OPEC Crude Oil Slides Below $30 -- Lowest In Almost 12 Years -- January 7, 2016

Bloomberg/Rigzone is reporting:

The price of crude sold by OPEC members slid below $30 a barrel, the lowest level in almost 12 years, as turmoil in Chinese markets deepened the global commodities rout.

The daily basket price of crudes produced by the 13 members of the Organization of Petroleum Exporting Countries fell to $29.71 a barrel on Wednesday, down from $31.21 the previous day, the group said in an e-mailed statement.

That’s the lowest level since February 2004, according to data compiled by Bloomberg. Oil has slumped further this week as a selloff in Chinese markets added to concerns about the strength of the nation’s economy.

WTI crude, the U.S. benchmark, has had its worst-ever start to the year, deepening the economic pain for OPEC’s weaker members such as Venezuela.

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

Bogus? CYA? Political?

Bloomberg/Rigzone is reporting that the EPA may revise "safety" findings regarding fracking.

When the agency took a broader look at the entire water cycle around fracking -- from getting water supplies to disposing of fluid waste -- it documented instances where failed wells and above-ground spills may have affected drinking water resources.

Sounds fair and balanced. 

WSJ's Jenkins Says Record Low Oil Prices Due To Global Instabiltiy; Doesn't Mention The Bakken -- January 6, 2016

Here we go again.

I think this is the third time I've posted the graphic above.

I thought of this graph after reading this op-ed in today's WSJ. I like Holman Jenkins. He is definitely smarter than I on these things, so I have to assume he is correct on this issue and I am wrong.

I may have misread his op-ed but I understand him to be saying that the rivalry between Saudi Arabia and Russia is the reason the price of oil is plummeting, rather than the oft-stated reason that it's the other way around, that the low price of oil has brought on the rivalry between Saudi Arabia and Russia. I may have that wrong, but the story is at the link.

The article started off nicely:

Since 1918 and the full flowering of the automobile age, the average U.S. domestic price of gasoline has rarely fallen below $2 or risen above $4 as measured in 2015 dollars. At today’s price of $1.99, gasoline is approaching its all-time low in inflation-adjusted terms.

In 1965, gasoline sold for 30 cents. In 1965 dollars, today’s price is 26 cents. So, yes, the current oil price depression is not ordinary.

Those who see a price recovery coming soon note that expensive projects to wring oil from Arctic waters or Canadian oil sands or the deepest Gulf of Mexico are being halted. Once halted, they won’t easily be restarted, so oil in the future will be undersupplied once today’s excess inventories are burned off and producers are done eking out revenue based on capital they’ve already spent.

This:

Saudi Arabia, which peak oil theorists insisted was on the verge of exhausting its major fields, recently tweaked production to a record-beating 10.5 million barrels a day, low prices be damned. The motive: Riyadh’s undeclared war against Iran and Iran’s ally-of-the-moment, Russia.

Then this:

Russia, whose energy development was expected to decline once sanctions cut it off from Western capital, surprised many by setting a post-Soviet record of 10.8 million barrels a day in December.

Jenkins conveniently forgets to mention that North Dakota oil production increased more than one-half percent month-over-month in October, 2015 (most recent data available) despite:

• huge cutbacks in well completions
• huge drop in the number of rigs
• huge drop in new wells being spud

Jenkins may be correct; that the low price of oil is due to Russia's record-setting production and Saudi Arabia's production. Something tells me Saudi Arabia sees it differently.

By the way, Russia may have set a record, but annual production barely budged. The same goes for Saudi Arabia.

Jenkins mentions "shale" once in passing, but not in the sense that shale had anything to do with low oil prices.

The Brits Continue To Follow The Bakken -- December 29, 2015

The [London] Guardian reports:

Mining layoffs hit the self-styled “legendary” state, with about 10,000 total jobs lost over the past 12 months ending in October, but the total unemployment rate in North Dakota is 2.8%, far below the 5% average nationwide.

Home to a large part of the Bakken oil field – one of the largest contiguous deposits of oil and natural gas in the United States – North Dakota is still riding the wave of the biggest oil boom in a generation.

Infrastructure construction for both the oil industry and for town improvements continues in south-west North Dakota where the Bakken oil field is located as projects that were fully funded before oil prices tanked are still being completed.

But if oil prices remain at the current six-year low of around $35 a barrel, 2016 could bring some pain. Low oil prices led Moody’s Analytics to forecast that North Dakota “will underperform the nation for the next several years [and] will flirt with recession through early 2016.”

The impact of low oil prices on the state is starting to trickle in. News reports citing North Dakota’s budget director said as of November, state tax revenues since July are $152m below forecast, with sales tax collections and corporate income tax collections down.

Slightly offsetting that are stronger-than-expected individual income tax collections.

Again, no denominator when citing the state tax revenues $152 million below forecast.

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

Scottish Lunch

That's an old photo of one of my favorite snacks: herring. Actually I'm having tuna fish on toast and non-caffeinated, diet Coke, otherwise known as colored water with artificial sweetner.  The [London] Guardian story reminded me of the photo.

Tuesday, December 29, 2015; The Beginning Of The End Of "Free Money" In Saudi Arabia

Updates

January 1, 2016: from a couple of days ago in Financial Times (if you hit a paywall google saudis face fuel price jump under):

Saudi Arabia, which spent around $107bn, or 13.2 per cent of gross domestic product, on energy subsidies in 2014, is one of the world’s biggest consumers of energy, with rock-bottom prices fostering excessive consumption.

Later, 9:53 a.m. Central Time: from the AP:

Saudi Arabia on Monday said this year's budget deficit amounted to $98 billion (367 billion riyals) as lower oil prices cut into the government's main source of revenue, prompting the kingdom to scale back spending for the coming year and hike up petrol prices.

A royal decree announced that petrol prices would go up by 50 percent effective Tuesday. Even with that jump, Saudis will pay just 24 cents (0.90 riyals) for a liter of 95 octane gasoline, less than a dollar per gallon. The Saudi-based Jadwa Investment estimates the government spends around $61 billion on energy subsidies annually, almost $11 billion of that on gasoline alone.

For two consecutive years the kingdom has posted a deficit, and it is planning for another budget shortfall next year, projected at $87 billion (326 billion riyals).

It's hard to believe it won't be worse in 2016: low oil prices could get lower, and that pesky war in Yemen, President Obama's "poster-child" success story in the Mideast.

Original Post

 

From Bloomberg/Rigzone:

Confronting a drop in oil prices and mounting regional turmoil, Saudi Arabia reduced energy subsidies and allocated the biggest part of government spending in next year’s budget to defense and security.

Authorities announced increases to the prices of fuel, electricity and water as part of a plan to restructure subsidies within five years. The government intends to cut spending next year and gradually privatize some state-owned entities and introduce value-added-taxation as well as a levy on tobacco.

The biggest shake-up of Saudi economic policy in recent history coincides with growing regional unrest, including a war in Yemen, where a Saudi-led coalition is battling pro-Iranian Shiite rebels.

In attempting to reduce its reliance on oil, the kingdom is seeking to put an end to the population’s dependence on government handouts, a move that political analysts had considered risky after the 2011 revolts that swept parts of the Middle East.

“This is the beginning of the end of the era of free money,” said Ghanem Nuseibeh, founder of London-based consulting firm Cornerstone Global Associates. “Saudi society will have to get used to a new way of working with the government. This is a wake-up call for both Saudi society and the government that things are changing.

Having said that, it's going to be a rough, rough year for American drillers, as well. Also from Bloomberg/Rigzone:

The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016.

That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil, depressing prices and pressuring the world’s high-cost producers.

It’s a high-risk strategy, one whose success will ultimately hinge on whether shale drillers drop out before the financial pain within OPEC nations themselves becomes too great.

Drillers including Samson Resources Corp. and Magnum Hunter Resources Corp. have already filed for bankruptcy. About $99 billion in face value of high-yield energy bonds are trading at distressed prices. The BofA Merrill Lynch U.S. High Yield Energy Index has given up almost all of its outperformance since 2001, with the yield reaching its highest level relative to the broader market in at least 10 years.

“You are going to see a pickup in bankruptcy filings, a pickup in distressed asset sales and a pickup in distressed debt exchanges,” said Jeff Jones, managing director at Blackhill Partners, a Dallas-based investment banking firm. “And $35 oil will clearly accelerate the distress.”

Shale drillers aren’t the only ones hurting. OPEC’s strategy is causing pain for its members. Saudi Arabia is said to be considering selling stakes in state-owned companies to help stem a budget deficit that reached 20 percent of its economy.

Venezuelan Oil Minister Eulogio Del Pino said the industry is “at the door of a catastrophe” if crude production outstrips storage capacity.

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

Note To The Granddaughters

Everyone got back from the ski trip in great shape -- including 17-month-old Sophia. Apparently in the past few days she has really been learning and saying new words. One of the new words is "cheese" because she hears "Say 'cheese'" whenever photographs are being taken and folks are being reminded to smile.

She now carries "old-fashioned" receivers around (see photos below) and constantly repeating "cheese." Apparently she thinks that all phones/receivers are cameras. She was born in the iPhone / camera era.

So, she walks around hotel rooms carrying disconnected receivers, taking selfies. (Photographs below have been previously posted.)

Mark Perry's Energy Graphs And His Saturday Afternoon Links -- As Good As Always -- December 28, 2015

Mark Perry's Saturday afternoon links are priceless. Enjoy. I had forgotten all about the other holidays this past week; I'm glad I was reminded.

This link just appeared on the Drudge Report:  Oil slump weighing on housing markets in Texas, North Dakota. If hit by a paywall, simply google the headline as posted. It's pretty much a non-story for North Dakota; it must have been a slow news day. I can't speak for the Texas housing market. Things seem high here.

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)

As Predicted, Canadian Oil Sands Being Hit Harder Than US Shale Counterparts -- November 19, 2015; Permian Doing Well

Bloomberg/Reuters is reporting:

Threatened by surging production from North America, the Organization of Petroleum Exporting Countries has been pumping above its quota for 17 months as it seeks to take market share from higher-cost regions. The resulting 60 percent price crash is hitting Alberta harder than Texas.

Canadian producers are struggling to cut the cost of extracting bitumen from the oil sands, and their other wells are failing to match the efficiency gains of U.S. rivals.

While output keeps rising in the Permian Basin, the largest U.S. shale play, companies are slowing output from wells in Alberta and have shelved 18 oil- sands projects during the downturn.

“OPEC wants to hinder shale from its strong growth trajectory but there are higher-cost producers, such as in the oil sands of Canada, that are in the line of fire,” said Peter Pulikkan, an analyst at BI in New York. “Shale will eventually be impacted but it’s not the first on the list.”

In a policy shift a year ago, the 12-nation cartel decided against propping up oil prices, keeping its output target at 30 million barrels a day even as the supply glut worsened. It has exceeded that ceiling since June 2014 and pumped 32.2 million barrels a day in October.

In Alberta, high extraction costs and oil price discounts relative to global benchmarks are poised to continue crimping output.

Production, excluding bitumen extraction, dropped about 13 percent this year through July, That compares with a roughly 19 percent increase in output from Permian wells over the same period.

Reporters With Blind Spots -- November 15, 2015; Cheap Gas Means One Meal Out/Month For Family Of Four -- Big Deal

Another example of a reporter (or reporters) having a blind spot):

Headline in yesterday’s WSJ, November 14, 2015, front page, below the fold: “Cheaper Oil Fails to Yield Holiday Cheer for Retailers.”

The writers note that the protracted slide in oil prices is delivering little of the expected benefit to US retailers. There are two points to make here. First, the price of oil, which we’ve talked about many times before. Second, the blind spot, which we've also talked about before.

12,000 miles per year — at least that’s what everyone tells their insurance company. At 30 mpg that works out to about 400 gallons of gasoline / year. At $3.59 / gallon that works out to $1,436. At $1.89 / gallon that works out to $756. The delta is $680 or $60 / month or $2 / day, exactly the cost of a tall Starbucks coffee. Sixty bucks is one meal for a family of four at Applebee’s. Inexpensive gas is not the issue.

By the way, with gas so inexpensive, people are driving more, so let’s say that 12,000 miles/year becomes 14,000 miles / year. That works out to 467 gallons / year or $882 (at $1.89/gallon). $1,436 - $882 = $550 / year extra, even less than the $680 quoted above.

Bottom line: analysts are putting too much emphasis on the price of gasoline. I can guarantee you that the savings in energy won’t trickle down to how much you pay for a bag of potato chips.

What surprises me is that even the Wall Street Journal misses the bigger story. Let’s say that retailers are not seeing the benefits of cheaper gasoline. Why? One word: ObamaCare.

Almost everyone who puts 12,000 miles on their SUV are also seeing a $500 increase in their ObamaCare monthly premiums.

Another example of East Coast reporters, young, no families, no experience running a business and completely missing the impact ObamaCare has on middle America. A blindspot.

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

OPEC: A Sham

We are now seeing that OPEC was a sham ever since it was created; it is run by Saudi and Saudi alone.

When "OPEC" controlled things, the various members produced well beyond their quotas and Saudi simply looked the other way; they were making so much money, anyway.

Now that we have a real glut and every last OPEC country wants quotas / production cut way back, there's only one country -- Saudi Arabia -- saying they won't cut production.

It was always obvious to anyone paying attention, but it's now obvious to even those who don't pay attention, there is no OPEC. Simply Saudi Arabia.

Venezuela. Tick, tick, tick.

November 10, 2015

Active rigs:

	11/10/2015	11/10/2014	11/10/2013	11/10/2012	11/10/2011
Active Rigs	66	192	182	191	199

RBN Energy: School of Energy opportunity.

Update on slump in crude oil prices: Breitbart, September 5, 2015. Some nice graphs.

EIA "Energy Cookie" on the Highway Trust Fund:

In the fiscal year that ended September 30, 2015, the average monthly net HTF tax receipt was about $3 billion, and the average monthly outlay was nearly $4 billion. With outlays exceeding receipts and HTF balances dwindling, Congress in July transferred $8 billion from other sources to ensure the fund's solvency. Before this transfer, the HTF was at $6.1 billion, the lowest monthly value in decades. --- EIA

Another shout-out / thanks to the reader who reminded me to check in on FracFocus if the NDIC file does not include completion data. FracFocus requires the API number so if I check FracFocus I include the API number when reporting the well.

Flashback: it's hard to believe that a single wildcat well started "all this in the Three Forks" and that it was as far back as 2008 (I would have guessed, 2010, and would have been wrong). From The Bismarck Tribune, June 17, 2008:

A single successful oil well tapped below the Bakken shale formation in western North Dakota has spurred speculation that a separate - and perhaps rich - oil-producing reservoir may be buried in the state's oil patch.

Enid, Okla.-based Continental Resources Inc. says its new oil well in Dunn County produced an average of about 700 barrels of oil a day during its first week of production last month.

It was Continental's first well in the Three Forks-Sanish formation, said Harold Hamm, the company's chairman. The formation is made up of sand and porous rock directly beneath the Middle Bakken, which lies two miles under the surface in western North Dakota and holds billions of barrels of oil.

See this presentation which I believe was published about that time. I might come back to this one again, particularly slide 30. 

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

Notes to the Granddaughters

After two hours of water polo practice, our oldest granddaughter is ravenous for a snack on the way home. Last night I forgot to bring something from home, so after dropping her off at the natatorium, I drove back to Tom Thumb (major grocery store in this part of the world) to see what I could find. Incredible. Apparently, at the end of the day, they clear out their pastry shelves and mark everything down for "quick sale." Plastic containers with six big fancy donuts, priced at $4.99 during the day, are marked down to 99 cents. [This might explain why Houston and San Antonio lead the nation in obesity data.]

I had one donut this morning; I did not notice much "aging." Actually, it was quite good. Less than 20 cents vs regular price of 75 cents and much less than chocolate croissant at Starbucks. I won't even get into cost of coffee at home vs Starbucks.

Meanwhile, the middle granddaughter, 4th grade, is working on her "healthy eating assignment" this week. Students are recording everything they eat and calculating the calories.

Random Update On CAPEX Cutbacks For 2016 -- November 7, 2015

Reuters/Rigzone provides some CAPEX cutbacks for 2016 in the shale oil industry. There is nothing new here that regular readers wouldn't already know, but Reuters puts it together in one place for a few companies. Some excerpts:

Top shale companies including Devon Energy Corp, Continental Resources Inc and Marathon Oil Corp this week released preliminary 2016 plans for capital spending that may fall by double digits.

Devon said it expects to spend $2 billion to $2.5 billion on exploration and production next year, down from about $4 billion this year.

Marathon Oil is cutting about $1 billion from its projections.

Oasis Petroleum Inc, which produces oil in North Dakota, said it expects to spend $350 million in 2016 on drilling and completion of new wells, roughly $200 million below what it plans to spend for those services this year.

Continental Resources, North Dakota's second-largest oil producer, said it will need to spend $1.5 billion to $1.6 billion next year to maintain output of roughly 200,000 barrels of oil equivalent per day. That would be less than half the roughly $3.4 billion the company expects to spend this year.

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

Sam Phillips Book Review Over At The Wall Street Journal

Link here.  

Though he is acclaimed by his biographer as “The Man Who Invented Rock ’n’ Roll,” readers may still need some introduction to Sam Phillips.

Born in Florence, Ala., in 1923, Phillips moved to Memphis after World War II and got into the music business. As operator of a recording studio and later a record company, he discovered Howlin’ Wolf, Elvis Presley, Johnny Cash and Jerry Lee Lewis and made some of the earliest recordings of B.B. King and Ike Turner, including the 1951 song that some buffs consider the big bang in rock history, “Rocket 88.”

Phillips’s biographer may require less of a primer. Peter Guralnick is known for his decorated two-part chronicle of Elvis Presley’s life and his reverent but thorough fan-friendly style.

“Sam Phillips” represents his most personal foray into American music. Mr. Guralnick knew Phillips for 25 years and spent nearly a decade after Phillips’s death in 2003 writing his story. That’s longer than most rock ’n’ roll marriages. Mr. Guralnick shares his love for Sam early in the book, and Phillips clearly held up his side of the deal, sharing intimate details and private documents.

Obviously, much more at the link.

If there is a better DVD on Sam Phillips or Sun Records, I would love to know. And yes, the Muscle Shoals DVD is still the best.