[copious.abundance]

Is the glut really gone? According to this chart, stocks at Cushing look like they're still on an up trend.
http://www.eia.doe.gov/dnav/pet/hist/Le ... K_MBBL&f=W

Though maybe it depends on how you define "glut."

[ROCKMAN]

Loki - When I say "we" invest to make a buck I hope you don't think I invest, do you? In my 38 years in the oil patch I've never risked $1 of mine drilling a well. That's what other people's money is for, brother.

[ROCKMAN]

C-A: It's going to be interesting to see what happens to storage levels when the completed section of the southern Keystone pipeline starts moving all that oil from Cushing to our Texas refineries in the next month..

[Beery1]

$this->bbcode_second_pass_quote('ROCKMAN', 'L')oki - When I say "we" invest to make a buck I hope you don't think I invest, do you? In my 38 years in the oil patch I've never risked $1 of mine drilling a well. That's what other people's money is for, brother.

[Pops]

$this->bbcode_second_pass_quote('copious.abundance', 'I')s the glut really gone? According to this chart, stocks at Cushing look like they're still on an up trend.
http://www.eia.doe.gov/dnav/pet/hist/Le ... K_MBBL&f=W

Though maybe it depends on how you define "glut."

[ROCKMAN]

beery - "Unless you have a second job, you are, whether you appreciate it or not, 100% invested in drilling." But that's been the great thing about my career: by using other people’s money I've made the same paycheck whether a company made a profit or lost it all. I once worked with a small a company that poked 18 expensive dry holes in a row and went under. Those guys couldn’t find oil in their driveways. LOL. But I never missed a paycheck. From there I went to another small company that was close to going under and convinced them to drill my projects which the previous failed company refused to do because they were “too small”. We drilled 23 out of 25 wells successfully. I still got my same paycheck as before and they got a very nice profit. So I didn’t make a huge win since I didn’t have my money in it but I also didn’t lose my ass by investing in the failed company either. Worked for me.

I get paid up front before the rig even gets on location. I’m just remembered a line from an old movie…The Dogs of War. The leader of the small group of mercs is addressing the expats he’s about to lead into battle. Went something like this: “Me and my men will provide support. Your primary job is to fight and maybe die. Our primary job is to collect our money and go home.” Sorta like a consulting geologist. LOL.

But indirectly my livelihood is dependent upon someone putting up the drilling $'s. I learned early on to make sure the company could pay my salary before I did 5 minutes of work. The bigger problem has always been the lack of folks willing to put those $'s on the table. Which I why during the oil price bust of the mid 80's I was getting up at 2 AM, going to the central produce market in Houston, loading up and delivering to restaurants. My little company didn't earn me nearly as much as I did in the oil patch during the boom times. But it helped me make it thru to the next boom. At 62 yo I'm pretty sure I'm riding my last boom.

In my 38 years I’ve never invested $1 (of my money) in the oil patch.

$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('copious.abundance', 'I')s the glut really gone? According to this chart, stocks at Cushing look like they're still on an up trend.
http://www.eia.doe.gov/dnav/pet/hist/Le ... K_MBBL&f=W

Though maybe it depends on how you define "glut."

[Pops]

You're right, it's back down to about the average for the last 3 years, which is 3 years with the highest average on record.

The news I read says it's down lately because the fed is talking taper again, whatever that says. But I think there is just a lot of flux, railing Bakken grease to the east coast, exporting an amount equal to all the LTO we have come up with to the EU as diesel, reversing pipe flows, running new pipes and I read the other day that the rush now is back to deep water GOM because, I guess, the LTO plays are not all they were fracked up to be.

[Tanada]

$this->bbcode_second_pass_quote('Pops', 'Y')ou're right, it's back down to about the average for the last 3 years, which is 3 years with the highest average on record.

The news I read says it's down lately because the fed is talking taper again, whatever that says. But I think there is just a lot of flux, railing Bakken grease to the east coast, exporting an amount equal to all the LTO we have come up with to the EU as diesel, reversing pipe flows, running new pipes and I read the other day that the rush now is back to deep water GOM because, I guess, the LTO plays are not all they were fracked up to be.

[Pops]

$this->bbcode_second_pass_quote('Tanada', 'D')oes anyone (hint hint) have a chart for this one?

[ROCKMAN]

I’m sure it’s difficult to appreciate but neither the Macondo blow out nor the shales have had a significant impact on DW GOM development. With the exception of the short drilling moratorium the schedules have not altered. The economics of DW development are designed on a 5 to 10 year time frame. Contracts for drilling rigs are typically written on a 3 to 5 year time frame. Doesn’t matter if oil prices drop: an operator is going to pay around $600,000 per day whether it’s drilling or the rig just sits there…delay drilling for just 6 month and get a bill for $100 million while doing nothing. Wells drilled this year were likely etched in stone on budget plans 2 to 5 years ago. What happens to oil prices or shale activity aren’t considerations.

And in the international arena the time frame is even longer. I’ve seen more than one operator wait 5+ years to just get a drill rig on their concession. And that can be an expensive proposition. For the last DW Brazil well I was involved with at Devon the rig was mobilized from the African coast. The day the rig showed up on the Bz location the well cost was $48 million…all just for relocating rig…had not drilled one foot of hole yet. It mattered not if oil prices had plunged in the last 12 months before the rig move: Devon had a contract they were going to pay whether they were drilling or not. So you can imagine the price of oil going up or down $10 or $15 in a year or so isn’t going to change the dynamics. DW players are not the least bit concerned about prices in the next several years. They are focused on price projections at a minimum of 5 to 10 years out.

I don’t have a chart of DW GOM activity but the feds have a web site (http://www.bsee.gov/Exploration-and-Pro ... rmits.aspx) that shows the status of the leases. But the way the data base is presented it’s difficult to know exactly where a particular project sits in its time line.

[ROCKMAN]

Couldn't find a good thread for this post. But realized there's a fair bit of stories out there about oil finding its way to new markets. Such as south Texas to Montreal, N Dakota to Washington state, Azerbaijan to China and Alberta to south Louisiana.

For example: With the completion of the southern leg of Keystone XL relieving the choke point for oil sands production in OK a new choke point appears to be developing: the Gulf Coast Texas. Next thing you know they’ll be shipping Canadian oil out of Houston to China. We’re already shipping at least 50,000 bbls/day of our production from Texas to Canada.

Reuters - "Royal Dutch Shell said on Wednesday that the reversed Houston, Texas-to-Houma, La. pipeline was being filled with crude in anticipation of a mid-December startup. Preparation included crude line fill with product flowing and movement. The reversal is expected to help relieve a bottleneck emerging in the Houston area by moving growing output from the U.S. crude futures hub Cushing, Oklahoma, to Louisiana refineries."

With the start-up of the Keystone 700,000 bopd capacity just weeks away there will be a surge of Canadian oil into the Texas coast. Apparently RDS planned ahead for this development.

[Synapsid]

ROCKMAN,

rbn energy's site has an ongoing series on the developments in the Houston area, and other areas, that are designed to handle the growing glut.

[Tanada]

With the glut being cleared out over the next three months how close do you each expect the WTI and Brent prices to track one another? Will WTI become the higher price or will it still hover somewhere below Brent on the market? If WTI rises to converge with Brent (as I think it will) that will be a $7.00-$12.00/bbl increase in the WTI price, between 7% and 10%. That will be reflected in pump prices because the refiners are not going to eat the costs so gasoline/diesel at the pump could rise anywhere from 5% to 20% based on past performance. Pump prices have been unusually low in this area in early December 2013, dipping below $3.00/gallon for the first time in almost three years, and they did this while WTI was selling for over $90.00/bbl so some other factor had to be involved in the dip.

[ROCKMAN]

T - Yep...the dynamic is getting difficult to predict IMHO. With Canadian oil sands producers in just a month being able to sell about 600,000 bopd directly to Texas refineries how will that effect prices? Will they demand high prices or accept lower prices (although much better then they had been getting) in order to have more control over market share? And will some of that oil be shipped to eastern Canada refineries just like the 50,000+ bopd of Eagle Ford oil is today? And will some that CANADIAN oil, which isn't subject to the govt ban on exporting US oil, be shipped to other countries out of Houston? I'll guess it will be a year before we have hard answers.

S - Yes...I found them to be a good source of insight.

[Subjectivist]

$this->bbcode_second_pass_quote('ROCKMAN', 'T') - Yep...the dynamic is getting difficult to predict IMHO. With Canadian oil sands producers in just a month being able to sell about 600,000 bopd directly to Texas refineries how will that effect prices? Will they demand high prices or accept lower prices (although much better then they had been getting) in order to have more control over market share? And will some of that oil be shipped to eastern Canada refineries just like the 50,000+ bopd of Eagle Ford oil is today? And will some that CANADIAN oil, which isn't subject to the govt ban on exporting US oil, be shipped to other countries out of Houston? I'll guess it will be a year before we have hard answers.

S - Yes...I found them to be a good source of insight.

[ROCKMAN]

Sub - Exactly. Unless you're Big Oil you have to take the best offer an oil buyer makes. The Canadians had to take the best offer from the mid-continent oil buyers. Nothing personal...just business... so get over it Canucks. LOL. And now they can take the best offer they can get from Texas refiners. And maybe knock down the price I get for my oil. Nothing personal...just business...I'll get over it. LOL.

[Tanada]

Further evidence the glut is dissipating.

$this->bbcode_second_pass_quote('', ' ')Brent crude rose 20 cents to above $112 a barrel, still at the highest since Dec. 3. U.S. crude jumped by 77 cents to end the session at $100.32 a barrel, its highest since October 21.

The spread between the two benchmarks narrowed by close to $1 per barrel at one point to $11.45. It was last trading at $11.77.

U.S. oil futures broke above the $100 mark for the first time since Oct. 21, initially on a technical move. Traders bought contracts to unwind positions on ensuing momentum after the February contract broke above the 100-day moving average in the previous session, some analysts said.

[ROCKMAN]

And that brings us back to the previous request: define a "glut". Is it a function of how much oil is available compared to the amount buyers want to purchase? But that requires another question: how much oil do the buyers want? In my experience buyers want as much oil as they can afford. In 1986 when oil fell to about $10/bbl the world bought as much oil as it could afford which was a good bit less then the producers could deliver. A glut in 1986? Today oil is bouncing around $100/bbl and the world is buying as much oil as it can afford. There maybe some debate as to how much more oil the producers could deliver but there is some volume not being produced today. So is there a glut since there's oil production available due to a lack of buyers? Are we now to debate how big a surplus of production meets "glut" status? Or are we in the realm similar to pregnancy: can one be a little pregnant...very pregnant? There is a volume of oil available today that there are no oil buyers for because there are no more buyers that can afford the current price. In 1986 there was a volume of oil available at that time for which there were no buyers who could afford the price at that time. Just like today. Just not as much...a little glut...a little pregnant?

Maybe glut is better characterized by the price dynamic: when supply exceeds demand because there are too few buyers for oil the producers have to lower prices to increase consumption. But the producers' primary consideration is cash flow and not how many bbls they sell. Except, of course, how many bbls they sell (and thus their income) is a function of their market share of the buyers available at that price. In 1986 the KSA dropped their price to capture a bigger market share and thus increase revenue. But did so by depleting their finite reserves at a faster rate. Since the KSA had drastically reduced their market share/revenue as other OPEC members produced flat out they did see a big increase in badly needed revenue. But this isn't 1986. It appears all oil exporters, with the exception of the KSA, are producing at their max. But the KSA does have some unproduced capacity. Not as much as in 1986 but some volume. Now bring in X million bbs of oil from Iran which isn't currently being produced. The other oil exporters cannot "flood the market" with more oil to lower prices and take market share from Iran...they don't have the capacity. It appears that the KSA is the only exporter that can modulate global production. Iran is clearly stating they'll sell as much oil as they can produce. But that cannot be more than what the market can afford. So would the KSA drop the price of oil to keep their market share away from Iran? A better question: how low a price would Iran go to take market share from the KSA?

But that price won't be determined by Iran alone. Take one extreme: the KSA reduces production to match new oil brought on by Iran and thus oil prices don't fall. Does that constitute a glut since there would be a big surplus of production? But it would be a glut at a time of very high prices...so not an "effective glut"? Of course if the KSA cut production that much they would still be selling about 5 million bopd at current prices. That would still earn them about $450 million/day. But just a half dozen years ago thy were earning less that $300 million/day selling all the oil they could produce. I don't recall the KSA complaining about their revenue at that time. Also add in the ELM factor: every year the KSA needs to retain more of it's production to satisfy internal demand. And then add the Chinese refinery JV with the KSA. The Red Sea refinery will remove 600,000 bopd from the global market place. And then add the fact that the KSA has admitted it will have to spend 100's of $billions in infrastructure to maintain their output: cut production and they can delay those big capes bills thus increasing their net income. Another big advantage for the KSA IMHO: price stability. The KSA got a painful reminder in '08 of the effect on global oil demand when prices get too high. And I'm pretty sure some of the older KSA rulers remember the severe global recession brought on by the late 70's price boom...a price boom instigated by a politically unstable Iran. An Iran that appears willing to keep ME instability going with their nuclear program. If Iran ends up in a military conflict with anyone and the world loses access (or even the threat of that loss) to their production oil prices would boom and likely create another severe recession and destroy demand. UNLESS the KSA quickly brings all their idle production back on line.

I don't know if the KSA will cut their production for some or all of any new Iranian production. But I see a variety of reasons for them to not allow a big drop in oil prices. Today all we can do is observe the staring match. And will have to do so if/until a deal actually comes to fruition. Until then it's all speculation. Have at it. LOL.

[Pops]

A great discussion in the comments at econobrowser between Westexas and Steven Kopits about the glut and the economy etc. Kopits basically saying the world is in starvation mode, a supply side constraints, any slack in price quickly ramps up consumption to the choking point. He uses standard economist-speak but it is comprehensible even for me, read the whole thing but here is Kopits' point:

$this->bbcode_second_pass_quote('Kopits', 'F')or a supply-constrained system at the carrying capacity price, the residual (the thing that changes) is not primarily price. It's GDP. If the price goes up, the incumbent advanced economy consumers cede their consumption and price returns to the carrying capacity price. Thus, the effect is felt in volumes, not prices.