A Graph Is Worth A Thousand Bbls -- April 27, 2017

Updates

Later 7:47 p.m. Central Time: after weeks of not much being said about the price of oil, there were a flurry of stories today on this subject. I find it fascinating. There are experts on both sides of the coin. I find it fascinating that despite an "OPEC cut in production," the price of oil is trending lower, although tonight futures have WTI back to just over $49 after flirting with $48. It's a fool's errand to predict the price of oil, but I will say again, that once the price of oil starts to move, it can move quickly.

Later, 7:43 p.m. Central Time: Saudi Aramco CEO says peak oil demand is a misleading theory -- Bloomberg. Data points:

• Saudi says those who think crude oil demand will peak by 2030 are wrong
• Saudi says crude oil demand will continue to grow well into the middle of the century
• this is what Saudi is worried about:

Rather than being concerned about peak demand, the world should focus on the “grave threat” to oil supplies resulting from the cancellation or deferral of about $1 trillion of energy projects amid the slump in crude prices, he said.

It would be interesting to know what Saudi's timeline is: when will the cancellation or deferral of about $1 trillion in energy projects begin to affect the actual daily supply of oil and the actual price of oil? This year? Next year? Ten years from now. I still say it's going to take a long time to burn off the discoveries made in 2009, 2012, and 2014.

Later, 7:31 p.m. Central Time: CNBC has the same story and says "it will get worse."

While conventional oil activity is in freefall, U.S. shale drilling is on an upswing, thanks to American companies halving the cost of production, IEA notes. U.S. crude production has recovered to more than 9.2 million barrels a day, the highest level since late 2015.

Producers in the U.S. shale patch rely on an expensive method called hydraulic fraction in which they inject water, minerals and chemicals at high pressure into wellbores to break up shale rock and release oil and gas. More efficient "fracking" will help these producers grow output by 2.3 million barrels a day by 2022, IEA projects.

But shale cannot make up the shortfall in conventional oil development: Conventional sources account for 69 million barrels a day of the current global output of 85 million barrels a day.

I think this is a fascinating story. There are so many permutations. One must remember, crude oil reserves are a function of the price of oil. Recoverable reserves change considerably when oil moves from $40/bbl to $100/bbl.

The real question is how much shale could be produced in the US with WTI at $80/bbl? or $100/bbl? At the sidebar at the right is a long, long list of shale plays in the US. For all practical purposes there are only three crude oil shale plays that matter right now: the Permian, the Bakken, and the Eagle Ford, and some might argue only two really matter.

Original Post

This story has been told several times in several places over the past few days. I have not posted the story nor linked the story until now. There were several reasons why I did not post/link it.

But now, with this graph, perfect for posting:

I think the graph would have been even more "effective" had they drawn the x-axis to 75 billion bbls to accurately capture the 60-billion-bar for 2009. Folks are concerned that low discovery rate in past two years will mean severe supply/demand imbalance sooner (2018) than later (?).

Maybe, maybe not. But when I see the graph above, and note the 2009 bar, as well as the 2012 and 2014 bars, my hunch is it will take a few years to work that off, as well as the three billion bbls of crude oil now being stored globally.

Reason Why I Love To Blog -- Reason #2 -- I Can't Make This Stuff Up -- Top Story Of The Month? -- April 27, 2017

Just a couple of days ago I posted photos of a Chinese ship in Portland, Oregon, on the Willamette River being loaded with North Dakota wheat, and once loaded will sail to Peru (South America) to offload that wheat.

Today, of all things, over at Twitter, a photo of a tanker carrying Bakken crude oil to Asia was posted:

The photo is linked to this Downstream Today story. Data points:

• first ever reported export of North Dakota's crude oil to Asia left port last month
• it is expected to be the first of numerous cargoes once the key DAPL starts moving oil in May
• Swiss-banked Mercuria Energy Trading S.A. loaded more than 600,000 bbls of Bakken crude, as well as some Mars Sour crude, in late March off the coast of Louisiana
• very large crude carrier (VLCC)

And then this from the linked story:

The burgeoning appetite for U.S. crude among Asian refiners could be a boon for Bakken crude, especially when the Dakota pipeline starts up.

That line can carry 470,000 barrels per day of oil from North Dakota's Bakken play to the Gulf, the starting point for the lion's share of U.S. oil exports. At least two Asian refiners told Reuters that they are interested in Bakken light crude because of the products it can yield through refining.

With the start of Dakota Access (DAPL), Bakken producers such as Hess Corp and Continental Resources for the first time will have a direct route to export terminals on the Gulf Coast, better connecting them to international markets.

"There seems to be increasing demand for light quality crude in Asia," said Michael Cohen, head of energy commodities research at Barclays. "I think with Dakota Access coming online, it makes the pipeline route from the Bakken to the Gulf Coast more economical."

Memo to self: I need to send a note to Jane Nielson.

There are several story lines here. One has to do with the reason Asia might be preferring Bakken light. Long-time readers know this story. 

Random Update Of A CLR Antelope Well In Elm Tree Oil Field -- April 27, 2017

This well has been added to the "monster well" page and to the "wells of interest" blog.

• 21488, 1,357, CLR, Antelope 3-23H, Elm Tree, Three Forks, 29 stages, 2.8 million lbs, t8/12; cum 532K 2/17;

Note to newbies: I have no specific criteria for "monster wells." I started the "monster well" page early in the boom when EURs for middle Bakken wells were expected to be around 350,000 bbls of oil. I thought, at the time, then, any well that was on its way to 500,000 bbls in three or four years could be considered a monster well.

Now, just a few years later, some operators won't drill a Bakken well if the likely EUR is not at least 750,000 bbls of crude oil.

Some (probably most) readers will feel that many of the wells on the "monster well" page (linked above) are not really "monster wells." That's fine. I follow them there for other reasons also.

Maybe some day I will add a page for super-monster wells -- wells that go over 1 million bbls, and then the super-duper monster wells, those that go over 2 million bbls.

It is my expectation that any given Bakken well is likely to be producing for 30 years. During that time, primary production from any given Bakken well will be affected by re-working the well; re-fracking the well; re-entering the well for additional side-tracks; activity from neighboring wells; as well as other factors. The general consensus is that 50 - 70% of a Bakken well's EUR will be produced in the first couple of years after being completed. I'm not convinced. I think the Bakken still has many surprises.

Why I Love To Blog -- Reason #46 -- April 27, 2017

Updates

April 29, 2017: from Rigzone, gasoline demand concerns pressure oil prices. I beat the drum regularly on this one; seldom do I see stories about the decline in gasoline demand. Finally Rigzone has a story. Data points:

• for the second week in a row, EIA reported a substantial build in US gasoline inventories
• inventories rose by 3.4 million bbls
• demand for gasoline fell slightly
• 4-week average was down about 2% versus same period last year
• in anticipation of US driving season, refiners have been ramping up
• refining: 17.3 million bbls per day; seasonally high utilization rate of 94.1%
• at the same time, imports of gasoline have been unusually high over the last two weeks: almost one million bbls/day

Original Post

 

I have said many, many times that the best way to track inflation and compare the economies among the 50 US states, and to compare the US economy with the global economy is to track the price of a MacDonald's quarter-pounder.

Likewise, I have often said that the best indicator of jobs / job growth is gasoline demand. I have explained the reasoning elsewhere but I doubt I could find it now. If I do, I will post the link.

Today, the number of first time unemployment claims surged unexpectedly; the number of claims jumped 14,000 without any explanation (as far as I know; mainstream media will probably say it had something to do with the weather). Whatever.

So, the number of first time unemployment claims surged unexpectedly. Let's see what gasoline demand did. Wow! Gasoline demand has been absolutely flat for the past four reporting periods and below last year's demand (prior to the most recent report today) going into the busy US driving season. Until I saw the jobs report today, I had expected the gasoline demand to rise, perhaps even going up enough to overtake the gasoline demand one year ago.

But wow! Completely unexpected (until the jobs report came out): gasoline demand decreased and remains below the demand one year ago. Gasoline prices continue to remain very, very low. Crude oil was trading in a narrow range around the $50-line but in the past 24 hours dropped 2% to $48 and change. Right now it's down 2.5% for the day, and trading at $48.38.

Gasoline demand:

Something Happening At A Hess HA-Mogen Multi-Well Pad? -- April 27, 2017

April 27, 2017: #20738 and #16694 have been off-line since 12/16. See this post where I track the HA -Mogen wells.