Expect $30 Oil In 2018 Unless OPEC Deepens Cuts

19 Comments on "Expect $30 Oil In 2018 Unless OPEC Deepens Cuts"

Plantagenet on Tue, 20th Jun 2017 1:15 am 



Its very nice of Saudi to cut their oil production so everyone else can pump full out and have the benefit of higher oil prices.

Cheers!

Westexasfanclub on Tue, 20th Jun 2017 4:57 am 



Where please will those 1.5 non-OPEC production come from?

q on Tue, 20th Jun 2017 6:59 am 



Plantagenet: Benefit of higher oil prices? When they are falling?

observerbrb on Tue, 20th Jun 2017 8:04 am 



Well, well, what do we have here?

We were supposed to hit the “death cross” of the ETP model this summer (marmico said it), but it seems that Oil prices are testing year lows (WTI 43$) despite all the fake OPEC deals.

I can only say now: BW Hill is right again.

jan on Tue, 20th Jun 2017 8:31 am 



Where will the 1.5 come from?

http://oilprice.com/Energy/Crude-Oil/Analysts-Warn-Much-Deeper-OPEC-Cuts-Are-Needed.html

You do realise oildrum readers have been saying what you just said for the last 15 years.

Do you know what Iraq’s reserves are?
Based on those reserves what do you think they could produce?

According to some people, Iraq could never reach 4Mbld, they were proved wrong.

creedoninmo on Tue, 20th Jun 2017 9:30 am 



B.W. Hill is still on target. I don’t think the oil industry can survive 20 dollar a barrel oil. They’ll probably survive 30 dollar a barrel oil though.

Davy on Tue, 20th Jun 2017 9:40 am 



DEMAND DESTRUCTION

“Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains”
http://tinyurl.com/y7txpq62

“One week ago, we reported that UBS has some “very bad news for the global economy”, when we showed that according to the Swiss bank’s calculations, the global credit impulse showed a historic collapse, one which matched the magnitude of the impulse plunge in the immediate aftermath of the financial crisis.”

“But why is the credit impulse so critical?….he explains why this largely ignored second derivative of global credit growth is really all that matters for the global economy…King first focuses on the one thing that is “wrong” with this recovery: the pervasive lack of global inflation, so desired by DM central banks. As he notes in the first slide below, “the inflation shortfall isn’t new” and yet the current “level of credit growth would traditionally have seen inflation >5%” To be sure central banks always respond to this lack of inflation by injecting massive amounts of liquidity, i.e., credit, in the system: according to Citi, the credit addiction started in 1982 in the UK, while in 2009 it was in China. However, there was a difference: while in the 1982 episode, it took 3 credit units to grow GDP by 1 unit, by 2009 this rate had grown to 6 to 1. Meanwhile, central bankers “simply stopped worrying about credit.” That also explains the chronic collapse in interest rates starting in 1980 with the “Great Moderation” and their recent record lows: the world simply can not tolerate higher rates.”

“And while the central bank experiment had limited success in stimulating inflation, there was one obvious consequence: credit fueled asset bubbles around the world. This is where the credit impulse comes into play: it allows market participants to track the instantaneous change in central banks’ credit creation, and more importantly, The change in the flow of credit drives GDP growth. The impulse is also important as it directs investor behavior as well, due to its correlation with asset prices. Of note: courtesy of fungible money and equivalent, the effects of a credit impulse in one area promptly diffuse around the globe, as “Credit created in one place often drives prices elsewhere.” Which, simply said, means that instead of looking at central bank, or credit creation, in isolation, it has to be watched in a global context. And here is the important part: as Citi concludes, “we’ve just had the biggest surge in the post-crisis era”… and yet the central bankers’ holy grail – inflation – remains low. In a follow up post we will show momentarily what, according to Citi, happens when the credit impulse turns negative as it just did.”

shortonoil on Tue, 20th Jun 2017 10:57 am 



“B.W. Hill is still on target. I don’t think the oil industry can survive 20 dollar a barrel oil. They’ll probably survive 30 dollar a barrel oil though.”

That is probably true for the Western producers; but for the Middle East, and the other economies that depend on oil as their primary source of income anything below $40 is going to get pretty rough, pretty fast. Dog stew is already the fair of the day in Venezuela! Of course Venezuela was such a corrupt, despotic mess to begin with that it is amazing that it lasted as long as it did!

But the days of the globalized petroleum production system are fast drawing to their conclusion. There is just not enough deliverable energy remaining in a barrel of oil to pump it out of a well in Saudi, ship it half way around the globe, process it somewhere along the Gulf Coast of the US, pump it to New York in a pipe, and then truck it around the state a couple of times. The oil that could do that is long gone; salty water with a film of oil on top, and thinned out frac juice just don’t have what it takes to keep 30,000 petroleum company Lear Jets flying, and 5,000 Middle East princes in new Mercedes. That business model is fast coming to its conclusion.

The oil industry, and the world economy will soon become a regional one. The oil that you will have, if you are lucky enough or foresighted enough to have any, will be from a well down the road, processed across the street, and sold on the corner from where you live. You will probably have walked there with a five gallon can to get it.

Oil will probably be with us for a very long time; the oil age? … not much longer!

http://www.thehillsgroup.org/

bobinget on Tue, 20th Jun 2017 11:24 am 



Iraq, Turkey, Iran are on a war path with UAE and KSA. FACT
Both Iran and Saudi are already in a Yemeni and Syrian ‘proxy’ war, (stalemated)

Russia’s Putin will ‘go a step too far’ one day too soon in Syria. No nation has ever declared a ‘no fly zone’ on US forces as has Russia in Syria. FACT

It’ll be 120F in Arizona today. 111F in Saudi Arabia.
Not just uncomfortable, that’s deadly. FACT

bobinget on Tue, 20th Jun 2017 11:54 am 



This one’s for Short-on-oil..
If you can’t make sense of Shorts declarations,
try this;

Help Me With My Math…

I was looking at Enno Peters’ data from Shale Profile and trying to figure out how the Light Tight Oil (LTO) industry was able to do all that they do. The numbers don’t make sense to me, so I realize that I must have done something wrong. I am asking that those who are smarter than me – probably nearly everyone who is reading this – to help me find where I have gotten my numbers wrong.

If you look on Enno’s site linked above, you’ll see that he pulls his data from actual filings. He does not make up his numbers, and he states his sources. I have not personally checked to see if his numbers are correct per the sources or if he does as he says, but I am certain that if he was not playing fairly, someone (probably someone employed by a hedge fund or someone who relies on LTO for a living) would have called him on his perfidy by now. As no one has objected to his data, I am going to go out on a limb to say his data sources are legitimate and his representations are accurate. If anyone can dispute this, please do so in the comments, and I will be more than willing to entertain your argument; however, for the purposes of this article – and having no comments so far, as I have not yet published it – I will assume all of his data is accurate and is presented without undue alteration or other adjustments.

One of the first things one notices when looking at his data is that the profiles of all of the wells are fairly uniform. The initial recoveries may change, but the declines all follow the same pattern. I’ve looked at his data in both log and normal aspects, and the similarity between the declines does not seem to vary by any appreciable amount.

Please bear with me

I picked a single quarter and year from before this bust, but near the end of the bust. October 2013 was the representative quarter. I’ll be honest and state I picked this due to both its timing and color. The pink was not the reason, but because it was not washed out pink, and that it was when we could reasonably assume that the wells were drilled with the “latest technology” and when fracking (I wrote an article on why I use the spelling if you care to check my previous profile, and I refuse to change it. English has rules, even for those who pronounce “tour” as “tower.”) was done reasonably efficiently.

I want to draw your attention to the annotation box that I grabbed from as near to the end of the curve as I could, presented below.

Quarter Starting October 2013

If you focus on cumulative oil production (124,263) and the number of wells (2425), a little calculator math tells me that these 2500 or so wells have produced just over 3 hundred million barrels of oil over the past 3 years or so (301,337,775 for the engineers out there). Now, let’s assume that the average price for a barrel of oil is $75, and that all of that money went to the owners of these wells. I know this is not logical or correct, but I’m trying to completely err on the side of the LTO hedge fund sellers… I mean “err on the side of reason” here.

Since that’s over 100,000 barrels per well, and there are 2500 wells, that comes out to about 22.5 billion dollars ($22,600,333,125). Wow! That’s almost even a lot of money to Congress! Now, since that’s all of the wells, how much is that per well? Nearly $9.5 million ($9,319,725).

So, with all of my generous assumptions, and giving the shale players all of the money from the sale without any severance, royalties, lifting, disposal, or any other costs, these wells “break even” at $9.3 million over more than three years.

Please explain to me how wells that are today producing just over 36 barrels per day (2425 x 36 x 45 = about $4,000,000) are profitable.

I’ve given every advantage to the LTO folks here. I really don’t understand how they can say they are breaking even at $45 or $50. Even at $75, the numbers above just do not work.

I’ve left out the gas, but its numbers are much smaller, especially with $3/Mft^^3 of gas, not counting flaring. Even if you add 25% to my numbers, they still don’t make financial sense.

So, where is my math wrong?
Don Minter
http://oilpro.com/post/31660/help-me-my-math?utm_source=DailyNewsletter&utm_medium=email&utm_campaign=newsletter&utm_term=2017-06-19&utm_content=Article_9_txt

bobinget on Tue, 20th Jun 2017 12:21 pm 



At $40 no one on earth ‘breaks even’.

So, why are we looking at bearish articles?

Consumption estimates are holding firm this Juneteenth.

At least five oil wars are dismembering families on three continents. Nine million displaced persons.

A US President is being outrageously blackmailed by a ‘foreign power’ as yet unnamed.
Putin knows all details as does the Trump Administration and the FBI. Yet, hearings need to be kept secret. (Not making that up)

It’s 111 F in Arizona, 110 F in oil exporter Saudi Arabia.

North Korea offering Trump a grand distraction risking lives of ten million.

Finally, Russia draws a line in the air denying US
airspace in Syria.

Still believe in $30 oil?

bobinget on Tue, 20th Jun 2017 12:23 pm 



UPDATE 1-U.S. motor travel up 1.5 pct in April from year ago -DOT
Tue Jun 20, 2017 5:04pm GMT Print | Single Page [-] Text [+]
(Adds gasoline demand figures)

NEW YORK, June 20 (Reuters) – Motorists logged 1.2 percent more miles on U.S. roads and highways in April compared with the same month last year, according to U.S. government data released on Tuesday, keeping pace to break last year’s record volumes.

Motorists have traveled 1.01 trillion miles on U.S. roads and highways this year through April, a 1.5 percent increase over the same stretch last year, according to the U.S. Department of Transportation. The sustained strength in driving volumes is a good sign for refiners as the U.S. driving season kicks off in earnest.

U.S. gasoline demand, which accounts for 10 percent of global consumption, was down 2.7 percent in the first quarter from a year earlier, according to the latest monthly data from the U.S. Energy Information Administration.

The federal gasoline demand data is an estimate and can be wrong, analysts have warned.

Motorists logged 271.6 billion miles on U.S. roads and highways in April, up from 268.3 billion miles from a year earlier.

U.S. gasoline demand and vehicle miles traveled both hit records in 2016. (Reporting by Jarrett Renshaw; Editing by Jonathan Oatis)

twocats on Tue, 20th Jun 2017 3:03 pm 



seems crazy that shale and POCs are not cutting back the way OPEC is. swooping in to take advantage? Hah! I’ve seen first hand companies battling in a price war. each company is individually motivated and can’t consider the “greater good” of cutting back production to raise prices. Each actor KNOWS they are underbidding everything and might even take jobs they KNOW will lose money. they KNOW they can’t always cover depreciation on equipment. but many costs are fixed (rents and insurance) and you are still paying salaries (sometimes to family members working or yourself so you drain the equity out the back door).

q on Tue, 20th Jun 2017 3:10 pm 



bobinget: No hard math I guess. Investors (suckers) that pour money into this business in hope they will become new Rothschilds are always welcomed and they are lured on whatever break-even cost that is needed. So no price is too low.

rockman on Tue, 20th Jun 2017 3:34 pm 



Bob – “Please explain to me how wells that are today producing just over 36 barrels per day (2425 x 36 x 45 = about $4,000,000) are profitable.” Easy answer: because they cost less to produce then $45/bbl. That generates a positive cash flow. And that’s assuming they are really just AVERAGING 36 bopd.

Remember the average US well at 15 bopd is being produced profitably or it wouldn’t be producing.

You will NEVER understand drilling economics if you keep focusing on a “break even” number…what ever that really is. Our economics are based on rate of return. Which is a function of net revenue over a period of time. A net revenue that changes significantly over a relatively short period of time. But in the case of fracture production is very large during the initial production years.

Until your economic model estimates the ROR you will never have a clear picture of the situation.

But here’s a hint: if a well generates a net revenue equal to the total amount of the initial investment within 3 years it will typically generate a satisfactory ROR. Just consider the proved producing reserves being bought today: the purchase price will typically be recovered from the net revenue stream in 3 to 5 years. Given the lower risk of buying proved producing wells companies will accept the lower (but still positive) ROR from an acquisition that takes 5 years to recover the purchase price.

rockman on Tue, 20th Jun 2017 4:09 pm 



q – “Investors (suckers) that pour money into this business”. You don’t seem to understand that very little investor money is directly spent on the shale plays. Take one of the worse performing shale players: Chesapeake. Folks bought $billions of its stock in the early days. Not one penny was used to drill: all that money went to other other shareholders.

CHK capex came from its own cash flow and those that bought the company’s bonds. You could call them investors but these were typically large and rather sophisticated investment companies. And they accepted the KNOWN risks to earn those high rates.

And despite being the poster child for everything wrong with the shale play CHK has not missed a single bid payment. Granted some bond holders panicked and sold their bonds below face value. OTOH those that bought those bonds are looking at making 37%. From an analyst in Jan 2016:

What The Market Doesn’t Understand About Chesapeake Energy’s 37% Yield March 2016 Bond
Jan. 27, 2016 7:41 PM • CHK

Summary – The market has priced in a default of Chesapeake Energy Bonds. Short-term bonds are pricing in long-term solvency issues.
Chesapeake Energy has sufficient liquidity to last beyond two months.

There is no doubt that Chesapeake Energy (NYSE:CHK) has serious solvency issues. Standard & Poor’s recently downgraded Chesapeake Energy to CCC+ from B with a negative outlook. S&P stated that “based on our [crude oil and natural gas] price assumptions, we expect only limited improvement in the near-term and that Chesapeake will face both a challenging operating environment and weak capital markets as about $2 billion of debt comes due in 2017.” I wholeheartedly agree with S&P’s assumptions. Considering that natural gas and crude oil prices are at multi-year lows and coupled with Chesapeake’s enormous debt, long-term prospects do not look hopeful. It is quite likely that Chesapeake will default on its debt in the long term and require restructuring with substantial haircuts for bond investors.

So why should you purchase a Chesapeake Energy bond if they are in such a horrible financial position? The current pricing of Chesapeake’s 3.25% bonds maturing March 15, 2016 is pricing in long-term solvency issues, which are separate from its short-term liquidity concerns. According to the Morningstar credit note dated 1/14/16, Chesapeake still has $4 Billion (abbreviated as “B”) available on its undrawn credit facility maturing 2019. Combined with cash from operations and proposed asset sales, Chesapeake will have more than sufficient liquidity to pay all debts maturing on March 15, 2016.

Issue Date: 03/18/2013
Maturity: 03/15/2016
Par value: 100
Coupon Payment: 3.25% Semi-Annual
Current Price: $95.95 (as of 1/26/16; does not include Accrued Interest and commission)
Yield at Maturity = 37.44%
CUSIP = 165167CJ4

And the latest news on CHK’s financial stability… from yesterday:

Chesapeake energy – lenders reaffirmed $3.8 billion borrowing base under co’s senior revolving credit agreement.

And if so interested: “Chesapeake Energy Corporation (CHK) Stock Is an Absolute Steal Right Now”

http://investorplace.com/2017/03/chesapeake-energy-stock-is-a-steal-right-now/#.WUmOZHpOlcs

Westexasfanclub on Tue, 20th Jun 2017 5:43 pm 



“Do you know what Iraq’s reserves are?
Based on those reserves what do you think they could produce?
According to some people, Iraq could never reach 4Mbld, they were proved wrong.”

Do you realize you are talking about an OPEC member?

I explicitly asked for non-OPEC members.

MASTERMIND on Tue, 20th Jun 2017 6:39 pm 



Chesapeake Energy Corporation reported a net loss of 4.8 billion last year. Sounds like a great investment huh Rockman? Wow you are as dumb as they come!

http://businessjournaldaily.com/chesapeake-reports-net-loss-of-4-8-billion-in-2016/

q on Tue, 20th Jun 2017 7:22 pm 



I would not invest in Chesapeake, seems too risky.
https://seekingalpha.com/article/4082602-chesapeake-energy-trouble