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Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut
Submitted by Arthur Berman via OilPrice.com,
The U.S. rig count dropped by 10 rigs this week after only falling by 3 last week. No doubt some analysts will say that this increase is somehow important and that a return to normal–i.e., high oil prices–is around the corner.
Well, don’t get too excited because the rig count that matters–the horizontal Bakken, Eagle Ford and Permian plays–only fell by 2 rigs after not falling last week. This is a normal fluctuation when oil is $100/barrel.
Table 1. Rig count summary by play through May 29, 2015. Source: Baker Hughes & Labyrinth Consulting Services, Inc.
(click image to enlarge)
The rig count decline is effectively over as shown below in Figure 1.
Figure 1. Tight oil horizontal rig counts. Source: Baker Hughes & Labyrinth Consulting Services, Inc.
(click image to enlarge)
Production has fallen and will fall more but rig count is the wrong measure at this time. The real measure is capital given to U.S. tight oil companies. And there seems to be plenty of really stupid capital that thinks that investing now means buying low. Good luck with that once oil prices fall.
Figure 2. Bakken, Eagle Ford and Permian “Shale” tight oil production. Source: Drilling Info & Labyrinth Consulting Services, Inc.
(click image to enlarge)
There have been a steady stream of articles championing the ingenuity of U.S. tight oil producers for figuring out how to maintain production with fewer rigs. It doesn’t strike me as ingenious to produce more oil at low prices that ensure losing money.
OPEC will meet on Friday (June 5, 2015) and most doubt that a production cut will result. If that is the outcome, expect the recent rally in oil prices to end badly. If producers cared about their investors and shareholders, they would be slashing production by shutting in wells. That might help oil prices rebound sooner and then, they could sell the oil at a profit instead of losing money while celebrating their own ingenuity.
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Oil will go down to 30 this year.
Who needs oil?
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Oil has cast such a film of...well oil....before our eyes, that the dominant, brutalized mind will refuse alternatives, preferring the cloying comfort of the familiar.
The end of the age of oil is nigh.
Oil knows it, oil producers know it. Oil price shows it. THese will be last great wars fought powered by oil. Oil's last, destructive huzzah, shall we say.
Huzza!
We, weaned on the thrumming IC engine and it's apparent veersatility cannot deal with silent vehicles. Even if they provide FULL TORQUE AT V = 0!
About time we dared....
Thrumming....
https://www.youtube.com/watch?v=lk1TSBW_368
Political Cycle....
Inquiring minds want to know how will metals be mined without internal combustion engines? How will electricity be produced without natural gas? With coal? Oh but that also takes internal combustion engines to produce. With nukes? Gee, I don't think nukes are so popular since Fukushima........... Has Japan turned their nukes back on yet?
Laterally thinking minds say:
Hemp fiber, hemp rope, hemp oil, hemp plastic, hemp fabric, organic, appropriate technology ( http://squareandc.net as an example ), geo-thermal, efficient dwelling design, efficient transportation design (all of them an unholy, shrieking messin their current forms)...
Biodynamic and permaculture approaches to farming mitigate or kill the need for heavy farm equipment of ANY KIND. Hot house farming....due to AIR POLLUTANTS also a big one, covered in hemp fibre plastic sheets by the way.
Ford's Hemp car is a well established fact.
So, who needs those metals?
Machines do, not humans.
Evolve everything...
'boomers' are an onion in the ointment there because they won't get on board anything (eg. renewable energy tech) that requires 15 years to provide a return; seeing as most of them only have 10 years or less left on this mortal coil.
OTOH, perhaps the Blythe Masters could whip up a financial product that'll hedge that high initial cap-ex for 'em?
PS
to anyone, all you ZH preppers in particular, considering building a new home for you and yours put the following back-of-an-envelope calculation in your pipe and smoke it:
All other considerations (neighbourhood/proximity to workplace/etc) being the same, take the maximum size home you can afford (starting at a base of, say, 1500 sq. ft.) and reduce that by 500 sq.ft. Use the difference in price to invest in whatever renewable is handiest and take yourself off the grid. Sure your new abode for abiding may not be as flagrantly ostentatious (though ORI hisself has linked to some pretty darn flamingly ga...er, 'gaudy' solar panel structures) as the Jones' 3000 sq.ft. particle board mansion next door, but just imagine how much sweeter your farts will smell when you don't receive another electric or gas bill, ever again.
warning: success is based on the balance of your long on brains short on cash/long on cash short of brains ratios.
Bonne chance!
The mild recovery is not because of demand, it's because of people gambling on oil futures again thinking they will BFTD. OPEC still hasn't done enough damage to the shale industry yet so watch for them to continue this war until the creditors bleed badly and rigs take another leg down along with oil prices. Clearly this is not a price war that will end soon though.
OPEC has destroyed Nigeria. It's lost it's market in the US because of shale. OPEC is not OPEC, it's simply SA and the gulf states and it will break up soon enough.
http://www.firstenercastfinancial.com/news/story/63038-nigerian-oil-hurt...
Has it occurred to you that the drop in oil might have more to do with speculation than fundamentals? Notice that Nigeria needs oil above $88 and the Saudis need it above $93 but they are spending their savings to produce this fantasy that oil is in surplus. The rest of OPEC doesn't have savings and may well demand a cut. SA is having to fight in Yemen due to their foolishness last fall. The Iranians were quite displeased with the no cut meeting last fall and now KSA is having to fight them in Yemen. Expect more of the same if there is no cut this time.
I'll take the other side of that bet. Not on fundamentals, but on .gov's continued view that oil price is strategically important as a psychological signal of economic strength/absence of deflation. In order for oil to reach 30 (or even 40), you need to assume that US .gov either will not or cannot prop up the price of a single commodity. THat, in my opinion, is a sucker's bet. Fundamentals dont matter when political 'face' gets involved.
The GartZero has spaketh.
"OPEC will meet on Friday (June 5, 2015) and most doubt that a production cut will result". If "most" doubt that a production cut will result, then that means it's already baked into the current pricing. Ergo, no issue on Friday. If there is a production cut it will cause an unexpected which will cause the next serious leg up.
If you are into drones check out this site : www.pickyourdrone.com
I now produce zero oil so invest in me!
I mean seriously...the only solution is to keep maximizing the economics of the business model.
If prices had fallen to twenty...yes, talk about a shakeout.
Instead prices have soared past sixty giving these folks at least some hope to "slip the noose."
Buy a truck!
Might be all that's left of the business as production keeps rising under any scenario.
I can't wait to see the hedge positions at the end of Q2.
How many will fully hedge their production and buy puts beyond that to ensure cash flow as they push production to the max and tank the oil price? Like playing chicken knowing you have an airbag. only you hope it wasn't made by that Japanese company that is recalling them all.
Where da hell is my 99 cent gasoline.
Rig count is now close to the normal average. I think we'll see two stages in the collapse. First the Summer disappointment, where the people DON'T go on vacation this year and the refiners are floating on excess product, we'll see $45-55 bbl prices. Then as Fall heads towards Winter, the market will realize nobody is buying and the crude storage is maxing out again and we head down to around $35 bbl oil......
Is Cushing full yet? When will oil be $20?
How does the author have any idea what the cost of production is? They don't, that is their problem. They look at the balance sheets of these companies and try to back out some number regarding produciton cost but truth is, they don't have a fuckin clue. If you want to know if a company is producing in paying quantities, you ask them to provide their costs of production and sales figures, but guess what, capital expenditure isn' a cost of production. So when article writers actually figure out how the oil business works, maybe then they can write articles. In the meantime, the clueless will continue to gobble this type of shit up and short oil at the bottom just lke they went long silver at the top and continue to get their asses handed to them.
OPEC hasn't cut yet and in fact, they are overproducing but prices are rising with inventories dropping. So why would no cut cause the rally to stop? Seems to me that consumption is outpacing supply now.
Domestic gas retailers reported pretty strong y/y fuel sales, but its sure keeping close to that $60/bbl price lately. I've noticed Andy Hoffman talking a lot about a PPT for oil lately.
Central banks keep bidding certain commodities. CRB is 223.5 - in April 2011 it was 360.
So deflation has been here for some time. yellen just bids oil and meats - something that is felt at the retail level.
and then of course yellen bids the indexes too - all time highs on negative GDP.
you're a fucking cunt yellen!!!!
That's the insidious problem. When you've got a printing press and the ability to set the price of capital, you end up owning everything. Eventually, patriotic citizens are going to be dragging bankers and .govsters into the streets and showing them the guillotine. Cuz we all know they aren't going to stop. Welcome to the train to hell. You can laugh, scream, or cry, but you cant jump off.
Good! I hope the oil prices do go down and give us some relief at the pump. Oil will continue to be around. Think about all of the semi truck drivers and planes transporting goods and people across our country. Unless they develop an electric semi or airplane (doubtful), oil will not be going away anytime soon. Also, I think a lot of people are forgetting about South America and Canada, OPEC is not the only source of biofuels.
"If producers cared about their investors and shareholders, they would be slashing production by shutting in wells. That might help oil prices rebound sooner and then, they could sell the oil at a profit instead of losing money while celebrating their own ingenuity."
Who says you have to sell it now? Oil won't go bad if you store it properly and if you don't need the cash flow you simply hang on until the price is right. Of course only very large concerns can afford to do that so I suspct that this is more about putting the little guy out than anything else.
When Saudi war starts with ISIS fighting in their borders then North American oil is going to look like a bargain even at $120
Roadhazard hasn't dropped a line yet, so I'll play:
"Peak oil isn't real. The oil glut is real."
PS
The Witless Captured Supplier discount shrunk ~12.5% at op-ex.
Why point this out? No reason. <cough>
When WTI is back over $100 by Labor Day,the calls made earlier this year by Gold Sachs ($30 a barrel),IEA (we won't see $100 until 2030),Zero Hedge ($35 a barrel),are going to make Caitlyn Jenners poop chute look like the gateway to Shangri La..
You guys are all kinda wordy tonight...