Which producers will shut in first?

[Keith boyd + 178]

The canadian oil sands will definately have to take a chunk of the cuts. There is just no where for the oil to go. I have not heard much about the SAGD producers in the Conklin area, but remember when WCS was in the teens because of steep discounts cenovus and Devon energy were screaming uncle and ran to the alberta government to mandate production cuts. Their break even is a about $20. They only sell bitumen. They have to export on expensive trains. I think they are keeping quiet not to give away their position to investors but they are kinda effed. At some point if nobody will take the oil what do they do inject it back into the ground? I dont think that is possible anyway. There are probably analysts trying to calculate if it's more cost effective to give away oil for free for a few months then to shut in the wells. I do not see demand  coming back very quickly. If everyone is giving away free oil it still doesnt increase demand by much when governments are forcing business to stay closed. Who would ever lend money to the SAGD producers they are already in debt. Lend to suncor who owns billions in assets including downstream refineries, tank farms, pipelines etc.  yes, but a SAGD producer who's infastructure is possibly a liability not an asset (mandated reclamation the entire plants need to be removed at end of life) no investor will lend money to them. If they shut in and go bankrupt I doubt there is enough money in escrow to cover reclamation.  So what do you do? How long can can a plant sit idle before it is structurally condemned and can never be restarted? 

[Keith boyd + 178]

Syncrude shut down the MLX SAGD site completely near McKay river BUT....that site was under construction still. So that is an easier decision. They can assess if it is worth completing later, sitting on it for a while, or abandoning the project. Suncor abandoned the Voyager upgrader in 2014. Demolished what was partially constructed. It's a tire recycling yard now. What a tragedy that was. Alberta is complaining that they need more upgraders. Well ya blew up one that was half built in 2014! 

[Dan Clemmensen + 1,011]

2 hours ago, Ward Smith said:

$4.79 a gallon in kalifornistan

Please read the article you linked to more carefully. There is one station in CA that is charging $4.79. Nobody is buying gasoline there. There are about a dozen stations still charging more than $4.00, out of several thousand stations in CA. Our average price is $3.06, and that is down from about $3.50 in December based on the graph in that article. Also, gasoline prices are not a good measure of gasoline consumption right now. We won't know what the actual amount of gasoline pumped into cars is for a bit.

Here is a link to the ten lowest-price gas stations in Fremont. They range from $2.49. to $2.89.

https://www.gasbuddy.com/GasPrices/California/Fremont

 

Edited April 1, 2020 by Dan Clemmensen

[Ward Smith + 6,615]

2 minutes ago, Dan Clemmensen said:

Please read the article you linked to more carefully. There is one station in CA that is charging $4.79. Nobody is buying gasoline there. There are about a dozen stations still charging more than $4.00, out of several thousand stations in CA. Our average price is $3.06, and that is down from about $3.50 in December based on the graph in that article. Also, gasoline prices are not a good measure of gasoline consumption right now. We won't know what the actual amount of gasoline pumped into cars is for a bit.

I read every word. Just pointing out that if you're worried about demand, you lower the damn price. Amazing that some stations aren't figuring that out. 

[Douglas Buckland + 6,308]

“ The market was (by definition) roughly in physical balance (crude pumped equals crude consumed)in December.”

I have seen this comment several times, and I have a difficult time getting my mind around it.

If we were actually in balance, then why would oil be going into storage, why were we over supplied, and how was there a ‘glut’?

Does’t an over supply and too much oil in storage depress the price?

Am I missing something?

[Dan Clemmensen + 1,011]

55 minutes ago, Douglas Buckland said:

“ The market was (by definition) roughly in physical balance (crude pumped equals crude consumed)in December.”

I have seen this comment several times, and I have a difficult time getting my mind around it.

If we were actually in balance, then why would oil be going into storage, why were we over supplied, and how was there a ‘glut’?

Does’t an over supply and too much oil in storage depress the price?

Am I missing something?

The market cannot be oversupplied for very long. If it is, storage will fill up. It really depends on your time scale. Over the course of the last century, the total cumulative supply equals the total cumulative consumption, clearly. also true for the last decade, and the last year. December was prior to the consumption crash, so net storage change was approximately zero.  Demand was still roughly elastic and additional supply caused prices to drop: this is what OPEC+ was so upset about.  But now, consumption has crashed for a reason unrelated to price: demand is no longer elastic,  dropping the price of gasoline will not cause much of an increase in consumption, and storage is filling rapidly. production exceeds consumption, and this must stop for physical reasons, not financial reasons.

[Dan Clemmensen + 1,011]

2 hours ago, Ward Smith said:

I read every word. Just pointing out that if you're worried about demand, you lower the damn price. Amazing that some stations aren't figuring that out. 

Nobody in CA is buying much gas because we have quit driving. Stations have been lowering their prices to compete with each other for the remaining drastically reduced demand. In our current situation, this does not result in increased total demand.  I cannot tell you what is happening at the single station in the entire state that has chosen to leave its price that high. There are enough whackos over there on the peninsula that maybe he is giving away a bottle of Chateau Neuf de Pape with every tank of gas. The other dozen of so stations with high prices are in places with captive audiences like on the desolate roads to the National parks, and the stations are probably closed.

[Douglas Buckland + 6,308]

So, the price of gasoline goes down to the point where the gas stations cannot afford to stay in business (and make a profit), so they all close down....is that correct?

[Gerry Maddoux + 3,627]

1 hour ago, Dan Clemmensen said:

The market cannot be oversupplied for very long. If it is, storage will fill up.

The market has been oversupplied for a very long time. The Permian guys couldn't/wouldn't/shouldn't stop because their debt load was too high and besides, the Texas Railroad Commission let them flare and vent gas in total violation of Statewide Rule 32. So, the low-end guys got rid of their gas and sold their oil and paid their notes, and life went on.

And they did that until the Saudis announced that they'd just pump all out and the price fell $20 a barrel and all at once those marginal producers in the Permian were no longer able to make enough to service their debt, even if they got to offload their gas for free. At that point the Texas RRC says oh gosh, maybe we should limit production, but by now the whole house of cards had begun to fall. 

I've been yammering on for months that the TRRC was enabling the biggest treadmill in the world, and that if they merely enforced their own rule, the pipelines would jam up with natural gas, the whole thing would slow down, and in time some sort of equilibrium would get reestablished. Whoever in hell is in charge of that outfit should be summarily fired. This over-supply is a Texas Railroad Commission mess, pure and simple. And other basins did an equally poor job. 

Yes, the market can be oversupplied for a very long period of time. If it is, storage will fill up. And that very thing has been happening for well over a year. There is a lot of storage out there and for a while the exponential growth of LNG worked its magic, but then even LNG couldn't keep up with the tremendous amount of natural gas being expelled from the earth. 

Your comment, Dan, was surely made about wholly rational people running a rational business. Rational is not a word you'll hear used a lot in the shale basin. This rout has been looking for a time to nest for quite some time. That time is now. 

[U_P + 22]

6 hours ago, Ward Smith said:

@Mike Shellman used to post a lot here, he got sick of some of the interlocutor's comments and hasn't been back. He's no moron but I do have some issues with his math. The upper part in blue (on my screen) is the only govt letter, his commentary (in black) is below. 

I worked as a roughneck on the first SPR well. We were extremely careful to limit our water while drilling including using reverse circulation. However, for reasons unknown they're screwing up the salt domes now by pumping 7.5 bbls of water in for every bbl of oil they push out. Obviously the salt liquifies from the water input, corrupting the dome. 

The @U_P article talks about customers complaining about sulfur, but that's after they offloaded from a ship. Who's to say whether the sulfur was on that ship to begin with? My guess, they played some games to get a better price. 

May I ask to point out the flaws in Mike Shellman math?

Regarding the SPR tainting, if you think the ship were the problem, you are teling me that huge sophisticated organization would go after the US government first rather than move a claim against the cargo operator?

I guess I have read enough sir, I am truly sorry for your poor understanding of the complexities of modern crude logistics and the legal and commercial implications of it all.

[Jan van Eck + 7,558]

39 minutes ago, U_P said:

I guess I have read enough sir, I am truly sorry for your poor understanding of the complexities of modern crude logistics and the legal and commercial implications of it all

I suspect you have misunderstood the tenor of Ward Smith's comment.  He is not suggesting that the oil was somehow enriched with sulfur while the oil was on board in transit, as if there was some fellow with a wheelbarrow pouring sulfur powder down into those tanks;  rather, once it is unloaded, it is piped into other storage tanks where there would be other oil from other shipments from anywhere in the world, and then when commingled, it could test as sulfur-rich.  Or, that the oil in neither the ship nor the tank is contaminated, and the "sample" is not even from that load!  Hey, nobody said the "Buyers" are not up to all sorts of maneuvers.  

[ceo_energemsier + 1,818]

On 3/29/2020 at 11:37 PM, Jan van Eck said:

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.  

Good buying opportunities if one has the capital and the logistics to handle/store the crude.

Is also a good time to make "new deals" with producers, specially the small producers/independent producers and help them out in these terrible price times and glut and oil barrel wars

 

In my opinion , petroteq wasnt going anywhere but down from the start.

[U_P + 22]

1 hour ago, Jan van Eck said:

I suspect you have misunderstood the tenor of Ward Smith's comment.  He is not suggesting that the oil was somehow enriched with sulfur while the oil was on board in transit, as if there was some fellow with a wheelbarrow pouring sulfur powder down into those tanks;  rather, once it is unloaded, it is piped into other storage tanks where there would be other oil from other shipments from anywhere in the world, and then when commingled, it could test as sulfur-rich.  Or, that the oil in neither the ship nor the tank is contaminated, and the "sample" is not even from that load!  Hey, nobody said the "Buyers" are not up to all sorts of maneuvers.  

 

I have never interpreted it the way you mentioned and your explanation does not physically make sense: the same infrastructure is used daily for other oil, anomalies would have popped over and over again across those pipes and tanks, and crude shipments are assayed regularly by refiners that risk shrewing their cathalysts/refining margins. Again, those same sophisticated buyers would have figured this out and asked the pipeline, storage companies for compensation not the US government!

There is no way you are going to stress your relatioship with the governing bodies of a host country where you have BILLIONS and BILLIONS of $ invested if you were not 1000% sure of what you are saying/doing!  

The problem with the SPR is not the quality of the oil. The complaint came about, I suspect, not because the oil is unsuable, but because it was sold according to specs which did not reflect the sulphur quantities in the fluid and therefore purchased by the buyers under the assumption that it could have been refined in plants where they are not capable to sweeten it sufficiently, making it basically "useless" to them.

Edited April 1, 2020 by U_P

[Mike Shellman + 548]

10 hours ago, Ward Smith said:

@Mike Shellman used to post a lot here, he got sick of some of the interlocutor's comments and hasn't been back. He's no moron but I do have some issues with his math.

Mr. Smith, thank you; my day will be much better knowing I am not a moron. I was not able to see your comments to what I assume is this article of mine? 

https://www.oilystuffblog.com/single-post/2020/03/15/The-SPR-Fiasco

Two weeks ago my math was spot on. The filling of the SPR was designed to help the US shale oil sector at what was then a price of $35 and a net back price of below $10 after all extraction costs are deducted from a gross barrel, including G&A and interest expense per incremental BO. That 77MM BO into the SPR would have been nothing more than pissing into a norther and getting it all over your pants leg. My total public and private debt estimates for US shale oil are good; the US shale oil sector has to pay $18 some odd billion a year to pay interest on that debt. I stand by my work. Now, of course, all of that is irrelevant as the deal is off the table and in all shale oil plays in America  the net back oil price is now negative. For the oil industry the SPR thing is a nothing burger.  

Tariffs on the 600K BOPD of Saudi imports, or stopping KSA imports completely, is yet another government fake fix. It  will not work and destroy 23% of our refinery capacity along the GC. It would be a tax on the consumer.

The mighty US shale oil industry needs to go to the corner and take a time out. Its leveraged overproduction is destroying itself, and the rest of the American oil industry. From 2016-2020 OPEC and Russia reduced their production to keep the price of oil propped up worldwide; to return the favor the US put 4MM MORE BOPD on the market, all on credit, and took OPEC and Russia market share. Now we're getting paid back. America must slow shale oil production development commensurate with worldwide market conditions to ensure a higher price, stability and job security. Texas can do that, within its statutory resource laws, and we don't need permission from Washington or anywhere else. I have proposed the TRRC go back to Statewide Rule 37 and 1200 foot spacing between wells until the market is balanced again, and Texas helps the rest of the world to KEEP that market balanced. There is also recent news regarding proration efforts again before the TRRC, which I also support...as should all Texas concerned about their last remaining hydrocarbon resources being negligently wasted.

Anger and hatred against OPEC and Russia is emotional and not rooted in reality. We, the US, Texas, need to join with the entire rest of the world to limit production...before there is nothing left of the oil and natural gas industry. 

Have a good day, sir! 

 

[wrs + 893]

5 hours ago, Douglas Buckland said:

So, the price of gasoline goes down to the point where the gas stations cannot afford to stay in business (and make a profit), so they all close down....is that correct?

Yes

[wrs + 893]

33 minutes ago, Mike Shellman said:

Mr. Smith, thank you; my day will be much better knowing I am not a moron. I was not able to see your comments to what I assume is this article of mine? 

https://www.oilystuffblog.com/single-post/2020/03/15/The-SPR-Fiasco

Two weeks ago my math was spot on. The filling of the SPR was designed to help the US shale oil sector at what was then a price of $35 and a net back price of below $10 after all extraction costs are deducted from a gross barrel, including G&A and interest expense per incremental BO. That 77MM BO into the SPR would have been nothing more than pissing into a norther and getting it all over your pants leg. My total public and private debt estimates for US shale oil are good; the US shale oil sector has to pay $18 some odd billion a year to pay interest on that debt. I stand by my work. Now, of course, all of that is irrelevant as the deal is off the table and in all shale oil plays in America  the net back oil price is now negative. For the oil industry the SPR thing is a nothing burger.  

Tariffs on the 600K BOPD of Saudi imports, or stopping KSA imports completely, is yet another government fake fix. It  will not work and destroy 23% of our refinery capacity along the GC. It would be a tax on the consumer.

The mighty US shale oil industry needs to go to the corner and take a time out. Its leveraged overproduction is destroying itself, and the rest of the American oil industry. From 2016-2020 OPEC and Russia reduced their production to keep the price of oil propped up worldwide; to return the favor the US put 4MM MORE BOPD on the market, all on credit, and took OPEC and Russia market share. Now we're getting paid back. America must slow shale oil production development commensurate with worldwide market conditions to ensure a higher price, stability and job security. Texas can do that, within its statutory resource laws, and we don't need permission from Washington or anywhere else. I have proposed the TRRC go back to Statewide Rule 37 and 1200 foot spacing between wells until the market is balanced again, and Texas helps the rest of the world to KEEP that market balanced. There is also recent news regarding proration efforts again before the TRRC, which I also support...as should all Texas concerned about their last remaining hydrocarbon resources being negligently wasted.

Anger and hatred against OPEC and Russia is emotional and not rooted in reality. We, the US, Texas, need to join with the entire rest of the world to limit production...before there is nothing left of the oil and natural gas industry. 

Have a good day, sir! 

 

Did you do your part to cut supply?  Have you shut your dripping faucets off?  It's so funny to hear you spout about over producing when it's a benefit to you but not many other producers.  What makes you special?  If you are producing oil, you are adding to the oversupply just like shale.

Edited April 1, 2020 by wrs

[U_P + 22]

5 minutes ago, wrs said:

Did you do your part to cut supply?  Have you shut your dripping faucets off?  It's so funny to hear you spout about over producing when it's a benefit to you but not many other producers.  What makes you special?  If you are producing oil, you are adding to the oversupply just like shale.

Mr Shellman did not use other people's money to pump his oil, just to lose it all mr wrs, but alas, I think global industry dynamics and the interchange between monetary policy, resource extraction and depletion is beyond you. Again, mr Shellman does not need me to come to his defence and has had my utmost respect since 2014-2015 when he used to post on OILPRO forums and has so far been spot on with his analysis along with Art Berman. 

 

[wrs + 893]

12 minutes ago, U_P said:

Mr Shellman did not use other people's money to pump his oil, just to lose it all mr wrs, but alas, I think global industry dynamics and the interchange between monetary policy, resource extraction and depletion is beyond you. Again, mr Shellman does not need me to come to his defence and has had my utmost respect since 2014-2015 when he used to post on OILPRO forums and has so far been spot on with his analysis along with Art Berman. 

 

Mr UP, how do you know Mr. Shellman never took a loan?  Most people in business have to.  It's the way business operates. However, that is a canard, I asked Mike the question about production and if he has cut production to help with the oversupply or is that only for others?  Is he willing to take a cut in production along with everyone else or is it just for shale?

[Douglas Buckland + 6,308]

27 minutes ago, wrs said:

Did you do your part to cut supply?  Have you shut your dripping faucets off?  It's so funny to hear you spout about over producing when it's a benefit to you but not many other producers.  What makes you special?  If you are producing oil, you are adding to the oversupply just like shale.

wrs,

I don’t have a dime invested in anything oil related in the US, so basically I don’t have any skin in the game regarding this thread

I would simply like to ask you a question

Do you think that the shale oil operators have acted as prudent custodians of their resource?

[Jan van Eck + 7,558]

1 hour ago, Mike Shellman said:

Mr. Smith, thank you; my day will be much better knowing I am not a moron

Mike, I can flat-out guarantee both you and everyone on this forum that you are not a moron. 

Historically, I have assiduously read what you wrote.  I found it intellectually taut.

[Jan van Eck + 7,558]

2 minutes ago, Douglas Buckland said:

Do you think that the shale oil operators have acted as prudent custodians of their resource?

No.

[Geoff Guenther + 317]

On 3/30/2020 at 6:55 PM, 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!

Under WTO rules, so long as the US treats all WTO signatories the same, it is allowed to raise tariffs to whatever it would like. It could be 300% + $20/barrel so long as they apply it to everyone.  Canada and Mexico can have different tariffs because of trade agreements which are consistent with the WTO agreement.

So yes, the US can raise tariffs without drawing WTO ire. What is stopping them right now is more geopolitical. If they were to pull support from its oil allies in the ME, it risks Israel's security and puts Europe in an awkward position.

[wrs + 893]

8 minutes ago, Douglas Buckland said:

wrs,

I don’t have a dime invested in anything oil related in the US, so basically I don’t have any skin in the game regarding this thread

I would simply like to ask you a question

Do you think that the shale oil operators have acted as prudent custodians of their resource?

My operators have.  We certainly have worked with our independent from the start to be good custodians of the land and the resource.  This is why I object to the wide brush that mr shellman and other shale haters paint with.  As a land owner we have put plenty of provisions in our leases to protect the resource and the land.

Edited April 1, 2020 by wrs

[wrs + 893]

6 minutes ago, Geoff Guenther said:

What is stopping them right now is more geopolitical. If they were to pull support from its oil allies in the ME, it risks Israel's security and puts Europe in an awkward position.

That matters to US oil producers because?

[Jan van Eck + 7,558]

1 minute ago, Geoff Guenther said:

If they were to pull support from its oil allies in the ME, it risks Israel's security and puts Europe in an awkward position.

I cannot speak to the issue of Israel, other than to say that US support, or at least benign acceptance, of the Israeli policy of confiscating Palestinian land is the crux element for all the enmity. Pushing people off their land and demolishing the houses leaves embittered populace with nothing mer left to lose.  Adding guns and bombs into that mix and you have the unending violence of the Middle East. 

I do not grasp the idea of putting Europe  "in an awkward position."  If the US determines that offshore oil is not going to come in, that the US market is closed (except for heavy oil from Canada, of course) the that is one less market to absorb output and Europe can pick between suppliers, presumably KSA and Russia, and continue to gete lower and lower pricing.  I must be missing somethhing in your argument.