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.”
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? “