New Oil Order- Diplomacy, Geopolitics and Economics

[Osama + 248]

Hello All!

While the forum has so many intelligent and experienced contributors; I had this idea of why not organize the thoughts and comments and discussions we carry out in a more accessible way?

The idea is to create two threads. One will focus on long term changes, bigger picture analysis, discussions, mostly but not completely related to geopolitics, demand/supply scenarios, trade war, agreements etcetera. The other one will focus purely on trading.

Yes, we cannot separate news from trading as both are related but the idea is to sort of sift the information so that learners like me can log in any time and learn about technical/trading from one thread and bigger picture analysis from another without getting lost in the sea of data.

@Tom Kirkman, @William Edwards, @Jan van der Meer, @Jan van Eck----your help and contribution will be required and much appreciated.

[Tom Kirkman + 8,860]

16 minutes ago, Osama said:

I had this idea of why not organize the thoughts and comments and discussions we carry out in a more accessible way?

The idea is to create two threads.

● One will focus on long term changes, bigger picture analysis, discussions, mostly but not completely related to geopolitics, demand/supply scenarios, trade war, agreements etcetera.

● The other one will focus purely on trading.

Great idea.  @CMOP  @TomTom 

How about adding a subforum dedicated to "Trading" threads.

To be honest, I have no particular interest in the trading threads, I prefer the bigger picture / longer term / geopolitics discussions.

And conversely, there seems to be an uptick in new members on the forum who seem mostly interested in trading / short term markets discussions, and may not be too interested in other topics.

[Osama + 248]

56 minutes ago, Tom Kirkman said:

How about adding a subforum dedicated to "Trading" threads.

Yes indeed! Why not!

How do we do that? Until or unless that happens can we use the other thread that I have just initiated?

[Tom Kirkman + 8,860]

42 minutes ago, Osama said:

Yes indeed! Why not!

How do we do that? Until or unless that happens can we use the other thread that I have just initiated?

@CMOP  can add in a new subforum if Oil Price thinks it's a good idea, but I can't (I'm a volunteer moderator here, and am not Oil Price staff).

And I don't limit myself to any particular thread, I frequently start new threads on all sorts of Oil & Gas topics.

[Osama + 248]

This is good:  OPEC output rises to highest since 2016 despite IRANIAN SANCTIONS...

https://www.reuters.com/article/us-oil-opec-survey/opec-oil-output-rises-to-highest-since-2016-despite-iran-reuters-survey-idUSKCN1N525W

[Dan Warnick + 6,100]

1 hour ago, Osama said:

This is good:  OPEC output rises to highest since 2016 despite IRANIAN SANCTIONS...

https://www.reuters.com/article/us-oil-opec-survey/opec-oil-output-rises-to-highest-since-2016-despite-iran-reuters-survey-idUSKCN1N525W

This should not be a surprise.  Russia and the U.S. are new kids on the block, and they are major.  Between the two of them alone I hear they can replace all of Iran's contribution to the market.  I have heard of scenarios where Russia seems to be positioning itself as the friend of KSA and China, but in reality they want to become....what's that term they use?  The "swing supplier" or something like that?  The KSA has been steadily increasing their capacity year after year, no matter what the bought and paid for talking heads and article writers would have you believe.  It always makes me chuckle:  The KSA's only money maker is oil, yet for some reason we allow ourselves to believe that the KSA does not invest in new pipes and pumps.  Really?  From just the photos I've seen their expansion is huge and obvious, and it's also obvious that they've been working on these expansion projects for years before now.

This is just proof of all that, but it should not be a surprise that it is true once the cards are all on the table.  I keep telling everyone: Even this is not all of the output that is possible.  There is no excess production capacity "that has not been proven".  Folks, this ain't rocket science.  The KSA, the U.S. and the USSR/Russia have been playing the oil production game for a long time.  Think about it: If there is money to be made selling oil, everyone in the world that has the means and the management will produce as much as there is demand for.  Now, if the other guy has already captured xx% of the market, you do not need to produce oil for that portion of the market until you can take over that portion of the market.

Anyway, that's just my opinion.  I could be wrong.

[Rodent + 1,424]

8 hours ago, Osama said:

Yes indeed! Why not!

How do we do that? Until or unless that happens can we use the other thread that I have just initiated?

We are reviewing the categories as we speak.. errrr. type.

[Dan Warnick + 6,100]

Did you guys see the new thread that @Marina Schwarz just started?

Gloom and Doom, and Oil at $120

Better have read, because it could be the start of something big, and not good.

[Tom Kirkman + 8,860]

9 hours ago, Rodent said:

We are reviewing the categories as we speak.. errrr. type.

Somebody at Oil Price added the "Trading" dedicated subforum:

[Rodent + 1,424]

1 hour ago, Tom Kirkman said:

Somebody at Oil Price added the "Trading" dedicated subforum:

yup. admin has been working on the reshuffle today, pusuant to the earlier request. 

[John Foote + 1,135]

13 hours ago, Dan Warnick said:

The KSA has been steadily increasing their capacity year after year, no matter what the bought and paid for talking heads and article writers would have you believe.  It always makes me chuckle:  The KSA's only money maker is oil, yet for some reason we allow ourselves to believe that the KSA does not invest in new pipes and pumps.  Really?  From just the photos I've seen their expansion is huge and obvious, and it's also obvious that they've been working on these expansion projects for years before now.

A lot, and I mean a lot, of KSA investment is to just keep in place. Primary fields have been in decline of some time. It's taking a lot more holes in the ground to get the same output. Don't get me wrong, they aren't about to run out, but the days of 15,000 barrel a day wells have come and gone so they have to run harder and harder to stay in place. And they are putting a lot of money into unconventional, fracking, because they need natural gas for electricity as the country continues to increase it's own consumption of oil, and electricity using oil. I think their unconventional efforts are, shall we say, struggling. The business and drilling processes which have served them so well struggle in that environment.

What matters more is how much KSA can export, and it's not 12 MBD, even if they can produce it on a sustained level, especially during summer, which runs late March thru mid October if I recollect. Yes, it is really their own money maker. Trying to expand into petrochemicals, but historically they demonstrate a remarkable talent for losing money at it, if you don't factor in the cut rate feedstock. And lacking natural gas, they are going to use oil in an upcoming mega-facility. But that's more oil to pump and not sell on the open market. Iraq has done a decent job of increasing the past few years. If KSA can get polite with Kuwait there's another easy 500 MBD to bring on relatively quickly. I don't think MBS has signed up for Dale Carnegie class and Kuwait has no interest in being a vassal state.

[Dan Warnick + 6,100]

32 minutes ago, John Foote said:

A lot, and I mean a lot, of KSA investment is to just keep in place. Primary fields have been in decline of some time. It's taking a lot more holes in the ground to get the same output. Don't get me wrong, they aren't about to run out, but the days of 15,000 barrel a day wells have come and gone so they have to run harder and harder to stay in place. And they are putting a lot of money into unconventional, fracking, because they need natural gas for electricity as the country continues to increase it's own consumption of oil, and electricity using oil. I think their unconventional efforts are, shall we say, struggling. The business and drilling processes which have served them so well struggle in that environment.

What matters more is how much KSA can export, and it's not 12 MBD, even if they can produce it on a sustained level, especially during summer, which runs late March thru mid October if I recollect. Yes, it is really their own money maker. Trying to expand into petrochemicals, but historically they demonstrate a remarkable talent for losing money at it, if you don't factor in the cut rate feedstock. And lacking natural gas, they are going to use oil in an upcoming mega-facility. But that's more oil to pump and not sell on the open market. Iraq has done a decent job of increasing the past few years. If KSA can get polite with Kuwait there's another easy 500 MBD to bring on relatively quickly. I don't think MBS has signed up for Dale Carnegie class and Kuwait has no interest in being a vassal state.

Hi John.  I was hoping you would weigh in because I base my comments on what I can dig out and read between the lines.  You, on the other hand, have on the ground experience that paints a much more accurate picture.  Thanks!

[Osama + 248]

4 hours ago, Tom Kirkman said:

Somebody at Oil Price added the "Trading" dedicated subforum:

This is great!

[Osama + 248]

23 hours ago, Dan Warnick said:

This should not be a surprise.  Russia and the U.S. are new kids on the block, and they are major.  Between the two of them alone I hear they can replace all of Iran's contribution to the market.  I have heard of scenarios where Russia seems to be positioning itself as the friend of KSA and China, but in reality they want to become....what's that term they use?  The "swing supplier" or something like that?  The KSA has been steadily increasing their capacity year after year, no matter what the bought and paid for talking heads and article writers would have you believe.  It always makes me chuckle:  The KSA's only money maker is oil, yet for some reason we allow ourselves to believe that the KSA does not invest in new pipes and pumps.  Really?  From just the photos I've seen their expansion is huge and obvious, and it's also obvious that they've been working on these expansion projects for years before now.

This is just proof of all that, but it should not be a surprise that it is true once the cards are all on the table.  I keep telling everyone: Even this is not all of the output that is possible.  There is no excess production capacity "that has not been proven".  Folks, this ain't rocket science.  The KSA, the U.S. and the USSR/Russia have been playing the oil production game for a long time.  Think about it: If there is money to be made selling oil, everyone in the world that has the means and the management will produce as much as there is demand for.  Now, if the other guy has already captured xx% of the market, you do not need to produce oil for that portion of the market until you can take over that portion of the market.

Anyway, that's just my opinion.  I could be wrong.

I am in the process of writing an article on this topic....this was quite insightful, Dan!

[Osama + 248]

Waivers inbound.... @Dan Warnick as you said "brace yourself". @Tom Kirkman we are moving, every day, to the point where you said oil should average year end. 

"The U.S. government has agreed to let eight countries, including South Korea and Japan, as well as India, keep buying Iranian oil after it reimposes the sanctions, Bloomberg reported on Friday, citing a U.S. official."

 

Link: https://www.bloomberg.com/amp/news/articles/2018-11-02/u-s-said-to-give-eight-nations-oil-waivers-under-iran-sanctions

[Osama + 248]

Here is my latest article on "What Is Next for the Oil Prices?"

Looking forward for suggestions, recommendations, and discussion:

Link: https://seekingalpha.com/article/4217736-next-oil-prices

"With all the aforementioned discussion we can safely conclude that oil prices, with due volatility and periodic temporary upward movements, will continue to fall. The fundamentals and sentiments both point towards a bearish outlook for oil. Iranian sanctions were holding the prices in a range lately, however sense has seemed to prevail; the markets have realized, or so it seems, that there are a plethora of bearish elements with no bullish factor as to cause a sustainable rally in sight. Trade war, ballooning inventories, and a sufficient supply with further assurances by major oil producers, will bring the prices back to the levels where they belong. Oil fell below $64 today and it had a strong support level at $64.30. It is not hard to see oil entering, anew, into $60 (Brent) and $50 (WTI).

The anchor that has caused and been holding prices up for quite a few time (sanctions) is about to be drawn out. We will see how oil prices hold up now."

 

[Osama + 248]

Nervous oil: Five factors driving price swings---https://www.ft.com/content/220f55f2-e0f7-11e8-a6e5-792428919cee

If you are not able to access the link...copy-past the headline on Google.

[Dan Warnick + 6,100]

36 minutes ago, Osama said:

Nervous oil: Five factors driving price swings---https://www.ft.com/content/220f55f2-e0f7-11e8-a6e5-792428919cee

If you are not able to access the link...copy-past the headline on Google.

Really hard to get to the article without a subscription, Osama.  All links on Google even lead you to the FT subscription page.

 

[Osama + 248]

From the article above^

1. From famine to feast?

It seems the market has suddenly become a lot more relaxed about the availability of crude, and prices have weakened accordingly. But some traders are warning that it could be premature to argue that the oil market’s troubles are behind it.

2. Iran sanctions take effect

Iran’s exports may not now fall quickly to the US administration’s target of zero, but they are down significantly. Iran had ramped up exports to 2.8m barrels a day in April and they fell below 1.8m b/d last month.

3. Opec weighs demand slowdown

Energy minister Khalid A Al-Falih told Russian news agency Tass last month that there could be a potential oversupply. “A world economic slowdown could hurt oil demand,” he said.

The remarks follow downward revisions by Opec’s research arm, which has said that world oil demand will rise 1.36m b/d next year, lower than the 1.5m b/d rise this year. These estimates have been repeatedly lowered since July when it forecast growth at 1.65m b/d in 2018 and 1.45m b/d for 2019.

4. Spare production buffer is limited

“What we find particularly scary about oil markets today is the lack of Opec spare capacity,” said Neil Beveridge at Bernstein, who estimated spare capacity had fallen to approximately 1.3m b/d, or little more than 1 per cent of global demand.

5. Bullish bets on crude oil fall

But other analysts believe that if more barrels are lost from Iran than currently expected, or another supply outage occurs elsewhere, funds will rush back into the market adding fuel to any rally.

Dan---here you go

[Dan Warnick + 6,100]

I agree with 1-3, but don't see much risk of 4-5 being a factor.  In fact, I don't see any factual evidence, only estimates, of "spare capacity".

[ATK + 355]

My people! Now this is a thread I can get behind

[Dan Warnick + 6,100]

On 11/2/2018 at 10:44 AM, John Foote said:

but historically they demonstrate a remarkable talent for losing money at it

@John Foote

Are you a fan of Winston Churchill?  Great line above.

[GeoPolitics + 14]

So if OPEC decides to cut production, what stops the US from taking some of their market share?

[Tom Kirkman + 8,860]

37 minutes ago, GeoPolitics said:

So if OPEC decides to cut production, what stops the US from taking some of their market share?

See attached interview from 2014.

Excerpt:

Will Saudi Arabia Not Cut Production If The Russians Do Not Cut?

First of all, why did we decide not to reduce production? I will tell you why. Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce? 

That is crooked logic. If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.

So This Is A Policy To Defend Market Share?

It is also a defense of high efficiency producing countries, not only of market share. We want to tell the world that high efficiency producing counties are the ones that deserve market share. That is the operative principle in all capitalist countries.

MEES Interview with Ali Naimi in Dec 2014.pdf

[NatGasDude + 94]

1 hour ago, Tom Kirkman said:

See attached interview from 2014.

Excerpt:

Will Saudi Arabia Not Cut Production If The Russians Do Not Cut?

First of all, why did we decide not to reduce production? I will tell you why. Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce? 

That is crooked logic. If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.

So This Is A Policy To Defend Market Share?

It is also a defense of high efficiency producing countries, not only of market share. We want to tell the world that high efficiency producing counties are the ones that deserve market share. That is the operative principle in all capitalist countries.

MEES Interview with Ali Naimi in Dec 2014.pdf

They make some good points, but I feel that the Saudis are being hyper confident in that interview. There is also the issue of the limited profit window for crude oil (possibly 2045) where diversification of fuel sources and renewables will render gasoline/diesel less important, etc. (among other issues we have discussed here on the boards, CNG/LNG, etc) If they burn too many years with crude below their break even just to protect market share, they are lost years for their currently oil dependent economy. Still a long way to go, but the years are ticking.

After a few years of rock bottom low oil prices, they may want to enjoy these middle road prices at least for a few years. And the other question is whether or not they could sustain the current supply indefinitely when in market share defense mode.

 Opec monthly report indicates a steep reduction in demand for Q1 2019, so they are likely to cut a bit. I doubt that the Saudis are afraid of the US's  2.2mb/d in peak June '18 exports  when they are sitting at a sustained 10+mb/d.

Who knows. They will either get defensive about market share and play the break even game to hurt US shale operations at 40-50, or settle on the 70-80 Brent range for as long as possible to harvest cash. With the US/Russia/KSA capable of high production, I don't foresee the 100+ oil happening at all. It's certainly not the 1990's anymore.