Which producers will shut in first?

[Jan van Eck + 7,558]

Looks like Wyoiming Light crude went negative, selling at minus $1.76/bbl.   And Canada WCS is down around $6.50 US.  Oil-sands bitumen?  Essentially worthless.  OK, folks, with that dismal picture, who is ending up as "The Biggest Loser?'  I don't see much fat on anybody, at this point. 

Meanwhile, some gasoline refiners are receiving less for the stocks of refined product than they paid for the crude.  Hard to run a business on that basis. Something has to give.  

[Jan van Eck + 7,558]

Petroteq, the Utah oil-sands micro-producer with that new solvent technique developed by Canadians, has shut in its pilot plant, only producing a trickle as demonstration for potential licensees.  First one down. Who is next?

[El Nikko + 2,145]

If there's almost nowhere to store it can anyone even take advantage of the low prices?

There's a lot of pressure within the shale industry to act as fast as possible from what I've seen including ways of preserving oil from the newest wells which don't lose productivity if shut in. But with no one to buy either the oil or gasoline/petrol it's not going make any difference for ages. It comes down to which governments are willing and are able to afford to keep these valuable industries alive surely?

I imagine there must be huge pressure on NATO and 'allied' countries to not buy from countries like Russia.

 

[Rasmus Jorgensen + 1,169]

2 hours ago, Jan van Eck said:

Petroteq, the Utah oil-sands micro-producer with that new solvent technique developed by Canadians, has shut in its pilot plant, only producing a trickle as demonstration for potential licensees.  First one down. Who is next?

marginal offshore. 

after that : US LTO (a.k.a shale)

After that NOCs of the ME, Africa, South America and SE Asia

[cloudslicer + 6]

Why couldn't we just isolate ourselves from the global oil and gas market and go 100% domestic for our energy consumption? Oil and Gas would rise to balance between supply and demand and we would be free of Russian oil dumping.

https://petitions.whitehouse.gov/petition/normalize-us-energy-prices-save-domestic-energy-industry

Or if anyone else has a better idea I'm open to it. It seams that global energy market is too manipulated by hostile parties who are driven by political agendas. Although to some extent this has always been the case, but this time around it suicidal. I think if the US where to self embargo we would save our shale oil industry.

Edited March 30, 2020 by cloudslicer

[wrs + 893]

Like I said on another thread.  I spoke with our independent about shutting in our 5 wells that he operates as long as price is below $35.  He is getting an agreement put together so we can implement that beginning April 1.  That's 50kbbl/mo.

[Ward Smith + 6,615]

27 minutes ago, wrs said:

Like I said on another thread.  I spoke with our independent about shutting in our 5 wells that he operates as long as price is below $35.  He is getting an agreement put together so we can implement that beginning April 1.  That's 50kbbl/mo.

Is this an implicit admission that the independent's cost to produce is $35? We've been trying to figure that number out for years on this site. 

[Ward Smith + 6,615]

10 hours ago, Jan van Eck said:

Petroteq, the Utah oil-sands micro-producer with that new solvent technique developed by Canadians, has shut in its pilot plant, only producing a trickle as demonstration for potential licensees.  First one down. Who is next?

Petroteq was never in the oil business. They have always been in the pump and dump business. 

[surrept33 + 609]

Interesting to read the Dallas Fed survey of E&P company execs based in Texas:

https://www.dallasfed.org/research/surveys/des/2020/2001.aspx#tab-comments

break even prices:

https://www.dallasfed.org/research/surveys/des/2020/2001.aspx#tab-questions

 

[wrs + 893]

1 hour ago, Ward Smith said:

Is this an implicit admission that the independent's cost to produce is $35? We've been trying to figure that number out for years on this site. 

Been that since 2016 for my guy anyway. This is what he told me was the cost four years ago.  I think he probably has gotten it down more because he has his own water disposal and everything is on pipeline now whereas he was still using trucking back then for water and oil.  I think that $35 has room for the pipeline discounts if they are still happening at that point.  I would guess his actual cost is below $30.

Edited March 30, 2020 by wrs

[Gerry Maddoux + 3,627]

5 minutes ago, wrs said:

Been that since 2016 for my guy anyway. This is what he told me was the cost four years ago.  I think he probably has gotten it down more because he has his own water disposal and everything is on pipeline now whereas he was still using trucking back then for water and oil.  I think that $35 has room for the pipeline discounts if they are still happening at that point.  I would guess his actual cost is below $30.

You're lucky to be in the sweetest of the sweet spots with a savvy operator. Lots of companies are going to be claimed; some of them quite good. 

The next to fall could be Whiting. Their share price maxed out about five years ago at $90. They acquired Kodiac at top dollar. Today, Whiting is trading at $0.66/share and they've tapped a nonrevolver for $650 M--to squeeze the last paste from the tube. I'm actually rooting for them: despite making one poor choice, they've continued to improve completion techniques. Bankruptcy is in the air, however. 

Pretty soon, going to be awful hard to stop this destruction. Not sure of the answer, or if there even is one. Maybe best to just let her rip and see how it plays out. One thing is for sure: someone will always pick up the pieces and try to build something from them. I don't believe that either the prince or Putin fully understand that.  

[Jan van Eck + 7,558]

13 minutes ago, Gerry Maddoux said:

I don't believe that either the prince or Putin fully understand that.  

Neither understands the American entrepreneurial mentality. And neither understands the indomitable spirit of the Texas oilman!

[Jan van Eck + 7,558]

4 hours ago, cloudslicer said:

Why couldn't we just isolate ourselves from the global oil and gas market and go 100% domestic for our energy consumption? Oil and Gas would rise to balance between supply and demand and we would be free of Russian oil dumping.

While your conclusion is trenchantly accurate, the issue that that would provoke, I would suggest, is that it runs afoul of the rules of the World Trade Organisation [WTO].  Cutting a vendor out of the loop in world trade would be "protectionism," and the tariff or quota would be attacked in suit at the WTO.  And the USA would lose that suit, opening up Washington DC to large damages claims. 

If the USA were to withdraw from the WTO, then that issue would disappear.  And at that point, nothing to stop the USA from issuing a blanket prohibition on foreign oil entering the country without a special exemption permit, that would be controlled in D.C.  And (of course), no permits would ensue. Ha!

[Dan Clemmensen + 1,011]

Why do we keep talking about the Saudis and Russians? they have basically nothing to do with the current problem, which is the demand crash. The market was (by definition) roughly in physical balance (crude pumped equals crude consumed) in December. The Saudis and Russians are making big talk about increasing production by maybe 2 million bbl/day, but they have not even done that yet. In the mean time demand has already crashed and will continue crash, reaching a crash of perhaps 20 million bbl/day by mid June: more than ten times the Saudi/Russian threats. When storage fills up, the price of newly-pumped crude will be zero. Asked: $5, bid: (no bids). Or worse for some wells, minimal production is necessary to maintain the well and you will pay someone to take it, like natural gas in the Permian. So what are you guys going to do with that crude? This has nothing whatsoever to do with the Saudis and the Russians, it's all about Covid-19. Once crude output is reduced to maybe 75 million bbl/day, it will have to stay there until at least the highest-cost storage is emptied, because the guys who are paying for that storage will be "selling" at or below zero.

[ronwagn + 6,290]

12 hours ago, El Nikko said:

If there's almost nowhere to store it can anyone even take advantage of the low prices?

There's a lot of pressure within the shale industry to act as fast as possible from what I've seen including ways of preserving oil from the newest wells which don't lose productivity if shut in. But with no one to buy either the oil or gasoline/petrol it's not going make any difference for ages. It comes down to which governments are willing and are able to afford to keep these valuable industries alive surely?

I imagine there must be huge pressure on NATO and 'allied' countries to not buy from countries like Russia.

 

El Nikko, I hope you are right but I don't see them going for more expensive energy. 

[ronwagn + 6,290]

5 hours ago, cloudslicer said:

Why couldn't we just isolate ourselves from the global oil and gas market and go 100% domestic for our energy consumption? Oil and Gas would rise to balance between supply and demand and we would be free of Russian oil dumping.

https://petitions.whitehouse.gov/petition/normalize-us-energy-prices-save-domestic-energy-industry

Or if anyone else has a better idea I'm open to it. It seams that global energy market is too manipulated by hostile parties who are driven by political agendas. Although to some extent this has always been the case, but this time around it suicidal. I think if the US where to self embargo we would save our shale oil industry.

I have been wondering why we don't tariff all oil dumping and demand a realistic price from our own industry that will allow them to survive. 

[ronwagn + 6,290]

1 hour ago, Jan van Eck said:

While your conclusion is trenchantly accurate, the issue that that would provoke, I would suggest, is that it runs afoul of the rules of the World Trade Organisation [WTO].  Cutting a vendor out of the loop in world trade would be "protectionism," and the tariff or quota would be attacked in suit at the WTO.  And the USA would lose that suit, opening up Washington DC to large damages claims. 

If the USA were to withdraw from the WTO, then that issue would disappear.  And at that point, nothing to stop the USA from issuing a blanket prohibition on foreign oil entering the country without a special exemption permit, that would be controlled in D.C.  And (of course), no permits would ensue. Ha!

So dumping is allowed by the WTO rules?

[Gerry Maddoux + 3,627]

41 minutes ago, Dan Clemmensen said:

This has nothing whatsoever to do with the Saudis and the Russians, it's all about Covid-19.

Dan, the oil desks have always had their weak eye on supply/demand and their strong eye on headlines: perception, in other words. The day MbS announced his putative war against Putin--but actually against the American shale producer--oil repriced downward $20/barrel. On that particular day, storage didn't suddenly fill up. Who knows where it would have repriced on news of the virus alone, but I seriously doubt it would have been quite this drastic. 

The fact that the prince has persisted and Putin has remained quiet may actually turn out to be a good thing. World opinion of the prince--already low--is now on the floor. He has, after all, declared jihad against America, and God knows, America is suffering enough. 

To substantiate my view, if the prince were to reconsider today, stating that he was wrong and that everybody's gotta eat, therefore he had unilaterally decided to cut production by two million barrels a day if the US would do the same, oil would reprice upward in a neck-snapping way: probably up to about $40-45/barrel. 

As it now goes, a stunned nation will react very strongly once she realizes that energy has just been subjugated to the Saudis. The president doesn't seem to perceive this yet. But he will. He will as soon as he looks at the numbers and realizes that his second term hinges on how he handles this dispositive issue--by electoral college standards it's right up there with the virus. Texas has diversified greatly since the last great oil collapse, but the Texas persona is just as tied up in oil as pretty women, Quarter horses, a can-do attitude and the Alamo. 

[Dan Clemmensen + 1,011]

3 minutes ago, Gerry Maddoux said:

To substantiate my view, if the prince were to reconsider today, stating that he was wrong and that everybody's gotta eat, therefore he had unilaterally decided to cut production by two million barrels a day if the US would do the same, oil would reprice upward in a neck-snapping way: probably up to about $40-45/barrel. 

 

I don't understand this. If the Saudis cut back by 2 million bbl/day, the demand crash would still be there and the storage would still fill up. The world's producers need to cut back from the current (roughly) 100 million bbl/day to (roughly) 80 million bbl/day to keep from adding to storage, so why would anybody pay $40-$45/barrel until they do? If I buy oil now, where will I put it? If is do manage to buy and store it, when will I be able to sell it at a profit? I guess if the Saudis asked all producers, not just US shale, to reduce production proportionately to match the demand destruction then it might work. But if anybody cheats, we are back to building storage, which will depress prices and lengthen the time it takes to resume production.

[wrs + 893]

11 minutes ago, Dan Clemmensen said:

I don't understand this. If the Saudis cut back by 2 million bbl/day, the demand crash would still be there and the storage would still fill up. The world's producers need to cut back from the current (roughly) 100 million bbl/day to (roughly) 80 million bbl/day to keep from adding to storage, so why would anybody pay $40-$45/barrel until they do? If I buy oil now, where will I put it? If is do manage to buy and store it, when will I be able to sell it at a profit? I guess if the Saudis asked all producers, not just US shale, to reduce production proportionately to match the demand destruction then it might work. But if anybody cheats, we are back to building storage, which will depress prices and lengthen the time it takes to resume production.

Because the futures are where the price is set and as Gerry pointed out, they dropped $20 in a day or two at the beginning of the month without any storage having been added.  Significantly, since then, builds haven't been any greater than in the past.  So the demand destruction that you are sensing is likely not that great.  Furthermore, the only players left in the market are shorts and they need deliverables in order to cover.  If production drops, deliverables drop and shorts are left naked which means they cover and drive the price back up.

This isn't a physical market, it's an electronic market where most trades are settled in cash and longs don't stand for delivery.  It doesn't really reflect what's going on in the physical market.  It's all about hype and perception.

All of that oil put in storage was bought by speculators who won't sell it for $20, they won't sell until they make a lot more money and that would be oil filling some gaps above, $40 is one of the gaps above.

Edited March 30, 2020 by wrs

[John Foote + 1,135]

22 minutes ago, ronwagn said:

So dumping is allowed by the WTO rules?

No dumping allowed, but I don't think we are talking about Russian oil companies, or Aramco, operating at a negative cost relative to pumping. In some perverse way this is actually more akin to cut throat capitalism, trying to drive your competitor broke, after which of course you will set the price. Clearly it's not, their is state craft involved. There was no way Russia and KSA & Co were going to sustain as friends.

Personally don't see the logic in how KSA, or China, got into the WTO, that was mistake one thinking they'd place by the rules. Seems to be perennial offenders should lose their WTO status.  I like the idea of the WTO, but if you want to be in, they you play right. Serial abusers get tossed. On a micro scale I've seen developers gleefully violate rules, knowing they'll end up a find one day, but it's pennies compared to the monies made through the violation. Kind of what we see too often in the WTO.

American companies have a good track record at winning dumping cases, but as part of our war on trade we've blocked any new judges for the tribunal, so there can't be a case heard for now. 

[Dan Clemmensen + 1,011]

5 minutes ago, wrs said:

Because the futures are where the price is set and as Gerry pointed out, they dropped $20 in a day or two at the beginning of the month without any storage having been added.  Significantly, since then, builds haven't been any greater than in the past.  So the demand destruction that you are sensing is likely not that great.  Furthermore, the only players left in the market are shorts and they need deliverables in order to cover.  If production drops, deliverables drop and shorts are left naked which means they cover and drive the price back up.

This isn't a physical market, it's an electronic market where most trades are settled in cash and longs don't stand for delivery.  It doesn't really reflect what's going on in the physical market.  It's all about hype and perception.

I still don't understand. There is a physical market behind all those funny numbers. In California, which is a huge market for gasoline, we are driving less than half as much as we did last month. This is as measured by traffic tracking using smartphone location data, not by some government agency. We will use less than half as much gasoline. Based on current measured Covid-19 case counts, all states are on very nearly the same case rate curve when measured as days since the first 100 cases, except that CA is doubling slower, not faster, than almost all other states. The other states are about 10 days (more or less) behind CA, so we can expect them to lock down pretty quick, or  suffer the consequences. This is physical demand contraction at the consumer level, not just numbers being pushed around by oil traders.

[U_P + 22]

1 hour ago, Dan Clemmensen said:

I still don't understand. There is a physical market behind all those funny numbers. In California, which is a huge market for gasoline, we are driving less than half as much as we did last month. This is as measured by traffic tracking using smartphone location data, not by some government agency. We will use less than half as much gasoline. Based on current measured Covid-19 case counts, all states are on very nearly the same case rate curve when measured as days since the first 100 cases, except that CA is doubling slower, not faster, than almost all other states. The other states are about 10 days (more or less) behind CA, so we can expect them to lock down pretty quick, or  suffer the consequences. This is physical demand contraction at the consumer level, not just numbers being pushed around by oil traders.

What they really mean is that the implicit consequence of the oil price war declaration, occurred before the pandemic, is that no one will curtail production in a coordinated manner to rebalance supply and demand during the coronavirus lockdown. Therefore there is no "hypothetical" external support for the price under any circumstance and oil is allowed to go to zero if the market so decides. I too do not like this extreme personalization of the current oil market dynamics, but I guess it is easier to find a supposed meaning for current adverse events with an underling narration comprising friends and foes...

[Ward Smith + 6,615]

2 hours ago, Dan Clemmensen said:

I still don't understand. There is a physical market behind all those funny numbers. In California, which is a huge market for gasoline, we are driving less than half as much as we did last month. This is as measured by traffic tracking using smartphone location data, not by some government agency. We will use less than half as much gasoline. Based on current measured Covid-19 case counts, all states are on very nearly the same case rate curve when measured as days since the first 100 cases, except that CA is doubling slower, not faster, than almost all other states. The other states are about 10 days (more or less) behind CA, so we can expect them to lock down pretty quick, or  suffer the consequences. This is physical demand contraction at the consumer level, not just numbers being pushed around by oil traders.

What are they charging for gasoline where you are? I spoke with a friend yesterday in Los Angeles and I think he said $3.89 for premium. Looking it up online $3.25 for regular. That's not sounding like they're desperate to sel. . 

[Dan Clemmensen + 1,011]

I don't buy gasoline because My car is electric. My wife has not bought gasoline in 3 weeks because we are locked down. I would need to go out of the house or to a store to see a gas station sign, but I'm over 65, so we have food delivered. The AAA site says CA is at about $3.08/gal and the national average is just above $2.00 and dropping fast. lower than any time in the last 4 years.