What Will Drive The Next Oil Price Crash?

Authored by Tsvetana Paraskova via OilPrice.com,
As we roll into 2018, analysts and investors are more optimistic that the oil market will further tighten next year and support higher oil prices, but rising U. S. shale production will likely cap any significant price gains.
On the demand side, expectations are that global economic growth will support solid oil demand growth.
On the supply side, Venezuela’s dire situation, possible new sanctions on Iran, and increased tension in the Middle East mostly with the Saudi-Iran issues and the Iraq-Kurdistan standoff may take more barrels off the market than OPEC and friends plan, and send geopolitical jitters through the oil market.

This post was published at Zero Hedge on Dec 22, 2017.

Venezuela’s Default Disaster

Socialism always promises heaven and gives hell.
In the early hours of Thursday, November 2, the Maduro regime certified its latest failure with what they promised would never happen: technical default. With his usual arrogance, Maduro issued a ‘decree’ demanding ‘the refinancing and restructuring of the debt as of November 3.’ That is, default.
The bad news for investors or high-yield hunters is that the likelihood of being swindled again is almost 100%.
Chavez once said ‘put me oil at zero and Venezuela will not suffer,’ and Maduro stated that ‘a revolutionary government with economic power as the one I preside has plans to surpass any situation arising from any price of oil.’ Reality has now kicked in.
Venezuela was not destroyed by low oil prices, but by high socialism.
Socialism has led Venezuela to an unparalleled economic disaster . No, it’s not ‘the price of oil.’ Venezuela is the only OPEC country that has fallen into default, depression, and hyperinflation. It’s not oil, it’s socialism.
The management disaster is spectacular and the greatest example of the devastating effect of socialism is the state-owned oil company. PdVSA, the national oil company, has gone from being one of the most efficient and profitable twenty years ago, to end up importing oil.

This post was published at Ludwig von Mises Institute on 11/20/2017.

How Broke Is The House Of Saud?

Trying to figure out what on earth is happening in the Middle East appears to have gotten a lot harder. Perhaps (because) it’s become more dangerous too. There are so many players, and connections between players, involved now that even making one of those schematic representations would never get it right. Too many unknown unknowns.
A short and incomplete list of the actors: Sunni, Shiite, Saudi Arabia, US, Russia, Turkey, ISIS, Syria, Iran, Iraq, Libya, Kurds, Lebanon, Hezbollah, Hamas, Qatar, Israel, United Arab Emirates (UAE), Houthis, perhaps even Chechnya, Afghanistan, Pakistan. I know I know, add your favorites.
So what have we got, or what do we know we’ve got?
We seem to have the US lining up with Israel, the UAE and Saudi Arabia against Russia, Iran, Syria, Hezbollah. Broadly. But that’s just a -pun intended- crude start.
Putin has been getting closer to the Saudis because of the OPEC production cuts, trying to jack up the price of oil. Which ironically has now been achieved on the heels of the arrests of 11 princes and scores of other wealthy and powerful in the kingdom. But Putin also recently signed a $30 billion oil -infrastructure- deal with Iran. And he’s been cuddling up to Israel as well.

This post was published at Zero Hedge on Nov 8, 2017.

The ‘Amazon Effect’ Is Coming to Oil Markets

While OPEC mulls over further steps to once again support falling oil prices, tech startups are quietly ushering in a new era in oil and gas: the era of the digital oil field.
Much talk has revolved around how software can completely transform the energy industry, but until recently, it was just talk. Now, things are beginning to change, and some observers, such as Cottonwood Venture Partners’ Mark P. Mills, believe we are on the verge of an oil industry transformation of proportions identical to the transformation that Amazon prompted in retail.
According to Mills, the three technological factors that actualized what he calls ‘the Amazon effect’, which changed the face of retail forever, are evidenced in oil and gas right now. These are cheap computing with industrial-application capabilities; ubiquitous communication networks; and, of course, cloud tech.
The Internet of Things is entering oil and gas, and so are analytics and artificial intelligence. These, Mills believes, will be among the main drivers of a second shale revolution, reinforcing the efficiency push prompted by the latest oil price crisis.

This post was published at FinancialSense on 10/10/2017.

A Desperate OPEC Asks US Shale For Help In Cutting Oil Output

While OPEC has been presenting an optimistic facade in recent months, repeating at every opportunity that the global oil market is “rebalancing” and demand is rising, the oil production cartel made a rare slip today when it addressed what should not be named in public: US shale production. Speaking on Tuesday, OPEC Secretary General Mohammed Barkindo called on U. S. shale oil producers to help curtail global oil supply, warning extraordinary measures might be needed next year to sustain the rebalanced market in the medium to long term. Which is odd because in every other public address by OPEC members, we hear precisely the opposite: that the market is already in a state of “healthy rebalancing” and… the oil production cut which was supposed to last until this past June may now be extended beyond March of 2018.
‘We urge our friends, in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learnt from the current unique supply-driven cycle,’ said Barkindo quoted by Reuters during a speech delivered at the India Energy Forum organized by CERAWeek in New Delhi.
‘At the moment we (OPEC and independent U. S. producers) both agreed that we have a shared responsibility in maintaining stability because they are also not insulated from the impact of this downturn,’ Barkindo said, referring to a slide in oil prices that spurred OPEC to agree production cuts late last year.
‘The call by independents themselves (is) that we need to continue this interaction.”

This post was published at Zero Hedge on Oct 10, 2017.

Is This The Geopolitical Shift Of The Century?

The geopolitical reality in the Middle East is changing dramatically.
The impact of the Arab Spring, the retraction of the U. S. military, and diminishing economic influence on the Arab world – as displayed during the Obama Administration – are facts.
The emergence of a Russian-Iranian-Turkish triangle is the new reality. The Western hegemony in the MENA region has ended, and not in a shy way, but with a long list of military conflicts and destabilization.
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The first visit of a Saudi king to Russia shows the growing power of Russia in the Middle East. It also shows that not only Arab countries such as Saudi Arabia and the UAE, but also Egypt and Libya, are more likely to consider Moscow as a strategic ally.
King Salman’s visit to Moscow could herald not only several multibillion business deals, but could be the first real step towards a new regional geopolitical and military alliance between OPEC leader Saudi Arabia and Russia.

This post was published at Zero Hedge on Oct 8, 2017.

China’s Oil Demand Is Far Ahead Of Last Year’s Pace

OPEC recently released its Monthly Oil Market Report which covers the global oil supply and demand picture through July.
OPEC crude oil production decreased by 79,000 BPD in August to average 32.8 million BPD. This marks the first OPEC production decline since April and was primarily driven by sizable outages in Libya.
The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. The group reports strong growth from the OECD Americas, Europe, and China.
Global oil demand for 2018 is expected to grow by 1.35 million BPD, an upward revision of 70,000 BPD from the previous report. Growth next year is expected to be driven by OECD Europe and China.

This post was published at Zero Hedge on Oct 5, 2017.

Brent Crude Spikes To Highest Since July 2015

North Korean war-talk has extended early gains for Brent Crude (driven by anxiety over the post-Kurd-referendum fallout), pushing prices to their highest since July 2015.
To the highest since July 2015…
As Bloomberg reports, Kurdish oil supplies may be in jeopardy as Turkey, Iran and the Iraqi central government in Baghdad sought to isolate the semi-autonomous Kurds as balloting began on Monday. Meanwhile, OPEC and its partners implemented more than 100 percent of their agreed cuts last month, OPEC Secretary-General Mohammad Barkindo said Friday in Vienna, providing more fuel to the oil rally.

This post was published at Zero Hedge on Sep 25, 2017.

Libya’s Oil King Won’t Be Stopped By OPEC

Conflict-torn Libya, divided between rival factions in the east and the west, recently reached 1 million bpd of crude oil output – for the first time since 2013.
The oil production recovery has put in the spotlight the chairman of Libya’s National Oil Corporation (NOC), Mustafa Sanalla, whom analysts see as a central figure in the oil sector, wearing the hats of both a diplomat and an oil minister. It will be Sanalla who will lead Libya’s delegation at the upcoming meeting of the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) in Russia, at which he will argue his country’s position and share production plans for the immediate future.
And the monitoring committee will be eager to find out how much Libya’s plans could further offset the cartel and friends’ production cuts, from which the African nation is – for now at least – exempt.
Winning exemption at the time of the November OPEC deal wasn’t difficult for Libya, whose production was at the mercy of the civil strife and port blockades that plagued Libya over the past few years.

This post was published at Zero Hedge on Jul 24, 2017.

Maduro Thugs Storm Venezuela National Assembly, Beat Opposition Lawmakers, Default Risk Jumps

Venezuela celebrated 206 years of independence in a manner uniquely befitting Latin America’s socialist paradise: A gang of armed Maduro supporters broke into the National Assembly and viciously assaulted opposition lawmakers, nearly killing one.
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Here’s Reuters:
‘The melee, which injured seven opposition politicians, was another worrying flashpoint in a traumatic last three months for the South American OPEC nation, shaken by opposition protests against socialist President Nicolas Maduro.
Pipe-wielding government supporters burst into Venezuela’s opposition-controlled congress on Wednesday, witnesses said, attacking and besieging lawmakers in the latest flare-up of violence during a political crisis.
The melee, which injured seven opposition politicians, was another worrying flashpoint in a traumatic last three months for the South American OPEC nation, shaken by opposition protests against socialist President Nicolas Maduro.’

This post was published at Zero Hedge on Jul 6, 2017.

Venezuela’s Maduro Says Armed Group “Started A Coup”, Used Helicopter To Drop Grenades

In an incident that is oddly reminiscent to the “failed coup” in Turkey from last June, late on Tuesday a rogue Venezuelan police helicopter strafed the Supreme Court and the interior ministry on Tuesday, in what President Nicolas Maduro called an attack by “terrorists seeking a coup” and which major news agencies said was an escalation of the OPEC nation’s political crisis, although to some local Venezuelans this was a staged attempt to justify ongoing repression at Venezuela’s National Assembly.
According to Reuters, the helicopter fired 15 shots at the Interior Ministry, where dozens of people were gathered at a social event, after dropping four grenades on the Supreme court during a meeting of judges, although there were no reports of injuries. Opponents to Maduro view the symbolic Interior Ministry as a bastion of repression and also hate the Supreme Court for its string of rulings bolstering the president’s power and undermining the opposition-controlled legislature.
President Nicolas Maduro, speaking on state television after the incident, said people flying a helicopter conducted an ‘armed terrorist attack against the country’s institutions’ and added that “this is the kind of armed escalation I have been denouncing.’

This post was published at Zero Hedge on Jun 28, 2017.

Oil Shrugs As Iran Hints At More OPEC Cuts, Admits Surprise At US Shale Production

If at first you don’t succeed, try again… and if that fails, start jawboning about more production cuts again.
Iranian Oil Minister Bijan Namdar Zanganeh says on state radio that “we are consulting with OPEC member states to have them prepared to make a decision to make further cuts [to production].”

This post was published at Zero Hedge on Jun 21, 2017.

Shale Efficiency Has Peaked For Now As Rig Count Surges For 22nd Straight Week

For the 22nd week in a row, the number of US oil rigs rose (up 6 to 747) to the highest since April 2015.
Given the historical relationship between lagged prices and rig counts, we suspect the resurgence in rigs may begin to stall…

Oil is headed for the longest run of weekly losses since August 2015 as OPEC member Libya restored production and the surplus in the U. S. shows little sign of abating.

This post was published at Zero Hedge on Jun 16, 2017.

OPEC at the Crossroads

OPEC is currently in a difficult situation. How should it react to the oil glut that followed the emergence of shale oil technology? In our view, today’s situation is comparable to the oil glut in the 1980s. Back then OPEC unsuccessfully tried to support prices by curtailing supply with the result that core-OPEC members were sitting on vast amounts of idle capacity for nearly two decades. Thus, we view the recent production cuts as an attempt to speed up the drawdown of the global inventory overhang rather than a sign that OPEC has returned to a policy of balancing the market. If OPEC, going forward, truly allows market forces to play out without carrying a lot of spare capacity, unforeseen shortfalls could result in violent price swings.
View the Entire Research Piece as a PDF here.
Trading oil has been challenging over the past few months. To be fair, it has been challenging for a while, but those trying to predict price movements based on fundamentals have had a particularly hard time recently. Rather than moving with improving fundamentals, the oil market has hung on every word from OPEC officials, which has sent oil prices on a rollercoaster ride. In the past two weeks, fundamentals continued to improve with U. S. oil inventories showing counter-seasonal draws, yet prices collapsed on May 25 after OPEC announced it would extend production cuts by nine months. The price action indicates that market participants were hoping for an even larger cut and were disappointed that the current cuts were merely extended, but the current curtailments have already had a profound impact on inventories (we saw and continue to see large counter-seasonal draws in high frequency data), which is what we suspect OPEC had intended.
OPEC is currently in a difficult situation. How should it react to the oil glut that followed the emergence of shale oil technology? In our view, OPEC’s options and its influence on oil prices are limited. To understand this, we must go back to the 1980s, which is the last time OPEC was faced with a technological step change that led to an oil glut from non-OPEC producers.
OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The founding members were later joined by Qatar (1961), Indonesia (1962 – 2008; rejoined 2016), Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973 – 1992; rejoined 2007), and Gabon (1975 – 1994; rejoined 2016). By 1973, OEPC had increased its production to about 30 million b/d, just over 50% of world production. Supported by Egypt and Syria, the Arab members of OPEC imposed an oil embargo against the United States and other countries that supported Israel during the Yom Kippur war in October 1973. OPEC output subsequently dropped by close to 4 million b/d, which was about 7% of global output. As a result, oil shortages occurred in the west and prices soared from USD3.29/bbl in 1973 to USD11.58/bbl in 1974, and prices remained high even after the oil embargo ended in March 1974. In 1979 oil prices moved sharply higher again to as high as USD40/bbl. In our view, the 1979 price increase must be attributed to several factors; the Iranian revolution and ensuing Iran-Iraq war certainly played their part, but general USD price inflation was rampant, reaching 20% per annum. Arguably, part of the reason why inflation was so high was because oil prices had previously risen on the back of the oil embargo, which trickled into general price inflation. But even without the tightness in oil fundamentals, USD inflation would have been high given the monetary environment of the time; however, the price inflation in oil was several magnitudes higher than broad price inflation, suggesting that the tightness in the oil market itself was the main reason for the sharp price increase in oil. Most importantly, this prolonged period of extremely high oil prices and the crippling effect the oil shortages had on western economies led to profound changes in oil and energy markets.

This post was published at GoldMoney on JUNE 06, 2017.

OPEC Has Survived Crises Far Worse Than the Qatar Debacle

The OPEC oil deal is not in peril, though the mainstream media would have you think otherwise…
Oil prices fell yesterday after member countries like Saudi Arabia, the United Arab Emirates, Egypt, and Bahrain cut diplomatic ties with Qatar. These nations have closed borders and ceased all travel to and from Qatar, demanding that Qatari military troops be withdrawn from the war in Yemen.
The nations initiating the separation claim that their small, uber-wealthy neighbor was, and has been, actively supporting Islamic terrorists.
And, yes, news of the severance with Qatar – a top global liquefied natural gas (LNG) and condensate shipper – immediately dented the oil market…
Brent crude prices reversed initial 1% gains after the news, trading down 1%, at $49.45 a barrel by 2:34 p.m. ET. WTI futures ended Monday’s session at $47.40 a barrel, down $0.26, or 0.6%. U. S. gasoline futures led the sector’s largest fall in the afternoon, down 2.4% to $1.54 a gallon. But mainstream media sites followed the various oil price dips with headlines speculating about imminent doom for OPEC’s recent agreement to cut production:

This post was published at Wall Street Examiner on June 6, 2017.

The Qatar Turmoil Fallout: Flights, Food, Football And More

Today’s stunning expulsion of Qatar from the Saudi “circle of friends” prompted some analysts to ask if in Qatar’s immediate futures is a departure from OPEC. In a note by Mitsubishi UFJ, the bank notes that ‘a full-fledged confrontation will, without any doubt, put pressure on the current compliance rate of OPEC members to the adherence of the 9-month agreement to cut production” and adds that “whilst Qatar’s pledge was only to cut 30,000 barrels to 628,000 barrels (as part of the OPEC agreement), there are potential risks of Qatar leaving OPEC which could significantly impact oil prices.”
That said, the political fallout for Qatar, and its remaining allies, could have broader implications than merely the collapse of the already dying oil cartel; as MUFJ notes ‘a rapprochement between Iran and Qatar would be a vast security risk to the U. S. military” while closure of land/sea/air contacts could have adverse “implications for the airlines, shipping and road freight industries.”
According to analysts and pundits cited by the BBC, the biggest threats facing the tiny but rich nation, with a population of 2.7 million, include food, flights, construction, people, trade and… football.
Flights
As reported overnight, Abu Dhabi’s Etihad Airways and Dubai’s Emirates are suspending all flights to and from Doha, starting from Tuesday morning. Both carriers operate four daily return flights to Doha. Budget carriers FlyDubai and Air Arabia are also cancelling routes to Doha, with other airlines, including Bahrain’s Gulf Air and Egyptair expected to follow suit. It comes after Saudi Arabia, the UAE, Bahrain and Egypt all said they would stop flights in and out of Qatar, and close their airspace to the country’s airline, Qatar Airways.

This post was published at Zero Hedge on Jun 5, 2017.

The Strategic Petroleum Reserve May Have Outlived Its Purpose

In December 1975, when memories of gas lines were fresh on the minds of Americans as a result of the 1973 OPEC oil embargo, Congress established the Strategic Petroleum Reserve (SPR). The law was designed ‘to reduce the impact of severe energy supply interruptions’ such as that caused by the embargo.
But many have argued that the SPR has outlived its usefulness. As a result of the surge of US shale oil production, US demand for OPEC crude oil imports has dropped over the past decade. In 2005, the US imported 10.1 million barrels per day (BPD) of crude oil, of which 4.8 million BPD (~48%) came from OPEC. By 2016, US imports had dropped to 7.9 million BPD, with 3.2 million BPD (~40%) from OPEC.
US energy security has improved, and because of the decline in imports the oil in the SPR will cover more days of imported supplies. Again, in 2005, the SPR contained 685 million barrels. With the US importing 10.1 million BPD of crude oil at that time, that was enough oil to cover 68 days of supply. In 2016 the SPR contained 695 million barrels, which, at the reduced rate of US crude oil imports, covered 88 days of supply.

This post was published at FinancialSense on 06/05/2017.

Clash Between Qatar And The Saudis Could Threaten OPEC Deal

Authored by Cyril Widderhoven via OilPrice.com,
The cohesion of the Gulf Cooperation Council (GCC), which includes all Arab Gulf countries, seems to be cracking.
UAE Minister of State for Foreign Affairs, Anwar Gargash, openly stated that the GCC was facing a major crisis, as Qatar seems to be opening up to Iran. Gargash made his comments on Twitter less than a week after Saudi Arabia and the UAE signaled frustration at Qatar. The simmering conflict between the UAE and Saudi Arabia on one side and Qatar on the other has again been heating up after the Qatar’s News Agency (QNA) was purportedly hacked, spreading remarks by Qatari Emir Tamim bin Hamad al-Thani which criticized Gulf rhetoric against Iran and suggested strains between the Emir and U. S. President Donald Trump. Qatar has vehemently denied these quotes, but the Saudi, Emirati and Egyptian governments have reacted by blocking Qatari news sites and TV stations, including Al Jazeera.

This post was published at Zero Hedge on Jun 2, 2017.

Oil Tumbles After OPEC Ends With A Whimper; Agrees Only To Nine Month Extension

Two delegates say: consensus reached for 9 month extension #OOTT #OPEC but other items on addenda
— Amena Bakr (@Amena__Bakr) May 25, 2017

The OPEC Vienna meeting has not officially concluded just yet, but moments ago a delegate told the WSJ and Reuters that the oil producing cartel had decided to do what had been widely telegraphed previously, and merely extend output cuts by nine months to March 2018. While the full quota breakdown has not been released yet, the cuts are likely to be shared again by a dozen non-members led by top oil producer Russia, while several nations like Iran and Nigeria will remain exempt from production caps.
OPEC cuts had helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets, however in recent weeks oil dropped to the mid-$40s again, forcing OPEC to agree to the production extension in hopes of creating backwardation in the oil strip, in order to eliminate shale producers from the question. The rebound in oil prices has in turn spurred growth in shale output, which is not participating in the output deal and whose breakeven prices have tumbled, slowing the market’s rebalancing with global crude stocks still near record highs while US producers steal market share from Saudi Arabia and other OPEC members.

This post was published at Zero Hedge on May 25, 2017.

Oil Surges After Saudis, Russians Agree To 9 Month OPEC Output Cut Extension; US Futures Flat

In an otherwise quiet session in which European shares dropped, Asian equities rose and S&P500 futures were little changed, crude oil surged above $49 on high volume, after the Saudi and Russian energy ministers said in Beijing they favor extending the OPEC production cut for 9 months, though the end of Q1 2018.
WTI rose more than 3%, rising above the 50DMA, climbing to the highest intraday price in almost two weeks after the comments, with subsequent comments by Putin pushing crude to session highs, and Brent above both its 200 and 50 DMA.
While output curbs that started Jan. 1 are supposedly working according to the Saudi and Russian energy ministers – clearly debatable considering there has barely been any reduction in the record global inventory glut during the first 4 months of the OPEC production cut – global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said in Beijing alongside his Russian counterpart, Alexander Novak.
‘The agreement needs to be extended as we will not reach the desired inventory level by end of June,’ Saudi Arabian minister Khalid Al-Falih said at event with Russian counterpart Alexander Novak. ‘Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018’
The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, which however according to many analysts won’t be enough to decidedly lower inventories considering the recent rebound in Libya and Nigeria production as well as a the near-record production out of the US. For now, however, it was enough to send oil surging wiping out more than 2 weeks of losses.

This post was published at Zero Hedge on May 15, 2017.