Oil Price Could Fall To $30 If Global Deal Not Extended

Hi All,

Very interesting comments, thank you.  To help me understand the economics a bit better, does anyone out there have an idea of what it costs to store crude oil in large quantities?  Just trying to think of what the producers could do to hold oil from the market without shutting in wells.

Along the same lines, is it typical for oil companies with royalty contracts to pay as the oil is produced or when the oil is sold?

Thanks. Go ahead and make fun of my ignorance, I can take it.

 

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(edited)

1 hour ago, MaxNix said:

To help me understand the economics a bit better, does anyone out there have an idea of what it costs to store crude oil in large quantities?

Max,the classic way that arbitrage traders store oil is in rented seagoing oil tanker ships.  The charter rates for such ships varies considerably, depending on the state of the charter market at any point in time.  A large tanker might cost as little as $6,000 a day, or it might rise to $50,000 a day, it all depends on how many surplus ships are on the open charter market and how far the bidders would either suppress it downward or bid it upward.  Such a large tanker might hold over one million barrels of crude oil. Some will go to 2,000,000 bbls.

That is a bit off your specific question, which is as I  understand it focused on the issue of the "producer" to hold oil.  Typically producers hold little.  Buyers who need oil for their refinery operations will typically have quite large storage, simply for buffer needs purposes to keep their refineries running if for example a ship comes in late (or is sunk!).  These are called "tank farms" and you see them near refineries.  There are also "tank farms" in locations where pipeline companies come to a junction point, such as in Cushing, Oklahoma. 

I think you will find that producers tend to sell their pumped oil just as fast as they pump it out of the ground.  "Storage" is not their long suit. If those guys want to "store," then the solution is to just leave it in the ground, it is not as if that oil is going to run away!

Cheers, Jan van Eck

Edited by Jan van Eck
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2 hours ago, Jan van Eck said:

Max,the classic way that arbitrage traders store oil is in rented seagoing oil tanker ships.  The charter rates for such ships varies considerably, depending on the state of the charter market at any point in time.  A large tanker might cost as little as $6,000 a day, or it might rise to $50,000 a day, it all depends on how many surplus ships are on the open charter market and how far the bidders would either suppress it downward or bid it upward.  Such a large tanker might hold over one million barrels of crude oil. Some will go to 2,000,000 bbls.

That is a bit off your specific question, which is as I  understand it focused on the issue of the "producer" to hold oil.  Typically producers hold little.  Buyers who need oil for their refinery operations will typically have quite large storage, simply for buffer needs purposes to keep their refineries running if for example a ship comes in late (or is sunk!).  These are called "tank farms" and you see them near refineries.  There are also "tank farms" in locations where pipeline companies come to a junction point, such as in Cushing, Oklahoma. 

I think you will find that producers tend to sell their pumped oil just as fast as they pump it out of the ground.  "Storage" is not their long suit. If those guys want to "store," then the solution is to just leave it in the ground, it is not as if that oil is going to run away!

Cheers, Jan van Eck

Hi Jan, you are correct on most of it. I will let you know later the current "floating" (tanker storage daily rates, usually we dont go by daily rates, we would charter a vessel to store waterborne crude cargoes under term contracts 30 days-90 days-120 days etc, so you get a term deal). ULCC's (ultra large crude carriers 2mil bbls or +) are also used for floating storage.

Very few integrated or independent oil companies maintain or own large "tank farms" , they are mostly owned by midstream companies (Enterprise, Kinder Morgan etc in the US and Oiltanking etc in EU ) and their branches etc elsewhere. Refineries usually have onsite crude storage tanks that may range from a few hundred thousand barrels to maybe a couple of million @ max. The leased tank farms storage is the most viable, stable and reliable low cost method for most refiners and independent producers.

Major oil companies and State oil companies (such as ARAMCO, ADNOC etc) own, lease very large tank farms in their own countries or outside their borders in strategic locations. And also like the US, India, China and Japan , countries have and maintain their own "strategic reserves.

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On 6/10/2019 at 9:06 AM, 50 shades of black said:

Russian Energy Minister Alexander Novak said on Monday he could not rule out a scenario in which oil prices could fall to $30 per barrel if the global oil deal was not extended. Novak said there were big risks of oversupply on the market and that Moscow needed to monitor the oil market more in order to be able to take a balanced decision in July. Saudi Energy Minister Khalid al-Falih, who was in Moscow for talks with his Russian counterpart, said steps were being taken to prevent a sharp fall in oil prices.

$30 oil would destroy many economies around the world and our oil profits. It would create a volatile situation worldwide. China and Europe would benefit the most. Our consumers would love it but our oil companies would be cannibalized. 

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On 6/12/2019 at 7:00 PM, Meredith Poor said:
32000  1 gallon gasoline in terms of watt-hours
96000  watt-hours needed to make gallon of gasoline from CO2 and water
19200  watts needed * 5 hours per day
3840  dollars needed at 20 cents per watt
1.501906718  dollars per gallon (3840 / 2556 days)
63.08008214  dollars per barrel (1.5 x 42 gallons per barrel)

In short, the gasoline price per barrel where solar becomes the cheaper alternative is $63, not accounting for various capital costs.

This ceiling is slipping lower by the day.

You are not considering natural gas as an alternative fuel. It is the most competitive option. 

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12 hours ago, ronwagn said:

You are not considering natural gas as an alternative fuel. It is the most competitive option. 

Of all hydrocarbons, methane is the easiest to create from H2 and CO2. The Sabatier reaction was discovered in the late 1800's and the Rainey Nickel catalyst that made it possible on an industrial scale was developed in the 1920's. The gas BTU equivalent of a barrel of oil is 5.8 MM based on my keyword search, at $2.20 this is roughly $12 a barrel. Based on the math above, solar would have to drop to roughly 3 cents per watt (20 / 5.8) to be equivalent to natural gas. I've seen some solar cell price quotes at .075 cents per watt, but that isn't panels or installations. However, I'm of the opinion 'natural gas' or methane is a renewable resource - it won't go away no matter what.

Edited by Meredith Poor
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9 hours ago, ronwagn said:

You are not considering natural gas as an alternative fuel. It is the most competitive option. 

CO2 does not magically appear is his problem.  Let me guess, he is going to say, take the CO2 out of Coal, NG power plants... 😆🙄🤣🤡

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On 7/4/2019 at 12:43 PM, Jan van Eck said:

Max,the classic way that arbitrage traders store oil is in rented seagoing oil tanker ships.  The charter rates for such ships varies considerably, depending on the state of the charter market at any point in time.  A large tanker might cost as little as $6,000 a day, or it might rise to $50,000 a day, it all depends on how many surplus ships are on the open charter market and how far the bidders would either suppress it downward or bid it upward.  Such a large tanker might hold over one million barrels of crude oil. Some will go to 2,000,000 bbls.

That is a bit off your specific question, which is as I  understand it focused on the issue of the "producer" to hold oil.  Typically producers hold little.  Buyers who need oil for their refinery operations will typically have quite large storage, simply for buffer needs purposes to keep their refineries running if for example a ship comes in late (or is sunk!).  These are called "tank farms" and you see them near refineries.  There are also "tank farms" in locations where pipeline companies come to a junction point, such as in Cushing, Oklahoma. 

I think you will find that producers tend to sell their pumped oil just as fast as they pump it out of the ground.  "Storage" is not their long suit. If those guys want to "store," then the solution is to just leave it in the ground, it is not as if that oil is going to run away!

Cheers, Jan van Eck

I also remember after oil crashed it was being stored in tanker cars on railroad sidings. I have driven through Kansas and realized that the miles of tanks that were just sitting there were probably being used for oil storage as there wasn't enough capacity to store it in tanks.....

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With today's tech, according to wikipedia "As of January 2015, estimates varied on the break-even oil price for drilling Bakken wells. The North Dakota Department of Natural Resources estimated overall break-even to be just below US$40 per barrel. An analyst for Wood McKenzie said that the overall break-even price was US$62/barrel, but in high-productivity areas such as Sanish Field and Parshall Oil Field, the break-even price was US$38-US$40 per barrel."

So, if global oil drops below "break even" pricing the U.S. will lose many jobs and production will slow... a lot. That is not good news for our economy in the short term and could cause some undesirable chain reactions. Then again, other areas of our economy will have a chance to strengthen. People might save money at the gas pump. Who knows? It would a bit chaotic.

As it is many unskilled men can get very good paying jobs where oil is being produced. It is an opportunity for those who have the drive.

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(edited)

On 6/12/2019 at 7:00 PM, Meredith Poor said:
32000  1 gallon gasoline in terms of watt-hours
96000  watt-hours needed to make gallon of gasoline from CO2 and water
19200  watts needed * 5 hours per day
3840  dollars needed at 20 cents per watt
1.501906718  dollars per gallon (3840 / 2556 days)
63.08008214  dollars per barrel (1.5 x 42 gallons per barrel)

In short, the gasoline price per barrel where solar becomes the cheaper alternative is $63, not accounting for various capital costs.

This ceiling is slipping lower by the day.

 

I've got a feeling that you did your thermochemistry with 100% efficiency. Regardless, even if this could be achieved, 96 kwh from solar energy is still incredibly thwarting. The ceiling doesn't seem to be moving at all, and I hope it stays that way so that geothermal and nuclear will advance. 

[EDIT]

Yes, indeed you did your calculations using exact thermochemical figures. I got 32 kwh when I calculated the power potential for a gallon of gas. Better multiply that first figure by .33 and you'll get a more accurate figure... 

Edited by KeyboardWarrior

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20 hours ago, KeyboardWarrior said:

 

I've got a feeling that you did your thermochemistry with 100% efficiency. Regardless, even if this could be achieved, 96 kwh from solar energy is still incredibly thwarting. The ceiling doesn't seem to be moving at all, and I hope it stays that way so that geothermal and nuclear will advance. 

[EDIT]

Yes, indeed you did your calculations using exact thermochemical figures. I got 32 kwh when I calculated the power potential for a gallon of gas. Better multiply that first figure by .33 and you'll get a more accurate figure... 

Didn't you notice the 96,000 watt-hours in the second row? That's 3x the 32000. This is based first on the idea that two hydrogens are needed for each oxygen in CO2, meaning 2H2s are needed just to cleave off the O. That alone doubles the energy to 64000. Then one figures that hydrolysis can be had at 67% efficiency. Some hydrolysis systems are well over 90% efficient, so this number is pretty much a guess.

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3 hours ago, Meredith Poor said:

Didn't you notice the 96,000 watt-hours in the second row? That's 3x the 32000. This is based first on the idea that two hydrogens are needed for each oxygen in CO2, meaning 2H2s are needed just to cleave off the O. That alone doubles the energy to 64000. Then one figures that hydrolysis can be had at 67% efficiency. Some hydrolysis systems are well over 90% efficient, so this number is pretty much a guess.

Ohh I see. I was focusing on the fact that 32 kwh is gasoline at 100% efficiency, but it doesn't matter since you were only talking about the necessary energy to create synthetic fuel. Sorry about that. 

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On 6/27/2019 at 1:57 AM, Jan van Eck said:

And:

I would suggest a far different explanation.

The people (and rulers) of the Middle East live in a culture of shame.  These are peoples and societies that know that they have been left behind, that they are still living in the seventh century, while the rest of the world has moved on.  That realization has left he peoples embarrassed s their backwardness, deeply ashamed at their failures as people, and humiliated that they, and not some other society, is mired in a time warp of 1300 years ago. 

The accumulated shame and humiliation is exposed in outbursts of extreme violence and rage, with the rage directed also at "Westerners" and at "Jews," whom the more angry parts will then go capture and behead.  When the radicals do these beheadings, they have their faces fully covered; that covering is again an expression of humiliation and shame at being backward.  They know that they are being backward and their acts are the expressions of a backwards people, but they cannot help themselves. A proud people would not be hiding their faces.  

The collective humiliation and deep feelings of shame lead to bizarre results.  So you have these Arab sheikdoms building these cities mimicking the Western cities of New York and London, with gigantic skyscrapers of steel and glass, up 100 stories, even though they are parked on vast stretches of empty land that costs nothing.  Those skyscrapers will cost a fortune to cool, being huge heat sinks and totally inappropriate to the environment; yet they get built anyway, just to prove to the world that the Arabs, too, are part of the vanguard.  But of course they are not, they are still a peasant desert society mired in the seventh century.  

A more logical building would be one of no more than three stories, the exterior with face brick of mud or even imported wood planks, the better to shield from the immense solar heat. But because the west does not build that way, neither will the Arabs. Backward societies have no comfort in their backwardness; all they feel is humiliation. And that is what drives the Arabs to buy the most expensive of everything, including of course the A-380 Airbus fleets, because they are the biggest and the most expensive, thus demonstrating that the Arabs, too, really do belong.

The society where shame is the dominant ethos is Egypt, a nation that cannot shake off backwardness, even fifty years after the building of the stupendous Aswan Dam. It is a society that cannot provide even basic sanitation for its people.  And they feel great humiliation in this, which is what has led to the creation of the Muslim Brotherhood.  What I find fascinating is that the peoples of the West do not intuitively understand what is driving this radical-extremism reaction.  It is their feelings of shame. 

I'm not convinced shame can ever be a root cause.  Human beings feel shame in response to their own behavior.  A man who puts forth his best effort and still fails has failed honorably.  He has no reason for shame.  A man who fails to put forth his best effort will inevitably feel shame. 

The Arabs have not made the effort to be competent or managed their resources wisely.  Instead, they've squandered incredible wealth on the trappings of success.  That was their choice.  Their plight warrants no sympathy from the developed world. 

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On 6/13/2019 at 2:53 PM, AcK said:

Lets talk about Russia in some time.

On your other point - replaced by what exactly. Two answers I get most routinely - (a) within the ambit of trad energy, Shale, and (b) outside the ambit, EVs. On first, already old Shale (Eagle Ford) is already starting to feel the heat of Exhaustion - Bakken will follow soon enough - Permian is both big and will grow for longer, but not perpetuity. So US production will peak out in 5-7 years. On second, EVs are more long term threat to the industry no doubt. But they are woefully short of scale right now. The movement will grow, but make no mistake the next big growth for autos/demand will come from SE Asia, South Asia and Africa next (US/EU are done - China will be more modest growth once the current cycle reverses). And here is where (IMHO) people miss the point about EVs - even when the TCO (total cost of ownership) of EVs comes in-line with ICEs, the Capex (upfront cost) will be more and they will win on Opex (running cost - look ma, no gas!). But emerging market consumers will yet go for the model that is low Capex, since there ability to bear high upfront costs is limited.

ICEs and crude oil demand can sustain (if not grow) for another 10-15 years. And US shale will be a shadow of itself by then.

The problem with Middle East and Russia is there federal budgets are all f***ed up. In terms of economics they can deliver cash profits even at US$20-30 oil. While Shale needs US$40-50 oil to deliver the same. Hence, cant write off OPEC+ so easily.

Bakken had record production in 2018

Tired ?

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