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Could Oil Prices Plummet A Second Time?
Submitted by Nick Cunningham via OilPrice.com,
Are oil prices heading for a double dip?
The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.
However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.
Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.
Yet another reason to wait is the possibility that costs for well completions will decline. Oil and gas companies often contract out well completions to third parties, and those companies will face pressure to cut their fees in order to keep business. That works in favor of producers who put their projects on hold for the time being. Well completions can make up as much as three-quarters of the total project cost.
Several prominent shale drillers have confirmed they are undertaking such a wait-and-see strategy. EOG Resources, one of the biggest Texas shale drillers, announced its plans in late February to hold off on completions. Chesapeake Energy and Continental Resources have now followed suit.
"We're intentionally holding production back in 2015, because we believe it's the prudent thing to do," Doug Lawler, Chesapeake's CEO, said in a conference call. Chesapeake has said it may delay completing as many as 100 wells. EOG has 200 wells awaiting completion, a backlog that will intentionally rise to about 350 this year.
As the industry clears out that queue of wells awaiting completion, a rush of new supplies could come online, pushing WTI prices down once again.
Even with well completions being suspended, supplies continue to build. The latest EIA data shows that oil stocks in the United States climbed to 434 million barrels, the highest levels in storage in over 80 years. “My gut feeling is that the oil price could see a double bottom,” Jason Kenney, an analyst with Banco Santaander SA said in a Bloomberg interview. “We’ve got too much inventory.” Bloomberg noted that Kenney has a good track record of predicting price swings in the past. Even though rig counts have declined significantly, output has so far proved resilient.
Finally, there is some evidence that the ability to move excess oil into storage may run into trouble if production does not decline. Storage tanks are starting to fill, raising the possibility that a glut could worsen. There is a great deal of uncertainty around how quickly this might happen. The EIA sought to clarify, noting that the markets have confused some of its storage figures – some oil supplies in the EIA’s weekly inventory data is actually sitting in pipelines and at well sites, meaning there is more storage capacity available than many news outlets had originally thought. An EIA analyst recently told Bloomberg that overall storage capacity is only at about 60 percent, and “[w]e still have a way to go before we can consider ourselves to be full,” Rob Merriam, EIA’s head of petroleum statistics said. It would take a few months of strong inventory builds to fill up the remaining storage, perhaps an unlikely scenario, especially if production starts to take a hit. But if storage tanks did start to fill up, prices would dive once again and companies would have to shut in wells and cut back on production.
Rig counts are at six year lows, forcing oil prices up on speculation that supply reductions will soon relieve the oil glut. But a double dip cannot be ruled out.
* * *
And then there's this...
- LIBYAN OIL PRODUCTION NOW STANDS AT 500,000 BARRELS A DAY PRODUCTION STOOD AT 325,000 B/D IN JANUARY
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1.) Production is still climbing. 2.) 1800+++ DUC wells in Texas alone. (Drilled but uncompleted) 3.) Amount in storage still climbing. Answer: Very possibly if not likely.
Why has gas gone up so much then? Was as low as $1.89 where i live, for about a week, now its back to $2.49. Hmmmm......
no shit, right?!
Christine Hughes:
Fear the strength of the US dollar - Christine Hugheshttps://www.youtube.com/watch?v=6LKgVSR3M5I
We are entering the era of abundance. Wealth for everyone.
Here in IA they ass rammed a 10 cent state tax hike thru faster than anyone could say "Grab the KY!"
Granted, it's for IDOT and it's been some time since our last hike, but what pisses me off is all the high fiving about how this was a bi partisan effort.
Of course it was you dumb fucks!
For those that want to put this all in a broader perspective...record production and who's demand is collapsing, production growing...
http://econimica.blogspot.com/2015/02/fundamentally-flawed-chapter-9-oil.html
+1, nice info, thanks!
Amazing I don't seem to hear much about the fact that since '05 nearly all global production gains are due to US / Canadian tight oil production gains...and no other region (except Russia) increased production while the price of oil rose 5 fold. No other region was incented by 5x's higher prices?!?! And US did it via a mass of low interest lending and tax loopholes to allow a huge # of rigs w/ relatively low output...4x more rigs in the US than all the middle east which produces 3x's as much oil?!?
Gasoline like oil is priced on the margin of over/under supply. Refineries being taken off line for mainentance now while margins are low. <---- = Lower supply.
Oh, you mean "conveniently" taken offline?? There is always some excuse, isn't there. Its all bullshit.
No. I mean they are in business to make a profit. They are 365/24/7 operations. So now is an ideal time to make capex expenditures/shut down when interest rates are low and opex is suffering due to low margins.
Sure, and its easy to manipulate your profit margins by controlling your output. Refinery utilization is usually in the high 80's to low 90's %. Refineries are big machines, there is ALWAYS some sort of maintenence happening. The price is more likely affected by ALGO's seeing "refinery fire" or "refinery maintenence" in the headlines, and BUY BUY BUYING and bidding the price of gasoline, even though it has absolutely no impact on gasoline inventories. There hasn't been a shortage of oil OR gas since the early 1980's.
It would be like going to your local Applebees restaurant, and its half full, but they jack up the price on the menu because they are 2 servers short.
You nailed it. A single Applebees is a good metaphor for the whole petroleum industry.
Rational explanations aren't welcome on ZH. We need a theory about how the jews or rothchilds are behind the rising oil price.
Rationally speaking, the western economies still run on oil, period. Just remember, some countries are net importers, whle others are net exporters. In addition, not all oil is extracted with the same ease...
Go ahead, le the prices fall, there will be companies standing in line to lock in future delivery at those prices...
life goes on...
same as it ever was...
Can run on oil but in fact run on refined product.
Oil backs up because refineries shut down....well...that oil then needs to be refined which come spring when energy prices will collapse the refining will commence.
That's a lot of product looks to be coming to market.
"Prices so low you get a black market" actually.
I do think prices are going lower. At the end of the day there is too much supply. Barring a war we're going back down, but the hedge funds pilled in in the $45 range. It's funny how hedge funds have become the dumb money.
Seasonal switchover. An excuse to screw the consumer with summer time blends. Their margins go up as prices drop. 711 used to say this is when they make their most money.
Almost time to switch over to "summer" formulation
A seasonal factor
Seasonal factors:
It is sheeple ass fucking season
It seems like thats a never ending season.....
365 days for every year of the next 10 decades
Scotty there is a refinery strike by the workers going on. It migh be from having gas being shipped in for the price spike, Cali is really screwed on this one.
488 BILLION barrels of oil is the estimate for reserves in SoCal.
Used to produce 60% of the entire WORLD'S supply their.
California is still a very large oil producer even today.
In this case resrves don't matter and neither does pumped oil. The refinery's In Cali are running at very limited capacity due to the strike and just to make it really special CARB requires blends unique to only Cali.
Gubernment taxes, here in France they've added 4 cents on diesel fuel...
With the gubernement you don't feel the drop in the price (then blaming evil capitalist oil industries that they don't drop their price to the consumer...)
Only heating fuel have dropped substantially since it's not over taxed (just the VAT).
The collapse of the Euro neutered the price drop since we buy oil in Dollars...
Amazing isn't it? The gas prices dropped to as low as 2.29 here in Southern California. The price of oil has barely recovered and now the best I can find is $3.59. It rose very quickly. Of course, I read the usual blather about "summer driving season" last week and it was still February.
I believe that exploding refinery in Long Beach had an awful lot to do with the CA spike (along with seasonal change to higher cost blends, the refinery strikes, etc.). It used to be true that no one else refined CA blends so when an indigenous supply problem arose there you guys got screwed harder than anyone.
just because there's a bunch of oil doesn't mean it can all be refined...
4) nobody needs oil any more because there is barely any real economic activity
No, it's all the electric cars.
I have a friend of mine that keeps insisting that, even if one shows him that miles driven are down, he will say that more people are thus using bicycles thanks to expanded bicycle trails and utilizing light rail.
Even if light rail does not exist in our area since the days of the trolley ca. 1930.
Oil prices mean shit to the consumer since gas prices are totally disconnected from reality now. Refineries out for strikes and maintenance my ass. Very convenient timing if you ask me...
The entire market is living in their own reality nowadays. I've been expecting a slow roll down to $40 or there about but the the market is being twisted. I expect a collapse when the market players suck up all available money.
jOnx,
From an investors viewpoint the timming of these wage disagrements is perfectly logical.
You see, as oil prices drop the refineries raw material costs are reduced allowing for higher earnnings.
The employees and unions are well aware of this. So now justifies higher wages because of the increased profitability. Now also puts pressure on management because they are missing the opportunity while they negotiate.
If I were advising the unions thats what I would be putting forward.
Now that I think about it, I belive it is right that the employees get to share in the fat margins currently availible to the refiners. Of course the problem comes when the fat margin goes away again.
Zero Guest
going to $30 bbl
It does not look like it. The trading is tighter than a teenager and the players are trying to keep at 50 bucks. Right now it is a rangy shitty trading the CL. Starts to go a little then stalls with no followthru. Sucky shit.
If prices were actually set by fundamentals, we could make a lot of predictions. Bush was filling the SPR at 140 and dumping out of it in the 30's. The level of interference from governments and printing presses calling themselves banks in these markets is legendary.
In many ways that makes sense as real demand for something like oil goes up when the price goes down.
The western economies still run on oil bitchez. Go ahead, knock the price of oil and distillates down, numerous companies will be standing in line to lock in delivery at those prices.
Sounds very similar to the .gov propping up wheat prices in the 30's due to oversupply and then giving it away because prices kept going lower and lower.
Nothing like a little interference to wreak havoc on a free market...yet people never learn.
Anadarko Petroleum Corp. (NYSE: APC) plans to cut spending in 2015 by 33 percent compared to last year's capital expenditures, President and CEO Al Walker said in a March 3 statement.
http://www.bizjournals.com/houston/news/2015/03/03/anadarko-reveals-spen...
33% ....................... OUCH!
Didn't those guys ever hear anything about Nashs Equilibrium?!
Who?
Google it. The guy from a beautiful mind, great movie btw.
Wahoo! 10 cents a gallon gasoline! 1965 all over again! Yeee haww, Buy those cadillac escallades, folks!
If oil price rises- GOOD NEWS!
If oil price falls- GOOD NEWS!
I hear we're running out of places to put all the oil here in the States.
All I know, this change over to 'summer' blend in Cali, explosions at refineries, AND labor strife is really putting the squeeze at the pump.
When it's cheap again, I'm stocking up in fuel stabilizer and large storage tanks.
Winner, winner, chicken shoes!
We have reached the tipping point in the use of oil. We will soon use only a fraction of the oil we are presently using.
Let’s look at some examples of what is happening to demand and learn why demand will not return to its former level nor increase again. Here are some examples of what has occurred, what is occurring, and what will occur in the world of oil:
1. Every year Boeing and Airbus each build 700 aircraft. These new aircraft are 20% more efficient than the airplanes they replace. The airplanes being replaced were designed in the 1960s and the 1070s.
2.
In addition, airlines are switching from petroleum fuel to a 50/50 blend of bio fuel and petroleum fuel. This results in a fuel reduction of an additional 10%.
3. A similar thing is occurring in the shipping industry. Today, ships are being fitted with what is called an AIR LUBRICATION system. Cruise lines are currently testing air lubrication systems on their ships with outstanding, almost unbelievable results in terms of fuel consumption. RCCL has the system installed on several of their cruise ships and they anticipate that when the system is installed on all their ships they will reduce their fleet fuel consumption by 10%. This will reduce their fuel bill by 10 million dollars per year.
The reduction of fuel consumption for other large ships such as fuel carriers and cargo ships is expected to be as much as 20%.
It takes about two weeks to install an air lubrication system on a ship. Shipyards will soon be filled with ships undergoing system installs.
4. The automobile industry is continually improving the fuel consumption of vehicles. I recently traded in a 10 year old auto for a new vehicle. The old car got 24 mpg. The new car is larger and gets 34 mpg. A total fill up of my new car is now 10 gallons.
5 The trucking industry is doing its part. Look at the 18 wheelers you pass on the highway and take note of the air deflectors attached to the bottom of the trailers. Those air deflectors reduce drag and result in fuel savings of 10%.
How big is this you ask? There are 300,000 18 wheel trucks in the US and Canada. They each drive 250,000 miles per year. They typically get six miles per gallon at highway speed. Do the math and this is a potential fuel use reduction of 125,000,000 gallons per year.
It is truly astounding that a simple and inexpensive wind deflector installed on 18 wheeler trailers will result in a fuel savings of more than $3,750,000,000 each year for the North American trucking industry. When the avoided production and distribution costs of this much fuel is included in the equation the potential annual savings come to $4,000,000,000.
6. The future of oil just became immensely bleaker.
The Lockheed Martin Skunk Works has an unrivaled reputation of producing cutting edge technology on time and under budget. Recently Lockheed Martin Skunk Works announced they will produce a working prototype fusion reactor in less than five years.
See:
http://www.forbes.com/sites/williampentland/2014/10/15/lockhe
ed-martin-claims-fusion-breakthrough-that-could-change-world-forever/
The Skunk Works fusion reactor will eliminate the need for 90% of the petroleum products being produced today.
The oil based world economy is coming to an end.
Don't forget TPMS on all new vehicles!
Seems that only old cars that belch smoke have visibly low tires anymore. And they are quickly swept off the roads and the drivers incarcerated.
So the plan is working!!!!!
If this Fusion reactor works, and I believe that it is possible we will never see it on the market. Technologies like this get boxed up and selfed for National Security reasons. Unless of coarse they have been very open about the tech upfront to protect it from the Gov hiding it on behalf of the House of Saud. Your link didn't work but this one will. http://www.forbes.com/sites/williampentland/2014/10/15/lockheed-martin-claims-fusion-breakthrough-that-could-change-world-forever/
Honestly I am more interested in the open source research that people are doing like this man. https://www.youtube.com/user/RobertMurraySmith
Interesting, now if only deuterium was "cheap", as claimed by the project leader.
Thermodynamics is a bitch. Thorium a much cheaper fuel.
The House of Saud is now an inconvenience which differs significantly from its utility to the US a few decades ago. Thus I wouldn't expect much assistance from US Administrations going forward. More likely scientifically illiterate lefties, greens and other assorted luddites of their ilk will litigate it out of existence.
With the exception of #6, your multiple anecdotes don't support your conclusion and even there it's questionable.
#1 through #5 describe activities which will continue to utilize oil for likley the rest of the lives of everyone here, what you've described is a series of marginal savings which, while significant, do not in any way imply the end of oil as an underlying input for those products and activities.
If you read Lockheed's information and watch the interviews with their engineers their fusion product, if it works, will be targeted towards gas turbine power plants. That is to say: it will be a drop-in replacement for the "gas" portion of the plant. Thus we'd expect natural gas prices to crater which would depress production of natural gas (and the natural gas liquids found along with it). But if the availability of NGLs craters refiners will replace them with, drum roll please, oil. Thus an initial , perhaps for a decade or two, effect of the success of Lockheed's fusion reactor might well be *increased* demand for oil.
Further, there are an awful lot of second order (and beyond) effects you're not even beginning to consider. Suppose, for example, that Locheed fusion is a success and craters the nat gas market. Certain chemical fertilizers use natural gas as a feedstock thus in this case we'd expect those prices to crater. So would farmers utilize: 1) more; 2) less or 3) the same amount of now much cheaper fertilizers?
Similarly, the trend of decreasing oil consumption in the developed world isn't new. But neither is the trend of modernization and industrialization in the undeveloped world. Guess what the primary fuel source will be as those last few billion inhabitants of the Earth claw their way towards living conditions common today in, say, rural Mississippi? Yep: oil, at least primarily.
And there are an infinite variety of other considerations that tend to show that we're nowhere near the end of hydrocarbon fuels. Besides, if Lockheed fusion is cheap enough it's the key to a carbon-neutral liquid hydrocarbon fuel cycle. Now *that* will drive the greens into a panic.
Michael66,
This fusion reactor could remove any legitimate interest that the Iranians have in enriching Uranium.
Zero Guest
Vlad the master chess player didn't foresee the current plunge in oil prices, so he's likely to be behind the curve when oil prices drift even lower on account of slowing demand.
Oil is heading to $40. We may rally as high as $65 - 70 first.
http://market-guru.co.uk/
it's looking like it will be a good year to pick up a deal on a pickup truck.
the irony is that if stockpiling crude is part of the financial warfare strategy to use lower oil prices to 'break' russia, -------then it is also convenient that stockpiling crude is great preparation for REAL WARFARE. unfortunately. 400 million barrels is NOTHING. and in a real war of protracted length the only thing that counts for shit is how much DOMESTIC AND EASILY SECURED OIL YOU CAN PRODUCE.
why? because 'real' means protracted high consumptive war with massive confiscation and rationing. this means existing pre-war reserves are almost ALL going to be consumed very very quickly and WARTIME PRODUCTION is what determines the scope of who wins a real war. those with accesss to high quantities of wartime production either by making it themselves, or through secure effective trade alliances. (explaining how the british have won ww1 and ww2.
consider in a real war, NO PETROLEUM WOULD REACH THE U.S. FROM EURASIA WHATSOVER AND THE ONLY SAFE PRODUCTION WOULD BE FROM SOUTH AMERICA AND NORTH AMERICA. MEANWHILE THE ENTIRE MIDDLE EAST WOULD SIMPLY BE NUKED BY RUSSIA/USSA/CHINA IN A BID TO TAKE THE MIDDLE EAST OIL CENTERS OUT OF COMMISSION.
'the chinese and russians know this. and are busy building out massive rail capacity. a huge submarine force means the sino-ruso plans for ww3 include a complete destruction of all world wide ports and exclusive use of RAIL for oil transport.
this means the british get FUCKED. the AMERICANS GET FUCKED. and eurasia remains intact so long as the rail roads and stations can be defended and rebuilt if destroyed.
http://www.rusmininfo.com/news/03-03-2015/russian-oil-products-are-under...
So much for:
The Eurasian Economic Union (EAEU or EEU)[note 2] is an economic union of states located primarily in northern Eurasia. A treaty aiming for the establishment of the EEU was signed on 29 May 2014 by the leaders of Belarus, Kazakhstan and Russia, and came into force on 1 January 2015.
Oh no, not Kazakhstan!
Kazakhstan have NATO base and still controlled by the Western Kabal. Have US corporation and so on. So it's in more or less a Western puppet.
nope they don't . earlier 4 years back they suggested usa to have TRANSIT base in order to carry their afghan invasion conveniently .
The supply issue will only result in some short-term fluctuations...some up, some down...fun times for day traders. The real issue is demand, which shows no sign of heating up anytime soon. So, the overall trend will be to the downside.
Finding a 'bottom' for prices doesn't mean they'd be poised to take off on the upside. A low-demand environment can just mean they'll continue to scrape along that bottom for quite awhile.
Oil and oil distillates are a big part of the higher standard of living enjoyed by modern society.
I see 7+ billion people, and growing, all competing for a better standard of living, looks like plenty of demand to me.
Governments and oil companies will be happy to provide unending free fuel to the planet. Price heading down to zero.
Right, because people/corporations just love to work for free, good luck with that.
A higher and better standard of living doesn't necessarily involve more "stuff". A lot of oil goes towards the making of "stuff". If that gets cut back, oil consumption will decline, despite a growing population.
The biggest population increases are in regions that don't have heavy home-heating needs, so they will have a bit more flexibility with their consumption.
I believe the world's population may be at the end of the consumption boom. Many have gotten hopelessly in debt in the pursuit of ever more "stuff", and we may see things swing the opposite way for awhile. It did after the Depression, and that generation never resumed their previous spending levels. Their parsimony and thrift became a hallmark of their generation, and it took decades to get spending back up again.
The idea about what a 'higher standard of living' means can and does change significantly, and doesn't always involve buying manufactured trinkets. In fact, often the 'busts' that follow 'booms' have an element of disdain for the previous mindset, which is seen as a reason for all the misery.
Just some things to consider...
Oil will soon be free and we can return to driving around everywhere with abandon. I'm looking forward to never-ending road trips. As soon as housing and food plummet to zero, I'll be set.
I believe that the "double dip" is a certainty.
They Did it Seaway - Canadian Heavy Crude Starts to Compete At Gulf Coast Refineries
Last week (February 19, 2015) Enterprise Product Partners announced the start of line fill on their 780 Mb/d ECHO to Beaumont/Port Arthur pipeline. The new route will open access for Canadian heavy crude shippers on the recently completed Seaway Twin pipeline from Cushing to Houston to 1.5 MMb/d of refining capacity in Beaumont/Port Arthur including 0.3 MMb/d of heavy crude coker processing.
https://rbnenergy.com/they-did-it-seaway-canadian-heavy-crude-starts-to-compete-at-gulf-coast-refineries
"The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust."
Bullshit.
The end of money printing killed demand. There never was a glut. Global oil production (the stuff that can be traded as crude oil in a futures contract) has been flat for decades. No glut. Ever.
Well, 434Million BBls is about 5 days of world wide consumption.
So this justifies a fall in crude oil prices???
Not likely. And certainly not when US gov't figures put world wide
production below world wide consumption for months.
OIL will continue to drop . The global economy is collapsing right before our eyes and now one will admit the truth.
Surge in shale had nothing at all to do with the drop in prices. The whole premise of the article is faulty.
Might double dip?! This move has been setting up for a. Long. Time. I remember a couple years ago everyone was talking about the Saudi's breaking even @ 90 uh huh...
Who hasn't bought into the North American energy sector? Cheap money on a solid investment. Now everyone and their dog is supplying oil to a global market place that is seeing pockets of growth and severe malinvestment at best.
This really falls into place nicely you see as refineries need a boost at the margins but gas can only go so high...
It does have a happy ending mind you. As the poorly positioned producers are starved out they will be restructured and revived with more manageable overhead by your friendly neighbourhood oligarch. The cycle of death continues.
The only way this bitch touches 70 is with direct US/Russia conflict
So the fed will print US dollars,and sell them until the dxy is driven lower problem solved....next!
O.W.
Here is how to prepare for the worst.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Thanks for elucidating the supply problem viz a viz the price of oil.
When can we expect a similar explanation of the demand problem?