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

Posts tagged ‘Hedge Funds’

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.

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Fine: OPEC in Houston and steel pipes from China


The article by Dr. Daniel Fine is found here-> https://www.daily-times.com/story/money/business/2018/03/25/russia-us-opec-oil-conference-houston-trump-steel-tariffs-china/421943002/

“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.

Flashback to 2016: Iranian oil likely to push prices lower

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.

Flashback to 2016: Iranian oil likely to push prices lower

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.

Dr. Daniel Fine: Oil and gas: A look at what 2018 may bring


by Daniel Fine, Energy Magazine – Daily Times USA TODAY

Trump leads mass deregulation effort; comeback seen for San Juan Basin

For more of the article go here-> http://www.daily-times.com/story/money/business/2017/12/24/fine-oil-and-gas-look-what-2018-may-bring/956281001/

“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.”

 

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.”

Oil producers want U.S. to restrict imports


By Kevin Robinson-Avila / ABQ Journal Staff Writer

The full story is here-> http://www.abqjournal.com/803674/oil-producers-want-u-s-to-restrict-imports.html

“ALBUQUERQUE, N.M. — New Mexico and West Texas oil producers are gearing up for a national effort to draw all major U.S. oil basins into a grassroots movement to restrict crude imports from overseas.

Leaders of the Panhandle Import Reduction Initiative, which launched in April in the Permian Basin, are seeking public meetings and rallies in other oil-producing zones to convert what’s now a regional initiative into a national movement, said Daniel Fine, associate director of the New Mexico Center for Energy Policy, who is working with local producers.

Those efforts will kick off in September with a presentation at the fourth Southeastern New Mexico Energy Summit in Carlsbad. After that, initiative leaders expect to hold public meetings in other shale oil basins, including the Bakken in Montana and the Dakotas and the Eagle Ford in South Texas.

“We’ll take it to Carlsbad first, and then it goes national,” Fine said. “We want to organize public rallies with producers and field workers whose jobs are at stake. This is a grassroots effort in the basins where the oil bust has taken place.”

The initiative is a reaction to the Organization of Petroleum Exporting Countries’ aggressive oil-pumping policies since mid-2014, which have helped drive global oil prices to ten-year lows and thrust domestic U.S. production into crisis. Initiative leaders say those policies were a deliberate effort by the mid-Eastern members of OPEC, particularly Saudi Arabia, to drive U.S. producers out of business.

Banning crude imports from overseas would undercut OPEC’s ability to manipulate prices, they say, and allow U.S. producers to ramp up domestic production to supply the U.S. market.”

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