Link to the article American oil production is poised to reach upward to 11 million barrels of oil per day if the price of West Texas Crude reaches $75 a barrel.
Saudi Arabia or Saudi Aramco believes it will, and commodity speculators are following. It is similar to 2008 in June when Goldman Sachs forecast $250 per barrel as the price approached $150.
What events are running through computer modelling to trigger speculative buying? First, the effort of Saudi Arabia to sell shares in Saudi Aramco to the world – at least 5 percent.
The price of oil is the key for the price per share at an initial public offering. It must be high enough to overcome doubts about the company in terms of ultimate economic value and size of its reserves as well as potential legal action based on the 9/11 Saudi Arabian operatives in the destruction of the World Trade Centers and the death of nearly 3,000 and related family injuries.
Second, chemical warfare in Syria and Western military reaction. This is a momentary reflux in trading behavior which dates back to 1973. After 2010 and the appearance of shale and tight oil, buying oil as commodity tight on supply is self-initiated by speculators with no basis in reality. America’s three oil basins now supply oil to replace Middle East shortages in world export flows. Continental North American production adds to a self-sufficient mix.
This event can no longer deprive the United States of physical barrels resulting in shortage of supply. Prices outside of trading pits or online bids and asks are now determined by West Texas Intermediate, which reflects self-sufficiency against non-North American sourced oil. The Persian Gulf against the Permian Basin?
Demand for oil in producer estimates, such as, Saudi Aramco or total range between 1.2 percent and less than 1.0 percent growth per year. Supply of oil from American unconventional sources is increasing, with high prices at 8 percent.
The two year low of downturn prices did not create conditions for a supply crunch. Super-giant oil fields are few and far between even at higher prices. Supply shortage talk on the social and commercial media is promoted by Saudi Arabian interest in higher oil prices to support its potential IPO share price. Offshore Norway has applied shale recovery technology from New Mexico, Texas and North Dakota and can be profitable at $35 per barrel against $80 breakeven in 2013.
Third, reaction to OPEC-Russia announcements of production reductions – oil off the world market — are not likely signals for commodity traders to buy. How much oil can OPEC members and Russia take off the market? How long can they lower production in terms of fiscal requirements?
One last event in production denial would be the imposition of sanctions against Iranian oil exports, which would follow the decision to void the nuclear weapons treaty by President Trump. The North American market for Iranian is almost non-existent.
As before, this Energy Magazine column warns of a downturn next year. How bad? If the buzz around the Permian is that its “health” no longer depends on the price of oil has been taken seriously, the downturn will be serious.
Exxon-Mobil/XTO is preparing to enter the world market of LNG (liquid natural gas) with a plant in Louisiana. Its natural gas feedstock would be from its Delaware Basin production (New Mexico’s Permian).
The scale and size of its LNG facility will place American production and export as a world leader next to Qatar, which is reacting to Saudi Arabian hostility by expanding investment in American oil and gas.
Turning to Europe, the opportunity of geopolitical deployment of American gas to Europe to offset Russian supply promoted by the State Departments of Bush through Obama and now of Trump has been set back.
Germany has approved the Russian natural gas pipeline under the North Sea despite efforts to isolate Russia because of the Crimea annexation.
This means ongoing European natural gas dependence on Russia without transit pipelines through the Ukraine. And indirectly it keeps demand and prices for San Juan natural gas lower.
As long as Marcellus natural gas is semi-stranded by New England’s opposition to building pipelines for its markets, based on environmentalist politics, American natural gas is unable to replace residential reliance on heating oil imported from high-risk Venezuela.
Russian LNG appeared in Boston harbor during the worst of a New England winter as an alternative to low- cost pipeline gas from Pennsylvania. This partially keeps San Juan Basin gas at low prices.
Dr. Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.
“For a week in March, Houston was the site of a world assembly of oil producers engaged in an OPEC-Russia dialogue with American shale or light tight oil producers on supply and — indirectly — price.
OPEC and Saudi Arabia pitched a market information offensive.
Put simply, American oil producers should cut-back or stabilize output in a “family” arrangement to avoid an expansion of supply that threatens the price of world oil.
But there is no U.S. Oil Company (government owned) in America, unlike all members plus Russia which are state companies. Russia is a mix. OPEC members are a price-setting cartel. So, a restaurant in Houston was selected as the site for an elite dinner of OPEC and American shale oil operators.
Platitudes and generalizations dominated the American-initiated conversation, because anything more would be in violation of U.S. anti-trust laws.
Saudi Arabia, consistent with its effort to sell shares in itself in an Initial Public Offering (forthcoming), emphasized there was enough future world demand to satisfy the Americans as well as OPEC.
This was 1.5 percent growth per year for the next decade or two. Almost silence, however, on Saudi Aramco’s capacity expansion of another l.5 million barrels per day as “spare capacity.”
Does the future demand short term or long term offer support for an unspeakable and unenforceable supply agreement that involves enough for all? Will American shale producers in the Permian exclude themselves from capturing any growth of demand?
Devon, no longer in the San Juan Basin, but dominant in Oklahoma, is going for double-digit production increases yearly and is increasing its dividend to shareholders who might otherwise be attracted to the idea of drilling and completing less to prop up the price per barrel.
The Houston dinner failed, as a half a dozen companies did not show up in compliance with legal restrictions. It failed to persuade the America shale industry to act with OPEC’s oil supply and price management as a “family” and not as a law-breaking cartel.
Less than a week later, Iran signaled that it would not renew the production cut that has removed 1.8 million OPEC barrels of oil from the world and increased prices.
Saudi Arabia was projecting a forecast that a tight market for oil is ahead this year or next as oil projects will not replace wells while demand is strong.
Few were sold on this forecast since shale oil well completions are effectively responsive to price signals with well completions compared to conventional replacement-based on prior oil field investment.
Oil traders are largely unconvinced or agnostic listening in to the Houston contradictions. Most will watch Iran in late May as a sell signal in the making of algorithms.
The Trump Administration on steel tariffs takes the Obama Administration’s failure to do so as a starting point. It was Secretary of the Treasury Lew under Obama who made the case for tariffs during his many visits to Beijing. He would accuse China of promoting an overcapacity of steel production for export and consequent flooding of the American market and the United States with cheap steel.
The Chinese no doubt listened politely to the words but did not anticipate action. They followed a strategy of export price advantage for driving American-owned and operated steel out of business.
Action was taken last month by President Donald Trump. And yet nothing in the customary reaction against Trump recalled that President George W. Bush declared sanctions against Chinese Steel export dumping over 10 years ago, which lasted 18 months, and is credited for an American steel innovation-led comeback.
National security requires American made high-quality steel not only for defense and defense-industrial capability, but also for the complex steel in San Juan and Permian natural gas and steel pipelines.
What is needed is metallurgy for manufacturing and equipment for continuous casting, cooling, rolling and welding. There is only one plant left in the United States that has some capacity for high strength pipeline steel (API X70 and X80).
The oil and gas industry in the San Juan Basin should not depend on imports from a non-continental foreign source as a matter of national security.
China already dominates the American market (oil and gas) for steel valves. There is vulnerability if China follows its rare earth history.
First, it lowered prices via exports. Second, with this weapon, American rare earth domestic production failed and China bought the technology and transferred it to China. Third, China raises prices for American users of rare earths.
The North American Trade Agreement (NAFTA) negotiations continue with more confidence that fuels (natural gas) will be exempt from negative outcomes. The exemption for Canada and Mexico from steel and aluminum tariffs based on a no-threat-to-national-security finding and continental sources, suggests understanding that trade in fuels will not be restricted.
Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.
For a week in March, Houston was the site of a world assembly of oil producers engaged in an OPEC-Russia dialogue with American shale or light tight oil producers on supply and — indirectly — price.
OPEC and Saudi Arabia pitched a market information offensive.
Put simply, American oil producers should cut-back or stabilize output in a “family” arrangement to avoid an expansion of supply that threatens the price of world oil.
But there is no U.S. Oil Company (government owned) in America, unlike all members plus Russia which are state companies. Russia is a mix. OPEC members are a price-setting cartel. So, a restaurant in Houston was selected as the site for an elite dinner of OPEC and American shale oil operators.
Platitudes and generalizations dominated the American-initiated conversation, because anything more would be in violation of U.S. anti-trust laws.
Saudi Arabia, consistent with its effort to sell shares in itself in an Initial Public Offering (forthcoming), emphasized there was enough future world demand to satisfy the Americans as well as OPEC.
This was 1.5 percent growth per year for the next decade or two. Almost silence, however, on Saudi Aramco’s capacity expansion of another l.5 million barrels per day as “spare capacity.”
Does the future demand short term or long term offer support for an unspeakable and unenforceable supply agreement that involves enough for all? Will American shale producers in the Permian exclude themselves from capturing any growth of demand?
Devon, no longer in the San Juan Basin, but dominant in Oklahoma, is going for double-digit production increases yearly and is increasing its dividend to shareholders who might otherwise be attracted to the idea of drilling and completing less to prop up the price per barrel.
The Houston dinner failed, as a half a dozen companies did not show up in compliance with legal restrictions. It failed to persuade the America shale industry to act with OPEC’s oil supply and price management as a “family” and not as a law-breaking cartel.
Less than a week later, Iran signaled that it would not renew the production cut that has removed 1.8 million OPEC barrels of oil from the world and increased prices.
Saudi Arabia was projecting a forecast that a tight market for oil is ahead this year or next as oil projects will not replace wells while demand is strong.
Few were sold on this forecast since shale oil well completions are effectively responsive to price signals with well completions compared to conventional replacement-based on prior oil field investment.
Oil traders are largely unconvinced or agnostic listening in to the Houston contradictions. Most will watch Iran in late May as a sell signal in the making of algorithms.
The Trump Administration on steel tariffs takes the Obama Administration’s failure to do so as a starting point. It was Secretary of the Treasury Lew under Obama who made the case for tariffs during his many visits to Beijing. He would accuse China of promoting an overcapacity of steel production for export and consequent flooding of the American market and the United States with cheap steel.
The Chinese no doubt listened politely to the words but did not anticipate action. They followed a strategy of export price advantage for driving American-owned and operated steel out of business.
Action was taken last month by President Donald Trump. And yet nothing in the customary reaction against Trump recalled that President George W. Bush declared sanctions against Chinese Steel export dumping over 10 years ago, which lasted 18 months, and is credited for an American steel innovation-led comeback.
National security requires American made high-quality steel not only for defense and defense-industrial capability, but also for the complex steel in San Juan and Permian natural gas and steel pipelines.
What is needed is metallurgy for manufacturing and equipment for continuous casting, cooling, rolling and welding. There is only one plant left in the United States that has some capacity for high strength pipeline steel (API X70 and X80).
The oil and gas industry in the San Juan Basin should not depend on imports from a non-continental foreign source as a matter of national security.
China already dominates the American market (oil and gas) for steel valves. There is vulnerability if China follows its rare earth history.
First, it lowered prices via exports. Second, with this weapon, American rare earth domestic production failed and China bought the technology and transferred it to China. Third, China raises prices for American users of rare earths.
The North American Trade Agreement (NAFTA) negotiations continue with more confidence that fuels (natural gas) will be exempt from negative outcomes. The exemption for Canada and Mexico from steel and aluminum tariffs based on a no-threat-to-national-security finding and continental sources, suggests understanding that trade in fuels will not be restricted.”
Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.
“The price of oil in 2018 will be volatile with commodity market traders selling on signals of OPEC-Russia “cheating” or members producing more oil than the extended Algiers Agreement output quotas. This should be expected as U.S. shale producers push past 10 million barrels per day and exceed 1970 as the all-time high for the United States.
At 10.4 million bpd (barrels per day), American oil production will surpass Saudi Arabia and Russia. Herein lies the price range: 2015 all over again.
Real OPEC and Russian output will break Algiers (1.8 million barrels off the world market until September). Price range to $62.50 WTI high in the first half of the year and $38.65 at end of the second half or one year from today; 2019 would resemble most of 2015.
There is a second threat to price and production in the Southwest and Dakota. Hedge funds invested in public or listed companies want share buy-backs or dividends. In short, they want to make money now as opposed to operators sinking more cashflow into new production projects. The conflict inside Hess is the first example.
Traditional oil operators are 5-year business planners for returns on investment while the new private equity owners or investors are quarterly or payback pressure points for higher stock market share prices and distribution. OPEC/Russia is the external market threat leading to the lower price range alongside an internal investor/owner threat of less cash flow plow back for future production projects and more for short-term return on investment.
Oil price and production will also reflect Saudi Arabian domestic instability over its simultaneous offensive against Iranian influence in the Middle East and social and economic modernization against traditionalism. The plan is for less dependence on oil exports with technology and manufacturing in the national economy: social change and the status of women in the “revolution.”
“How can Saudi Arabia and OPEC behind them strike a second blow against shale oil producers in the Southwest? The first was the 2014-2017 price and market share war in which they raised production to put the higher cost Americans out of business.
This was partially abandoned at Algiers in a reversal to opt for a higher price for crude oil from $26 to the high $40 range. The marketing tool is lowering their production by 1,800,000 barrels per day.
The second blow is process.
The Saudi Arabian Oil Ministry and its state company, Saudi Aramco, negotiated in London with Glencore (world’s largest trading combined with mining), banks and hedge funds to see if they could reduce the liquidity necessary for American oil and gas shale producers to hedge forward to obtain a higher price.
Without access at only financial transactions costs to the “strip” or the forward price of oil at at least 10 percent higher than current prices “spot,” WPX and all the Permian-Delaware significant producers would not have survived the recent downturn in their current form.
If there is no difference between the price oil today and September 2018, which is called the “contango,” this would be a problem of liquidity – no entity taking the other side against the oil and gas producer on a contract. No cash would be bet against the oil and gas producer who sells forward one year. One side, for example, sells 70 percent of 2018 oil production at June 2018 prices in the present while the other side buys or covers, as the counterpart, the contract.
Saudi Arabia correctly followed data which demonstrated that despite the decline in the price of oil from $100 in 2014 to a low of $26 per barrel, oil producers hedged against the fall and largely survived. Without hedging the producers would have negative cash flows and serious problems of debt to keep going.”
There is instability in the leading oil producer within OPEC and the lowest cost producer in the World. Nothing like this has happened in Saudi Arabia since the middle of the last century.
It is only a matter of the short term before the price of world oil is affected. And its Implications will reach the Four Corners and New Mexico no matter what Congress or The White House does.
First, the instability begins from a dynastic change with an ailing and aging King and a young crown prince ousting his cousin as the successor to the throne as King of Saudi Arabia. This divides the rulers into two factions: the traditionalists or old guard (Ali Al-Naimi) against the modernists and a take-over generation. Second, the oil ministry and Saudi Aramco (the Government-owned and monopoly oil company) is now controlled by the take- over generation.
No doubt President Trump was influential in the recent diplomatic visit to the Kingdom. He gave support to the take-over faction with closer ties to the take-overs through Mohammed bin Salman, now the heir to the throne. Billions in American service company projects with Saudi Arabian petroleum expansion were announced. President Trump concluded with a strategy and tactic of eliminating radical Islam in Saudi Arabia and the Middle East. He said it must be attacked at the roots of the social and political order.
Qatar was next. It has been isolated and diminished by the take-over generation adding more resentment among the traditionalists in Saudi Arabia. While it is the largest producer and exporter of liquid natural gas in the world, it also produces as much as 80 percent of the oil output of the Permian Basin. The big picture is struggle between Iran and Saudi Arabia to dominate the region or Islamic Middle East.
It was the take-over generation that switched Saudi Arabia oil strategy from an anti-American shale and sand price and market share war against West Texas Intermediate oil to a reduction of output in OPEC. This was the decision of Algiers to raise prices in anticipation of a Saudi Aramco initial public offering of shares next year.
Share prices would be sold at higher prices with this cutback of OPEC production.
The Crown Prince moved to restore subsidies and salaries, based on oil revenue, which were reduced or eliminated as the oil price fell because of market share strategy to lower oil prices to shut down or slow American shale competition from 2014 to late last year. Prices moved upward as OPEC withheld some 1.8 barrels from the World Market. But the commodity market has displayed skepticism after an initial rally that not enough supply has been pushed back to “balance supply and demand” this year.
Oil and the emergence of Saudi Arabian instability should converge in a struggle between the traditionalists or old guard over the control of the Ministry of Oil and indirectly Saudi Aramco as a pre-public company. The new crown prince now in control of the country must not fail as head of the take-over generation. The price of oil must increase another 50 percent to $65 per barrel before the Saudi Aramco sale of its stock worldwide – minimum 5 percent and maximum 10 percent.
If this fails or the sale does not meet expectations, the traditionalist or Old Guard will combine an attack on modernism with a return of Saudi Arabia as the residual or swing world supplier of oil with price setting supply actions of higher output for lower prices or lower output for higher prices.
The outcome will impact the future of American exporters of oil. The take-over modernist will accommodate a “balance” which includes a market for Permian exports. The Old Guard will not. A Second Downturn in 2019, forecast in this column seven months ago, will take place with either outcome, but with mitigation from the take-over generation. President Trump will have lost the Crown Prince and the modernists in the coalition to root out radical Islam as he readies for 2020.
Shale oil producers in the Southwest and North Dakota would be losers, if the Trump strategy is stalled or fails because a traditionalist recovery of civil and oil power in Saudi Arabia. This would occur as Saudi Arabia and OPEC could resort to the market share flood of the world market as in 2014.
As never before, President Trump’s 2020 campaign would then strike a new campaign strategy toward a North American oil and gas market with prices determined as continentalist and world oceans imports of oil limited.
The San Juan Basin natural gas future increasingly depends on new markets in Mexico and short-term advantages if Qatar’s half of world’s supply of LNG is isolated or neutered.
“With the Saudi Arabian-American strategy of removing ISIS and terror roots in Middle East societies and governments, the global oil and gas service companies have new projects to expand oil capacity of Saudi Arabia. This moves Saudi Aramco into overcapacity production range and a Second Downturn in early 2019 as forecast in this column six months ago.
Saudi oil production capacity should increase to 13 million barrels per day with Haliburton and others working on projects to increase reserves. This is prepared to flow into export markets to deprive Occidental of its short- term export of domestic oil which the production cut-back under the 1,800,000 barrels per day OPEC and Russian “deal” provided as a temporary marketing opportunity. The price of de-terrorism in the Middle East is more Saudi Arabian oil and lower world prices. Saudi Arabian demand forecasts are no more than 1 percent per annum growth: its new capacity addition could reach 4 percent per annum in the next five years following the service company projects signed weeks ago.
OPEC production and imports to the U.S are up as this column is prepared for publication. The Commodity Market, which determines the price of world oil, would have a trading range breakout if Iranian gunboats break the isolation of Qatar and engage the U.S. Persian Gulf naval capability. However, such incidents would move traders for hours only.
Natural gas prices should continue to move upward as risk hedging begins to focus on buying gas and selling crude. This is a contract which oil price risk is hedged
A laying of the risk of crude oil price declines with a simultaneous buying of natural gas.
Natural gas storage favors San Juan natural gas producers in the winter months ahead. This stimulates a regional Texas offset with new Eagle Ford dry gas promotion.
Lithium prices have sharply declined mainly because of South Korean mining production and investments. This explains the stock market and Tesla Motors. Tesla may not need its mining investment in Nevada to lower the cost of the battery pack.
This shift to downstream concentration which will re-start statewide competition for expanded facilities to relieve its Fremont, California plant. New Mexico economic development competed with three states to capture the giga-factory in Nevada. A second chance for Santa Fe to win in a second round? “
Has the oil price and market share war ended with a Saudi Arabian win? Or, as some fund managers and speculators argue, has Midland won? We are now in a trading range high of $50 per barrel for West Texas Intermediate.
Looking back two years, Wall Street, the oil and gas industry and its trade associations got it all wrong. I was a minority of one in New Mexico with my OPEC analysis of a low of $23 to $28 per barrel which was realized earlier this year. Once again there is triumphalism and hubris about winning the war against OPEC.
What is it all about? If OPEC agrees to freeze production at August output that would put OPEC between 32.5 and 33 million barrels per day. In 2013, OPEC was below 30 million. If they “freeze” it will be at 2.5 million more than early 2014 while our production had dropped almost 1.5 million.
In other words, OPEC oil expanded its market share and more significantly has displaced our oil here at home in the American market by nearly one million barrels per barrel. This is a double win for OPEC and Saudi Arabia: more of their oil imported into our market and fewer barrels of our oil produced, which is the loss of rigs and jobs and a painful downturn.
The Permian Basin and its Delaware Basin extension into New Mexico has become the new North Slope Alaska of the 1970s. It is there that drilling rigs and well completions will be re-activated next year. The “breakeven” price is lower because of geology and cost-cutting service contracts. The downturn contracts, however, will expire and non-Haliburton contractors will ask for more. Margins will tighten as costs increase. But North Dakota has leveled off and Eagle Ford is not the Permian.”
