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.
“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.
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.
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.
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.”
