182 thoughts to “Open Thread Petroleum, April 25, 2019”

    1. FWIW: The whole US strategy in Syria (for the time being) is to build a pipeline across southern Syria to Link the Port of Hafia in Israel with the Oilfields under Kurdish control near Turkey and also for Oil & perhaps NatGas up from Iraq\KSA too. Hafia will become a major NatGas & Oil Port.

      https://www.timesofisrael.com/israel-cyprus-greece-italy-said-to-agree-on-east-med-gas-pipeline-to-europe/

      Now that ISIS is out of the way, the US\Israel will be returning to its primary goal of security Southern Syria. US started bombing IRGC (Iranian forces) & the Syrian Army positions in southern Syria to force them out.

      Israel has now fully annexed the Golam heights blessed by the US for the west side of the pipeline.

      Russia, Iran & Syria want the Pipeline to go through the Port of Tartus but the US\Israel want Hafia. Turkey wants control over the Eastern Syria (to control the Oil there & crush the Kurds) and to get the pipeline through Turkey. China wants the Oil and construction contracts.

      Israel & KSA want the US to attack Iran and take over, but that’s nothing new.

      1. Tech guy. I watch the world too. I see your version of the scenario over there as far off base. Bottom line- Iran is the primary expansionist force in the mideast. Read up on Hezbollah to get the gist.
        Let me know when Turkey, Iraq and Iran are ready to give the Kurds their land back.

        1. US is the primary expansionist force in the Mideast as well as the rest of the world.

        2. Exactly which countries has Iran invaded and taken over?
          On the other hand the US: Afghanistan, Iraq, Libya, Syria (partial take over), Pakistan (partially: has forward operating bases). US already controls the remaining others ME exporters (KSA, Kuwait, etc).

          After Syria is over, Iran is next. Unless the US goes after Venezuela before Iran. US plans to occupy or control the remaining independent Oil producers (which is down to VZ & Iran). US is also doing a major Military build up in Africa to secure African Oil producers or possible future pipeline routes.

          My version, whether you want to believe or not, it is correct.

          2. Fascinating! The US military budget funded by the US tax payer is roughly 700 billion per year!

            Now if it were up to me I would take about 90% of that budget and invest it in developing better trade relations with the following countries:
            Australia.
            Chile.
            China.
            Argentina.
            Zimbabwe.
            Portugal.
            Brazil

            Guess why?!

            1. Our military budget doesn’t even buy us that much in security. It just funds military contractors.

              China, Russia, and Iran have figured out how to disrupt us via hacking and social media. Why spend all that money preparing to invade a country, when you can bring it down remotely.

              Even better when you can get US citizens actually supporting policies favorable to you. Or spending their money on fighting enemies (like building a wall) that aren’t a threat.

            2. I think our current foreign and defense policies have become something akin to rope-a-dope.

              If China and others can get us spending increasing amounts of our GDP on big military projects that don’t actually offer us much protection or influence, they have more opportunities to exploit our vulnerabilities.

      2. TechGuy
        You had a typo, the port name is Haifa ( not Hafia ) and the quoted article mentions a pipeline from Cyprus, it mentions only a feasability study and the pipeline capacity is projected to be only 20BCM of natgas per year. It can be only for natgas produced in the East Mediterranean basin ( Cyprus, Israel’s surplus, probably also Egypt’s ). Anyway, it could be only 5% of Europe’s current use of natgas or 10% of imports.
        See:
        http://mazamascience.com/OilExport/
        Israel and Syria are still at war, the annexation of Golan heights happened in 1981 and the recent American (Trump’s) recognition don’t make the situation better for Israel vs. Syria relations.

        1. Sorry, about the Typo. Haifa will offload Oil into tankers in the Middle east. NatGas will flow through the pipeline.

          Golam heights remained basically as a DMZ zone. Now its apart of Israel’s economic development zone. Israel will now be moving the DMZ zone closer to Damascus. Trump Recognition was NOT intended to make the situation better between Syria & Israel, but to announce that Israel’s control of southern Syria will be backed by US support (ie US military power).

          1. One of the reasons I come around is to hear some various ideas, and sometimes learn things, even from those with whom I differ from on many fronts.
            There are a few, however , who I just can’t come to find any value added from their words. I’d be better with silence, or info-mercials on blenders.
            Adios Tech Guy.
            Feel more than free to reciprocate. It might feel good.

        2. Hafia will load Oil onto tankers. NatGas will flow through the pipeline.

          Trumps announcement was NOT going to make the situation between Israel & Syria better. It was intended to announce that the US will back Israel’s expansion into Southern Syria as it occupied more Syrian territory, backed by US military support. the US & Israel will soon occupy & annex Southern Syria territory for the pipeline.

    2. Hello GuyM, Thanks for the linked article with the military affairs/geopolitics topics. I feel the world senses that USA dominance is waning. USA is still preeminent, but not dominant. In the old days USA would fly 1/2 way around the planet and kick your ass, on a Tuesday for a few billion if it suited things. Now, not so much. As a result all the regional players are jostling for more elbow room. Linked below is an article I like re Hezbollah.

      Hezbollah’s Evolution: From Lebanese Militia to Regional Player
      https://www.mei.edu/sites/default/files/publications/PP4_Blanford_Hezbollah.pdf

      1. I’m not certain what the main point with the link is, but I’m always sceptical to think tanks such as MEI, which is based in Washington. I would not for a second trust that MEI is unbiased.

        I would rather question why US military forces went to eg. Syria and why they are still there.

        1. If you have recommendations for unbiased geopolitical analysis re Hezbollah please share. A quick look at the table of contents will give you an idea as to what the main points of the article are. It seems to me that USA went to Syria, so to speak, for regime change. Its a well questioned motive. USA lost, in no small part due to Hezbollah, likely the best light infantry in the Middle East right now. Probably a few other places too.

          https://foreignpolicy.com/2018/06/15/lebanon-is-protecting-hezbollahs-cocaine-and-cash-trade-in-latin-america/

  2. I read it. I understood it. It’s crap.

    It has the feel of do usual think tank analyst paid to throw together on essentially imaginary report of what he thinks might happen. His payment will be determined by how interesting he is rather than how correct he is.

    Buried in his array of imaginings is his scenario of the Iranians wanting to send their air defense missiles radar and network to Syria and the Russians said no. Well, the first thing wrong with a scenario is the Iranians have only Russian air defense hardware, it’s of the S-300 variety, and they don’t have very much of it. The last thing they would be doing is shipping something of which they have little somewhere else, especially given that the Russians have installed S400 in Syria.

    The guy made much of a shipment from Iran to Syria of oil, and even name dropped the particular tanker’s name. The major refineries and Siri are and Benai and Homs. The pipelines to feed those refineries came from the country’s northeast and their domestic oil fields. I guess they install the pipeline from port to one or both of these refineries, and it’s hard to see how any of that happened without Russian support.

    So there are too many holes in this guy’s scenario.

    1. I don’t think the article is crap. It is a thoughtful article that demonstrates that importance of the Middle East region and its not just for the amount of crude oil it contains. Sides are being chosen throughout the Middle East.

      Here is a slightly different take on the Middle East by Pepe Escobar:
      https://www.zerohedge.com/news/2019-04-24/pepe-escobar-war-iran-calling-americas-bluff

      The belief that the USA has unlimited amounts of LTO/NG to project America’s foreign policy to contain Russia and China will push the world to unspeakable horrors. America will not be able to avoid these horrors this time.

      1. I am glad you posted this, John. With interest expense and ultimately the necessity of retiring all public and private debt in the American LTO industry, the US shale oil barrel is now one of the most expensive in the world to produce. Its actual “breakeven” price is over $85. That suggests that most, if not all, “possible” (3P) reserves the USGS dreams up in the Permian Basin will likely not be recovered unless the American tax payer is willing to foot the bill. Hope for higher oil prices is not a plan; the EIA’s can’t predict oil prices any better than Ronald McDonald.

        Using American light tight oil exports to try and “dominate” the rest of the world is stupid energy policy. Anybody in the world with a square cm of cranial capacity KNOWS American shale oil is expensive, racked with debt, and, save parts of the Permian Basin, is already starting to poop out. China and OPEC both yesterday called Trump’s bluff. NOPEC, another brilliant piece of long term legislation by stupid Democrats and Republicans alike, is also based on the shale oil abundance narrative. If that gets done America better be holding on to its knickers.

        American oil needs to STAY in America.

        1. Hi Mike,

          Without including interest expense, for the average 2017 Permian basin well with EUR of 390 kb, the net present value of cumulative net revenue over the life of the well is about $10 million at an annual discount rate of 10%. The cumulative net revenue is about 12.15 million (in 2017 $) over the life of the well. This is with a well head price of $60/b. I doubt the interest expense would add up to $25/b.

          Link to spreadsheet with breakeven calculations below

          https://drive.google.com/file/d/1KbIhmhPlMkzmNjREDx0g4NrK4GCI2m24/view?usp=sharing

          Surely nobody can predict future oil prices with precision, but it seems likely that oil prices will be increasing as oil reserves deplete. The EIA’s AEO 2019 reference oil price scenario seems pretty reasonable.

          1. The spreadsheet is wrong.
            Costs are 39% of revenue (ratio grows) with 33% of that royalty and tax. One presumes 6% is the interest on the debt, amortization of the principal (call it debt repayment), amortized admin salaries and what appears to be net negative revs at about year 15, suggesting the amortization of principal is spread over a period time long after cap and abandon.

            Bogus. Why doesn’t cumulative revs decrease when monthly goes negative? And why didn’t C&A take place long before then. What were the costs of C&A.

            1. Watcher,

              After month 177 the well is abandoned.

              The calculations are done in constant 2017 dollars, so real interest rate would be 3.5%. If one assumes the net revenue is used to pay the $10 million well cost, the well is paid off at month 77, at month 177 when well is abandoned, the remaining cumulative net revenue left after paying off the well is $1.926 million in 2017$.

              Note also that no revenue from natural gas and/or NGL is included in this breakeven so it is quite conservative and would not apply to producers that do not flare most of their produced natural gas.

              The LOE is probably too low at an average of $9/b in 2017$ over the life of the well, if we adjust the formula for cost to $5/b +$15,000 per month fixed cost, the average LOE/b goes to a more reasonable $11.80/b over the life of the well and breakeven goes up to $64/b, with $1.9 million in 2017$ left over after paying off the well assuming a nominal annual interest rate of %6/year (real interest rate of 3.5% at annual inflation rate of 2.5%). If we raise LOE to $13.80/bo, breakeven oil price rises to $67/bo at well head and again $1.9 million of net revenue is left over at 177 months after paying off the loan using net revenue over the first 77 months of operation.

              I believe Mr. Shellman has suggested roughly $13/bo for LOE and 33% of wellhead revenue going to royalty and taxes. Note again in reality the average well will get some revenue from natural gas and NGL. I have assumed zero revenue from natural gas or NGL.

              In short, breakeven is likely to be lower than $67/b.

          1. Those little wobbles around 2035 on the WTI curve are really impressive !
            Do they get these out of some kind of model feeding I don’t know what or just drawn by hand ? 🙂

            2. yves,

              I imagine the EIA uses some sort of economic model to estimate future prices, their reference scenario is simply their best guess.

              Just like everyone else, their guesses about the future are often incorrect.

        3. Hi Mike.

          The Survey (as we call the USGS partly because it’s quicker to type) offers its numbers as “technically recoverable” but I haven’t seen any “possible” or “probable” from them. That’s beyond their remit, I think.

          They can’t be all bad, Mike–they tried to (ahem) recruit me long time ago.

          1. Synapsid,

            On the Survey’s estimates of UTRR they have an F5, F50, F95 and Mean estimate. This might be what Mike refers to where F5 would be “possible” resources. Not quite the same as reserves where the economics is considered.

          2. Syn, I have heard, and read the term possible and “technically recoverable, as yet undiscovered, at some unknown, much higher oil price” used before in conjunction with one another. I use it because folks understand proven, probable and possible, better than numbers in front of P’s. I am an AAPG member and have lived and died by USGS maps for 50 years; I have nothing personal against it, only that ‘it” estimates drillable locations per bench over 3MM acres in both sub basins of the Permian, picks some lofty, as yet unproven EUR per bench, then establishes “technical” recoverable reserves accordingly. That confuses people and makes them believe if the USGS says it will happen, it WILL happen. Unlike any time in the history of the oil business economics and ANY reserve classification over “proven” are directly related to each other.

            1. My understanding is that technically recoverable reserves do not consider the price of oil and other considerations. The EUR for the USGS mean estimate for the Permian Delaware Basin is pretty conservative at about 197 kb for the average well and about 242,000 total wells would be drilled if economics were not considered. In reality fewer wells will be drilled, obviously.

              The average EUR in 2017 for Permian Basin horizontal wells was about 390 kb, assuming 15% terminal decline and shut in at about 13 b/d. A Permian Basin URR of 50 to 60 Gb seems pretty reasonable if oil prices are anything like the EIA AEO reference oil price case (note that you are correct that the EIA does not know future oil prices, but in most cases in the past their predictions have tended to be lower than actual oil prices.) This assumes the USGS mean TRR estimate of 75 Gb for Permian basin is roughly correct and EIA AEO reference oil prices are also roughly correct and average Permian well cost remains about 9.5 million in 2017$.

              Higher well cost, lower oil price, and/or lower TRR could lead to a URR lower than 50 Gb and the reverse case might lead to a URR more than 60 Gb.

            2. Mike, DC,

              As DC points out, the Survey’s “technically recoverable” does not include any consideration of prices. The reports are answers to the questions “How much oil is likely to be down there? Could we get it out with today’s tech?”

              I’ve always thought of the process as straight interpretation from the geology.

            3. It should, don’t you think? Ninety nine out of 100 people in America believe the USGS “discovered” 50 billion more barrels of oil last year in West Texas. Neither it nor the EIA go to near enough lengths to qualify these type of “surveys;” accordingly they are misleading and confusing to an uneducated public, including but not limited to, politicians in charge of implementing America’s energy policies.

              The USGS mean average EUR in the Delaware Basin does not come close to paying out a $9MM well. How then can operators drill 244K more wells in the Delaware costing nearly $2.4 trillion dollars to recover 46.2 billion more barrels of oil? What earthly good does it do anybody to make an assessment of remaining resources over 8,000 square miles “if economics are not considered?” As stupid as the shale oil industry is, even its smart enough to know better than that.

              My comment was directed at using so called unlimited, cheap shale oil resources as a foreign policy tool, not getting in a pissing match about the USGS.

            4. As far as I have learned the estimates in oil reservour usual means how much can be taken up with todays tecnology at a certain possibility. Economy I believe is up to the oil Companys break even price to deside. The oil price show strenght for several days and I believe at 65- 70 USD / bbl WTI there might be some more optimistic future for the investors , bank that waiting to recieve their payback ballons but than what happened…. The US President Mr. Trumph dont like , and wti is no soon below 60 usd / bbl again…
              https://www.bloomberg.com/news/articles/2019-04-25/oil-set-for-eighth-straight-weekly-gain-on-supply-constraints

            5. Mike,

              EIA predicts about 115 Gb of tight oil through 2050, in reality it is likely to be about half that number (and that 57 Gb may well be too optimistic), so pretty much everyone here agrees that the shale oil abundance meme is crap (maybe with one exception). Even if it were 115 Gb, that is not really a lot of oil for a nation that consumes about 7.3 Gb of oil per year (enough for 16 years, and more realistically 8 years).

              A drop in the bucket in the grand scheme.

            6. Fifteen years max with remaining conventional production in America now declining at a faster rate for lack of investment. And another trillion dollars or so in corporate debt, but that’s chump change to the $72 trillion of total debt America now has.

              By the way, 1G BO of annual LTO exports reduces that time of “abundance” to 12-13 years. All of Americas oil basins are old and worn out, shale oil extraction is from source beds; what’s next after the kitchens are all drained that will be remotely affordable?

              Nothing.

              Is 12 years enough time to ensure a reasonable transition, affordable to society, to renewables, including alternatives to transportation fuels?

              No.

              Our current energy policies, including exporting oil and flaring gas, are designed for the here and now, not for our children. America is speeding to a red light.

            7. “Is 12 years enough time to ensure a reasonable transition, affordable to society, to renewables, including alternatives to transportation fuels?

              No.”

              I am way more optimistic than you, primarily because I find the arguments made by Tony Seba in his book “Clean Disruption”, that are presented in his YouTube videos, quite convincing. In his latest presentation, starting at 1 hr. 19 min. 33 sec. in he does a 90 second wrap up that he ends by saying, “I’ll leave you with this thought. This is not, as some have painted it, an energy
              transition. This is a technology
              disruption.”

              This presentation was done in Mexico so the 35 min. question and answer session, immediately following the wrap-up included several questions that reader of this thread (petroleum) might find quite interesting.

            8. Hi Mike,

              If other nations don’t follow the policy you would like for the US (no exports of crude oil or condensate), then at the World level there will be enough oil. Consumption of C+C will gradually be reduced as oil prices rise as the peak in C+C output approaches.

              You hate my dumb charts so I will just suggest that a relatively conservative scenario suggests C+C output for the World will still be 70 Mb/d by 2040 (peak in this scenario is 2025 at about 87 Mb/d). URR for World C+C is 3100 Gb for this scenario.

              Twenty years may be enough to accomplish that transition and higher oil prices (starting by 2022 at the latest) will help to make it happen. Note that the average decline rate in C+C output from 2025 to 2040 in this scenario is about 1.4%/year.

            9. Mike S. Wrote:
              “Is 12 years enough time to ensure a reasonable transition, affordable to society, to renewables, including alternatives to transportation fuels? ”

              That’s why the US is going after all of the remaining independent Oil Exporters. VZ & Iran are primary take over targets. Where ever there is region with Oil, the US is setting up military bases there.

              Never forget Dick Cheney speech from 1999: “The USA needs another Iraq.”

            10. Hi Mike.

              I’m in complete agreement with your first paragraph. It’s a great summary.

            11. Syn, it might interest you to know that Chevron owns a great deal of royalty and a lot of the minerals under the 285,000 acre Anadarko block in the Delaware Basin it is trying to acquire from Anadarko. It may also interest you to know that Anadarko owns 4.5 million acres of minerals and another 2.7 million acres of producing royalty, mostly in the Rock Mountain region, including the DJ Basin, that it acquired from Union Pacific in the early 2000’s. Anadarko is actually making money in the DJ Basin because of its mineral ownership there. The fee simple and minerals under all that Anadarko acreage was granted to Union Pacific Railroad as long ago as the Abraham Lincoln administration.

              Chevron is, in my opinion, the only corporate enterprise in America willing to take on shale oil extraction that is capable of making money from it, a lot of that because it understands the benefit of low to no royalty burdens on the revenue stream. Exxon, no.

            12. I’ve had a fairly favorable view of Chevron for decades but I suspect that it’s (my view) only partly professionally based. Chevron’s the only major with a headquarters in an area with a climate I can handle.

              I was also impressed, back in the 80s, that Chevron made a fair effort at geothermal development though it didn’t last.

              Thanks for this, Mike. It makes sense of Oxy deciding to put up a fight.

      2. The threat to closing is a direct threat to China and India to continue to import from Iran. Either would not get enough oil if it happened. I look for both to continue to import, China more than India. Rystad expects exports to drop by about 300k, the majority left of 600k going to China and Turkey. Direct shipments, that is. There will still be a lot of indirect.

        Still, the amount of hatred being cultivated is especially concerning.

  5. Oil ‘quality problems’ reach Europe.
    The transport of Russian Ural crude (REBCO) by ‘Druzba’ (Friendship) pipeline to Germany, Poland and Belarus was stopped by importers due to the increased, 10-fold chloride level in oil.

  6. The new EIA’s World Crude Oil Production data is out. There have been a lot of revisions. The charts look entirely different. Now there is little doubt, C+C production in 2019 will be well below that of 2018. I say that because OPEC has another 750,000 barrel decline by March. Also Canada and Russia has further declines, though Canada hopes to recover in the last half of 2019. The below chart is World C+C according to the EIA, through January 2019 in thousand barrels per day.

    World C+C production was down 1,664,000 barrels per day in January.

    1. Russia, as noted above, is having problems dumping their Ural oil due to lack of quality. Or, you can go with their “glow in the dark” oil. Chlorine gas or radioactive, your choice of poisons.

      1. This is another 1 mbd removed from the market.
        ‘Druzhba’ oil comes from the old Russian fields like Romashkino etc. Tatarstan is where this pipeline starts.
        Officially, this old pipeline is to run yet 10 years, but it seems that producing fields are already on the last ropes.
        Or maybe they started something like fracking there. Is chloride a fracking chemical?

        https://oilprice.com/Latest-Energy-News/World-News/Poland-Suspends-Russian-Oil-Intake-On-Contamination.html

          2. Argus media said that the chlorine in the oil is the solvent dichloroethane. It’s used as an EOR chemical (enhanced oil recovery). It’s normally recovered from the oil before it’s delivered. It damages refinery catalysts

            Historically, 1,2-dichloroethane was used as an anti-knock additive in leaded fuels to scavenge lead from cylinders and valves preventing buildup.
            1,2-Dichloroethane is toxic, especially by inhalation due to its high vapour pressure.
            https://en.wikipedia.org/wiki/1,2-Dichloroethane

            2. A curious piece of information in the oilprice article:

              ‘The buyers of the cargoes include Total, Trafigura, Vitol, and Equinor.’

              Why would Equinor buy Russian crude? Is Norwegian crude not good enough? Does Norway blend it before sale, Venezuela likewise?

        2. Knowing Russians, maybe this is a tricky way to cut their exports to Europe, and move on to China.
          This accident somehow coincides with Trump’s end of waivers for Iran crude.
          And Russians are still pumping this bad stuff.

          The length of a repair will tell the truth.

          The shortage of the Gulf crude does not threaten Europe so much as Asia (so a war with Iran is still possible), but the Russian crude is another matter. Maybe this is another message for Trump & allies: think about Iran – again.

          1. Latest news seem to be that Transneft claims that the oil spoil was intentional at some private terminal where oil is transferred to Družba oil pipe… (sorry no link, read it in the local paper)

            1. Probably just to be able to credibly refuse paying any compensation by invoking force majeure. ‘You see, investigations are still ongoing. We will let you know when we know who is responsible for your losses.’

            3. Russia claims the clean crude will flow again in 3 weeks. In the meantime one month of oil strategic reserves will be burned.

    2. Ron,

      I would say we have output for one month in 2019, we have 11 more to go, we will know more in March 2020. If output is lower in 2019 than 2018 for the average of the 12 months, I will be surprised, even if that is the case, higher oil prices mean the 12 month 2018 “peak” is likely to be surpassed in the 2020 to 2024 period. My best guess remains 2024+/-2 for 12 month average World C+C peak.

      1. Dennis, OPEC+Russia is down by another 850,000 barrels per day in March versus January. They will likely hold that level, with only slight variations, through the end of the year. That was the basis of my estimation. I think it a reasonable estimate. Also, I think Non-OPEC, less USA, will continue their decline. That is also a reasonable estimation.

        1. Ron–
          While predicting oil tops is very difficult, I’m coming around to late 2018 as the “peak”, as you have stated.
          We shall see—-

      2. I take issue with the idea that production in post-peak reserves can be jacked arbitrarily based on shock prices. As an example, no level of oil price will bring back the conventional fields in California. They’re depleted.

        Another, contemporary example of this is China. China doesn’t have price concerns for their own production; the company is state owned and oil imports are a critical national security problem for them. If there is any current case of “if you need the oil you get the oil” it is the Chinese. They’re drilling everything domestic they can regardless of economics and it’s still not working.

        https://www.bloomberg.com/opinion/articles/2019-03-24/petrochina-s-45-billion-can-t-reverse-oil-fields-decline

        The most the huge spending binge has done is stabalized them, temporarily. They haven’t made any move to regain peak, let alone exceed it. For that matter if the Chinese could do US scale fracking they already would be; China has onshore fields, isn’t under any sanctions and is more or less indifferent to logistics. But the geology doesn’t cooperate.

        1. Propoly,

          The model is based on discoveries and production to date and the rate of development of those oil discoveries over time and extraction rates needed to give us the output we have seen from 1870-2018. Going forward the model assumes the rate of development of oil resources and extraction rates remains at recent levels (2017) for extraction rate and the reate of development of oil resources discovered proceeds at the 1960-2018 average rate.

          The “shock” in the oil shock model is just a rapid change in extraction rates as in 1973-1974 and 1979-1982. I don’t expect C+C output will increase forever, just until 2024. In chart below the model data match from 1940-2018 is good, after 2018, probably not.

    3. Ron,

      Since October 2018 (before the recent crash in Oil prices in Nov to Jan) OPEC output has decreased by 1705 kb/d, while World output has decreased by 1895 kb/d. In other words, about 90% of this decrease from Oct 2018 to Jan 2019 is because OPEC has cut back on output. These OPEC quotas are likely to be gradually relaxed as Iranian exports get reduced by US sanctions and as Libyan and Venezuelan output falls. My guess is that when Brent reaches $80/b in June some OPEC nations and Russia will increase output gradually to keep oil prices from rising further.

      1. I see what you are saying, but I have a lot of unanswered questions post Jan 2019. First, demand marches on. Second, how much of that 1.5 million barrels a day from the Urals is now unsalable. Complaints about what they have been receiving have been made for the past two years, so it’s not just a recent mistake at a pumping station.
        Third, combining the first two, and then looking at more recent drops from Iran, Venezuela, and potentially Libya, can OPEC come close to filling the gap, even at their hypothetical 3 million.

  7. EIA revisions from last month’s report. The Non-OPEC revisions go all the way back to the beginning of their data. That was Qatar being added to the Non-OPEC data. About two-thirds of Qatar’s production is condensate. They are mostly a natural gas nation.

  8. Not going to scroll up for the spreadsheet above, not easy where I am sitting right now.

    Concerning net revenue and production. The problem is not future price of oil. The problem is the past price of oil. Two-thirds of the total lifetime production of one of these shale wells comes out of the ground in the first two years. The price was sub-60 a couple of years back and that oil flowed and generated only that much money. That well’s debt is not going to get repaid by that well. The oil came out at a lower price and that deal is done.

    This means that the month number where revenue becomes negative is much sooner. And if things were logical and money was not created from thin air, the fact that the well in question cannot repay its debt does not make the debt go away. In a properly accounted world all of those wells from 2 years ago which cannot be repay their debt should have that debt apply to the new wells that are drilled now — and erase their profit. This is forever, by the way. Anytime oil drops below whatever 60, or 55 or 50, the wells drilled then and the money borrowed to drill them is essentially guaranteed to get applied to future wells.

    But this won’t happen. When you have to have the oil you get the oil.

    1. Watcher,

      Looking at a well to be completed now, using debt. The excess revenue from current wells can be used to pay back existing debt, from the period when oil prices were low. For consideration of whether to drill and complete a well now, future oil prices are of great importance, of course we don’t know the future oil price, but $67/b at the well head or more will earn some profit, even if all natural gas output is flared (unlikely to be true on average, making the estimate conservative).

  9. Oil output< no venezula…no Iran shortly… artificial…

  10. aspo france, Jean believes in two hubbert curves… one for conventional recovery and a second for enhanced recovery. Since his 2018 articles indicate most countries post 50% depletion a third curve for end of life is recommended… for world that puts Ultimate recoverable at 1800 not 2600… IEA is 3600.

    2. Laherrere’s estimate is 2500 Gb for conventional and tight oil and 200 Gb for extra heavy oil, he assumes no reserve growth, my estimates are less conservative, generally Mr. Laherrere has needed to increase his estimates over time. Note that typically a Hubbert Linearization type exercise will tend to underestimate URR.

      If URR was 1800 Gb, that would suggest 500 Gb of remaining 2P reserves. This might be true if there was a rapid buildout of EVs, solar and wind or a Worldwide depression that was permanent, I am skeptical of either possibility, though the first seems more likely than the second in my opinion.

        1. It can manipulate short term trading because that’s driven by headline reading computers and other algos. Anything longer than that, talking price doesn’t work if there’s a serious supply or demand issue. It’s a near-zero elasticity industrial commodity.

      2. He called OPEC? Just whom at OPEC did he speak with? OPEC is a group of oil exporting nations. They meet once every six months or so to decide what they will do, if anything.
        No one can just call OPEC and OPEC will decide to produce more oil. They have to meet, talk it over, and decide what to do.

        This just shows what a fucking liar Trump really is.

          1. He probably did call someone, and the conversation went kinda like this:
            This is Donald Trump.
            Aren’t you the guy who owns all those hotels?
            Yes, but I am also the President of the United States.
            I’m sorry to hear that, what can I do for you?
            We need for you to pump more oil, and lower gasoline prices.
            Why? They are not high enough, yet.
            We think they are, and if you don’t get pumping I will agree to Nopec.
            Then, we will no longer use the dollar to trade with, and you can watch the value of your currency plummet.
            Don’t you realize who you are talking to? I am the President of the United States!
            Oh yeah. The US, we used to trade with you. Good luck, and good bye!

        2. Maybe tomorrow he’ll call Healthcare and get everyone lower premiums.

          …Maybe then pick up the old horn to Environment and have it cleaned up a bit.

        3. President Trump didn’t say who he had spoken to. Various OPEC officials say that they haven’t spoken to him…

          Wall Street Journal: OPEC Chief Barkindo Has Not Spoken to President Trump — Source
          Saudi officials: President Trump Has Not Discussed Lowering Oil Prices With Saudis

          1. OPEC and Saudis both deny speaking with Trump about lowering oil prices

            Trump said he called OPEC
            One of the reasons oil prices sank today was because Trump said he “called OPEC” and asked them to lower oil prices.

            OPEC Chief Barkindo said he hasn’t spoke with Trump, according to a report. Saudi officials also say they haven’t discussed lowering oil prices with Trump.

            Update: Trump is now back and saying he spoke to Saudi Arabia and others about oil prices.

            Lies just roll off Trump’s tongue. He thinks people will believe everything he says without checking anything. What a blooming idiot.

            1. FWIW: My guess Trump spoke with KSA gov’t officials (probably MBS), and has labeled them as OPEC. KSA will deal with OPEC directly. Probably not a lie, just an indirect approach.

              Trump did con NK regarding sanctions & economic development. Hard to believe he is serious about dialing down the wars when he’s increasing DoD budget and has Bolton & Pompeo in his cabinet. Not to forget pulling the US out of most of the Nuclear Arms treaties. War is coming.

  12. Permits in Texas continue to slow. So far in April, down over 10% to March, which was not a particular high month. Interesting, is that there have been no wells permitted for the county my wells are in, Atascosa, in April. I don’t ever remember seeing that, before. Fortunately, they just completed four of ours this month. At some point, rig counts will drop a lot more. The price of oil, so far, is not making a dent in the drop.

    1. So what is happening in the US. Oil rigs are down 20 from a year ago but production is up by 1.6 Mb/d from last year, according to the latest weekly EIA domestic production report. Is this just a case of vertical rigs being replaced by horizontal ones or are they replacing older less efficient horizontal ones with more modern high speed horizontal/directional rigs.

      Also if the economics are getting bad in the Permian, as many suggest, why is there a pitched battle between OXY and CVX to buy APC? Just wondering. Something is not computing.

      1. I’m always curious what the majors plan to do because I think they have a better read on the future of gas and oil than the smaller companies likely to go bankrupt or, if lucky, get bought out.

        The Chevron deal is 75% stock. Is this actually to exploit the Permian, or as a way to boost stock prices by trading stock for assets that might simply be used to further boost stock prices? Maybe the goal is for Chevron to look like it will be drilling when it won’t be.

        https://www.ogj.com/articles/print/volume-117/issue-4c/general-interest/deal-to-acquire-anadarko-positions-chevron-as-permian-leader.html

        3. This is what Chevron has announced. Seems like this could be a way to take cash from Anadarko, sell off Chevron assets, pay off shareholders, and spend less. Again, the scenario as I see it: a way to quietly get the money out while they can rather than to ramp up in the Permian.

          ———-
          Significant Operating and Capital Synergies: The transaction is expected to achieve run-rate cost synergies of $1 billion before tax and capital spending reductions of $1 billion within a year of closing.

          Accretive to Free Cash Flow and EPS: Chevron expects the transaction to be accretive to free cash flow and earnings per share one year after closing, at $60 Brent.

          Opportunity to High-Grade Portfolio: Chevron plans to divest $15 to $20 billion of assets between 2020 and 2022. The proceeds will be used to further reduce debt and return additional cash to shareholders.

          Increased Shareholder Returns: As a result of higher expected free cash flow, Chevron plans to increase its share repurchase rate from $4 billion to $5 billion per year upon closing the transaction.

          https://www.chevron.com/stories/chevron-announces-agreement-to-acquire-anadarko

          1. XOM made $96 million on US upstream operations in Q1 v $2.78 billion in international upstream operations in Q1.

            CVX made $748 million on US upstream operations in Q1 v $2.375 billion on international upstream operations in Q1.

            I suspect CVX higher profit comes largely from its large mineral position in the Permian Basin. On wells it operates, it would clear 95-100% of the BOE$, as opposed to an operator who doesn’t own the minerals and clears just 75-80% of the BOE$.

            GuyM, what do you think? Is this why CVX did so much better on US upstream? Keep in mind this is all US upstream including GOM.

            I have reached out to some others who have better info than me, will let you know what they say if they are ok w me posting it here.

            Shale is maybe profitable at $50 WTI if you own the minerals. Lol.

            1. Hi shallow sand,

              “Own the minerals” means own the mineral rights, yes?

            2. Yes. I suppose you could put it that way.

              When land was first acquired from the US government, the government deeded away everything from the surface to the center of the earth.

              For example, let’s say I buy an 80 acre tract of land and there have been no reservations of the oil, gas or other minerals in or under said tract. I can mine for those minerals and sell 100% of those that I capture. Of course, my mining is subject to federal and state regulations on mining methods, etc. But, I own the minerals. If I lease them to another, I still own them, but have leased away a percentage or fraction of them to the lessee, along with my rights to mine them myself.

              Sometimes a lease name will have the word “Fee” at the end. Say ABC oil company owns the surface and minerals of a tract and drills it, they may call the lease ABC “Fee” or something similar.

              We have a few Fee leases where we own the surface, minerals and operate the wells too. So we get 100% of the oil sold.

              Say a lease produces 4000 BO in a year. Say oil is $50 average for the year. If I own all the oil produced, I get $200,000 before taxes and expenses. If I own just the working interest, and it is burdened with 25% royalties (the mineral owners required a lease they pays them 1/4 of the oil sold), I just get $150,000, but still have to pay 100% of the operating expenses.

              See how this is a big deal for Chevron?

              Also, a more knowledgeable guy than me pointed out it is also a big deal for Chevron that they own the minerals because they do not have to worry about onerous drilling clauses required of others who don’t.

              Many mineral owners in the shale boom have required continuous drilling clauses. This has required companies to keep drilling, even 2015-17, or lose the undrilled acreage.

              Many onerous lease terms negotiated in 2011-14 likely are much at fault for all of the money losing drilling that has occurred since.

            3. Well, Chevron does own more of the rights. However, I think Exxon has been trying to bring on more wells, which I think is the bigger difference.

            4. GuyM,

              The point that I think Shallow Sand is making is that Chevron will have a far higher ROI because they own 95% the minerals for much of their acres in the Permian Basin. This lowers their breakeven price from about $65/b (in Exxon’s case) to about $50/b or so (assuming 95% WI for Chevron and 75% WI for Exxon). I assume all other economic assumptions for EUR, transport costs, well costs, taxes, etc are the same for Chevron and Exxon.

            5. Eventually, Chevron will receive more, but if you gear up production, you have more cost. So, you missed my point. A lot more of the drilling costs flow into the bottom line for a major.

            6. GuyM,

              Got it. The ramp up is expensive, or I think that’s what you mean.

    2. Chart of US Horizontal Oil Rig Count, trailing 4 week average, data from Baker Hughes.

      Note that the productivity per rig changes as rigs are moved to more productive areas. For example the Permian Basin and North Dakota Bakken/Three Forks are the most productive areas, whereas the EUR per well is lower in the Eagle Ford and Niobrara.

      Since 2015 a lot of rigs have moved to the Permian Basin from other areas (where rig counts have fallen except Cana Woodford), mostly the rig counts have fallen quite a bit in the Eagle Ford and Bakken since 2015, while Permian Rig count (horizontal oil rigs) has increased. Also the productivity of Permian wells has increased quite a bit since 2015, more so than the Bakken or Eagle Ford. All of these factors adds up to higher productivity per rig as oil companies try to find the most productive use for limited capital.

  14. OPEC must have put Trump on hold as gas price is still the same in my neck of the woods. Laughed like hell when I saw the headline earlier today. Probably eighty percent of folks believe he can actually do that. The heads of the OPEC countries probably laughed so hard they spit out their dentures. Difficult to satirize this guy as he does a stellar job of it himself!

  15. Does George Kaplan still post here? It would be great to see his update on Brazil, Mexico, North Sea, and GOM production.

    I’ve tried to recreate his work before — I got close enough for government work on the GOM from BSEE and BOEM — but I had trouble even finding the raw data on the websites for the other countries. George if you’re out there, can I trouble you to point me in the right direction for the Brazil, Mexico, and UK/Norway data? Perhaps others would find the graphs helpful if I can generate them.

    1. Are these the links that you’re looking for? I guess that a file list would help – which I don’t have. As you know, working with complex data takes up a lot of time. It’s too much time for me. Good luck 🙂

      Mexico National Hydrocarbons Information Center (CNIH)
      https://hidrocarburos.gob.mx/
      In the Hydrocarbons Information System (SIH), you can view and download the historic production of oil and gas by well, as well as other statistics of interest regarding the Mexican oil sector provided by the National Hydrocarbons Commission.
      Direct link to data page https://sih.hidrocarburos.gob.mx/
      Mexico Sistema de Información Energética (SIE)
      http://sie.energia.gob.mx/bdiController.do?action=temas&language=en

      Norwegian Petroleum Directorate (NPD)
      FactPages contain information regarding the petroleum activities on the Norwegian continental shelf.
      http://factpages.npd.no/factpages/Default.aspx?culture=en
      Maps, Illustrations, Graphs and tables
      https://www.norskpetroleum.no/en/interactive-map-quick-downloads/quick-downloads/

      UK The Oil and Gas Authority (OGA)
      https://www.ogauthority.co.uk/data-centre/

      Brazil Agência Nacional do Petróleo (ANP) Exploration and production data
      I guess this is where George downloaded his Brazilian data from, but I don’t remember if he posted a link?
      http://www.anp.gov.br/exploracao-e-producao-de-oleo-e-gas/gestao-de-contratos-de-e-p/dados-de-e-p

    2. cmg,

      George Kaplan has not been participating on this blog for a while, he lost interest perhaps.

      His analysis was excellent and is missed by all.

      1. I hope George K’s health is ok. Man could paint a bigger picture than any one I know. I gained a much better background on everything from him, and it only amounts to a thimble of what he knows.

        And thanks EN. Your a constant surprise. Sure, others can, but conversational Spanish is yet a dream, and Portuguese is non-existent.

  16. Oil price recedes after ‘knee-jerk’ reaction to Russian suspensions

    The price of oil slipped on Friday, more than offsetting Thursday’s gains on a “knee-jerk” reaction to the suspension of some Russian exports on quality concerns.

    Brent crude, the international oil benchmark, on Thursday rose above $75 a barrel for the first time in six months as Germany and Poland halted imports from Russia because of contamination in the Druzhba pipeline.

    But analysts said the market had over reacted and Brent pared its gains later in the day, with the slip in price continuing into Friday as the marker fell 1.3 per cent to $73.39.

    “Fears of a supply shock were greatly exaggerated,” said Stephen Brennock, an analyst at PVM. “After all, refineries usually hold ample crude stockpiles to guard against such disruptions. Little wonder then that the initial knee-jerk price reaction petered out.”

    Damn, and all along I thought Trump got the credit. 🙂

    1. Well, I wouldn’t classify the loss of one million barrels a day as exactly a knee jerk reaction. We are supposed to have a 1.3 million barrel a day increase in demand. Ok, that’s 2.3 more we need. Oops, US can’t supply that, Canada is down, and Brazil and Argentina will be essentially flat. Oh, oh, we need to add another 600k loss from Venezuela, and probably another million from Iran, making about 3.9 million more needed. Other depletion .3 to .6 million? Spare capacity from OPEC is 3 million? Or, that’s the fairy tale. Yeah, it’s ok to dream. Just pay attention to how fast the ship is sinking.

      1. Of course, a one million barrel per day loss is not a knee-jerk reaction. But the sudden drop in the price of oil was definitely a knee-jerk reaction. News of a one million barrel per day loss should have jerked the price up, not down. Traders always jerk the price up or down based on which way they think production or demand is going to move. But the price always pulls back, back toward the direction production or demand is actually moving.

  17. The story was the Prez talked to OPEC about lowering prices. This need not have anything to do with production.

    1. Well, the Prez certainly thought it had something to do with production, or more correctly he thought he could convince OPEC to produce more oil. OPEC cannot willy-nilly lower prices, they can only control production. The market controls prices.

      The daily swings in prices are controlled by rumor and innuendo. That is knee-jerk reactions by traders. But the long term price trends are only controlled by supply and demand.

    2. The last I read, there was no verification that he talked to anyone associated with OPEC. Would oil traders actually respond to what might be a lie pitched to his hardcore base?

      1. The goal of daily trading (overwhelmingly bots) is to make money on delta (movement in price). It does not matter why or what is moving.

  18. Sort of not the point. If one talks to someone about lowering prices, production might never enter the conversation. Just price it lower.

      1. Or maybe they could keep oil at regular price but offer Trump a coupon code 🙂

    2. Watcher, it’s hard to tell to whom you are replying when you start a new thread instead of clicking “reply” below the post you are replying to.

      You seem to never get the point. Open market prices must always reflect the demand and availability of the product. If one prices their product below the going market price, then their product will be consumed by bargain hunters, then the price will again rise to the going market price.

      There is no one person at OPEC that can do anything. They meet once or twice a year and decide on what action to take, if anything. Then they all decide on how much to cut and how much each nation should cut. That’s all they can do to control prices.

      The OPEC nations are not philanthropists. They don’t give a shit about what Trump wants. They are laughing at him. Anyway, the only way they could possibly lower prices is by increasing production. I just can’t figure out why you don’t understand that. I mean, hell, even Trump knows that.

      1. “The OPEC nations are not philanthropists. They don’t give a shit about what Trump wants. They are laughing at him. Anyway, the only way they could possibly lower prices is by increasing production. I just can’t figure out why you don’t understand that. I mean, hell, even Trump knows that.”

        He could understand it if he wanted to, but it would force him to change his view on how the world works. And that is painful to do.

      2. “The OPEC nations are not philanthropists. They don’t give a shit about what Trump wants. They are laughing at him.”

        I don’t believe they are laughing at him at all. All they need to do is recall what happened in Iraq and Libya to know the US controls them. KSA, Kuwait, Iraq, etc are all puppet states of the US. To believe otherwise is just folly. The USA seeks to control all of the remaining independent Oil producers. This is why the US is in Syria, and is working on controlling Venzeula via a political Coup. If the Coup fails in VZ, it will eventually send in Troops (probably by the early 2020s)

        It does not matter who the President it is, Obama followed the path after Bush with Wars in Syria & Libya. if Hillary won, she would be doing the same thing as Trump. Who ever wins in 2020 will continue the same long term plan to control as much foreign oil as they can.

        1. Just what would be the definition of a “Puppet State”? That would be someone who does the bidding of the puppeteer. No OPEC state does the bidding of Trump, or did the bidding of any previous president. Yes, we played havoc with their people and sometimes their economy. But the King of Saudi Arabia or the Emir of any of the other OPEC states are not at the beck and call of Trump.

          And yes they are laughing at him. Trump actually thinks he could pick up the phone and tell the King of Saudi Arabia, or the director of OPEC, to do what is necessary to lower the price of oil. That is laughable. Trump is an embarrassment to all the people of the United States.

          1. Ron what do you think would happen if KSA ditched the dollar & started pulling its financial assets away from the USA?

            A. The US would do absolutely nothing.
            B. The US would stage a Coup to remove MBS or others from control.

            Do you really think the US will not take action if KSA tried to separate itself from the US? Recall that Nixon instructed the US DoD to make plans to invade KSA over the 1973 boycott.

            Is Just a coincidence that the US primary targets Oil producers with Military Occupation, Coups, uses other tactics to put them under US influence?

            Today US is backing a Coup in Venezuela as Guaido attempts to take control. If the Coup succeeds, The US will kick China & Russia out and build another major US military base in VZ. Iran will be the next target after VZ is mopped up.

            1. It is indeed bizarre that the US regime supports a coup d’etat in another sovereign state. Not bizarre given US’ history – the US has done this several times before but if we turn it upside down – what if there was a coup d’etat in US and foreign states supported it? That would be unheard of in the US.

            2. Further, getting involved usually hasn’t served us well. It would be great if we could go into countries and easily fix their political situations, but most of the time we just end up in a quagmire that costs us money and lives (theirs and ours).

            3. US only targets nations with energy resources with the exception of Afghanstan due to 9/11 and to serve as another front on Iran when the US decides to invade Iran.

            5. There was Vietnam and Cuba (we didn’t get involved with a war with Cuba, but did end with Castro and then the Bay of Pigs).

            7. Does Iran have anything to fear from the US? No-no.
              https://www.google.com/search?q=map+of+us+troops+in+mideast&client=tablet-unknown&tbm=isch&tbs=rimg:CbKaFCBsWSsmIqABjHkXj6VM_1JQ_1g_1gZPXTc9az-eXBEiSU2jsj2RObbMKyZpghg4xwqkjixUxhDudX7aO1s5M0LyuCrUw5pCV4Sl49u34xqNAEKT04hWs71X_1rbcxIn6s4QMxEYuzyawjRWlKZR_12bjn5n_1LAgidsv4u-XxIVFXt53clUA9z2nbeEu7nf4Eji_1JWCve6O7ji_1IxwmaOvj4m0AjYfO9yJUyJfSoSCYx5F4-lTPyUEfkQ39JDZY2PKhIJP4P4GT103PURT965_16Vzk-MqEgms_1nlwRIklNhHwpxK6Agfr0yoSCY7I9kTm2zCsEevYzAbWLljPKhIJmaYIYOMcKpIRnl4OaHzuALMqEgk4sVMYQ7nV-xHBZwSGF5lGRyoSCWjtbOTNC8rgEfkvsgZQtYo6KhIJq1MOaQleEpcR35-yr8oo5lAqEgmPbt-MajQBChHj8CLmjdNlPCoSCU9OIVrO9V_16ESeHAKgezT5fKhIJ23MSJ-rOEDMRMwZIeYE4c-8qEgkRGLs8msI0VhH_1IQ6Nddt3DSoSCZSmUf9m45-ZEX1R4IQtSVcPKhIJ_1ywIInbL-LsRQWSxpHpCoP8qEgnl8SFRV7ed3BGuiS9Nm9h9YSoSCZVAPc9p23hLESyMTNhUPJZjKhIJu53-BI4vyVgRSr9dDKL2y0sqEgkr3uju44vyMRHbiU6kAZ9LjioSCcJmjr4-JtAIEdv_11VZnNwWJKhIJ2HzvciVMiX0RTbpHGxG9wHk&tbo=u&sa=X&ved=2ahUKEwi6z_nZ8vrhAhVhz6YKHUSyCeAQuIIBegQIARAu&biw=800&bih=1280#imgrc=KBc1jJoOUjzUqM

  19. OPEC Unfazed By Potential Supply Shortage

    On Wednesday Saudi Arabia’s energy minister Khalid al-Falih said that the kingdom will not be taking any immediate action to increase oil production, …..

    “Inventories are actually continuing to rise despite what is happening in Venezuela and despite the tightening of sanctions on Iran. I don’t see the need to do anything immediately,” Falih was quoted by CNBC in Riyadh. “Our intent is to remain within our voluntary (OPEC) production limit.”

    1. Thanks, Frugal, from your link:

      One major group, however, seems surprisingly unruffled. Even after Trump mentioned the Organization of the Petroleum Exporting Countries by name, suggesting that they will be stepping up to fill in any supply gaps once Tehran is edged out, members from OPEC themselves have remained extremely measured on the issue, saying that they will not be rushing to ramp up production.

      They are saying, “screw you, Trump, we are not raising production.”

      On Wednesday Saudi Arabia’s energy minister Khalid al-Falih said that the kingdom will not be taking any immediate action to increase oil production, adding that they respond to market fundamentals as opposed to pricing and that the nation, the top oil exporter in the world, will remain focused on maintaining a balanced global oil market above all other concerns.

      “Other concerns”, meaning doing Trump’s bidding. Or more correctly, not doing Trump’s bidding.

      1. In my opinion, if there’s no sustained output increase before the end of the year from the big OPEC producers Saudi Arabia, Kuwait, UAE, and Iraq, it’s because these countries have peaked. And I don’t count emptying storage tanks as output increase.

        Currently the only countries on Earth with production capacity above their production is Iran, Libya, Venezuela, Nigeria, Canada, and possibly Russia. The rest are producing at their capacity.

      2. They are in the driver’s seat now. Of course they are not going to ramp up production. They are going to make a nice profit, before doing anything. By then, it will be far, far too late. But, it’s already too late, anyway. I don’t even think reversing directions on Iran would stop the slide.

        1. Russia isn’t capable of ramping production. They are maintaining production by heavy investment in existing mature/decline fields. What else are they supposed to do?

  20. Sending troops into Venezuela in the 2020’s might be the coup de grace to both our budget and sense of unity as a nation. Here’s hoping the politicians don’t go there.

    1. Venezuela oil production dipped below 600 KBOPD in April.

      As you know, I’m in favor of organizing protests by Venezuelans in the US and Colombia, requesting help to create a police force numbering about 20K. This force could take Maduro out even if he has Cuban military backing, as long as it’s provided with air and naval support. My analysis shows it’s feasible to land 5000 Venezuelans in a couple of spots, provide them with serious air support as well as the ability to call in sea launched Tomahawk strikes, and take over two safe liberated areas, which can draw military personnel no longer willing to back Maduro. Hopefully the powers that be will accept this as the best option, allowing a purely Venezuelan liberation and keeping Americans out of ground combat operations.

  21. Let’s examine this absurdity of pricing oil lower, because this would ignore the “free market.” Imagine how absurd it is to think anyone would do such a thing.

    My God, if you did that then Iran would not ship oil to Syria, knowing Syria cannot pay for it. They would never do such a thing. And if you dared to laugh at the concept of free market, my God, then Saudi citizens from 2000-2006 would have had to endure the horrors of paying $1/gallon for gasoline while the rest of the world paid double or triple that. No one would ever do such a thing.

    Argentina’s Vaca Muerta is going to flow about a 50% increase in shale oil and gas this year over last year, because they, too, would never dare to declare a price to be something other than what this “free market” says.

    For years and years Ukraine paid GAZPROM a price for natural gas roughly 1/3 what the EU was paying. But heavens, that must never actually have happened because no one would ever price things lower than the “free market”. Coup actions were then taken to put a stop to this, because of the evils of Ukraine paying a lower price.

    Of course, if you owe $22 Trillion and are absolutely desperate to have inflation cheapen that debt, maybe lower prices for anyone for anything becomes, indeed, the horror of horrors.

    1. Watcher, of course, nations often subsidize their products to their own citizens. They sacrifice the price they could get on the open world market in order to keep their citizens happy and supporting the status quo. That doesn’t prove a goddamn thing as far as the free market goes.

      Bottom Line:
      People, companies, and nations sell their product for the highest price they can get.
      People, companies. and nations buy products for the lowest price they can find.

      That is just common sense. You arguing against supply and demand reminds me of people who still argue that the earth is flat.

      1. WTI price closed below the underneath side of a major trendline last week that originates of the 2016 lows. It did get over that trendline briefly. But it turned out to be a false breakout above the trendline. Direction is down and should be confirmed this week.

        Technically there is only one supporting trendline that can stop WTI from visiting the low 20’s. Which originates off the same 2016 low but also touches the most recent lows of 2018. Price should retest this trendline for support sometime later this year in Sept or Oct. in the $45-50 range. If that trendline holds then technically we will see higher WTI price moving forward. But there is always a chance it won’t hold.

        I know how you love the technicals so i figured i’d give them to you. 🙂

        1. Never paid any attention to the technicals. Only fundamentals. Made some good money on calls over the past year, but I don’t see it in puts for a good while. Only short term swings, and I don’t have the nerve for those. And, is that Brent or WTI, not that it makes that much of a difference. I don’t think it will ever get close to the $50 range in my limited lifetime.

        2. HHH,

          I thought a little while ago you said the technical analysis showed that WTI would definitely be hitting $20/b soon. You seem to have hedged your bet a bit, now claiming $47.50 or so by Oct.

          So which analysis is correct, the first or the second? Now it seems there is only a “chance” that WTO will hit $20/b. What is that chance that WTI will hit $20/b by Dec 31, 2019? (My guess is a probability of about o.oooo1% or less.)

          You might consider that oil supply is likely to be short going forward, perhaps there will be a recession, but even a GFC level event (which tends to be about one every 70 years or so, 2 in 140 years from 1870-2010) only reduced WTI by a factor of 3.2, so you seem to be thinking perhaps that GFC2 is imminent. This is difficult to predict, but my guess is that if it occurs in the near term it will be in about 11 years (about 6 years after the 2024 peak in World Oil output).

          Price would start at about $135/b (2019$) before GFC2 at minimum and perhaps fall to a monthly low price of $40/b in 2019$. Longer term as EVs and other types of transportation replace ICEVs the price of oil might reach $20/b, but my estimate is that does not occur until 2040 or later (2050 would be my best guess).

          1. Go back and reread everything i’ve actually said Dennis. I said i wouldn’t short oil until it retested the underneath side of the trendline it broke. In March i said it would probably rest that trendline the 1st or 2nd week in April based on time and distance. I also said low to mid $60’s is where it would hit. Go back and reread. For a little while i thought the turn might come early and WTI wasn’t quiet going to make it back to the old trendline. The turn took just a little longer than i thought it would but otherwise i was spot on.

            Ditto with stock market. Price hugged the underneath side of the trendline just a little longer than i thought. But otherwise i’m still right on direction.

            I never said oil would reach $20 this year. Never. Not once did i say that.

            I specialize in currency trading Dennis. That is where i make my money. But guess what i called it right but just a few weeks early on WTI. By the way i paper trade markets that i don’t normally actually trade real money with. You can do that with most trading platforms. I shorted WTI just before it briefly got above the trendline on the monthly charts. Just like i said i would if i was shorting WTI. I waited an took a short right underneath the trendline resistance. I’m well into the money now on WTI. Even though it’s just paper trading.

            Only way to really trade markets is on technicals. Only way to get price correct it to know the technicals. Any fundamental analysis still has trade within whatever the technicals are. It don’t matter what your trading.

            So getting back to what the technicals are going forward. As i stated above there is only one trendline of support that could possible prevent oil from visiting the low $20’s. Distance and time wise my guess is price will find this trendline later this year. late Sept or sometime in Oct is my best guess. Price is going to be choppy as it works it’s way down to this trendline. My best guess is it will visit this trendline in the $50-$45 range. If this trendline holds it opens the way up for higher oil prices. But if it doesn’t hold lets be clear there is nothing else technically in the way of WTI hitting the low $20’s.

      2. The Earth is measurably not flat. Curvature is a physical parameter. It can be measured from orbit. It has been measured from orbit.

        The number of occasions when a transaction takes place with a price determined by something other than this alleged psychological behavior derived from supply and demand almost certainly far exceeds the number of occasions when such a thing might determine price. We’ve done this before. Through all history, every item ever stolen, every item ever acquired via conquest, every item ever acquired via donation, every item ever acquired via inheritance, via Royal award — these far, far exceed the number of, and certainly the value of, transactions in a marketplace.

        So why aren’t these methodologies considered the definitive pricing technique for transactions in general, and simply accept that only the most rare and quaint of transactions take place via a marketplace.

        Oh and by the way, since this pricing process is psychological, determined by the minds of buyer and seller, you do realize you are saying that the price is determined by something imagined by both parties, meaning their presumption of supply and demand. You do realize this means that the actual supply and the actual demand does not determine the price, even for these rare transactions.

        You are saying that reality doesn’t determine the price. Only imagination. How can anyone think this is a science or a law of nature.

        1. Watcher,

          Transactions are not imaginary. You are confusing market and non-market activity. When a mother cares for her children, the price is zero. If she runs a day care taking care of other people’s children the price is non-zero.

          The first is a non-market activity, the second is part of the “child care” market.

          To you it seems there is no distinction, but most people see this fairly clearly.

          Do all markets follow the rules of a perfectly competitive market? No, of course not, just as most gases are not ideal gases that follow the ideal gas law.

          1. You missed the point. It’s not transactions that are imaginary. It’s the amount of supply and the amount of demand. The point was that this worshipped law doesn’t even derive from actual accurate values of supply.

            A proper, physical law would have a price for items dependent on the supply of those items, and let’s just stop there. Let’s not try to quantify demand. Let’s just quantify supply. Since this price allegedly derives from attitude, we are allowing this law to reflect not the actual supply but the imagined supply.

            You are allowing something to be a law when the parameter in question might be inaccurate. The supply of oil might actually be 100 million barrels per day, but a bunch of traders have come to believe that it’s 97 million barrels per day. This absurd law would use the imagined 97 number in determining price rather than the accurate number. What kind of a law is that?

            Gravity doesn’t care what you imagine the G in GMm/r^2 to be. That’s a proper law.

            1. Watcher,

              In social science, they call them laws, but they are more like suggestions, like speed limits. 🙂 Generally a change in supply will affect price (assuming an unchanged demand schedule), So we have two functions one for supply and one for demand, either of these functions can shift higher or lower for whatever reason (war, natural disaster, changes in tastes) and those shifts will affect the price that will clear the market.

              If your point is simply that Newton’s theory of universal gravitation is a more solid theory (though simply a special case of the more complete General Theory of Relativity), I would agree, as would most economists.

        2. Watcher, you’ve likely seen the following scenario. Two service stations kitty corner to each other. One sells gas for a few pennies less than the other one and has way more people filling up than the more expensive one. This is a real life example of demand driven by lower cost.

        3. I’m with you on this Watcher,

          The law of supply and demand is an example of a perfectly useless law. It can be used neither to predict future prices nor supply. What is it good for? I think it much more instructive to think about feedback cycles.

          A couple of other examples off the top of my head:

          A school, I believe in Israel, experimented with charging parents for bringing their children to school late. The result was more late children when the parents were charged. The explanation was that parents felt less guilty for bringing children to school late if they could pay off the school.

          Paying people to give blood can reduce the number of donors. Giving blood for a cause can make people feel good, if they get paid to give the blood they lose the good feeling. The hospital taking the blood decided to give an option to have the payment go to a charity.

          During times of famine, farmers do not make more money (this is a comment in Graeber’s book). For example in Venezuela where food security is currently very critical the government is forcing farmers to sell their production below cost.

            1. It does.

              In fact the law of supply and demand explains all financial transactions. The examples I gave above do not infringe the law of supply and demand. The law of supply and demand can be used to explain just about all financial transactions.

              But you don’t need the law of supply and demand to look at feedback cycles. The law of supply and demand is like saying: “God creates all things”. It is a perfect law in that it explains the past perfectly, but you can’t use it to predict the future. People who use the law of supply and demand to predict the future just interpolate curves and hope that the function doesn’t change too much.

              Equation (5.2) in https://link.springer.com/article/10.1007%2Fs41247-016-0016-6 can be used to obtain an explicit equation for prices which can be analysed to provide feedback cycles.
              I find it much more transparent than the law of supply and demand.

            2. I find it much more transparent than the law of supply and demand.

              The law of supply and demand is perfectly transparent.

            3. But doesn’t tell you anything about future prices nor supply.

              Moreover the law of supply and demand induces plenty of poor price analysis, for example many people (myself included until 2008) believe that peak oil is an investment opportunity because as production declines, the price will certainly rise. A simple analysis of Equation (5.2) tells you that the more important an item is in economic production, the less the price is likely to rise if production declines.

            4. Schinzy,

              Wouldn’t that depend on assuming the future production function looks like the past?

              Seems this would be the same criticism you just gave for supply and demand analysis where it is assumed that the functional form of future supply and demand curves is similar to the past.

              In general social science will never be adept at predicting the future. As soon as any social theory becomes widely accepted and known by most, then people try to use that knowledge to game the system. This changes their behavior and the system an then the theory no longer applies.

              It only works if you keep it a secret. 🙂

            6. Schinzy,

              First do you mean 5% per year for decline in oil production? I doubt that will occur unless there is a Great Depression 2. I expect World C+C production will fall at about 1%/year for the first 5 years after the peak (on average) and then rise to about 2 % per year until demand starts to fall faster than supply as high oil prices lead to substitution.

              Perhaps oil prices will not rise, but I think you fail to see how the economy can adjust to more slowly growing or even slowly falling oil output as in 2005-2011 (where the GFC was more likely due to poor financial regulation than high oil prices) or various other cases where oil output fell and oil prices rose (1979-1982) or oil prices were high (2011-2014) while economic growth was fairly robust.

              Does your theory deal well with these episodes? It seems a gradual decrease in the rate of increase in oil output with rising oil prices will lead to oil becoming a less important input to World economic output, eventually demand will fall faster than supply as it becomes less important and prices will fall along with output and oil’s cost share in the economy will decrease.

          2. The law of supply and demand is an example of a perfectly useless law. It can be used neither to predict future prices nor supply.

            Actually the law of supply and demand is the most powerful law in economics. If buyers and sellers are free to decide among themselves what price to pay/charge for a good or service, the transaction price will be determined by supply and demand curves. Is there really another law of economics with better predictive value — if so, tell me what law?

            And of course the law of supply and demand doesn’t work in cases where the government (such as Venezuela or Israel) dictates the price of a good or service. It doesn’t work because the buyers and sellers are not given the option to decide among themselves what prices to pay/charge.

  22. It seems that there are 230 legacy rigs still working in the USA. These are the less efficient & slower rigs. And so there is still some room for efficiency gains when those legacy rigs are replaced.
    It reads like he is saying that 600 to 700 legacy rigs have gone since 2014…

    2019-04-25 (Seeking Alpha) Helmerich & Payne, Inc. (HP) CEO John Lindsay on Q1 2019 Results – Earnings Call Transcript
    I think it’s also important when we have this conversation that we also mentioned that there’s still about 230 legacy rigs, mostly SCR but even some mechanical rigs that have been upgraded in some capacity or another to do some of this more challenging horizontal work. And those rigs are out there working today, obviously, much fewer SCR rigs working today than what you saw in 2014.
    Seeking Alpha -> https://seekingalpha.com/article/4256850-helmerich-and-payne-inc-hp-ceo-john-lindsay-q1-2019-results-earnings-call-transcript?part=single

    Legacy SCR -> AC VFD power system enables efficient rig power distribution compared to DC SCR
    https://www.worldoil.com/magazine/2007/december-2007/special-report/rig-floor-equipment-ac-vfd-power-system-enables-efficient-rig-power-distribution

    Helmerich & Payne, Inc. January presentation. Super-Spec Specifications is on page 12.
    https://helmerichandpayneinc.gcs-web.com/static-files/49217d51-c885-4484-9b70-fc745fae1787

    A chart showing HP’s super spec rig count increasing over the years (Just HP not the US total)

  23. Venezuela’s opposition leader Guaido went to a military air base in Caracas to proclaim the end of Maduro’s regime and call for an uprising
    Operation Liberation -> https://twitter.com/hashtag/Operaci%C3%B3nLibertad?src=hash

    2019-04-30 (The Associated Press) BREAKING: Venezuela’s government says it is putting down a small coup attempt of military ‘traitors’ tied to opposition

    2019-04-30 Leopoldo López, released from house arrest by opposition forces. Military deserters from the Armed Forces release the opposition leader, who had been serving a sentence of almost 14 years in prison since 2015.

  24. 2019-04-30 (EIA 914) US crude oil production down -187 to 11,683 kb/day vs 11,870 kb/day in January (revised from 11,871)
    Gulf of Mexico down -187 to 1,719
    North Dakota down -64 1,312
    Texas up +61 to 4,890
    New Mexico up +26 to 843
    https://www.eia.gov/petroleum/production/#oil-tab

    The average of the weeklies for February was: 12,018 kb/day a difference of 335 from the EIA 914

    HFI Research: Weekly vs EIA 914 Monthly
    Chart: https://pbs.twimg.com/media/D5aeOM6UcAAvP__.jpg
    From https://twitter.com/HFI_Research

    2. Interesting,

      So for the US excluding Gulf of Mexico(GOM), output was flat. Tight oil output increased by 35 kb/d in February so US output minus GOM minus tight oil was down by 35 kb/d in February. In March the EIA estimates US tight oil output increased by 112 kb/d.

      1. Not sure what’s behind the big drop in the GOM for February. Must be that some of the bigger facilities were down for upgrades/repairs/etc.

      2. Some months a little down, some months a little up. Think that falls under the classification of basically near flat output. March may look better, but April won’t. Permits diving. Rig count down by 30 in two weeks. If it picks up we would not see it until about the end of the year.

        Texas still has a lot of conventional, which is still going down. Small increases in lateral drilling can be offset some by declines in conventional. Not long ago, about one million a day conventional out of the Permian. And that’s not all of the conventional which is in decline. Eagle Ford has to be declining big time, by now.

        North Dakota is not looking exceptionally healthy. Okla. Is choking, and Texas may look the same in a few months, even if NM is still increasing.

        2. Bakken is definitely on the worse end of their historical winter fluctuations. On the one hand, particularly bad weather. OTOH, decent prices.

          We’ll see with March and April.

        3. Guym,

          For Permian Basin (both Texas and New Mexico) horizontal oil rigs have decreased a bit, back to June 2018 levels, 4 week trailing average from Jan 2014 to April 26, 2019 from Baker Hughes data. The average weekly horizontal oil rig count in the Permian Basin in 2018 was 418, for the 4 weeks ending April 26, 2019, the average was 423.5. I focus on the Permian basin because about 67% of the US increase in tight oil output came from increases in the Permian Basin over the past 12 months.

  25. There is some serious stuff going on in Venezuela. What do you expect?

  26. Chile’s foreign ministry says Venezuelan activist Leopoldo López and his family have sought refuge at the country’s diplomatic mission in Caracas.

    This would seem to confirm that this chapter is over.

    They will all be in Miami in a week.

  27. There is an odd phrasing from the US government concerning Maduro. It goes something like . . . He’s stealing the wealth of the Venezuelan people.

    There is a difficult problem with this. United States banking sanctions control the flow of money. The SWIFT network defines the flow of money.

    Where is this stolen wealth stored? If it was being sent to Russia, they would just take it as repayment of Rosneft loans. Others point at the shipment of gold Turkey, but the same problem applies there as well. The gold was not kept by Turkey. They did some processing of the gold , hand I believe they returned the processed gold.

    As best I know there is no evidence beyond propaganda that Maduro has taken any money out of the country, so how does this theft work? I heard the initial quotes, and I try to make out some metaphorical meaning from it, but none was clear to me at all. The quotes seem to be literal. Maduro is being accused of stealing Venezuelan wealth and presumably pocketing it.

    It’s always been popular to do this kind of thing. I’m pretty sure Putin has been accused of being that horrible thing — a billionaire, which of course would be impossible on the Russian president’s salary and thus imply theft from the treasury. So the accusation is out there, but I haven’t seen any photos of 200 foot luxury yachts owned by Putin.

    Haven’t seen any mansions owned by Maduro, either.

    1. Any media person in Russia publishes derogatory stuff on Putin, they’re going mysteriously fall out of a window.

  28. US Ending Stocks, February, Month/Month change (million barrels)
    Crude Oil +2.9
    LPG -8.6
    Distillates (Gasoline, Kerosene, Distillate & Residual) -14.9
    Total Products without LPG: -11.6
    Crude Oil & Total Products (without LPG): -8.6 (shown on chart)
    This draw is more than the weeklies during February suggested would happen
    Bar chart: https://pbs.twimg.com/media/D5d5EpUXsAE8myC.png

  29. I’ve been reading articles about Buffett offering Occidental a deal to get Anadarko. I haven’t fully decided what it means for the companies involved, but isn’t a very favorable deal for Occidental, which makes me think it is another bad sign for the future of the industry.

    This is the best article I have seen so far.

    https://www.ft.com/content/f423e548-6b9f-11e9-80c7-60ee53e6681d

  30. https://www.rigzone.com/news/us_oil_output_drops-01-may-2019-158726-article/
    Seems reality have come to US , the numbet of active Riggs are now below what it was 12 months ago , that this not have impacted shale production more than it have is related to completation of DUC’s but this also will come to an end. There is huge need for new investment in shale equipment as it is wear but with no profit to invest after banks , investors have taken their shear this will not be possible. WTI is now on its way down to the 50 range again. To say it with the Pioneare Mark Papas words , the best is behind….

    1. The change in output is small, a reflection of low oil prices in Nov to Jan, oil prices have risen, output is likely to follow.

  31. Russia oil export is down 1.5 mb/d, because of contamination. I’ve read that 5 million tons of crude is lost.

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