Category Archives: Tight oil

My CNNMoney quote & 3 points: OPEC v shale, Russia’s new role & Trump-buddy Hamm is pro Saudi price band

 

160928163540-opec-algeria-384x216I was interviewed by Matt Egan of CNNMoney. Three points, if I may:

  1. This story echoes my message in Berlin Policy Journal earlier this week and my RTRadio interview: OPEC now has to live with a new oil-market paradigm where shale  won’t disappear (for now its in the US, but soon elsewhere too).  It is a technology more akin to manufacturing than traditional oil extraction and so more amenable to technological and operating innovation in a low-price regime (or in a price war such as the Saudis et al have just given up on waging against it). And, being much smaller-in-scale means it can ramp up at much lower initial costs and more rapidly than traditional oil fields. The CNNMoney story is below here, or here’s the CNN ink .
  2. Another totally new phenomena seen in this OPEC deal was that a Russian leader was deeply involved in the tense OPEC negotiations, specifically between Iran and Saudi Arabia. Russia has never done this before. Historically, it has also never carried through on previous promises to support an OPEC cut, instead free-riding on higher prices effected by OPEC/Saudi cuts.  In this case, Putin was instrumental in getting the Saudi’s to agree, as they always have before, to swallow most of the cuts. But, Putin has agreed to cut too (in ambiguous language, but repeatedly). We shall now see if he and Igor Sechin (CEO of Rosneft, that produces 40% of Russian oil, and who is, by the way, a great friend of Venezuela’s miserably failing chavista leadership, where his company is now the biggest foreign oil producer) … do as they have promised OPEC and the Saudis. If they do not, the fallout with Saudis and their allies will be significant.
  3. Now, also, we shall see how US shale responds. Of course, IEA head, Fatih Birol, has understandably predicted that US shale and other producers, will likely hike production if oil reaches $60/barrel and simply eat up the present OPEC cuts in about nine months or so. (Aside: of course, the present output cuts, even if they ‘fail’ in the long run to sustain higher prices, would still have had been a significant cash-boosting relief to all OPEC states and to Russia while they lasted.)  However, take a look at the Bloomberg video link at the end of my Berlin Policy Journal piece – an interview with Howard Hamm, Trump’s billionaire fracking close-ally (who has just turned down an offer to run the Department of Energy). He had told Bloomberg he expects OPEC to make a deal because “it makes sense” and, further, that he expects/hopes his US fracking colleagues will show ‘discipline’ after the price rise, i.e., not expanding too fast so as to keep prices up.  An interesting, de facto recognition that price wars, in the end (in the long run), do not benefit either side, and goes on to approvingly say that the Saudi’s want to once again maintain prices “in a band” as they used to do. It is clear from Hamm that this would all be very welcomed from the US side. (Note, Hamm’s Continental Energy company made $3 billion in just three hours after the OPEC deal boosted prices! ) Indeed, in light of such everlasting market realities, it is difficult to imagine Trump’s attitude to the Saudi’s will be much different than other US president’s over the years. Which has geopolitical implications for Iran, of course, as the Saudi-Iranian geopolitical competition for regional influence and their parallel oil-market competition both continue to heat up.

Here’s the CNNMoney piece by M. Egan of 1 December 2016 (with my quote highlighted): Continue reading

An Oil-Price War´s Surprise Ending -My BPJ article on OPEC, Shale, Trump, Market & Geopolitics

bpj-oil-price-war-end-29nov16Here`s my latest at Berlin Policy Journal:  about  OPEC`s 30 Novermber meeting, US shale and the geopolitics from the  Trump Administration towards Iran and the Saudis. – Tom O`D.

An Oil-Price War’s Surprise Ending

No one expected shale producers to survive extended low oil prices.
, NOVEMBER 29, 2016 
The oil market’s oversupply – and the low prices that followed – was supposed to drive shale producers out of business. Instead, the economies of several large national producers have been upended, and the next act could prove even more destabilizing.

OPEC’s 171st meeting in Vienna on November 30 reflects the new paradigm of the global oil market. After two years, the Saudi-led price war to drive American shale and other “high cost” producers from the market has ended. However, to the surprise of many – not least the Saudis – shale has survived. What now?

The United States Energy Information Agency (EIA) expects persistent market oversupply to have been quenched by the second half of 2017. The Saudis view the diminishing oversupply as an opportunity to cut production by 600,000 or more barrels per day – although about twice this amount would be optimal – boosting prices from under $50 per barrel to $60 or more. The Saudis have worked intensely to reach an agreement at the OPEC summit to coordinate this production cut with Russia; any failure to achieve this highly anticipated deal would sink market confidence, pushing prices into the $30s.

The key obstacle to the Saudi plan is that Iran has refused to participate in any cut, insisting it should first be allowed to re-establish production it lost under years of sanctions. In response, the Saudis have threatened to boost their own production, punishing Iran by collapsing prices and by denying them market share. The Financial Times’ Nick Butler correctly characterizes this as “playing with fire,” and not only because of the severe pain this would impose on weaker OPEC states, but also for the geopolitical retaliation it might provoke from the new US administration as the Saudis would also bankrupt numerous shale producers in the US.

However, even if Russia, Iran, and the rest of OPEC agree to the Saudis’ cuts, US shale is widely expected to expand into the void, re-depressing prices by later next year. In all these scenarios, the future remains extremely difficult for OPEC, for Russia, and for other oil-dependent states.

A Price War Backfires

The prolonged high price of oil, starting to rise in 2002 and then dipping during the financial crisis before rising again till mid-2014, encouraged the emergence of new unconventional shale production. Driven by technical innovations in hydraulic fracturing plus abundant venture capital, by 2014 the US had added more new oil to the global market than what was lost in the Arab Spring and subsequent wars in Libya, Iraq, and Syria. By mid-2014, some two million excess barrels-per-day (bpd) were flowing into storage, and the price collapsed. Continue reading

Saudi & Russia seek oil deal as OPEC fight v US shale fails [My RTRadio Interview]

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RT Radio-Edinburgh’s Jack Foster interviewed me on the upcoming 30 November OPEC summit where the Saudis hope to set a cap on OPEC and Russian production. Here’s the interview:   Listen from time-stamp 9:00-to-17:30 (Streaming MP3) 

This would  mark the first-ever Russian cooperation with OPEC. However, market realities look bleak for OPEC and Russia whether they reach an agreement or not. The reason is the unprecedented continuing challenge from US shale, which has dramatically cut its costs via tech and operational innovations to stay profitable at low prices. Continue reading

New US tech squeezing oilfields & rivals [IBD quotes me]

U.S. oil companies are developing new technologies and techniques to produce oil cheaper and faster.Gillian Rich at Investors’ Business Daily News (17 June 2016) writes a quite informative survey of the many new technological methods pushing the cost of US shale production ever downward. Here’s Gillian’s article. She asked me about the impact on OPEC producers and my central point (my quotes are below) was that it will be the high-tech, most-efficient producers (such as US shale) and NOT necessarily those with the largest and easiest-to-access proven reserves (e.g., countries such as Venezuela and much of OPEC, many corrupt Russian and Chinese state-dominated firms, etc.)  that will set the pace in the new oil order

If the latter actors can’t find ways to innovate in technology and operational methods they will be at a disadvantage because shale production looks more like manufacturing than  traditional oil extraction.  Many OPEC and other state-owned firms never had to think like a combination of Henry Ford and Silicon Valley, but could instead count on huge, low-cost reserves, inefficient exploration and production and cheap local labor.

Eventually, the new shale methods will of course spread to promising shale fields in Argentina, China, Eastern/Central Europe and elsewhere; but this will require big advances in local infrastructure, training and government regulatory capacity. Again, things those countries must think about very seriously. Here are my quotes (from near the end of her long article).

New Oil Order

…. OPEC countries like Nigeria and Venezuela that haven’t invested in newer technology will be hurt by advances in the U.S., said Thomas O’Donnell, a senior energy analyst at the consulting firm Wikistrat. Russia also can’t exploit shale and Arctic assets because of economic sanctions that limit Westerners from helping develop the new fields.

Meanwhile, Saudi Arabia has low-cost production fields, and state-run oil company Saudi Aramco can bring in foreign experts knowledgeable about fracking and new technologies, he added.

Still, OPEC must now grapple with U.S. shale producers on the rebound, which could lead to volatility, O’Donnell said. “The oil order has changed. It’s conventional oil on one side, and new shale oil on the other.”

Aside

Last night Investor’s Business Daily NEWS’ Gillin Rich interviewed me. The title reflects some rumors, but my point of view, as she reports, emphasizes market realities that bode against any output limit – esp. if the Iranians are still intransigent … and … Continue reading

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Don’t write off American oil boom despite OPEC – CNNMoney cites my analysis

cnn_money-chart-oil-production-down-slow-01jun16

I was interviewed today by CNNMoney’s Matt Egan on what  OPEC should expect from US shale as they hold their 169th “Ordinary Meeting” in Vienna tomorrow (2 June).  Indeed, at some point oil production and demand will balance (likely in 2017), and then the Saudis and OPEC will have to cautiously test the presently unknown dynamics of high-tech US shale on the rebound. -Egan cites my point  of view in his article. Read on … – Tom O’D.

Don’t bet against the resilience of U.S. oil companies

by Matt Egan @mattmegan5 CNNMoney (New York) June 1, 2016: 12:23 PM ET

Many expected U.S. oil output would collapse under the weight of a lengthy price war with the mighty OPEC, the fractured oil cartel that’s meeting in Vienna Thursday.

The U.S. oil boom, fueled by the shale revolution, has obviously taken a few punches from OPEC’s strategy of all-out pumping. But the latest numbers show that American production continues to remain stubbornly high in recent months despite the crash in crude to as low as $26 a barrel in February.

The U.S. pumped 9.13 million barrels per day in March, down by a miniscule 6,000 barrels from the prior month, according to stats released this week by the U.S. Energy Information Administration. That represents a deceleration from recent monthly declines. By comparison, daily U.S. output dropped by 58,000 barrels in February and by 83,000 barrels in December.

Continue reading

Wikistrat Report “Saudi Arabia & the Future of Oil” cites my views

Wikistrat - my quote on US continued interestThis Wikistrat Report on the Saudi kingdom’s “reform” plans and the future of oil is from a press webinar I did on 17 May together with Dr. Ariel Cohen (Atlantic Council, Washington) and Prof. Shaul Mishal (Middle East Division, IDC Herzliya & Tel Aviv U.).  A nicely done report on oil market and geopolitical hot topics.

30May16 note: A couple typos I had found have been fixed by Wikistrat since I initially posted this Report.  The latest version is now linked here. – T.O’D.