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

Pressure Building to Repeal Two Laws Keeping Oil and Gas Prices High

This article first appeared at TheNewAmerican.com on Monday, November 17, 2014:

Senator Lisa Murkowski

Alaska Senator Lisa Murkowski

Alaskan Republican Senator Lisa Murkowski, soon to chair the Senate Committee on Energy and Natural Resources, is already setting the table for a serious conversation about getting rid of at least one archaic law dating back to the mid-1970s: the Energy Policy and Conservation Act of 1975.

That law bans the export of crude oil (with some minor exceptions) and could endanger the oil shale boom as a result. Said Murkowski:

The price American drivers pay for gasoline at their local station is linked to the price of oil set by the global market.

 

Exporting U.S. oil to our friends and allies will not raise gasoline prices here at home and should, in fact, help drive down prices.

As the price of crude oil drops, it increases the chances that smaller marginal crude oil producers will be forced to close unless they are allowed to find buyers outside the United States willing to pay more for their product. One of the bottlenecks has already been opened:

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OPEC’s Hegemony is over

This article was first published at The McAlvany Intelligence Advisor on Monday, October 27, 2014:

English: Saudi Arabia

Saudi Arabia

Tim Treadgold, a Forbes contributor who watches the world’s energy markets, decided to break the journalist’s unspoken rule: never forecast the demise of an individual (or an institution) until he is holding the coroner’s report (or bankruptcy judgment) in his hand:

At grave risk of committing [that] cardinal sin … this time it might be different because OPEC is steadily losing control of the oil market….

The irony, he said, was staggering:

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OPEC Continues to Unravel

This article first appeared at TheNewAmerican.com on Monday, October 13, 2014:

With oil production from the Bakken formation in North Dakota now exceeding one million barrels a day and the Eagle Ford and Permian Basin oil fields in Texas producing more than three million barrels per day, prices for crude are dropping worldwide and pushing gasoline prices down along with them.

Crude oil prices on the New York Mercantile Exchange hit a 52-week low of $83.59 a barrel last Friday, while Lundberg just reported average prices for gasoline across the country have dropped to $3.26 per gallon. As recently as May 2, gas in the United States cost $3.72 a gallon.

In response to these falling prices, Saudi Arabia, the largest producer in OPEC, earlier this summer

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Saudi Arabia Capitulates, Cuts Oil Prices

This article first appeared at The McAlvany Intelligence Advisor on Monday, October 65, 2014:

Saudi Arabia’s announcement last week that it was cutting prices to its Asian, European, and US customers by between $.40 and $1.00 a barrel represents a major capitulation and recognition of reality. It also represents a major departure in its role as the leading member of the OPEC cartel, proving once again that every cartel eventually blows up as its members seek their own interests over those of the cartel.

For decades, the role of the OPEC cartel has been to protect the cash flow of its members by manipulating oil prices through changes in production levels. If prices got too high and demand started falling as a result, the cartel would increase the supply of crude to the world markets. If prices got too low, on the other hand, it would gladly restrict those supplies to bring prices back up to a level acceptable to the cartel.

Those days now appear to be over.

By bringing its prices down below prices charged by OPEC member Qatar and non-OPEC member Oman, Saudi Arabia is setting the stage for an international oil price war. Futures traders, who have gotten hammered as crude oil prices have dropped almost 20% since June, are holding their collective breath to see if Qatar and Oman jump ship and reduce their prices as well. Energy analysts like John Kilduff with Again Capital are estimating that crude oil prices will consequently drop to the low $80s, while Fadal Gheit at Oppenheimer is predicting prices dropping into the low $70s. Gheit explained:

It’s both supply and demand. It’s basically the perfect storm that brought all these prices down. You have plenty of supply, which you never thought possible, and all of a sudden demand is shrinking: China is slowing down [and] Europe never recovered.

Gheit is a realist. He stated what every observer already knows: the OPEC cartel “is held together by scotch tape. They hate each other.” Now that the leader of the pack has decided to leave the pack, it’s going to be much easier for other OPEC members to join the fray and drive prices down even further.

Part of that perfect storm is the shale oil fracking revolution that has driven crude oil production in the United States to levels not seen in 50 years. Part of it is Russia’s increase in crude oil production to nearly post-Soviet era records as well. In addition, production from Kurdistan over the next 15 months is expected to more than provide China’s increased demands for energy, thus assuring that world supply will continue, in the short run at least, to outpace world demand.

Saudi Arabia’s admission of reality is already having welcome impacts. Gas prices in the United States have fallen to $3.32 a gallon on average, with more than half the states having at least one gas station selling gas for less than $3 a gallon. It’s also pulling the legs out from under the foreign policy justification of adventurism abroad in order to protect the supply of energy which America is now almost capable of providing all by herself.

As prices decline, consumers are able to redirect spending into other areas, helping along the modest economic recovery from the Great Recession. It may also prove to skeptics that, once again, Warren Buffett is right. His much ballyhooed announcement of his purchase of Van Tuyl Group, the nation’s largest US auto dealership chain, should help his company, Berkshire Hathaway, ride the wave of cheaper gas and the consequent willingness of customers to replace their aging fleet of vehicles with new ones.

It is possible, however, that prices may drop too far, causing capital that is currently flooding into the energy exploration business to go elsewhere where it will be treated better in the years to come. As Stephen Leeb, a writer at Forbes, put it: “It takes energy to get energy.” In the early 1950s, it took the energy from one barrel of oil to harvest five barrels. Today, because of improvements in technology, it takes about one barrel to produce nine in conventional fields.

But in unconventional fields – i.e., shale oil fracking – it takes the energy of one barrel of oil to discover, develop, and lift just four barrels, which, according to State University of New York Professor Charles Hall, isn’t enough to keep America’s modern industrial society operating at peak efficiency. The proper ratio, according to Hall, is that one barrel of energy must generate at least five barrels of new production, preferably more.

If the Old Farmers Almanac’s prognostications are correct, the US should enjoy another relatively mild winter, reducing chances of a spike in demand that would drive crude oil prices higher. For the time being then, Saudi Arabia’s capitulation and potential blowing up of OPEC will be enjoyed by American drivers and consumers. In the longer run, however, capital may be redirected away from the oil patch to more profitable areas if the price of crude stays too low, too long. In the meantime, America will once again enjoy the view from the catbird seat.

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Sources:

Commerzbank: ‘OPEC Appears to Be Gearing Up for Price War’

CNBC: Saudi signals price skirmish as oil heads to bear market

Bloomberg: Brent Oil Falls to Lowest Since June 2012 on Ample Supply

The Old Farmers Almanac: 2014–2015 Winter Weather Forecast Map (U.S.)

Forbes: Dangerous Times As Energy Sources Get Costlier To Extract

Auto Blog: Warren Buffet buys largest private US car dealership chain

Saudi Arabia Cuts Oil Prices, Could Spark Price War

This article first appeared at TheNewAmerican.com on Friday, October 3, 2014:

In a surprise move this week, Saudi Arabia cut the price of its flagship Arab light oil, which it sells mostly to its Asian customers, by one dollar a barrel. It also cut prices to its customers in the United States and Europe by $.40 a barrel. This brings Saudi Arabia’s prices below those offered by OPEC member Qatar and non-OPEC member Oman. Oil futures traders are holding their breaths, waiting for Qatar and Oman to cut their prices in response, setting off a full-scale oil price war.

The simple economics of supply and demand have already driven the price of oil down by almost 20 percent since June, and a number of traders and other observers are suggesting those prices have

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Fracking Boom Continues to Set Records

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, September 17, 2014:

Logo of International Energy Agency

Logo of International Energy Agency (Photo credit: Wikipedia)

The explosion in production in the oil patch makes it nearly impossible to keep up. Economist Mark Perry is trying. On September 2, he reported that Texas crude oil production in June topped three million barrels per day, noting that, as a separate nation, Texas would be the world’s eighth largest oil producer. The very next day Perry reported that natural gas production from the Utica Shale formation has increased by a factor of seven in just two years, and it’s just getting started.

Less than two weeks later, Perry reported that

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More Good News From the Oil Patch: Less Drilling, More Production

This article first appeared at TheNewAmerican.com on Tuesday, September 16, 2014:

A petroleum drilling rig capable of drilling t...

A petroleum drilling rig capable of drilling thousands of feet (Photo credit: Wikipedia)

It didn’t take long for naysayers at Newsweek magazine to declare that the fracking boom is at high risk of going bust. This followed an announcement from the Bank of America in July that the United States is now the world’s leading oil producer, ahead of both Saudi Arabia and Russia. In just the last five years, U.S. oil production has exploded from five million barrels a day to 11 million and, according to the International Energy Agency (IEA), that number will continue to climb for at least the next five years.

But what then? Newsweek posited: 

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The Rise of “Saudi America”

This article first appeared at The McAlvany Intelligence Advisor on Friday, December 6th, 2013:

 

Back in early February Citigroup apologized for missing the huge explosion of oil and natural gas occurring in Texas, North Dakota, and elsewhere. Its report, entitled “Energy 2020: Independence Day” began:

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Even Lower Gas Prices are Coming, says CNBC

On Friday Anthony Grisanti was jubilant. Writing for CNBC, he predicted that gas prices, down significantly from where they were in April, would continue to slide by at least another 10 cents per gallon, perhaps more. That would bring the average price, currently at $3.29 a gallon, closer to

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CFR expert calls for elimination of Laws restricting Crude Oil Exports

Sounding more like a free market economist than the thoroughly establishment analyst that he is, Blake Clayton, writing for the Council on Foreign Relations (CFR) in a paper published last week, built a carefully crafted case for the elimination of all federal controls on exporting crude oil. Clayton, who received two master’s degrees from the University of Chicago and Cambridge University along with a doctorate from Oxford, was blunt:

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When will the argument over Peak Oil end?

When it’s clear that we’re running out of oil, as predicted by M. King Hubbert in what’s known as the Peak Oil theory. The theory, roughly stated, is that there will come a point in time when

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Cheap Abundant Natural Gas is a Game Changer, Says the IMF

Expressing surprise at the enormous increase in US production of oil and natural gas by unconventional means, Thomas Helbling, a division chief in the IMF’s (International Monetary Fund) Research Department, was forced to admit that it was free enterprise that was responsible for it after all. In his March 2013 article he wrote:

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Does the Fed have a Plan B if inflation gets out of hand?

Two smart people from Cato don’t think so, and it makes them nervous. Henry Manne and Richard Rahn have a crystal ball but it’s cloudy. They stayed awake nights dreaming up scenarios that would trigger hyperinflation – a roaring escalation of prices at the retail level – and then ask

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Gasoline Prices Set to Decline, says the Energy Information Administration

Noting that gasoline prices have risen by 45 cents per gallon since the first of the year, the U.S. Energy Information Administration (EIA) said it’s seeing signs of easing in those prices in the near future. It reiterated various causes of the rise in prices (currently $3.75 per gallon at the pump nationwide), such as

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Davos’ Theme of “Resilient Dynamism” Hides Real Agenda

The World Economic Forum (WEF) in Davos, Switzerland, opened on Wednesday with the theme “Resilient Dynamism” and an agenda that is the polar opposite. That theme, promoted by the WEF’s founder, Klaus Schwab, began with an accurate assessment of how the push for global government is increasingly being resisted, and

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Saudi America

I love Mark Perry’s expression, “Saudi America”, as he continues to survey the virtual explosion taking place in the oil industry in the US. It continues to illustrate what happens when free enterprise, private capital, and opportunity intersect without government intervention. Here’s a graph from his article:

Perry writes:

The increases in US crude oil output are accelerating, and the 23% annual increase through the second week of January  this year [compared to a year ago] was the highest yearly gain in domestic oil production in the last 20 years…

At the current pace of increase, US oil output could reach 7.5 million bpd by May of this year, which would bring domestic production to the highest level since January 1990.

Peak what?

Bottom Line: “Carpe oleum” (seize the oil)

Nothing I’ve seen better expresses how the free market works than this.

Huge Shale Oil Deposits Found (Too Bad They’re in California)

Hippie bug!

Hippie bug! (Photo credit: Wikipedia)

This is one of those good new/bad news stories, like seeing your mother-in-law drive off a cliff in your brand new Lexus. IHS Cambridge Energy Research has discovered 400 billion barrels of oil in California, an amount equal to half of the oil under the sands of Saudi Arabia, and far larger than the Bakken Formation in North Dakota or the Eagle Ford Formation in Texas.

It’ll be harder to extract because of how the shale oil is caught between folds of the earth’s crust, rather than sandwiched in layers in North Dakota and Texas. But several oil companies are investing in the possibilities and if they are successful (and left alone by environmentalists in Sacramento) the revenues could “solve the state’s budget crisis” all by itself, according to Katie Potter, a recruiter for oil field personnel at NES Global Talent. And just last month, 18,000 acres were offered to be leased out for initial drilling and “they were all snapped up” right away.

But the real problem will be, inevitably, Sacramento, the capitol city in the land of sunshine, fruits and nuts, especially enviros who never saw a drilling rig they liked. They especially won’t like how the oil will need to extracted because of the folds in the earth’s crust: instead of using fracking which involves water and sand and some chemicals, the process in California will involve hydrofluoric acid.

Omigod! Acid?

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Wolfcamp May Dwarf Eagle Ford and Bakken

English: Location of the Spraberry Trend in Te...

Location of the Spraberry Trend in Texas, with major and nearby cities. All data on this map is in the public domain; created by me in ArcGIS 9.3. (Photo credit: Wikipedia)

The Eagle Ford formation in Texas is estimated to hold 3 billion barrels of recoverable oil, thanks to fracking and the free market. North Dakota‘s Bakken formation is estimated to hold 18 billion barrels of recoverable oil, thanks to fracking and the free market. But, as noted at mysanantonio.com,

Get ready for what’s happening in West Texas, where oil and gas production is  ramping up in shale layers such as the Wolfcamp in and around Midland.

Remember that name: Wolfcamp. For the record, it’s also called the Spraberry Trend, but Wolfcamp is the name that’s catching on. Ken Morgan, director of the Texas Christian University Energy Institute, said, “We’re getting thousands and thousands of feet of pay zone [there]. It’s like the Eagle Ford on steroids. [We] haven’t even begun. We’re just in the toe of this thing.”

Just how big is Wolfcamp?

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Oil Prices to Hit $100 a Barrel Then Drop Like a Stone

Forrest Jones: Crude to Hit $100 a Barrel, But Sell the Rally

“This potential disruption is coming at a time where prices are already in the higher end. Unless we get a significant amount of oil capacity taken off the market, the chances are this sort of event [Tropical Storm Isaac] won’t have a significant impact from a medium-term point of view.” —Ric Spooner, chief market analyst at CMC Markets

Steel drums used as shipping containers for ch...

Steel drums used as shipping containers for chemicals and other liquids. (Photo credit: Wikipedia)

There are always “events” that, from day to day, impact oil prices: hurricanes, political unrest, Middle East tensions and threats, explosions (like the one in Venezuela last week), and so forth. But underlying these events is something much more predictable: the supply of oil coming to market is inexorably increasing, mostly from the US.

Here’s a quick summary:

According to Wikipedia, the US has 21 billion barrels of proven oil reserves. The Energy Information Administration (EIA) estimates that “technically recoverable oil reserves” are about 198 billion barrels.

But that doesn’t include the Bakken Formation in North Dakota. There, according to the EIA, there are another 503 billion barrels. And in Colorado and adjoining Rocky Mountain states there are another—ready?—2 trillion barrels of oil!

And this doesn’t include other finds around the world. This is just in the US.

Here are the official estimates: The US has

  • Eight times as much oil as Saudi Arabia
  • Eighteen times as much oil as Iraq
  • Twenty-one times as much oil as Kuwait
  • Twenty-two times as much oil as Iran
  • Five-hundred times as much oil as Yemen

Oil expert Spooner added:

The global demand outlook (for oil) is for moderate growth at best and is well covered by supply capacity. (My emphasis)

I’m looking for opportunities to sell into the current strength anywhere from here on up to about $102 a barrel (for U.S. crude) and $120 a barrel for Brent.

It’ll be fun to watch as oil prices peak at $100 a barrel and then drop like a stone.

Harvard Senior Fellow: Peak Oil Is History

Abu Dhabi skyline

With the publication of his careful study, “Oil: The Next Revolution,” internationally respected economist and senior fellow at Harvard University Leonardo Maugeri has persuasively buried the theory of “peak oil” beneath 75 pages of evidence to the contrary. He wrote:

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices….

After adjusting for risk factors…net additional production capacity by 2020 could be 17.6 mbd [million barrels per day], yielding a world oil production of 110.6 mbd by that date….

This would represent the most significant increase in any decade since the 1980s.

At present total world production of oil is estimated at 73 mbd, and so if Maugeri is correct, that 110 mbd production will be 50 percent higher than today. That will confirm Maugeri’s prediction this “could be a paradigm-shifter for the oil world.”

Maugeri’s credentials are impressive. For 10 years he was the senior economic advisor to

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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.