Bloomberg On The Comebakken -- June 20, 2018

This might be the best summary of the Bakken I've seen in a long time. Archived. When I saw the headline I feared the worst -- especially coming from Bloomberg. I was pleasantly surprised. To the reader who sent me the article, my only observation:

Wow, talk about a great article. The only data point that surprised me was Bloomberg's comment about DUCs. Obviously Bloomberg is correct and I am wrong, but I have not seen that statistic before -- "month's supply of DUCs."

• April, 2017, one year ago; waiting on completion: 830; unchanged from the end of April to the end of May
• April, 2018 (most recent data): DUCs, waiting on completion: 942, up 26 from the end of March to the end of April 

The spike in DUCs at the Bloomberg chart correlates with the two years that Saudi Arabia made their trillion-dollar mistake. From 2015 to 2017, Saudi maximized production to try to crush US shale; US shale operators responded in various ways, including more DUCs.

But the number of DUCs, month-to-month in the Bakken has stayed fairly stable over the past two years. Bloomberg did not address the number of inactive wells in the Bakken -- increasing in numbers as more and more wells are being fracked. Neighboring wells are taken offline when a new well is being fracked.

Without an additional waiver, Bakken operators are now routinely allowed two years to complete a well. Prior to the Saudi Surge, Bakken operators had to complete a well within one year of spud.

A screenshot of the Bloomberg article:

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Renewables

Link here.

Where's solar PV? Where's wind? Where's Waldo?

Random Update Of Crude Oil Production -- March 16, 2018

There is talk that Russia might cut short its agreement on crude oil production cuts this summer. Saudi Arabia says it remains committed to maintaining production discipline. The US? pedal to the metal if the price is right.

A historical look at production is enlightening.

Note: see first comment. Be sure to note that the y-axes are different in these three graphs. The range for the Russian graph, for example, is 10.54 million bopd most recently, compared with a high of around 10.75 million -- that range is not particularly great. Meanwhile, during that same period, US production went from around 9.0 million bopd to 10.4 million bopd -- a significant different from that of Russia. OPEC, in the big scheme of things has not varied much -- ranging between 36 million bopd and 34 million bopd.


Russia:

OPEC:

US:

Glut Or No Glut -- Idle Chatter On A Monday Night -- Not Ready For Prime Time -- Feburay 19, 2018

Updates

February 20, 2018: oilprice.com talks about this also. And here we go again, Saudi Arabia is redefining "surplus" (as I noted below) and apparently getting ready to move the goal posts:

Other analysts have gone further. Citigroup and Goldman Sachs both estimate that the surplus has probably already been eliminated, meaning that the oil market has already reached the long-sought “balance” for which OPEC is aiming.

But as success draws near, oil prices are still not where OPEC wants them. The group is considering changing the way it measures “balance” in the market, for several reasons.

First, what constitutes the five-year average for inventories has changed significantly, with that period of time increasingly encompassing surplus years.

The level of inventories that was “average” for the period of 2011-2015 is substantially lower than the “average” for 2013-2017 — the latter period includes more than three years in which the market suffered from a glut.  [The "trillion-dollar-mistake" Saudi Arabia foisted on itself trying to break the US shale industry.]

In other words, the five-year average inventory level is a moving target, and because it has been rising quite a bit, bringing global inventories down to that threshold is not as impressive as it would be if using an older five-year period. [Exactly what I've been saying for quite some time.]

As a result, Saudi oil minister Khalid al-Falih suggested that OPEC would meet to discuss using a different metric. ["Move the goal posts.] One option would be to use the “forward demand cover,” Bloomberg reports, or the number of days that the current stock of inventories could supply the global market. This would arguably be a more accurate measurement because it would incorporate the fact that demand has climbed significantly in recent years.

Again, look at the range we're talking about -- it's pretty narrow -- between 60 and 65 days of inventory:

Original Post

Disclaimer: in a long note like this there will be typographic and factual errors. I have not yet had the chance to double-check much of this. I often mis-read things. I often see things incorrectly. I often make simple arithmetic errors. I am inappropriately exuberant about the Bakken. I am inappropriately bullish when it comes to oil. If this is important to you, I would go to the source. Finally, the purpose of posting this is articulated in my welcome page/full disclaimer page, linked at the top of the blog. 

Huge Bloomberg article: when success isn't enough. Saudi Arabia says re-balancing has worked. Bloomberg says "OPEC has almost cleared the oil glut, but Saudi Arabia wants to go further." The article includes this graphic:

So, what's wrong with that graph? Huge "fake news." What's wrong with the graph? There are three things wrong with that graph.

Yup, you guessed it. This is the first problem: the graph only shows the numerator. We don't have the denominator. All we have is the IEA telling us what that organization considers "surplus" or "glut." The denominator is the total amount of global oil sitting in storage. The graph doesn't provide that information, nor is there any other graph accompanying the article that provides that information. The x-axis is  from 0 to 400 million bbls. But does 400 million bbls represent 1% of total inventory or 10% or 50%? Does the 400 million bbls represent two days of global demand or ten days or fifty days. The graph tells me nothing except that the glut has dropped from 350 million bbls to 50 million bbls. But I still don't know how many days inventory the world has.

The second problem with the graph has already been intimated: it is simply the "surplus." But how is "surplus" defined?

But this is the most glaring problem with the chart. It only goes back to February 2016! Give me a break. That's two years and almost all of that time has been spent burning off the glut caused by the Saudi Surge, Saudi's "one-trillion-dollar mistake. They announced the surged in November, 2014; it really didn't star to take effect until March, 2015, and when the Saudis threw in the towel, announcing in November, 2016, they were going to cut back on production, it took until May, 2017, to really see the effect, and we still -- nine months later -- still have a surplus.

That graph is meaningless.

Fake news. Or rather, "incomplete data."

At a minimum we need to see historical data going back ten years and we need to see it measured in days of supply. We need to see the historical denominator: the the global inventory of crude oil, not just the surplus. We also need to see "projections." It's hard to find that data if one doesn't subscribe to sites that have that data.

So, we will do the best with what we have.

From here on out, we're talking OECD inventories.

How much oil is currently in OECD inventories. About 3 billion bbls in round numbers (I'm sure you can find any number you want -- no matter what number you find, it's not very accurate. We've been through this before. But for our purposes, 3 billion bbls is good enough, in the graphic below, from this source:

Now, we have the numerator and the denominator.

300 million bbls / 3 billion bbls = 0.1 or 10%. That was a huge number, ten percent.

100 million bbls / 3 billion bbls = 3%. I don't know about you, but for me 3% is practically a rounding error when the accuracy of the numerator and denominator are largely suspect. The law of large numbers probably helps us out.

I can't get my hands around big numbers. So when I come to stuff like this, I put in amounts I can understand. Let's say I was living on the margin and I only had $10 left in my pocket to get through the week. If I was lucky and found a dollar lying on the ground, I would have 10% more than I did a moment earlier. If I found only a quarter, I would have 2.5% more. Ten percent seems a lot more than 2.5% but in fact, my $11 isn't going to go much farther than $10.25.

So, that leads us to the next question. How far does 3 billion bbls (the total amount in OECD storage) take us?

Well, fortunately we have a graph for that. Not only that, but we have some projections from the EIA which I trust a whole lot more than the IEA (or OPEC or Saudi Arabia). Here's that graph.

Note:

• first, the graph goes back farther than February, 2016, at the end of the Saudi Surge but still nowhere near burning off all that excess
• second, we now have historical data before the surge -- we see three things
• ten-year minimums
• ten-year maximums
• the days of supply just before the Saudi Surge; during the Saudi Surge; and projections
• (by the way, it's now plan to see why we had $100-oil before the Saudi Surge -- OECD crude oil inventories were at 10-year minimums -- wow -- what a great graph
• third, we have a range of how long these inventories would last
• minimum: 55 days
• maximum: 65 days
• again, I don't know about you, but I don't see a whole lot of difference between 55 days and 65 days (yes, I know for traders this is huge, but ...)
• fourth, look at the current and near-term projections for days of supply: smack dab in the middle of the range (actually, a bit higher than the mid-point if you look really, really closely)
• [digress: so, go back to the incomplete data supplied by IEA above: they interpret the chart to suggest that the glut has been erased (down to 50 million bbls of excess inventory [1.7%; almost a rounding error]) and yet the EIA graph shows us smack dab in the middle, with about 60 days of supply]
• fifth, look at the projections and you will note two things (maybe three):
• we never get below 60 days of supply;
• the line actually inclines slightly; and,
• near the very end, the projection actually hits the maximum (where the light blue shaded are drops to 63 days and the green line actually approaches 63 days almost immediately thereafter)
• sixth, and then I'll quit with this graph: even with the Saudi Surge we only got to 65 days out vs the middle of the range, 60 days of supply -- you mean to tell me that's what all the fuss was about -- 65 days of supply vs 60 days of supply?

Finally, one more graph, saving the best to last. Look at the IEA graph again -- the "incomplete data" graph telling us there is only a 50-million-bbl inventory excess as of now.

Now look at this graph, from ycharts.com:

Holy baloney, Batman! For OPEC and the rest of the oil sector, the trend line is certainly going the right direction, but there's still a huge glut that needs to be burned off. What I find most interesting about this graph is that earlier we were talking about 3 billion bbls in OECD inventory, but this graph suggests as much as 4.5 billion bbls.

Again, this tells me no one really has a good handle on exactly how much crude oil there is in storage. There's a huge difference between 3 billion bbls and 4.5 billion bbls, especiall when the numerator is 50 million bbls. [I doubt all the crude oil in all the new pipelines across America has been tallied, just as one example.]

Lots of verbiage but the bottom line for me: the IEA graphic showing 60 days of supply is the most complete graphic and tends to be supported by the ycharts graph.

By the way, another interesting article from The Financial Times back on March 28, 2011: "OECD oil stocks data offer limited insight." Maybe the OECD data is better today than it was in 2011, but I have my doubts. It may be worse. 

WTI Goes Over $52 -- October 16, 2017

Whoo-hoo! WTI above $52. Nor sure what this is all about. OPEC "talking their book" certainly helps. Fundamentals have not changed one bit. It's very possible the Iraqi - Kurdish conflict has something to do with this. Bloomberg says "re-balancing process" is working (as noted, nothing has changed). As noted, OPEC is "talking their book": cartel says oil inventory glut will be gone in one year. And more: OPEC sees "healthy" oil demand growth to 2022.

Argentina prepares for shale boom: $800 million gas pipeline proposed.

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Back To The Bakken

Active rigs:

$52.33↑↑	10/16/2017	10/16/2016	10/16/2015	10/16/2014	10/16/2013
Active Rigs	59	31	67	189	184

RBN Energy: crude oil shuttle pipelines in the Permian's Delaware and Midland basins, part 4.

Permian producers and shippers want to be able to transport their crude oil to whichever destination will give them the best netbacks. But that’s a moving target, so what they really need is destination optionality — something they can only get if the gathering systems and shuttle pipelines that move oil from the lease tie into multiple takeaway pipelines with different end-points like Houston, Corpus Christi and Cushing. Midstream companies are clamoring to meet that need by expanding existing shuttle pipelines and building new ones. Today, we continue our review of intra-Permian shuttle pipelines.

With Permian crude oil production expected to continue rising under just about any foreseeable price scenario, there’s a big push on to expand regional pipeline networks’ capacity to move more crude oil out of the play and — just as important — to give producers and shippers as many destination options as possible. As we said in Part 1, until a few years ago, most of the oil produced in the Permian flowed north to the crude storage and distribution hub in Cushing, OK. By 2011-12, though, rising crude production in the Bakken, western Canada and the Permian itself — combined with too little pipeline capacity from Cushing to the Gulf Coast — caused a supply glut at Cushing. That, in turn, caused heavy discounting for Cushing benchmark West Texas Intermediate (WTI) versus Louisiana Light Sweet (LLS) at the Gulf Coast, and spurred development of new takeaway capacity from the Permian to Houston and other coastal destinations.

Sunday, October 1, 2017

Active rigs:

$51.64	10/1/2017	10/01/2016	10/01/2015	10/01/2014	10/01/2013
Active Rigs	58	33	68	191	187

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NFL-Free Sunday 

There are an incredible number of headlines at the various news aggregators regarding the price of oil going forward.

I plan to spend the day reading: I will attack the 3-volume Mark Twain autobiography that first started appearing in 2010. The third volume has a copyright date of 2015. I don't particularly care for Mark Twain but I felt any good library needed to include his autobiography. My notes on the autobiography will be at this post.

I have read snippets of the first volume but did not enjoy it; my mind was unprepared. However, now I am ready and having read some from all three volumes today, I am more than ready to proceed.

So, if the blogging is intermittent today, you will know why.

With regard to all the stories being reported today, for now I will simply link the articles, make minimal comments and come back to the stories later if the spirit moves me, and likely it won't.

The headlines:

• Escalating problems in Iraq's Kurdistan region could affect supply, FX Empire via Yahoo!Finance
• Saudis pay the price for OPEC leadership, Bloomberg. 
• Saudi Arabia is ceding oil market share to support prices and that's good for US oil plays, Forbes.
• OPEC oil output rises by 50,000 bpd in September, Reuters
• Bullish oil streak means strongest third quarter Brent price gain in 13 years, Reuters 
• Five large-cap oil stocks are up 20% or more in September -- and more gains appear on tap, MarketWatch
• From oilprice, consider the source: analysis -- oil prices have risen too far too fast (all the way to $51 for WTI)
• From oilprice, consider the source: is $80-oil possible? Eight comments (so far) at the linked article.
• From oilprice, consider the source: markets react stoically to rising oil rig count. Stoically?
• From oilprice, consider the source: traders are betting on $100 oil in 2018
• From oilprice, consider the source: majors race to gain more acreage in the Permian

Note: some oilprice links may be sponsored content; I no longer know what articles from oilprice are paid content.

Comments:

• much of this oil-price forecasting seems to be coming from an echo chamber from a cubicle on the 98th floor of some skyscraper on Wall Street
• themes affecting price of oil
• strength of the US dollar: Yellen wants to strengthen the US dollar (price of WTI drops); tea leaves suggest Trump will "price" her out to pasture
• recent IEA and OPEC prognostications of increasing demand for crude oil in 2018
• misleading headlines that OPEC is complying with cuts (OPEC production increased in September and hot summer in Mideast is coming to an end, just as the driving season in the US is coming to an end
• bulls betting on collapse of Kurdish exports
• $60 oil and the Bakken ramps up
• $80 oil and The New York Times will have an article on the Bakken boom
• $100 oil and the Bakken explodes (memo to self: note to Jane Nielson, the writer of the prescient essay, "Bakken Oil Hype")

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By the way, from the "Bakken Oil Hype" link above, Ms Nielson wrote:

Not unreasonably, USGS estimates of undiscovered and technically recoverable oil are posed rather like gambling odds. At Bakken, USGS estimates:

• 5% chance of finding a total of 4.3 billion barrels,
• 95% chance of finding a total of 3.1 billion barrels, and
• 50% chance of finding a total of 3.6 billion barrels (the famous USGS “mean” estimate).

In its Fact Sheet 2008-3021, USGS upped its estimate of undiscovered oil in the Bakken by a factor of 25, compared to its 1995 figures. Many petroleum experts are quite willing to agree with USGS’s admission of significant uncertainty in these estimates.

Back-of-the-envelope calculations and comments:

• the North Dakota Bakken boom began in 2007 and hit its stride in 2010
• North Dakota is producing about 1,000,0000 bbls of oil/day -- not all of it from the Bakken, but most of it is now coming from the Bakken
• 1 million bopd x 365 days = 365 million bbls/year
• x 10 years = 3,650 million bbls or 3.65 billion bbls
• some say operators have drilled one-sixth of the wells that will ultimately be drilled
• EURs of future wells will exceed current and older wells

Amazing, isn't it. The USGS "mean" projection was 3.6 billion bbls. 

Disclaimer: I often make simple arithmetic mistakes and mathematical errors. I often make typographical and factual errors. My typographical errors include typing "billion" when I mean "million" and vice versa. If any of this information is important to you, go to the source.

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Imagine The Negative G's and Zero Gravity

I'm not sure why this was posted over at Twitter today. It was filmed more than a year ago at the Farnborough 2016 Air Show:

Update On OPEC Production -- August 16, 2017

From Peak Oil Barrel:

• All data below is based on the latest OPEC Monthly Oil Market Report. (This link is broken, both here and at Peak Oil Barrel. This link appears to work.)
• All data is through July 2017 and is in thousand barrels per day.

Disclaimer: I've not fact-checked the data posted on the graphic below at Peak Oil Barrel. 

Graph from that link with my comments superimposed.

 A huge "thank you" to a reader who alerted me to the site.

OPEC Compliance At 114%? Maybe Not -- August 11, 2017

Warning! A snarky post.

I know I'm wrong, but it was my impression, based on tweets and articles by John Kemp, Reuter's London-based oil analyst-journalist, that OPEC compliance was well above 100% -- as high as 114%.

Today, this over at Twitter:

My bad: it was Platts:

Platts says "not including Libya and Nigeria, compliance among OPEC's 12 members ...remains robust at 114%, down slightly from 116% in June, based on an average of January through July output."

Compliance is 114% but yet OPEC production "hits high of 32.82 million bopd." Okay.

Smoke And Mirrors -- August 6, 2017

Updates

August 11, 2017: OPEC compliance is estimated to be 75%.

August 6, 2017: see comments. Link brought up here for easier access: https://www.platts.com/news-feature/2017/oil/opec-guide/prod_targets. 

Original Post 

If I recall correctly, and I probably don't, OPEC set "the cut" at 1.2 million bopd. [Later: I did not: the article says OPEC and non-OPEC partners agreed to cut 1.8 million bopd.]

Headline from Platts: OPEC July oil outputs hits high of 32.82 million bopd on Libya recover. OPEC is about 1 million bopd above ceiling.

Now the smoke and mirrors: Platts says "not including Libya and Nigeria, compliance among OPEC's 12 members ...remains robust at 114%, down slightly from 116% in June, based on an average of January through July output."

Compliance is 114% but yet OPEC production "hits high of 32.82 million bopd." Wow. 

If that's accurate, that the compliance rate is 114% based on a six-month average, it appears that more recent data suggests some members are increasing production. Let's see. From the linked article:

• Libya: exempt from OPEC cuts, averaged 990,000 bopd in July; up 180,000 bopd from June
• Nigeria: exempt, averaged 1.8a million bopd, up 30,000 bopd
• Saudi Arabia: averaged 10.05 million bopd in July; June data not provided
• Iraq: second largest OPEC producer; production grew to 4.48 million bopd; quota is 4.35 million
• Iran: third largest OPEC producer: production grew to 3.82 million bopd; quota is 3.80 million
• UAE: production rose to 2.89 million bopd; above its quota of 2.87 million bopd
• Ecuador: openly defied OPEC; discontinued goal to cut production; production rose to 530,000 bopd, also above its quota of 520,000 bopd

More: look again at the bottom line number -- 32.82 million bopd. Then look where that falls on the graph posted in May, 2017.  Prior to the "Saudi Surge," OPEC was producing just slightly above 30 million bopd. Now, after the surge, OPEC is producing above 32 million bodp. I assume most folks thought OPEC was going to cut below their pre-surge production. Nope, OPEC surged production to almost 34 million bopd and then agreed to a 2-million bopd cut, which would put them at 32 million bopd, or 2 million bopd above their pre-surge production.

One can see how global crude oil flows were sustained at robust levels even during the cuts with the graph at this post.

Having said that, if the numbers are accurate, Saudi Arabia is taking the brunt of the cut. The linked Platts article said Saudi's production in July was at 10.05 million bopd. If accurate, that is about what Saudi produced back in 2009. An old graphic, frequently posted:

US Crude Oil: Weeks To Re-Balance -- August 2, 2017

US crude oil reserves fell less than expected in latest report. This link will download a PDF on your screen: go.usa.gov/xRPEP  .

Weeks to re-balance: 39 weeks (up from 38 weeks following previous report):

Week	Date	Drawdown	Storage	Weeks to RB
Week 0	Apr 26, 2017		529.0	180
Week 1	May 3, 2017	0.9	528.0	198
Week 2	May 10, 2017	6	522.0	50
Week 3	May 17, 2017	1.8	520.2	59
Week 4	May 24, 2017	4.4	515.8	51
Week 5	May 31, 2017	6.4	509.9	41
Week 6	June 7, 2017	-3.3	513.2	60
Week 7	June 14, 2017	1.7	511.5	57
Week 8	June 21, 2017	2.5	509.0	62
Week 9	June 28, 2017	-0.2	509.2	71
Week 10	July 6, 2017	6.3	502.9	58
Week 11	July 12, 2017	7.6	495.3	47
Week 12	July 19, 2017	4.7	490.6	43
Week 13	July 26, 2017	7.2	483.4	38
Week 14	August 2, 2017	1.5	481.9	39

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The Myth Persists

A reader sent me the link to this CNBC article: OPEC wants oil above $50, but US shale producers won't play along.

I replied:

Saudi Arabia is doing a great job in perpetuating this myth, that ND and TX won't play along.

In fact, as I posted on the blog earlier this week, total OPEC production has hit new records (mostly due to Iraq).

Saudi Arabia has a problem; it's not ND, TX. Saudi Arabia's problem is Iraq, Iran, and Libya.

I assume it was Saudi money that was behind all the efforts to kill shale crude oil pipelines and all the anti-fracking activity. Not all Saudi money but a huge portion of it.

Later: the reader reminds me that Putin was also involved in the US anti-fracking, anti-pipeline movement.

Well, Shoot, This Isn't Working -- July 23, 2017

From The Wall Street Journal: OPEC grapples with growing threats to oil deal. The deal intended to withhold about 2% of global oil supplies has failed to raise crude prices. LOL.

OPEC is worried that its plan to drain a global oil glut—and thereby raise crude prices—isn’t working.

A long-planned meeting in St. Petersburg, Russia, on Monday to discuss the oil market with big producers outside the cartel has turned into a critical gathering. Over the weekend, the Organization of the Petroleum Exporting Countries said, its ministers have held a series of “intensive consultations” about the challenges for an output-cutting deal the 14-nation cartel struck last year with Russia and other big producers.

The agreement was supposed to take almost 1.8 million barrels of crude oil off the global market and drain an oversupply that has weighed prices down for three years and sent a shock through the economies of oil-producing economies. But prices have remained stubbornly low as the glut persists. Brent, the international benchmark, fell 2.5%, to $48.06 on Friday because of doubts about OPEC’s ability to turn around the market.

And then this.

Libyan and Nigerian officials have signaled a willingness to limit their production once it stabilizes, but the details are being negotiated.

An OPEC official said Iraqi production would also be discussed, as the cartel member’s output has remained much higher than its agreed upon levels.

Compare that to what I posted just a few hours earlier: Saudi Arabia has an Iraqi problem. Nigeria and Libya are red herrings.

Meanwhile, oilprice.com weighs in on Libya's production.

Conflict-torn Libya, divided between rival factions in the east and the west, recently reached 1 million bpd of crude oil output—for the first time since 2013.

Bottom line: no matter how you spin it; no matter how many times OPEC has meetings, there is a huge global crude oil glut. Period. Dot. Every Arab for himself. And we're going to see exactly how cheap crude oil can go before US oil companies cry "uncle." 

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This Describes Our Granddaughters' Summer Schedule --- Including Language Summer Camp In Minnesota

Every Arab For Himself -- Oilprice -- July 21, 2017

From Oilprice.com via Yahoo!Finance: OPED deal at breaking point as compliance falls.

OPEC data was mixed this week reminding us of two important themes - 1, OPEC members are pushing the limits of the current output agreement and 2- recent gains in Libya and Nigeria could be hard to maintain. 

On the first item, preliminary estimates see July OPEC production +145k bpd m/m which would represent a new YTD high in the cartel’s output and sow additional doubts about their ability to coordinate supply cuts. 

Meanwhile Iraq is publicly promoting its plan to ramp production up to 5m bpd by year-end (from 4.4m bpd in June) and Ecuador stated that they will no longer participate in cuts in an effort to strengthen their finances. 

As for the second item, Nigeria’s production and export woes were headline news this week due to pipeline vandalism. All-knowing prompt brent spreads digested the week’s news flow and moved slightly higher. Brent rallied to -55 cents on Friday forecasting a reasonably strong supply/demand balance in coming month.

Oilprice.com was the "original" peak oil site.

OPEC Cuts -- "Every Arab For Himself" As Agreement Starts To Break Apart -- July 18, 2017

I recently wrote that as the OPEC cuts fail to increase prices, we will likely see "every Arab for himself." Apparently I wasn't too far off. From Bloomberg:

"Ecuador breaks ranks with OPEC and increases oil output."

It is breaking down for the reasons previously suggested. Ecuador says it must boost production to raise revenue.

Bloomberg also reports that OPEC's total compliance with deal sank to a 6-month low in June. Maybe I'm missing something, but isn't the deal only eight months old? It was announced in November, 2016, and if it was realistically to go into effect in January, 2017, we're only six months into the deal. Whatever.

More from the linked article:

OPEC has for years cheated on its own agreements, particularly when oil prices fail to recover after an output cut. But Ecuador has taken the rare step of saying publicly it will increase production, making it impossible for the group to conceal the desertion.

The Latin American country won’t be able to meet its commitment to lower output by 26,000 barrels a day to 522,000 a day, as agreed with OPEC last year, Oil Minister Carlos Perez said.

“There’s a need for funds for the fiscal treasury, hence we’ve taken the decision to gradually increase output,” Perez said. “What Ecuador does or doesn’t do has no major impact on OPEC output.”

That would be true. But what Ecuador does or doesn't do has a major impact on how the rest of the world sees OPEC.

Does this 26,000 bopd increase concern Saudi Arabia? LOL. John Kemp is reporting, via Twitter, that "senior Gulf OPEC source will be making an emergency trip to Ecuador with the Joint Ministerial Monitoring Committee to address compliance."

Oh, oh. Ecuador may be kicked out of OPEC.

The Energy And Market Page, T+164 -- July 3, 2017

OPEC production cuts fail -- Rigzone op-ed. Global crude oil inventories increased by a million bopd -- per day -- in the first quarter.

Crude oil prices have plummeted 20 percent since February, the most dramatic first-half slump since 1997, and inventory remains about 340 million barrels above the five year average.

In short, the agreement between OPEC and its non-OPEC allies to slash their production by 1.8 million barrels per day has failed to rebalance the oil market and boost the commodity’s price.

Oil inventories increased at a rate of 1 million barrels per day during the first quarter, according to Morgan Stanley estimates. And while seasonal demand on the horizon should chip away at the excess for the rest of the year, that’s temporary.

Break-even costs: for the archives --

US energy mix: for the archives --

• nuclear, biomass, and hydroelectric all flat
• nuclear will gradually decrease over time
• solar, wind (will tend to flatten over time; rate of growth will slow)
• the big story no one is writing about: the loss of all that nuclear power
• the big story everyone is writing about but not understanding the implications: the loss of coal

They Mis-Underestimated The Frackers -- June 29, 2017

I remember when the analysts said US shale operators could not act quickly in bringing new supply of crude oil to the market. A sentence in this Bloomberg article jumped out at me. From the article:

The chorus in the oil market calling for deeper production cuts gets louder almost every day. By resisting the clamor, OPEC is breaking with its own history.

As crude sank below $50 a barrel -- less than half the price of two years ago -- market-watchers from Goldman Sachs Group Inc. to former OPEC officials said supply curbs imposed this year need to be intensified. That would be consistent with past behavior, when production cuts or increases often arrived in stages a few months apart.

This time is different. The emergence of U.S. shale oil producers -- who can adjust supply more rapidly than OPEC’s previous rivals -- means the Organization of Petroleum Exporting Countries cannot act with the same freedom it once did. As economic pressure mounts for exporting countries, using the old playbook runs the risk that new American supplies would fill in any extra cutbacks.

“When OPEC was in control, it would often act in stages,” said Chakib Khelil, a former Algerian energy minister who was OPEC president in 2008. “The market is different than in 2008. Today, non-OPEC plays a larger role in supply. And the major issue is how long can they sustain this supply.”

Oil has given up almost all its gains since OPEC and Russia launched their initiative to clear a three-year surplus. Their supply cuts have failed to deplete the world’s bloated fuel stockpiles quickly enough and West Texas Intermediate futures have declined about 16 percent this year, trading at $45.06 a barrel at 10:04 a.m. in New York on Thursday. Previously, that would probably have prompted OPEC to revise its plans and agree on additional reductions.

In bold again for those missed it the first time around: the emergence of U.S. shale oil producers -- who can adjust supply more rapidly than OPEC’s previous rivals ...

Bloomberg reports this like it's a fact, and a fact that everyone has known from "day one." But I remember analysts only two years ago suggesting US shale operators would be unable to quickly add output, that it would take six months to a year to ramp up production.

I guess they underestimated the "frackers" -- Aubrey McLendon, Harold Hamm, George Mitchell, Tom Ward, Charif Souki, and Mark Papa, to name a few.

Wow, I love this stuff.

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

Notes to the Granddaughters

This past year, Olivia, the middle granddaughter and fifth grader, took it upon herself to re-establish her school's garden. I do not know if she was influenced by Michelle Obama but I know she really, really like Ms Obama. Be that as it may, Olivia's garden was a huge success. There were three plots, mostly tomatoes, gourds, cabbage, herbs, and marigolds.

We stopped by the yesterday to see how the garden looked. It was quite amazing, to say the least:

Flashback! We've Seen This Movie Before -- June 27, 2017

From a post back on December 23, 2015:

Price declines were exacerbated by the decision last year by OPEC, the 12-member producer group led by Saudi Arabia, not to cut production. Still, OPEC's Secretary General Abdalla Salem El-Badri said OPEC had been a bastion of stability amid volatile times for the oil industry.

"The supply and demand balance in 2015 has been one of oversupply, with stock levels rising to well above the five-year average. Despite this market instability, OPEC has continued to be an efficient, reliable and economic supplier of oil," El-Badri noted in the foreword of report. Later in the report El-Badri talks about el-unicorns.

By the way, look at the "break-even" price for Saudi Arabia -- that was less than 18 months ago -- and not a whole lot has changed, regardless of what Prince Salman says. Note the "years of financial assets left." Staggering. Yemen is already broke (duh). Libya has a couple years left. Bahrain? Toast. Saudi Arabia: less than ten years. I could outlive Saudi's financial reserves. LOL.

Long Meandering Commentary: Sector Rotation, Capitulation -- June 19, 2017

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on what you read here or think you may have read here.

I first noted this on November 23, 2016: gasoline demand "not particularly comforting."  At the time I do not recall this decline in gasoline demand being noted by the mainstream business media.

Since that post it has been pointed out frequently that US gasoline demand is weak but only recently has the mainstream press picked up on it.

The second thing that was picked up early by the blog: the OPEC cuts weren't cutting it. I don't know if this was the first post on this subject, but it was certainly one of the earlier posts (April 28, 2017). At the time, analysts were still optimistic about the "cut" buying into Saudi's public relations machine.

It was about this time that it was clear that regardless whether Saudi Arabia was cutting production or not (wink, wink), in fact, it was emptying its storage tanks and continuing to flood the US with oil (see more below). (Wow, that's a grammatically awful sentence but I've tried to correct it several times, and I've given up. I need to move on.)

Back to Saudi's production cuts (wink, wink) and US imports: I gave that a "Saudi Shenanigans" tag.

From twitter, 58 minutes ago (as of 6:32 a.m.):

Finally, the mainstream business media -- starting about two weeks ago -- has started talking about this: US gasoline demand is concerning; and, OPEC cuts aren't working.

Today, Rigzone addresses those two issues:

The sustained fall in oil prices over the past week is indicative of the consensus view that the 1.8 million barrel per day coordinated output cut among the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC is not deep enough to rebalance global oil markets in 2017, or even in 2018.

Also contributing to this bearish outlook are serious concerns around U.S. gasoline demand. In its Weekly Petroleum Status Report on Wednesday, the U.S. Energy Information Agency (EIA) showed a surprise build to gasoline stocks for the week ending June 9.

The report also showed that gasoline demand in the United States had fallen week over week and was 5 percent lower than during the same period in 2016. Over the last four-week period, total motor gasoline consumption in the United States averaged 9.5 million barrels per day, which was 1.2 percent lower than the same period last year. OPEC cuts not cutting it and US gasoline demand not cutting it.

Note again, from the lede:

... the 1.8 million barrel per day coordinated output cut among the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC is not deep enough to rebalance global oil markets in 2017, or even in 2018...Over the last four-week period, total motor gasoline consumption in the United States averaged 9.5 million barrels per day, which was 1.2 percent lower than the same period last year...

I think that's the first time I've seen that in the mainstream business media so explicitly, that at the current rate of US crude oil supply / demand, "re-balancing" is not going to occur any time soon.

I started tracking this several months ago and have posted this chart (update: methodology was wrong in some parts of this table; it has been updated and corrected at this post):) several times showing how long it will take to "re-balance":

Week	Date	Drawdown	Storage	Weeks to RB
Week 0	Apr 26, 2017		529	180
Week 1	May 3, 2017	0.9	528	178
Week 2	May 10, 2017	6	522	29
Week 3	May 17, 2017	1.8	520.2	95
Week 4	May 24, 2017	4.4	515.8	38
Week 5	May 31, 2017	6.4	509.9	41
Week 6	June 7, 2017	-3.3	513.2	60
Week 7	June 14, 2017	1.7	511.5	63

By the way, when the mainstream business media talks about "re-balancing," they are talking about getting back to the "5-year-average," whatever that is. I don't know if I've seen the "5-year-average" noted. Whatever it is, it's skewed by the Saudi surge from 2014 to 2016, the first of two trillion-dollar mistakes by the Saudis. In fact, for meaningful "re-balancing" to occur and a return to more bullish crude oil prices we need to see US crude oil supplies fall back to the "historical average" -- a 21-day supply or about 350 million bbls.

Right now, the rate of drawdown, averaging 2.6 million bbls/week since April 26, 2017, means that it will take 63 weeks to "re-balance." That would be late 2018.

Now, Rigzone, today, is suggesting that "re-balancing" won't even happen in 2018. That's as far as I read. Let's go back and see if the writer supplies a "new date."

Nope: no new date is given when "re-balancing" might be reached.

In fact it's worse. Look at this:

Also weighing on prices was Wednesday’s report from the International Energy Agency (IEA), which projected 2018 oil supply from non-OPEC producers to grow by 1.5 million barrels per day (almost twice the increase estimated for 2017).

The significant uptick in estimated production growth for 2018 is due mostly to rising expected production from U.S. tight oil formations. The IEA estimated that demand would grow by 1.4 million barrels a day in 2018 – largely from China and India.

In case you missed it, based on estimates:

• supply will grow by 1.5 million bopd
• demand will grow by 1.4 million bopd

Does anyone see the problem?

Two other things are also noted in the Rigzone article, both of which I pointed out some time ago:

• Saudi Arabia / OPEC made a huge mistake underestimating the amount of oil Nigeria and Libya could bring to the market (and exempting both countries from the agreement to cut OPEC production);
• Saudi Arabia under-estimating US shale oil resiliency and ability to respond quickly (many analysts have said it would take months for US shale to ramp up; I've always thought it would only take weeks --  DUCs, choking back, amount of infrastructure that has been put in place since 2007)

Perhaps most interesting is the allusion to "Saudi Shenanigans." From the linked Rigzone article:

Saudi Arabia has committed to reducing its exports to the United States to under 1 million barrels per day during the summer months. In addition, the Kingdom has increased its pricing to Asian customers of its crude, which should have the effect of lowering export volumes.

Whether the move to decrease exports to the United States is an attempt at sleight of hand to convince oil markets that crude inventories are draining is up for debate. It should be noted that most crude traders essentially use U.S. crude inventory levels as a proxy for the health of global crude markets due to the availability and quality of data.

Many in the market believe that the Saudis may not be reducing its overall production levels, and could in fact, possibly be using crude that was otherwise destined for the United States as feedstock for power generation in-country – when demand for air-conditioning surges during the summer months.

Remember: Saudi Arabia HAS to cut imports to the US during the summer months -- all things being equal -- if  the kingdom cuts production (wink, wink). Saudi has decreased its crude oil inventories significantly and Saudi's domestic consumption of oil surges in the summer months to provide electricity to run air conditioners.

So, where does this lead us?

Disclaimer: this is not an investment site. Do not make any investment, financial, travel, job, or relationship decisions based on what you read at the blog or what you may have thought you read at the blog.

So, for investors, where does this lead us? The word I have not yet seen in the mainstream business press is "capitulation."

Share prices for oil companies and oil service companies have fallen dramatically since 2014, but the fall has been fairly orderly.

But the Amazon-Whole Foods announcement may accelerate what investment analysts call "sector rotation," when a shift from one sector, let's say the retail sector, to another sector, let's say the tech sector occurs.

Hold that thought.

Generally, oil prices and the US stock market tend to track each other fairly closely. Not always, but generally. Some months ago the price of crude oil and the stock market seemed to track each other. But about a month ago (maybe earlier, I forget) the price of crude oil and the stock market diverged. It's been mentioned rarely on CNBC, that divergence.

It's no longer mentioned.

Today, futures are surging and if everything holds new records will be set -- possibly on all three major indices and yet it looks like WTI will fall again.

Are you still holding that thought? Two things come to mind:

• capitulation; and,
• sector rotation

I think I will stop here. I think most folks can connect the dots. Except to say I can hardly wait for the market to open today.

Futures are still up nicely.