Tuesday, June 16, 2020

Saudi Arabia's Plan To Flood The US With Oil Was Successful -- But The Kingdom's Plan Backfired -- June 16. 2020


June 19, 2020: how Saudi Arabia caused the worst oil price crash in history; link here.

Later, 2:27 p.m. CT: see comments. Reader refers us to WSJ article regarding OPEC demand forecast:
The global oil market is slowly starting to rebalance thanks to production cuts and relaxing coronavirus lockdowns, but the industry is still swimming in excess supply, the Organization of the Petroleum Exporting Countries said Wednesday, June 17, 2020.
In its widely scrutinized monthly report, OPEC left unchanged its forecasts that the world’s demand for crude will fall by 9.1 million barrels a day in 2020 and plunge by 17.3 million barrels a day in the second quarter.
“Following an unprecedented and highly turbulent [first half of 2020] due to the enormous impact of COVID-19 on the global economy and oil market fundamentals, the dust is starting to settle,” the cartel said in its report.
The lifting of pandemic-motivated restrictions and monetary stimulus potentially amounting to a quarter of global gross domestic product will allow global growth to rebound in the second half of the year, and the oil sector with it, OPEC said.

Original Post

This is a very, very interesting analysis.


Bottom line: the Saudi attempt to flood the US with oil was successful; but Saudi's plan backfired.

Link here. The article in its entirety is also posted here.
After flooding the U.S. with crude earlier this year, Saudi Arabia has all but cut off the taps to the American oil market.

The kingdom has exported just one cargo to the U.S. so far in June, equivalent to about 133,000 barrels a day.
That’s about one-tenth of the 1.3 million barrels a day it shipped in April, when Riyadh flooded the global market during a brief price war against Russia.

If the low pace of exports is sustained in the second half of the month, U.S. imports of Saudi crude could drop to the lowest level in 35 years, helping the American crude market re-balance.

“Saudi oil arrivals will fall just as domestic refiners will start raising runs and domestic production continues to decline,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “U.S. refiners will have to import from elsewhere and run down stocks,” she added.

To be sure, several Saudi tankers haven’t yet indicated their final destinations, so the final tally into the U.S. could be a tad higher. Yet, the trend so far in June is unmistakable: the deluge of Saudi oil that threatened to overwhelm American refiners is dwindling.

Saudi oil industry officials, speaking privately, say the kingdom is unlikely to boost shipments into the U.S. in the second half of the month and into July. By slashing U.S. crude exports, the Saudis can influence the most highly visible oil market in the world as American customs data allow for near real-time monitoring of shipments. Less Saudi petroleum is likely to reduce the closely watched American crude stockpiles, amplifying the price impact.

The recent inundation of Saudi crude in the U.S. is largely the lingering effect of a price war earlier this year. For much of 2019 and early 2020, Saudi Arabia shipped relatively little crude into America, with average arrivals running at about 475,000 barrels a day, according to U.S. government data. But that changed in April, when Riyadh opened the taps after failing to reach an agreement with its OPEC+ partners to cut production.

Saudi crude takes about 45 days to reach the U.S. Gulf of Mexico and the U.S. West Coast, so the impact of the April export flood wasn’t felt until late May and early June, when U.S. imports of Saudi crude jumped to about 1.5 million barrels a day. As the Saudi tankers unloaded their cargo, U.S. crude stocks climbed to a record high, putting pressure on oil benchmarks.

In early April, once the devastation wrought by the coronavirus on oil demand became evident, the OPEC+ alliance set aside its differences, embarking on record output cuts. Riyadh cut oil shipments to the U.S. to 645,000 barrels a day in May, tanker-tracking data show. That drop would become apparent in the second half of June and early July as the vessels arrive on U.S. coasts.

The further export drop in the first half of June would become apparent in the second half of July. As of June 10, the U.S. had received almost 10 million barrels of Saudi crude, compared with 16.9 million barrels for all of June last year, according to U.S. Customs data by Bloomberg and figures from the Energy Information Administration.

This declining trend is set to continue.
Most American refiners nominated to take less supply than their respective contracted volumes for July loading. The development comes as the latest official selling prices for Saudi crude are now at the highest level since the kingdom’s price war with Russia in March. Record high domestic crude inventories may also have diminished interest. In addition to slashing U.S. shipments, the kingdom this month has curbed exports to China to about 1.3 million barrels a day through June 15, compared with almost 2 million on average in May. Exports to India and Japan have increased so far this month, however.

Wuhan Flu -- Worldwide -- By Country -- Ranked By Total Number Of Cases Per Capita -- Qatar #1 -- June 16, 2020

Another Surprise Build; Three New Permits For Slawson -- June 16, 2020

Another "surprise" crude oil build. It's always a surprise, isn't it? LOL.
  • forecast: a small inventory draw of 152,000 bbls (wow, talk about false precision)
  • actual: a build of 3.857 million bbls
  • that was the API weekly report
  • tomorrow, Wednesday, we get the EIA report
Back to the Bakken

Active rigs:

Active Rigs1361625728

Three new permits, #37640 - #37642, inclusive, June 16, 2020
  • Operator: Slawson
  • Field: Big Bend (Mountrail)
  • Comments:
    • Slawson has permits for three Genesis/Genekat Federl (sic)/Genekat Federl (sic) wells in SWSW 13-152-92:
      • Gnesis 1 SLH, SWSW 13-152-92, 256' FSl 1251' FWL,
      • Genekat Federl (sic) 4-13-12TFH, SWSW 13-152-92, 256' FSL 1276' FWL,
      • Genekat Federl (six) 5-13-12TFH, SWSW 13-152-92, 256' FSL 1326' FWL
SWD well permitted:
  • 37643, Hess, BL-Farmvale 57-106 SWD1, SWSW 13-155-96, Beaver Lodge, Williams County;
Four producing wells (DUCs) reported as completed:
  • 36617, SI/NC, MRO, Easton 44-20H, Murphy Creek, t--; cum 103K 4/20;
  • 36618, conf, Petroshale, Anderson South 2TFH, Croff, no production data,
  • 36197, SI/NC, MRO, Reagan 14-21H, Murphy Creek, t--; cum 103K 4/20;
  • 35035, SI/NC, XTO, FBIR Youngbear 31X-9D, Heart Butte, t--; cum 82K 4/20;
The Slawson Permits

The graphic:

Exxon Forced To Cut Production In Guyana -- June 16, 2020

Exxon forced to cut production in Guyana due to .... drum roll ... due to the risk of excessive flaring. Previously posted.

From the link:
Exxon had assured the Guyanese environmental protection agency it will stop flaring after those 2 billion cubic meters, which were flared at the startup phase of the Liza project. Instead, the company said, it will reinject the gas into the well.
Now it seems there have been problems with the gas reinjection equipment, according to the Reuters report, which has prompted a production cut to 25,000 to 30,000 bpd last week. This is down from 75,000 to 80,000 bpd a month earlier. The June average was planned to be raised to 120,000 bpd, although how good an idea production growth would have been in the current price situation is an open question.
Guyana rose to fame in the oil industry after Exxon, in partnership with Hess Corp., made a string of discoveries off its coast that tapped reserves estimated at more than 5 billion barrels.
For newbies, to put that in perspective: the Bakken is estimated to have 500 billion bbls of original oil in place. At a 10% recovery rate in primary production that equates to 50 billion bbls of oil.

NDIC Errors, Ommissions, Inconsistencies Increase Significantly -- Daily Activity Reports And Scout Tickets Disconnect-- June 16, 2020

NDIC has apparently quit reporting wells that should have come off the confidential list. Seven wells have dates suggesting they have come off the confidential list since June 13, 2020. None of them have been reported. 

NDIC scout tickets incomplete, duplicate permit numbers being recorded.
  • the permits recorded as issued to BR in yesterday's daily activity report do not have corresponding scout tickets, permits #37631 - #37539, inclusive, as reported by yesterday's daily activity report;
  • permit #37631 is double-booked: it is a permit for BR Cherry well (yesterday's daily activity report) as well as a permit for an Equinor well (State 36-1 8H) according to the scout ticket with a status date of 6/10/20, which I believe corresponds to the date of the daily activity report where it first appears as a permit;
  • the following new permits reported by a daily activity report last week do not yet have corresponding scout tickets: #37626 -  #37629, all Equinor permits according to the daily activity report; these are permits for Equinor State permits in SESW 25-155-100, Stony Creek; those sites do not yet show up on the NDIC map; there are two wells in the area:
    • 18014, 1,075, Zavanna, Bobcat 1-25H, Stony Creek, t1/10; cum 203K 4/20; a short lateral, single section well, sited in SWSW 24-155-100 but spacing unit is section 25-155-100;
    • 18307, 3,236, Equinor, State 36-1 1H, Stony Creek, t1/10; cum 382K 4/20; this is likely to be the parent well, or the well holding the lease by production for the four, five, or six new State permits issued to Equinor for this drilling unit;
  • I assume the scout tickets are linked to the NDIC map; if so, the NDIC map will also have errors
Compare these two screenshots, the permit numbers and the wells:

Seven Wells Yet To Report -- June 16, 2020

Pipeline: US Supreme Court upholds permit for Atlantic Coast Pipeline. In a "normal" world this would have implications for the DAPL. But it's not a normal world.

Bankruptcy: Extraction Oil & Gas files for bankruptcy.

BP: writes off billions.
BP Plc will make the biggest write down in a decade on the value of its business, as the British oil major predicts the coronavirus pandemic will hurt long-term demand and accelerate the shift to cleaner energy.
The company sees oil and gas being about 20% to 30% cheaper than before on average, and also expects the cost of carbon emissions to be more than twice as high.
In response, BP is undertaking a review of its projects that could result in some oil discoveries being left in the ground. This risk, of so-called stranded assets, is an issue of growing importance as the industry grapples with fundamental shifts in energy consumption trends.
Oilprice headlines:
OPEC basket, link here: $35.00. There are a ton of articles/headlines out there about how much OPEC is cutting and how much US shale production will drop in July, and yet, OPEC can't get the price of oil to $40.

Urals sour: down 5%; down $2.00; trading at $38.70.

Back to the Bakken

Active rigs:

Active Rigs1361625728

Seven wells yet to report:

Tuesday, June 16, 2020: 39 for the month; 184 for the quarter, 411 for the year:
37214, conf, CLR, Burian 3-27H1,
36878, conf, Equinor, Domaskin 40-31 4TFH
36075, conf, BR, CCU Zephyr 14-29TFH,

Monday, June 15, 2020: 36 for the month; 181 for the quarter, 408 for the year:
36879, conf, Equinor, Jack Cvancara 19-18 XE 1TFH, Alger,
36076, conf, BR, CCU Zephyr 14-29MBH, Corral Creek,

Sunday, June 14, 2020: 34 for the month; 179 for the quarter, 406 for the year:

Saturday, June 13, 2020: 34 for the month; 179 for the quarter, 406 for the year:
37193, conf, CLR, Wiley 14-25HSL, Pershing,
35959, conf, Whiting, Arndt 14-5-2XH, Sanish, see this note;

RBN Energy: the Brent complex, linkages that make it work and implications for global markets, part 2. Archived.
Brent is by far the most important crude oil benchmark in the world, with well over 70% of all global crudes tied either directly or indirectly to the North Sea crude’s price. But the original Brent crude oil production is almost played out, with all of the offshore Brent producing platforms soon to be decommissioned. This might seem to be a big problem, but in the world of crude oil trading, it is a total non-issue, because Brent is no longer simply a grade of crude oil. It is a multi-layered matrix of trading instruments, pricing benchmarks, and standard contracts linked together by price differentials traded across a number of mechanisms and platforms that form the foundation of a robust, vibrant, and extremely important marketplace. Today, we delve further into the mechanics of the Brent complex, the key components that make it work, and the transactional glue that binds them together