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

Posts tagged ‘Oil’

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.

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.”

Overcapacity and the price of oil Dr. Daniel Fine, New Mexico Center for Energy Policy


The full article is here-> http://www.daily-times.com/story/money/industries/oil-gas/2017/06/25/overcapacity-and-price-oil/397050001/

“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? “

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.”

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