Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Oil Prices

Reality Sets In: OPEC Ready to Cut Production to Raise Oil Prices

This article appeared at TheNewAmerican.com on Friday, September 30, 2016:  

Wednesday’s announcement from OPEC about an agreement to cut production to shore up crude oil prices was met with both delight and scorn by observers. Exuded Phil Flynn, senior energy analyst at Price Futures Group:

This is the first OPEC deal in eight years! The cartel proved that it still matters even in the age of shale. This is the end of the “production war” and OPEC claims victory.

Bunk, said David Petraeus, the former CIA director who was forced to resign under a cloud in November 2012 and who subsequently was hired by Wall Street firm Kohlberg Kravis Roberts to chair the firm’s newly created KKR Global Institute:

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Brazil’s Oil Company Shrinks Following Operation Car Wash Scandal

This article appeared online at TheNewAmerican.com on Tuesday, September 20, 2016: 

Brazil - The first 100% Brazilian oil platform...

Brazil – The first 100% Brazilian oil platform, the P-51 will produce about 180 thousand barrels of oil and 6 million cubic meters of gas per day when operating at full load.

Two separate announcements on Monday from officials at Petrobras, Brazil’s state-owned oil company, reveal the massive damage it has suffered over the last 10 years. First was the news that it just successfully concluded the offloading of its precious gas pipeline unit for an estimated $5 billion. The company said this was just part of its determination to sell off about $20 billion of its assets over the next couple of years in order to pay down some of its $125 billion indebtedness.

The second announcement was even more revealing:

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New North American Oil Discoveries Continue to Frustrate OPEC

This article appeared online at TheNewAmerican.com on Wednesday, September 7, 2016:  

Apache Corporation, the sixth-largest independent oil and gas producer in the United States, announced this week that it has found a new gargantuan reserve of oil and natural gas in West Texas that could be one of the largest energy finds in the last decade. At the low end, the new “Alpine High” field could contain two billion barrels of oil plus massive natural gas reserves. More importantly, especially to OPEC members gearing up to find ways to raise prices, the company’s estimated profit margin is 30 percent after taking in account all expected development costs, even with crude selling at below $50 a barrel.

Apache isn’t waiting around for higher prices but instead has already drilled 19 wells into the new field and has committed one-fourth of its capital budget this year to develop the field further. The profit potential for natural gas is nearly off the charts. So abundant is that energy source from the new field that the company’s breakeven point is just 10 cents per million British thermal units (BTUs) while the market price for natural gas closed Tuesday at $2.72. This is going to turn Apache, currently a $20 billion company, into a major player.

The discovery is also going to turn OPEC’s plans to cap production in order to drive prices higher upside down. It is planning to meet informally later this month in Algiers to plot ways that it can drive the price of crude higher in response to increasing pleas from members such as Venezuela and Algeria for higher prices.

As recently as a month ago, OPEC was hoping to drive prices back to $70 a barrel in order to reduce the financial pressures low crude oil prices have imposed on all of the cartel’s members. Now, however, it is hoping to drive prices up to $60. Last month Venezuela’s President Nicolas Maduro, under mounting pressure to solve his country’s self-imposed problems resulting in inflation and food riots, said last month that the “fair, balanced oil price must be set at $70 a barrel.” On Monday the head of Algeria’s state-owned oil company, Noureddine Boutarfa, exclaimed that oil prices “below $50 a barrel is not acceptable.”

Acceptable or not, oil prices are headed lower according to both Morgan Stanley and Bank of America. Earlier this year Morgan Stanley estimated that the price of crude would move higher, but just cut its third-quarter forecast from $50 a barrel to $45. On August 25, Bank of America estimated that demand for crude would decline further than expected.

What befuddled prognosticators was the failure of the oil market to “rebalance” during the summer when American drivers set a record, burning through nearly 10 million barrels of gasoline every day. Even though American drivers drove a record three trillion miles over the last 12 months, that failed to soak up much of the surplus overhanging the market. Now, with demand slackening after Labor Day, and an economy essentially flat-lined, there is little reason to believe that prices will move higher.

Catching OPEC by surprise was the news that U.S. frackers restarted eight oil rigs every week this summer despite the lower prices. This puts the cartel in a pickle of its own creation: If it cuts production in order to drive prices higher, this will only further encourage U.S. producers to bring more rigs online. If they continue to flood the market, their budget deficits will get even larger while still losing precious market share to the Americans.

One unnamed OPEC official told the Wall Street Journal that all of this has caught the cartel by surprise: “[The U.S. shale industry has] surprised us, and can surprise us again.”

Oil Now in a Bull Market?

This article appeared online at TheNewAmerican.com on Friday, August 19, 2016:  

English: Logo of the U.S. Energy Information A...

Energy traders looking for any sort of news that would push crude oil prices higher have found two slender reeds: a falling dollar (making American oil more expensive overseas), and a surprise report from the U.S. Energy Information Administration (EIA) showing shrinkage in the vast oversupply of crude and gasoline that has weighed on the market.

Accordingly, the price of Brent crude (priced in London) and West Texas Intermediate (priced in Oklahoma) jumped by more than 20 percent over the last week, putting it into “bull market” territory. It has led observers to conclude that

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A Lesson in Free Market Economics – from Venezuela?

This article was published by The McAlvany Intelligence Advisor on Monday, August 15, 2016:  

Over the weekend, some 54,000 Venezuelan citizens living near the country’s border with Colombia poured over the Simon Bolivar Bridge so they could buy toilet paper, cosmetics, vitamins, and tires. Many brought empty suitcases, others brought packets of the nearly worthless Venezuelan bolivar currency, still others brought gold earrings, necklaces, and other personal valuables to exchange in local pawn shops for Colombian currency so they could spend it.

They were there to buy. And the merchants were ready to sell. As they exited the bridge on foot (cars won’t be allowed for at least another month) they were greeted with friendly Colombians

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Oil Price Rise Only Temporary; Could Drop Back to Low $20s

This article appeared online at TheNewAmerican.com on Wednesday, August 10, 2016:  

On November 17, gas prices had dropped to $1.9...

In light of record supplies of gasoline and crude oil, why are prices rising? After hitting a low of $26 a barrel in January, crude oil topped $52 a barrel in early June, only to drop below $40 a barrel last week. The recent rise back above $40 is a head fake, according to oil analyst Stephen Schork, editor of the daily subscription Schork Report. The recent bounce forced massive short covering by traders convinced oil was headed back down to the $20s and had nothing to do with the fundamentals.

The fundamentals, according to Schork, are bearish for oil (and gasoline) prices, and not likely to change any time soon. Even the Energy Information Administration (EIA), the government’s watchdog agency in charge of predicting the future, has been forced to

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Production Freeze Main Topic at OPEC Late September Meeting

This article appeared online at TheNewAmerican.com on Monday, August 8, 2016: 

OPEC’s current president, Qatar’s energy minister Mohammed bin Saleh Al Sada (shown at center, above), announced Monday that the oil cartel will hold “informal” side meetings at the International Energy Forum in Algeria in late September. Not surprisingly, the topic will once again be “cooperation” among the disparate and increasingly desperate members to restrict production in efforts to force oil prices higher.

Al Sada, who holds a Ph.D. from England’s University of Manchester’s Institute of Science and Technology, asserted,

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U.S. Oil Shale Producers Putting OPEC Into Financial Bind

This article appeared online at TheNewAmerican.com on Tuesday, August 2, 2016:  

This wasn’t supposed to happen. When OPEC decided in November 2014 to keep producing crude oil at or near maximum rates, it was following an unspoken strategy to force the U.S. oil shale industry to back off. That would allow prices to rise back to levels needed to fund the cartel’s military adventures and their welfare states.

Marginal producers in the United States did declare bankruptcy, while other producers stacked most of their oil rigs, cutting daily production in the country from 9.7 million barrels per day (mpd) to 8.5 mpd. This caused crude oil prices to rise from the low 30s to the mid 50s.

But then oil prices levelled off and began to decline,

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$60 Oil “Very Possible” Says Saudi Arabia’s New Oil Minister

This article was published by TheNewAmerican.com on Friday, June 3, 2016:  

On November 17, gas prices had dropped to $1.9...

On November 17, gas prices had dropped to $1.99 in Bakersfield, California, due to falling Oil prices

Following the OPEC meeting on Thursday, Saudi Arabia’s new oil minister, Khalid Al Falin, told CNN that $60 a barrel oil is “very possible” by the end of the year, with even higher prices expected next year. He said that supply and demand in the oil market have “converged” without the OPEC cartel needing to curtail supply. In short, OPEC is celebrating its strategy of letting the lowest oil prices seen in years weed out the weak and marginal players in the United States, resulting in cuts in production. As Qatar’s oil minister exulted at a press conference in Vienna following the meeting, “The worst is over for oil.”

Translation:

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What Happens After Venezuela Destroys its Currency?

This article appeared online at TheNewAmerican.com on Friday, April 29, 2016:  

English: THE KREMLIN, MOSCOW. At a joint press...

Hugo Chavez and Vladimir Putin

Venezuela is unable to pay its currency printers. Those printers have been flying in planeloads of currency in the middle of the night, landing at airports where it is offloaded onto trucks to be dispersed to banks throughout the country. In other words, Venezuela doesn’t have the money to pay for its money.

The destruction of the currency, the bolivar fuerte (“strong bolivar”), has been documented at The New American and elsewhere. When oil prices dropped, so did revenues to fund the various socialist welfare schemes put in place by the communist Hugo Chávez and continued by his protégé, Nicolás Maduro, at Chavez’s passing in March 2013. Instead of reining in those unaffordable programs, socialist economists instead decided to print their way out of the crisis.

The results were predictable, and catastrophic.

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Have Oil Prices Hit Bottom?

This article appeared online at TheNewAmerican.com on Thursday, April 21, 2016:  

The 40 percent increase in the price of crude oil just since the end of January prompts two questions: Have investors seen the bottom in oil prices, and have drivers seen the lows in gas prices?

Todd Garner, the managing partner at Protec Energy Partners hedge fund, thinks so:

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Have Oil Prices Hit Bottom?

This article appeared online at TheNewAmerican.com on Thursday, April 21, 2016:

The 40 percent increase in the price of crude oil just since the end of January prompts two questions: Have investors seen the bottom in oil prices, and have drivers seen the lows in gas prices?

Todd Garner, the managing partner at Protec Energy Partners hedge fund, thinks so:

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Goldman Sachs’ Warning Dents Crude Oil Price

This article appeared online at TheNewAmerican.com on Wednesday, April 13, 2016:  

The price of crude oil, which reached $65 a barrel a year ago, fell below $30 in January with expectations that its decline wouldn’t end until it hit $20, or even lower. But hopeful optimists see light at the end of the tunnel — this coming from next Sunday’s OPEC meeting in Doha, Qatar (photo above) — where an agreement to freeze production at current levels will be on the table, bid crude higher in an almost straight line. On Tuesday NYMEX crude hit $42 a barrel, a 40-percent jump from January’s lows.

A note from Goldman Sachs on Tuesday provided a sobering view:

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Evidence Mounts for U.S. Recession in 2016

This article appeared online at TheNewAmerican.com on Monday, March 14, 2016:  

Nearly everyone with an opinion is warning about the increasing probability of the United States entering a recession — two quarters of negative growth — before the end of the year.

Cabinet - Class Photo, 1984: Front row: David ...

President Ronald Reagan’s former budget director David Stockman (middle, left) has been negative on the economy for months, noting in early February that

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The Best Evidence Yet of a US Recession This Year

This article was published by The McAlvany Intelligence Advisor on Monday, March 14, 2016:  

The best evidence comes from the US Treasury with its daily report of tax receipts from wages and salaries. It’s pure, it’s timely, and it’s free of massaging and/or manipulation. And it’s ugly.

John Williams, the skilled and capable economic statistician whom the establishment economists love to hate, author of ShadowStats.com, has built a graph (see source below) showing

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Oil Industry Facing Massive Challenges

This article appeared online at TheNewAmerican.com on Monday, February 29, 2016:  

Sunoco

Energy producers are facing challenges that are threatening the existence of not only marginal, highly-leveraged producers, but large companies as well.

Canadian-based Suncor is just one example. Known for its Sunoco brand (now Petro-Canada), Canada’s largest crude-oil producer reported three weeks ago that it suffered a fourth-quarter loss of $1.45 billion and that it was slashing its capex (capital expenditures) for 2016 by 10 percent, forcing its expected 2016 production to fall by the same amount. It is also selling assets in order to keep paying its dividends to nervous investors. But Steve Williams, the company’s CEO, told equally nervous participants that “We will be one of the last guys standing.”

Lamar McKay, BP’s deputy chief executive, did the same: “Times are tough. You’d almost call them brutal right now. But we will adapt. We will make it.” This from the world’s sixth-largest oil and gas company which lost $6.5 billion in 2015 and was forced to lay off more than 3,000 employees.

John Hess, CEO of the Hess Corporation, also pumped his company’s resilience in the face of low crude prices. A much smaller company than BP, Hess Corporation suffered a loss of $3 billion last year, its first in more than a decade. Said Hess: “Our company has some of the best acreage [in North Dakota]. We can be more resilient as prices recover.”

Taken together, the oil industry worldwide has cut more than 300,000 jobs since the summer of 2014 (the peak of oil prices), while capex of nearly $1.5 trillion will be cancelled between 2015 and 2019, according to the conference sponsor. So far nearly 50 U.S. oil producers have filed for bankruptcy protection this year, with many more sure to follow this spring as banks readjust their reserve valuations used to back up their loans. This could imperil more than $17 billion in debt held by banks.

The most important revelation at the conference came from Saudi Arabia’s oil minister, Ali Al-Naimi, when he said that his country — despite rumors to the contrary that had driven crude oil prices temporarily higher — had absolutely no plans whatsoever to cut production in order to support higher prices. On that news alone, NYMEX crude oil fell $2 a barrel on Friday.

One of the problems facing these executives is the fact that frackers continue to produce in the face of falling rig counts and smaller workforces. Peak oil production touched 9.6 million barrels a day last year and remains at 9.1 million bpd. Daniel Yergin, the founder of Cambridge Energy Research Associates (CERA), now a subsidiary of IHS Inc., expects things to get worse — perhaps much worse — before they begin to get better:

This year is going to be very rough on the industry, very turbulent. We think that the decline in U.S. production is going to get more serious — another 600,000 to 800,000 barrels a day in this kind of price environment.

Globally the energy industry cut capex spending in 2015 by nearly 30 percent compared to 2014, while those in the United States have cut even further: an estimated 40 percent. For 2016, IHS CERA expects several large U.S. producers to cut spending by 50 percent compared to last year.

In the meantime, there’s another problem: where to store the surplus crude oil, estimated to be piling up at the rate of 1.5 to two million barrels every day. Empty tankers are being leased to store the surplus, called “floating storage,” waiting for demand to pick up (or supplies to dwindle). Now there is “rolling storage,” with 20,000 empty railroad tank cars sitting in sidings and storage yards across the country. Salt caverns and tankers are almost at capacity, and companies such as the Musket Corporation are taking advantage. Musket is a privately-held shipping company in Houston that built its business shipping crude oil by rail. But now it is in the storage business, finding and leasing empty tank cars to store the surplus until that “turnaround” day arrives, when demand exceeds production, and the surplus can be sopped up.

Since there is little evidence on the horizon to support higher crude oil prices, oil industry executives are running out of options and optimism. It will take more than a stiff upper lip to jawbone higher oil prices. In the meantime, for many it’s a matter of survival until that happy day arrives.

Pollyanna in Houston: False Optimism Pervades Oil Conference

This article was published by The McAlvany Intelligence Advisor on Monday, February 29, 2016:

Cover of "Pollyanna"

Cover of Pollyanna

Author Eleanor Porter would be proud. Not only did her 1913 children’s book Pollyanna establish the “Pollyanna Principle” (someone with an excessively optimistic outlook despite facing all manner of difficulties), it set in motion eleven sequels by Elizabeth Borton or Harriet Lammis Smith. There were movies starting Mary Pickford and Hayley Mills.

All three authors were present in Houston last week, at least in spirit. First,

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Jawboning Higher Oil Prices

This article was published by The McAlvany Intelligence Advisor on Wednesday, February 17, 2016:  

The art of jawboning has gotten such a bad reputation that even the Securities and Exchange Commission website decries it:

We deride “jawboning” as (a) government wagging a finger at business and labor to act with restraint, while government acts without restraint; or (b) government asking labor and business to do what is against their self-interest and in the public interest, which is usually ineffective, and when it works it rewards the greedy and penalizes the patriotic.

It used to work by issuing an implicit threat to accomplish a desired end. And on Tuesday, in the first few minutes of trading, traders of both stocks and oil bought the threat, causing prices to bounce higher at the open but then fade afterwards.

The threat was this, issued by the Russian Ministry of Energy following a brief meeting of worthies from Russia, Saudi Arabia, Qatar, and Venezuela:

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Low Oil Prices Are Tempting Politicians to Raise Gas Taxes

This article appeared online at TheNewAmerican.com on Monday, February 8, 2016:  

The White House announced Thursday that the president would be asking Congress to raise taxes on imported oil by $10 a barrel to be used to fund what the Wall Street Journal describes as “new green transportation projects.” The new taxes to be levied on oil companies will be passed down to motorists who will enjoy the opportunity to help the president fund those new projects by 22 cents per gallon every time they fill up.

The danger isn’t that the president’s bill has any chance in the Republican-controlled Congress, this being an election year and all. What is dangerous is that

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As Oil Price Drops, Iraq Faces Existential Threat

This article appeared online at TheNewAmerican.com on Monday, February 1, 2016:  

In Iraq the culture of dependency is so great that the drop in the price of oil threatens the country’s very existence. With every Iraqi dependent upon the government for essentials like sugar, tea, rice and cooking oil, and the government dependent upon oil for more than 90 percent of its budget, the existential threat is real.

In January 2015 the government, headed up by President Fuad Masum and Prime Minister Haider al-Abadi, passed a budget that

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.