Analysis by the father of American Geopolitics Dr. Daniel Fine, MIT.

Posts tagged ‘Congress’

Fine: No such thing as ‘free trade’ with OPEC as a cartel


 

The article by Dr. Daniel Fine can be found here @ FARMINGTON DAILY TIMES/USA TODAY->  https://www.daily-times.com/story/money/industries/oil-gas/2018/05/27/if-free-traders-saddle-up-higher-oil-prices-and-opec-run-cover/615999002/

Among some speakers at the 2018 Four Corners Oil and Gas Conference last month in Farmington there were evasive positions on the future of OPEC. Also, previous online or media positions of “free trade” were muted to be popular with the oil, gas and equipment operators who made up those in attendance.

There is no “free trade” with OPEC as a cartel, either with assigned member production quotas or with the current maximization of revenue strategy led by Saudi Arabia. If you hear free traders saddling up with current higher prices and OPEC, run for cover.

On Thanksgiving 2014, OPEC and Saudi Arabia refused to reduce oil production volume and entered a market share offensive against non-OPEC high cost oil producers in shale and tight sands.

This was a glut, or oversupply, of world oil but it was a chance to put San Juan oil just then — with rising production in the Gallup Sand — out of business. This was only reversed through the Algiers Meeting and agreement among OPEC members by cartel anti-free trade supply and demand manipulation.

President Trump captured this with his position that something was “artificial” about the price and supply of OPEC oil. Internal changes in the ruling House of Saudi Arabia, coupled with its power over OPEC, raised the price of world oil at least temporarily within the historic cycle of the industry.

Some Republicans oppose Trump and published or spoke against his opposition to OPEC. which is also connected to higher oil prices for consumers who might be voters. OPEC members had no problem with a hypocritical response to let the market work. Not only is there no free market making oil prices, but oil and gas operators do not make markets any longer. Commodity traders have replaced them since the 1980s.

Only three years ago, when OPEC/Saudi Arabia had deviated from its role of supporting the world price of oil through supply volume strategy, Harold Hamm of Continental Resources called for smashing OPEC to protect independent and non-super major producers in New Mexico, Oklahoma, Texas and North Dakota.

At the Expo, this writer traced current OPEC oil price support to the fall of Venezuela as a producer.

Less Venezuela barrels in OPEC production protects other members, and now, Russia, from real cutbacks. Among American conservatives who believe there are free markets for oil, very little understanding of world petroleum economics and history exists.

What happens to OPEC supply and demand management when Saudi Aramco floats its shares on stock markets and reached its target of an intake of 100 billion dollars? Are New Mexico and Southwest producers preparing planning price scenarios similar to world producers for oil prices next year or in 2020? What would Washington do in a second downturn with the oil prices “awry” again?

In a free trade world, nothing.

On natural gas prices that afternoon, there was a sense of how low the San Juan discount to Cushing could go and adaptation in taking some producing gas wells out of production.

Late that afternoon, after New Mexico Secretary of Energy Ken McQueen spoke of his work on the Governor’s Initiative of cost-cutting via state regulatory access and permitting on Federal land, I concluded that the San Juan Basin still has too much natural gas too fail.

And what happened to the big banks 10 years ago?

And General Motors?

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.

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Dr. Daniel Fine: Oil speculation and natural gas/LNG in New England and Russia


 

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.

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.

Hedging threat and Venezuela Oil By Dr. Daniel Fine


The full article is here-> http://www.daily-times.com/story/money/industries/oil-gas/2017/08/27/hedging-threat-and-venezuela-oil/580510001/

“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.”

Oil and the Saudi Arabia threat by Dr. Daniel Fine


Dr. Daniel Fine, New Mexico Center for Energy Policy

The article by Dr. Daniel Fine is here-> http://www.daily-times.com/story/money/industries/oil-gas/2017/07/30/oil-and-saudi-arabia-threat/499741001/

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.

The Panhandle Import Reduction Initiative (PIRI) Calls for New White House Policy: Unfair Trade Endangers U.S. Oil Industry Too


The full press release is here-> http://www.businesswire.com/news/home/20170518005304/en/Panhandle-Import-Reduction-Initiative-PIRI-Calls-White

May 18, 2017 06:00 AM Mountain Daylight Time 

AMARILLO, Texas–(BUSINESS WIRE)–In a letter directed to the President of the United States and received by the White House, the founders of (PIRI), the Panhandle Import Reduction Initiative representing thousands of independent small producers of oil in the Southwest United States wrote, “We call upon President Donald J. Trump for a second Presidential Memorandum to order the Secretary of Commerce, to establish the crude oil industry as a “Core” industry to be added to steel, aluminum, vehicles, aircraft, shipbuilding and semiconductors. Crude oil should be recognized as one of the critical elements of US manufacturing and defense industrial bases, which we must defend against unfair trade practices and other abuses.”

“We call upon President Donald J. Trump for a second Presidential Memorandum to order the Secretary of Commerce, to establish the crude oil industry as a “Core”

The PIRI founders further stated in the letter “Following the Presidential Memorandum on the case for steel against Chinese export practices that you signed, PIRI further calls for an immediate Investigation by the Department of Commerce of Saudi Arabia and OPEC abuse between August 2014 and March 2016 of the American oil industry by expanding production to lower world oil prices to destabilize and cause hardships to American producers mainly of light tight oil (shale oil). This was an announced effort to undermine and shut-down producers with higher costs of production. According to one estimate some 150 US companies filed bankruptcy and $150 billion in capital outlay postponed or cancelled. More than 300,000 US industry-related jobs were lost.”

Dr. Daniel Fine: OPEC oil and ours, who wins? Daily Times 10/29/16


The full article is here->  http://www.daily-times.com/story/opinion/columnists/2016/10/29/fine-opec-oil-and-ours-who-wins/92440428/

This is an excerpt of the article ”

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.”

TV BROADCAST:OIL IMPORT QUOTAS RALLY


Published on Jun 21, 2016

“FARMINGTON – A group of oil and gas executives and energy policy experts from the Texas Panhandle and New Mexico’s piece of the Permian Basin are pushing a plan to restrict seafaring imports of foreign oil from coming into the U.S. in order to stabilize the oil and gas industry and bring back lost oilfield jobs.

The group’s plan, which would exempt crude oil imported from Mexico and Canada, is an effort to push back against the price wars the group said are being waged by OPEC, or the Organization of the Petroleum Exporting Countries, led by Saudi Arabia.

Members met at the School of Energy at San Juan College Tuesday to promote the “Panhandle Import Reduction Initiative,” which they say could be implemented in multiple phases within 90 days of the next administration, with the ultimate goal of reducing heavy crude oil imports to about 10 percent of demand.” SEE VIDEO-> OIL IMPORT QUOTA RALLY: TV BROADCAST

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