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

Posts tagged ‘Oil Markets’

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.

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.

Fine: NAFTA, natural gas and the San Juan Basin


As seen here in the Farmington Daily Times-> http://www.daily-times.com/story/money/business/2018/01/28/fine-nafta-natural-gas-and-san-juan-basin/1032781001/

The North American Free Trade Agreement is now in a final stage with the U.S. team looking over the “energy chapter,” which has been approved by Canada and Mexico. The Administration’s position, with a revisionist-protectionist core, offers President Trump a withdrawal-from-NAFTA option, at least a tactical move to shake up Canada and Mexico in the interest of American merchandise and agricultural exports.
However, not much is known from the inside on plans for natural gas exports to Mexico.  In 1992, the beginning of NAFTA, Mexico’s oil and gas industry was government owned and operated so it fell outside a free trade agreement.
Today, Mexico permits private capital to build, own and operate oil and gas exploration, production and transportation (pipelines) under its Energy Reform Law.
This admits natural gas into the NAFTA framework. Nearly $6 billion of Southwest natural gas was sold (exported) to Mexico last year.

Mexico imports 53 percent of its natural gas from the United States – with 60 percent on track. Needless to say, Mexico is dependent on American natural gas for its power generation.Texas natural gas pipeline entry points dominate the trade, while the Delaware and the San Juan basins are next as business and strategic sources.
The Mancos Shale natural gas below the Four Corners must access the expanding Mexican market in any revision of NAFTA terms. The Trump Administration’s understanding of American natural gas trade with Mexico should include regional economic integration. Energy is required for Mexican industrial growth, and Mexico has constructed the pipelines on its side border to receive and transport natural gas from the Permian and the San Juan Basin.

NAFTA revised should make natural gas exports from the U.S. Southwest a natural resource exemption from narrow foreign trade objectives. Natural gas reserves in the Southwest can be accessible to Mexican importers if pipelines to cross-border points attract American investment long-term. NAFTA changes
would create risk disincentives.

U.S. NAFTA negotiations can be aligned with the Trump-Zinke energy policy of world domination if the export “New Mexican natural gas” is designated a “win – win.”
If the Mexican market for American natural gas is lost, New Mexican natural gas would be mostly “stranded” without offset storage; and, it would push back on the Permian with an oil-only reality as the output of gas from Pennsylvania and Ohio output expands.

Unless Texas and New York media understand the history behind the oil price collapse history of 2014-2016 the industry and public will be compelled to repeat that history soon.

Oil prices are coupled into a “bubble”; or worse – speculation in a “coin” which exists as a product of computer software. Is Bitcoin speculation infecting the value of oil in commodity trading at least momentarily?
Will hedging create a trade?

With New Mexico oil production over 500,000 barrels per day (323,000 four years ago), the coming 30 days in Santa Fe (Legislative Session) should see a Democratic Party state budget expansion or plain spending offensive which would mirror 2018 primaries and general election conflict between progressives and centrists.
There is no threat from off-shore (Atlantic and Pacific Ocean) to New Mexican oil and gas development. President Trump is right to remove off-shore prohibitions, but now the market takes over. The cost of San Juan Basin natural gas is 80 percent less than exploration and production 50 miles out in North Carolina’s Atlantic Ocean.
Three or four dimensional seismic investments—yes; production—no; not as long as there is economic shale natural gas on-shore in New Mexico and the Southwest.

Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy. 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.”

 

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