OPEC Sneezes, US Industry Gets the Flu and Canada Gets Pneumonia

[William Edwards + 708]

10 hours ago, BenFranklin'sSpectacles said:

Is it possible Trump intended to destroy OPEC, or is that just a side effect? 

You give Trump (and OPEC) more credit that I do. And besides, after 60 years, OPEC is still trying to live up to the "powerful cartel" reputation that the unenlightened world has tried to bestow upon them. They are just a bunch of scrambling producers, each trying to protect his own interest, while possessing very little understanding of the business of oil, and even less understanding of the pricing mechanism. For proof, compare their actions and statements with those from the same group forty years ago. Not much has been learned. Yamani, Nazer, Naimi, Falih -- they are all reading the same line from the same book. As Yergin reported, Yamani said "The price goes up and demand goes down. It's simple, it's ABC." or something like that. Unfortunately, that simplistic statement is much too simplistic to be either valid or helpful as a guidance tool for managing the business of oil and its price. So the random price volatility continues while the unsuspecting world thinks that some form of intelligence is exercising effective control.

The appropriate analogy for oil prices is the wave action at the shore. While there may be some rationale for the low and high tide sloshes, each slosh is its own random print on the sand. So it is with the futures prints on the price chart.

Edited May 4, 2019 by William Edwards

[William Edwards + 708]

22 hours ago, Falcon said:

Nah, not $20's.

Competition will start between all major producers. My "guess" is some time in 2020.  

Demand will start to decelerate but not in a meaningful way for 4 or 5 years. SUPPLY is what you need to watch. 

Oil markets have always traded on headlines, Mideast conflicts and OPEC propaganda. The reason being there is no transparency (except US EIA) in the markets.  OPEC consistently lies. It's hard to break old habits. 

However, the increase in supply will reach a point where it can no longer be ignored.  US refineries can't run anymore US oil.  ALL NEW PRODUCTION WILL BE EXPORTED. Even if more US refineries add condensate splitters to handle more light shale all the current imports (~6 mil) will then go back on international market. Too much supply.

India and China power the oil demand growth. That is where the competition will be focused.  This is when cost of production will be the key determinant of price. 

Cost of production has NEVER set the price. Please check the data. Further, which cost??? Get real. Economic theory is not reality.

[BenFranklin'sSpectacles + 762]

12 hours ago, Jan van Eck said:

But of course.  The point I make is what KSA has been attempting - to develop an actual parallel industry that converts that oil into a higher-value end product.  If the oil can be converted into styrenes, olefins, Polyethylene terephthalates, nylons, then you have high-value-added materials.  And then you can keep going downstream into fabrications.  Can the KSA develop a chemicals industry?  I don't think they have any realistic choice, it is either that, or their cash receipts will die. 

My impression of chemicals is that it's incredibly difficult.  Chemical engineers are some of the most fiercely intelligent, rigorously trained engineers I've encountered; the field isn't for everyone.  Meanwhile, Saudi Arabia relies heavily on foreign expertise for... nearly everything.  I don't see them developing native talent, and they only way they could attract foreign talent is by paying a premium.  Is that tenable in a commodity industry that can locate wherever it pleases? 

[William Edwards + 708]

5 minutes ago, BenFranklin'sSpectacles said:

My impression of chemicals is that it's incredibly difficult.  Chemical engineers are some of the most fiercely intelligent, rigorously trained engineers I've encountered; the field isn't for everyone.  Meanwhile, Saudi Arabia relies heavily on foreign expertise for... nearly everything.  I don't see them developing native talent, and they only way they could attract foreign talent is by paying a premium.  Is that tenable in a commodity industry that can locate wherever it pleases? 

Even more important -- what is the chance that a person in a high position i Saudi Arabia, say a crown prince, will listen to the advice of ANYONE? He already knows all that he needs to know, I am sure.

My own personal experience, from the nineties, when I told Nazer how he could get the price of oil out of the teens, his reply was "I wish that I could believe you" and he continued on his merry way. Subsequently he got fired. And I am still poor.

Edited May 3, 2019 by William Edwards

[ceo_energemsier + 1,818]

Venezuela’s political and economic crises continue to deteriorate, all while PdVSA tries to maintain steady oil flows.

On Tuesday, opposition leader Juan Guaido, accompanied by several members of the Venezuelan armed forces, called for military support to oust Nicolas Maduro. Nevertheless, military forces remained loyal to Maduro, though civilians took to the streets in an effort to change their mentality.

Despite political unrest, Venezuela still loaded a handful of vessels during those tense days. The South American OPEC member was able to keep oil loadings close to 900,000 bpd in April, the highest since US sanctions were imposed on PdVSA on January 28.

 

Following Tuesday's events, the opposition is now relying on social unrest to keep the pressure on Maduro and his military supporters. Failing to fracture the loyalty of the armed forces will leave the opposition with few options to change the government in Venezuela.

Caracas now faces new economic challenges in the form of US sanctions imposed Sunday that restrict the use of the US financial system to purchase oil from PdVSA. This will affect the country’s finances as Venezuela is forced to look for new buyers for its oil and new ways to sell it.

 

European clients are likely to halt imports of Venezuelan oil after the sanctions. This will be a major blow for the South American country as European markets imported 70,000 bpd of its oil since the beginning of the year, making Venezuela one of the main sources of heavy crude in the continent.

Less exposed to unilateral US sanctions than European countries, China could be the big winner from May on by taking in more Venezuelan oil. So far this year, China imported crude oil at a pace of around 348,000 bpd making the South American country a top source of heavy crude oil for Beijing.

As US sanctions squeeze the Venezuelan economy, the political conflict is expected to escalate following this week’s events.

[ceo_energemsier + 1,818]

6 minutes ago, William Edwards said:

Even more important -- what is the chance that a person in a high position i Saudi Arabia, say a crown prince, will listen to the advice of ANYONE? He already knows all that he needs to know, I am sure.

My own personal experience, from the nineties, when I told Nazer how he could get the price of oil out of the teens, his reply was "I wish that I could believe you" and he continued on his merry way. Subsequently he got fired. And I am still poor.

I have a feeling based on a lot of personal experienc, knowledge and engagement in current ongoing energy and related petchem matters, that the HRH is very much in the know of what to do with this sector and it appears he is on the move forward with this sector of the oil and gas business, he wants and they want to get a much more value added product to sell to the world at premium rates that will be in great demand and that will save their ROYALTIES and their position for longer, providing them an influence of sorts to go into the future.

[William Edwards + 708]

1 minute ago, ceo_energemsier said:

I have a feeling based on a lot of personal experienc, knowledge and engagement in current ongoing energy and related petchem matters, that the HRH is very much in the know of what to do with this sector and it appears he is on the move forward with this sector of the oil and gas business, he wants and they want to get a much more value added product to sell to the world at premium rates that will be in great demand and that will save their ROYALTIES and their position for longer, providing them an influence of sorts to go into the future.

Nothing wrong with his intentions. I just question his competence to develop and implement an economically competitive strategy. Upgrading to high value products is a wonderful objective, but if your objective is to corral the market for silk purses, possibly your pig farm, with all its sows ears, is not the best starting point. Just a thought! Further, your potential supply of ears may far exceed the market for silk purses.

[ceo_energemsier + 1,818]

Just now, William Edwards said:

Nothing wrong with his intentions. I just question his competence to develop and implement an economically competitive strategy. Upgrading to high value products is a wonderful objective, but if your objective is to corral the market for silk purses, possibly your pig farm, with all its sows ears, is not the best starting point. Just a thought! Further, your potential supply of ears may far exceed the market for silk purses.

From what I have seen in the land of the sands under which flows oceans liquid black gold, and all his gesturing and posturing about the silk purses and pig farms , he may be able to pull it off to an extent . His biggest motivation is to see himself on the throne and keep it that way for as long as possible, for which he will try to create some form of balance between the silk purses and the number of pigs on the farm

[Jan van Eck + 7,558]

17 minutes ago, ceo_energemsier said:

From what I have seen in the land of the sands under which flows oceans liquid black gold, and all his gesturing and posturing about the silk purses and pig farms , he may be able to pull it off to an extent . 

Let us keep in  mind that building a chemicals monomer planet is a mature science, with that knowledge and technical data widespread.   Likewise, building a  polymerization plant is also mature knowledge.   Crafting polypropylene from propylene is not beyond the reach of KSA.  And they have the money to buy the experts, even if only under short contract.  (Same with the other plastics products).

Edited May 3, 2019 by Jan van Eck

[William Edwards + 708]

15 minutes ago, ceo_energemsier said:

From what I have seen in the land of the sands under which flows oceans liquid black gold, and all his gesturing and posturing about the silk purses and pig farms , he may be able to pull it off to an extent . His biggest motivation is to see himself on the throne and keep it that way for as long as possible, for which he will try to create some form of balance between the silk purses and the number of pigs on the farm

Indeed. He will try. His actions so far do not encourage me that much. My view is that he is too shallow to do a respectable job yet. Being born into the self-assurance of royalty does not help, either. Issuing orders, alone, cannot guarantee success.

[D Coyne + 305]

3 hours ago, ceo_energemsier said:

What I said was they may use the cover of their domestic increased demand (which is legit) to produce more, but not export , and just hold those additional barrels in their storage reserves for later export need to satisfy the demand in oil volume increase from their customers to cover any outages due to the sanctions of Iranian barrels. By increasing production now, they are showing the world they have capacity available and calm things down, they are not violating their export quota and they could very well be storing more barrels to make things easier down the road. They could produce additional barrels for a month or two store those for easy shipments later. They wont shoot themselves in the foot this.

My understanding was that the quotas were production quotas, but I may be incorrect.

[ceo_energemsier + 1,818]

9 minutes ago, D Coyne said:

My understanding was that the quotas were production quotas, but I may be incorrect.

They could go over the quota , but unless they put it on the market for sale, does it matter at that point and time to the world available crude supply?

They can store it , but very few other OPEC members have the flexibility and capacity of producing and then storing the produced oil as the KSA does

[D Coyne + 305]

3 hours ago, William Edwards said:

My $20 price is a relatively short term number, although circumstances can prolong the length. I can see futures prices dropping well into the 30's this year. I expect something more like a $40 level, average, over the next several years, unless the dreaded depression cuts the legs out of demand. Then the number will be lower. I can see no justification for the trading community to be able to continually add long positions to sustain today's "bubble" numbers. Longs will eventually be liquidated. All prices are in constant 2018 dollars.

Thanks.  Perhaps if all OPEC Producers pumped at maximum capacity we might see the $40/b that you predict.  I think that OPEC oil ministers are a bit smarter than you seem to believe.  It will be interesting to see who is  closer to being correct for the average Brent oil price for the Jan 2019 to Dec 2024 period in constant 2018$, you at $40/bo or me at $80 bo (2018 US$).

Perhaps the correct number will be the average of our guesses at $60/bo for Brent in 2018 US$.  We will see.

Am I correct in assuming your "oil price" is Brent, or do you favor some other benchmark?

Edited May 3, 2019 by D Coyne

[William Edwards + 708]

1 minute ago, D Coyne said:

Thanks.  Perhaps if all OPEC Producers pumped at maximum capacity we might see the $40/b that you predict.  I think that OPEC oil ministers are a bit smarter than you seem to believe.  It will be interesting to see who is  closer to being correct for the average Brent oil price for the Jan 2019 to Dec 2024 period in constant 2018$, you at $40/bo or me at $80 bo (2018 US$).

Perhaps the correct number will be the average of our guesses at $60/bo for Brent in 2018 US$.  We will see.

I hope that we are both around to compare notes. And that we remember to do so.

[ceo_energemsier + 1,818]

3 minutes ago, William Edwards said:

I hope that we are both around to compare notes. And that we remember to do so.

Not all OPEC producers are able to produce @ max capacity, I can tell you this for sure that Nigeria is not one of them , and due to the circumstances Libya and Venezuela are out of the equation as is Iran and Iran may get further degraded in that aspect.

Yes we should catch up somewhere in the world? Monaco? Geneve? have and drink and pontificate on oil pricing, sulfur tonnage to be removed and crude streams to be shut in among  other topics!

 

[Jan van Eck + 7,558]

13 minutes ago, ceo_energemsier said:

sulfur tonnage to be removed

It would be interesting to develop a new product for all that sulfur.  My guess is that the refiners will give it away, just to unload the tonnage.  Nothing like making some product where the raw-material cost is zero. 

[Falcon + 222]

2 hours ago, William Edwards said:

Cost of production has NEVER set the price. Please check the data. Further, which cost??? Get real. Economic theory is not reality.

Economics 101

All things equal SUPPLY CURVE / DEMAND CURVE . . . .  MARGINAL COSTS

Oil has not been a free market . One can argue oil is near Inelastic Demand and Supply has been controlled by a dominate producer. 

OPEC/SAUDIs are losing that control.

Edited May 3, 2019 by Falcon

[Falcon + 222]

3 hours ago, Jan van Eck said:

Let us keep in  mind that building a chemicals monomer planet is a mature science, with that knowledge and technical data widespread.   Likewise, building a  polymerization plant is also mature knowledge.   Crafting polypropylene from propylene is not beyond the reach of KSA.  And they have the money to buy the experts, even if only under short contract.  (Same with the other plastics products).

Note that Saudi desire to get into downstream business has been ongoing for years. This is not new.  

I was looking into their efforts about 5 years ago. At the time they had a goal of processing the equivalent oil equal to Exxon (5 million bbls/day back then). They were very close but every project was a joint venture with one of the IOCs (so really 2.5 mil). I recently saw an article on ARAMCO/EXXON refinery in Saudi Arabia.

Edited May 3, 2019 by Falcon

[ceo_energemsier + 1,818]

25 minutes ago, Jan van Eck said:

It would be interesting to develop a new product for all that sulfur.  My guess is that the refiners will give it away, just to unload the tonnage.  Nothing like making some product where the raw-material cost is zero. 

That is one of the problems I have been facing what to do with the mountains and mountains of sulfur we remove using various techs from oil and products, lot of industries that use it but at the rate? lot of uses but storage is an issue.......................

We are able to remove just about all the sulphur  and heavy metals etc

Follow the yellow cake? wallow in the yellow cake? LOL

[Jan van Eck + 7,558]

29 minutes ago, ceo_energemsier said:

Follow the yellow cake? wallow in the yellow cake? LOL

Damn, that is a LOT of sulfur!  

There has just gotta be some new product to absorb that stuff. There are only so many matches you can make. But whatever it is, either you get into the business directly in order to create a home for the stuff, or you have to pay the new user to take it away.  It is not as if the flow of more sulfur is going to stop any time soon  😂

[William Edwards + 708]

5 hours ago, D Coyne said:

Thanks.  Perhaps if all OPEC Producers pumped at maximum capacity we might see the $40/b that you predict.  I think that OPEC oil ministers are a bit smarter than you seem to believe.  It will be interesting to see who is  closer to being correct for the average Brent oil price for the Jan 2019 to Dec 2024 period in constant 2018$, you at $40/bo or me at $80 bo (2018 US$).

Perhaps the correct number will be the average of our guesses at $60/bo for Brent in 2018 US$.  We will see.

Am I correct in assuming your "oil price" is Brent, or do you favor some other benchmark?

You say "Perhaps if all OPEC Producers pumped at maximum capacity we might see the $40/b that you predict.". Tell me again where you put that 2-4 MMB/D of surplus supply that you will have OPEC pump without a buyer. Back to "oil in the sky"? Our discussions will benefit if we BOTH stick to reality in our suggestions. No receiving vessel, no oil pumped!

Further, it doesn't take a million barrels of too much supply capability to crater the price. It appeared that maybe as little as 100 MB/D of unsaleable Canadian Oil Sands production caused a $40 price drop almost overnight. Desperate sellers become desperate price cutters.

Edited May 4, 2019 by William Edwards

[Ward Smith + 6,615]

2 hours ago, Jan van Eck said:

Damn, that is a LOT of sulfur!  

There has just gotta be some new product to absorb that stuff. There are only so many matches you can make. But whatever it is, either you get into the business directly in order to create a home for the stuff, or you have to pay the new user to take it away.  It is not as if the flow of more sulfur is going to stop any time soon  😂

I believe you'll recall our previous discussion about sulfur and refining. No one can produce sulfur as cheaply as refineries, all sulfur mines are closed. 

The Royal Society site has a good list of uses. There are other uses, including using sulfur for impermeable barriers. They don't need to make those big piles outside, and I'm reasonably sure they get rid of it as fast as they can. I seriously doubt they give it away, margins aren't that great in refining so every little bit helps. 

Now, if only they could do something with all that Petcoke…

[Tom Kirkman + 8,860]

11 hours ago, William Edwards said:

Since we continue to disagree, Tom, on the fundamental underpinning of the long-term, steady price of oil, maybe it is time for you to do what I have done, previously, which is to explain how you justify the $70 level, other than wishful thinking. As I have said, the numbers that seem reasonable for reserve capacity and cost of production (supported as well recently by the Aramco loan prospectus) indicate that the roughly 100 MMB/D of supply can be met by ratcheting up capacity from the various worldwide sources, stepwise by cost, until you reach that 100 figure. The cost plus return line reaches about $50. Thus the expectation of $70 seems a stretch. Of course, in the trading world, the price can be ANYTHING at a given moment, but we are talking average-over-time numbers.

Please add your enlightenment to the $70 justification.

$70 Brent is the number that I see to be a sustainable, long term balance between *most* oil producers and *most* oil consumers.

WTI is an entirely different beast.

Oil companies need to make sufficient profits in order to reinvest profits back into exceedingly expensive Exploration & Production activities.

Below $50 Brent, most major projects, major capital outlays for Exploration & Production, major maintenance, deepwater E&P, etc mostly seem to be put on hold.

After the last big oil price crash a few years ago, the amount of new E&P was not sufficient to keep up with the natural decline rates of oil wells.

At $70 Brent, the entire oil industry switched gears and came back to life.

These are my observations.  Different people will have different views of what the optimum oil price is for a long term balance between most global oil producers and most global oil consumers.

And I don't really care too much what the historical price of oil was, and generally do not want to use decades old oil prices as a benchmark for current oil prices.  Simply because much of the easiest, cheapest oil has already been extracted.

Which means going forward, the cost of producing oil will gradually, incrementally increase.  Not stay the same as historical levels, but increase.

$40 oil is not sustainable long term - too low for most oil producers to reinvest cash back into the required E&P and find new (and more expensive) oil reserves.

$100 oil is not sustainable long term - too high for most global economies to afford, and will simply accelerate investment in other types of energy.

Global demand for energy consistently increases year on year.  I see $70 Brent as the optimum price to lubricate global economies and allow oil companies to remain commercially viable long term.

Just my opinion; as always, you are free to disagree.

Some think the optimum oil price may be either higher or lower than $70 Brent.  I've seen arguments for both higher and lower than $70, but remain unconvinced from observing global economies and global oil producers that any number different from $70 Brent is the optimum global oil price for the next few years.

[Old-Ruffneck + 1,239]

1 hour ago, Tom Kirkman said:

Some think the optimum oil price may be either higher or lower than $70 Brent.  I've seen arguments for both higher and lower than $70, but remain unconvinced from observing global economies and global oil producers that any number different from $70 Brent is the optimum global oil price for the next few years.

That seems to be the magic point where things seem to go smoothly. 50-52WTI good number to. Seems the economy clicks away and is the stable range. But what do I know??

[William Edwards + 708]

1 hour ago, Tom Kirkman said:

$70 Brent is the number that I see to be a sustainable, long term balance between *most* oil producers and *most* oil consumers.

WTI is an entirely different beast.

Oil companies need to make sufficient profits in order to reinvest profits back into exceedingly expensive Exploration & Production activities.

Below $50 Brent, most major projects, major capital outlays for Exploration & Production, major maintenance, deepwater E&P, etc mostly seem to be put on hold.

After the last big oil price crash a few years ago, the amount of new E&P was not sufficient to keep up with the natural decline rates of oil wells.

At $70 Brent, the entire oil industry switched gears and came back to life.

These are my observations.  Different people will have different views of what the optimum oil price is for a long term balance between most global oil producers and most global oil consumers.

And I don't really care too much what the historical price of oil was, and generally do not want to use decades old oil prices as a benchmark for current oil prices.  Simply because much of the easiest, cheapest oil has already been extracted.

Which means going forward, the cost of producing oil will gradually, incrementally increase.  Not stay the same as historical levels, but increase.

$40 oil is not sustainable long term - too low for most oil producers to reinvest cash back into the required E&P and find new (and more expensive) oil reserves.

$100 oil is not sustainable long term - too high for most global economies to afford, and will simply accelerate investment in other types of energy.

Global demand for energy consistently increases year on year.  I see $70 Brent as the optimum price to lubricate global economies and allow oil companies to remain commercially viable long term.

Just my opinion; as always, you are free to disagree.

Some think the optimum oil price may be either higher or lower than $70 Brent.  I've seen arguments for both higher and lower than $70, but remain unconvinced from observing global economies and global oil producers that any number different from $70 Brent is the optimum global oil price for the next few years.

Thanks, Tom. At least I understand your thinking and the reason for our differences. It is too bad that we cannot sit down for a few hours and compare notes. But, generally, I see your reasoning as qualitative rather than quantitative. And a glaring difference in our view stems from the fact that I use constant dollars for my thinking, allowing 1900 data to be compatible with year 2000 data, while you seem to think that I use simplistic "money of the day". With that constant dollar correction applied I believe numbers from different decades can be compared.

The other significant element where we get different results is your assumption that new field discovery and development are required to complete the balance. This allows you to neglect the substantial, but currently spare and unused reserves in the Middle East, whose addition to the supply may well be sufficient to meet demand at a total cost of $20, in today's money. The fact that those reserves have and continue to be underutilized, relative to their competitive cost, gives the world a distorted view of where oil must be found. Canada is allowed to produce and sell $60 oil while Aramco purposely shuts in $10 oil to protect global prices. I recommend that you take a look, at least, at the total cost, by major production source, presented in the Saudi prospectus.

Thanks for your reply and guidance.

Edited May 4, 2019 by William Edwards