$20 Oil If OPEC Doesn’t Act : Venezuela

  • Don’t Cry for Me Venezuela
  • It won’t be easy, you’ll think it strange
    When I try to explain how I feel
    That I still need your love after all that I’ve doneI had to let it happen, I had to change
    Couldn’t stay all my life down at heel
    Looking out of the window, staying out of the sun
  • OPEC member seeks `equilibrium price’ of $88 a barrel
  • Saudis, Qatar to consider proposal, Venezuelan minister says

Oil prices may drop to as low as the mid-$20s a barrel unless OPEC takes action to stabilize the market, Venezuelan Oil Minister Eulogio Del Pino said.

Venezuela is urging the Organization of Petroleum Exporting Countries to adopt an “equilibrium price” that covers the cost of new investment in production capacity, Del Pino told reporters Sunday in Tehran. Saudi Arabia and Qatar are considering his country’s proposal for an equilibrium price at $88 a barrel, he said.

OPEC ministers plan to meet on Dec. 4 to assess the producer group’s output policy amid a global supply glut that has pushed down crude prices by 44 percent in the last 12 months. OPEC supplies about 40 percent of the world’s production and has exceeded its official output ceiling of 30 million barrels a day for 17 months as it defends its share of the market. Benchmark Brent crude settled 48 cents higher at $44.66 a barrel in London on Friday.

“We cannot allow that the market continue controlling the price,” Del Pino said. “The principles of OPEC were to act on the price of the crude oil, and we need to go back to the principles of OPEC.”

OPEC ministers will meet informally on Dec. 3 in Vienna, a day before the group’s formal session, he said.

Chesapeake :Downgraded To Junk at Fitch – Further Evidence The Energy Sector Slide Continues


( FROM Seeking Alpha)
Nov 6 2015, 17:45 ET | About: Chesapeake Energy Corporation (CHK) | By: Carl Surran, SA News Editor
Chesapeake Energy’s (NYSE:CHK) debt rating is cut further below investment grade, to BB- from BB, by Fitch Ratings; shares fell 2.6% in today’s trade, in line with other energy producers as crude oil prices fell and amid the higher likelihood of a Fed rate hike.

Fitch says CHK’s cash flow, liquidity and leverage profiles will be “notably weaker” than previous expectations because of persistently low oil and gas price realizations and heightened future reliance on asset sales to fund cash flow gaps; it also cites CHK’s increasingly limited ability to invest in its highest return assets in favor of operationally committed and shorter-cycle reserves.Fitch concedes that CHK’s size and scale relative to other high-yield E&P companies provides considerable financial flexibility.

and from Forbes

This Oil Bust Will Change The Energy Industry Forever

Although demand for oil and gas will continue for decades to come, it will gradually diminish as renewable energy sources rise. A lot could happen between then and now. The International Energy Agency (IEA) and many other credible parties continue to forecast that our growing world population from 7 billion people today to 9 billion by 2050 will need much more energy – in particular as most of these people will aspire a life like we have here in North America. So it is no wonder that Abdalla El-Badri, Secretary General of OPEC has recently said that if producers don’t invest in new oil and gas supply, we could see oil prices as high as $200 a barrel. On the other hand, there is Bob Dudley, CEO of BP , who believes we won’t see $100 oil again “for a long time”.

Innovation in the oil industry, particularly the North American revolution in the hydraulic fracturing of tight oil reservoirs, has changed oil supply dramatically. With smaller, more flexible capital-light projects and shorter lead times, fracking has enabled greater adaptability to volatile market conditions. The outlook for shale oil and gas could be just as strong in many places in the world. Even if the shale boom proves tough to replicate (due to factors such as regional differences in geology, regulation and incentives to land owners), in many cases bringing new technologies to mature fields will help keep supply up and dampen the increase in oil prices.

Sluggish demand is another important factor keeping oil prices from rising. Not just from disappointing growth in China, but also in North America. Car ownership in the Western world has started to drop in the past decade, especially among young people. Based on the early success of Tesla and arrival of car sharing companies like Car2Go and Uber, and the entry of Apple AAPL +0.83% and Google GOOGL +0.13%in the autonomous-driving car game, there’s reason to foresee a future where not everyone has a personally owned internal combustion engine at their disposal. Change is slow however: a truck or bus and many gasoline fueled cars sold today will of course drive somewhere in the world for the next 30 to 40 years. Hence, some demand for hydrocarbons will continue.

The financial sector is a third factor inhibiting the rise of oil prices. While we already see many financial institutions divesting from hydrocarbon stocks to the tune of $2.6 trillionbecause of social and environmental pressure, the recent speech by Bank of England Governor Mark Carney is further going to influence the willingness of large financial institutions to continue to invest in traditional hydrocarbon projects in the future. One of the most significant risks Carney focused on in his speech is transitionary cost, the cost of write-offs for traditional hydrocarbon assets if countries are indeed getting serious about phasing out hydrocarbons. Even while the target date for a 100% carbon free society is only 2100, we expect that policies will likely start having significant implications in the next decades. The message is that “Sustainable Innovation” may become key to future energy financings and that oil and gas companies will have to innovate much more than they do today in order to survive as energy-producing Fortune 500 companies in the decades to come.


Iran – Oil sanctions to be lifted in late 2015 or early 2016 – Adding 2 Million Barrels A Day

Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place.

Sanctions against Iran probably will be lifted within the first three months of 2016, after the International Atomic Energy Agency has confirmed the nation has curtailed its nuclear work, diplomats said last month. Once the restrictions are removed, relief is expected to fuel economic growth by lowering barriers to Iran’s oil exports and ending the isolation of its banks.

Iranian Oil

Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place. The Persian Gulf nation, with the world’s fourth-largest oil reserves, pumped 2.8 million barrels a day last month, according to data compiled by Bloomberg.

One nation, Japan, plans to triple its imports of Iranian crude once sanctions are lifted, the Iranian Oil Ministry’s Shana news agency said on Saturday, citing Seyed Mohsen Ghamsari, director of international affairs at National Iranian Oil Co. Japan will increase purchases to 350,000 barrels a day from 110,000 barrels, the agency said.

The U.S. waivers will result in the lifting of sanctions that now restrict or penalize non-U.S. companies for engaging in various economic activities, including buying Iranian oil and dealing with many Iranian banks, the U.S. officials said.

Narrow Categories

But for U.S. companies, sanctions will be eased only for certain narrow categories, the officials said. They said these include the export of civilian passenger aircraft, the import of spare aircraft parts and handicrafts from Iran, and some activities that subsidiaries of U.S. companies can conduct overseas.

In addition, Obama told reporters on Friday that sanctions “related to ballistic missiles, human-rights violations, terrorism — those, we will continue to enforce.”

In another sign of progress, IAEA monitors last week ended their 12-year investigation into the possible military dimensions of Iran’s nuclear past. Inspectors now have until Dec. 15 to draft and present a final assessment of their inquiry.

Iran’s nuclear work has been the focus of international scrutiny since February 2003, when Iranian officials told inspectors visiting Tehran of their plans to begin enriching uranium on an industrial scale. Subsequent discoveries that Iran had secretly procured nuclear materials and technologies led to years of mistrust. In May 2008 and again inNovember 2011, the IAEA publicly disclosed its suspicions about Iran’s activities.

Iran has consistently denied ever seeking a nuclear weapon.

Timeline to lifting sanctions:

  • Sunday — “Adoption Day” for July accord signed with world powers. Parties to the agreement begin meeting their commitments.
  • Nov. 30 — Iran prepares to end testing of advanced centrifuge cascades and store machines under IAEA seal.
  • Dec. 15 — IAEA to present its assessment of Iran’s past nuclear activities, which board will use “with a view to closing the issue.”
  • Late 2015-early 2016 — Oil sanctions to be lifted on “Implementation Day.” U.S. officials have suggested it will take at least two months from “Adoption Day” to reach this point.

    Saudi Arabia, the world’s largest oil exporter, is storing record amounts of crude in its quest to maintain market share as it cut shipments.

    Commercial crude stockpiles in August rose to 326.6 million barrels, the highest since at least 2002, from 320.2 million barrels in July, according to data posted on the website of the Riyadh-based Joint Organisations Data Initiative. Exports dropped to 7 million barrels a day from 7.28 million.

    “The fall in Saudi crude exports reflects the market reality,” Mohammed Ramady, an independent London-based analyst, said Sunday by phone. “It’s normal to see this fall knowing that the market is becoming highly competitive, with many countries in OPEC selling at discounts and under-pricing the Saudi crude.”

    Crude inventories have been at record highs since May, a month before Saudi Arabia’s production hit an all-time high of 10.56 million barrels a day. The nation has led the Organization of Petroleum Exporting Countries in boosting production to defend market share, abandoning its previous role of cutting output to boost prices.

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Ratings cut on Chesapeake Energy, other oil and gas producers :Outlooks Cut to Negative by S&P in Oil Slump


Exxon Mobil Corp. and Chevron Corp. were among several U.S. oil and natural gas producers that had their outlooks or ratings cut by Standard & Poor’s as the industry suffers from weak crude prices, hurting their cash flow and liquidity.

S&P cut ratings for Chesapeake Energy Corp., Denbury Resources and Whiting Petroleum Corp., while giving Exxon and Chevron “negative” outlooks, the ratings agency said Friday in a statement. Exxon “has substantially more debt than during the last cyclical commodity price trough in 2009, while upstream production and costs are at similar levels,” S&P analysts Thomas Watters and Carin Dehne-Kiley said.

Oil prices have fallen 58 percent from last year’s peak, threatening $1.5 trillion in North America energy investments, according to Wood Mackenzie Ltd.  Oil has been stuck near $45 a barrel as U.S. crude stockpiles stay about 100 million barrels above the five-year seasonal average and OPEC pumps at near-record levels.

Exxon is one of only three U.S. industrial issuers to have a triple-A bond rating, along with Johnson & Johnson and Microsoft Corp. The oil company has held that grade from S&P since at least 1985, according to data compiled by Bloomberg.

The last U.S. company to lose the triple-A designation from S&P, as well as Moody’s Investors Service, was Automatic Data Processing Inc., which was stripped of the ratings after spinning off its auto-dealer services unit in April 2014.

Chevron has been rated AA by S&P since at least July 1987, Bloomberg data show.

“Most rating actions reflect lower credit-protection measures, negative cash flow, and uncertainty about liquidity over the next 12 months,” S&P said in the statement.

El Niño Could Turn Into Worst Nightmare For U.S Natural Gas Producers ( 10 % less demand this winter)

We have now tumbled into fall, although you wouldn’t know it by looking at the weather forecast. As NOAA’s 8-14 day outlook illustrates, we are set for above-normal conditions for the first week of October across, ooh, basically the entire US. This morning’s natural gas storage report is expected to yield an injection well above the 5-year average of 83 Bcf, and weather forecasts point to further solid injections in the weeks to come.

Last week we took a look at what an El Niño meant for the coming winter as WSI issued its winter weather outlook. WSI is predicting the strongest El Niño in 65 years, which ‘should drive warmer-than-normal temperatures across much of the northern U.S., as the polar jet stream weakens and lifts northward‘. Accordingly, WSI projects natural gas demand this winter to be 10% lower than the previous one.

With this in mind, and with storage levels already 16% higher than last year, and 4% higher than the five-year average, it provides some color as to why the January contract (aka the bleak mid-winter) is currently at a 16-year low.


(Click to enlarge)

There is a somewhat more frosty reception being felt across financial markets today, with Japanese equities opening for the first day this week, and promptly getting walloped. This baton of risk aversion is being passed from continent to continent, as Europe sells off and the US looks down.

Crude prices were finding some solace in a rising euro earlier in the day, with the European Central Bank downplaying the need for further stimulus. But as the outlook gets bleaker for broader markets, risk aversion is dragging crude lower. On the economic data front, we had a weaker-than-expected manufacturing print from Japan (which further greased the wheels for an equity sell-off).

Onto Europe, and German business confidence was the opposite of its compatriot indicator, the ZEW, by showing a weak current assessment but improving expectations (the ZEW was the other way round). Onto the US, and durable goods were relatively in line across the board, while weekly jobless claims came in a little better than expected at 267,000, but slightly higher than last week.

Fears are escalating in the oil patch about an impending credit crunch amid falling investment. Oil producers are set to see credit lines cut by an average of nearly 40%, as the majority of companies see their credit lines shrink due to the revaluation of assets (a twice-yearly phenomenon). This comes at a time when upstream investment is also shrinking in response to lower oil prices. The below chart from EIA highlights that investment levels in the coming years will be significantly lowerthan the 10-year annual average, due to the drop in prices (the crude oil first purchase price is adjusted for inflation).

View gallery


(Click to enlarge)

Finally, we discussed a couple of days ago how Singapore is seeing record stockpiles of fuel oil finding its way onto tankers amid exceptionally strong refining runs. We are seeing a similar tale emerge for diesel exports from China, as refiners keep on refining amid slower demand. According to the General Administration of Customs, diesel exports have risen 77% year-on-year to reach a record 175,000 barrels per day in August. Strong refining runs are endorsed by what we see in our#ClipperData, with Chinese oil imports year-to-date 14% higher than last year, rising to meet this ongoing demand.

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Natural Gas Drillers Can’t Catch a Break : Bloomberg News

Natural gas drillers who flocked to liquids-rich basins in search of better profits just can’t seem to catch a break.

Seven years ago, as shale output surged and gas futures tumbled more than 60 percent, producers abandoned reservoirs that only yielded gas and moved rigs to wells that also contained ethane, propane and other so-called natural gas liquids, or NGLs. These NGL prices were tied to oil futures, which climbed in 2009 as the economy recovered. It was a strategy that worked well — for a while.

Drillers fled natural gas for oil and liquids as commodities collapsed.
Drillers fled natural gas for oil and liquids as commodities collapsed.

Those days are over. Oil has plunged 56 percent from a year ago, and propane at the Mont Belvieu hub in Texas has tumbled 64 percent. The spread between NGL prices and natural gas shrank 9.2 percent last week to $7.02 a barrel, the lowest in at least two years, squeezing producers’ profits.

The spread between natural gas liquids and natural gas prices has narrowed, squeezing producers' profits.
The spread between natural gas liquids and natural gas prices has narrowed, squeezing producers’ profits.

The culprit is a repeat offender: shale production. This time, the boom in oil output from reservoirs like the Bakken in North Dakota has created a glut of NGLs, and the market is poised to remain well supplied. To survive, gas producers will have to focus on the lowest-cost wells.

Production of natural gas liquids has surged, creating a glut as drillers flee dry gas.
Production of natural gas liquids has surged, creating a glut as drillers flee dry gas.

“Drillers are going to have to retreat to where the sweet spots are,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “At these price levels, the rig count isn’t going to move higher.”


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Trading Alert : Oil Sector Is Not Yet At The Bottom


“This is the beginning, not the end, of the write-down process,” Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg TV on Friday. “The biggest concern is that we’ll see weaker demand over the second half of the year.”

Exxon Mobil Corp. and Chevron Corp., the biggest U.S. energy producers, hunkered down for a prolonged stretch of weak prices after posting their worst quarterly performances in several years.

Exxon reported its lowest profit since 2009 as crude prices fell twice as fast as the world’s largest crude producer by market value could slash expenses. Chevron recorded its lowest profit in more than 12 years after the market rout forced $2.6 billion in asset writedowns and related charges.

Stung by the worst market collapse since the financial crisis of 2008, oil explorers are slashing jobs, scaling back drilling, canceling rig contracts and reducing or halting share buybacks to conserve cash. Chevron said the slump convinced it to lower its long-term outlook for crude prices.

“This is the beginning, not the end, of the write-down process,” Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg TV on Friday. “The biggest concern is that we’ll see weaker demand over the second half of the year.”

Exxon cut share repurchases for the current quarter in half to $500 million after net income fell to $4.19 billion, or $1 a share, from $8.78 billion, or $2.05, a year earlier, the Irving, Texas-based company said in a statement on Friday. The per-share result was 11 cents lower than the average estimate of 20 analysts in a Bloomberg survey.

For Exxon, refinery profits fattened by lower costs for crude were more than offset by weaker results in the company’s primary business, oil and natural gas production, Exxon said. The company’s U.S. wells posted a $47 million loss.

Spending Cuts

Exxon reduced spending on major projects like floating crude platforms and gas-export terminals by 20 percent to $6.746 billion during the quarter, according to the statement. International crude prices fell 42 percent from the previous year to an average of $63.50 a barrel.

Chevron’s profit dropped to $571 million, or 30 cents a share, from $5.67 billion, or $2.98, a year earlier, the San Ramon, California-based company said in a statement. The per-share result was well below the $1.16 average estimate.

Chevron’s biggest business unit — oil and gas production – – posted a loss as the second-largest U.S. energy company recorded a $1.96 billion writedown on assets and another $670 million charge for taxes and projects suspended because they no longer make economic sense.

“The write-downs will get worse into the end of the year as companies complete their end-of-the-year SEC filings,” Sankey said. “The market still looks very over-supplied with oil and we’re in peak demand season globally.”

Pessimistic Outlook

Exxon Chairman and Chief Executive Officer Rex Tillerson was among the first oil-industry bosses to shrink spending as the crude rout began taking shape more than a year ago. After cutting the budget by 9.3 percent in 2014, this year’s reduction may exceed the original 12 percent target, the company disclosed during an April 30 conference call with analysts.

Tillerson, an Exxon lifer whose 10th year as CEO began in January, has been pessimistic about the prospects for an imminent oil-market rebound. On April 21, he told a Houston energy conference that the supply glut and low prices will persist “for the next couple of years” at least.

Those remarks proved prophetic: international crude prices that rose 45 percent between Jan. 13 and May 6 have since tumbled 21 percent, inaugurating the second oil bear market in 14 months.

“Chevron was a disaster; Exxon was a disappointment,” Fadel Gheit, an analyst at Oppenheimer & Co. In New York who rates the shares of both the equivalent of a hold and owns each. “A rising tide lifts all ships, but when the tide goes down, all ships go down.”

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