Gasoline prices dropping

laatsch55

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#61
OPEC's worst nightmare: Permian is about to pump a lot more

By Javier Blas on 11/21/2018








HOUSTON (Bloomberg) -- In less than a decade, U.S. companies have drilled 114,000. Many of them would turn a profit even with crude prices as low as $30/bbl.

OPEC’s bad dream only deepens next year, when Permian producers expect to iron out distribution snags that will add three pipelines and as much as 2 MMbpd.

“The Permian will continue to grow and OPEC needs to learn to live with it,’’ said Mike Loya, the top executive in the Americas for Vitol Group, the world’s largest independent oil-trading house.

The U.S. energy surge presents OPEC with one of the biggest challenges of its 60-year history. If Saudi Arabia and its allies cut production when they gather Dec. 6 in Vienna, higher prices would allow shale to steal market share. But because the Saudis need higher crude prices to make money than U.S. producers, OPEC can’t afford to let prices fall.

Cartel decision

Even so, Saudi Arabia’s output swelled to a record this month, according to industry executives. That means the three biggest producers -- the U.S., Russia and Saudi Arabia -- are pumping at or near record levels.

A similar scenario unfurled in 2016, when Saudi output rocketed just before OPEC agreed to cuts. This time the cartel’s 15 members, and allies including Russia, Mexico and Kazakhstan, will discuss the possibility of their second retreat from booming American production in three years.

OPEC helped create the monster that haunts its sleep. After it flooded the market in 2014, oil prices crashed, forcing surviving U.S. shale producers to get leaner so they could thrive even with lower oil prices. As prices recovered, so did drilling.

Now growth is speeding up. In Houston, the U.S. oil capital, shale executives are trying out different superlatives to describe what’s coming. “Tsunami,’’ they call it. A “flooding of Biblical proportions’’ and “onslaught of supply’’ are phrases that get tossed around. Take the hyperbolic industry talk with a pinch of salt, but certainly the American oil industry, particularly in the Permian, has raised a buzz loud enough to keep OPEC awake.

Price tumble

“You’ve got an awful lot of production that can come in very economically,’’ said Patricia Yarrington, Chevron Corp.’s chief financial officer. “If you think back four or five years ago, when we didn’t really understand what shale could do, the marginal barrel was priced much higher than what we think the marginal barrel is priced today.’’

That shift makes shale resilient to a price tumble. After touching a four-year high in October, West Texas Intermediate, the U.S. benchmark, has fallen by more than 20%.

Only a few months ago, the consensus was that the Permian and U.S. oil production more widely was going to hit a plateau this past summer. It would flat-line through the rest of this year and 2019 due to pipeline constraints, only to start growing again -- perhaps -- in early 2020.

If that had happened, Saudi Arabia would’ve had an easier job, most likely avoiding output cuts next year because production losses in Venezuela and sanctions on Iran would have done the trick.

Instead, August saw the largest annual increase in U.S. oil production in 98 years, according to government data. The American energy industry added, in crude and other oil liquids, nearly 3 MMbbl, roughly the equivalent of what Kuwait pumps, than it did in the same month last year. Total output of 15.9 MMbpd was more than Russia or Saudi Arabia.

Rail cars

The growth was possible because oil traders decided not to be stymied by the dearth of pipelines. They used rail cars and even trucks to ship barrels out of the region. But pipeline companies unexpectedly increased capacity, in part because they added chemicals known as “drag reduction agents’’ to increase flow. A new pipeline came online earlier than anticipated, and with three more expected between August and December next year, production is poised to soar.

“The narrative has shifted significantly,’’ said John Coleman, a Houston-based oil consultant at Wood Mackenzie Ltd. “Six months ago, the market expected the bottleneck to ease in the first quarter of 2020. Now, it expects it in the second to third quarter of 2019. ’’Knowing that more transportation would be available next year, Permian companies are drilling wells but, for now, aren’t fracing many of them. Those wells are becoming a reservoir of ready-to-tap production once the new pipelines -- Gray Oak, Cactus II and Epic -- come online.

“We’re going to see a re-acceleration of well completions in the Permian in the second half of 2019,’’ said Corey Prologo, head of oil trading in Houston at commodity merchant Trafigura Group Ltd. “The pipelines are going to fill up very quickly.’’

The only obstacle for another surge is export capacity, as most of the incremental output will need to ship overseas. With terminals nearly full, Permian barrels could end piling up in the ports of Corpus Christi and Houston.

Transportation bottlenecks

Even so, few in Houston, or in Midland, Texas, the hub of the Permian region, believe that growth will be anything but gangbusters next year because of the clearing of transportation bottlenecks.

“It will be a series of events throughout 2019 that occur,’’ said Jeff Miller, CEO of Halliburton Co., the world’s biggest provider of fracing services. “But it’d be easy to see, as we finish the year, things being perfectly normal.”

By the end of 2019, total U.S. oil production -- including so-called natural gas liquids used in the petrochemical industry -- is expected to rise to 17.4 MMbpd, according to the U.S. Energy Information Administration. At that level, American net imports of petroleum will fall in December 2019 to 320,000 bpd, the lowest since 1949, when Harry Truman was in the White House. In the oil-trading community, the expectation is that, perhaps for just a single week, the U.S. will become a net oil exporter, something that hasn’t happened for nearly 75 years.

Saudis concede

Saudi officials concede that the tsunami is coming. OPEC estimates that to balance the market and avoid an increase in oil inventories, it needs to pump about 31.5 MMbpd next year, or about 1.4 MMbpd less than what it did in October.

Global oil demand has so far absorbed the extra U.S. crude barrels, limiting the impact on prices. The loss of output from Venezuela and to a lesser extent, Iran, even allowed Saudi Arabia, Russia and a few others to boost production. But for the cartel, U.S. shale remains as intractable as in the past.

In early 2017, Khalid Al-Falih, the Saudi oil minister, told an industry forum that Riyadh has learned the lesson that cutting production “in response to structural shifts is largely ineffective.’’ The kingdom would only make one-time supply adjustments to react to “short-term aberrations,” he said, and otherwise allow “the free market to work.”

Nearly two years later, Al-Falih has lost enough proverbial sleep. He’s about to make a U-turn. He’ll battle what increasingly looks like a structural problem: booming U.S. production.
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orange

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#62
Local gas prices have fallen below $2.95 and as low as $2.89 in Ontario and 2.70s in nearby Fruitland, Idaho. This is the breakout that was long anticipated/hoped for.
 

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#63
Driving the focus on crude quality is the spread between the two most prevalent oil products, gasoline and diesel, which historically have had similar values. Gasoline futures in New York tumbled in November to nearly $25/bbl less than diesel, the largest discount since 2014.

Most of the growth in crude production in recent years has come in the form of light shale oil in the U.S., while heavier exports from Iran and Venezuela are in decline because of sanctions and political disarray. That’s helped boost gasoline production and sent stockpiles of the fuel in the U.S. to a record seasonal high.

“This mismatch between the crude we make and products that we need is going to be a feature going forward,” Rats said on the sidelines of Morgan Stanley Asia Pacific Summit in Singapore. “My sense is that the excess in the gasoline market is here to stay for at least a while to come.”
 

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#64
Price Adjustments

The International Maritime Organization regulations set to go into effect at the start of 2020 will limit the amount of sulfur in marine residual fuel. That means that many of the world’s more basic refineries will choose to run low-sulfur oil, including Dalia and Pyrenees.

“Those low sulfur, heavy sweet crude oils will now have a greater value to the refining market as the residual portion of the crude oil will see new demand,” said Andy Lipow, president of Lipow Oil Associates in Houston.

The heavy, sweet oils that should benefit from this make up a small fraction of overall crude production, but the trend will also impact larger swaths of the market. Europe’s Brent crude tends to produce more diesel than West Texas Intermediate, so its premium to the U.S. benchmark should grow, Rats said. Middle Eastern benchmark Dubai, which is high in sulfur, should weaken relative to Brent in the second half of 2019, he said.

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BlazeES

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#65
I just heard that the largest basin ever discovered in Texas was just found. The name escapes me...

On a side note: Unleaded around here has dropped to below 2 bucks a gallon. That's lower than it was a year ago when we moved here.
And 93 octane for 'The Beast' can be had for between 2.40 and 2.60 a peck.

Here's the latest GBuddy stats for the metro area - to the north of us ...

1544577107990.png
 

laatsch55

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The Delaware Basin is an extension of the Permian basin, extends into New Mexico...
 

Bradrock

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#67
It's a shame that this modern gasoline does not last very long or I'd get a farm tank & stock up. My propane guy says he'd be glad to bring me one, as he has a yard full. Only a few customers left using them.
 

8991XJ

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#69
Yates Oi Field.jpg

Just so folks can get an idea, this is the Yates Oil Field, just SW of the town of Iraan, TX, the red location. It is typical of the Permian Basin, each of those openings is an oil well that was drilled and either is producing, was producing or dry. I flew over the area TUS-DFW recently and needed to see what was going on. There are thousands and thousands of wells. Notice the scale of the pic, that is an area of something like 40 sq miles, 107sqkm with hundreds of wells.

I don't understand why the Feds required oil wells to be filled when we moved to using so much imported oil back 30 or whatever years ago. I don't know the particulars but thought that maybe there would be a way to cap the well and just let it sit there until needed again. But I don't even know if what was required caused any difficulty getting the well producing again as the price of oil went up to a profitable level.

Tulsa has the cheap gas this week, $1.75. I had to cough up $2.15 for some Delaware gas instead of the $2.54 SEPA stuff or the $2.39 stuff from Costco.
 
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#70
Down to $2.01 here in Iowa. Illinois, across the river from me is talking about raising their gas tax by thirty cents to pay for new infrastructure. Illinois is already taxing their citizens out of the state with some of the highest excise taxes in the country.
 

laatsch55

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#71
U.S. becomes net oil exporter for first time in 75 years

By Javier Blas on 12/6/2018








VIENNA (Bloomberg) -- America turned into a net oil exporter last week, breaking 75 years of continued dependence on foreign oil and marking a pivotal -- even if likely brief -- moment toward what U.S. President Donald Trump has branded as "energy independence."

The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.

While the country has been heading in that direction for years, this week’s dramatic shift came as data showed a sharp drop in imports and a jump in exports to a record high. Given the volatility in weekly data, the U.S. will likely remain a small net importer most of the time.

“We are becoming the dominant energy power in the world,” said Michael Lynch, president of Strategic Energy & Economic Research. “But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.”

The shale revolution has transformed oil wildcatters into billionaires and the U.S. into the world’s largest petroleum producer, surpassing Russia and Saudi Arabia. The power of OPEC has been diminished, undercutting one of the major geopolitical forces of the last half century. The cartel and its allies are meeting in Vienna this week, trying to make a tough choice to cut output and support prices, risking the loss of more market share to the U.S.

The U.S. sold overseas last week a net 211,000 bpd of crude and refined products such as gasoline and diesel, compared to net imports of more than 2 MMbpd on average so far in 2018, and an annual peak of more than 12 MMbpd in 2005, according to the U.S. Energy Information Administration.

The EIA said the U.S. has been a net oil importer in weekly data going back to 1991 and monthly data starting in 1973. Oil historians that have compiled even older annual data using statistics from the American Petroleum Institute said the country has been a net oil importer since 1949, when Harry Truman was at the White House.

On paper, the shift to net oil imports means that the U.S. is today energy independent, achieving a rhetorical aspiration for generations of American politicians, from Jimmy Carter to George W. Bush. Yet, it’s a paper tiger achievement: In reality, the U.S. remains exposed to global energy prices, still affected by the old geopolitics of the Middle East.

While the net balance shows the U.S. is selling more petroleum than buying, American refiners continue to buy millions of barrels each day of overseas crude and fuel. The U.S. imports more than 7 MMbpd of crude from all over the globe to help feed its refineries, which consume more than 17 MMbbl each day. In turn, the U.S. has become the world’s top fuel supplier.

“The U.S. is now a major player in the export market,” said Brian Kessens, who helps manage $16 billion at Tortoise in Leawood, Kansas. “We continue to re-tool our export infrastructure along the Gulf Coast to expand capacity, and you continue to see strong demand globally for crude oil.”
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laatsch55

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#72
View attachment 32992

Just so folks can get an idea, this is the Yates Oil Field, just SW of the town of Iraan, TX, the red location. It is typical of the Permian Basin, each of those openings is an oil well that was drilled and either is producing, was producing or dry. I flew over the area TUS-DFW recently and needed to see what was going on. There are thousands and thousands of wells. Notice the scale of the pic, that is an area of something like 40 sq miles, 107sqkm with hundreds of wells.

I don't understand why the Feds required oil wells to be filled when we moved to using so much imported oil back 30 or whatever years ago. I don't know the particulars but thought that maybe there would be a way to cap the well and just let it sit there until needed again. But I don't even know if what was required caused any difficulty getting the well producing again as the price of oil went up to a profitable level.

Tulsa has the cheap gas this week, $1.75. I had to cough up $2.15 for some Delaware gas instead of the $2.54 SEPA stuff or the $2.39 stuff from Costco.
It is Federal policy that you have to produce or plug a well. 30 days is the time you get to make that decision. There are exceptions. But in general you can not indefinitely suspend production on a well.
You don't "cap" a well. You pump a lot of cement to plug a well, and when you finish, no one is going to re-enter that well for what is used to make. Most wells are wrung out of their last barrels if they were not problem children or made a lot of water. We have wells that make money at 3bbls/day, and then we have some that break even on 30 bbls/day, it all depends on what it costs to produce and how much water you have to put back in the ground. Those are not the only considerations, sometimes, more frequent workovers due to age or worse operating conditions also have an effect. Fixed costs such as yearly rentals for acreages, damages, and right of way payments become a much larger percentage of the revenue stream as wells age. No two wells are alike, much like women, and woe be the man who assumes as much...
 

8991XJ

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#73
Value of a barrel of oil has a lot of input as to the desirability of keeping a well going or plugging it. I've read about the need to do something to keep the oil from getting into the ground water but it would be nice to have a way to idle a well or low/cheap production to avoid abandoning it for those opportunities when it might become a valuable asset again as the price of crude rises.
 

8991XJ

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#74
Back in college I took an Economic Geography or some such course. One of the textbooks was a national geographic magazine supplement on the oil industry and all the doom saying about the end of oil as we know it. Expected serious shortages by now and the end in a few more decades. They had no idea how much more oil we would find or the increase on the extraction capabilities of new technology. This has kinda interested me for quite some time. I probably ought to get into the oil industry, whether that be Marcellus Shale here in PA or something in TX. Don't know if I have enough heavy clothes for the Bakken fields to say nothing of the Alberta Tar Sands regions. Isn't there a lot of recoverable but expensive shale oil in CO, too?
 

laatsch55

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#75
Back in college I took an Economic Geography or some such course. One of the textbooks was a national geographic magazine supplement on the oil industry and all the doom saying about the end of oil as we know it. Expected serious shortages by now and the end in a few more decades. They had no idea how much more oil we would find or the increase on the extraction capabilities of new technology. This has kinda interested me for quite some time. I probably ought to get into the oil industry, whether that be Marcellus Shale here in PA or something in TX. Don't know if I have enough heavy clothes for the Bakken fields to say nothing of the Alberta Tar Sands regions. Isn't there a lot of recoverable but expensive shale oil in CO, too?
Yes, there is quite a bit of activity in Co. As urban sprawl continues on the front range it will be less attractive to deal with all the stipulations that come from that.

Fresh water zones and hydrocarbon formations are generally thousands of feet apart. With a properly plugged well, that doesnt happen.
 

orange

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#78
When I checked earlier today the lowest price in my are was $2.79 and most if not all were below $2.90, Love's Travel Plaza and Pilot Travel Centers' lowest prices were cash. Oregon's lowest price was $2.41 and the average was $3.01, which would probably reflect the fact that most of the dealers are along interstate highways in rural areas or in the western half of the state which is far more populous and much closer to Washington state and California and outside of a lot of the supply for this area.
 
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