Free Republic

In the age of derivatives, swaps, and electronic money transfers, a new form of warfare has emerged: financial warfare. Recently, the US has passed sanctions on countries such as Syria, Venezuela, and North Korea , but the majority of energy related sanctions passed have been targeted at Iran and Russia. An estimated 68 percent of Russia’s government revenue is derived from oil and gas exports, while 80 percent of Iran’s revenue comes from oil exports. That presents a very large target for the use of financial weapons.

As it appears GDP will be seasonally adjusted again, I find myself wondering just one thing: why? Earlier GDP figures showed the US economy on the brink of recession for the first two quarters of this year. Now, with more fudging going on, who knows what it will show. The government appears to be following the Hollywood mantra: if you can bend perception enough, it will become reality. Look no further than the Federal Reserve, which continues to raise expectations of higher interest rates in the second half of this year, in hopes of inducing faster growth.

Investing in the energy industry right now can be scary. On the one hand, oil prices have been extremely volatile and look likely to stay that way. On the other hand, while clean energy, especially wind power, is growing rapidly, valuations are astronomical and, for income-focused investors there are few good options. With that in mind, investors looking for income in energy have little choice but to turn to the safest conventional energy play available; oil majors. Companies like ExxonMobil and Royal Dutch Shell have been around for decades, so regardless of what happens to oil prices, these firms have...

Storage withdrawals and falling rig count have been the main sources of hope that U.S. tight oil production will fall and that oil prices will rebound. That hope is fading as it is now clear that recent withdrawals from U.S. crude oil storage are because of price, not falling supply, and that the drop in rig count has stalled. Figure 1 below shows the relationship between U.S. crude oil storage inventory and WTI price. The thinking around recent withdrawals from storage is that this reflects depleting supply. The data, however, reflects that traders were storing crude oil during the price...

Could oil prices be in for yet another decline? Oil prices have rebounded with surprising speed in recent weeks, with WTI prices bouncing by more than a third from March lows. There are good reasons for this. Rig counts are down by nearly 1,000 (or nearly 60 percent) since hitting a high in October 2014. Spending on some of the world’s largest projects has been cut by a combined $129 billion, a figure that could balloon to $200 billion by 2016. The spending and drilling contraction is finally leading to some small production declines.

For project developers seeking the next big petro-play, some key news this week. With lawmakers in America moving to open one of the biggest swaths of new acreage in the history of the industry. On Tuesday, the U.S. senate introduced three bills to expand areas accessible for oil and gas drilling -- targeting the eastern Gulf of Mexico, Atlantic Ocean, and the Arctic. The Gulf of Mexico acreage would be the nearest play at hand. With this week's bill contemplating allowing drilling in this area as early as 2017.

Saudi Arabia continues to ratchet up production, taking market share away from U.S. shale producers. According to OPEC’s latest monthly oil report, Saudi Arabia boosted its oil output to 10.31 million barrels per day in April, a slight increase over the previous month’s total of 10.29 million barrels. That was enough for the de facto OPEC leader to claim its highest oil production level in more than three decades. Saudi Arabia has increased production by 700,000 barrels per day since the fourth quarter of 2014 in an effort maintain market share. The resulting crash in oil prices is forcing some...

The U.S. is seeking a rapprochement with Iran over its nuclear program, potentially ending several decades of hostility. But while the U.S. is extending an open hand to Iran, other countries in the Middle East are casting a wary eye towards the negotiations. In fact, it is starting to appear that Gulf Arab states could be a major impediment to a final agreement over Iran’s nuclear program. Led by Saudi Arabia, many of the oil-producing members of the Gulf Cooperation Council (GCC) are skeptical of, if not downright hostile towards Iran. With little trust between Iran and its Arab neighbors,...

The U.S. military is helping Iraqi forces pushback ISIS at a vital oil refinery. The Baiji refinery is located between Kirkuk and Mosul, and it has been the target of ISIS militants since the extremist group first made major advances last summer. Baiji is Iraq’s largest oil refinery, and as such, is strategically important to the country for revenues and for domestic fuel supplies. “It actually also sits on a corridor that runs from the Tigris River valley to the Euphrates River valley. And so it's geographically significant as well as significant economically,” the chairman of the U.S. Joint Chiefs...

Across the oil patch, banks are starting to close off their exposure to some of the riskiest oil drillers. A new monthly survey from the Federal Reserve finds that banks that have issued loans to oil drillers are projecting some of them to go bad. Over the course of 2015, the Fed says that oil loans could “deteriorate” and that banks “expected delinquency and charge-off rates.” At the same time, the overall exposure to such loans remained small. Around 80 percent of the banks surveyed by the Fed indicated that their exposure to shaky oil companies accounted for less than...

E&P earnings are coming in and the impression we’re left with is that natural gas investment in Marcellus is being reduced, while oil overall appears to be incrementally ramping up versus prior guidance. Also, production overall for 1Q15 has exceeded sell side expectations as well, as reported by many public companies. Noble (NBL) reported that it’s cutting investment in the Marcellus by some $200M in response to the Nat Gas price crash. This is on top of prior production reductions at Chesapeake (CHK) & Range Resources (RRC). However, the Ponzi game in shale oil, having to continuously drill to replace...

Shell’s ambitious plans to finally return to the Arctic face yet another hurdle, one that could delay drilling once again. Shell is using the port of Seattle as its base for some of its vessels that it will use in the Arctic. Seattle has been a launching point for Shell in the past (and has hosted Alaskan drilling equipment for decades), but a new greener municipal government is taking a harder look at Shell’s operations. Spurred on by Shell’s error-ridden 2012 campaign in the Arctic that culminated in the grounding of the Kulluk, environmental groups have mustered up some political...

The United States is edging towards an historic agreement to swap crude oil with Mexico. The deal is important as it brings some relief to US producers struggling with a light oil glut at home and for Mexican national oil company, Pemex, which is hoping to mix the lighter crude coming out of US shale fields with its heavier blend. However, the arrangement is not just about the relationship between the US and Mexico. It’s also about broader North American energy integration. And critically, many experts see the deal as another crack in the US crude oil export ban. The...

The U.S. oil production decline has begun. It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled. The implications are profound. Production will decline by several hundred thousand barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today. Tight oil production in the Eagle Ford, Bakken and Permian basin plays...

The world already knows that the Organization of Petroleum Exporting Countries, or OPEC, can change the fate of the international oil price. By producing close to 40 % of the world’s combined crude oil, OPEC’s oil exports represents about 60% of the total petroleum traded internationally. In spite of having such clout, 2014 has been kind of odd for the cartel as there was a considerable drop in OPEC’s revenues. As per Energy Information Administration, OPEC earned close to $730 billion in net oil export revenues in 2014, which was a decline of 11% from 2013. Saudi Arabia- the undisputed...

Oil executives have been making headlines recently, due to large purchases of their own company’s stock. In fact, insider buying in the oil industry is higher than any other industry, except the machinery industry. Who’s buying? Major insider purchases for the month of March were made by Kinder Morgan (NYSE: KMI) and Diamond Offshore Drilling (NYSE: DO). Diamond Offshore Drilling’s CEO, Corp Loews, purchased 685,373 shares on the open market, and Rich Kinder, CEO of Kinder Morgan, purchased 100,000 shares of Kinder Morgan. In March, Rich Kinder and Corp Loews weren’t the only executives buying company stock. The Director of...

There is mounting evidence that oil prices are poised to rebound from a historic bust. Rig counts hit new lows each week. For the week ending on April 17, Baker Hughes says the U.S. lost an additional 34 oil and gas rigs, bringing the total down to 954. Domestic crude oil production appears to have plateaued and the EIA expects a contraction in May. Nearly every driller is dramatically scaling back spending, which should increasingly cut into new output. And oil consumption is finally picking up, as drivers far and wide take advantage of cheap fuel. But what if the...

Oil Price War May Benefit Both US Shale And Saudi Arabia

Myles Udland February 23, 2015 Oil prices have been volatile of late, but a number of banks and commenters have said that oil prices are going lower. In its half-year earnings release on Monday, Australian mining giant told the market exactly why: In response to weaker prices, [BHP] will reduce its Onshore US operated rig count from 26 at period end to 16 by the end of the 2015 financial year. The majority of the revised drilling program will be focused on our liquids rich Black Hawk acreage with activity in the Permian and Hawkville limited to the retention of...

Myles Udland February 23, 2015Manufacturing activity in Texas is plunging and the crash in oil prices is to blame. The Dallas Fed's February manufacturing index fell to -11.2, down from -4.4 in January and well below the -4 reading that was expected. Expectations were for the headline index to come in at -4. In the last couple months, this report has been in focus as business owners in Texas take stock of how the decline in oil prices is weighing on that state's economy. And Monday's report was no different. One business executive in the primary metal manufacturing sector said...