• Tag Archives tar sands
  • The Internecine Duel For Oil Market Share

    The crude oil producer-group, Organization of the Petroleum Exporting Countries, OPEC, in November 2014, adopted a laissez faire output policy which essentially removed caps on members’ supply quotas. Driven in the main by Saudi Arabia and some Gulf producers, the policy was a thinly-veiled attempt to drive the higher-cost (mostly North American tight oil) producers offline and ensure a good share of the global oil market. On a year-on-year basis, petroleum liquids additions by North American tight oil producers rose from 44,000 barrels per day (bpd) in 2006 to a staggering 1.7 million bpd in 2014, according to a report by Rystad Energy. Though this was largely responsible for the massive global supply overhang ─ which exceeded 2.5 million bpd in 2015 ─ the response by top producers, Saudi Arabia and Russia as well as Iran and Iraq among others, unleashing their massive supply capacities, only served to exacerbate the condition. Global crude oil prices plummeted to multiyear lows. In what was loosely termed a ‘‘sheikh-versus-shale’’ duel, this bid for better market share exacted a devastating toll on the duelling spigots.

    North American Tight Oil Producers

    When global crude oil prices were well-above US$100 per barrel, tight oil producers in North America, which in the main, had breakeven oil prices in the US$65 – US$90 per barrel range, stayed profitable. However, when falling prices tested US$26 per barrel and even stayed low for months on end, many of these producers were forced offline, and quite a few, permanently. Data from the law firm, Haynes and Boone LLP, show that in the period from January 2015 to 14 December 2016, there were 114 bankruptcy filings in the North American upstream sector and with a total debt of more than US$74 billion. For many of the ‘‘oil-rigged’’ states and provinces, taxes on proceeds from oil and oil-related businesses formed a major proportion of revenue; for some, tax proceeds from such businesses exceeded US$5 billion in 2014. Continue reading  Post ID 560

  • Crude Oil Prices: Why A Sustained Rebound May Still Be Further Ahead

    Global crude oil prices have recovered somewhat ― even if tenuously ― from the lows of just a few weeks ago, but they are still only about 30% of their values for the same period two years ago.

    While it is unclear just how long it will last, the low oil price regime has failed to bring any significant growth to the global economy and has left many producing companies struggling with dwindling revenues, even bankruptcy. In addition, the often-observed correlation between oil prices and share prices only adds to current market uncertainties.

    Spot Crude Oil Prices

    The current low oil price regime is driven in the main, by a lingering oil imbalance ― excess of supply over demand ― and a sluggish global economy.

    Oil Imbalance

    Facing substantial loss of market share due to the tight oil boom (mainly U.S. shale oil and to some extent Canadian tar sands), major producing countries such as Saudi Arabia and Russia, which have lower production costs also turned on the spigots to their massive oil casks. The result has been the current supply overhang, which is being exacerbated by Iran’s insistence ― after her recent emergence from a restrictive sanctions regime ― on speedily attaining her pre-sanctions production level.

    The global oil imbalance has been on an upward trajectory since 1Q 2014. It is informative that this positive imbalance is not driven by falling demand but by the growth in supply superseding that in demand. Unless this differential growth rate is properly addressed, that imbalance, and therefore the low oil price regime will linger. Continue reading  Post ID 458

  • Unease In The American Shale Patch

    The current slump in global crude oil prices has exacted quite a significant toll on the oil and gas industry. Job losses worldwide are currently in excess of 200,000 and rising, billions of dollars worth of projects have been deferred or cancelled and there have been assets divestment as well as consolidation among companies in the industry.

    That price slump derives in the main, from weakening demand and rapid increase in supply, with the United States shale oil output accounting for most of that increase. Without a doubt, the decision by Organization of the Petroleum Exporting Countries, OPEC, not to rein in supply, only widened the imbalance ― excess of supply over demand ― and steepened the slump.

    Shale oil production in the U.S. rose from about 500,000 barrels per day (bpd) in 2005 to about 4.5 million bpd by the end of last year, or about 52% of that year’s 8.6 million bpd output. The massive ramp-up in shale gas output through hydraulic fracturing (or fracking) also led to the glut in U.S. natural gas supply and ultimately the commodity’s price collapse.

    Change In Oil Production - OPEC, U.S. & Canada Continue reading  Post ID 396