Which producers will shut in first?

[Gerry Maddoux + 3,627]

1 hour ago, Dan Clemmensen said:

When production exceeds consumption, then in a market economy the price falls, so I don't know what you mean by "should the price be higher"? In a free market (that OPEC has suppressed for the last 50 years) The price falls to the cost of production plus an  acceptable profit.

Bias on my part. You see, I have always held that oil was oil, and if there's a lot lying around it's worth the same as when it's scarce--it costs the same to produce. My bias also stems from my lifelong belief--inculcated by my grandfather--that our national defense depends on the availability of crude oil. He was an attentive student of history and was well aware of the fact that the US won the war because we had ample oil stores, and horse-drawn artillery left behind on battlefields revealed to Patton that Hitler's armies were out of gas. 

I get the supply/demand thing, logically, but I also feel that our national security is in jeopardy when we start laying down rigs and furloughing workers who mostly won't return to the petroleum industry in any form. Like many, I have wanted the whole cadre of shale producers to pull in their horns for the last five years, not so I could make more money but because what is happening now has been obvious for a long, long time. It has become embarrassing, so much ill-placed zeal and outright lying. The level and duration of venting/flaring has become downright obscene. A price of $60 for WTI allows everyone to eat. Bouncing up and down doesn't. What is happening is ruinous to the oil industry.

I'm sorry I can't make my case in a few words. This isn't a few-worded world, this crazy shale gone mad. 

[Ward Smith + 6,615]

48 minutes ago, 0R0 said:

Deliberate sabotage. Like the caricature says, Dems don't want a cure, don't want the disease to go away but want an epidemic and for it to be Trump's fault. They must be CCP agents. This version of the democratic party, a leftover of the Soviet propaganda machine of the 1930s has to be exposed as partners with the CCP. 

While I'm inclined to believe there are principled employees at CDC and FDA, it is obvious to anyone that those two entities, plus EPA are guaranteed to attract the kind of people who love having power over the productive members of society, to make up no doubt for their own vast shortcomings. That those people tend to be liberal democrats might be coincidence...

[Dan Clemmensen + 1,011]

20 minutes ago, Gerry Maddoux said:

Bias on my part. You see, I have always held that oil was oil, and if there's a lot lying around it's worth the same as when it's scarce--it costs the same to produce. My bias also stems from my lifelong belief--inculcated by my grandfather--that our national defense depends on the availability of crude oil. He was an attentive student of history and was well aware of the fact that the US won the war because we had ample oil stores, and horse-drawn artillery left behind on battlefields revealed to Patton that Hitler's armies were out of gas. 

I get the supply/demand thing, logically, but I also feel that our national security is in jeopardy when we start laying down rigs and furloughing workers who mostly won't return to the petroleum industry in any form. Like many, I have wanted the whole cadre of shale producers to pull in their horns for the last five years, not so I could make more money but because what is happening now has been obvious for a long, long time. It has become embarrassing, so much ill-placed zeal and outright lying. The level and duration of venting/flaring has become downright obscene. A price of $60 for WTI allows everyone to eat. Bouncing up and down doesn't. What is happening is ruinous to the oil industry.

I'm sorry I can't make my case in a few words. This isn't a few-worded world, this crazy shale gone mad. 

I'm OK with that. If the US had a consistent energy independence policy, we could implement something like this. It became technically feasible in maybe 2016 or so. Change the bookkeeping to raise the price of gasoline to pay for it, which is what would translate to $60 oil. prohibit crude imports from anwhere but Canada and Mexico. Prohibit venting and flaring, which would kill the Marcellus as the Permian scrambled to capture and sell the gas. Higher gasoline costs drive down demand and make EVs more attractive, and the whole oil industry can then gradually fade away over the next 20 years. Is that what you mean? It's the logical consequence of your statement as I understand it.

None of this addresses the the Covid-19 short term physical production surplus.

Edited April 1, 2020 by Dan Clemmensen
spelling

[U_P + 22]

43 minutes ago, Tom Kirkman said:

You just made my day.  Mike was a fellow moderator over on the old Oilpro forum, and I have a very high respect for the gentleman.

Tom I really miss that forum and I remember very well your role over there, too bad the owners got too greedy..

I had just started and I learned so much, things you cannot find in books or publications!

I think we really need something like that again, a knowledge management system rather than an echo chamber...

I am not sure this is the place though, this site is per se too financially oriented.

[BLA + 1,666]

Trump Calling Putin and MBS and supposedly talking to them Friday is keeping price above $20.  Nobody wants to short in front of possible action.

If not for this talk WTI would be closer to $15 then $20 today.

With the cantango Traders buying cheap oil at a discount to benchmark if the can find storage. U.S.  Land storage normally $0.25 bbl/month has tripled to $0.75 bbl/month. Tanker offshore storage has increased 600%.  Traders can buy heavily discounted oil, find storage and sell out month contracts and lock in serious profits. 

April could see 15mm bbls/day to 20mm bbls/day glut this month.  All the cuts in the world will have no affect.  

Besides Russia and Saudi Arabia never complied in the past , they lie, can't believe them this time. 

The only thing that could work is Price fixing where all agree to say we are selling at $40 bbls or $50 or $60 , whatever. .  How would you enforce that. Price controls never work.

WTO can't tell producers how to price or what to import or export..  Most imported oil comes from Canada (approx 3.5 mm day). The U.S. majors, like Exxon, still own large oil sands operations.  Plus the Gulf refiners need their heavy oil. 

  Then Saudi Arabia and Iraq that usually average 500k day. Understand both Chevron and Exxon have JVs in both those countries.  U.S. imports between 8 to 9mm bbls/day of crude and product.  The majors use transfer pricing pay no  U.S. Corp income tax on the imports or exports.  The majors have the lobbyist, contribute to political campaigns and suck up to the pols.  They control API and TEXOGA.  They want to own all the shale.  They are the ones meeting with Trump. Exxon, Chevron and Occidental have a meeting set. They don't want tariffs on imported oil, much of it is theirs. 

Edited April 2, 2020 by BLA

[0R0 + 6,251]

10 hours ago, Mike Shellman said:

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. 

 

Agreed. Very good to see you posting again. Missed your insights.

[Gerry Maddoux + 3,627]

1 hour ago, Dan Clemmensen said:

Prohibit venting and flaring, which would kill the Marcellus as the Permian scrambled to capture and sell the gas. Higher gasoline costs drive down demand and make EVs more attractive, and the whole oil industry can then gradually fade away over the next 20 years. Is that what you mean? It's the logical consequence of your statement as I understand it.

As it happened, all that had to be done was to enforce Statewide Rule 32, whereby venting is allowed for only 24 hours and flaring for ten days. That regulatory act has been in the Texas Railroad Commission bylaws for decades. The Permian is so gassy that if this one rule had been upheld, the pipelines would have quickly filled up with NG, reducing the space for crude oil. In this way, it would have acted like a choke on a wellhead.

There are those on this forum who argue that vented and flared gas makes up <5%. But this critical mass allowed marginal drillers to run roughshod over the system, pumping and dumping recklessly with no heed to damage to the ecosystem or to the general reputation of the industry. The TRRC for some reason fought against their own Statewide Rule. That's the reason I've been harping: none of this fiasco had to happen. 

So yes, the answer is yes: if the statutory rule were upheld, prices would probably have held around $60/bll, which isn't high enough to suppress the economy but is high enough to make this a profitable business. EV's would proceed at their own level. More pipelines would have been built so the prolific Delaware Basin could be properly drained over the next twenty years. This would have provided for a nice stable workforce not living in fear that the maniacs would piss in the drinking water.

This isn't Prince MbS wrecking the shale basins. This is us.

I hope this answers your inquiry as I can't word it much more succinctly than this, though I'm pleased to jawbone with you. And since I happen to believe that Texas mostly does the right thing, I'm pretty sure Texas is going to fix this obvious transgression of hubris. 😃 

Edited April 1, 2020 by Gerry Maddoux

[0R0 + 6,251]

45 minutes ago, BLA said:

The only thing that would work is Price fixing where all agree to say we are selling $40 bbls or $50 or $60 , whatever. .  How would you enforce that.

 

That isn't practical. And would be counterproductive economically to the 90% of the economy Downstream from the oil producers. Outside the oil patch you want to obtain the lowest cost oil you can obtain. So price fixing is a no go for the US. OPEC+ are a cartel price fixing is their game. US does not join them. 

There is no method to price fix except reducing supply. 

[Tom Kirkman + 8,860]

2 hours ago, U_P said:

Tom I really miss that forum and I remember very well your role over there, too bad the owners got too greedy..

I had just started and I learned so much, things you cannot find in books or publications!

I think we really need something like that again, a knowledge management system rather than an echo chamber...

I am not sure this is the place though, this site is per se too financially oriented.

Yep, I miss the old Oilpro forum too.  After the site got shut down, a few of us moderators tried to band together and create an Oilpro 2 forum, but we were advised by lawyers that was not possible.  Oilpro is erased from the internet.  I'm still annoyed at Rigzone for using lawyers to erase the entire Oilpro forum.  There was tons of information there.

This Oil Price forum has "price" in its name, which attracts a different crowd than Oilpro.

Old thread:

https://www.linkedin.com/feed/update/urn:li:activity:6336435878159835136

 

[BLA + 1,666]

13 hours ago, Gerry Maddoux said:

 

This isn't Prince MbS wrecking the shale basins. This is us.

I hope this answers your inquiry as I can't word it much more succinctly than this, though I'm pleased to jawbone with you. And since I happen to believe that Texas mostly does the right thing, I'm pretty sure Texas is going to fix this obvious transgression of hubris. 😃 

"This isn't Prince MbS wrecking the shale basins. This is us."

I respectfully disagree.

Its change.  Sometimes change is hard to accept.

As a petroleum products consumer I do blame Saudi Arabia when they were charging $120 bbl for what cost them $1.50 and their oil minister said with a big shit eating grin on his face oil is going to $200.

I she'd no tears for Saudis. Rest assured the Monarchy has hundreds of billions in Swiss banks and U.S. real estate with a detailed escape plan. 

wrs said his independent's costs are below $30 bbl.  Exxon , Chevron, Conoco and Oxy said they will get costs below $20.  

If you lease your mining rights or overpaid landowners for rights you want $60.  I don't blame you.  But ya can't always get what you want.  

In the end free market will settle this.

Goldman Sachs analyst said shale will prevail in the end due to flexibility

https://www.foxnews.com/world/chinese-doctor-critics-who-first-raised-the-alarm-over-covid-19-vanishes

Morgan Stanley analyst says "oil supply has finite demand" and as a result it is all about market share.  He believes the low cost producers will defend market share to the end.  

I think the Saudis lose whatever they do.  Be glad we're not them. 

https://www.bloomberg.com/news/videos/2020-04-01/morgan-stanley-oil-strategist-says-prices-may-need-to-fall-below-10-video

Even though Saudis are the low cost producers they can ill afford to extend market share fight for any length of time if they want the monarchy to survive. The Saudis never complied.  Why should the be able to export 8 mm bbls a day , now 10 mm starting April , a qty double most other producers ?  Because they have a social budget to fund ? Please.  They have been extorting the world for 60 years.  Putin is correct.  He said he will not put up with Saudi blackmail. 

 

Accept change.  Embrace it.

Edited April 2, 2020 by BLA

[Jan van Eck + 7,558]

5 hours ago, Dan Clemmensen said:

In a free market (that OPEC has suppressed for the last 50 years) The price falls to the cost of production plus an  acceptable profit.

Not exactly.  In a free market the price of the offered good can and does fall to below the marginal cost of production  (and forget about the full costs) and you can forget about "acceptable profit."  The price can and deos fall to well below that, if that number is greter than the costs of shut-down, storage, and re-start.

In the oil business, you see that in tankers.  The shipowners are price takers, not price setters.  When demand for charters drops, the dilemma looming over the shipowner is what is the cost of mothballing that ship?  And what will it cost to put that ship back on-line, to take it back out of mothballs?  Those numbers are substantial.  The result is that you see shipowners  (and the companies that either own or lease them) fighting for the "last cargo to book," with the offer price dropping below the marginal cost to run the trip.  In effect, the shipowner/shipping company is selling its good, the service of the ship, for less than the marginal cost of actually running the vessel.

What then happens is that the shipowners then look to the scrap market to see how much they could get from the shipbreakers.  And that is a market that is totally dependent on the demand for scrap in China, where most ship steel is reprossed into construction rebar.  The shipowner, if he gets "something" instead of "nothing," then he ends up scrapping his ship.  So the industry sees ships as young as twelve years going off to the scrappers, simply because there is not enough work.

Today, charter rates have zoomed off into the stratosphere, even though there is little oil being shipped.  That paradox is driven by the new and massive demand for storage.  If you pump oil and have no spot buyer, then it has to get stored.  If it is sitting in a vessel, then at least it can be delivered rapidly to some future customer. So, tankers for storage is the latest twist. 

Right now, the airlines are doing the same thing.  The passenger market has disintegrated;  the aircraft flying are for the air cargo in the belly.  Does the trip lose money?  On a full-cost basis, using a pax jet for only cargo is a dubious proposition, financially.  But if the alternative is to surrender markert share to rivals, then the trip will go. Right now, the air cargo market is brisk, and the carriers are doing well.  How this holds up in the future is anybody's guess.   

[Dan Clemmensen + 1,011]

2 minutes ago, Jan van Eck said:

Not exactly.  In a free market the price of the offered good can and does fall to below the marginal cost of production  (and forget about the full costs) and you can forget about "acceptable profit."  The price can and deos fall to well below that, if that number is greter than the costs of shut-down, storage, and re-start.

 

Of course. I was just quoting grossly oversimplified free market theory for a market with perfect information. Reality intrudes in a great many ways at the margin. But (again in theory) the market adjusts as all of these deviations get factored into the total cost of production. This is all part of the "bookkeeping" I keep harping on so monotonously. In the end and in the long term, end consumers pay for product, producers produce product, and a large number of entities in between do things to move and modify that product. (refine, transport, store, finance, regulate, tax, etc., etc.....) "Bookkeeping" allocates the money paid for by consumers to all of those other entities, and some of that money sometimes manages to get through to producers so producers can keep producing.

But right now we have imperfect information and a real-world inertia in the system such that production exceeds consumption, and storage will fill up, unless some producers somewhere slow down or stop, and I am trying to learn from you guys how that happens.

[Jan van Eck + 7,558]

2 minutes ago, Dan Clemmensen said:

But right now we have imperfect information and a real-world inertia in the system such that production exceeds consumption, and storage will fill up, unless some producers somewhere slow down or stop, and I am trying to learn from you guys how that happens.

It happens when the last old scrap tanker with a busted engine is towed by some deep-sea tugboat all the way to that loading dock in Saudi Arabia and stuffed with crude, and there is none more to be found, and there are some 3,000 other old hulks filled with oil sitting out there in the Gulf, and no buyers at any price.  Then, I flatly guarantee you, KSA will stop pumping. 

They are not going to do a Saddam Hussein and pump that oil onto the desert sands and set it on fire. 

[Gerry Maddoux + 3,627]

2 hours ago, BLA said:

Accept change.  Embrace it.

I don't even know what you mean by that. I'm long in the tooth. I have accepted profound change in my life, of necessity. I'm not sure why I should embrace something that has destroyed the lives of thousands of people. What has happened in the shale basin is a damn disgrace!

But then there's the prince! 

I personally believe in the shale concept and think it will become more valuable with time--it may be our last big spurt. When this pandemic hit just after the prince made his idiotic bet, I personally put enough back to live on for about three years--I figure that's how long this moron can hang on, if he's lucky, and that's about how long it's going to take for shale to become a serious endeavor for serious people not out just to be a member of the big swinging dick club. 

Accept change? The hell you say! Embrace it? What are you, sixteen?

[Ward Smith + 6,615]

3 hours ago, Tom Kirkman said:

Yep, I miss the old Oilpro forum too.  After the site got shut down, a few of us moderators tried to band together and create an Oilpro 2 forum, but we were advised by lawyers that was not possible.  Oilpro is erased from the internet.  I'm still annoyed at Rigzone for using lawyers to erase the entire Oilpro forum.  There was tons of information there.

This Oil Price forum has "price" in its name, which attracts a different crowd than Oilpro.

Old thread:

https://www.linkedin.com/feed/update/urn:li:activity:6336435878159835136

 

You might be able to use the Wayback machine website to see those old threads. 

[BLA + 1,666]

9 hours ago, Gerry Maddoux said:

I don't even know what you mean by that. I'm long in the tooth. I have accepted profound change in my life, of necessity. I'm not sure why I should embrace something that has destroyed the lives of thousands of people. What has happened in the shale basin is a damn disgrace!

But then there's the prince! 

I personally believe in the shale concept and think it will become more valuable with time--it may be our last big spurt. When this pandemic hit just after the prince made his idiotic bet, I personally put enough back to live on for about three years--I figure that's how long this moron can hang on, if he's lucky, and that's about how long it's going to take for shale to become a serious endeavor for serious people not out just to be a member of the big swinging dick club. 

Accept change? The hell you say! Embrace it? What are you, sixteen?

Should every farmer be guaranteed $12 a bushel of wheat ?  It's not fair these Russian , Argentinian and Brazilian farmers are ramping production and competing against U.S.  THOSE ARE U.S. WHEAT MARKETS. 

Should every dairy farmer be guaranteed $32 U.S./CWT for class 1 milk.  What do you mean consumer demand for milk is dropping.  They can't do that.  They have to pay dairy farmers top dollar.  They spent their whole life building their dairy business.

Did you read the two links in the post.  Goldman has a different take on shale as opposed to Morgan Stanley.

Goldman thinks shale will do well as a result of it's flexibility. Just need to wait it out. "Shale" will do well , it will survive.  But that all depends on how one is involved.  If your an independent producer it does not look good.  If your a landowner it is going to be a down year , but that won't last.  If hold option on mining rights and you overpaid for those mining rights or agreed to excessive royalty payment for  land options you could be in trouble.  wrs has it right.  Rewrite your agreement to slowdown or shutdown completions for a while. 

Saudis are full of hot air with their threats.  Never understood why so many believe them.  Oh my, they are going to flood the market.  Who's going to buy their oil.  There is no place to store it.  You want a good "short" , SHORT MBS. 

You know last week Saudis crude shipment to U.S. dropped 50% from an average of 600k per day to ~ 300k.  

Morgan Stanley makes a good point.  Demand is finite. CHANGE IS COMING.  That's just the reality.  A good percentage of the oil reserves today will never see the light of day.  It will be a while but demand will plateau and eventually decline.  

So I believe shale will survive , but some players won't.  There are many years/decades of oil needed.  But not at historical prices. Can't do anything about price until the world gets back to work.  Over leveraged producers are using Covid as an excuse to plead for a bailout.  Bonds and banknotes are reviewed twice a year (April/October)  to make sure they meet terms and covenants. It's April 1st.  Whiting is the first to file and reorganize.  The Note holders agreed to take 97% of the new entity stock for the outstanding $2.5 billion notes. This is just day 1, so 29 days left in April.  Party is over for some.

Fini

By the way I am not 16 !  I'll be 18 August 29th.

 

 

Edited April 2, 2020 by BLA

[BLA + 1,666]

9 hours ago, Ward Smith said:

You might be able to use the Wayback machine website to see those old threads. 

The Oil Price site has always tried to sell itself as an Energy Investment Forum.

Oil Pro was targeting oil industry employment and on the ground field articles discussing operations and technology.

Edited April 2, 2020 by BLA

[BLA + 1,666]

12 hours ago, 0R0 said:

That isn't practical. And would be counterproductive economically to the 90% of the economy Downstream from the oil producers. Outside the oil patch you want to obtain the lowest cost oil you can obtain. So price fixing is a no go for the US. OPEC+ are a cartel price fixing is their game. US does not join them. 

There is no method to price fix except reducing supply. 

Which brings me to my conclusion , nothing will work .   .   .    but free market.  

Reducing supply never worked.  Saudi has been producing 10 mm bbls/day for years.  Example : when prices crashed October 1st 2018 Saudis increased production substantially in October and November.  When they agreed to cut it was based on the newly increased production .  Their price cut quota was actually above there avg production for the year. Like I said MBS is all bluster.

Then there is Russia.  They never complied.  All talk. The thing is it worked.  Can't take it anymore with the size of Covid glut.

How are you going to get the U.S to drop production ? Can't control that.  Trump has agreed to meet with the oil industry.  IF YOU CONSIDER EXXON, CHEVRON AND OCCIDENTAL THE "INDUSTRY" .  They want no government interference. They want more Whiting type restructurings to consider buying.  

TRR could probably announce production cuts for Texas, but how the hell do you monitor that.  

Going to be a lot of carnage this year.

Plan accordingly.

Edited April 2, 2020 by BLA

[Douglas Buckland + 6,308]

 

“By the way I am not 16 !  I'll be 18 August 29th.”

Well, that explains alot.....

[Dan Warnick + 6,100]

9 hours ago, 0R0 said:

Ward Smith said:

We've been flattening the curve with closed schools etc. The CDC in a case of criminal negligence would not allow the University of Washington medical school to perform its own tests. Then when they couldn't stand it after two weeks of inaction, they risked approbation and performed the test. CDC demanded they stop testing!! The CDC contacted the FDA who likewise demanded they stop testing. This after they found positive Covid19! They risked their medical school qualification to continue testing. Otherwise we'd be even further along in the bad curve. 

There is plenty of blame to go around here. And before everyone blames Trump, these were leftover bunglecrats from the Obama administration. 

An interesting clip.  A seemingly non-political question from a journalist, seemingly interpreted as a political question by the WHO interviewee.  In any case, and DILLIGAF about his reasons, he shows his bias towards the CCP and against Democratic Taiwan.

Senior official from WHO dodging questions about Taiwan. The World Health Organisation is a Chinese puppet.

And we face demands from people that we must trust the "unbiased" departments of the U.S. Government, and world organizations, yet we are also told it is Trump's fault that they don't act differently.  Hypocrisy at its finest, IMHO.

[Tom Kirkman + 8,860]

4 hours ago, Ward Smith said:

You might be able to use the Wayback machine website to see those old threads. 

thanks, I've tried that.  About 99.7% of the site is erased.  Wayback machine gives some limited snapshots, but not full threads.  Some threads on Oilpro had over 50 pages of comments.  And there were tons of technical docs presented, basically all wiped out now.

[Rasmus Jorgensen + 1,169]

8 hours ago, BLA said:

In the end free market will settle this.

 

There is no free market in oil or anywhere else these days. Just look at the massive bailouts.

[Douglas Buckland + 6,308]

50 minutes ago, Rasmus Jorgensen said:

There is no free market in oil or anywhere else these days. Just look at the massive bailouts.

Okay Ras, I generally agree with no bailouts, but the present situation is unprecedented in recent history. If the economy is going to recover, some assistance is required.

I’d like to see all the ‘mom & pop’ sized businesses and those small to medium businesses which appear to be well run helped out first. Big businesses and multinationals can fend for themselves.

Essentially I am more concerned with getting a six-pack manifold for a 327 Chevy mill than any green energy initiative. One must have priorities!😂

[El Nikko + 2,145]

12 hours ago, Ward Smith said:

While I'm inclined to believe there are principled employees at CDC and FDA, it is obvious to anyone that those two entities, plus EPA are guaranteed to attract the kind of people who love having power over the productive members of society, to make up no doubt for their own vast shortcomings. That those people tend to be liberal democrats might be coincidence...

It almost feels like there was a 'long march' through the institutions

[Douglas Buckland + 6,308]

8 minutes ago, El Nikko said:

It almost feels like there was a 'long march' through the institutions

It’s a sad fact that government agencies or institutions (except those involved in law enforcement and national security) are generally not staffed with the best and the brightest, those people tend to go to the private sector and better paying jobs.

A cursory examination of the recent performance of the WHO  and the UN as an international ‘governmental agencies’, as well as the FDA and CDC (and their foreign equivalents) bears this out.