Non-OPEC Oil Production Punches New High

172 thoughts to “Non-OPEC Oil Production Punches New High”

1. Supply side stats:
   Frac spread down 62 to 85
   Total rigs down 64 to 465
   Oil rigs down 60 to 378

   Demand side:
   Total products came in at 14.1 MBPD, up 300K BPD from the week before at 13.8 MBPD.

   1. Total products supplied for the week ending 24th April has strongly recovered to 15.763 MBPD. 2 MBPD off the lows.

      WTI today: $16.

      1. Maybe this is a way to general remark but sometimes a radical solution to a problem that doesn’t completely fix the problem changes the problem. Shale was that kind of solution. And after shale solution the problem of peak oil is totally different now.

         1. True. It’s now peak demand. The peak oil is past us. 2019 was that year. We are never going to see 100 MBPD demand ever again.

            1. T Shyam,

               How long do you expect the economic down turn to last?

               I tend to focus on C+C output as that tracks more closely with liquid fuel consumption (where I define a liquid as being a liquid at 20 C and 1 ATM of pressure.) For World C+C the 12 month peak output thus far is about 83 Mb/d, I expect that by 2024 demand for C+C will have returned to the previous peak and storage levels will be back to “normal levels”, Brent oil prices will have increased to above $70/bo.

               I think some of the Tony Seba type projections do not take account of the difficulty of replacing a World vehicle fleet of well over 1 billion vehicles, this will take some time, at minimum 10 years and probably 20 years is more realistic, just to get manufacturing ramped up and overcoming material constraints (cobalt is one, and there may be others). I expect that perhaps by 2037 we might see demand fall to less than supply (2035 to 2040, for my 70% confidence interval).

               Also the estimate for demand falling below supply was done prior to covid19 pandemic, this might be pushed forward due to coming recession/depression by 3 to 5 years.

               The scenario below does not account for fall in demand after 2040-2042 below supply which would lead to a fall in prices to match supply with demand.

               

               1. I am not sure of the economic downturn but I predict peak oil based on a confluence of factors some of which has been hastened by the pandemic

                  1. Jet travel that too international travel is going to be suppressed for a long time not least because people have found out they can conduct most business without meeting face to face. There will also be a permanent component in demand destruction due to behavioral changes towards work from home. Many of the jobs actually can be done without the long daily commutes and the pandemic has proven that.

                  2. Battery capacity is being built out at huge rates. China went from 0 to 400000 buses in 4 years flat. That capacity is now going to do something else. Will it replace trucks, diesel machinery, buses in other countries? I dont know but I know it’s going someplace which will suppress diesel demand.

                  3. Rapid electrification of Indian railways. Now this is not reported anywhere in global cleantech pages but it is a big deal. Already 57% of route KM responsible for more than 70% of passenger and freight transport is electrified and the management is hoping to complete electrification by 2024. The network uses 3 billion litres of diesel per annum (India uses 100 billion litres of diesel per annum) which is going to go away.

                  4. Europe has entered the steep part of the S curve in electric vehicle adoption. Most large countries are now reporting sales of vehicle with a plug of atleast 10%. Some like Norway has crossed 60%.

                  Same with China and infact the whole world. The adoption of electric vehicles is very rapid. It is now becoming increasingly apparent that the peak ICE sales was in 2018.

                  5. Delivery fleets are going to shift swiftly to BEV. Rivian will supply 100000 delivery vans for Amazon from 2021 to 2024. Imagine that. 100k vans for just 1 company in 1 geography.

                  6. Other commercial vehicles which have high running or repeated predictable circuits (example: dump trucks, school buses) will quickly change to electric powertrain as soon as the battery capacity becomes available. Decision making will be based on economics and will happen very quickly.

                  6. Electric 2 wheelers and 3 wheelers are booming in Asia. They are very easy to manufacture and need only 1 to 5 KWh of batteries per vehicle. An American may not understand this but 2 wheelers and 3 wheelers are the most important means of transport for vast populations in Asia and Africa. Almost all of them run on petrol now. Huge disruption waiting to happen.

                  7. A speculative point but lot of companies particularly Asian ones are growing very wary of stretched supply lines particularly involving China. More localization may reduce shipping needs and hence consumption of bunker oil. Copper ore need not be shipped from Australia to China to be smelted into copper, made into wire and then be shipped to Japan. Japan might just smelt it themselves or import wires from Australia.

                  8. Aging boomer population in OECD. This is a huge demography which have fuel in their veins. Fortunately or unfortunately, they are retiring and pretty soon will start dying (the oldest boomer is now 74). In any case they will commute way less, become increasingly incapacitated and immobile even if they are not dying. The demography (millenials) and geography (non OECD) replacing them are not as enthusiastic about driving or vehicle ownership. Over the next decade, the demand from this voracious group is going to fall off the cliff.

                  9. MENA countries are going big on solar for electricity generation. Most of their current electricity comes from oil and natural gas.

                  10. There are also other long term trends like increasing energy efficiency of GDP and declining population in countries like Japan, Italy, Russia and others which have much higher per capital oil consumption than world average. These trends secularly reduces the oil demand and are not disruptive in nature. So I am not going to delve deeply into those.

               2. And ofcourse the obvious reaction on the supply side:

                  https://oilprice.com/Energy/Energy-General/Covid-19-Set-To-Wipe-Out-1-Trillion-In-Oil-Production-Revenues.html

                  “Covid-19 Set To Wipe Out $1 Trillion In Oil Production Revenues.

                  E&P revenues are set to plummet by around US$1 trillion in 2020, a drop of 40 percent, and stand at just to US$1.47 trillion this year, compared to last year’s combined annual revenues of US$2.47 trillion.”

                  This is $1 Trillion less that will go to the industry this year and it will be a vicious cycle. Less money to payout to shareholders. Less money to unsecured debt holders when a company declares bankruptcy. Reduced attractiveness of the industry to potential investors.

                  This means less money to reinvest for future production. And any attempt to raise prices to increase production will be quickly used by alternative energy to fill the gap reducing the demand and the price.

                  As I have said, vicious cycle.

               3. T Shyam,

                  Your arguments are all very good.

                  Some counterarguments, production of crude plus consensate (and consequently over the long run consumption of the same) has grown at an average annual rate of 800 kb/d from 1982 to 2018, clearly there will be a temporary oil shock due to the current pandemic. The question is, will the economy recover?

                  My answer is yes it will, after about 6 years.

                  Countering all the trends reducing demand is very rapid economic growth in Asia and potential future rapid growth in less developed nations in South America and Africa (here the population is very young relative to Europe).

                  How much time does it take to ramp up battery and vehicle manufacturing to replace the existing fleet of ICE vehicles, or some percentage of the existing fleet if you believe it will be reduced despite growing population? I have run the numbers and if we assume very limited growth of the vehicle fleet initially and then a reduction due to AV, it would be no sooner than 2035 under any reasonable scenario, that was before the pandemic occured. I expect the economic recession will slow the transition due to reduced economic activity, so 2038-2042 is a more reasonable scenario.

                  I think Tony Seba is great, but nobody makes money on a vehicle today at 35k and 200 mile range, that is why Tesla is not producing that car.
                  About 80 million light vehicles were sold in 2017 worldwide, if Tesla grows by 40% per year over the next 10 years they will reach 10 million vehicles sold, the rest of the auto industry is moving pretty slowly, perhaps they get to 30 million in 10 years for EVs from a very low base (I doubt they will grow as quickly as Tesla and the 40% estimate for Tesla seems unrealistic).

                  Perhaps there will be less air, sea and land transport due to telecommuting and teleconferencing, but note that there will still be a need to move goods (which uses a large proportion of fuel) and there will likely be some driving of ICEVs. The 1982 to 2018 trajectory would have taken demand to over 88.5 Mb/d, my model has output at essentially zero growth from 2018 to 2027, about 5.6 lower than we otherwise would have expected without the current oil shock.

                  To be honest, I hope you are correct and I am wrong, but I am just a bit less optimistic than you.

                  I hope Tony Seba’s vision comes to pass.

               4. Hi Dennis,

                  Regarding your 1st question, my answer is also yes. It will bounce back. Dont know about the timeline but the oil density of GDP will be invariably down. If as you say it takes 6 years, it may need say only 95 MBPD to generate the same GDP as 2019 which needed 100 MBPD. While I am not sure about the timeline, I dont think it will take 6 years. It will be much sooner than that.

                  Whether battery capacity can ramp up? We can’t predict the future with certainty but the past has been very promising. The capacity has zoomed up from 50 GWh to 2200 GWh in just 6 years! That’s 44 times and as I have said, China went from 0 to 400000 buses in 4 years.

                  The whole fleet need not be replaced for the oil consumption to go down from 100 MBPD to say 80 MBPD. You just need conversion of high consumption commercial vehicles to do that. Private vehicle conversion is just a bonus.

                  Regarding 35k, 200 mile vehicles: There are plenty in every geography except in USA. Renault Zoe, Hyundai Kona, MG Hector and a whole bunch of Chinese EVs have range much more than 200 miles and retail for as little as 20k. Tesla need not build a 35k car simply because it can make much more profit selling higher priced cars. Kind of like BMW or Mercedes. To give a general sense, any compact or small car like Kona or Zoe needs only 40 KWh battery to reach 200 mile range and these small cars are already sporting that in their base models. The top ends of these cars have batteries in the 50 to 65KWh range and go past 300 miles of range. Even these top end variants now cost 35k or less.

                  I recommend following sites like Insideevs, Cleantechnica, electrek to follow this space. It is very exciting and fast paced. Sure the Tesla fanboyism of the comment section can put you off but you also learn a lot. I mean if the doomerism in POB comments is 7/10, then the tesla and EV fanboyism there would be 11/10. You just need to look past it and get what you need to improve your knowledge. The comment sections are gold mine just like POB if you know what you are looking for: facts. You will also be surprised to know the range of EVs available throughout the world if you are thinking there are no 35k, 200 mile EVs.

                  For example, Tata Motors the Indian owner of Jaguar Land Rover released the electric version of their popular compact SUV called Nexon for 1.4 million Rupees late last year which is less than $19k. It has a 30 KWh battery, has a claimed range just short of 200 miles and practically gives around 140-150 miles according to user reports.

                  Regarding Tony Seba, what can I say? He has been spot on till now and the skepticism I had about his predictions 5 years back is turning into admiration. But the remarkable thing is, even he underestimated the pace of fall in battery cost. He predicted only 16% fall per annum. The actual figure is 20%!!!

               5. TShyam,

                  Yes there are some other EVs out there, I do follow inside EVs, sales of Tesla vehicles were 2/3 of all US sales of plugin vehicles in 2019.

                  Kona is 37k before rebate, eventually those will expire.

                  It will take quite a bit of time for either heavy or light vehicles to get replaced. So far there are not a lot of heavy EVs on the road, I agree this may be more important than light vehicles.

                  Also note that real GDP grows by about 2.9% per year on average from 1983 to 2018, and it will be faster than this during a recovery from a depression. The previous trajectory of real GDP, if we reach that level eventually will be considerably higher than 2018 real GDP (about 30% higher by 2027). My model takes account of falling oil use per unit of real GDP and estimates both commercial vehicle and light vehicle transition, an eventual transition to AVs and TaaS will accelerate the transition, but I doubt we get Worldwide regulatory approval and widespread adoption before 2035. That will be game changing, but we have a long way to go on that front.

                  My point on the 35k car with 200 mile range that Seba predicts for 2020, there are not a lot of those cars out there. So far not profitable to produce. As far as his prediction for a 200 mile range EV at 22k in 2023, I doubt we will see this that early, perhaps by 2025 or 2026. Chevy Bolt also 36.6 for 259 miles of range. The Kia Niro EV, 239 mile range starts at 38.5k, again rebate will go away. Only about 3000 of the Kona/Niro were sold in US in 2019 with about 1500 in 2019 Q4 (so about a 6000 per year sales rate in Q4), if we add Bolt, Kona and Niro Q4 sales we get about 4600 in the US vs 47k for Model 3.

                  For class 8 tractor trailers, though they are being developed, there are only prototypes on the road in the US to date (Tesla semi pushed to 2021) and Nikola Semi also expected in 2021. Agree 100% this will be important, but will take time to ramp output. In 2017 medium and heavy truck sales in the World were over 3.7 million per year, total registered commercial vehicles worldwide in 2015 were about 335 million and light vehicles about 947 million in 2015. Commercial vehicles use about half of gasoline and diesel fuel consumed in the US, in less developed nations the proportion used by commercial vehicles is likely higher, perhaps as much as 65%.

               6. Checked price of Renault Zoe (without 3000 pound rebate available in UK), it is about $36k, range 245 miles.

               7. Traffic in Dhaka
                  https://www.youtube.com/watch?v=Kyk2pfEt_w4

               8. Thanks Matt.

                  Video from April 2014, it may be much the same today.

                  Opinion piece on Dhaka traffic, considered the worst in the world.

                  https://www.dhakatribune.com/opinion/op-ed/2019/05/23/how-can-we-fix-the-world-s-worst-traffic

2. https://twitter.com/USCGLosAngeles/status/1253570343815442432?s=20

   1. One gets a *FREE* tank of gas with $25 in store purchase.

      What could be better? (s)

3. Horizontal Oil Rig counts in US from Baker Hughes

   https://rigcount.bakerhughes.com/na-rig-count

   Frac count from

   https://twitter.com/PrimaryVision/status/1253808048654528512

   Frac spread discussion starts around 12:50, I don’t agree with his view of debt doom, but I have been wrong about many things in the past and the future may be no different. In an economic crisis, government debt is ok, but I tend to agree that business bailouts are a bad idea, allow bankruptcy to eliminate poorly run businesses, that is the way capitalism is supposed to work. Seems buying high yield debt by the Fed is also a bad idea at least to me.

   I have attempted to estimate oil frac spreads by assuming frac spreads are proportional to horizontal oil to gas rig ratio over the flat portion of the chart from Jan 31 to March 6. I then assume the total horizontal rig to frac spread ratio (2.23 rigs per frac spread) can be used for the gas focused frac spreads from March 20 to April 24 to estimate gas frac spreads and the oil frac spread count is estimated by taking the total frac spread count and subtracting the gas frac spread count.

   Average total rig count for Jan 31 to March 6 was 711 rigs.

   

   1. ^In an economic crisis, government debt is ok,^
      I agree ,but not when it is + 100% of GDP already . In such a case it is better to follow the route you have enumerated in the rest of your post directly , on which I am in total agreement . Of course as per our arrangement ^ we agree to disagree^ .:-).Last but not least the work you put on the forum is greatly appreciated .

      1. hole in head,

         In the crisis, government debt increases, then it gets paid back as economy improves. Or that is the theory, politicians seem reluctant to pay down the debt during good times, 1995 to 2001 was the last time this occurred in the US

         See

         https://fred.stlouisfed.org/series/FYPUGDA188S

         and

         https://fred.stlouisfed.org/series/DEBTTLJPA188A

         1. Correction,

            US Federal Debt to GDP ratio mostly decreased From 1946 to 1974, after that has mostly increased with the exception of 1994-2001.

            1. ’46-74 was the boom economic time after WWll which paid for the increase in govt spending for the war, which in turn took care of the Great Depression.
               ’46-’74 was the second (and last) TRUE economic expansion of US – first being 1865-1907, which was the rapid development and industrial growth after the Civil War. It ended with the panic of 1907 (some say the Fed creation 1913, and the beginning of WWl – the end of the classical gold standard).
               ’46-’74 expansion ended for 3 reasons:
               1. US oil peak (free flowing – not LTO/fracking crap) in Dec 1971,
               2. Johnson’s Great society and pointless Vietnam war,
               3.End of Breton-Woods (aka dollar-linked gold standard).
               These are the real reasons – not the StLouis fed crap!

               1994-2001 was NOT a true expansion. Was the selling of America and the West to the ding-dongs and CCP by Bill Clinton, Rubin, Summers and other chosen ones.
               The elimination of Glass-Steagall and awarding China the status of Most Favoured Nation in trade during that period (which utterly devastated american industry), was a nice gift that Clinton gave us and the real reason why we beg the Ding Xi fucks for respiratory masks and ppe today, among other things.

               You’re welcome!
               Be well,
               Petro

               1. “The elimination of Glass-Steagall”

                  yep Clinton signed it, but it was a Republican congressional bill-
                  “Republicans Phil Gramm of Texas and James Leach of Iowa co-sponsored the bill that ultimately was passed by both Republican-controlled houses and signed by Clinton in 1999, under a threat of overriding his veto if he did not.”
                  Realism is based on facts.

               2. Ha, ha, ha
                  you think that I am a republican and, what’s truly sad/funny, you think there’s a difference between Republicrats and Democlicans…
                  A proud member of herd you are!
                  http://files.abovetopsecret.com/images/member/8e5074454fcc.jpg
                  Keep it up.

                  be well,
                  Petro

               3. you think there’s a difference between Republicrats and Democlicans…

                  Think hell! Anyone who doesn’t know there is a difference between Donald Trump and the average Democrat is as dumb as fucking dirt.

                  Simply saying, and drawing cartoons, that implies there is no difference between the right and the left does not make it so. Right-wing idiots, now realizing their leader is a blooming idiot, are now trying to say that the left is just as stupid. This attempted trick only proves how stupid they are.

                  Observe the obvious difference between the press conferences of Andrew Cuomo and Donald Trump. Cuomo obviously knows his job and is very meticulous with his every word and comment. Trump, on the other hand, is obviously a blooming idiot suggesting that injections of Lysol might kill the virus in us.

                  And you have the fucking audacity to tell us that there is no difference? Get a life!

                  O

4. Hi sirs,thank you for the report I’m looking for opportunity myself .

5. The US will have a debt to GDP ratio of about 145% with GDP at 17T and debt at 25T end of 2020, assuming no cure nor more stimulus.

   The all time high for this before the virus was 113% WWII. This is a crushing reality.

   Recovery from WWII can be found in oil. US exported oil at about 1.5 million barrels/month in 1950. Burned the rest domestically. No cash outflow to pay for any.

   1. Watcher,

      US GDP was 21 trillion at end of 2019, not clear that it will fall by 4 trillion by 2020Q4. For 2019Q4 total federal debt was 23 trillion. No reason debt cannot be higher, when economy recovers, taxes can increase and debt can be paid down, Japan’s Government debt to GDP was around 200% for 2019Q4.

      1. Hi Dennis,
         The current debt is about 24.7 T$. Maybe Watcher was only taking “Debt Held by the Public” which is at 18.8 currently (https://treasurydirect.gov/NP/debt/current).
         Now the difference with Japan is that Japanese debt is about 95% internal, it is ~70% for US debt.

         1. The intergov’t debt still counts as it was money set aside to pay for federal pensions & entitlements (Social Security & medicare). We now reached the demographics cliff as Boomers are retiring: stop paying into entitlements and start drawing down entitlements. The only way the intergov’t bonds can be *redeemed* is increased revenue (ie much hire taxes & money printing). Seems likely its going to be a lot of money printing with soaring unemployment (at least 16% currently and probably increasing to 30% later this year).

            1. Or the government could raise taxes and cut pointless defense spending.

               Also getting rid of america’s bizarre zoning laws that prevent people from living in cities would be a good idea, because it would make vastly better use of existing infrastructure.

      2. “and debt can be paid down”

         Theorectically, but lets be honest- we don’t do that.
         We’ll have to find a method of default, gradual hopefully.

         1. Hickory,

            For Federal Debt we did it from 1946 to 1974 and from 1994 to 2001. No reason debt cannot be paid down, it is relatively simple, reduce government spending or increase taxes or a bit of both as a compromise, just a matter of political will.

            1. Dennis Wrote:
               ” No reason debt cannot be paid down, it is relatively simple, reduce government spending or increase taxes or a bit of both as a compromise”

               Unlikely, $24T (on the books) and probably another $4T in 2020. By 2021, Interest Payments & costs for Welfare & entitlements will exceed every tax dollar collected. You can close every gov’t office, close the US Military and still not be able to balance the budget. Good luck taking away Welfare & entitlements!

               Do you *really* believe the Federal gov’t will ever cut spending? The most likely outcome, is a whole lot of money printing to keep the lights on until the US is the next Weimer Republic!

               Dennis Wrote: “Debt we did it from 1946 to 1974 and from 1994 to 2001”
               from 1946 to 1974 the US dominated the global manufacturing economy as the rest of the world’s infrastructure was largely destroyed by WW2. The US was also a net creditor up (trade wise) until the 1980s. But starting in the 1980’s the US started financializing its economy using debt to fund the economy, it also started shipping manfacturing overseas.

               US never had a balance budget between 1994 & 2001 because it stole from the SS Surplus. All of the SS surplus was applied to the general fund. If the US gov’t had left the SS surplus untouched (not spent) than it would a big budget deficit.

         2. No, neither happens. The national debt is always inflated away.

            I haven’t been following this thread, been too busy. But I assume you were talking about the national debt. If not just ignore my comment.

            1. Ron,

               The charts show Debt to GDP ratios, so it adjusts for inflation. Basically the economy grows and yes there is some inflation, but inflation rates were relatively low for most of the 1946 to 1972 period, a bit of inflation during the first oil shock. Yes Federal debt is essentially the national debt. What is important is the level of debt relative to GDP, the US economy was growing rapidly for most of the 1946 to 1972 period which brought the debt to GDP ratio down.

               You are correct that the total level of federal debt has rarely gone down (1946 to 1948 is one exception), mostly the level of Federal debt expansion was slower than the growth of GDP for most of the 1948 to 1974 period.

               1. The USA prints money for the whole world and gives out loans. This is a big advantage. I could be wrong, but the US debt is not as big as it seems. The thing is that loan bonds
                  buys mainly Fed
                  the share of non-residents is not large. Fed buyback
                  -This can be called a dollar issue.
                  The only inconvenience of a large debt to the Fed is the inability to raise interest rates.
                  In this case, debt servicing will be expensive, which will lead to strong inflation.

               2. Yes, right now the FED is the central banker to the world with all the swap lines to other Central bankers . These are never going to be squared and are used to keep kicking the can down the road .

   2. Simple answer: either the hierarchy changes in some way, or civilization collapses.

      You are always saying it’s only ones and zeros, or paper, or whatever (I’m paraphrasing).

      Soon enough we are going to have a chance to prove it.

      And if you still have Republicans in power in January, it will not be pleasant.

   3. To understand what $25T of debt means on a personal level, I divide the $25T of Debt by the Presidential Budget. Trump’s budget was around $5T. So there is approximately $5 of debt for every $1 of income tax the government wants to collect from us. I simply multiply what I pay in income tax to realize that I am paying for another mortgage **and** an ever increasing one while the people who “earn” the big bucks are asking for hand outs. I’m pissed off.

      I finished watching Michael Moore’s Planet of the Humans and I feel slightly devastated but not all that surprised.

6. I would argue that you also can’t really inflate that debt way either. When you increase the money supply in a fiat monetary system all your doing is inflating the amount of debt. Now if there was no debt attached to the creation of money you might be able to actually get out of debt by increasing the money supply. Money disappears when you pay debts down in a fiat monetary system. Leading to a contraction of GDP.

   Negative interest rates don’t make the debt go away.
   If they worked Europe and Japan would be soon out of debt.

   There is only one way forward here and it’s an exponential growth in debt. Problem is you have to have a growing economy for this to work. It takes growing energy production or you can buy energy production from your neighbor.

   I’m in the opinion that there will be no real recovery. What happens when debt goes to 50T and underlying economy is still the same size or slightly less. Remember when debts are paid off or even cancelled money disappears leading to contraction of GDP. There is no way out. There is just an endgame.

   Some believe the endgame is loss of faith in the currency. I believe debts will be walked away from. Hyper-deflation as money or credit disappears.

   1. HHH,

      We are making a distinction between government and private debt here. Yes increasing the money supply increases total private and public debt, but not necessarily public debt, that depends on fiscal rather than monetary policy.

      I agree lots of private debt will be defaulted on. Those are debts owed by poorly run businesses and were a poor bet by the lenders. That’s capitalism, not all businesses are a success and some debt will be written off (in the current crisis it will be a large portion of private debt perhaps).

      1. Dennis. I normally would agree with your statement, but in this instance, there are many well run businesses that are in jeopardy of failure. Many with little to no debt.

         Also, many new businesses that might have succeeded will now fail. I know most new businesses fail, but the shut down due to the virus makes things way, way worse.

         You must be doing a good job self-isolating if you don’t see this happening in your community.

         There is a lot of disconnect I am afraid. Many who are able to go to work or work from home are viewing this state of affairs as more of an inconvenience. They need to become more aware of the scale of economic failure that is growing each day this goes on.

         I might add anyone with a government pension better not count on it, given the remarks made by Mitch McConnell.

         1. Shallow sand,

            Yes these are exceptional times and perhaps small businesses should be bailed out, the large businesses that do not have the ability to borrow should fail, in my opinion. Or perhaps one could look at pre-crisis debt to equity ratios and those with ratios above some cutoff should be allowed to fail.

            I agree this is a disaster, it is unclear the best solution, but it seems likely that there are some poorly run businesses that should be allowed to fail (many of the tight oil producers for example and many of the shale gas producers as well.)

            I see the economic damage, but it seems to me that bailouts of all businesses is not the solution.

            Any ideas?

            Note that states aren’t allowed to declare bankruptcy, Cuomo challenged McConnell to pass a law that allowed it.

            It is a stupid idea that would be a financial disaster, it would create a lack of confidence in US fiscal management and likely slow he recovery from the economic crisis.

            Nobel laureate Paul Krugman’s thoughts on McConnell’s proposal at link below.
            https://www.sltrib.com/opinion/commentary/2020/04/24/paul-krugman-mcconnell/

            1. I’d say the WWII approach makes sense: increase government spending dramatically to support individuals and some businesses, and pay for that with a combination of tax increases on the wealthy and borrowing.

               An increase in income tax brackets for the wealthy should be obvious: if you’re hurt by the economy and your income is low, then it won’t affect you.

               Similarly, corporate bailouts should be partly paid for by an increase in corporate income taxes: the high income companies (who are mostly saving their profits) should pay for part of the bailout of suffering companies.

            2. Dennis.

               No, I don’t have ideas.

               I was just pointing out these are exceptional times and there are a lot of small businesses with little or no debt that are hurting, either because they were required to close, and/or because of the shock to the whole economy.

               Bailouts are very difficult. They tend to help the larger and stronger more.

               1. shallow sand,

                  I agree PPP may help a bit, but they may have defined “small” a bit too loosely and most of the money probably went to medium sized businesses rather than “small” businesses. It seems to me that “small” should have been defined as businesses with revenue below some figure maybe $10 million or perhaps even $5 million.
                  Also so the money could be shared they should have taken all of the annual revenue for the small businesses say it was 1 trillion dollars (I have no idea what the right figure is, but I bet the IRS could do an estimate based on 2018 tax returns) and if 300 billion was in the PPP program, then loans for any individual business would be limited to 30% of their 2018 revenue. This has the problem of not accounting for rapidly growing businesses or recent start ups, but may be better than the legislation as it was written. Seems most of the money went to larger firms, though oversight was not really done so we don’t know where the money went.

                  Perhaps to those who gave the biggest donations to their Congressmen or Senators. 🙂

            3. Dennis wrote: “I see the economic damage, but it seems to me that bailouts of all businesses is not the solution. Any ideas?”

               Your basically asking how can I save my home that burned down to the ground. The simple answer is: You cannot!

               FWIW: I suspect we’ll see the gov’t buy a lot of the debt, trying to prevent a deflation death spiral. But all this debt buying is likely going to trigger inflation. Perhaps slowly, but it will gain steam over time. Once the inflation Jeannie is out, it will be impossible to stop.

               With the Tit-for-Tat war between the US and China, I think its going to lead to higher prices. China is the worlds Manufacturer, and everything sold or made requires something from China: Parts, assemblies, finished goods, and materials. It took about 40 years to outsource US manufacturing to China, so presuming it would take considerable time to bring it all back. Then there is also an issue finding a workforce willing to do those jobs. Boomer are retiring, Gen-X is already *fully* employeed, and millennials don’t want to do Manuf. & industrial jobs. the US would need to import a lot of immigrants to full manuf. & ind. jobs. Also Asia is facing its only demographics cliff, especially China & Japan.

               1. Tech guy,

                  Nope, the question is either whether to rebuild the home and how best to do it.

                  Sure we know how to stop inflation, there are levers to control the growth of the money supply so hyperinflation is not likely.

                  Lots of people in the World willing to do manufacturing and much of it is done by machines these days in any case, that will continue so the labor issue is likely to be a non-issue.

7. HHH, one could agree globally to reset the system at zero. That would mean a lot of losses for many financial institutions that hold debt, but in the end there‘s one single truth: money isn‘t real, it‘s based on mutual agreement. Oil on the other hand is real and so is any other form of energy. So resetting the debt to zero, you don‘t erradicate real wealth (energy). In fact you free it for an adequate and new valuation.
   IMO we should skip all that fiat money sistem when a reset happens and try something new, something that doesn‘t oblige the world to grow ruthlessly.

   1. If they were to go ahead with a debt jubilee I believe it is called the repercussions are unknown. I mean just off the top of my head, rating agencies like standards and poors or moodies would be completely useless and who is going to lend to governments or banks etc? It will be a strange scenario.

      1. Totally agree – except we already are in a strange scenario. And we might not find our way out with the old formulas. We have to get off that doomed growth waggon, it‘s heading to a cliff anyway. If this virus is anything good for, then for doing exactly this: stopping that wreck called growth oriented economy. And fiat money practically obliges us to grow like mad.

         But if we can predict the amount of energy we are going to have in the near future, let‘s say the next ten years, we know what amount of wealth we are going to create and can define the amount of money equivalent. I think that‘s a totally different approach than creating money out of nothing and let the „market“ do the rest. I know this is not perfect, we‘re here on a site where we try to predict the impossible – but at least one should HAVE IN ACCOUNT the limits of energy growth creating money. Lending money with a fictive wealth is doomed to fail very soon.

   2. One thing we can count on, regardless of which party has the congress, is that in order to put bandaids on the huge fiscal mess
      -capital gains taxes will be raised much higher
      -estate tax will be much higher
      -real estate capital gains will no longer be so heavily exempted from tax
      -and a value added tax will likely come into being

      and they will be here to stay.
      And this will not even begin to address debt. Currency devaluation will be the tool used to achieve a stealth default on debt, I suspect.

8. Greece was the prototype. Recall Greece imported about 400K bpd and that slashed when the triad of IMF, ECB and EU got involved to force more debt onto Greece and crush their economy, with most of it used to service already existing debt. This was in the 2012/2013 time frame. Their oil requirement was a powerful obstacle for Greece in their negotiations with that trio.

   But Greece was the prototype. A declaration of default means NOTHING for sovereign debt. There is no international bankruptcy court to expunge debt a country owes to others. If you declare default, any assets you ever have outside your borders in the future are subject to seizure.

   This absence of a bankruptcy court sort of makes jubilee impossible. People who default are doing so with only themselves caring what they have to say. You default? Go ahead. The interest will keep compounding and creditors will wait for chances to collect via asset seizure.

   This is not rocket science and it’s also not new. Countries have always wanted to default. The answer was conquest. Either the debtor conquers the creditor and seizes assets and repays the loan with them, or they find and tear up the relevant pieces of paper in some finance ministry building, or they seize the country’s gold and use it to repay. Regardless, when you have conquered your creditor, you pretty much won’t owe the money anymore. The reverse would be the creditor conquers the debtor. That nearly always turns into loss of territory, to go with some raping and pillage.

   The US has so many different creditors the armed forces will be very busy. But odds seem pretty good that’s how this will be dealt with.

   1. Oh, don’t be silly. Sovereign defaults happen all the time. Greece has been defaulting every 25 years, for the last 200 years. Loans get renegotiated, lenders take a haircut, after a few years they start lending again (at profitable terms, even with the likelihood of eventual default), a few years later the loans get into trouble, rinse and repeat. Unfortunately for Greece, this time around they made the mistake of joining the Euro-zone, so they couldn’t devalue their currency, and were held at metaphorical gunpoint by European lenders.

      Almost every country in the world has defaulted at some time, and very few have been invaded because of it – it’s just business as usual (I have some 100,000 Deutche Mark notes issued by Germany during it’s last big default, executed via deliberate hyperinflation). The US is unique: it has never defaulted in it’s 200 year history (the Continental Congress doesn’t count, apparently). That’s why it’s debt is where people flee to when they’re scared.

      1. Greece devalued their currency by a quarter when the joined the EU. Devaluing it even more simply makes no sense.

         The problem in Greece was bad governance, though it has improved. You can’t fix that in the long run be destroying your currency.

         1. Well, there’s no question that Greece has structural, long term problems – you don’t default regularly for 200 years otherwise. But Greece’s membership in the Eurozone created more problems. Here’s one discussion:

            “ Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.”
            https://www.nytimes.com/2015/07/10/opinion/paul-krugman-greeces-economy-is-a-lesson-for-republicans-in-the-us.html

            1. I heard the following story at a presentation of the Deutsche Bundesbank, but I have never been able to find the details.

               While the Greek and German governments were arguing about a bailout, one German parliamentarian remembered that he had never paid property taxes on his vacation home on a Greek island. Fearing political embarrassment, he immediately contacted a lawyer in Greece to figure out how to do it. But the local authority wasn’t interested in collecting the tax. After a few months of wrangling he ended up suing the Greek authorities to force them to take the back taxes he owed and giving him a receipt.

               I don’t think the problem goes back thousands or even hundreds of years. It is a problem all small linguistically isolated countries in Europe have. Politics is local and dominated by a few personalities or families.

               In the case of Greece, you have the Papandreou family on the left and Mitsotakis and Karamanlis families on the right. In the decades since the wave of reform after Papandreou ousted the military, nobody really felt the urgent need to clean up the Augean stables of Greek government. Getting into office was about political patronage, not rocking the boat.

               EDIT: It’s a bit like the good old boy networks that stifle American state governments and allow Jesus freaks, Ayn Rand acolytes, child molesters and anti-vaxxers to run the place, but even worse because these countries are mass media islands cut off from the wider world by language.

               Letting people like that run their own central bank is not a recipe for success.

               1. That’s interesting – linguistic isolation makes government more corrupt or less responsible? I hear people arguing to save small endangered languages. This suggests that’s a bad idea.

                  On the other hand, here’s a comment on Quora that suggests that language is unrelated (unless Kentucky English is unique…):

                  “ Is Mitch McConnell throwing his own home state under the bus by suggesting states should file for bankruptcy?
                  Here is the thing that you need to understand about Mitch McConnell and the State of Kentucky. Nobody there actually likes him.

                  He is the least popular Senator in his home state ever elected and has remained so for his entire political career. Kentucky is a state ruled by old fashioned political machine politics. He can never be primaried, because the Repulican Party will never allow it. The Democrats pretty much totally forgot everything they’d ever known about running a real campaign in Kentucky sometime around 1976.

                  So, Mitch McConnell remains a Senator in spite of the electorate. He is simply the only name on the ballot in a state which will not vote for the other party.

                  He does not care about Kentucky. He does not care about the people of Kentucky. He rules the Republican political machine in his state with an iron fist and that is all that matters to him.

                  So, yes. He is perfectly willing to throw the people of Kentucky under the bus. He’s been doing so for decades. I see no reason why he would change now.”. By Ben Skirvin

               2. Linguistic isolation allows a small elite to control the press. Berlusconi, who controlled Italy for years thanks to his control of Italian TV, showed the world how it is done. You see imitators in Poland, Czechia, Hungary, Turkey and Israel now.

                  Actually Israel is a special case, a small country whose political system has been upended by rich crazy outsiders. Israel is America’s Belarus. But the point is the same — you don’t need 1984 style total control, media manipulation is just as effective.

               3. As is well known by Roger Ailes (of Fox Opinion), Rupert Murdoch and the Kochs.

                  Seen any good articles about the situation you described in Israel?

               4. Mostly just bits picked up from reading Haaretz. According to them a vote in an Israeli parliamentary election costs just under 10 shekels, so buying elections isn’t a big deal. Netanyahu gets most of his money from three American families — the Falics, the Books and the Schottensteins.

                  But the Las Vegas casino owner Sheldon Adelson is the kingmaker in Israel. He owns Israel’s most read newspaper, and another he gives away for free, and spends huge sums on politics through various channels. He really wants to nuke Iran, and is behind a lot of Netayahu’s aggressive behavior and rhetoric towards the country. He also bankrolled Trump for $25m, presumably on the condition he abrogate the treaty Obama and the rest of the world negotiated with the country.

               5. Nick,

                  The interesting thing is that McConnell may lose his position as majority leader with his new concern over the deficit. If he gets his way, economic recovery is unlikely before November and a lot of Republican Senators may be replaced by Democrats or left of center independents.

                  It will be interesting to watch.

      2. Nick Wrote:
         “It’s just business as usual (I have some 100,000 Deutche Mark notes issued by Germany during it’s last big default, executed via deliberate hyperinflation”

         As I really the events of an economic depression (triggered by defaults) led to WW2 When People start starving or getting desperate, they select the worse possible leaders, who obtain promises by stealing it from others. I don’t believe civilization will survive WW3.

         1. WWII was a continuation of WWI. WWI was started by Germany, which felt that it’s industrial and economic strength entitled it to a colonial empire and more power in Europe, and that continued to be the German goal in WWII. Another factor was the rise of the USSR after WWI: Hitler (and his party) was supported by a class of industrialists (including many outside Germany, such as Henry Ford, and King Edward VIII) who built the Nazi party as a weapon aimed at the USSR.

            It’s true that the pain of hyperinflation and depression made it easier for Hitler to gain power and destroy democracy under the Weimar Republic. But that’s secondary.

            1. Nick, I dare to disagree with fundamental parts of your post.

               First: It is a proven historic fact, that Germany did not start WW1. The war was a result of a general hubris of ALL european powers.

               Second: Economic misery and political inestability was the main reason Hitler came to power. For several years after the war, Germany was flagellated by permanent and violent insurrections from the right and the left, followed by injust and unproportional reparations paid to France that sucked the lifeblood out of the country and caused hyperinflation, which was followed almost immediately by the big global depression starting in 1927 – precisely this mixture of misery and humiliation was Hitler‘s fertile ground.

               1. Well, this is a mighty complex historical event, which a short discussion can’t possibly do justice. But we don’t have to decide who was responsible for WWI. The real issue that we’re discussion is: which came first for Germany: hyperinflation, or war? I’d say that war came first.

                  Germany wanted war in 1914. WWI was a continuation of a long conflict between Germany and France, and that Germany’s part was fueled by an underlying sense that it was “due”: that it came late to the colonial party, and that it’s industrial power should be accompanied by political power. France tried to punish Germany with reparations, and Germany evaded them by hyperinflation: as Eulenspiegel put it, they turned war bonds into colored pieces of paper.

                  And, WWII was fueled by similar ambitions – remember the 1,000 year Reich.

                  Now, the misery of hyperinflation and depression certainly made the German people vulnerable to cries for vengeance. But…who stood to benefit? Who wanted the war in the first place? Perhaps war profiteers and those who wanted to destroy the USSR?

               2. The big stock crash and the following deflation was global and hit Germany very hard. They tried to reduce budget deficit during the crisis instead of Keyne spending – and that got Hitler. He thrived on high unemployment filling his ranks of rowdies of the SA.
                  With a big “New Deal” program I think the Nazis would have stayed a counterpart of the communists, zeroing out each others. No calm times, but no dictatorship.

                  For WW1: Every european power was ready for war, there was only a match needed to ignite this situation. The book “Sleepwalkers” is a good overview of this time. The biggest error of everyone was a war would be short and could be won – it was long and there was no real winner. Everyone lost.

               3. I’m not looking to judge Germany for WWI. My question is about the cause of dictatorship: did economic chaos cause it, or were there other more fundamental causes, which took advantage of the situation?

9. Watcher, if we stick to BAU, I’m afraid this is very probable.

   So now we create an extreme chasm between debtors and creditors – followed by a second wave when Peak Oil hits in less than a decade – and the creditors want all that non existing money back from debtors that won‘t be able to pay ist back not in a thousand years. And debt jubilee is off the table by principle. For me that‘s just another definition of insanity. And the worst: yes, Watcher, you‘re probably right …

10. To some extent the debt can be inflated away. I recall buying ice cream cones for 5 cents.

    1. It can be done.

       Germany paid the dept of lost World War 1 and 2 with a debt reset. First time with an hyperinflation that converted all war bonds into colored paper, and the second time in 1949 as a reset with fixed starting money and not much conversion of the old money.

11. Franz Pick – Currency/ hyperinflation expert. https://reason.com/1982/06/01/interview-with-franz-pick/

12. I don’t like to scroll on this tablet so some of the stuff above winds up here.

    First of all, GDP. In late March, Goldman Sachs estimated a -24% Q2. The stimulus package was passed on the 23rd and I’m pretty sure GS offered up their number pre stimulus. But Deutsche Bank held up a -13% estimate for Q2 in early April, and that was clearly post stimulus.

    Given no cure, I’ll offer up a – 6% for Q3 Q4. That sums to 19% and that will leave us at right about 17T. Reopening the economy is not something government has any control over. All those planning on booking a cruise this fall raise your hands. If you know anybody in university administration you might want to ask them if they expect the usual number of students to want to come and sit in a room and get infected this fall. The point being, negative GDP growth seems likely for the remainder of this year, excluding cure.

    The US bankruptcy code is interesting and somebody up above said that states are prohibited from declaring bankruptcy. I know that the code provides for municipalities to declare bankruptcy but that section of the code is very careful to say that any such power does not obstruct the prerogatives of the state within which that municipality resides. I do not think the code prohibits states from declaring bankruptcy, but I don’t think there is any provision for it within the code.

    Now let’s be clear here. States can default on their debt. The uproar and upheaval would be extreme, but if they do not make payments on their bonds that is a credit event and they have defaulted. And a reminder here, a default on any bond is a default on all bonds. It would be interesting to see how state assets that reside in another state could be seized. Now that I think about it California’s pension funds don’t reside in California. Holy crap. Probably true of Illinois, too. Maybe there with Fidelity. That would be hilarious.

    SS is very much correct above as regards state or local government retirees and their pensions. Scare words of this sort have floated around before but this is a brand new world and there is no history. There is lots of precedent for slashing pensions in a bankruptcy and the PBGC steps in and covers pensions that cannot be paid, at perhaps 40% their previous level.

    As for the hyperinflation clique, best to be reminded since the financial crisis central banks around the world have longed for inflation. They have created money in quantities no one would ever have imagined and they can’t get a lousy 2% inflation. You got people who cannot leave their house to do much of anything and it’s real hard to imagine how such a scenario is anything but deflationary.

    Oil is down over 2 bucks in Asia right now. More deflationary fuel for the fire.

13. Will be interesting to see if and how Trump responds to the OK governor’s request to declare a national “Act if God.”

    I read that North Dakota is up to over 400,000 BOPD shut in.

    $14 WTI means single digits for most and negative for some.

    If you don’t have leasehold debt and such an “Act of God” we’re declared, allowing for temporary shut in without penalty, things could be manageable.

    There are still some fixed costs, minimum utilities, insurance, taxes and fees as they come due.

    Also, the longer equipment is idle the more issues will arise to restart.

    An “Act of God” for May and June would not be the end of the world for a producer with no debt. Definitely a tough pill, but can be survived.

    Question is, how much US oil production is not leveraged? 20% maybe?

    1. shallow sand,

       I imagine there will be a lot of bankruptcies both chapter 7 and chapter 11 in the petroleum industry.

       Much of the debt may be written off and assets will be on the market at fire sale prices, the majors and any other large producers that can survive may find some great deals, the consolidation that might occur will be interesting to watch. Mr Shellman believes tight oil may be gone for good, or implied as much in a comment at oil price, though he did not use those specific words, he said he would advise an investor to stay away from tight oil or something to that effect.

       He would obviously know better than me. Your thoughts?

       Could a tight oil company starting from scratch with say 10 million to invest and oil industry experience similar to yours make a go of it by buying up cheap assets up for sale in due to chapter 11 and developing those assets carefully as oil prices eventually rise. I expect oil prices will rise to above $60/b by the end of 2022 and will probably reach $80/bo by 2030, unfortunately there is likely to be a lot of volatility along the way, though a vaccine in 18 months may help to settle things down, continuing waves of pandemic seem likely between now and release of a vaccine, otherwise we will need to attain herd immunity.

    2. SS, what exactly is an act of God declaration going to do contractually? What costs are suspended? Or is it just obligated barrels that will not be provided, and thus the loss per barrel avoided? Isn’t that Force Majuere? Why does there need to be any additional declaration?

       From the perspective of bankruptcy, since the land and minerals are largely owned by independent parties, the presumption that there will be cheap assets to be purchased in a bankruptcy doesn’t seem to me all that clear. Maybe the lease is an asset, but one wonders if the lease documents declare it all null and void in a bankruptcy. Regardless the asset of value is the oil underground and often doesn’t belong to the companies declaring bankruptcy.

       It’s probably a good time to remind folks shutting in production means oil doesn’t exist at refineries nor gasoline at gas stations. The disaster scenario that would result will be something less than 100%. Some oil is going to flow to refineries.

       And that oil will be from the SPR. The usual criticism of this reliance has to do with the limited rate of flow possible from the SPR. As I recall 4 to 5 million bpd. With what other limited flow is possible from conventional wells with hedges, it may sum to sufficient given a declined consumption.

       1. Watcher,

          I imagine there is oil and petroleum products stored in many places and the pipelines will probably continue to work, as storage levels fall, prices will increase and production will gradually restart, it will likely take a while for the economy to get restarted. Purchasing the wells from a bankrupt company would be complicated as an agreement with the landowner would need to be negotiated at the same time, perhaps one could make both transactions contingent on the other, there is likely some legal mechanism that has been devised to accomplish this. That’s one way lawyers make money.

          1. Almost all oil and gas leases have a primary term, within which a well(s) must be drilled.

             Next there is what is called the habendum clause, which provides the lease continues indefinitely so long as oil and/or gas is produced.

             If production ceases, anyone with standing can file suit to have the lease declared forfeited.

             This is why you may hear of operators pumping a well here and there on each lease for a short period of time to try to keep the leases valid.

             Temporary cessation of production is ok, but there are many gray areas as to what is temporary and what isn’t, and each case is fact specific.

             Possibly, such a declaration would end the risk of lease forfeiture for lack of production, however one wonders if either state or federal have the ability to supersede a contract.

             1. Shallow sand,

                Great info thanks. You said most operators in your area are shutting things down, does that mean you have to get an agreement with the land owner that it is ok to suspend production? Or do you just pump a barrel on each lease each month to keep the terms of the lease?

                1. Dennis. Case law is all over the map as to what is considered temporary cessation of production.

                   One could try to reach an agreement with surface and mineral owners (both typically have standing to seek to cancel a lease) but in stripper fields many times the minerals have been severed, and the landowner and mineral owner may have differing viewpoints. Further, if the minerals were severed from the surface decades ago, there could be tens, if not hundreds of mineral owners.

                   Almost all lease documents contain a force majeure provision. The question is whether extremely low/negative prices would qualify, unlike a storm, fire, flood or some other type of an “Act of God”. Maybe a pandemic would qualify?

                   The landowner/mineral owner(s) would need to file a complaint in state court seeking cancellation of the lease.

                   In the past, operators would top lease the existing lease, and would then file suit with the cooperation of the surface/mineral owners.

                   I wonder who would want to top lease right now and spend a few years and maybe tens of thousands of $$ or more to cancel a lease?

                   I have litigated lease cancellation cases, as many arose after the 1998-99 crash. They can be costly and take 2-5 years, especially if there is an appeal of the trial courts decision.

                   The other issue is the various state agencies. They have rules that require wells to be produced, plugged or TA’d. Each state has different rules.

                2. Thanks Shallow sand,

                   I thought it would be complicated, as usual it is even more complex than I imagined. Great concise summary of a subject that sounds like a book would be required to cover it. 🙂 Or perhaps several books.

14. Oil plummeted 30% to under $13 a barrel today. Ho hum. Not interesting enough to elicit a comment from anyone.

    1. Most producers are getting less than that, anywhere from negative up to about $11 per barrel.

       1. shallow sand,

          April 27 prices at plains crude bulletin were -5 to 9 per barrel

          https://www.plainsallamerican.com/getattachment/aebd21b1-ed4a-420d-9295-42c8cd0e1f01/2020-080-April-27-2020.pdf?lang=en-US&ext=.pdf

15. So, anyone know if the USA corn ethanol production is projected to undergo change in production levels this year?
    Last year- Fuel ethanol production capacity in the United States totaled 16.9 billion gallons per year (gal/year) or 1.1 million barrels per day (b/d), as of January 2019, according to the U.S. Energy Information Administration’s (EIA) 2019 https://www.eia.gov/todayinenergy/detail.php?id=41393

    ..”In other words, the U.S. devotes enough land to corn-ethanol production to feed 150 million people.”
    The RFS (renewable fuel standard) is an indirect subsidy to this industry, requiring that a certain amount of ethanol be added to all gasoline by refiners.

    https://www.theatlantic.com/ideas/archive/2019/11/ethanol-has-forsaken-us/602191/

    1. Ethanol production had been averaging about 1 million BOPD, and the last reported figure for the week ended 4/17/20 was 563,000 BOPD, which is the lowest amount since EIA began reporting ethanol supply in 2010.

       Cash corn is below $3.00 at most grain elevators in the United States.

       The hits just keep on coming for rural commodity industries.

       1. shallow sand,

          As you know most of the ethanol goes into gasoline at about a 10% level, gasoline consumption has gone from roughly 9 Mb/d to 5 Mb/d, so ethanol consumption has gone from 900 kb/d to 500 kb/d, when the economy recovers demand for ethanol goes back to 900 kb/d and corn prices go back up to $3.75.

          I agree, terrible for farmers, though looking at historical prices these dips in the spring seem to happen every couple of years since Match 2014. Doesn’t make it better, but not as bad as the drop in price for oil that you have seen recently.

          1. Correction March 2014 in comment above rather than Match 2014.

    2. Hickory,

       It will be difficult to change production level unless farmers decide to plant less, which may not be viable. Perhaps some of the corn can be exported, certainly the demand for ethanol will be down which will hurt farmers.

       1. Looks like a setup for a huge glut of corn, unless the growers scale back production strongly. I know of no coordinated approach to achieve that market-responsive strategy. Just thousands of individual decisions. Correct me if I’m wrong on this.

          1. Hickory,

             Correct, just individual farmers making decisions, typically the decision is to plant all the corn that is feasible to grow, one never knows whether there will be flooding or some other event that might reduce the harvest, so you grow it and sell it at the market price. I imagine there may be an export market, but shallow sand would know more as I believe he lives in farm country. Mostly potatoes in my region and organic farms growing local vegetables, not a lot of corn these days, maybe a bit for grocery stores and farmers markets.

16. Exact SPR extraction rate 4.4 mbpd. Refiners will make a lot of money on that. One presumes they will pay only the going price, or the govt might just zero that for stimulus purposes. Where it gets interesting is distribution. Customers near the refineries get it first, and refineries near the SPR also get it first.

    BTW those numbers above computing stimulus, deficit/GDP, debt to GDP . . . . odds look at least 50/50 of more stimulus this year, and big numbers. Probably worth also noting the $1.1T organic deficit projected pre virus/stimulus . . . that’s going up because tax revs are going to crash. And going up big.

    $5T is a pretty credible total deficit this year. And make that $26.5T debt.

    Soc Sec insolvency date is moving closer. A lot. Unemployment is not going to go away very fast.

17. “…Mexico won because they had hedged their oil output and the more the price dropped, the more they made on their hedges. According to this report, they hedged their oil at $49/bbl in January…”

    The South Korean refiners were not as astute as Mexico. S-Oil (which is Saudi owned) just reported the largest quarterly operating loss ever. – http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3076546

    With all storage for oil in the country full, the refiners must be hoping that the return to normal usage goes well.

18. ….Jeju braces for surge in incoming holiday tourists amid easing pandemic restrictions ….

    https://en.yna.co.kr/view/AEN20200428007000315?section=national/national#none

19. And then there are the 100+ tankers now anchored off California and Texas.

    Including the 200+ oil tankers sitting off Singapore, the Oil Market will become even more interesting over the next 1-2 months.

    steve

    

    1. It’s common for about 3 to 6 tankers to be parked off the coast of Long Beach Harbor and they only sit there for a day or two with about half of them empty. I was near the coast two days ago to see what was there but it was overcast and couldn’t see anything. All the regular working pump jack along the cliffs in HB were all operating.

    2. There is only one thing to do, which, in first view, seems very obvious : reinject the oil already extracted into the different oil wells. That seems extravagant but I am sure that this absurdity will become an obvious fact in the next months.

       1. Simpler and cheaper to just shut down production, there is still 60 Mb/d of oil used currently, stock levels will fall at a rate of 60 Mb/d with zero output.

    3. Here’s a helicopter video of some of the oil tankers anchored off Long Beach, California.

       https://www.youtube.com/watch?v=yD0W0oFdQhY

       If I’m seeing correctly, some of the tankers are floating high, i.e., are empty.

       1. There are 4 man made islands build in the 60’s operated by California Resource Corporation(CRC) still recovering about 20k bpd from a 100 year old and one of the ex-largest reservoir in the states.

          Yesterday still had some over overcast out over the ocean. The best count I could get was 19 tankers, but there could have been more. There was also a platform sitting out there too. Not sure were that came from and haven’t seen that before.

20. Simple question: how many years before the next pandemic to shut down the world economy? And another question: will we (the world) have recovered sufficiently from this pandemic before the next one to hit?

    1. MikeG,

       If history is used as a guide, the next significant Global pandemic will be 2119.

       1. There is no rhythmic schedule, and 7.8 Billion is one hell of a petri dish for the lucky organism who can take root.
          But Moderna is going to substantially upgraded by this whole ‘practice run’.
          This company is the real deal
          https://www.modernatx.com/

          1. Hickory,

             Probably not, but the last significant pandemic was 1918, so just basing it on experience, in addition, we are likely to be a little more humble going forward and not think that modern medicine can prevent another pandemic, better preparation (Taiwan or Korea would be good nations to model for other nations that failed miserably in the West) might reduce the impact of the next pandemic.
             Australia and New Zealand have also done a pretty good job and Germany to some degree.

             1. Yes. The bottomline is that we’d be wise to take the possibility seriously and learn what response worked and what didn’t, and what kind of leadership you want in mayors, governors and at the Fed level.
                A big step is to to listen to well-informed people on the topic, like Bill Gates.

                1. Hickory,

                   Agree completely.

             2. And if the politicians follow the 100 year logic and assume there is no need to worry for a long time then we are really fscked.

                NOAM

                1. There is a simple adage for this, hope for the best, prepare for the worst. We seem to have forgotten the second part of that, or the voices that warned of the potential worst case were ignored.

                   Perhaps we will not forget the lessons learned in 2019-2021, we can hope.

21. NPR: Dozens Of Oil Tankers Wait Off California’s Coast As The Pandemic Dents Demand

    The scale of oil market turbulence is on stark display along the California coast. About three dozen massive oil tankers are anchored from Los Angeles and Long Beach up to San Francisco Bay, turning into floating storage for crude oil that is in short demand because of the coronavirus.

    About 20 million barrels of crude are on board the tankers, according to Reid I’Anson, global commodity economist at Kpler, a data company. “That is definitely far outside what is normal for the region,” he says, referring to California’s coastline. “Typically, we’ll not see more than, you know, maybe 5 million barrels tops kind of floating.”

    https://www.npr.org/sections/coronavirus-live-updates/2020/04/27/845921122/dozens-of-oil-tankers-wait-off-californias-coast-as-the-pandemic-dents-demand

22. USO Reverse Split. Event Horizon?
    https://twitter.com/chigrl/status/1254857532847210496

23. Trump Could Use ‘Nuclear Option’ To Make Saudi Arabia Pay For Oil War

    With last month having seen the indignity of the principal U.S. oil benchmark, West Texas Intermediate (WTI), having fallen into negative pricing territory, U.S. President Donald Trump is considering all options available to him to make the Saudis pay for the oil price war that it started, according to senior figures close to the Presidential Administration spoken to by OilPrice.com last week. It is not just the likelihood that exactly the same price action will occur to each front-month WTI futures contract just before expiry until major new oil production cuts come from OPEC+ that incenses the U.S. nor the economic damage that is being done to its shale oil sector but also it is the fact that Saudi is widely seen in Washington as having betrayed the long-standing relationship between the two countries. Right now, many senior members on Trump’s closest advisory circle want the Saudis to pay for its actions, in every way, OilPrice.com understands.

    1. Frugal,

       I read that piece, just some ranting. I always wonder about these guys. Saudi output has been flat while US output increased by 7 Mb/d and they should cut? I would say FU. Data for shart below from EIA international statistics.

       

       1. I would say FU.

          Obviously every oil producer cares only about themselves. A human way to react although not the best approach for the overall good of producers.

          1. I don’t agree that every oil producer only cares about himself or herself.

             I do agree that every oil producer is most focused on his or her situation.

             Where we are, we have been taking to neighboring operators more than usual. Not that there is anything to say, but able to vent a little and know there are others in the same boat.

             Times like these can easily lead to self doubt. Talking to a neighbor who you highly respect as an operator helps you realize he or she is having the same issues as you.

             In retrospect we all should have hedged. But as I have discussed here many times, hedging isn’t easy, especially for a small operator. The expenses are high per barrel.

             As for Dennis’ comment regarding Saudi Arabia, I mostly agree. I do think Saudi decided to take advantage of a situation, not realizing just how serious it was.

             Note, I am only referring to Saudi regarding oil in a business sense.

             However, shale has severely damaged the US and world oil industry. No need for me to recount the ways. People like Mike and me started discussing those here over 5 years ago, and the media picked up on them quite a bit later.

             1. Thanks Shallow Sand,

                I agree that oil producers do not only care for themselves in general. A few may, just as is the case for Bankers or any other business.

                Also agree tight oil producers mostly have themselves to blame. If a nation is going to claim they are the “dominant” oil producer in the World, then they are going to have to compete on price. Saudis were stupid to get into a price war with the Russians, especially given the covid19 outbreak, it was a chump move on the Saudis part, and a good way to piss off their most important ally.

                So lots of blame to go around. I believe their aim was to hurt the Russians and maybe they believed the nonsense coming from tight oil producers that they could breakeven at $30/b (it is at least double that in reality as you know). I don’t think anybody expected oil prices would go this low (or not me at least).

                When HHH was claiming oil would go to $20/bo, I thought he was nuts.

                Looks like the monthly average posted price for WTI at Plains for the month will be between $12 and $13/bo in April (I am guessing $10/bo for the last 2 days of the month). In your area perhaps 8.50 to 9.50 per barrel of oil (I think it is roughly a $3.50/bo spread to WTI.)

                Sorry man, that really sucks. I guess the silver lining is that the number might not be negative.

                1. Dennis.

                   Further proof that not everyone in the oil business is a terrible, greedy person, three of the four crude oil purchasers in our area have removed the negative posting for April 20, and have brought it up to $0. That helps by about $1.50.

                   Also, after initially being told our basis was being whacked, these three also decided they would not follow the leader (the one publicly traded company) and are leaving basis as is at this time.

                   Just learned this news yesterday. They won’t be buying much oil in May as most have committed to shut in for May in our area.

                   Of course, this is a business decision, but sometimes being a good neighbor and good business practices go hand in hand.

                   The three crude oil purchasers are all small companies, one is a farmer owned co-op, one is owned by a group of stripper well operators and the third is a family owned private company. All have upstream operations, so they know how it is. None buy shale oil.

                   The leave it in the ground fools need to be educated on the difference between OPM big corporate greedy shale and the thousands of small businesses that operate US onshore conventional production. They might be ok with having us and our small footprint around to produce petroleum for their EV, laptops, smart phones, PPE etc.

                2. “The leave it in the ground fools need to be educated on the difference between OPM big corporate greedy shale and the thousands of small businesses that operate US onshore conventional production.”

                   Most people in the country are not at all familiar with the industry, and this big distinction that you draw. It is something I have only become aware of in the past 5 years, by hearing the comments posted here.

                   So most are more just uninformed rather than fools, but the ramification is the same- lack of understanding. Same thing applies to many other industries, like medical care and farming. Most people are clueless of the actual conditions facing those who operate in these industries. For example, most are not really aware of just how much the big medical insurers, and the politicians in their pocket, trample all over the nurses and doctors of the country.

                   In general, I think just about all Americans favor the family farm over the big corporate operation, and the same notion applies to all sectors. If they had a vote [and they were aware of the landscape of the industry], the smaller independent oil producers would be the ones with the most favorable treatment when it comes to things like pricing, regulation, and market access.

                3. Fools is probably too strong of a word for most, and I apologize for that.

                   There are some that truly believe in zero fossil fuels, and at this point I argue that is a foolish notion.

                   I think much of the urban/rural divide comes from a lack of knowledge about the other.

                   Urban dwellers have little reason to investigate rural matters. I agree that rural dwellers are similar, but most have more reason to investigate urban issues as certain goods and services can only be acquired in urban areas and many rural people have children/family who move from rural to urban areas.

                4. “There are some that truly believe in zero fossil fuels, and at this point I argue that is a foolish notion.”

                   Agree, that is absolutely foolish.

                5. I agree with both of you, the “leave it in the ground” folks are to some degree an extreme position, we should try to use as little as possible, because climate change is an important issue, but it will be 20 to 30 years before we reach that point in my view.

                   Optimists like Tony Seba think we will be there in 10 years, maybe 15 years at most due to disruption of energy markets by TaaS, EVs, AVs, solar power, and batteries all becoming much cheaper than traditional fuels. His presentations are pretty compelling especially when one looks at predictions he made in 2014 and the trajectory of several of these industry’s since that time.

                   His analysis suggests this will require no government intervention or mandates, the economics will drive things.

                6. we should try to use as little as possible, because climate change is an important issue, but it will be 20 to 30 years before we reach that point in my view.

                   I think that’s a fair description of the view of almost all environmentalists. I’d say that almost all of the people who support the Green New Deal understand that it would be very unlikely to eliminate 100% of fossil fuels in 10 years. I’d say the 10 year mobilization is just a simple planning framework which is meant to evoke Kennedy’s moon project. Read the text, linked below. You’ll see the phrase “as much as is technologically feasible” used several times.

                   https://www.congress.gov/bill/116th-congress/house-resolution/109/text

                7. Nick,

                   It is the rhetoric such as no new fracking which gets people worried about what’s next, no oil production?

                   I don’t believe that is what it is meant to imply, but it seems to be read that way in the oil patch.

                   It doesn’t help when during the debate with Sanders that Biden said no new fracking, which was later clarified to mean no new fracking on federal lands (this is a very small part of total tight oil and shale gas output).

                   Mainstream Democrats are not really onboard with the far left wing of the Democratic party and Biden is pretty mainstream though he is being pushed to the left a bit.

                8. Dennis,

                   I agree. I think a major problem is conservative media trying to paint democrats as much more radical than they are, to scare voters.

                9. Thanks shallow sand, I am happy you and the fellow producers in your area are getting a break, that is very neighborly of the purchaser, good stuff.

                10. Dennis. Keep in mind producers here won’t be selling much, if any oil in May. June likely also will be minimal.

                    Almost have to laugh at MSM touting today’s rising oil price.
                    $11 and change is terrible still.

                11. shallow sand,

                    Agreed. Prices are awful. Thanks so much for filling us all in on the real world oil industry.

                    Not sure you realize how much we all appreciate your participation, I am pretty sure most agree with me on that point.

24. Blurb says China oil imports from KSA are down 1.6% in March. Imports from Russia up 31%.

    China already declared -7% GDP growth Q1.

25. CHESAPEAKE ENERGY CORP PREPARING FOR POTENTIAL BANKRUPTCY

    1. Chesapeake > Chesapeaked.

26. CLR stock has doubled from its lows despite announcing shut in of 150,000 BOPD.

    Hey millennial Robin Hood investors, want to own a part of the real oilfield? Give us a call. Lol!!

27. The Fed is explicitly bailing out junk bonds with the current QE round. Keep that in mind when wondering how shale gets funded. Been mentioned before . . . if losses are covered by someone else, there’s no reason not to take risks in shale. Again.

    And always always always remember oil went negative. Big and for a couple of days. That’s it. The matter is settled. Nothing has to make sense. It never did. We just pretended. Don’t pretend anymore. That precedent is forever.

28. ConocoPhillips is shutting in 260,000 BOEPD in May and 460,000 BOEPD in June. Of that, 160,000 in May and 260,000 in June is US lower 48. The remainder is Alaska and Canada, so it is all North America. They also anticipate additional global shut in production.

    The above are gross numbers. Don’t know their gross companywide production, but net world wide was 1.278 million BOEPD with 399,000 net BOEPD coming from US lower 48.

    What I am coming up with is in June 60% of the company’s lower 48 production will be shut in.

29. Oil surges on biggest jump in U.S. gasoline demand in 11 months

    Producers in the shale-rich Permian Basin, and elsewhere in the U.S., will cut about two million barrels a day of output in May compared to March, said Mercuria Chief Executive Officer Marco Dunand in an interview.

    Russian oil companies will cut output by about 19 per cent from February levels, the nation’s Energy Minister, Alexander Novak told the Interfax news agency. Nigeria, which has been struggling to sell its oil even at $10 a barrel, will ship the lowest volume of its key Qua Iboe crude grade since 2016 in May and June.

    Well of course people are going to burn a lot of fuel when it’s so cheap.

    1. Frugal,

       Eventually they may, but for now many are stuck at home and air travel is way down, less fracking etc will use less diesel fuel so we might see demand for diesel drop a bit as drilling activity decreases.

       Perhaps in 12 to 18 months we will see demand start to return close to “normal levels”, that is a best case scenario, A more realistic scenario is 5 to 10 years.

       1. I’ve certainly noticed an increase in traffic in the last week or so although not nearly to pre-pandemic levels. Of course this is just in one city but I’m sure the same is happening elsewhere. Cheap fuel = more driving.

          1. Frugal,

             True if everything else is equal, but there is also the lower income associated with so many out of work, so less income=less driving. As to which effect is more important over the long run we will see. Also as income increases and there is more driving oil prices and fuel prices will eventually rise, so more driving leads to higher fuel price. In theory we might reach a balance where the demand is equal to supply at a price where the marginal (most expensive to produce) barrel produced is barely profitable. Seems this theoretical scenario is rarely achieved in the real world oil industry, it only exists in introductory microeconomics text books.

          2. Cheap fuel = more driving

             All dressed up and nowhere to go.

30. Fascinating if true. Implications of this would be material as we work into Q3/Q4.

    “From the end of March to today, global oil-on-water saw an increase of ~120 million bbls.

    For global onshore inventories, Kayrros pegs the increase month-to-date at ~140 million bbls.

    You combine the two and we get ~260 million bbls of storage increase. This is compared to the theoretical increase of ~480 million bbls as of April 24th.

    On an implied basis, we are talking about ~10 to ~11 mb/d of oversupply in crude versus the theoretical oversupply of ~20 mb/d.”

    https://seekingalpha.com/article/4340763-oil-global-crude-storage-builds-in-april-are-nowhere-near-analyst-estimates

    1. Snowback,

       Near term visibility is not good, we won’t know what happened in April until June or July, this results in much of the craziness in oil markets. Obviously there is more oil being produced than consumed, how much more is not easy to estimate, estimates differ depending on whether we are talking monthly, quarterly or annual output and there is wide variation between analysts. For April I have heard estimates from 10 Mb/d to 50 Mb/d, so maybe 30+/-20 Mb/d for a very rough guess.

31. There’s some talk of possible involuntary shut-ins of wells once storage gets full. I have had a bit of experience with this, but it’s generally something that is avoided if possible, especially for long term. One gas/condensate well was lost completely because of sand issues. A set of horizontal wells came back with much lower flows because the oil/water interfaces had settled out above the well in places. Vertical high water cut wells have proved difficult to start up once they get flooded with water and any natural gas evolved gets collected in a gas cap in the well bore and there’s no natural lift before some oil can be drawn in (a lot easier if there’s gas lift or submersible pumps). There’s usually a few issues with equipment reliability as well and hydrates could be an issue in, for example, deep water or Russian fields I should think. I haven’t known of any permanent reservoir damage but I can imagine how it might happen especially in water flood wells. I can also see it may not be worth restarting some stripper wells if the oil interface has settled out far from the well bore – a lot of water would have to be drawn off before any oil would be produced. Voluntary shut-ins would be easier as the wells can be selected that will be easiest to restart, but even then I can see possible issues for prolonged shut down (not so much for the fields that have the best reservoir models like Saudi and Norway though).

    1. We have tried in the past to identify methodology by which damage to oil fields can be permanent. Apparently one can get pretty close to permanent. This could be the impetus for the gun to the head scenario that forces oil workers to work.

       Might as well do it that way since we now know that price is meaningless.

32. EIA monthly is out.

    February was slightly lower than the high reached in 11/19.

    Unless there a big revisions, appears 11/19 might be the US peak month for quite awhile.

    1. Shallow sand,

       Looks like US conventional onshore L48 output was about 2300 kb/d in Feb 2020, would you think about half of this might be shut down for May, or perhaps more? Obviously it would be a guess by you, but your guess would likely be better than mine as you know more about what’s going on in the real world oil industry.

33. Somewhere up above I think I quoted an expected 5 trillion deficit this year. That would point at 26T for debt.

    Today a brand new term was introduced. CARES 2. CARES was the name of the stimulus package. This new one is said to start at 1T and will likely double from there. So let’s call it 28T at the end of the year.

    Isn’t this fun? Oh, and by the way, the Fed’s balance sheet is now 6T.

    SS, get something planted to eat around your wells.

    1. Yep and that’s the balance sheet they are showing. I wonder what asset purchases have been done off balance sheets.

       1. Iron Mike,

          I think the Fed is fairly transparent about this stuff, financial press would be all over it if this were not the case.

          Does the central bank in Australia do off balance sheet asset purchases? Would seem to be a bit of a shady practice.

       2. There is off balance sheet, and then there is off balance sheet.

          I presume we all recall the FED announced it would be buying corporate Bond ETFs, yes? Including JNK and HYG?

          Now, of course, those are equity surrogates, but they are indeed high yield bonds that behave like the S&P. So there is at least some camouflaged way to pretend that they haven’t stepped Over The Line. Not that there’s really any line

          But there’s also the program that was somewhat under the radar. You see, the Fed announced that they would make loans to businesses that had requested PPP loans and those loans would function as collateral at their face value.

          See the camouflage? PPP loans are the collateral. Recall that if the business conforms to the rules, those loans are erased and become grants. They are the only collateral for the Fed’s loan. The Fed can seize only the PPP loan as a foreclosure asset, and that asset disappears when it ceases to be a PPP loan and becomes a grant. That’s the Fed providing equity. Isn’t this fun?

34. https://www.zerohedge.com/energy/berman-game-over-oil-economy-next

    1. From your zerohedge link:

       Thought Experiment based on rig count through April & 12-month lagged production U.S, tight oil production will probably be 15-20% lower in April vs March. Output will fall about 60% June vs. March to less than 3mmb/d because of shut-in production.

       bo/d & % Production Change from March . Pct
       Mar ……. 7,055,728 ………… 0 ………………… 0%
       Apr ……….5,887,064 ………… -1,168,664 ….. -17%
       May …… 4,120,945 ………… -2,934,784 ….. -42%
       June ….. 2,884,661 ………… -4,171,067 ….. -59%

       1. Ron,

          If correct, it would help balance the market. About 3 Mb/d of LTO gets exported, and inputs to refineries are down by 3 Mb/d, so this would be a good thing as far as storage levels and forced shutins. My guess is more conservative than this maybe tight oil output at 4000 kb/d by August 2020.

          1. Dennis, I think you are really being overly cautious. That is, is it possible that you fear to make a prediction that is too low then having people throw it up to you later?

             Of course, that is possible. There are some folks who only live for pointing out other people’s mistakes. But anyone who dares to make any prediction whatsoever is bound to be wrong, one way or the other.

             So I will do my part in giving these guys something to hit me with later. I predict tight oil will hit 4 million barrels per day by June.

             Printed in the Boston Globe many years ago: (From memory so not verbatim.)

             Within the pages of this paper you will find several grammatical or spelling errors. They were put there intentionally. There are some people who enjoy pointing out the errors of others and we do like to please everyone.

             1. The Japanese follow a couple of aesthetics in regard to embracing flaws

                https://en.wikipedia.org/wiki/Wabi-sabi

                https://en.wikipedia.org/wiki/Kintsugi

                I’m not sure how this applies to Japanese technology though, in which they seem pretty thorough

             2. Boss , bulls eye .

             3. Ron,

                My prediction is based on a model. Presented below. If no tight oil wells are completed after March 2020 through June 2020 and no producing tight oil wells are shut in, then tight oil output would fall from about 7800 kb/d in March 2020 (EIA estimate is 8000 kb/d) to about 6600 kb/d by June 2020. So a 4000 kb/d estimate for June would require (if my model is accurate) approximately 2600 kb/d of tight oil output to be shut in over the April to June period. In December 2019 based on data from shaleprofile.com, about 3000 kb/d of tight oil output was being produced from wells with output of 200 bo/d or less.

                I think wells at that level of output are unlikely to be shut in, though perhaps they might be able to be choked to some degree. In my view, it is more likely that wells with 50 bo/d or less might be shut in which would mean about 1200 kb/d less output from those wells. That suggests perhaps 5400 kb/d of tight oil output in June 2020, a drop of approximately 2200 kb/d from March and 2770 kb/d less than the Dec 2019 level of tight oil output. I expect tight oil output wont fall to 4000 kb/d (again assuming 1200 kb/d of low output wells are shut in) until November 2020. Model below shows what would happen with no low output tight oil wells shut in (low output=50 bo/d or less).

                Note that for tight oil wells producing 25 bo/d or less in Dec 2019 total output was only 410 kb/d, these wells may be likely to be shut in, a shut in of most wells producing between 25 and 50 bo/d seems less likely, but a current price levels, perhaps it will occur, difficult to predict in my opinion. The higher the output of the tight oil well, the less likely it will be shut in in my view as there is always the risk a well might be damaged by shutting it in.

                Ron, no I am not worried about being wrong, it happens all the time 🙂 My prediction is the most likely outcome, in my view, there is a 50/50 chance it will be either too high or too low and approximately zero chance it will precisely correct.

                

35. ^I think the Fed is fairly transparent about this stuff, financial press would be all over it if this were not the case.^
    Dennis ,What are you smoking .? FED and transparency ? In the English language it is called a ^ paradox^ . Never heard of the lady who was a little bit pregnant . 😉

36. Here’s the Article and Comments from Art’s Site.
    https://www.artberman.com/2020/04/27/game-over-for-oil-the-economy-is-next/

    1. “Large segments of the U.S. oil industry will have to be nationalized before the year is over. ”

       from the article. this would definitely support what Watcher has been saying for a while – if you need the oil you will get it.

37. The Baker Hughes rig count showed US oil rigs dropped to 325. There are predictions of a drop to 150-200.

    The Primary Vision frac spread count showed that US frack spreads dropped to 55.

    On the podcast regarding the frac spread count, mention was made of spreads bottoming at 40 in the US, with 5 in the Eagle Ford and 0-5 in the Rockies, including Bakken.

    Both drops are again very large week over week, and the predicted bottoms might be too high?

    Everything here is shut in. Our little field was down to selling just 61,000 +/- BO in March. It will be close to zero in May.

    Going to be really interesting to see how far US production drops. Between lack of completions and shut in wells, could top 4 million by year end.

    1. Because Peak Oil has a forever perspective, it’s easy to wrap one’s mind around similar things. You’re quoting flow reduction in the US by 4 mbpd this year.

       That’s really small potatoes and the SPR can fill that.

       Loss of consumption looks to me estimated incorrectly. There is an absolute floor of consumption for food transport, medical/drug transport and agriculture. This is planting season. You get 1/2 of annual agriculture burn in these couple of months.

       What was lost was commuting and construction, but those are restarting, so only 2-3 months of the year will be lost. Again, ignore the cities. They didn’t burn much oil anyway. The airplanes at least 1/2 and probably more like 3/4 kept flying empty these two months. Even if more flights cancelled, it’s only a short time period. Don’t know about you guys but every airline is emailing me announcement of mask requirements and cleaning after every flight. So not much impact there.

       We’re going to find consumption didn’t reduce to near zero and that won’t really matter, price-wise, as we all now know. But the forever issue is the virus . . . and debt. If there were a cure by December, the debt will still be there. Perpetual burden on what was only 2% GDP growth. No way forward apparent to me with 28T.

       But . . . the virus. Way too much happy talk going on by folks without Peak oil experience and thus not calibrated to understand what Forever means. There’s no rule of the universe that says this virus will have a cure. Even 75%. I won’t even demand 90%. Maybe not even 35% effective.

       And ditto vaccine. No law of the universe says a vaccine can be produced that is even 35% effective. Y’all do realize it’s not just a target virus that might mutate. The vaccine material inside the chicken egg where vaccines are manufactured can mutate there, too. Mutation is not a life process.

       All the scenarios being presented are happy talk, and by every governor in the US. They talk in terms of years and get castigated for being pessimistic. Well, I don’t care what people think. It might not be years. It might be forever. Herd immunity could fail to happen, or have only 3 weeks duration. A virus forever in the environment could easily add 10% to the US annual death count from all causes.

       I’m pretty sure numbers like that point at eventual extinction, but someone can check the math.

       1. “Again, ignore the cities. They didn’t burn much oil anyway.”
          What?
          The vast majority of transportation fuel is burned within 50 miles of the city center.
          More and more the closer you get the center.
          See the color on the map- thats CO2 emission. A big chunk of that is vehicle petrol emission. Every orange spot is an urban locale.

          

       2. I think its safe to say that demand for Oil Products will come back online as soon as the restrictions are lifted in any given country or state. I appreciate the discussion here to determine any medium term impacts on the supply side. Maybe not pleasant to hear but it seems like there is enough capital and labor to spare should any or all small producers go under.

          As for the virus – if it does become endemic like other common colds then eventually it will have to normalize. Here is a “common folk friendly” overview of various infectious diseases and their immunity levels:

          https://www.youtube.com/watch?v=ylot5uGyyLA

          1. I think its safe to say that demand for Oil Products will come back online as soon as the restrictions are lifted in any given country or state.

             When restrictions are lifted more infections and more deaths will come back a whole lot faster than demand for oil products will come back.

             1. Considering how high the plateau has been on infections even after 45 days of quarantine (40 being the literal duration) on the one hand and How little financial help the average person is getting on the other it seems we may soon reach an impasse. I work in the medical field but I’m still only half time because so many small clinics are closed. I will start reducing my rent payments starting in June – not because I can’t pay it but because of principle – If society cannot provide me a job capable of sustaining myself then my societal contractual obligations are void.

             2. Boss ,you hit the nail right on the head . Too many people smoking ^hopium ^ .

          2. Twocats , you are incorrect . There is no going back to normal because normal has already left the station . Demand is not coming back . Understand to get to the medium term you have to cross the short term . No, there is not enough capital to spare , all capital is down a black hole to save the financial sector . Get this ^ The music is playing but the party is over ^ .

    2. Shallow

       I am Not a fan of shale, but nevertheless what the drop in rigs and spreads represents in loss of employment is an unfolding tragedy.

       1. Lightsout. I agree with you. They are staggering numbers.

          But keep in mind 1 in 6 people who want to work are out of work. Add to that the millions who should have been in the labor force, but weren’t for one reason or another.

          The numbers are so high, even with PPP. Once the eight weeks passes in June, without some major good news, watch those numbers soar even higher.

          I know there was a lot of screaming about some large public businesses getting PPP. What is forgotten is companies that took PPP have to apply at least 75% of it to wages for the loan to be forgiven.

          So, the program is at least 75% a replacement for unemployment. Otherwise, it is a low interest loan, not a government handout.

          Trump and company are trying to figure out how to save the upstream industry. I don’t see how it can be saved with oil prices below $30 and natural gas prices below $2.

          XOM lost over $700 million in US upstream in Q1, with an average oil price of $37. That oil price was $4 lower than in our field.

          Our price in April was $15. So, if XOM’s average oil price was $11, just think how bad their numbers will look for US upstream just for April. Then you have the large volume curtailments coming in May and June.

          Think about what COP announced. They are shutting in over 1/3 of their world wide oil and gas production in the month of June. All of that in North America. 460K BOEPD. With the international JV’s where they are not the operator, it will be more than that. Staggering.

          There is no way a government program can overcome the low prices caused by the demand destruction.

          The doctors who are the leading specialists are calling for partial economic shut down for at least two years. We are in for very hard times as a world, not just the oil industry, assuming they are correct.

          1. SS, it has never been clear to me why there has been so little automation in the oil fields.

             The oil has to flow. It doesn’t have to flow profitably.

             As for the end date for PPP there are few things more certain than some kind of CARES 2 package. That’s why I have been talking about 28T rather than 26T. That’s going to be quite a fight though.

             It’s also useful to note that we are hearing no similar words from NOCs. I have heard nothing of Equinor dismissing people. They’re doing a dividend cut and slashing capex in the US, but I’m sure that was going to be contract labor and thus no reduction in employee count. No mention of production reduction in the North Sea despite having at least one case found off shore.

             By the way, their name was invented to combine equality with Norway. Very namby-pamby.

             The latest from ARAMCO is a capex reduction, a dividend increase ( yes, increase), and a production increase. No mention of firings.

             1. Watcher , you are early to the party . The unraveling of the oil industry has just started . Your points are valid as of not even this moment ,leave alone today . Take a view down the line 2 mths , 3mths ,hell is going to break out . ^ Oil has to flow even if unprofitable^ . This was correct ,but only for shale oil because this was backed by the FED . Will oil flow from Nigeria ,Iraq, etc ? It won’t not because the govt’s in power don’t want it to but because social unrest will overwhelm the fuel supply system . My favorite quote is ^ There are no volunteers for starvation^ . We have been borrowing from the future .well unluckily for us ^ The future has arrived ,only it is no evenly distributed .^.
                P.S : I read your posts because they are so logical and intelligent , but on this one you are out of mark .

38. Some right-wing nut case is attacking this site. Yesterday we had comments under Hickory and HuntingtonBeach’s name posted. Last night there were two posts with my name on them. One on the petroleum side and one on the non-petroleum site. The posts yesterday were a link to an article by James Howard Kunstler. The post last night, with my name, also linked the Kunstler article but also had three other links to right-wing articles attacking Biden and the Democrats. Of course, I deleted them both but if another gets through I am sorry. I will delete them as soon as I become aware of them.

    Oh, the Kunstler article was nothing more than an attack on the Democrats an a slander of the FBI.

    Please accept my apologies.

39. Ron, that’s too bad. I hope it stops.

    I note that COP is shutting in almost half of its Alaska production, which is 100K of 218K BOPD. Found some good Alaskan news sources on those figures after I made the post

    Isn’t there a minimum amount that needs to run through the pipeline?

    The State of Alaska is going to be in big financial trouble.

    1. The minimum flow through the pipeline is uncertain. This Wiki page talks about putting heaters along the pipeline to lower the minimum flow.

       The Trans-Alaska Pipelins System

       Decline in oil production has posed a serious problem for the pipeline.[187] As the flow rate slows, oil spends longer in the pipeline, which allows it to cool much further while travelling to Valdez. It cannot be allowed to fall below freezing (32°F), otherwise the pipeline could seize up, crack, and rupture, as the water content would separate from the oil and freeze in place.[141] A “Low Flow Impact Study” conducted by the pipeline operators, Alyeska, concluded in June 2011 that the minimum flow for the pipeline as it currently existed was 300,000 to 350,000 barrels per day in the winter.[188]

       However, this minimum flow rate is a legally contentious figure, since the taxable value of the pipeline is largely dependent on how long it will continue to be operable.[188] Later in 2011, the Alaska Superior Court ruled that this low flow study Alyeska conducted was invalid, and ruled in favor of an internal BP study.[142] The BP study concluded that with the installation of heaters along the pipeline route, the minimum flow could be lowered to 70,000 barrels per day (11,000 m3/d).[188] This court ruling increased ninefold the taxed property value of the pipeline.[189] A study by the National Resources Defence Council that was also cited in this court case put specific numbers to this suggestion, and concluded that an investment of $0.8 billion in shoring up the pipeline could extend its lifespan long enough to extract an additional $28 billion of oil from existing wells alone.[188][142][190] This NRDC study additionally explained: “This is a lower minimum throughput level than what is implied in Alyeska’s Low Flow Impact Study (LoFIS). We did not use the minimum throughput level implied by LoFIS because we have serious reservations about the assumptions used in the study and the LoFIS does not provide adequate data to support its claims.”[190]

40. A new Oil thread has been posted

    http://peakoilbarrel.com/is-november-2019-the-new-us-peak-oil-date/

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