BLOOMBERG: Bulls Beware: The 2020 Oil Market Is Quickly Turning Ugly

[Falcon + 222]

.

(Bloomberg) -- Oil bulls thought 2020 would be their year_

After half a decade of lower spending on new projects, oil production growth was supposed to slow to a trickle just as demand was supercharged by a once-in-a-generation shake up in the shipping fuel market. Many market commentators predicted that if $100 a barrel-oil was going to make a come back, it would happen in 2020.

Excitement is fading fast. The first official assessment of 2020 comes from the International Energy Agency on Friday, but a first look at forecasts from consultants and traders for supply and demand balances show persistent surpluses, not the deficit that was expected to underpin rising prices.

The culprits: rising shale production, a slowing global economy and the prospect of a deepening trade war.

"The balances for 2020 were already worrisome, and the downgrade in demand we are contemplating put them potentially in the ugly category," said Roger Diwan, an OPEC watcher at consultant IHS Markit Ltd.

Consultants and oil traders have already taken a first stab, and their supply and demand results show, at best, a balanced market. Many forecast supply will exceed consumption, perhaps by a large margin.

The oil market, showing characteristics typical of an equity market, is already starting to reflect the potential for a surplus in 2020. Despite a tight physical market due to Russia’s pipeline contamination crisis and U.S. sanctions on Iran and Venezuela, oil prices briefly dipped below $60 last week, down more than 20 percent from a high above $75 in late April.

"The market is asking why it should bother going long for just three months when the future looks bleak," said Amrita Sen, chief oil analyst at Energy Aspects Ltd.

The bearish outlook for next year is a problem for the OPEC+ alliance led by Saudi Arabia and Russia. If the 2020 forecast proves correct, the group may be forced to keep in place its output cut far longer than originally anticipated to prevent a surge in global oil inventories.

The OPEC+ alliance is set to meet in the next few weeks in Vienna to discuss its production policy for the second half of 2019.

The bulls weren’t completely wrong in their analysis for next year: the shipping fuel changes, known as IMO 2020, are all but certain to boost demand for diesel, perhaps pushing that particular corner of the petroleum market into a deficit. However, supply growth, fueled by a resilient U.S. shale industry, continues to surprise to the upside.

Market Dynamic

"The dynamic of the market has changed because of shale," Ben van Beurden, the boss of Royal Dutch Shell Plc, said in a panel at the St. Petersburg International Economic Forum last week.

"There is growing evidence of a sharper-than-expected slowdown in demand," said Martijn Rats, oil analyst at Morgan Stanley in London. Across the world’s top oil consumers, year-on-year consumption growth came to a halt in March. April demand figures, still preliminary, also show little increase.

The first tentative glances into 2020 by oil consultants are nearly unanimous about the prospect of oversupply -- a view shared in private by major commodity trading houses. The surpluses are all the more remarkable because none is predicting a recovery in Iranian and Venezuelan output. Over the last year, the combined output of the two troubled OPEC producers has dropped roughly 2.2 million barrels a day -- equal to what Germany consumes.

S&P Global Platts, the owner of what was previously named PIRA Energy consultants, put the surplus next year at around 400,000 barrels a day in a report to clients in May. The Energy Information Administration, the statistical arm of the U.S. Department of Energy, sees a 100,000 barrel-a-day excess. And Energy Aspects, another influential consultant popular with hedge funds and big trading houses, sees a "large" stock-build of 500,000 barrels a day. IHS Markit expects a total surplus of 800,000 barrels a day next year

The surpluses, however, mask notable differences within the petroleum market, with most consultants anticipating a larger overhang in refined products than in crude.

Although the Paris-based IEA hasn’t yet published its first detailed look into 2020, it offered some glimpses of its thinking earlier this year when it published a 5-year outlook from 2019 to 2024. In that report, it forecast oil demand next year at 102 million barrels a day, and production from non-OPEC countries plus condensates from OPEC at 71.9 million barrels. That, effectively, will leave a gap for OPEC crude to fill of just 30.1 million barrels, close to the cartel’s current production.

Since the publication of the report, the IEA has raised its non-OPEC supply view for 2019, and lowered its demand forecast, suggesting that if the cartel keeps pumping at current levels, production will exceed demand in 2020.

 

©2019 Bloomberg L.P.

THE ABOVE POST IS 100% BLOOMBERG ARTICLE .  I DO AGREE WITH MOST OF IT.  SK

Edited June 10, 2019 by Falcon

[Meredith Poor + 883]

When one has 'multi-fuel' vehicles, it is possible to play the commodities market with 'best price' alternatives. One example of this is locomotives that can use either natural gas or diesel fuel. If NG is the cheaper fuel, shippers can bias their use in this direction.

Other 'duel-fuel' vehicles can use either propane or gasoline. 'Plug-in hybrids' are essentially the same game - use as much electricity as possible if it's cheaper, before transitioning to gasoline.

A lot of fuel demand reduction occurs 'out of sight and out of mind'. Keyword search 'green goat' as one example of a diesel hybrid locomotive.

"Natural gas powers more than 160,000 vehicles in the United States and roughly 15.2 million vehicles worldwide." This quote is from the Alternative Fuels Data Center published by the US Department of Energy. Large shippers can simply bias their shipping toward the cheapest vehicle, both in terms of purchases over time and operations in any given day.

This tends to result in various kinds of 'peak shaving'. There are limits on how much prices can go up if vehicle operators can select alternatives in real time. In such circumstances it is necessary to 'balance' oil production vs gas production - right now gas output is extreme.

[Tom Kirkman + 8,860]

Time for WTI to go back below $40 to scale back needless U.S. Shale Oil overproduction.

Go ahead, get upset with me all you want.  I am very strongly pro - oil & gas and darn proud of it.

But I take a more global view of oil rather than the America-centric, myopic, exceedingly short term, month by month and quarter by quarter production of U.S. Shale Oil.

The problem is  *NOT*  OPEC + Russia oil production. 

The problem is  *U.S. Shale Oil OVERPRODUCTION.*

Since independent U.S. shale oil companies and also larger U.S. shale oil companies appear to be too stupid to cut back overproduction and exporting shale oil (mostly at a loss) then it is long overdue for the markets to intervene and punish the money - losing overproduction of U.S. shale oil by dropping WTI to $40.  At which point many of the bullsh*t claims of $40 breakeven will be proven to be a pile of steaming manure.

So for those investors who  > REFUSE <  to do due diligence, and stupidly and blindly believe the years-long accounting shenanigans and trickery of claims by U.S. Shale oil companies of being profitable ... time for those investors to get burned, big time.

I've harped about this before, my comment here should not be a surprise.

If U.S. Shale Oil insists on dragging down the global oil industry by continuously overproducing U.S. Shale Oil and exporting it overseas for a loss, then those companies deserve to be punished by the markets and by their investors.

=============================

Some of my earlier (forceful) musings on this general topic:

From August 2018:

Sometimes I just want to dump a bucket of cold water on the rhetorical head of Wall Street Journal writers who obstinately refuse to report on the fact that overall, the U.S. Shale Oil industry has so far been a money losing scheme.

I'm very much pro-Oil & Gas.  But my issue with U.S. Shale Oil industry is that so far, for the most part, it is a debt scheme, financed by next-to-zero-interest "free money" loans, and the industry burns more cash than it gets.  Kinda like Tesla.  So in this thread I'll be kinda like a grumpy Tesla shareholder after Elon says he lost more money but everything is great....

 

===============================

From January 2019:

My version of "treadmill" is "hamster wheel of debt".  More accurate visual image, in my opinion.

As WTI slows down overproducing, the rest of the oil producing world will likely recover toward a more stable $65 to $70 Brent price.

OPEC has not been driving down WTI prices and widening the gap between WTI and Brent.  The independent U.S. Shale Oil producers have done that all by themselves.

So as WTI prices seem unlikely to rise too high due to WTI overproduction, and CapEx gets scaled back, the niggling nuisance of past debt rears its head.  Running faster on that hamster wheel of debt, but not making much progress.

 

===============================

From January 2019:

Music to my ears.  Capitalism works and Supply & Demand are not irrelevant, regardless of musings by certain market pundits.  ...

... It seems that U.S. Shale Oil industry has overproduced so much that it has shot itself in the foot yet again, causing WTI price to drop due to waaaaay too much O&G produced.

So, U.S. Shale Oil activity appears to be dropping.  And this should eventually help stabilize Brent prices.  

For ages, I have commented repeatedly about my hope for $65 Brent in 2018 and my hope for $70 Brent in 2019.

At this point, WTI is hopeless, and today I don't much give a toss what the WTI oil price is.  The WTI herd of cats seem bound and determined to overproduce themselves into a ditch, repeatedly.

 

===============================

From September 2018:

The U.S. Shale Oil industry is reluctantly waking up to a few doses of reality.  What goes up eventually comes down.  The beer is getting warm at the party and it's getting late.

First up, let's take the gentle nudge approach, in this restrained article:

Here's The Latest Sign That Permian Shale Oil Is Slowing Down

...

Or if you prefer the ice bucket dumped on your head severe reality adjustment, read this:

The Coming Collapse Of U.S. Shale Oil Production

 

 

===============================

P.S. @Enthalpic here ya go, since yesterday you were asking for some of my longer comments, rather than me simply quoting articles.  This is me being a motormouth about oil & gas.

 

[Boat + 1,315]

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production glut around the gulf is simply shut down 2 mbpd of Canadian tar sands that is transported over US land. 

The US takes the environmental risks of piping their oil and eats the pollution on the refinery end. That oil also exacerbates the trade balance between the two countries. If you support US oil and better market conditions for US producers why help Alberta at the cost of flooding the gulf and killing prices for Texas frackers.

[Tom Kirkman + 8,860]

16 minutes ago, Boat said:

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production glut around the gulf is simply shut down 2 mbpd of Canadian tar sands that is transported over US land. 

The US takes the environmental risks of piping their oil and eats the pollution on the refinery end. That oil also exacerbates the trade balance between the two countries. If you support US oil and better market conditions for US producers why help Alberta at the cost of flooding the gulf and killing prices for Texas frackers.

While you are free to have whatever opinions you wish of me, I am neither anti-oil nor anti-Texas.

I consider myself anti-stupidity.

● U.S. Shale Oil overproduction still continues to overproduce while mostly losing money.

● Is U.S. Shale Oil the Tesla / Elon Musk of the oil world?  Burning cash but lauded for being visionary and cutting edge with "new technology" ?

[Boat + 1,315]

9 minutes ago, Tom Kirkman said:

While you are free to have whatever opinions you wish of me, I am neither anti-oil nor anti-Texas.

I consider myself anti-stupidity.

● U.S. Shale Oil overproduction still continues to overproduce while mostly losing money.

● Is U.S. Shale Oil the Tesla / Elon Musk of the oil world?  Burning cash but lauded for being visionary and cutting edge with "new technology" ?

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production around the gulf is simply shut down 2 mbpd of Canadian tar sands the world doesn’t need. Canada can pipe their own oil to their own coasts. 

The US takes the environmental risks and eats the pollution 

Tom, is Canada overproducing oil to the tune of 3.4 mbpd? The US on the other hand is still a net importer. So who is stupid for allowing that oil in? If I am an American producer would I want Canadian oil in US refineries that drive down my price. Nothing personal but I believe you may an agenda pro Canada. I would like to know why. 

[WCS + 13]

Boat,  The problem with US prices is not Canada . They have been sending oil to the US at a fairly consistent volume for years . I would be ecstatic to see a pipeline built to one of our coasts , that way we would be getting significantly higher prices , but unfortunately at present we have to deal with politicians who are anti pipeline, anti oil. As well some of the US  Gulf refiners depend on the Canadian heavy oil and are operators in the Tar sands. Tom is correct ,it is all about the US producers trying to pump out every last drop of oil, probably before some elected official decides to ban fracking or just to cover the debt. OPEC pretty much controls the price of oil as we have seen with the price drop to 27 dollars a barrel in 2016 and only recovered once they announced a cut in production. Shale  oil won’t last forever .

[Falcon + 222]

1 hour ago, Boat said:

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production around the gulf is simply shut down 2 mbpd of Canadian tar sands the world doesn’t need. Canada can pipe their own oil to their own coasts. 

The US takes the environmental risks and eats the pollution 

Tom, is Canada overproducing oil to the tune of 3.4 mbpd? The US on the other hand is still a net importer. So who is stupid for allowing that oil in? If I am an American producer would I want Canadian oil in US refineries that drive down my price. Nothing personal but I believe you may an agenda pro Canada. I would like to know why. 

Its called Free Enterprise  . . . .  Capitalism.  Are you gonna tell some Texas rancher he cant sell oil under his ranch so Exxon or ARAMCO can get $85 bbl.  You want government to tell oil industry  how much oil to produce.

Supply and demand will governor the price.  The Chevrons and Exxon's are the low cost producers.  Others will need to go down to their level or merge or sellout on the cheap or turn the keys over to the bank..

Edited June 10, 2019 by Falcon

[Matthew w + 27]

42 minutes ago, Boat said:

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production around the gulf is simply shut down 2 mbpd of Canadian tar sands the world doesn’t need. Canada can pipe their own oil to their own coasts. 

The US takes the environmental risks and eats the pollution 

Tom, is Canada overproducing oil to the tune of 3.4 mbpd? The US on the other hand is still a net importer. So who is stupid for allowing that oil in? If I am an American producer would I want Canadian oil in US refineries that drive down my price. Nothing personal but I believe you may an agenda pro Canada. I would like to know why. 

Your not considering a number of important and economic facts, I believe your statements are simply patriotic and subjective.

1. Before the shale revolution began, the United States was highly dependent on foreign oil and still somewhat is. During this time refiners spent billions on upgraders to process heavy crudes. In order to cut off from exports, the US would not only have to spend billions on pipelines, but to redesign their refineries for processing light oil.

2. In addition, because of the differential on Canadian oil, US refiners make a killing on crack spreads. Believe it or not, Canada lacks enough refining capacity, therefore we rebuy the oil we sold to you at a premium.

3. Furthermore, heavy crude produces a wider range of products, if refiners we're to only process light oil, you'd be flooded with gasoline (which you already are), and would lack other refined products.

US companies, most specifically refiners and utilities have no financial incentive to do so. If you've read the news, the world is awash in light oil and lacking supply in heavy oil due to plummeting production in Venezuela, Mexico, flat production in Canada and reduced production under OPEC. Your thesis would cause a major economic collapse in the US oil market if it came to fruition in the short run.

[Tom Kirkman + 8,860]

1 hour ago, Boat said:

Tom it looks like your just plain anti Texas oil along with your buddy Trump. One easy way to relieve the oil production around the gulf is simply shut down 2 mbpd of Canadian tar sands the world doesn’t need. Canada can pipe their own oil to their own coasts. 

The US takes the environmental risks and eats the pollution 

Tom, is Canada overproducing oil to the tune of 3.4 mbpd? The US on the other hand is still a net importer. So who is stupid for allowing that oil in? If I am an American producer would I want Canadian oil in US refineries that drive down my price. Nothing personal but I believe you may an agenda pro Canada. I would like to know why. 

You've stumped me; pretty sure I've never been accused of having a pro Canada agenda before.

So, off the top of my head, here's my unplanned, spontaneous response.  Might get messy, because I really haven't thought this through before, and whatever I write is going to be "one take, no dubs" (in music recording, live, on the fly, hit record and go...)

I'm anti Trudeau (don't get me started) and view Canada as a wonderful ally of the U.S.

I see nothing wrong with the U.S. increasing oil imports from its strong ally Canada, rather than depending so much on importing oil from Middle East countries that clearly despise the Western world.

Why aren't Canada and U.S. decrying oil imports from Russia?

And while I reluctantly understand Trump's bigger, global political picture of increasing domestic U.S. Shale oil & gas production in order to let loose the bull in the china shop and reduce American imports of oil from overseas, I disagree with Trump's shorter term agenda of cranking up U.S. Shale oil (and gas and LNG) production and *exporting* it overseas.

In my opinion, a smarter, longer term picture if Trump wants to ratchet up domestic U S. Shale Oil & Gas and LNG production would be to keep it inside U.S. borders and use the hydrocarbon energy domestically.  That plan would reduce dependence on importing crude oil from OPEC + Russia.

And yes, if possible, please do import more crude oil from Canada (a strong ally) and simultaneously reduce crude oil imports from hostile Middle East countries.

So I guess that would be my pro - Canada "agenda", off the top of my head.  Hadn't really thought about a "pro - Canada agenda" before, so I don't have a pat answer.  Except maybe to reiterate that I hope Canada gets rid of Trudeau in its federal elections in October this year, so Canada can recover economically by throwing off the Trudeau-led business shackles / ball & chain of Socialist agenda and anti - oil & gas agenda.

[Ward Smith + 6,615]

3 hours ago, Tom Kirkman said:

You've stumped me; pretty sure I've never been accused of having a pro Canada agenda before.

So, off the top of my head, here's my unplanned, spontaneous response.  Might get messy, because I really haven't thought this through before, and whatever I write is going to be "one take, no dubs" (in music recording, live, on the fly, hit record and go...)

I'm anti Trudeau (don't get me started) and view Canada as a wonderful ally of the U.S.

I see nothing wrong with the U.S. increasing oil imports from its strong ally Canada, rather than depending so much on importing oil from Middle East countries that clearly despise the Western world.

Why aren't Canada and U.S. decrying oil imports from Russia?

And while I reluctantly understand Trump's bigger, global political picture of increasing domestic U.S. Shale oil & gas production in order to let loose the bull in the china shop and reduce American imports of oil from overseas, I disagree with Trump's shorter term agenda of cranking up U.S. Shale oil (and gas and LNG) production and *exporting* it overseas.

In my opinion, a smarter, longer term picture if Trump wants to ratchet up domestic U S. Shale Oil & Gas and LNG production would be to keep it inside U.S. borders and use the hydrocarbon energy domestically.  That plan would reduce dependence on importing crude oil from OPEC + Russia.

And yes, if possible, please do import more crude oil from Canada (a strong ally) and simultaneously reduce crude oil imports from hostile Middle East countries.

So I guess that would be my pro - Canada "agenda", off the top of my head.  Hadn't really thought about a "pro - Canada agenda" before, so I don't have a pat answer.  Except maybe to reiterate that I hope Canada gets rid of Trudeau in its federal elections in October this year, so Canada can recover economically by throwing off the Trudeau-led business shackles / ball & chain of Socialist agenda and anti - oil & gas agenda.

Tom you do realize the largest refinery in the US is owned lock stock and barrel by the Saudis? What crude oil do you think they want to buy? 

The industry lobbied hard to overturn the decades old moratorium on exporting US crude (except Alaska). Exporting oil used to help fix the delta in price between Brent and WTI. That delta has come back because of pipeline constraints to the gulf and tankers. Like LNG everything was designed to Arrive, not Export. Now they're trying to figure out how to switch it around. 

[J.mo + 165]

Tom, you're a smart guy. But I believe you take the MBS view of how the oil market works. I'm not so sure it is the correct view. I fully understand this, because many on the upstream supply side have old school views of the barrels produced have no choice but to be bought. It's never really truly been, at least in my lifetime, a retail market. You may not want to buy from me, but you will buy from X, and I will sell my barrels anyway as last man standing, type of thing. World consumption sopped up the barrels no matter who bought from who. 

Your view of the American oil industry as to "just stop overproducing" is not quite so simple as throttling back the royal crown of Saud oil spigot. Oil is entering at least at the time in my mind, a retail environment. I know it's tough for the old school oil guys to understand. But from the retail side, I fully understand it. It would be like trying to get all the gas stations to jump on board with a price swing in either direction, or a volume dump/withholding. There are too many independents with too many varying circumstance. 

I Fight this daily on a smaller note. I need a higher margin to float than the guy on either side of me. I am in the position of MBS. However, by holding that margin, I allow the guy on either side of me, who happens to own them both as well as 40 others to skate on and become a monster. So how do I fight this? In the near term, fight tooth and nail, weakening the competition, but myself much more heavily. Or continue to stay afloat, but give the competition much more fire power for the long term. So how do you want it, rattlesnake bite, or boa constrictor. 

 

Low return is better than no return. For those trying to stay afloat, cashflow is cashflow and barrels need to be pumped and wells not idled. Those barrels in the ground are worth nothing if the other guy is going to pump them.  It is exactly what Tesla is experiencing. As well has what many other companies have experienced through time that came to be heavily profitable. 

I'm rambling at this point, but I'll get the message across someday 😄

 

Edited June 10, 2019 by J.mo

[Tom Kirkman + 8,860]

33 minutes ago, J.mo said:

...  Your view of the American oil industry as to "just stop overproducing" is not quite so simple as throttling back the royal crown of Saud oil spigot. Oil is entering at least at the time in my mind, a retail environment. I know it's tough for the old school oil guys to understand. But from the retail side, I fully understand it. It would be like trying to get all the gas stations to jump on board with a price swing in either direction, or a volume dump/withholding. There are too many independents with too many varying circumstance.  ...

Good points on your extended comment, J.mo.  (no need to quote its entirety).  Food for thought for me to mull over.

Near as I can tell, at least 75% of U.S. Shale oil is *still* operating at a loss, even after a decade after the great shale oil revolution began.

I fail to see the logic in continuing to run a business at a loss, year after year, with no real hope of ever turning a sustained profit in tbe future.  How exactly is consistently operating at a loss a good, long term business model?

[Tom Kirkman + 8,860]

On 6/10/2019 at 12:24 PM, Ward Smith said:

Tom you do realize the largest refinery in the US is owned lock stock and barrel by the Saudis? What crude oil do you think they want to buy? 

The industry lobbied hard to overturn the decades old moratorium on exporting US crude (except Alaska). Exporting oil used to help fix the delta in price between Brent and WTI. That delta has come back because of pipeline constraints to the gulf and tankers. Like LNG everything was designed to Arrive, not Export. Now they're trying to figure out how to switch it around. 

Yes, over here in Malaysia, Saudi Aramco smartly invested in the huge, new Pengerang downstream petrochemical complex, just North of Singapore.  The majority of oil for the Malaysia complex will come from Saudi Aramco, and some from Iraq.

You can be sure that not a drop of crude oil will be imported from Iran - Saudi Arabia's enemy - despite Malaysia being on very good terms with Iran.  Iranian students don't even need a visa to enter Malaysia.

So Saudi Aramco / MBS has a captive market to export oil every month to its joint venture petrochemical plant in Malaysia, while simultaneously preventing rival Iran's oil from being exported to Malaysia (for info, Malaysia is a net oil importing country since 2014).

I imagine that MBS / Aramco had similar ideas in buying up oil refinery infrastructure in the U S. - making the U.S. more of a captive market for Aramco oil exports to its own U.S. refineries, along with reducing U.S. oil imports from Saudi rivals.

[Mike Shellman + 548]

13 hours ago, Tom Kirkman said:

I consider myself anti-stupidity.

Tom, there is no reason whatsoever to feel the need to qualify your opinions, or preface them by saying you are pro-oil, yet believe leveraged oversupply of American shale oil is causing extreme price volatility and, at the moment, declining prices. That's a fact. Its not the first time that has happened and it won't be the last. You are in the industry, in a foreign country; you offer an important perspective. American shale oil has changed the entire world oil order and decimated the offshore industry worldwide, including the GOM, and increased the decline rate of conventional production everywhere. Some 85,000 people worldwide in our industry are still out of work from the 2014 disaster. Don't apologize. 

You'll take note, of course, that in spite of your efforts, you are being labeled anti-oil and anti-Texan for your opinion. You will also note that the "fix" for your concerns is to fix Canada, or fix Saudi Arabia, OPEC, Russia; everybody else needs fixin,' not the US. Its the world's obligation to make room for American shale oil and to keep prices high. We're entitled.

I wish folks could understand it is America's fiscal policy that has allowed this shale oil revolution; its not resilience, or free enterprise, or technology; that's crap. If the shale oil industry was forced to pay back its long term debt and could only drill wells on net revenue from cash flow I am not sure it could do it. Growth thru use of debt it artificial, and it is NOT sustainable in the long run. The sooner we wake up to that they more oil we will have for our long term future in America. For our kids. As it is we are on a course to drain all of our resources and leave them with a Mt. Everest of debt.

God Bless Texas, America and the amazing ingenuity of the oil and gas industry, including shale oil and shale gas industry. Bless anyone with the ability to think past next week and the cajones to speak up about it.  

[BenFranklin'sSpectacles + 762]

20 hours ago, Meredith Poor said:

When one has 'multi-fuel' vehicles, it is possible to play the commodities market with 'best price' alternatives. One example of this is locomotives that can use either natural gas or diesel fuel. If NG is the cheaper fuel, shippers can bias their use in this direction.

Other 'duel-fuel' vehicles can use either propane or gasoline. 'Plug-in hybrids' are essentially the same game - use as much electricity as possible if it's cheaper, before transitioning to gasoline.

A lot of fuel demand reduction occurs 'out of sight and out of mind'. Keyword search 'green goat' as one example of a diesel hybrid locomotive.

"Natural gas powers more than 160,000 vehicles in the United States and roughly 15.2 million vehicles worldwide." This quote is from the Alternative Fuels Data Center published by the US Department of Energy. Large shippers can simply bias their shipping toward the cheapest vehicle, both in terms of purchases over time and operations in any given day.

This tends to result in various kinds of 'peak shaving'. There are limits on how much prices can go up if vehicle operators can select alternatives in real time. In such circumstances it is necessary to 'balance' oil production vs gas production - right now gas output is extreme. 

That's possible.  I can see this being done on trains, ships, and other high-horsepower applications that have easy access to NG fueling stations. 

On the other hand, there are surprisingly few duel-fuel vehicles on the road.  15 million sounds like a lot until we realize that's less than 1.5% of vehicles.  Replacing/upgrading the other billion or so will take decades.  The only thing that would change this is if NG dual-fuel capability could be cheaply retrofitted to most vehicles.  It's theoretically possible, but duel-fuel sounds like it would be expensive/inconvenient in practice.

There's also the absolute economic advantage of some alternatives.  An electric vehicle is cheaper to operate than a fossil fuel vehicle - not just because electricity is cheaper, but because the maintenance is cheaper, the reliability higher, and the longevity unparalleled.  Rather than investing in NG duel-fuel as a stop gap solution, businesses might save their cash to purchase the upcoming electric vehicles.  They could take advantage of low interest rates to prematurely retire their oldest vehicles in favor of electrics.  With that project keeping their engineers & operators busy, I don't imagine they'd have much time to develop dual-fuel operations. 

Whatever the case, I have trouble imagining a scenario where a consumer invests in alternative technologies and then swings back to oil consumption.  I could be wrong though. 

[wrs + 893]

11 hours ago, Tom Kirkman said:

Good points on your extended comment, J.mo.  (no need to quote its entirety).  Food for thought for me to mull over.

Near as I can tell, at least 75% of U.S. Shale oil is *still* operating at a loss, even after a decade after the great shale oil revolution began.

I fail to see the logic in continuing to run a business at a loss, year after year, with no real hope of ever turning a sustained profit in tbe future.  How exactly is consistently operating at a loss a good, long term business model?

Why is Amazon in business then?  The only thing that gives them positive cash flow is AWS which has little to nothing to do with their original business model.

[Falcon + 222]

On 6/10/2019 at 8:07 AM, Mike Shellman said:

Tom, there is no reason whatsoever to feel the need to qualify your opinions, or preface them by saying you are pro-oil, yet believe leveraged oversupply of American shale oil is causing extreme price volatility and, at the moment, declining prices. That's a fact. Its not the first time that has happened and it won't be the last. You are in the industry, in a foreign country; you offer an important perspective. American shale oil has changed the entire world oil order and decimated the offshore industry worldwide, including the GOM, and increased the decline rate of conventional production everywhere. Some 85,000 people worldwide in our industry are still out of work from the 2014 disaster. Don't apologize. 

You'll take note, of course, that in spite of your efforts, you are being labeled anti-oil and anti-Texan for your opinion. You will also note that the "fix" for your concerns is to fix Canada, or fix Saudi Arabia, OPEC, Russia; everybody else needs fixin,' not the US. Its the world's obligation to make room for American shale oil and to keep prices high. We're entitled.

I wish folks could understand it is America's fiscal policy that has allowed this shale oil revolution; its not resilience, or free enterprise, or technology; that's crap. If the shale oil industry was forced to pay back its long term debt and could only drill wells on net revenue from cash flow I am not sure it could do it. Growth thru use of debt it artificial, and it is NOT sustainable in the long run. The sooner we wake up to that they more oil we will have for our long term future in America. For our kids. As it is we are on a course to drain all of our resources and leave them with a Mt. Everest of debt.

God Bless Texas, America and the amazing ingenuity of the oil and gas industry, including shale oil and shale gas industry. Bless anyone with the ability to think past next week and the cajones to speak up about it.  

Disagree, it's not the financial system.  It's what most never saw coming. That's 8 million bbls a day from Shale Oil ALONG WITH THE BELIEF THAT PEAK OIL (Supply) was upon us and oil price would continue to increase.  

Back in the day with oil over $100 bbl the Goldman Sach's oil analyst said oil would go to $400 bbl. Really.  

In the early days of Shale everyone made lots of money.  Producers all went on a spending spree expanding as fast as possible.  

Poor investment decisions created the current situation.  Not many saw $50 WTI.  Not the producers, not the EIA, not the banks. 

I remember EIA estimating US Shale reserves of 1.4 billion Barrels (Bakken, Eagleford). Back then fracers were able to procure 3% of tight oil. Today around 10%. Chevron and Occident now say will be able to get up to 17 to 18% in couple of years.

Shale Oil was a new industry.  Why people don't understand the natural industry life cycle is beyond me. 

ARAMCO was able to sell $2.00 oil for $100 because they were defacto monopoly. They formed a cartel and it cost IOCs $60 to $70 bbl to lift oil from Gulf of Mexico

Today the low cost Shale producers costs are in $20s. That's a fact.

Today the low cost offshore producers going forward are sub $30. That's a fact.

The cartel is dying.  As EXXON CEO said, " the oil industry is in transition."

This is basic Economics 101. This is not rocket science. 

Accept change. I know it's difficult . Can't imagine how Mideast countries that depend on their oil economy will cope.  

 

Edited June 12, 2019 by Falcon

[wrs + 893]

6 hours ago, Mike Shellman said:

Tom, there is no reason whatsoever to feel the need to qualify your opinions, or preface them by saying you are pro-oil, yet believe leveraged oversupply of American shale oil is causing extreme price volatility and, at the moment, declining prices. That's a fact. Its not the first time that has happened and it won't be the last. You are in the industry, in a foreign country; you offer an important perspective. American shale oil has changed the entire world oil order and decimated the offshore industry worldwide, including the GOM, and increased the decline rate of conventional production everywhere. Some 85,000 people worldwide in our industry are still out of work from the 2014 disaster. Don't apologize. 

You'll take note, of course, that in spite of your efforts, you are being labeled anti-oil and anti-Texan for your opinion. You will also note that the "fix" for your concerns is to fix Canada, or fix Saudi Arabia, OPEC, Russia; everybody else needs fixin,' not the US. Its the world's obligation to make room for American shale oil and to keep prices high. We're entitled.

I wish folks could understand it is America's fiscal policy that has allowed this shale oil revolution; its not resilience, or free enterprise, or technology; that's crap. If the shale oil industry was forced to pay back its long term debt and could only drill wells on net revenue from cash flow I am not sure it could do it. Growth thru use of debt it artificial, and it is NOT sustainable in the long run. The sooner we wake up to that they more oil we will have for our long term future in America. For our kids. As it is we are on a course to drain all of our resources and leave them with a Mt. Everest of debt.

God Bless Texas, America and the amazing ingenuity of the oil and gas industry, including shale oil and shale gas industry. Bless anyone with the ability to think past next week and the cajones to speak up about it.  

So in the fall of 2014 who increased their exports of oil to the US when the market was already saturated?  Who initiated lower for longer?  What business pays back low interest, long term debt early?  There are a lot of mainstream businesses out there borrowing at low interest rates to BUY BACK STOCKS, how productive is that?  

Why not focus your complaints on other businesses that are operated on the exact same model?  I have given you other examples of the same business model that Wall Street uses to pump bubbles and you simply ignore them and continue with the same vacuous refrain.  How can anyone not think you have a huge burr under your saddle against shale?

Have you followed the collapse of the retail industry?  I would suggest you look at JCP as a good example of a company that continued to accumulate long term debt without any hope of repaying it.  They started down that path back in the early part of this century.  I know because they were one of my customers and I saw internally exactly how they were failing to improve their business model and change with the times.  Hopefully the shale producers won't get caught with a lot of debt they can't pay back but unfortunately, debt drowns most businesses other than the largest like XOM and CVX.

Finally, who do you think pulls the levers of "Americas fiscal policy"?  The shale producers do not set the price of oil, that is done by the swindlers on the CME and NYMEX and who do you think pulls those levers?  As far as my participation goes, I am taking the free money (without any apologies) as long as it's being given out but at least the buyers are getting something of real value for it and not just a bit in a computer or piece of paper.

Edited June 10, 2019 by wrs

[BillKidd + 139]

I got an email from Hart news service that said the following... it's paywalled, so no link available...

 

US Shale Producers Could Face Another Bankruptcy Wave   Investor pressure for financial discipline could be leaving some E&P companies with nowhere to go but back into bankruptcy.

[Falcon + 222]

2 hours ago, BillKidd said:

I got an email from Hart news service that said the following... it's paywalled, so no link available...

 

US Shale Producers Could Face Another Bankruptcy Wave   Investor pressure for financial discipline could be leaving some E&P companies with nowhere to go but back into bankruptcy.

Its coming .  Smart Independents hedged when WTI in the $60's recently.  But next year (maybe sooner) will face a Tsunami Wave 

[Okie + 83]

5 hours ago, Falcon said:

Back in the day with oil over $100 bbl the Goldman Sach's oil analyst said oil would go to $400 bbl. Really.  

An old investment saw is "The answer to high prices is high prices."  Meaning that: high prices will inevitably price out consumers, who will stop buying the product.  As it applies to oil, high prices destroy entire economies because everyone uses it.  This then destroys demand, which then brings down prices.

[Falcon + 222]

13 minutes ago, Okie said:

An old investment saw is "The answer to high prices is high prices."  Meaning that: high prices will inevitably price out consumers, who will stop buying the product.  As it applies to oil, high prices destroy entire economies because everyone uses it.  This then destroys demand, which then brings down prices.

Your answer is true in free market. 

Oil not a free market .  .  .  .  . yet.

Oil demand is very inelastic. (within reason)

 

[Mike Shellman + 548]

16 hours ago, wrs said:

So in the fall of 2014 who increased their exports of oil to the US when the market was already saturated?

OPEC increased its production/exports by 2Q15 in response to 4.8MM BPD of US LTO that "saturated" a balanced world oil market. The did that to regain lost market share. Its business. You'd done the same thing. Google it. The American shale oil industry initiated the lower for longer mantra with leveraged oversupply. Oil prices will never be stable again. Who do YOU think is trying to raise oil prices now by limiting production? Every business wants to be out of debt ASAP; you are never truly profitable UNTIL you are completely out of debt. Most of the US shale oil industry pays 10% of the value of its product price in the way of interest on long term debt. You think that's a good "business model?" What shale oil company is borrowing more more to buy back stock? They are deferring debt, selling assets and scrounging money to pay dividends to pissed off lenders and to drill MORE lousy wells so they can meet debt costs.

I don't have a burr under my saddle about shale oil, I am actually disappointed so many Americans are so stupid about it. Grant you, I don't get anymore free money from the shale biz so we know where you stand. I hope you are "good" with mid to low $40 oil prices because that is where your beloved shale oil industry is taking us. 

JC Penny? Your kidding, right? What retail business is remotely similar to spending $9MM per "unit" to realize 140% ROI's...over 15 years? That's less than a CD will return. What retail business puts a product on the shelf that depreciates in value 85% the first three years of inventory life? We're not talking about PP&E, or good faith, or control of 10% of total market share; when that well has reached an unacceptable NPV it is an enormous liability ! "Hopefully" the shale oil industry can pay back $400bn of long term debt? Hee hee...how much longer and how high do you want prices to be for them to be able to do that? 

NYMEX does not have squat to do with fiscal or monetary policy in America. The FED does, or did before politics entered into it. Growth thru use of debt is fake.  

Falcon, economics 101 my ass. Anyone that believes they've got OPEC out of their lives now and forever because of  stinking shale oil... is nuts. These amazing $20 "breakeven" prices must have JUST happened, I mean just yesterday, because 1Q19 hardly nobody made any money, or enough money to pay down debt. Google it. We can roll with LTO for the next 4-6 years, then what? 

There are 3-4 shale oil cheerleaders here that unfortunately don't understand anything practical about the oil and gas business at all. Nothing. If this shale oil thing is the depth of understanding in America regarding our energy future, we're toast, our kids are toast and it makes me want to move to Costa Rica.   

 

 

Edited June 11, 2019 by Mike Shellman

[Okie + 83]

4 hours ago, Falcon said:

Oil demand is very inelastic. (within reason)

Which is why I was saying that high oil prices crash entire economies.  The demand is generally inelastic because everyone uses it.  However, there is a point that oil demand cannot be sustained.  And a barrel of WTI oil above around $70 or $80 is the start of that rubber band limit.  Oil is also a "boom and bust" market.  A lot of the oil majors stockpile their money when the price gets high so they can buy out those who are too highly leveraged.  There is a lot of money to be made if you know how to play the game.