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

Posts tagged ‘oil import’

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.”

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Our View: Limiting oil imports would help to protect American producers


by the Lubbock Avalanche-Journal editorial board

The full story is here-> http://lubbockonline.com/filed-online/2016-04-28/our-view-limiting-oil-imports-would-help-protect-american-producers#.VzaWRPkrLIU

“When the price of oil drops, so does the cost of gasoline. But while people are enjoying paying lower prices at gasoline pumps, plunges in oil prices can cause economic damage in Texas.

And it can put American oil producers out of business when the price of foreign oil imports gets cheaper than the costs of extracting oil from the ground in the U.S.

Oil producers in the Panhandle recently announced the Panhandle Import Reduction Initiative. Their hope is to limit the amount of oil that can be imported from other countries.

We wish them success in getting sympathetic ears to hear their initiative and gathering like-minded people to help further it.

They are right that a limitation should be set on the amount of oil imports from the Organization of Petroleum Exporting Countries.

Representatives of OPEC’s 18 nations recently met in Doha, Qatar. Among their topics of discussion was whether to freeze oil production levels.

The nations didn’t reach an agreement on the subject.

“OPEC and Russia and various countries met and decided they weren’t going to freeze oil and, in fact, OPEC said they will increase production again. This will drive the price down to $26 (a barrel) again,” said oil producer Tom Cambridge.”

Texas Panhandle And Artesia New Mexico Strike Back With Import Quotas On Foreign Oil: A Reaction To Doha Meeting


The complete press release is here-> http://www.prnewswire.com/news-releases/texas-panhandle-and-artesia-new-mexico-strike-back-with-import-quotas-on-foreign-oil-a-reaction-to-doha-meeting-300253143.html

AMARILLO, Texas, April 18, 2016 /PRNewswire/ — The Panhandle of West Texas, a center of American oil since early in the 20th century, answers OPEC and Saudi Arabia with a call for a Presidential Proclamation to establish quotas on imports of foreign oil.

The counter to the Doha meeting is a “line in the sand” against further price and supply wars against oil communities, working families, and producers not only in Texas and the Southwest but across the entire US. The United States should no longer allowSaudi Arabia and the middle east to manipulate our economy by crippling our ability to produce and use our own natural resources. We have been forced to comply with the consequences of decisions made by a country whose intent was to take over a “market share” that was ours and make it theirs.  The results were oil prices plummeting to $26 a barrel.

The “bust” in oil exploration and production has left families, companies, both large and small, with bankruptcy and hundreds of thousands out of work.  Since Thanksgiving of 2014, Saudi Arabia has increased its production to lower prices to shut-in unconventional oil in all areas of the US but specifically in Texas, Oklahoma and Appalachia where “stripper or marginal wells” are more prevalent. It is a price war which has suspended the prospect of American energy self-sufficiency.

The Panhandle Import Reduction Initiative for oil import quotas on foreign oil is nothing new.  It aims to revive the 1959 quota system of President Eisenhower who acted to sustain a healthy oil industry and middle class communities which it employs for reasons of national security.  And it worked for 14 years to keep domestic oil from going out business because of foreign imports.

Import quotas on light tight oil will be 100% — no more imports within the first 60 days of the new American President’s term next year.  Light tight oil or oil from shale is an American technology triumph and the pathway to abundance and security against foreign oil supply cut-off threats. Southwest and Dakota oil will be unbound.  North American oil will avoid the risk of dependence on the world ocean as the transportation for imports.  Oil from shale has so far supported national income savings in the balance of payments of over 500 billion dollars in the last five years.

President Eisenhower’s import quotas limited heavy sour oil to 10-12% of yearly American oil demand — enough to take care ofCanada’s current exports to the United States.

The lower the oil price goes and the longer it stays there because of the Saudis flooding the market, the higher it will go and the longer it will stay there when demand gets greater than supply. This will happen because the US operators and other international companies are not investing in exploration, the oil that we will need in 5 to 10 years is not being discovered and developed today. OPEC cannot supply all the world’s needs. When demand outpaces supply, the price will skyrocket and stay there until the oil operations that are now curtailed can ramp back up. That may take years due to all the layoffs taking place today. All consumers will be hurt by the high prices. That would not happen if we had reasonable prices today to let us keep exploring for and developing new oil reserves for our future needs.

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