Invisible Hand Defeated OPEC Cartel?

No-Brainer Production Freeze Ends Mindlessly

By Art Berman

The production freeze meeting in Doha was a no-brainer but it ended mindlessly with no action taken.

OPEC plus Russia and Mexico met yesterday to agree to do almost nothing by freezing production. Instead, they agreed to do absolutely nothing leaving everyone wondering why they even held the meeting.

All that they had to do was agree not to increase oil production above levels in January. They could have modified that to current levels. Probably, that would have ensured that oil prices remain near currently inflated levels that were created mostly by expectation of a production-freeze agreement to begin with.

It should have been a no-brainer because the Doha group’s production is already 130,000 barrels per day less than it was in January (Figure 1). Kuwait, Qatar, Russia, Mexico, Ecuador and Indonesia are all producing slightly more than they were in January but were prepared to go back to those levels.

Figure 1. Doha participants March vs. January 2016 crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.

Iran is producing about 350,000 bpd more than in January and has stated its intent to raise output much higher. Everyone else is producing less or the same as in January.

But this has been clear for months. Iran called the idea of a production freeze “ridiculous”  in February and did not even send a representative to the meeting in Doha.

So, what was the point of the meeting?

READ THE REST ON FORBES

Today's ENERGY News - 19 April 2016

Top Stories 

Botched Doha deal undermines OPEC credibility, oil prices tumble

Oil prices tumbled on Monday after a meeting by major exporters in Qatar collapsed without an agreement to freeze output, leaving the credibility of the OPEC producer cartel in tatters and the world awash with unwanted fuel. Tensions between Saudi Arabia and Iran were blamed for the failure, which revived industry fears that major government-controlled producers will increase their battle for market share by offering ever-steeper discounts. “OPEC’s credibility to coordinate output is now very low,” said Peter Lee of BMI Research, a unit of rating agency Fitch. “This isn’t just about oil for the Saudis. It’s as much about regional politics.” Morgan Stanley said that the failed deal “underscores the poor state of OPEC relations,” adding that “we now see a growing risk of higher OPEC supply,” especially as Saudi Arabia threatened it […]

 reuters.com

Exclusive: Chevron puts Myanmar gas block stakes worth $1.3 billion up for sale – sources

U.S. oil and gas major Chevron Corp has put all of its Myanmar gas block stakes up for sale, which at a combined likely valuation of $1.3 billion, would be the biggest deal involving Myanmar assets to date, financial sources familiar with the matter said. The sale, part of Chevron’s efforts to preserve cash and retreat from non-core assets in the wake of sliding oil prices, is seen as setting the tone for future deals in a country that is opening up for business after historic elections last year. San Ramon, California-based Chevron is working with an U.S investment bank on the deal, the sources said, declining to be identified as the sale process has not been made public. Chevron, which has been operating in Myanmar for about two […]

 reuters.com

Big Oil’s `Rock Star’ in Congress Runs Rig Tours to Win Votes

Congressman Steve Scalise leaned over the railing of the Chevron Corp. oil rig floating in inky blue waters 250 miles off the Louisiana coast, and marveled to a cluster of lawmakers that it produces 75,000 barrels of crude every day. Scalise is one of the oil industry’s busiest tour guides in Congress. Eight times, he’s lured colleagues onto helicopters bound for remote platforms and production facilities in the Gulf of Mexico. His motive: to persuade even Democrats to overturn Obama administration rules that will add costs to offshore drilling. “Some bureaucrat in Washington that’s never drilled before comes up with this standard and says ‘This is how you drill every well in the Gulf,’” Scalise told his colleagues. “It makes absolutely no sense.” For oil and gas companies plumbing Gulf waters, Scalise is an evangelist of growing importance. First appointed in 2008 to finish the term of Bobby Jindal, […]

 bloomberg.com

Canada’s Oil Industry To See 62% Decline In Investment

Canada’s oil production may see a small increase this year as new projects come online, but the good news stops there for the industry that has seen a 62 percent decline in investment since 2014 Canada’s oil production could see a small increase this year as several major projects that were planned before the collapse in oil prices reach their completion. But the project pipeline, so to speak, looks pretty empty beyond the current crop of projects under construction. Canada produced 4.5 million barrels of oil per day (mb/d) in 2015, which could rise slightly to 4.6 mb/d this year and 4.8 mb/d in 2017 as a few major projects finish up. However, according to the comments from several executives at the top oil sands companies – Suncor Energy, Cenovus Energy and Meg Energy – the megaprojects of yesteryear are likely a thing of the past. Speaking at […]

  oilprice.com

Low oil prices having a chilling effect on Alaska’s economy

Alaska has long been a bastion of the US’ oil production, even giving dividend checks to residents from oil revenues. But oil price woes are having a major effect on a state that has no state income tax or state sales tax, and crude production on Alaska’s North Slope in 2015 fell to its lowest point in decades. Platts senior oil editor Brian Scheidspeaks with Diane Kaplan, president of Alaska’s Rasmuson Foundation, about the impact of low prices, declining supplies, and how Alaska lawmakers are having to take a hard look at changes to the state’s tax structure.

 platts.com

Ruble Drops Most Globally as Gains Unravel on Failed Oil Talks

The ruble fell the most worldwide and Russian government bonds headed for the biggest drop in two months as oil plunged after weekend talks between crude producers brought no deal to support prices for the nation’s main export. The Russian currency weakened 2.7 percent to 68.2950 per dollar as of 10:38 a.m. in Moscow, the most on an intraday basis since Feb. 24, as Brent crude tumbled after discussions in Doha ended without a pact freezing output. Russia’s five-year debt dropped for a fourth day, lifting the yield 12 basis points to 9.48 percent, the biggest increase since Feb. 2. The failure of the negotiations has halted a rebound in crude prices that boosted the ruble to the strongest since November last week and eased pressure on President Vladimir Putin’s government as it wrestles with a second year of recession. Societe Generale SA and Rabobank both predicted the ruble […]

 bloomberg.com

Peak Oil Today - 18 April 2016

"PEAK OIL TODAY"

The End Of Fossil Energy 

The very best weekly analysis and evaluation of the global peak oil situation with additional briefings, charts and videos, added by the curator from accredited professional sources, to enhance the informed investor's knowledge and understanding of its deep complexities and evolving outlooks. 

Everyone should "Bookmark ' this very important weekly post to stay abreast of this most critical aspect of global economics and life on this planet.

 

Peak Oil Review – 18 April 2016 

By Tom Whipple

Quote of the Week

"Wells Fargo’s foray into oil shows how Wall Street misjudged the risks hidden in an esoteric type of energy financing long thought to be bulletproof.”

Asjylyn Loder, Bloomberg News

   

Contents

1.  Oil and the Global Economy

2.  The Middle East & North Africa

3.  China

4.  Russia/Ukraine

5. The Briefs

1.  Oil and the Global Economy 

Oil prices climbed to recent highs early last week on hopes that the Doha meeting would eventually lead to some sort of production cut, a weaker dollar, and scattered production problems. Later in the week prices fell as the US crude glut continued to grow and expectations that something meaningful would come from the Doha meeting subsided. At week’s end, New York oil was at $40.36 and London at $43.10 up 2.8 percent for the week.

As many had predicted, the meeting in Doha on Sunday to freeze oil prices ended without an agreement. Even with the deal watered down to only last six months, the rivalry between Iran and the Saudis was too much for an agreement to reached.  Some commentators believed that a minimum some sort of face-saving agreement would have been contrived, but even this did not happen. From now on oil price movements may be based more on fundamentals and less on wishful thinking about a nearly meaningless production freeze.

Last week, the IEA, EIA, and OPEC issued their prognostications as to what was going to happen to oil production and prices in coming months. There is clearly considerable disagreement about the immediate future. The IEA has become the most optimistic, saying that the oversupply of oil which currently is about 1.5 million b/d will shrink to 200,000 b/d in the third and fourth quarters of 2016 thereby nearly eliminating surplus production. The Agency sees much of this decline in production coming from the US shale oil industry. This assessment is a shift in outlook, as a few weeks back the IEA was expecting overproduction to extend well into 2017. The agency remains confident that world oil consumption will increase by 1.2 million b/d this year.

Other observers are not so sure that overproduction will shrink rapidly as the IEA is forecasting in the next six months.  OPEC now sees global demand for oil as being less than previously thought. This is in line with an IMF projection that world economic activity will contract during the remainder of the year. OPEC says that its production will remain about the same for the remainder of the year, but that non-OPEC production will slip by 730,000 b/d during 2016.  This is clearly a considerably smaller drop than the IEA is talking about. The EIA, in Washington, projects that US crude production which averaged 9.4 million b/d in 2015, will now come in at 8.6 million in 2016 and 8.0 million in 2017. The Administration’s recent numbers currently put US production just below 9 million b/d.

New numbers from South Dakota released last week show crude production falling by only 4,000 b/d from January to February and that the state still has a backlog of some 900 wells that have been drilled and not yet completed. Oil producers in the state could continue without much of a drop in production just by completing already drilled wells along with a minimal amount of new drilling in sweet spots using the 29 drill rigs still in operation. The issue of just how fast US shale oil production will drop is still open. Deepwater production in the Gulf is expected to continue growing as drillers complete wells started years ago in which they have too much invested to delay production.

The US shale oil industry, however, does not seem to be as impressed as speculators by the recent increase in prices and continues to reduce the number of rigs in operation. Much of this is due to serious financial problems. Hardly a day goes by now without a declaration of bankruptcy by a company in the US oil business. Many of these companies are billions in debt and have little hope of drilling themselves out of their problem unless oil prices return to record levels well above $100 a barrel. US bank earnings started to come out last week, and they are mostly down due to writing off billions in loans to oil companies that are now bankrupt. Numerous shale oil drillers have had their lines of credit sharply curtailed or subjected to harsh regulation by their bankers who are tiring of pouring money into losing operations with little prospect of profitability.

In recent weeks, large numbers of oil tankers have been noted accumulating in unprecedented numbers just off of many major oil ports. Some of these tankers, such as those off Basra, Iraq, are waiting to load, but more oil is now being produced than the port facilities can handle, especially in bad weather. Off several Chinese oil ports, many tankers have been waiting for weeks for a chance to unload due to the boom in oil imports by China’s small independent refiners.

In other places, oil that has already been sold profitability on the futures market is simply being stored aboard tankers until in is time for delivery. The final reason for the long lines of waiting tankers is that the onshore terminals are nearing capacity and that oil must be shifted around to make room for incoming shipments. Whatever the reason, anchored crude carriers are very expensive propositions and a few weeks’ delay in unloading can easily erase any profit the owners had hoped to make from the voyage. In the last two months, similar accumulations of an unusually large numbers of tankers have been reported off Rotterdam, Houston, and Venezuela. This situation may be another sign that some of the overproduction of oil that is taking place in the world is, for the time being, simply ending up sitting on oil tankers longer than usual.

There is clearly much confusion as to where oil prices, production, and consumption are going in the next year. Optimists are saying the oil price plunge of the last two years is now over and that the markets will rebalance before the end of the year. Pessimists still foresee the possibility that the overproduction of crude, now put at circa 1.5 million b/d, will continue into next year. They note that the oversupply is reported as increasing in March. Some see recent indications that China’s economy could be bottoming out as a hopeful sign of better economic growth ahead and some are talking of a major economic disaster in the coming year.

Today's ENERGY News - 18 April 2016

Top Stories 

Oil Slips While All Eyes Are On Doha

When looking at some of the key figures for the oil and gas industry this week, in which we see that oil prices have lost some of their gains and in which we continue to notice a decline in U.S. crude oil production which has now slipped below 9 million barrels per day. 

    Friday April 15th 2016 Oil prices held their ground above $40 per barrel this week, bouncing around at their highest levels since December 2015. Prices lost some ground at the end of the week but held their ground, awaiting the result from Doha when several OPEC members sit down with Russia to hash out their production freeze deal. There has been a lot of confusion surrounding the meeting – whether Saudi Arabia would sign up without Iran’s participation, whether or not […]

  oilprice.com

North Dakota Oil Production Falls for Third Month in a Row

North Dakota crude oil production fell for the third month in a row, ticking down 0.4% in February and hitting its lowest level in 18 months. Slumping oil prices are starting to affect output in U.S. shale fields, including the prolific Bakken formation in North Dakota. Oil production in the state dropped to 1.11 million barrels a day in February from 1.12 million barrels a day in January , according to the latest data from the North Dakota Department of Mineral Resources. 

 Supporting Exhibit

North Dakota data from the NDIC is out. Bakken Three/Forks data shown in chart above (NDIC Data) with a Red Queen Model (based on Rune Likvern’s original work) using data gathered from the NDIC by Enno Peters to develop well profiles.

Peak Oil Barrel

The state’s output hasn’t been that low since July 2014. The slightly lower production in February follows a 2.6% drop in January and a 2.5% slide in December , data from the department show. February’s slower pace of decline reflected an uptick in completions of previously drilled wells, as cash-strapped producers sought to boost revenue despite low oil prices, said Lynn Helms, director of the state’s Department […]

 www.wsj.com

Goodrich Petroleum Files For Chapter 11 Bankruptcy Protection

The company has filed for chapter 11 bankruptcy protection. Troubled U.S. oil and gas firm Goodrich Petroleum Corp. said on Friday it has filed for chapter 11 bankruptcy protection, joining the ranks of a number of energy companies that have fallen victim to volatile oil and gas prices. The Houston-based energy firm, which was first formed in 1995 and has interests in shale properties in Mississippi, Louisiana, and Texas, filed for protection to eliminate $400 million in debt, leaving behind only $40 million in debt related to a first lien reserve based loan facility. 


Goodrich says it expects to maintain sufficient liquidity during the financial restructuring to continue running its operations, including paying salaries and suppliers. The company filed for chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division after failing to secure shareholder and debtholder […]

  www.wsj.com

Clinton, Sanders spar over fracking

Democratic presidential candidates Hillary Clinton and Bernie Sanders debated for the ninth time Thursday in New York. Photo by Ray Stubblebine/UPI NEW YORK, April 15 (UPI) — Hillary Clinton said gas from shale is the bridge to a cleaner future, though rival Bernie Sanders said embracing fossil fuels was the wrong policy move. CNN hosted the debate between the former Secretary of State Clinton and Vermont Sen. Sanders in Brooklyn ahead of the state primary. Sanders has called for a ban on hydraulic fracturing, known also as fracking, as part of a push to advance a low-carbon economy. 


Pressured on the potential loss of jobs, the senator said the consequences of oil and gas weren’t the fault of industry workers. “It is not their fault that fossil fuels are destroying our climate,” he said. “But we have got to stand up and say right now, as we would if […]

View full article at www.upi.com

Wall Street’s Oil Crash, a Story Told in Charts

Here’s Why Wells Fargo Profit Fell This is what it looks like on the down side of the biggest oil boom in U.S. history. JPMorgan Chase & Co., Wells Fargo & Co. , Bank of America Corp. and Citigroup Inc., with a combined $190 billion in energy loan exposure, all announced this week that they’re setting aside more money to cover losses. Though energy is a relatively small share of their assets, it’s been a big issue on analyst calls this week. The record-breaking surge in U.S. oil production wouldn’t have been […]

  www.bloomberg.com

Should Canadians Be Rooting for Lower Oil Prices?

CIBC World Markets Corp. Deputy Chief Economist Benjamin Tal suggests there’s another unfamiliar force Canadians ought to embrace: lower oil prices. For Alberta, the nation’s energy producing heartland, oil’s move from $30 to $40 per barrel “is not a gamechanger,” according to Tal, as it’s unlikely to spur producers to boost capital spending. But on the flip side, the pickup in oil prices is making it harder for the rest of the economy to perform well, he said. Because oil plays an immense role in determining Canada’s terms of trade, there is a strong correlation between the value of the Canadian dollar and crude prices. The recent strength of the loonie could jeopardize the competitive advantage exporters have […]

  www.bloomberg.com

Oil Slides as Hope Fades for Doha Agreement

Oil falls as investors expect

 little from Doha meeting

Oil prices fell on Friday in subdued trade as traders and analysts anticipate a weekend meeting of major oil exporters to do little to help to clear global oversupply quickly, even though it would provide a floor for the market.

All eyes are on Doha as producers, led by top exporters Saudi Arabia and Russia, meet on Sunday to discuss freezing output around current levels in an effort to contain a glut exacerbated by production that exceeds demand by about 1.5 million barrels a day.

It would be the first joint action by major OPEC and non-OPEC producers in 15 years, although Iran has refused to participate, saying that it wants to rebuild its output to levels achieved before imposition of the recently lifted economic sanctions.

"Unless there's a total surprise, the likelihood is that the Doha meeting on Sunday between OPEC/non-OPEC will produce something very wishy washy and will be nothing more than smoke and mirrors," one trader said. "I therefore want to sell crude today."

Traders said profit-taking by funds ahead of the meeting also added to the pressure on prices in the session.

Brent crude futures LCOc1 settled down 74 cents at $43.10 while U.S. crude CLc1 ended down $1.14 cents at $40.36. Both contracts lost more than 3.5 percent earlier in the day. However, on a weekly basis, prices were higher for the second week in a row in the run up to the meeting.

Oil also trimmed some losses after data from Baker Hughes showed U.S. energy firms cut oil rigs for a fourth week in a row to the lowest level since November 2009.

With discussions among producers focusing on freezing output rather than cutting it, most analysts said they had little hope for a deal that reduces the global oversupply.

The crude surplus has pulled down crude prices by as much as 70 percent since mid-2014.

"A cut in production is very unlikely at this meeting and I would say it will probably not even be a discussion item on the meeting agenda," said Energy Management Institute analystDominick Chirichella.

READ MORE

Reuters