Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 69682 times)

Cardboard

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This is not false data and was confirmed by two independent organizations.

The reason that oil is up slightly today is because the oil build is 13.8 million barrels but, products have come down by 12.4 million barrels for a net petroleum stock build of 1.4 million barrels. Gasoline and kerosene inventories down and distillates flat really helped sentiment today since they were up for a couple of weeks in a row raising worries about demand.

Regarding production, Lower 48 States production was up 73,000 barrels/day this week and was down 45,000 barrels/day last week. So it is already going up based on that, the 4 week average and has been going up steadily for months with U.S. production now close to 9 million barrels/day. And no, it does not and will not take 3 months for shale oil to suddenly appear since it takes only 10-15 days to drill/complete and most wells hit their peak 1 month after completion. So it is already there but, decline rates do matter and was overlooked by the market for 2 years with all this newly found productivity magic. Stop drilling and you see quickly what happens to your production.

Now where this oil comes from remains unexplained but, there was a surge in net imports and commercial stocks that would explain the 14 million barrels. I guess that we will have to wait another week again to finally see some understandable trend.

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sculpin

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This is not false data and was confirmed by two independent organizations.

The reason that oil is up slightly today is because the oil build is 13.8 million barrels but, products have come down by 12.4 million barrels for a net petroleum stock build of 1.4 million barrels. Gasoline and kerosene inventories down and distillates flat really helped sentiment today since they were up for a couple of weeks in a row raising worries about demand.

Regarding production, Lower 48 States production was up 73,000 barrels/day this week and was down 45,000 barrels/day last week. So it is already going up based on that, the 4 week average and has been going up steadily for months with U.S. production now close to 9 million barrels/day. And no, it does not and will not take 3 months for shale oil to suddenly appear since it takes only 10-15 days to drill/complete and most wells hit their peak 1 month after completion. So it is already there but, decline rates do matter and was overlooked by the market for 2 years with all this newly found productivity magic. Stop drilling and you see quickly what happens to your production.

Now where this oil comes from remains unexplained but, there was a surge in net imports and commercial stocks that would explain the 14 million barrels. I guess that we will have to wait another week again to finally see some understandable trend.

Cardboard

I would encourage you to read the EI board on Ivillage. Will cover the topic in a way you will not see in the mainstream media. Nawar's post below...

http://www.investorvillage.com/groups.asp?mb=19168&mn=75471&pt=msg&mid=16842168


What we got here is a confluence of things taking place, seasonally, this is an inventory build up period, however this build up is being compounded by three powerful factors, the OPEC pre-deal production surge, US SPR sales, US refineries hoarding cheap crude amid fears of an import tax, this last item applies equally to speculators holding inventories in floating storage, by moving this inventory onshore, they insure premium pricing in case of an import tax, as a matter of fact, I wouldn't be surprised if inventories onshore outside of the US are being moved to within US borders as a way to protect against and benefit from a border tax, should BAT materialize.
 
In light of the above, I believe the US inventory numbers are highly distorted, and thus on global basis, its likely that we're seeing a net decline inventories. The IEA January OMR, the EIA STEO (released today) and the latest numbers from private research outfits such as Energy Aspects are uniform in their assessment that global crude inventories will shrink in Q1 based on current crude supply/demand data.
 
Going back to the EIA STEO, something that seems to have been lost in the fray today is the major revision the EIA did to historic and global demand data (upped by 900K barrels), which in turn greatly reduced the EIA assumed global supply/demand imbalance, from the EIA report:
 
The main effect of this change on the forecasted STEO liquid fuels market balances is that the higher consumption in 2014 raises the baseline to which the STEO forecast benchmarks. As the assumed annual growth rates for forecast liquid fuels consumption have remained unchanged for 2015-18, the higher baseline 2014 data raises overall consumption through the forecast period. With higher consumption only partially offset by additional production, the implied inventory builds (total global supply minus total global consumption) for 2015 and 2016 are smaller than previously forecast.
 
In the February STEO, EIA now estimates that global liquid fuels inventories built by an average of 1.8 million barrels per day (b/d) in 2015 and by 0.8 million b/d in 2016. Those estimates are 0.2 million b/d and 0.1 million b/d lower, respectively, than in the January STEO. EIA now estimates the global oil markets will be relatively balanced in 2017 with moderate inventory builds reemerging in 2018, as the rate of U.S. production growth increases. EIA forecasts implied global inventory draws of 0.1 million b/d in 2017 and a build of 0.2 million b/d in 2018.
 
Based on the above, the EIA, with a stroke of pen, just removed a total of 110m barrels from global OECD inventories, this is in addition to switching their forecast from 300K barrels build in 2017 to 100K withdrawal, which in turn translates into a 146m swing in their 2017 inventory outlook, going from a 109.5m barrels build in 2017 to 36.5m withdrawal.
 
There is noise and there is data, traders are fretting about  a questionable 14m barrels API build due to the factors highlighted at the top of the post, while the EIA just removed a total of 256m barrels from historic and projected inventories, you decide which data point is more important.
 
Nawar

Cardboard

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Two news articles that also help explain what has been going on in recent weeks:

http://www.cnbc.com/2017/02/08/gasoline-demand-recession-indicator-sprung-up-in-january.html

http://www.cnbc.com/2017/02/08/oil-news-jump-in-us-crude-imports-to-reverse-in-march-goldman-says.html

And since both reflect the analysis of Goldman Sachs who was one of the biggest bears during the downturn and right. Then I believe that we can count on their data indicating that the fundamentals are still improving.

However, I can say that after 2 years of trying to decipher U.S. EIA data and looking for a turn that I am getting more than ready to see something unequivocally positive on fundamentals.

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Uccmal

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Cant speak to all the speculation but in the past few days I have bought
some wcp, bte, and a little pwt, and today a big slug of mullen group.  All are trading postions, meaning I will shrink them as they go higher. 

Wcp and Bte are trading as if it was last winter.  All three o&g cos. are at worst, break even, at these oil prices. 

Seems to me, with all the moving parts in the global oil industry, it is only possible to know what is going on after the fact.  Similar to when the US government says there is no recession (2007), and then backdates the start of the recession a year later. 
GARP tending toward value

sculpin

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From Acumen today. The outright incompetence or fraudulent agenda of the IEA is quite disconcerting....

Energy
 
Do you know what day it is?  If you said IEA Oil Market Report Day you would be correct.  Today’s report was another typical IEA report where demand was revised higher – historical and future, the MASSIVE draws on oil stocks was pooh pooh’d and the general commentary was softly bearish.  Ok, to the facts:
 
1.        2016 demand was revised higher by about 200k bbl/d to 1.6 mb/d with most of this baked into Q4 demand;
2.       2017 demand was also revised higher to 1.4 mb/d from 1.3 mb/d and still seems 100 or 200 k a day short (EIA is 1.6);
3.       Those demand revisions have been occurring steadily (i.e. each month) since Q4 once again highlighting the flaws in the data collection if you look at it in a nefarious light or the difficulty in collecting data if you have a benign view of these gov’t agencies;
4.       MASSIVE Q4 stock DRAW of 800k bbl/d, the largest in 3 years!  Readers of this note will not find this surprising because it was pointed out back in November when the IEA was projecting a massive BUILD in Q4 despite having two months of draws…..which was of course the consensus narrative that the oil markets are still in surplus.  “Glut” is the oft used word.  Remember, Q4 drew this heavily PRIOR to any OPEC cuts, in fact OPEC was jamming out as much production as possible at the time.  Still, though, the IEA is saying storage is building in oil at sea, despite a flat to backwardated
5.       OPEC compliance at 90% with overall global supplies off 1.5 mb/d in January.
 
So what does this mean?  Jan will be the 6th month of stock draws and those draws look to continue well into 2017.  Additionally, we see the same story from the IEA – demand revisions continue to occur.  My rule of thumb is demand grows ~1 mb/d +/- at $100 bbl and at $50 it is closer to 1.5 – 2 mb/d, all else equal.  What’s interesting is that the data is hiding in plain sight for all to see – my calls for a draw in Q4 wasn’t a hypothesis it was simple math and it was sitting in the data.  Stocks had been drawing since August yet the narrative from the IEA and the Street was still that the market is in surplus.
 
This oil market is fighting a huge wall of worry – OPEC compliance, shale resurgence, border adjustment tax, Hot Air taxes…..but if the data continues to trend as it has, even the IEA acknowledges that demand will exceed supply by 600k bbl/d this year.

sculpin

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Martin King of GMP Research onside (below).  With OPEC cuts and the world already in a supply deficit as early as last July what happens when the shuffling of inventory barrels to North America ends and the true nature of the supply shortfall comes to pass? $100+ WTI & Brent?

There could be massive value creation in the holdings of certain oil reserves that the market & most if not all market participants blow off as worthless in the forever glut paradigm. Think oilsands especially. What is Athabasca, Baytex (Cda for free now), POE SAGD project worth at $100+ oil, GXE heavy and (any others with 10 bagger potential in such a scenario)?? What will happen to Canadian service co's in a market that realizes North American shale, tight oil is the only feasible short term response mechanism in a world that looks to be short supply for the next 3 years?


"Putting aside various reasons why we think U.S. supply growth
may not be as optimistic as some think, such growth in the U.S.
(and Canada) still pales in comparison to the supply losses that
are happening in the rest of the world. If we extract out the
U.S. and Canada from monthly Non-OPEC supply data, the
losses have been significant over the past six months, seeing
year-over-year supply losses in the range of 2.0 million bbl/d
(Figure 8). Allowing for what is going to be little capex
expansion outside of North America this year, further supply
losses are likely for at least the remainder of 2017. With
growth of U.S. supply this year being suggested at 200 to 500
thousand bbl/d, and add in a generous 300 thousand bbl/d for
Canada (which may be too high), and these gains are easily
outweighed by the supply losses in other Non-OPEC supplies.
Layering in the supply reductions from OPEC, and it is obvious
that the global market still has a serious supply problem on its
hands that can only be met by tapping into inventories,
whether those be in the U.S. or elsewhere.

To make a long story short, inventory draws are already under
way in other parts of the globe and we think it is only now a
matter of weeks to one or two months before we see
significant crude oil inventory reductions in the United States,
both as a function of lower imports and the potential for
greater crude oil exports to other parts of the world of its own
(potentially) growing supply. Either way, inventories in the U.S.
and elsewhere are going lower. We think that once this
message begins to sink in, prices will be headed for a break out
to the upside."

JayGatsby

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Curious for other people's take on the US rig count data... the story from the newsmedia seems to be that the the US rig count is rising so production will increase. Intuitively that obviously makes sense and so far that correlation has played out. However, given 2011 through 2014 averaged ~1900 rigs, at ~700 currently that would indicate to me that there may still be more oil being extracted than is coming online. A year or two ago we were hearing about all of these wells that were being plugged after they were done being drilled ("fracklog" i think was the cnbc term). Is it possible (and/or probable) that the increase in US production is due to the uncorking of these wells and drilled reserves are continuing to decline?

7 months old at this point: https://www.bloomberg.com/news/articles/2016-07-21/the-fracklog-isn-t-growing-anymore-and-that-s-bad-news-for-bulls
« Last Edit: February 12, 2017, 05:40:31 PM by JayGatsby »

SharperDingaan

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A drilling 'program' typically consists of 2-3 horizontal production wells drilled from a common pad, and a number of vertical injection wells. All the wells get drilled at the same time, and some of the production wells are immediately shut-in for future use. As the producing well depletes over time, or additional space becomes available in the collector facility, the shut-in wells are put into service. Point is a lot of drilling, does not equal immediate additional production.

Over the downturn new drilling was curtailed, but shut-in wells (frac log)continued to be put into service. Those now depleted fields need new injection wells to pressure up the field and minimize the water/gas/liquids production cut. It's additional (very cheap) injection drilling, but there's no big production spike - as its old wells that are producing.

We're now at the stage where new production has begun to come primarily from newly drilled production wells, and the frac log has begun to rebuild. It indicates rising supply, sustainable for some time - but its from a very low base level of production. The  numbers example I did earlier in this thread.

Rising NA shale production just means less NA imports; it has zero impact on depletion & supply cutbacks elsewhere in the world, and only marginally reduces the demand on that non NA supply. It doesn't become an issue until NA becomes a net exporter, and that would be primarily a political consideration.

For now everybody will just continue to sleepwalk, until the first of the inventory storage runs dry.
Then it gets interesting.

SD
 
 


   

     

JayGatsby

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It’s useful to do a little arithmetic….

Assume a 1000 shale oil wells were drilled & connected, on Jan 01, 2014 (3 years ago). They stay in production their entire lives, and on day 1 they test out at 100 barrels/month of 100% light crude - or 1,200,000 barrels/year (1000x100/monthx12 months). Over time; pressure drop, gas and water cuts deplete production at 35%, 40%, 45%, 50% per year. At the end of year 4 the average well is no longer commercial. This is most shale oil.

At the end of year 1 - production is down to 780,000 barrels/year (1,200,000 x (1-.35)). At the end of year 2 it’s 468,000 barrels/year (780,000 x (1-.40)). At the end of year 3 it’s 257,400 barrels/year, at the end of year 4 it’s 128,700 barrels/year. Year 1, 2, 3, 4, 5 depletion was 420000, 312000, 210600, 128700, and 128700 barrels/year. Point is; significantly less depletion every year.

Were we in 2014 (Year 1) an additional 420,000 barrels/year of production (via the drill bit) would have just kept Year 1 production ‘flat’ at 1,200,000 barrels/year. That same drilling addition of 420,000 barrels/year of production in 2017 (Year 4) would have raised Year 4 production to 548,700 barrels/year – a 130% increase. Point is; at the aggregate level, the impact of new drilling is currently being swamped by depletion on existing wells. Hence we see rising rig counts, falling production, & drillers talking about better prospects.
This makes sense if you assume that 2014 is Year 1 (Year 1 gushes, and Year 2 keeps it stable with year 1). But if you run that out with 3 years of 1000 rigs per year you see a steep increase in production (similar to what we saw). Then in Year 4 when drilled wells fall to 350 (1/3rd), production falls by ~20% (not dissimilar to what we saw, if you assume that not all wells are horizontal and decline this quick). Then in Year 5 to sustain production with year 4 you need 700 wells. If you assume that's where we are today, that's where the arithmetic seems to not line up with what we're seeing. We're seeing wells drilled of ~1/3rd of prior levels but production stable or increasing.

sculpin

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Many analysts & the media have the US production response incorrect. As a friend says...

The increase by 500,000 in US prodn is not the result of shale! Both Bakken & Eagle Ford are still in decline while the Permian increase is aprrox. 200,000 bbls/d according to the EIA YoY. This is modelling revisions and GoM production a lot of which came online in 2015 & 2016 masking shale and other conventional declines. It is about to dry up a long with other long lead time projects. We have seen this in Canada with oilsands projects start ups over the last two years where recent oilsands cost of prodn of 80,000 flowing bbl would mean in todays environment those projects would get shelved. Many analysts are conflating legacy $100 oil decisions with $50 oil to suggest shale is responsible for the recent US prodn rise off the lows of 2016.