What Can Bring Oil Down to $20?

[James Regan + 1,776]

On 10/30/2018 at 7:25 AM, Marina Schwarz said:

let's have some fun, shall we? What needs to happen -- plausibly, mind -- for oil prices to dive to $20 a barrel.

Marina im not sure this is fun anymore, it may come true....

[William Edwards + 708]

2 minutes ago, James Regan said:

Marina im not sure this is fun anymore, it may come true....

You can count on it, James. It will come true.

[James Regan + 1,776]

3 minutes ago, William Edwards said:

You can count on it, James. It will come true.

Permian May be heading for the perfect storm, sub $40/Bbl , New pipelines ready or being built, Non OPEC (at the will of KSA), Economic slow down, trade wars, Iran selling cheaper, and on and on..... #drillbabydrill 😱

[William Edwards + 708]

18 minutes ago, James Regan said:

Permian May be heading for the perfect storm, sub $40/Bbl , New pipelines ready or being built, Non OPEC (at the will of KSA), Economic slow down, trade wars, Iran selling cheaper, and on and on..... #drillbabydrill 😱

Actually, James, I think that it goes much broader than current action. History tells us that the cycle between peaks is about thirty years. The reason fir the long duration is the considerable lag time between the occurrence of a price bubble and the oil finding and production activities whose results follow for the next decade or two. The reaction of the producing industry to encouraging prices is slow to appear. During those decades, however, the ubiquitous media "explanations" exercise their creativity to convince the uninitiated of a multitude of reasons for the price moves, all of which are essentially fiction. But almost everyone accepts them.

The fundamental problem is two-fold. First, the law of conservation of matter will not be violated. You cannot put ten gallons of oil in a five gallon bucket, regardless of the price of the extra five gallons. Secondly, Our industry, whose production rates are the combined total of thousands of uncoordinated entities, has no mechanism to match supply availability with consumption. There is almost always too much supply capability and, sometimes, the most desperate sellers overdo the urge to expect price to override the law of conservation of matter in order to place their five gallons in the full bucket. Then we end up with prices low enough to throttle supply to the point that the balance is restored. We are now headed in that direction, but with a few years and many dollars left to play out.

Edited December 18, 2018 by William Edwards

[ceo_energemsier + 1,818]

Dec 17 (Reuters) - Oil production from seven major U.S. shale basins is expected to surpass 8 million barrels per day (bpd) by the end of the year, the U.S. Energy Information Administration said in a monthly report on Monday.

The United States has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7 million bpd.

When December ends, shale production is expected to climb to 8.03 million bpd for the first time on record and forecast to rise by about 134,000 barrels per day (bpd) in January to 8.17 million bpd.

 

The largest change for January is in the Permian Basin of Texas and New Mexico, where output is expected to climb by 73,000 bpd to a record of about 3.8 million bpd in January.

In North Dakota’s Bakken region, shale production is estimated to rise by 18,000 bpd to a record 1.46 million barrels per day.

U.S. natural gas production, meanwhile, was projected to increase to a record 76.9 billion cubic feet per day (bcfd) in January. That would be up more than 1.1 bcfd over the December forecast and would be the 12th monthly increase in a row.

A year ago in January output was 62.8 bcfd.

 

The EIA forecast gas output would increase in all the big shale basins in January.

Output in the Appalachia region, the biggest shale gas play, was set to rise 0.4 bcfd to a record 31.5 bcfd in January. Production in Appalachia was 26.4 bcfd in the same month a year ago.

[ceo_energemsier + 1,818]

UT: Technically recoverable natural gas from future US shale wells on rise

A new analysis of the nation’s major shale gas plays shows 20% more natural gas can be technically recovered from future wells compared with an estimate made 5 years ago. Researchers primarily attributed the increase to new drilling practices.

The analysis by the University of Texas at Austin’s Bureau of Economic Geology examined production capabilities and estimated total gas in the Barnett, Fayetteville, Haynesville, and Marcellus plays. The study updated 2011-13 findings.

Svetlana Ikonnikova, the principal investigator of the study and a research scientist at the bureau, said that developments in drilling technologies, market conditions, cost structures. and improvement in geological characterization prompted the updated assessment.

“Five years ago, we hardly thought of multilayer or stacked well drilling, or of quadrupling lateral well length,” she said. The team used 3D modeling and advanced data analytics to enhance the understanding of:

• Geologic reservoir characterization.
• Individual well decline and recovery analysis.
• Individual well geology and engineering improvements that increase productivity.
• Economically recoverable resource assessment.

Researchers found future wells in the four shale gas plays can technically recover about 780 tcf of gas in addition to 110 tcf already recovered by wells drilled by Dec. 31, 2017. The previous study found 650 tcf of technically recoverable gas.

Based on US gas consumption of 27 tcf in 2017, the new estimate suggests the addition of about 5 years of domestic consumption.

The projected increase comes largely from new drilling practices that increase recovery, reduce per-unit cost, and allow companies to continue drilling even during periods of low oil or natural gas prices.

New methods include stacked drilling, drilling wells closer together, and horizontal wells that can run for about 2 miles.

 

[William Edwards + 708]

3 minutes ago, ceo_energemsier said:

Dec 17 (Reuters) - Oil production from seven major U.S. shale basins is expected to surpass 8 million barrels per day (bpd) by the end of the year, the U.S. Energy Information Administration said in a monthly report on Monday.

The United States has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7 million bpd.

When December ends, shale production is expected to climb to 8.03 million bpd for the first time on record and forecast to rise by about 134,000 barrels per day (bpd) in January to 8.17 million bpd.

 

The largest change for January is in the Permian Basin of Texas and New Mexico, where output is expected to climb by 73,000 bpd to a record of about 3.8 million bpd in January.

In North Dakota’s Bakken region, shale production is estimated to rise by 18,000 bpd to a record 1.46 million barrels per day.

U.S. natural gas production, meanwhile, was projected to increase to a record 76.9 billion cubic feet per day (bcfd) in January. That would be up more than 1.1 bcfd over the December forecast and would be the 12th monthly increase in a row.

A year ago in January output was 62.8 bcfd.

 

The EIA forecast gas output would increase in all the big shale basins in January.

Output in the Appalachia region, the biggest shale gas play, was set to rise 0.4 bcfd to a record 31.5 bcfd in January. Production in Appalachia was 26.4 bcfd in the same month a year ago.

We might describe this as the expected result of the recent overdone price bubble. The industry will pay.

[JunoTen + 118]

I'm not an oil expert, but it seems that William's assessment was right, the price is tanking.

[James Regan + 1,776]

1 hour ago, ceo_energemsier said:

Dec 17 (Reuters) - Oil production from seven major U.S. shale basins is expected to surpass 8 million barrels per day (bpd) by the end of the year, the U.S. Energy Information Administration said in a monthly report on Monday.

The United States has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7 million bpd.

When December ends, shale production is expected to climb to 8.03 million bpd for the first time on record and forecast to rise by about 134,000 barrels per day (bpd) in January to 8.17 million bpd.

 

The largest change for January is in the Permian Basin of Texas and New Mexico, where output is expected to climb by 73,000 bpd to a record of about 3.8 million bpd in January.

In North Dakota’s Bakken region, shale production is estimated to rise by 18,000 bpd to a record 1.46 million barrels per day.

U.S. natural gas production, meanwhile, was projected to increase to a record 76.9 billion cubic feet per day (bcfd) in January. That would be up more than 1.1 bcfd over the December forecast and would be the 12th monthly increase in a row.

A year ago in January output was 62.8 bcfd.

 

The EIA forecast gas output would increase in all the big shale basins in January.

Output in the Appalachia region, the biggest shale gas play, was set to rise 0.4 bcfd to a record 31.5 bcfd in January. Production in Appalachia was 26.4 bcfd in the same month a year ago.

Looking at this as a minion, if you produce something that is not worth the cost why produce so much of it? Doesn’t seem like this has been planned out very well. Maybe I am not seeing the big picture but the nuts and bolts of it don’t add up....

[ceo_energemsier + 1,818]

4 minutes ago, James Regan said:

Looking at this as a minion, if you produce something that is not worth the cost why produce so much of it? Doesn’t seem like this has been planned out very well. Maybe I am not seeing the big picture but the nuts and bolts of it don’t add up....

Not all shale is same, not all producers are losing $$$. They will start losing $ when the sale price of their regional crude oil produced dips to under 50-48$/bbl in some cases.... it will kick in the next "rinse and repeat" cycle in the industry.. layoffs, idled rigs..... and an increase in DUCs(drilled but uncompleted wells)

[William Edwards + 708]

1 minute ago, James Regan said:

Looking at this as a minion, if you produce something that is not worth the cost why produce so much of it? Doesn’t seem like this has been planned out very well. Maybe I am not seeing the big picture but the nuts and bolts of it don’t add up....

Price is the key element that determines both planning decisions and results. Unfortunately, the price number used for planning is a guess, not a real figure. The number that determines performance is a fact. The two numbers can be, and usually are, quite different, leading to unexpected and often disappointing results. Thus the motto of my consultancy as a pricing specialist, is "Planning BEGINS with a valid price forecast".

[ceo_energemsier + 1,818]

1 minute ago, William Edwards said:

Price is the key element that determines both planning decisions and results. Unfortunately, the price number used for planning is a guess, not a real figure. The number that determines performance is a fact. The two numbers can be, and usually are, quite different, leading to unexpected and often disappointing results. Thus the motto of my consultancy as a pricing specialist, is "Planning BEGINS with a valid price forecast".

A majority of companies base their budgets and planning their investments on a benchmark futures price such as NYMEX crude, WTI or Brent. To have an actual price forecast that would be reflective of their asset to be brought into production, would mean that a company has to use their regional crude oil market pricing as the basis of their capital investments, budget and planning , e.g. if a company plans to develop their Bakken asset, or Eagle Ford asset then they have to use the price being paid for that grade of oil in that region and not going to NYMEX /WTI /Brent benchmarks. Using the actual physical crude oil price paid for that grade of oil in that region. A company may have an asset in the IL Basin and the IL Basin crude  price is lower than NYMEX and or WTI and they may use NYMEX to base their plans and budgets on , which at the end of the day when they go to sell their IL Basin production will be lower than the price they used in their planning and budgetary structure.

[JoMack + 549]

When the government intervenes with oil and gas production the U.S. Operators, suppliers workers, communities receiving taxes and royalties, etc.  suffer.  Giving countries waivers for oil from Iran and pushing OPEC to stop cuts, impacts how the market and prices react.  It's time to let the market expects and the industry deserves.  A stable price and a reasonable cost to consumers.

[William Edwards + 708]

1 minute ago, ceo_energemsier said:

A majority of companies base their budgets and planning their investments on a benchmark futures price such as NYMEX crude, WTI or Brent. To have an actual price forecast that would be reflective of their asset to be brought into production, would mean that a company has to use their regional crude oil market pricing as the basis of their capital investments, budget and planning , e.g. if a company plans to develop their Bakken asset, or Eagle Ford asset then they have to use the price being paid for that grade of oil in that region and not going to NYMEX /WTI /Brent benchmarks. Using the actual physical crude oil price paid for that grade of oil in that region. A company may have an asset in the IL Basin and the IL Basin crude  price is lower than NYMEX and or WTI and they may use NYMEX to base their plans and budgets on , which at the end of the day when they go to sell their IL Basin production will be lower than the price they used in their planning and budgetary structure.

If they are not taking into account the quality and location of their expected production, I would say that they are doing a poor job. But realistically, those items are small peanuts compared to their forecast of the base world price of crude. This is where most companies mess up. The CEO does a seat-of-the-pants guess, such as believing what he reads about $100 oil, and makes a decision on that basis when, realistically, a well-reasoned assessment might suggest $40/B. Few do the smart thing of engaging the services of a documented, reliable price forecaster.

[William Edwards + 708]

10 minutes ago, JoMack said:

When the government intervenes with oil and gas production the U.S. Operators, suppliers workers, communities receiving taxes and royalties, etc.  suffer.  Giving countries waivers for oil from Iran and pushing OPEC to stop cuts, impacts how the market and prices react.  It's time to let the market expects and the industry deserves.  A stable price and a reasonable cost to consumers.

I agree that a stable price is desired. But please tell me who/what can arrange a stable price. OPEC has tried that for fifty years and has failed miserably. Actually, my guess is that you cannot find even one individual or entity, other than yours truly, that understands the oil pricing mechanism well enough to know how to actually accomplish a stable price. So you might expect to continue to deal with volatility. And "reasonable" is in the eye of the beholder, and different for each participant.

[ceo_energemsier + 1,818]

4 minutes ago, William Edwards said:

I agree that a stable price is desired. But please tell me who/what can arrange a stable price. OPEC has tried that for fifty years and has failed miserably. Actually, my guess is that you cannot find even one individual or entity, other than yours truly, that understands the oil pricing mechanism well enough to know how to actually accomplish a stable price. So you might expect to continue to deal with volatility. And "reasonable" is in the eye of the beholder, and different for each participant.

 

13 minutes ago, William Edwards said:

If they are not taking into account the quality and location of their expected production, I would say that they are doing a poor job. But realistically, those items are small peanuts compared to their forecast of the base world price of crude. This is where most companies mess up. The CEO does a seat-of-the-pants guess, such as believing what he reads about $100 oil, and makes a decision on that basis when, realistically, a well-reasoned assessment might suggest $40/B. Few do the smart thing of engaging the services of a documented, reliable price forecaster.

That is just what most CFO's do, rush to the world bench mark. I have seen the forecasting of hundreds of public oil and gas companies and they all rush to the world benchmark instead of the price they will get for the oil in their neck of the woods. I also come across proposals from companies sending in their plans and investment needs for equity investment/buyouts, seeking funds and they all base on the world benchmarks and 75$/85$/90$/bbl prices

[ceo_energemsier + 1,818]

$46.24/bbl 😣😕😒

[William Edwards + 708]

7 minutes ago, ceo_energemsier said:

$46.24/bbl 😣😕😒

Within shouting distance of the 150-year average.

[cbrasher1 + 272]

4 hours ago, James Regan said:

Marina im not sure this is fun anymore, it may come true....

i am out here and I assure you it is not funny watching the price tank....😕

[Marina Schwarz + 1,576]

8 hours ago, James Regan said:

Marina im not sure this is fun anymore, it may come true....

I swear I didn't mean for it to happen. Even the outage in Libya has not helped Brent and that's saying something.

[Dan Warnick + 6,100]

Surely they are not blaming Demon Schwarz for the drop in oil prices?  Only a demon would do that for fun, right?  LOL!  Just joking, of course, but you sometimes have to point that out on here.

[James Regan + 1,776]

1 hour ago, mthebold said:

 

 

 

 

There's a lot of discussion on here about price swings.  Granted:
1)  The price oscillates on a 30ish year schedule.
2)  Producers seem to plan in a short-sighted way
3)  Periodic low prices lead to layoffs and industry consolidation. 

I would argue that #3 is a feature, not a bug.  Those with the deepest pockets and best political connections will gladly weather short-term losses to gain market share.  I'm sure they're also happy to see pesky little innovators destroyed.  Within individual companies, layoffs are an opportunity to dispose of under performing employees, only to later replace them with new blood.  This allows companies to skirt employment regulations, thus maintaining their competitiveness.  If you don't believe it's important to cull the herd, go spend time with the UAW...

That said, there appear to be important differences in this cycle.  Correct me if these are wrong:
1)  Oil-funded welfare states are struggling.
2)  There seems to be an abnormal plethora of options for reducing demand and increasing production.
3)  POTUS is a nationalist - and a bit of a loose cannon.
4)  The US is sufficiently energy independent - and powerful - to do whatever it wants. 

Those differences open the possibility of entire countries going bankrupt and their production slowly disappearing from the market.  In the cases of Libya, Syria, and Iran, we've even seen the US actively interfere such that their production declined.  I.e. instead of killing off under performing employees and companies, could this cycle kill off under performing countries and ideologies? 

If so, who do you think will fall? 

I agree with really all you have said, but I can’t get it out of my head that the biggest loser will be the USA. I have been in the Oil Industry all my working life from pushing water around decks to Director, all in the E&P sectors. I worked on projects for all the big US majors in Africa and beyond, the big push was to get the reserves from countries and get it back to the USA. One project in Angola was supposed to be a controlled choke position and perlong the life of the fields for a set time until profit had been made and then it would be handed back to Angola who Sonagol would take 100% ownership for the duration, what happened was that the wells were opened up to maximum possible and all the oil was shipped back to Galveston 8 VLCCs running a circle never seeing Angola. So what I am getting at is that the thirst and greed for profit knows no limits. Am I thankful ? Yes I would be a hipocrite if I said different as it was my job. What I see is the US no longer being the key player and it’s nopec position no longer carries any weight, I think the US land finds have alienated the USA and a false sense of security has grown that the US no longer needs it’s partners as they are now an independent net producer.

I really believe that if a free market actually materializes the price of oil will fall to a level that will leave the US isolated and then will have to return to a huge importer at the beck and call of the OPEC and OPEC+ ex members.

Just MO I’m sure there are many factors which could counter MO but it’s only that MO - Respect 

[William Edwards + 708]

1 hour ago, mthebold said:

 

 

 

 

There's a lot of discussion on here about price swings.  Granted:
1)  The price oscillates on a 30ish year schedule.
2)  Producers seem to plan in a short-sighted way
3)  Periodic low prices lead to layoffs and industry consolidation. 

I would argue that #3 is a feature, not a bug.  Those with the deepest pockets and best political connections will gladly weather short-term losses to gain market share.  I'm sure they're also happy to see pesky little innovators destroyed.  Within individual companies, layoffs are an opportunity to dispose of under performing employees, only to later replace them with new blood.  This allows companies to skirt employment regulations, thus maintaining their competitiveness.  If you don't believe it's important to cull the herd, go spend time with the UAW...

That said, there appear to be important differences in this cycle.  Correct me if these are wrong:
1)  Oil-funded welfare states are struggling.
2)  There seems to be an abnormal plethora of options for reducing demand and increasing production.
3)  POTUS is a nationalist - and a bit of a loose cannon.
4)  The US is sufficiently energy independent - and powerful - to do whatever it wants. 

 Those differences open the possibility of entire countries going bankrupt and their production slowly disappearing from the market.  In the cases of Libya, Syria, and Iran, we've even seen the US actively interfere such that their production declined.  I.e. instead of killing off under performing employees and companies, could this cycle kill off under performing countries and ideologies? 

If so, who do you think will fall? 

You say 

Correct me if these are wrong:
1)  Oil-funded welfare states are struggling. As they were in the 90's.
2)  There seems to be an abnormal plethora of options for reducing demand and increasing production. I see no difference. Price determines both.
3)  POTUS is a nationalist - and a bit of a loose cannon. So? How about Khrushchev?
4)  The US is sufficiently energy independent - and powerful - to do whatever it wants. With less than ten percent of the world's reserves, I cannot see how this is true.

May I suggest that your world is too small (US too big) and your time span is too short (it would appear that your history began about the year 2000.) Do you remember that the US was the swing producer up to about 1970? Do you remember that in a short five-year period the world lost ALL the production from TWO countries that were producing about 5 million barrels a day before they bowed out? (Iran and Iraq)  Did you forget that OPEC spent 15 years trying to survive sub-$15 oil prices in the 1985-2000 time frame? Did you fail to notice that the huge price spike of 1980 ended up creating 15 million barrels a day of spare producing capacity? These are just a few points to remind you that, even though each thirty-year period has different elements, each contains enough to balance out as "about the same". So it is this time.

The one big potential for change would be if the basis for the entire pricing mechanism changed. Theoretically, we could return to enlightened price management where production capability were matched to demand expectations AND the price was fixed. But don't hold you breath waiting for that. Just enjoy the 30-year roller coaster ride.

[specinho + 470]

On 10/30/2018 at 6:25 PM, Marina Schwarz said:

let's have some fun, shall we? What needs to happen -- plausibly, mind -- for oil prices to dive to $20 a barrel.

uuhhh........ a one cent worth of thought................... that wars and fights in some minor oil producing countires have been so durable that we have to upscale their production and selling them cheap so that they will stop killing children and plant some food when the puny oil fields are dried.....??

[James Regan + 1,776]

On 12/19/2018 at 2:29 AM, Marina Schwarz said:

I swear I didn't mean for it to happen. Even the outage in Libya has not helped Brent and that's saying something.

It’s tanking again.....