally adjusted annual rate of 17.70 million, up from 17.46 million in January.

The year kicked off with sales growing at the fastest pace since 2000. And so this forecast increase would maintain a solid couple of months for car sales, following the post-recession high that was recorded last year.

No link: Moodys and Deutsche Bank forecast 2016 car sales to do well in 2016, but not match 2015 record; and then "stall" in 2017 because pent-up demand will have been met by end of 2016.