So here we are, right where I expected things to be last December, when I wrote my projections for 2017: U.S. oil and gas drillers have activated almost 300 additional drilling rigs during the year’s first six months, U.S. oil production has soared as a result, offsetting much of the cuts implemented by OPEC and Russia, and the result is that , with the price for WTI hovering in the $44-$45/bbl range.
This very predictable response by the U.S. industry to the higher oil prices at the end of 2016 has effectively slowed the ability of the OPEC/Russia alliance to close the global supply glut, causing commodity traders to lose confidence. Saudi Arabia is responding by significantly reducing its exports to the U.S., in the hopes of creating a few weeks of large storage draws, which they hope will restore investor confidence and cause the price to tick upwards. They may or may not be correct – we’ll just have to wait and see.
In the meantime, U.S. rig additions have begun slowing somewhat over the past few weeks – although the week of June 10 – June 16 became the 22nd straight week of rising rig counts – as the industry begins to scale back its drilling plans for the 2nd half of the year in response to the lower price. This again is no surprise to anyone who understands how the U.S. industry works, as I wrote in December:
- But prices may rebound the second half of the year – Of course, a lower oil price will lead many producers to reduce drilling budgets during their mid-year reviews, and rig counts will cease to rise, and possibly even fall off somewhat. With OPEC still at least making some effort to control production levels and global demand still steadily rising, a leveling-off of U.S. production should cause the market to rebound.
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In The Oil Patch – Episode 109: host Kym Bolado and her cohost Alvin Bailey welcome our associate editor of SHALE Oil & Gas Business Magazine and resident politics/energy expert, David Blackmon back onto the show. This week’s show is completely focused on OPEC and the recent agreement they reached to extend the oil production output cut.
Listen to the Podcast Here
Jonathan Swain and Amy Harder at Axios reported on Sunday morning that President Donald Trump has told “confidants” that he has made the decision to pull the United States out of the Paris Climate Accords, and will make an announcement soon, most likely this coming week. This report will certainly produce a major backlash from the anti-fossil fuel lobby in the U.S. and globally, which correctly views the commitments made by former President Barack Obama under this executive agreement as the main driving force for increasingly restrictive regulations of the U.S. fossil fuel industries.
But this report, if true, should surprise no one after the President was the only G7 leader who refrained from endorsing the Paris Accords on Saturday, a move that came after one of his advisers had told the media that Mr. Trump’s views related to Paris were “evolving.” This statement was taken by many Paris supporters as an indication that the President might be moving towards changing his mind and keeping the U.S. in the agreement after all.
Such hope by Paris supporters has always seemed like a pipe dream, though, since the Obama commitments within the Paris accord stand in direct opposition to the commitments made by candidate Trump during the 2016 campaign, as well as the energy policy-related actions taken by President Trump since assuming office.
During his campaign, Candidate Trump made pledges to pull the U.S. out of two Obama-era executive agreements – Paris and Iran – centerpieces of his daily stump speech. At every campaign stop, every fundraising event, every one of the campaign rallies before audiences of thousands of people, Donald Trump overtly promised to end U.S. involvement in both of those agreements, which he regularly referred to as “terrible deals” made by “stupid” people. Indeed, this was the overarching theme of his entire campaign – that he is a superior negotiator who would be able to negotiate better deals than these for the country.
I recently appeared on In the Oil Patch Radio with host Kym Bolado. We spent the hour discussing the tension between OPEC and U.S. Shale producers, and the prospects for an extension of the OPEC/Russia agreement to limit exports for the 2nd half of 2017.
Listen to the Interview Here
- More than 200 U.S. energy companies filing for bankruptcy in less than 2 years;
- A commodity price about half of what it was 3 years ago;
- Rig count half of the 2014 level;
- An industry just now beginning recover from large layoffs during 2015 and 2016.
If the current state of the U.S. upstream oil and gas industry is what an industry looks like when it has “won” a war, then let’s not have any more wars, OK?
But that’s exactly what some in the energy-related news media would have you believe: that the U.S. shale industry has succeeded in staring down the OPEC cartel’s effort to put it out of business and emerged victorious. Several readers contacted me and ask me if that was not in fact the bottom line of the piece I posted last Friday, titled “OPEC Still Fundamentally Misunderstands U.S. Oil Industry.”
Well, no, that was not the point, but since some took it that way, I guess a fuller explanation is in order.
The point of that previous piece – one of the main points, anyway – was that the U.S. shale industry had survived fairly intact from an effort to kill it off. Still standing three years after the assault began, the industry is now leaner , more efficient, able to extract much higher volumes of oil from the same formations than it had been, and better equipped to withstand any future shocks, whether naturally occurring or artificially derived.
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A new report from OPEC estimates that crude oil production from non-OPEC nations will increase by 950,000 barrels per day during 2017. This is a dramatic increase from last month’s estimate of a non-OPEC rise of 580,000 during the year.
This new, much higher estimate has raised concerns within the OPEC cartel that its efforts to balance the global supply/demand equation will require it to either extend its current production limitations into 2018, or to agree to even deeper cuts in its member countries’ own production levels. Based on these concerns, the new report urges all non-OPEC nations to limit their own production:
A large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand. However, continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability, not only for the benefit of the individual countries, but also for the general prosperity of the world economy.
The report singles out U.S. shale producers as the main culprit for the lingering over-supply situation. This is not surprising, given that overall U.S. oil production has risen by a whopping 800,000 bopd since last October, as
This expectation that U.S. producers are somehow going to join together with the national oil companies and controlled markets of OPEC, Russia and other countries to intentionally limit production betrays the same fundamental misunderstanding of the nature of the U.S. oil and gas industry that created the global supply glut and resulting price collapse in the first place.
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On Monday, I wrote about the concerns of the offshore oil and gas industry regarding a set of last-minute Obama-era amendments to the Jones Act, and the failure of most of the Texas congressional delegation to engage on the matter. The Jones Act is a 19th century law that requires vessels carrying cargoes between U.S. ports to be U.S.-flagged and staffed by U.S. crews.
I won’t repeat the details here, other than that the industry is concerned that finalization of the proposed regulations in question, which would extend Jones Act requirements to include vessels carrying cargoes between U.S. ports and offshore oil and gas rigs and platforms, would result in a lack of needed shipping capacity and create needless delays in offshore development.
This morning, word came from the U.S. Customs and Border Protection Service (CBP), under whose authority the amended regulations were proposed, that it will suspend and reconsider them rather than finalize them, which it had been expected to do any day now:
“Based on the many substantive comments CBP received, both supporting and opposing the proposed action, and CBP’s further research on the issue, we conclude that the Agency’s notice of proposed modification and revocation of the various ruling letters relating to the Jones Act should be reconsidered. Accordingly, CBP is withdrawing its proposed action relating to the modification of HQ 101925 and revision of rulings determining certain articles are vessel equipment under T.D. 49815(4), as set forth in the January 18, 2017 notice. “
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Photo Credit: Offshorepost.com