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Sigmetnow

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Re: Oil and Gas Issues
« Reply #100 on: December 04, 2014, 01:45:38 AM »
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #101 on: December 04, 2014, 01:58:48 AM »
What I understand is that the current price of oil has stopped new developments in the Canadian tar sands.  And permits for new wells in North Dakota are down.

I don't quite understand what the Saudis are doing.  If they would cut supply by 10% and force prices up 10% (pick your own number) then they would end up with about the same profits and more oil in their holes.

The Saudis, being the low cost provider does not need to worry about EVs, etc. from stranding their oil.  Manufacturers will likely need oil for feedstock well after we've retired the last ICEV and switched the last airplane to biofuel/whatever.

Sigmetnow

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Re: Oil and Gas Issues
« Reply #102 on: December 04, 2014, 02:08:59 AM »
Bob,
The financial chatter I am seeing says that the Saudis want to keep prices low to force out of business those oil sources that require higher prices to be profitable.  Could work....

Sub-$50 Oil Surfaces in North Dakota Amid Regional Discounts
“To a producer in Wyoming, if Brent’s $70 then I’m at $50, then I have to start asking does it economically make sense to keep drilling,” Auers said yesterday. “They might start reallocating capital, you might see projects slowed or shut down.”

http://www.bloomberg.com/news/2014-12-03/sub-50-oil-surfaces-in-north-dakota-as-regional-discounts-swell.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #103 on: December 04, 2014, 02:21:28 AM »
The global plunge in crude oil prices is impeding Canada’s economic recovery...
“Things were going pretty well until oil prices collapsed,” said Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto. The policy rate will remain frozen until October 2015, he said.

Oil sands deposits in Alberta are among the world’s most expensive to produce, and a quarter of such projects globally are at risk from falling prices, according to the International Energy Agency. Calgary-based Canadian Natural Resources Ltd., which has a capital budget of C$8.6 billion ($7.5 billion) for 2015, may cut investment if oil prices stay around $70 a barrel, President Steve Laut said in an interview last month.

Price Impact

“The impact of falling prices isn’t linear on the oil sector,” said Craig Alexander, chief economist at Toronto-Dominion Bank, who said crude at $60 to $65 a barrel could lead to major cancellations. West Texas Intermediate for January delivery traded at $67.65 on the New York Mercantile Exchange yesterday.

http://www.bloomberg.com/news/2014-12-03/plunging-crude-adds-to-poloz-case-for-1-canada-rate-hold.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #104 on: December 04, 2014, 02:28:08 AM »
Here's a great overview (slideshow):

The Biggest Winners and Unluckiest Losers of the Oil Crash
http://www.bloomberg.com/slideshow/2014-12-03/the-biggest-winners-and-unluckiest-losers-of-the-oil-crash.html#slide7
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #105 on: December 04, 2014, 02:54:25 AM »
Interesting interactive comparison of gasoline prices and (un)affordability in different countries.

@tsrandall: Only five countries have less Pain at the Pump than the U.S. -- four are OPEC

http://www.bloomberg.com/visual-data/gas-prices/
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #106 on: December 04, 2014, 06:12:50 AM »
The financial chatter I am seeing says that the Saudis want to keep prices low to force out of business those oil sources that require higher prices to be profitable.

I still haven't found an explantion of Saudi behavior that makes sense to me.  Your slideshow says they need almost $100/barrel to keep their economy in balance.  Perhaps they can flood the market with cheaper oil and net the same by selling a smaller amount at ~$100.  The Bloomberg slide should have talked about earnings, not barrel price.  A few barrels at a high price can equal more barrels at a lower price.  It's net revenue.

Saudi takes it low.  Stops new projects in Canada and North Dakota.  Screws things up for Venezuela.  In some months the price creeps back up.  The rigs move back into North Dakota, new projects start up in Canada, etc.

Did US oil crash the market?  I haven't seen anything that looks like a demand drop recently.
---


BTW, there's a rumor starting up that Nissan may be bringing an affordable 250 mile range EV to market in the near future.  It's based on some things Ghosen said and there hasn't been any denial.  I'd put it "don't start believing yet", but if they do, along with GM's and Tesla's more affordable EVs, then we can start the death clock for oil fairly soon.
 


Sigmetnow

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Re: Oil and Gas Issues
« Reply #107 on: December 04, 2014, 03:21:36 PM »
Found this:  :)
CEO Ghosn: Nissan Has Affordable 250-Mile Range EV Battery
http://www.hybridcars.com/ceo-ghosn-nissan-has-affordable-250-mile-range-ev-battery/

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Sigmetnow

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Re: Oil and Gas Issues
« Reply #108 on: December 04, 2014, 03:43:29 PM »
The financial chatter I am seeing says that the Saudis want to keep prices low to force out of business those oil sources that require higher prices to be profitable.

I still haven't found an explantion of Saudi behavior that makes sense to me.  Your slideshow says they need almost $100/barrel to keep their economy in balance.  Perhaps they can flood the market with cheaper oil and net the same by selling a smaller amount at ~$100.  The Bloomberg slide should have talked about earnings, not barrel price.  A few barrels at a high price can equal more barrels at a lower price.  It's net revenue.
...

"The chatter" says the Saudis are comfortable selling their oil at a loss for several years, because they have put aside billions in savings. 

Thus the global fallout could be significant.
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #109 on: December 04, 2014, 05:03:04 PM »
"The chatter" says the Saudis are comfortable selling their oil at a loss for several years, because they have put aside billions in savings.

I understand that the Saudis can afford to take a loss.  I'm not understanding what they're getting for the bath they are taking.

Slow oil extraction in Canada and the US?  Deal a body blow to Venezuela and some other economies who rely on oil income?  These are not Saudi Arabia's mortal enemies.

Hurt ISIS?  Reform OPEC by blackmailing other oil countries to join up and take orders from SA?  Part of the Islamic sectarian war? (I'm struggling for an explanation.)


Zythryn

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Re: Oil and Gas Issues
« Reply #110 on: December 04, 2014, 05:19:30 PM »
They are holding onto, and retaking market share.

Shale oil rigs, from what I have heard, peak and die off pretty quickly.
So Saudi keeps prices down making new drill sites an unreasonable investment, shale and tar sands production declines, OPEC market share, and thus control, increases.

Prices climb again.  Now, investors thinking about new drill sites have to consider their risk. What if Saudi does this again.  Perhaps my money is best invested elsewhere.

crandles

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Re: Oil and Gas Issues
« Reply #111 on: December 04, 2014, 05:33:33 PM »
I assume the logic is that once the higher cost operations have shut down, it is more costly to set them up again partly due to set up costs and partly due to investors fears that Saudi will sell cheap to put them out of business again.

I imagine it would still be pretty difficult for Saudi to judge how much higher they should allow prices to go once higher cost source have gone bust to make good profits while still keeping the higher cost sources concerned about starting up again. They may have to keep that going for quite a while for it to be worth incurring much in the way of losses. Some shock causing a price rise might bring players back in. But if they are a low cost supplier, there need not be much losses, just a faster reduction in reserves.

Hah beaten to it.

Sigmetnow

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Re: Oil and Gas Issues
« Reply #112 on: December 04, 2014, 06:01:17 PM »
So this is happening:
@BloombergNRG: Gas price war erupts in Oklahoma City as $2 floor collapses http://t.co/1in9YbqW3D by Margaret Newkirk and @Lynnmdoan http://t.co/t9EvedhXbL
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #113 on: December 04, 2014, 06:30:59 PM »
Town in usually oil-friendly Alaska sues Koch company for ground water contamination.
According to a lawsuit filed by the city last week, two oil companies are responsible for polluting North Pole’s groundwater and some private drinking water wells with a mysterious chemical. The chemical, called sulfolane, leaked from an oil refinery that the lawsuit alleges was negligently operated — both by current refinery owner Flint Hills Alaska Resources, which is owned by Koch Industries, and former owner Williams Alaska Petroleum.
...
It’s been known since at least 2001 that the refinery was contributing to sulfolane pollution in the North Pole. But in 2009, Flint Hills discovered levels of the chemical that were “significantly higher than expected,” and began notifying homeowners in the surrounding area. It began a process of cleaning up the groundwater, but the costs proved to be too much. Earlier this year, the company announced it would cease operations because of the “enormous” expense of cleaning up the sulfolane.

http://thinkprogress.org/climate/2014/12/04/3599276/north-pole-koch-lawsuit/
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wehappyfew

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Re: Oil and Gas Issues
« Reply #114 on: December 04, 2014, 07:08:46 PM »
Saudi Strategy:

I look at it this way... the rational Saudi strategy is to maximize their net revenue - over the life of their resources, discounted by the time-value of that revenue.

So higher prices now = best
Higher production now = best
Rapid production at moderate prices = good enough  .... (depletes quickly, but get money sooner)
Slow production at high prices = poor to fair  .......  (far future income gets a bigger time-value discount)
Leaving resources in the ground because no demand = terrible

Unfortunately (for the Saudis), the market became oversupplied due to slightly lower demand growth in the fast-growing markets (China, India SE Asia), recession in Japan and Europe, and higher efficiency vehicles mandated in US by Obama (thanks, Obama!)

Oversupplied for a second reason - US oil-shale frakking.

Nothing new there, we all know about those things. What can the Saudis do about it? One of two things must happen, they really have no choice - the oversupplied market, inelastic supply, inelastic demand they either:
1. Reduce output, keep prices up
2. Keep output up, accept lower price

Both are worse than status quo several months ago, but they can try to predict which will be better in the long run for their future output x price = revenue projections.

So I think they see the long run danger to be aggressive adoption of EV and hybrids that slash demand, combined with increasing US output. Imagine their nightmare scenario - US halves oil demand because of EVs and hybrids, while increasing output another 50%. That makes us a competitor instead of a customer!

Reducing output to maintain prices just hastens that nightmare's arrival, without any increase in short-term net revenue.

Lower prices/higher output still earns a decent net revenue for the Saudis (and only for the Saudis), while the frakkers wither and rust in the field, unable to repay their debts, unable to get financing for new drilling, and rapidly depleting their existing wells. EV adoption is delayed a few more years, weak economies get a small boost from lower energy costs, allowing at least some recovery of demand.

The new equilibrium may be at prices lower than $100/bbl - say it is $75 in the long run. Saudi's still make decent money, every other producer struggles, US frakkers may re-enter, but they will be much more conservative, maybe relying on cash-flow instead of debt/stock share financing.

The risk of another rapid oversupply situation is much lower, demand is boosted (although it may still continue falling, just not as fast), Saudis emerge as the only truly profitable supplier for decades to come. Their relative influence increases, even if their absolute net revenue declines slightly.

Is it possible the Saudis see it this way?


Bob Wallace

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Re: Oil and Gas Issues
« Reply #115 on: December 04, 2014, 09:55:43 PM »
Shale oil rigs move back to drilling for natural gas.  Or they get parked until needed then greased up and put back to work. IIRC when we hit a NG glut in the US many of the rigs rushed off to drill for oil.

Grab more market share by losing money.  Except when they get tired of losing money they raise their asking price and the next most expensive take market back.  They can only force others out by selling for less than the other players.  Were they to entirely collapse Venezuela, for example, once oil prices rose outside money would flow in and restart those oil fields.

Here are two more ideas that someone threw out.

1) Lower prices to stimulate demand. 

Kind of hard to see how.  Miles driven might go up some, but only while the price was low.  There's some elasticity in miles driven, prices go back up and people cut out unnecessary/lower priority driving. 

There could be a spike in inefficient car purchases but, in the US, CAFE standards would keep overall mileage ratings the same.  Manufacturers would have to offset by selling a larger number of efficient cars.  Once fuel prices went back up the inefficient vehicles would be driven less and there would be a  higher ratio of the most efficient cars on the road.

2)  Sell at a loss to stimulate the world's economy.

The Saudis are now so heavily invested in non-oil industries/companies that they want to give the world's economies a pick-me-up and increase their wealth in other sectors.  (Fun to imagine, but kind of a stretch.)



JimD

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Re: Oil and Gas Issues
« Reply #116 on: December 05, 2014, 04:40:57 PM »
wehappyfew

Yes, you have hit the nail on the head.

It is easy for people to misunderstand the gravity of this situation.  The media promotes shallow thinking or none at all on matters like this.  So it is to be expected.

The financial destruction of an event like this is profound.  It is no simple matter to just pick up a couple of years later and resume where you were when you went bankrupt.  We are moving into a declining situation so that place you once were does not exist anymore.  The sweet spots will be used up, opposition due to various kinds of pollution effects will be greater, the easy money will likely not be there next time and more rigorous lending standards (actually using standards at all) will be in effect, and many other factors will also come into play.

And lest anyone think the shale gas (not oil) fracking boom will continue long  term (another point I have commented on here and elsewhere) it too is preparing to run down.  Here is a new rigorous analysis which backs up what a lot of us have been saying for a few years.

http://www.nakedcapitalism.com/2014/12/new-study-says-us-fracking-boom-will-fall-quickly-after-2020.html

One thing to keep in mind also is that a significant tide of bankruptcies in the drilling firms working the shale 'oil' plays will take out shale 'gas' drilling capacity as well as many of the companies do both.  The vast majority of this kind of work is performed by relatively small companies (no Exxon's here)and when they go under it is hard to recreate them. The economics of gas fracking is less than robust also and suffers from many of the same well depletion, pollution, debt and price problems.  None of this boom would have happened if the big money had not been scraping the bottom of the barrel looking for very marginal returns because nothing else was providing the returns they were demanding.  Mountains of debt, churning stock values, lots of media propaganda, drawing in the suckers, no real profits... a classic bubble.

Everything gets harder going forward in time.  BAU whether green or black cannot continue and eventually it will not.
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #117 on: December 05, 2014, 09:41:33 PM »
Israel Hit With Massive 600,000 Gallon Oil Spill
http://thinkprogress.org/climate/2014/12/04/3599861/israel-oil-spill/
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #118 on: December 06, 2014, 12:59:18 AM »
Alaska cut taxes on oil companies to spur industry growth.  It didn't work.

Alaska is the only U.S. state with neither a state income tax nor a state sales tax. For revenue, it relies entirely on federal funding and various taxes on oil production in the state. Back in 2013, the oil taxes were cut by legislation passed under former Governor Sean Parnell (R). The logic of the cut was that it would spur renewed oil industry activity in the state, but that expected economic ferment has not materialized. And now, as the price of oil drops lower and lower, taking Alaska’s remaining tax revenue down with it, those cuts are leaving Alaska’s state budget deep in the red.

http://thinkprogress.org/climate/2014/12/05/3600190/alaska-oil-tax-budget-hole/
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #119 on: December 08, 2014, 01:45:43 AM »
Concerns about a Venezuelan default.
Falling oil prices have side-swiped Venezuela's government finances, spurring concerns of a sovereign default, but it isn't clear whether contagion effects will emerge.
...
"Given that the government has nothing in the way of savings from the oil price boom of the past decade, the loss of oil revenues will wipe out whatever foreign currency that the government has," it said. "With the bolivar collapsing in the black market, capital flight is only likely to increase putting even more pressure on the supply of hard currency."

It expects a default is "more likely than not" within two years, although there may not be a "flashpoint" until September or October of next year, when $5 billion of debt payments come due.

Unprepared

Among oil producing counties, Venezuela may be the worst prepared for lower oil prices, with dwindling reserves and a budget deficit of 17 percent of gross domestic product (GDP) . Oil accounts for 95 percent of Venezuela's export earnings and, combined with gas, it's 25 percent of the country's GDP. Rampant inflation has pushed consumer prices up as much as 50 percent a year, while currency controls have caused shortages of many consumer goods.

http://www.cnbc.com/id/102238082
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JimD

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Re: Oil and Gas Issues
« Reply #120 on: December 08, 2014, 05:06:00 PM »
The following is too long and complicated to excerpt, but if you want a good picture of the oil/gas debt in the US and how the bloodbath in that industry is headed it is a good primer.  Ugly is the word.

http://www.nakedcapitalism.com/2014/12/ilargi-oil-shock-quantum-fragility.html
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JimD

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Re: Oil and Gas Issues
« Reply #121 on: December 08, 2014, 05:28:20 PM »
And lest you think the Saudi's are not just like the typical hard nosed American capitalist here is some proof.

They are lowering their crude prices to American customers and raising them for Europeans.  Sounds just like John D. Rockefeller.

Sell at a loss to drive prices down so that your weak competitors who are already losing money get run out of business.  Raise your prices to those who have little choice but to buy from you.

http://oilprice.com/Latest-Energy-News/World-News/Saudis-Cut-Oil-Prices-Again-In-Bid-To-Maintain-Market-Share.html
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #122 on: December 08, 2014, 06:42:07 PM »
Lower your prices and lose a lot of money to drive your competition out of business. 

OK, that works if you are Walmart or Home Depot and then don't raise your prices down the road enough to let the "mom and pop" places to start back up.  But in the oil business if there's profit to be made then those old drilling rigs are going to be dusted off and be put back to work once the price comes up some more.

I'd understand it, I think, if the Saudis were cutting prices down below the most expensive providers but leaving themselves profitable. 

(I'm assuming they are actually losing money, not just losing potential revenue?)

jbatteen

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Re: Oil and Gas Issues
« Reply #123 on: December 08, 2014, 08:19:57 PM »
Maybe the Saudis see that oil isn't going to last that much longer.  Maybe they think if they can ride this out, demand will soon be low enough that they will be the only cost effective producers on the market.

Sigmetnow

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Re: Oil and Gas Issues
« Reply #124 on: December 08, 2014, 08:35:17 PM »
Breaking news:  oil plunges to 5-year low.
WTI for January delivery dropped $2.38, or 3.6 percent, to $63.46 a barrel on the New York Mercantile Exchange, after reaching $63.06, the lowest since July 2009. Volume was 4.5 percent above the 100-day average.

“The market continues to search for a bottom but it doesn’t feel like we’ve found one,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “You’ll continue to see longs exit the market. You don’t want to catch a falling knife.”

http://www.bloomberg.com/news/2014-12-08/oil-at-5-year-low-amid-concern-funds-may-resume-selling.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #125 on: December 08, 2014, 09:05:37 PM »
Is OPEC the new green?  Its recent moves make it a potent global anti-fracking force.
The Organization of Petroleum Exporting Countries, responsible for about 40 percent of global supplies, has maintained output in the face of an oil glut. The move has sent prices lower, challenging shale plays in the U.S., and the rest of the world where production is more costly.

A prolonged oil slump “could be a nail in the coffin” for some shale projects outside North America, Michiel Soeting, global chairman of energy and natural resources at KPMG LLP, said by phone from London. “It was already a question with high oil prices.”

http://www.bloomberg.com/news/2014-12-08/global-shale-ambitions-wane-as-opec-price-war-deepens-oil-plunge.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #126 on: December 09, 2014, 03:59:41 PM »
Japan's next big thing?  Hydrogen fuel cells, for powering homes and businesses.  The waste heat from the reaction is used to heat water.
As fuel-cell technology finds its way into factories and commercial buildings, Japanese manufacturers including Panasonic Corp. (6752) are working to make them small and cheap enough for the home. The country has set a goal of installing them in 5.3 million homes by 2030, about 10 percent of all households.

http://www.bloomberg.com/news/2014-12-09/japan-promotes-home-fuel-cell-on-path-to-hydrogen-society.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #127 on: December 09, 2014, 04:21:17 PM »
FIRED:  Texas Oil and Gas Regulators Say They Tried to Enforce Rules, Lost Jobs
http://books.insideclimatenews.org/fired
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #128 on: December 09, 2014, 04:30:18 PM »
From December 8:
Absent a move by OPEC, Raymond James Financial Inc. estimates that the expansion of U.S. production of liquids needs to slow from a current growth rate of around 1.5 million barrels per day to near zero in 2016 to balance the global market for oil.

Doing that would result in a 17 percent reduction in exploration and production spending next year and another 9 percent in 2016, according to Raymond James analyst J. Marshall Adkins and colleagues. The average annual U.S. drilling rig count would fall by 19 percent, or 348 rigs, in 2015 and another 11 percent the following year, the analysts wrote.

http://www.bloomberg.com/news/2014-12-08/oil-is-falling-knife-that-many-hands-are-trying-to-catch.html
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #129 on: December 09, 2014, 07:27:13 PM »
Maybe the Saudis see that oil isn't going to last that much longer.  Maybe they think if they can ride this out, demand will soon be low enough that they will be the only cost effective producers on the market.

Then why sell at a loss now?  Demand will not vanish, just oil as industrial feedstock will mean that there will be demand for a long time.

I'd think it a better strategy to sell less for more right now and extend their supply far into the future.  Rather than lose money now, make some money and invest it in other industries for long term income.

Profits (normally) would be highest when demand is highest.  Higher demand means that the market has to pay the price of the most expensive provider whose output is required to meet demand.  All the less expensive providers get to sell at that highest cost provider number.

The only explanation for losing money now that I can see is to increase profits down the road.  And I can't find a 'down the road' scenario that makes sense to me.

Bob Wallace

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Re: Oil and Gas Issues
« Reply #130 on: December 09, 2014, 07:34:15 PM »
Japan's next big thing?  Hydrogen fuel cells, for powering homes and businesses.  The waste heat from the reaction is used to heat water.
As fuel-cell technology finds its way into factories and commercial buildings, Japanese manufacturers including Panasonic Corp. (6752) are working to make them small and cheap enough for the home. The country has set a goal of installing them in 5.3 million homes by 2030, about 10 percent of all households.

http://www.bloomberg.com/news/2014-12-09/japan-promotes-home-fuel-cell-on-path-to-hydrogen-society.html


Take electricity, which is already scarce, and use it to produce/compress hydrogen, wasting a lot of energy in the process.  Then feed it into inefficient fuel cells when electricity is needed. 

That is not making sense to me.

If storage is the issue, Japan has a lot of PuHS they are no longer using since they've shut down their reactors.

Having watched the process in Japan since Fukushima, it seems to me that Japan has a problem of leadership latching on to an idea without thinking it through and everyone marches along in step with the "decision makers".

Nuclear was the idea until it blew up in their faces.  Now fuel cells are the idea.

Sigmetnow

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Re: Oil and Gas Issues
« Reply #131 on: December 11, 2014, 01:01:39 AM »
Oil price continues to fall; nearing $60 as supply grows.
WTI Crude Declines as U.S. Inventories Grow; Brent Slides

West Texas Intermediate crude extended losses after the Energy Information Administration reported a gain in U.S. supply. Brent fell to a five-year low.

Crude inventories rose 1.45 million barrels in the week ended Dec. 5, the EIA, the Energy Department’s statistical arm, said. Analysts surveyed by Bloomberg expected a drop of 2.7 million. Brent declined as OPEC said it expects demand for its crude next year to be the lowest since 2003.

Both Brent and WTI collapsed by about 15 percent after OPEC agreed to leave its production ceiling unchanged on Nov. 27, resisting calls from members including Venezuela to cut output to stabilize prices. Saudi Arabia and Iraq this month deepened discounts on crude exports to their customers in Asia, bolstering speculation that group members are fighting for market share.

WTI for January delivery fell $2.69, or 4.2 percent, to $61.13 a barrel at 10:37 a.m. on the New York Mercantile Exchange, the lowest level since July 2009.

Brent for January settlement decreased $2.56, or 3.8 percent, to $64.28 a barrel on the London-based ICE Futures Europe exchange after touching $64.23, the lowest since September 2009.

http://www.bloomberg.com/news/2014-12-10/wti-crude-declines-as-u-s-inventories-grow-brent-slides.html
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Bob Wallace

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Re: Oil and Gas Issues
« Reply #132 on: December 11, 2014, 03:00:33 AM »
The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.
Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.
Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.
The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.


Bank of America said the current slump will choke off shale projects in Argentina and Mexico, and will force retrenchment in Canadian oil sands and some of Russia’s remote fields.


It will take six months or so to whittle away the 1m barrels a day of excess oil on the market – with US crude falling to $50 - given that supply and demand are both “inelastic” in the short-run. That will create the beginnings of the next shortage. “We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.


Mrs Schels said the global market for (LNG) will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.
If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs.


http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html

There's more interesting stuff for those into economics.

Perhaps the Saudi loss acceptance is an attempt to punish other producers who failed to play the OPEC game.  That's the best explanation I've come up with to date.

Bob Wallace

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Re: Oil and Gas Issues
« Reply #133 on: December 11, 2014, 08:14:18 PM »
Bloomberg has an excellent slide show which summarizes US oil consumption and production.  It gives some insight to the apparent new reality for oil.

http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/

They've also published a piece on yesterday's market dump.  Energy stocks took a tumble.

There was some buying as oil stocks dropped 3% and it looks like some of the sell-off money was repositioned into retail stocks.

http://www.bloomberg.com/news/2014-12-11/u-s-index-futures-gain-after-s-p-500-rout-as-oil-shares-rebound.html

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Re: Oil and Gas Issues
« Reply #134 on: December 11, 2014, 08:22:59 PM »
And this:
How America Is Kicking Its Oil Habit
“Oil demand and GDP growth used to go hand in hand,” Christopher Knittel, a professor of applied economics at Massachusetts Institute of Technology’s Sloan School of Management, said by phone on Dec. 8 from Cambridge, Massachusetts. “Now, they’re in some ways almost independent of each other because of investments in fuel economy that tended to break the link.”

Here’s an easier way to see how Americans are relying less on oil: 1,178 barrels were consumed a day for every $1 billion of GDP in September, down 33 percent from 1,760 barrels a day 20 years ago.

And then there’s this twist in the energy independence story -- lower crude prices could paradoxically weaken demand. The argument goes like this: Declining oil will give consumers more disposable income that they can use to purchase more efficient vehicles, energy economist Philip Verleger said Dec. 8 by phone from Carbondale, Colorado. Likewise, airlines will reinvest profits made possible by cheaper fuel into new planes with more economic engines, he said.

“Consumers are doing their best to get themselves out of buying petroleum products,” Verleger said. “The fall in oil prices is going to accelerate the fuel’s own demise.”

http://www.bloomberg.com/news/2014-12-11/america-getting-rid-of-oil-addiction-as-price-plummets-amid-glut.html
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Re: Oil and Gas Issues
« Reply #135 on: December 11, 2014, 09:43:23 PM »
The Carbon Bubble is thinning....

Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets
The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.

Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.

“Anything that becomes a mania -- it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”

http://www.bloomberg.com/news/2014-12-11/fed-bubble-bursts-in-550-billion-of-energy-debt-credit-markets.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #136 on: December 11, 2014, 10:06:50 PM »
Carbon bubble beginning to pop?

Venezuela Default Odds at 93% as Bonds Sink to 16-Year Low
Dec 11, 2014 11:44 AM ET
Swaps traders are almost certain that Venezuela will default as the rout in oil prices pressures government finances and sends bond prices to a 16-year low.
...
Maduro said in a televised speech Dec. 8 that credit-rating companies had imposed a “financial blockade” on Venezuela to prevent it from borrowing abroad.

“The bus is going downhill, and it doesn’t have brakes,” Ray Zucaro, who helps oversee about $450 million at SW Asset Management LLC, said in a telephone interview from Miami.

http://www.bloomberg.com/news/2014-12-11/venezuela-default-odds-at-94-as-bonds-sink-to-lowest-since-98.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #137 on: December 11, 2014, 10:15:27 PM »
And this:

Norway Risks ‘Severe Downturn,’ Central Bank Governor Says

The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge.

“Our job now is that we need to prevent a severe downturn in the economy,” Oeystein Olsen said today in an interview after a press conference in Oslo. “Overall, that is presently the major concern of the board. That explains why we have reduced the rate.”

http://www.bloomberg.com/news/2014-12-11/-severe-downturn-threatening-norway-central-bank-governor-says.html
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Re: Oil and Gas Issues
« Reply #138 on: December 11, 2014, 10:31:34 PM »
more disposable income that they can use to purchase more efficient vehicles,

Let me refine that a bit.  With more disposable income in their pockets consumers will likely purchase more new vehicles.  And since our new vehicles are becoming more efficient every year demand will fall further.

Sigmetnow

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Re: Oil and Gas Issues
« Reply #139 on: December 12, 2014, 01:46:29 AM »
Oil Drops Below $60 After Saudis Question Need to Cut
“When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone. “They are looking for any glimmer of green as an opportunity to get out of positions. Any moves higher will be of short duration.”
...
WTI for January delivery dropped 99 cents to close at $59.95 a barrel on the New York Mercantile Exchange. It was the lowest settlement since July 14, 2009. Total volume was 14 percent above the 100-day average for the time of day. The U.S. benchmark is down 39 percent this year.
...
“When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone. “They are looking for any glimmer of green as an opportunity to get out of positions. Any moves higher will be of short duration.”

http://www.bloomberg.com/news/2014-12-11/wti-falls-to-5-year-low-as-saudis-question-need-to-cut.html
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Re: Oil and Gas Issues
« Reply #140 on: December 12, 2014, 01:59:21 AM »
Canada Heavy Oil Nearing $40 Threatens Oil Sands Projects

Canadian heavy crude fell to near $40 a barrel, threatening projects under construction as producers boosted output and space on a pipeline [...] was rationed.
...
Heavy West Canadian Select rose 82 cents to $43.01 a barrel after falling to $42.19 a barrel yesterday, the lowest since April 2009, data compiled by Bloomberg showed. Crude has fallen into a bear market as U.S. output surges to the highest in more than three decades. Calgary-based Cenovus Energy Inc. (CVE) said today it “substantially” slowed development plans at the Narrows Lake oil sands project. Canadian Natural Resources Ltd. has said it may scale back investment plans if oil prices remain near current levels.

“Any production that’s currently under construction is at risk, absolutely,” Dinara Millington, the vice president of research at Canadian Energy Research Institute in Calgary, said by phone. “Any production that’s currently existing can produce at $40 to $50.”

http://www.bloomberg.com/news/2014-12-11/canada-heavy-oil-nearing-40-threatens-new-oil-sands-projects.html
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Re: Oil and Gas Issues
« Reply #141 on: December 12, 2014, 04:26:40 PM »
$550 Billion Energy Junk Bond Bubble Busts; "Whac-A-Mole" Distortions in Multiple Markets


The energy junk bond bubble has finally popped. Falling crude prices were the catalyst. Junk bonds of Energy XXI Ltd. plunged to 64 cents on the dollar from 106.3 cents since September. They now yield over 27%. Energy XXI Ltd. raised over $2 billion.


Read more at http://globaleconomicanalysis.blogspot.com/2014/12/550-billion-energy-junk-bond-bubble.html#EuqEZfX5vfkTYqzY.99


http://globaleconomicanalysis.blogspot.com/2014/12/550-billion-energy-junk-bond-bubble.html


In the meantime the American consumer is rushing out to buy huge numbers of gas guzzling pickups and large SUV's whose sales have jumped by 30% since fuel prices plumeted.  An environmental disaster that just keeps on giving for years.  Since it is looking like meeting fuel economy standards is going to be very difficult if not impossible I would expect our new Republican Congress to just change the law on that like they have done in the past.  Regulations mean less than nothing to them.

Cheers!
We do not err because truth is difficult to see. It is visible at a glance. We err because this is more comfortable. Alexander Solzhenitsyn

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Re: Oil and Gas Issues
« Reply #142 on: December 12, 2014, 07:40:40 PM »
In the meantime the American consumer is rushing out to buy huge numbers of gas guzzling pickups and large SUV's whose sales have jumped by 30% since fuel prices plumeted.

Just means that the car companies will have to figure out how to sell more high MPG cars and EVs in order to keep within their fleet mileage limits.

That drives development of more efficient ICEVs and EVs. 

Congress can't change laws on their own.  They have to either get the president to agree or find enough votes to override a presidential veto.

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Re: Oil and Gas Issues
« Reply #143 on: December 12, 2014, 09:06:40 PM »
In the meantime the American consumer is rushing out to buy huge numbers of gas guzzling pickups and large SUV's whose sales have jumped by 30% since fuel prices plumeted.

Just means that the car companies will have to figure out how to sell more high MPG cars and EVs in order to keep within their fleet mileage limits.

That drives development of more efficient ICEVs and EVs. 

Congress can't change laws on their own.  They have to either get the president to agree or find enough votes to override a presidential veto.

It most certainly does not mean that.

If the 'market' changes that much past history indicates that we will move the goal posts.  The incoming Congress is fundamentally opposed to these kinds of regulations and will be 'very' willing to take advise on their continued existence and let the 'invisible hand of the market'  determine the winners and losers in technology developments. 

This situation will dampen the sales of electric vehicles as can be seen already in current data.  That this will occur is just basic market behavior.  Dampened sales will absolutely not spur greater R&D development.  Such R&D will not change either way for a time as vehicle manufacturers do not ever change on a dime.  They will evaluate the market and make their determination on what to do based upon what they think is going to happen and on what effect they can have on that outcome through lobbying.   If prices stay low for a very long time then EV efforts will be scaled back somewhat.  If they do not the vehicle manufacturers will keep on the path they are on now.  A big push on ev's beyond where we are today is not too likely any time in the near future (5 years).

The important point in all these discussions is NOT how fast (slow would be a better word of course) we are ramping up ev sales as ev's will have no effect what-so-ever on our avoiding the catastrophic effects of climate change.  Even if our entire vehicle fleet was electric it would not make a meaningful difference.

Now if we got rid of cars completely?....naw even that will not work.  We are well past any executable civilizational turning points.   That ship sailed some time ago.  We can choose to manage the collapse or not.

The problem to fix is 7.3 going on 9+ billion people.  Never forget that if everyone on Earth lived like the average African global human carbon emissions would still be near 10 Gtons.  And no one is going to agree to do that - ever.   If we cannot address the number 1 issue there is no solution to the problem.
We do not err because truth is difficult to see. It is visible at a glance. We err because this is more comfortable. Alexander Solzhenitsyn

How is it conceivable that all our technological progress - our very civilization - is like the axe in the hand of the pathological criminal? Albert Einstein

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« Reply #144 on: December 12, 2014, 10:37:40 PM »
It most certainly does not mean that.

Do you not understand how CAFE standards work?

The incoming Congress is fundamentally opposed to these kinds of regulations

Do you not understand how legislation becomes law?

ev's will have no effect what-so-ever on our avoiding the catastrophic effects of climate change.  Even if our entire vehicle fleet was electric it would not make a meaningful difference.

Can you possibly believe that?  If you do, please explain why you think it true.

The problem to fix is 7.3 going on 9+ billion people.

How do you propose dropping population numbers quickly?

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Re: Oil and Gas Issues
« Reply #145 on: December 12, 2014, 11:12:50 PM »
Wow, Venezuela's economy is a mess, and low oil prices could be the tipping point.  Oil provides 95% of its export revenue.  It burned through 2 billion dollars in Chinese loans last month.  Odds of defaulting on bond payments are 94%.
And:
The nation -- which imports 75 percent of its goods -- is plagued by chronic shortages of everything from milk to toilet paper amid the world’s fastest inflation. The economy is expected to shrink 3 percent this year and another 1.5 percent in 2015, according to the median estimate of 15 analysts surveyed by Bloomberg.

The video link in the article has further discussion on what might happen next.
http://www.bloomberg.com/news/2014-12-12/venezuela-s-got-21-billion-owes-21-billion-as-crisis-builds.html
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Sigmetnow

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Re: Oil and Gas Issues
« Reply #146 on: December 13, 2014, 12:45:51 AM »
@breakingmoney: Crude oil settles below $58 for the first time since May 2009 - @CNBCnow http://t.co/svOkZp9kNX
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Re: Oil and Gas Issues
« Reply #147 on: December 13, 2014, 12:52:32 AM »


It will be interesting to see how things play out from here.  Another quick recovery or a new era of less valuable oil?

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Re: Oil and Gas Issues
« Reply #148 on: December 13, 2014, 12:57:36 AM »


This one is more current.  And closing prices, not futures.  Adjusted for inflation.

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Re: Oil and Gas Issues
« Reply #149 on: December 13, 2014, 01:17:44 AM »
Bloomberg TV video: "Saudis playing chicken..."
 http://t.co/sKXChTruGI 

Gary Schilling: Saudis won't change their tack until oil price is around $20 to $30 per barrel.
There's no bottom in sight.

Michael Wolf:  We're assuming the price reverts to the mean.  What evidence do we have that the price will go back up?

?:  None.  But never is a long time.
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