Question: Why are oil futures so low through 2020?

[0R0 + 6,251]

1 hour ago, wrs said:

I buy USO which buys futures, strictly a long trade.  I started buying when USO got to around 11, it's a good entry.  I have also been buying XOM but I have a good position established now and will just wait to see how all this turns out over the next few months.

https://www.barchart.com/futures/quotes/CL*0/futures-prices

USO has been doing great because of backwardation. The curve has flattened some as the spot is in contango up to Aug and back to backwardation from that point on. Since USO is on the front contracts, it will lose you money on rollovers till spot picks up over the curve like it had been for months. 

[Ward Smith + 6,615]

1 hour ago, wrs said:

No I don't get that.  I was asking for some links.  I haven't seen articles saying this yet but US refineries are reducing runs too.  It's winter and I believe gasoline demand is lower in the winter and builds are normal because reduced runs are normal.  I would like to have some links if you can provide them.

Unfortunately the widget for embedding links is missing now. I've tried manually entering the HTML code but that didn't make it through the parser. Probably something to do with spammers. 

So here's a link, but you'll have to visually scan down the list to notice the Chinese announcements. 

https://www.hydrocarbonprocessing.com/news

[wrs + 893]

Thanks, the very first article says what I said a couple of posts back.

 

https://www.hydrocarbonprocessing.com/news/2020/02/saudi-arabia-cuts-march-crude-supply-to-some-asian-buyers

Buyers’ overall nominations for March-loading cargoes were lower, but so far the virus has not had a big impact, a source familiar with Aramco oil exports said, adding that seasonal maintenance in Asia in the second quarter had made more difference.

Here is one that cut their rate from 109% to 90%, wow, US refineries are at 86% right now.  It also says the dip is 76kbbl/day.

https://www.hydrocarbonprocessing.com/news/2020/02/chinas-hengli-petrochemical-cuts-refinery-operations

from the article about a second operation

Zhejiang Petrochemical Corp (ZPC), another privately controlled refiner, maintains full operations at its 400,000-bpd refinery in east China, said a senior source with knowledge of the firm’s operations.

The firm, based in Zhoushan of Zhejiang province, is operating one 200,000-bpd unit at above 100% and a second slightly below full rates, said the source.

So I have to say, it sure doesn't look like 3mmbbl/day of demand loss to me or these refiners.

The biggest one, PetroChina,  is cutting by 10% so 320kbbl/day.  My math says these amount to about 400kbbl/day which is 1/10th of the hype that traders and analysts are blathering about.

https://www.hydrocarbonprocessing.com/news/2020/02/petrochina-cuts-feb-crude-throughput-by-320-000-bpd-due-to-virus

However, in Libya they are halting refining operations because of a lack of crude due to 1mmbbl/day loss of production.

https://www.hydrocarbonprocessing.com/news/2020/02/refiner-stops-operations-due-to-lack-of-crude

 

 

Edited February 12, 2020 by wrs

[BLA + 1,666]

3 hours ago, Gerry Maddoux said:

supply-demand will win out in the long run. I think we're going to have the mother of all shortfalls in oil come about October, November.

Found this article from Feb 11th

I don't know how the virus plays out.

The shale consolidation is a bigger issue to stock investors . My opinion stay away from oil stocks until after the shakeout and consolidation of the shale oil producers. 

In a way this over supply is Godsent. We finally should get the long overdue shakeout and consolidation of the shale industry. 

Asian Buyers Taking Less Saudi Oil on Demand Hit From Virus

• Four sought less Saudi oil for March; 1 declined extra crude
• Distressed cargoes being widely offered in the spot market

They made the request for less oil as the coronavirus weighed on demand, prompting a reduction in refining across the region and leading to cheaper crude being available in the spot market, they said.

The reduced volumes are confirmation that the coronavirus is impacting crude sales from the world’s biggest oil exporter, which is leading an OPEC+ push for additional output cuts to try and balance the market. As China keeps entire cities locked down and airlines worldwide cancel flights, the U.S. Federal Reserve said the outbreak was a risk to the American and global economy.

Saudi Aramco’s media department declined to comment on the matter.

Of the nine refiners polled by Bloomberg, three sought a cut of 10% or more in Saudi oil for March, while another got slightly less supplies for the month. One refiner was asked by Saudi Aramco to take more oil than contracted, but turned down the offer. The remaining refiners requested regular supplies of oil for March and they were allocated accordingly, the people said. One of the processors got approval from Aramco to delay some prompt supplies.

Alternative Supplies

A wide range of crude is being re-offered across Asia after Chinese buyers sought cargo deferments or even cancellations last week. Prompt shipments of Russia’s ESPO, Iraq’s Basrah Light and Lula from Brazil to be delivered within weeks were available. India’s Bharat Petroleum Corp. said it had received offers for cargoes from the Caspian Sea and South America this week.

Chinese refiners have reduced the amount of crude they’re turning into fuels by about 15%, and may deepen those cuts in coming weeks. State-owned and private processors have pared back refining by at least 2 million barrels a day as of last week, according to people with knowledge of operations at the nation’s biggest complexes.

Saudi grades such as Arab Light and Arab Medium form part of the baseload crude for many processors across Asia. Every month, companies with long-term deals to buy Saudi crude tell the producer how much of their contracted supply they wish to take in the coming month, in addition to requests for specific loading dates and other conditions. They’re allowed to seek more or less than the fully contracted volume within a tolerance range, depending on their needs.

After they’ve made their nominations, Saudi Arabia decides -- typically around the 10th of each month -- how much to deliver, or allocate to their buyers.

Edited February 12, 2020 by BLA

[wrs + 893]

Found this on twitter

 

[wrs + 893]

7 minutes ago, BLA said:

State-owned and private processors have pared back refining by at least 2 million barrels a day as of last week, according to people with knowledge of operations at the nation’s biggest complexes.

I couldn't find that much and I think the articles that Ward pointed me too cover the largest refiners in China.  So far, all I see is 400kbbl/day and much of that is seasonal anyway.  Even this article said only three refiners surveyed were cutting back but they claim without substantiation 2mmbbl/day.  Now you can believe that if you want...........

[BLA + 1,666]

22 minutes ago, wrs said:

I couldn't find that much and I think the articles that Ward pointed me too cover the largest refiners in China.  So far, all I see is 400kbbl/day and much of that is seasonal anyway.  Even this article said only three refiners surveyed were cutting back but they claim without substantiation 2mmbbl/day.  Now you can believe that if you want...........

I believe that . . . . 

China is very secretive about their oil purchases and inventory.  They also hold their suppliers to same standard.  When you hear or read , "someone close to the operation said . .. . ". Don't give the info any serious thought.

     ---------------------+----------------------

Cutbacks just starting.  TIME LAG.

The storage is filling up in China.

By April tons of excess oil will be sloshing around . . . . 

Fly over to South Korea .  Check out the off loads. Many Chinese oil shipment diverted to South Korea per my source.  The SK storage is filling up. (This could hurt U.S. exports.  SK one of U.S. biggest buyers)

OPEC STORAGE WILL START TO FILL NEXT

Go long oil because China reported smaller increases of cases. (sarcasm)  We always believe China (more sarcasm) because they arrested the doctor that alerted some friends of this new virus. He was arrested for spreading disinformation. He caught the virus and died.

China admonished Trump when he banned travel to China.  How dare Trump ban China travel putting U.S. lives ahead of China's economy.

Some experts believe the real virus numbers are 4 times those reported by China. 

The person to person  transmission of this virus occurs much easier than originally thought.  

A few days ago China reported the largest one day increase in cases and deaths and the markets tanked. . . . . . Miraculously, the following days the daily increases shrank. Amazing turnaround ! ! ! 

CHINA KNEW THE SERIOUSNESS OF THE VIRUS LAST NOVEMBER.

THEY SENT HUGE DELEGATION TO WHITEHOUSE TO SIGN PHASE 1 TRADE DEAL .

THEY SENT LARGE DELEGATION TO DAVOS ECONOMIC SUMMIT .  .  .  .  

 .  .  .  AND NEVER MENTIONED PANDEMIC 

I always believe China (not)

China would never never never ever put the economy ahead of human life . . . . never

. . . . never

Edited February 13, 2020 by BLA

[D Coyne + 305]

On 2/11/2020 at 5:37 PM, Gerry Maddoux said:

Perhaps. The so-called "renewables"propagandists are just beating the living crap out of us. They talk about CO2 emissions and methane gas venting and flaring. Our response is to . . . vent and flare. In short, the electric car people never talk about how much petroleum is used in manufacturing their product, or blood cobalt, or even the SOX that is spewed out of the Nickel smelter ovens. They act like plastic wind turbine blades will never go bad, and that solar has no issues. Our response to all that is to . . . vent and flare more methane gas. 

Look, almost everyone on this board knows that the oil market is tighter than it seems. The price of oil has always traded on sheer emotion--at least until a real shortage hits. We're down to oil discoveries that come with vast amounts of natural gas--even in Guyana; it's too early to tell in Africa. In order to get to the oil, we have to deal with such massive volumes of natural gas that everyone is just barely hanging on. 

In my view, the oil and gas sector has been hammered enough. I'm starting to take it personally. I thoroughly believe that we should all declare a one-month moratorium on production, rebalance, see how much sunshine and wind those folks can feed into the petrochemical plants to manufacture the things the world depends on. 

Sorry to get on my high-horse. But you asked. The answer is that everyone in the entire world is bent on destroying the very industry that took mankind out of the caves and put some starch in our shirts. But we haven't done anything to counter it. Moratorium. 

Agree. Whatever loss there is will be--very likely--temporary. President Xi is going to have to put the pedal to the metal of his OneRoad/OneBelt Initiative is toast. He is under the gun--by his own people and the world. He does not want to fall to the wayside. He is no dummy, so I suspect he's going to play nice with the US. Whatever the guts of that virus, our CDC damn well knows as much as the communists do at this point, so there is that.

Producing less is a sure fire way to get prices up, maybe all oil producers should reduce their completion rate by 10% and see what happens, in the end they would likely see cash flow rise to the point where the company is better off.

[BLA + 1,666]

 

 a source familiar with Aramco oil exports said,

So I have to say, it sure doesn't look like 3mmbbl/day of demand loss to me or these refiners.

The biggest one, PetroChina,  is cutting by 10% so 320kbbl/day.  My math says these amount to about 400kbbl/day which is 1/10th of the hype that traders and analysts are blathering about.

The article source "a source familiar with Aramco oil exports said"

Sounds like a solid source to me. People make investment decisions on that information.

Edited February 13, 2020 by BLA

[0R0 + 6,251]

12 hours ago, wrs said:

I couldn't find that much and I think the articles that Ward pointed me too cover the largest refiners in China.  So far, all I see is 400kbbl/day and much of that is seasonal anyway.  Even this article said only three refiners surveyed were cutting back but they claim without substantiation 2mmbbl/day.  Now you can believe that if you want...........

 

 

The teapot refineries don't report internationally, but internal stats posted above from an article show a large drop. They typically don't have room for much storage. 

The country is 1/3rd in shutdown and people are working from home. Most manufacturers that have opened their doors are at less than 50% arrivals for their workers. 

Flying is essentially shut down and international flights are nonexistent. How can it not affect demand?

Smaller companies in entertainment and restaurants are already shutting down and firing their workers. 

 

[BLA + 1,666]

New York Times 

Coronavirus NOT slowing down

 

https://www.nytimes.com/2020/02/12/health/coronavirus-cases-china.html   

Edited February 13, 2020 by BLA

[wrs + 893]

13 hours ago, D Coyne said:

Producing less is a sure fire way to get prices up, maybe all oil producers should reduce their completion rate by 10% and see what happens, in the end they would likely see cash flow rise to the point where the company is better off.

You would think that makes sense but wall street values the companies on reserves and completions add to reserves.  It's not as simple as it seems and also, one producer won't make a difference, all have to cut back to make a difference.  If they all agreed to cut back that would be an illegal cartel action and I am sure Trump would be all over them with the DOJ.

[wrs + 893]

13 hours ago, BLA said:

The article source "a source familiar with Aramco oil exports said"

Sounds like a solid source to me. People make investment decisions on that information.

 Sounds like an aonymous source to me and it's non-specific.  The articles I found were specific about whom and how much.  That's vague, non-specific rumor.

[BLA + 1,666]

24 minutes ago, wrs said:

 Sounds like an aonymous source to me and it's non-specific.  The articles I found were specific about whom and how much.  That's vague, non-specific 

Let's chat the end of March begining of April.

WTI Oil will still  be under $55.  

Inventory build is just starting. World only first heard about virus 4 weeks ago. Took it very seriously only 2 weeks ago.

Russia will announce they will agree to OPEC + cuts today or tomorrow like they always do and never comply.  Monday by the latest. It will give oil a bump , but more important it will put a floor under price .. .. ..  until OPEC can't hide the crude storage buildup any longer.

Advice: Never rely on the info from the Chinese or Saudi.  They lie.

Edited February 16, 2020 by BLA

[wrs + 893]

14 minutes ago, BLA said:

You get a gold star

Let's chat the end of Mach begining of April.

WTI Oil will still  be under $55.  

Russia will announce they will agree to OPEC + cuts today or tomorrow like they always do and never comply.  Monday by the latest. It will give oil a bump , but more important it will put a floor under price .. .. ..  until OPEC can't hide the crude storage buildup.

Advice: Never rely on the info from the Chinese and Saudis.  They lie.

I didn't make a prediction, I made a trade.  I put sources that "know or say" and analysts in the same category with the Chinese and Saudis.

[BLA + 1,666]

30 minutes ago, wrs said:

I didn't make a prediction, I made a trade.  I put sources that "know or say" and analysts in the same category with the Chinese and Saudis.

Oil shipments to China backing up. This is just the start. Give it a month or two. 

Oil Tankers Idling Off Shandong Show Depth of Demand Destruction

Bloomberg News

February 13, 2020, 2:43 AM EST

• Two ships idling for at least 20 days; avg. wait less than 5
• Qingdao port says discharge of crude inventory has slowed

Oil tankers wait for weeks off Shandong

 

The time spent by tankers waiting to unload cargoes of crude and refined fuel at ports in Shandong has jumped more than fourfold in some cases as the coronavirus crimps demand from the nation’s refiners.

 

 

Two vessels have been idling for 20 days or more off the eastern Chinese province, home to most of the nation’s independent processors, compared with a typical wait of less than five days, according to data compiled by Bloomberg as of Feb. 12. A further five ships have been parked for 5-13 days. The tankers are still laden with crude and products after loading at ports in Norway and the Middle East.

 

 

Refiners across the country are cutting production due to slumping demand and swelling domestic inventories as the outbreak slashes travel and the movement of people. Processing rates at Shandong’s plants have plunged to less than 50% this month, down from 70% in December, according to the Oxford Institute for Energy Studies. Qingdao Port International said the discharge of crude inventories has slowed.

The following is a list of crude and product tankers that have been idle for at least five days off the coast of Shandong as of Feb. 12:

 

(Tried to copy list.  Didn't work)

[Gerry Maddoux + 3,627]

15 hours ago, D Coyne said:

Producing less is a sure fire way to get prices up, maybe all oil producers should reduce their completion rate by 10% and see what happens, in the end they would likely see cash flow rise to the point where the company is better off.

Exactly, but this has to play out to its inevitable conclusion. Occidental now owns 2.5 million net mineral acres in the Greater Permian and about 650,000 mineral acres in the Delaware sub-basin. Chevron and Exxon are right behind, with about 2 million acres each. This is an enormous amount of acreage. They can afford to spread out, drill less densely, and lift (debt excluded) for about $20-30.

On the other side of a very lopsided equation are the independents who have debt also--but no refineries or petrochemical plants. They have to drill as aggressively as they can to survive another day. Most of them will drill themselves into oblivion this year and next. The big three in the Permian will pick up their acreage. Then, and only then, will the treadmill settle down and I think we'll see rebalancing in 2021, maybe '22. 

At that point, though, there will be exceptionally cheap oil and gas coming out of the Permian for years to come.

[wrs + 893]

47 minutes ago, Gerry Maddoux said:

Exactly, but this has to play out to its inevitable conclusion. Occidental now owns 2.5 million net mineral acres in the Greater Permian and about 650,000 mineral acres in the Delaware sub-basin. Chevron and Exxon are right behind, with about 2 million acres each. This is an enormous amount of acreage. They can afford to spread out, drill less densely, and lift (debt excluded) for about $20-30.

On the other side of a very lopsided equation are the independents who have debt also--but no refineries or petrochemical plants. They have to drill as aggressively as they can to survive another day. Most of them will drill themselves into oblivion this year and next. The big three in the Permian will pick up their acreage. Then, and only then, will the treadmill settle down and I think we'll see rebalancing in 2021, maybe '22. 

At that point, though, there will be exceptionally cheap oil and gas coming out of the Permian for years to come.

Well in my case it's the opposite, my independent is spread out and producing less densely with five wells on his section while XTO has drilled 24 wells on their section.  I think the majors have decided that dense drilling is more economic.  It's easier to amortize the cost of the infrastructure if you produce more.  The majors are going to be putting everything in pipelines and not using trucks for water disposal or shipping product.  That adds more to the production facility cost up front.  

My independent has built his own water disposal facility and connected all his wells to it. He did that over about a 30 square mile area he is developing in.  That was costly but he is saving money and actually making some by processing water for others that don't have disposal facilities for.  So he takes trucks in his facility from others but pipes water from all his wells to the facility.  He didn't have that two years ago, he built it with the FCF he made in 2017-2018 when prices were high.

[Gerry Maddoux + 3,627]

^

You're lucky: your independent driller obviously isn't strapped for cash.

[D Coyne + 305]

5 hours ago, Gerry Maddoux said:

Exactly, but this has to play out to its inevitable conclusion. Occidental now owns 2.5 million net mineral acres in the Greater Permian and about 650,000 mineral acres in the Delaware sub-basin. Chevron and Exxon are right behind, with about 2 million acres each. This is an enormous amount of acreage. They can afford to spread out, drill less densely, and lift (debt excluded) for about $20-30.

On the other side of a very lopsided equation are the independents who have debt also--but no refineries or petrochemical plants. They have to drill as aggressively as they can to survive another day. Most of them will drill themselves into oblivion this year and next. The big three in the Permian will pick up their acreage. Then, and only then, will the treadmill settle down and I think we'll see rebalancing in 2021, maybe '22. 

At that point, though, there will be exceptionally cheap oil and gas coming out of the Permian for years to come.

Gerry,

Breakeven price for average Permian well is about $49/bo, For a decent return with payout in 36 months (oilman's rule of thumb) a wellhead price of $60/bo is needed.   Permian is likely to peak around 2028, if we use the EIA AEO 2020 reference oil price case, URR will likely be around 60-65 Gb, if the 75 Gb mean USGS TRR estimate is roughly correct, at a very high oil price level, the URR would be closer to 75 Gb.

[Gerry Maddoux + 3,627]

1 hour ago, D Coyne said:

Permian is likely to peak around 2028

Your target is moving, Dennis.

In December, you said the Permian would peak about 2025.

Keep going . . . .

[D Coyne + 305]

8 minutes ago, Gerry Maddoux said:

Your target is moving, Dennis.

In December, you said the Permian would peak about 2025.

Keep going . . . .

Depends on oil price, at a low oil price level, say $60/bo for Brent in 2019$ long term (to 2040), we might see a peak in 2025.  The AEO 2020 was released in January.  The scenario based on the AEO 2020 reference oil price case has a URR of about 65 Gb, and average annual peak output in 2028 of 7.17 Mb/d.

Note that the rest of US tight oil starts to decline in 2022, the peak for all US tight oil will be in 2026 at an average annual output of 9.79 Mb/d.

Edited February 13, 2020 by D Coyne

[Gerry Maddoux + 3,627]

In regard to immediate above:

Occidental: almost 3 million net mineral acres of prime Permian, 650,000 of that in the Delaware sub-basin.

Exxon and Chevron right under at 2 million. 

All the rest about 3 million.

Drilling only 6 wells per 1280 acre spacing = 50,000 wells. 

That's the Wolfcamp.

Another 50,000 in Bone Spring.

The San Andrus is yielding well: Ring energy is targeting it singularly.

Looks to me like we're talking about a decade of drilling; responsibly once this current whiplash is straightened out.

The next decade will be denser infill drilling; another half-dozen wells per pad. 

That puts us to 2040. That's peak oil in the Permian.

[wrs + 893]

2 hours ago, Gerry Maddoux said:

In regard to immediate above:

Occidental: almost 3 million net mineral acres of prime Permian, 650,000 of that in the Delaware sub-basin.

Exxon and Chevron right under at 2 million. 

All the rest about 3 million.

Drilling only 6 wells per 1280 acre spacing = 50,000 wells. 

That's the Wolfcamp.

Another 50,000 in Bone Spring.

The San Andrus is yielding well: Ring energy is targeting it singularly.

Looks to me like we're talking about a decade of drilling; responsibly once this current whiplash is straightened out.

The next decade will be denser infill drilling; another half-dozen wells per pad. 

That puts us to 2040. That's peak oil in the Permian.

Even the independent is more dense than that now.  He has 5 wells on a 675 acre section while XTO has 24 on 640.  Most of the XTO wells are Wolfcamp, only a couple are Bone Springs.  All of the indpendent's wells are Wolfcamp, he hasn't tried Bone Springs yet.  He told me that it wouldn't be out of the question to eventually have 32 wells on the 675 acre section in the Wolfcamp.  The Wolfcamp has multiple layers with the deeper ones being more gassy.

[D Coyne + 305]

13 hours ago, Gerry Maddoux said:

In regard to immediate above:

Occidental: almost 3 million net mineral acres of prime Permian, 650,000 of that in the Delaware sub-basin.

Exxon and Chevron right under at 2 million. 

All the rest about 3 million.

Drilling only 6 wells per 1280 acre spacing = 50,000 wells. 

That's the Wolfcamp.

Another 50,000 in Bone Spring.

The San Andrus is yielding well: Ring energy is targeting it singularly.

Looks to me like we're talking about a decade of drilling; responsibly once this current whiplash is straightened out.

The next decade will be denser infill drilling; another half-dozen wells per pad. 

That puts us to 2040. That's peak oil in the Permian.

Gerry,

Note my scenario has about 209,000 total wells drilled, about 26,300 horizontal tight oil wells have been completed through Dec 2019 in the Permian basin, the scenario presented has 80600 horizontal tight oil completions from Jan 2020 to Dec 2029 (one decade).  The peak year of 2028 has 8563 horizontal tight oil wells completed in that year (about 714 wells completed per month on average for that year).  What many fail to realize is that the best locations tend to be drilled first and gradually the average new well EUR will decrease at some point.  For the Delaware basin, this decrease has already started to occur when the EUR per lateral foot is used as a measure.  Gradually increasing lateral length and higher proppant use has hidden this decrease so far.  When average lateral length stabilizes at perhaps 9000 feet and proppant loading is optimized as well as well spacing (likely within the next 3 to 5 years in the Permian basin) the decreasing average new well EUR will become apparent.  My scenario assumes this decrease in new well EUR begins in Jan 2021, which is merely a guess (average Permian basin EUR normalized for lateral length has not increased since 2017 according to data from https://shaleprofile.com