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Eastwood

Eastwood 4394

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Probably has more to do with this:

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'Duped,' 'tricked' and 'snookered': Oil analysts say Trump fooled Saudis into tanking crude prices

  • Oil markets analysts say it appears that the Trump administration tricked Saudi Arabia and other oil producers into slashing oil prices.
  • President Donald Trump pressured the Saudis to orchestrate a production increase ahead of U.S. sanctions on Iran.
  • The Trump administration threatened to cut Iran's exports to zero, but ultimately allowed some of its biggest buyers to continue importing crude.
Published 4 Hours Ago  Updated 1 Hour AgoCNBC.com
     
     
     
     
     
US President Donald Trump (R) and Saudi Deputy Crown Prince Mohammad bin Salman al-Saud take part in a bilateral meeting at a hotel in Riyadh on May 20, 2017.
Mandel Ngan | AFP | Getty Images
US President Donald Trump (R) and Saudi Deputy Crown Prince Mohammad bin Salman al-Saud take part in a bilateral meeting at a hotel in Riyadh on May 20, 2017.

Earlier this year, Saudi Arabia pulled off a challenging U-turn in global oil market policy, convincing a fractious group of two dozen nations to hike output and undercut the oil market rally that was filling their coffers.

The Saudis undertook this unpopular task at least in part to help its allies in the White House — and for its troubles, the kingdom was rewarded with a series of blistering tweets from President Donald Trump and the biggest pullback in oil prices since the historic downturn of 2014.

Oil market analysts say it now appears that Trump hoodwinked Saudi Arabia, fooling the U.S. ally into pushing the oil market into oversupply and sparking a roughly 25 percent drop in crude prices. That accomplished Trump's goal of driving down energy costs for Americans, but left nations dependent on oil income like Saudi Arabia with the prospect of shrinking revenues.

 

The analysts say Trump essentially bamboozled the Saudis by threatening for months to implement sanctions against Iran so strictly, the Islamic Republic's exports would go into free fall. But when the administration's deadline for oil buyers to quit Iranian oil arrived on Nov. 4, Trump instead dolled out six-month exemptionsto some of the country's biggest customers.

"They got sort of tricked here," said John Kilduff, founding partner of energy hedge fund Again Capital. "The Russians and the Saudis in particular ramped up production, ramped up exports ahead of what was supposed to be severe sanctions on Iran, and when the administration gave the eight waivers to Iran's largest buyers, it undercut that whole equation."

"So now we've tripped into an oversupply situation almost overnight because of the severe reaction by Russia and the Saudis to cover for Iran losses, which never materialized."

To be sure, the sanctions have shrunk Iran's exports by about 1 million barrels per day. Few thought the Trump administration would actually achieve its stated goal of cutting its rival's shipments to zero.

But the sanctions, backed by the administration's hawkish rhetoric, cut Iran's exports more quickly than many anticipated. The market also expected another big drop after the Nov. 4 deadline passed. That fear fueled a rally that sent oil prices to four-year highs.

Over the last six weeks, that rally has unwound in spectacular fashion, with oil prices tumbling into a bear market. The pullback has several causes, including a weaker demand outlook for crude and a wider market sell-off, but analysts say OPEC's output hike earlier this year and the sanctions waivers play a major part in the oil price plunge.

"In early October there was this expectation that a lot of Iran's barrels were going to come off the market, and so essentially Saudi Arabia was duped into increasing production," said Matt Smith, head of commodities research at tanker-tracking firm ClipperData.

Smith says it's uncertain the situation has unfolded exactly as the Trump administration intended, but it has ultimately worked out in the president's favor — though potentially at a cost to U.S.-Saudi relations.

"They've really done a good job of decreasing that oil price, but it has been at the expense of some of those relations there, because surely the Saudis have got to be pretty unhappy with the way things have played out here."

Saudi Energy Minister Khalid al-Falih acknowledged this week that Iran's exports didn't fall as much as expected.

He also announced that Saudi Arabia will ship 500,000 fewer bpd in December and said OPEC and its allies may cut production by 1 million bpd next year. That decision could come in a few weeks when OPEC, Russia and other producers meet to review their current policy of easing output curbs that have been in place since last year.

Trump took to Twitter a few hours later, tweeting, "Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!"

The president has previously used Twitter to blame OPEC for high oil prices and demand the group take action to cut costs. At the U.N. General Assembly this year, he told world leaders that OPEC is ripping them off.

Analysts say Falih's comments this week might have pushed oil prices higher, if not for Trump's tweet.

"I think the market is ignoring [the Saudis] because of Trump," said Helima Croft, global head of commodity strategy at RBC Capital Markets. "I think if you didn't have the Trump tweet, there would not be this skepticism. Right now, there's a view that the Saudis will reverse course because of Trump. There's a sense that Trump really has them over a barrel at this point."

The kingdom is in a precarious position after a Saudi prosecutor acknowledged that government agents killed journalist and U.S. resident Jamal Khashoggi in the Saudi Consulate in Istanbul last month, following earlier denials by the state.

Gary Ross, CEO at Black Gold Investors, believes the cartel will ultimately agree to cut output when it meets with Russia and other producers next month. However, in his view it may be too little too late.

"They're pretty much snookered by Trump," Ross said. "I mean, Trump led them to believe that the Iranian exports would be zero. It turned out they're going to be 1.2 to 1.5 million barrels a day, way higher than people thought."

"Broadly speaking, it's an oversupply story, and I think they will cut back, but they're not likely to cut back enough to drive prices back up to anything like $80 Brent," he told CNBC. "I think we're going to be in a $60 to $70 Brent market for some time."

The White House did not immediately return a request for comment.

https://www.cnbc.com/2018/11/15/trump-duped-saudis-into-tanking-oil-prices-analysts-say.html

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PittsburghTiger

PittsburghTiger 6175

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Posted

https://www.worldoil.com/news/2018/11/18/bloomberg-opinion-the-oil-price-is-now-controlled-by-just-three-men

Bloomberg Opinion: The oil price is now controlled by just three men

By JULIAN LEE on 11/18/2018

NEW YORK CITY (Bloomberg) -- OPEC has lost what control of the oil market it ever had. The actions (or tweets) of three men — Presidents Donald Trump and Vladimir Putin and Crown Prince Mohammed Bin Salman — will determine the course of oil prices in 2019 and beyond. But of course they each want different things.

While OPEC struggles to find common purpose, the U.S., Russia and Saudi Arabia dominate global supply. Together they produce more oil than the 15 members of OPEC. All three are pumping at record rates and each could raise output again next year, although they may not all choose to do so. 

It was Saudi Arabia and Russia that led the push in June for the OPEC+ group to relax output restraints that had been in place since the start of 2017. Both subsequently jacked up production to record, or near record, levels. U.S. output soared unexpectedly at the same time, as companies pumping from the Permian basin in Texas overcame pipeline bottlenecks to move their oil to the Gulf coast.

These increases, alongside smaller downward revisions to demand growth forecasts and President Trump’s decision to grant sanctions waivers to buyers of Iranian oil, have flipped market sentiment from fears of a supply shortage to concerns about a glut in the space of three months. Oil stockpiles in the developed nations of the OECD, which had been falling since early 2017, are rising again and are likely to exceed their five-year average level when October data are finalized, according to the International Energy Agency.

As oil prices have headed south, Saudi Arabia said it would cut exports by 500,000 bopd next month and warned fellow producers that they needed to cut about 1 MMbpd from October production levels. That drew a lukewarm response from Putin and swift Twitter rebuke from Trump.

Bin Salman needs oil revenue to fund his ambitious plans to transform Saudi Arabia, while avoiding unrest from those hurt in the process. The International Monetary Fund forecasts that the kingdom will need an oil price of $73.3/bbl next year to balance its fiscal budget. Brent crude is trading about $5 below that, with Saudi Arabia’s exports trading at a discount to the North Sea benchmark. Prolonging output cuts for a third year is the only way he can realize the price he needs.

He will face more challenges from Putin and Trump. The Russian president shows no great enthusiasm for restricting his country’s production again. Moscow’s budget is much less dependent on oil prices than it was when Russia agreed to join OPEC-led efforts to re-balance the oil market in 2016 and the country’s oil companies want to produce from the fields where they have invested. 

Putin may yet decide that maintaining his improved political relationship with MBS, as the Crown Prince is known, is worth a small sacrifice. But it’s not a foregone conclusion that Russia will agree to extend output cuts when producers gather in Vienna next month. Putin says oil prices of around $70/bbl suit him “completely.” 

The opposition from Trump will — naturally — be much louder and comes at a time when he and MBS are trying to preserve their political relationship, while American senators consider harsher sanctions on Saudi Arabia in response to the war in Yemen and the killing of dissident journalist Jamal Khashoggi.

A bigger U.S. threat to Saudi plans than Trump’s tweets will come from the Texas oil patch. American producers have added a volume equivalent to the entire output of OPEC’s Nigeria in the past 12 months. Their production could reach 12 MMbpd by April, according to the Department of Energy. That’s six months sooner than it was forecasting just a month ago and 1.2 MMbpd more than it foresaw in January.

Saudi Arabia will have to risk Trump’s wrath, Putin’s indifference and a booming U.S. shale industry if it hopes to balance the oil market in 2019.
 

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ryskey

ryskey 447

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Posted (edited)

"Increased" Saudi exports in preparation for Iranian cuts and mid-term elections was never from increased production.  It was liquidation of their own storage.  Essentially a transfer of storage from SA to the US.  Then the last minute waivers caught SA off guard and Trump probably burned a bridge that was already very flammable to begin with (Khashoggi).  It's no accident that Saudi prices to the US went up the day after mid-term elections, and they started talking about unilateral, voluntary production cuts a week later when oil was still comfortably in the 60's.  They wouldn't have done that if their export levels were sustainable.  They and everyone else knows that the most liquid oil benchmarks (WTI and Brent) trade disproportionately on US inventory data.  Why?  Because we're transparent, have good data, and those markets have the most liquidity.  Self-fulfilling prophecy.

China was also drawing down their own storage, displacing Saudi imports.  China is not transparent, nor do they have good inventory data, nor do they have a global benchmark with a very liquid futures market. Those exports from Saudi have resumed.

On top of that you have speculative short sellers piling in with the few logical buyers (outside refiners and pipelines) at the moment sitting on the sidelines waiting for this thing to stabilize.  

Those Saudi exports that reverted to normal will take months to manifest in the market.  It's a cumulative effect that will start 45 days after the last "extra" tanker left Saudi ports headed to the United States.  So in about 3 weeks.  You won't notice it in that first EIA weekly report.  But 2 months later, after Saudi exports have reverted to normal, the market will have priced in the effect.  And all those speculative short positions will have to close out in spectacular fashion.  Forced buying at ever-increasing prices.

Might take several months or even half a year.  But it's going to happen***.  A tweet from the President can't change physical realities.

***Exception here being demand destruction from global recession.  Which may have started a few weeks ago.

Edited by ryskey
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ryskey

ryskey 447

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I love fundamentals.  Storage, supply, demand, upstream investments, etc.  Hard data that has no agenda, nor does it tweet.

I hate trading noise.  It distracts and even completely hides fundamentals.  It relies on hearsay, political agendas, momentum trading, confirmation bias, lack of critical thinking, ignorance, and sentiment from those who yell loudest. It causes real damage to the worldwide economy.  But it can't run from the fundamentals forever.  And notwithstanding a worldwide recession, I am very much looking forward to a spectacular short squeeze in 2019.  That will be delicious.  But then it will probably swing too far in the other direction.

The world does not have enough oil to meet demand in late 2019 and 2020.  Again notwithstanding worldwide recession.

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JimmyGlass

JimmyGlass 21

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Posted
On 11/20/2018 at 7:19 PM, ryskey said:

I love fundamentals.  Storage, supply, demand, upstream investments, etc.  Hard data that has no agenda, nor does it tweet.

I hate trading noise.  It distracts and even completely hides fundamentals.  It relies on hearsay, political agendas, momentum trading, confirmation bias, lack of critical thinking, ignorance, and sentiment from those who yell loudest. It causes real damage to the worldwide economy.  But it can't run from the fundamentals forever.  And notwithstanding a worldwide recession, I am very much looking forward to a spectacular short squeeze in 2019.  That will be delicious.  But then it will probably swing too far in the other direction.

The world does not have enough oil to meet demand in late 2019 and 2020.  Again notwithstanding worldwide recession.

 

I'm not in the oil industry, nor am I am an expert in it. But, what fundamentals are you referring to?

 

In the last 12 months just the US daily production as increased by ~2.1 million bpd.  Below are the average increase in world consumption vs the previous year (in mm bpd):

 

2012:  0.8

2013:  2.0

2014:  0.9

2015:  2.2

2016:  1.3

2017: 1.6

2018:  1.5

 

If the US simply maintains current rates of growth the rest of the world will have to reduce net output or the worldwide demand will have to increase much faster than recent historical trends.  Which of those are you predicting?

 

 

 

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Eastwood

Eastwood 4394

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The difference between shale output and Saudi output is that shale has a nasty decline curve. That 2.2 bbl increase in 2015? It's probably only 50-75% now. In another couple of years, maybe even next year, it will be 25%. Shale wells are gangbusters for 3-5 years, then drop off dramatically and even out at around 25% of that, if you're lucky. Sure, they can go in there and refrack, but the results are inconsistent and sometimes a costly gamble that you won't get a net positive return on that. But American output levels are heavily dependent on new discoveries and new exploration.

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JimmyGlass

JimmyGlass 21

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Posted

The 2.2 in 2015 is not a supply growth from the US, its worldwide increase in consumption vs the previous year. The point of the data is that just the increase in production in the US in 2018 vs 2017 is larger than the total  in world increase in consumption from 2017 to 2018.  Does anyone think growth in US production from 18->19 will be smaller than from 17->18?  Again - I'm not in the industry, but nothing I've read suggests that.  ryskey was talking about fundamentals and  there is nothing more fundamental than production vs consumption.  Based on recent history, growth in supply just from the US will be larger than worldwide growth in demand. 

The point of my original post was to ask what fundamentals he was talking about - because I don't see anything suggesting the world's supply of oil is going to struggle to keep up with demand in 2019. 

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Neonmoon

Neonmoon 38129

Posted
Posted (edited)
15 hours ago, JimmyGlass said:

The 2.2 in 2015 is not a supply growth from the US, its worldwide increase in consumption vs the previous year. The point of the data is that just the increase in production in the US in 2018 vs 2017 is larger than the total  in world increase in consumption from 2017 to 2018.  Does anyone think growth in US production from 18->19 will be smaller than from 17->18?  Again - I'm not in the industry, but nothing I've read suggests that.  ryskey was talking about fundamentals and  there is nothing more fundamental than production vs consumption.  Based on recent history, growth in supply just from the US will be larger than worldwide growth in demand. 

The point of my original post was to ask what fundamentals he was talking about - because I don't see anything suggesting the world's supply of oil is going to struggle to keep up with demand in 2019. 

Growth requires new production. New production requires investment. There was a couple years of paltry investment into new production. This ripple has yet to manifest in the market. 

Edited by Neonmoon
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Storm the Field

Storm the Field 5294

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UBS Wealth Management believes the market will tighten up again into the first quarter of next year, Wayne Gordon - the company’s executive director of commodities, rates and FX - has revealed in a television interview with Bloomberg.

“Overall demand is very strong. China imports of oil have been very strong. So, globally demand continues to run hot, people are buying more oil because it is cheap at these levels and so consequently we think the market tightens up again into the first quarter,” Gordon told Bloomberg in the interview on Wednesday.

This tightening would see prices go back, in Brent terms, to “above the $70 towards the $80 mark,” Gordon added in the interview.

The UBS Wealth Management representative told Bloomberg that the price rout “came at a point when prices had been fueled higher by speculative positioning.”

“Speculative positioning was very high in the crude market leading into a couple of key things, such as Donald Trump handing out waivers for some people RE Iranian crude over the next three to six months,” Gordon added.

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Dr Fear

Dr Fear 1268

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I need to rant about the freakin' BLM for a second.  A few weeks ago we had a guy request a copy of a federal lease file in Santa Fe, because why would such a thing be online, and were told that the file we wanted was 9 (NINE!) years behind in scanning.  The unscanned files were on someone's desk somewhere and even if they could find it we were not allowed to see it. And today the LR2000 reporting system is down.

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LurkingHorn

LurkingHorn 1066

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Posted
3 hours ago, Dr Fear said:

I need to rant about the freakin' BLM for a second.  A few weeks ago we had a guy request a copy of a federal lease file in Santa Fe, because why would such a thing be online, and were told that the file we wanted was 9 (NINE!) years behind in scanning.  The unscanned files were on someone's desk somewhere and even if they could find it we were not allowed to see it. And today the LR2000 reporting system is down.

I want to say that is unbelievable but you know...BLM gonna BLM. Part of my job ends up dealing with them and ONRR. Biggest bunch of idiots you'll ever have the pleasure of dealing with. We have gotten pinged here for several wells we are delinquent in reporting royalties and production on. Only problem is we've never operated these wells they're referencing nor have any interest in the leases. I've actually gone to state websites and pulled transfer of operator forms for these clowns to show them who the operator is/was and they will respond with "That is documentation from the State of _____, we work for the Federal Government." I don't know how the BLM ever showed us as operator, but ONRR got a hold of their records stating as such and are now convinced we are out to screw the federal government out of royalties. 

 

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Storm the Field

Storm the Field 5294

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23 hours ago, Storm the Field said:

Classic oil market. OPEC will be announcing significant production cuts, but traders won't think they're big enough, so WTI will probably end the day down 5.0%.

Glad to be wrong:

OPEC and its Russia-led allies agreed on Friday to slash oil production by more than the market had expected despite pressure from U.S. President Donald Trump to reduce the price of crude.

The producer club will curb output by 0.8 million barrels per day from January while non-OPEC allies contribute an additional 0.4 million bpd of cuts, Iraqi Oil Minister Thamer Ghadhban said after OPEC concluded two days of talks in Vienna.

Oil prices jumped about 5 percent to more than $63 a barrel by 1500 GMT as the combined cut of 1.2 million bpd was larger than the minimum 1 million bpd that the market had expected.

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Archer

Archer 474

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Posted
2 hours ago, Hpara759 said:

this might have already been posted...but its the first I have heard of it. (and I'm not reading back 820 posts)

 

https://sanangelolive.com/news/business/2018-12-07/usgs-largest-ever-oil-and-gas-resource-potential-found-permian-basin

 

 

 

 

Nothing new people have been drilling this like crazy for the past several years. 

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Lagunamadre

Lagunamadre 1975

Posted
Posted
57 minutes ago, Dertyberd said:

Random question, office argument/conversation.  With tons of new technology, what percentage of dry holes are drilled today vs 2012ish? Co worker says it's around 25%.  Seems high. 

Way too high. I think about 80% of new drills these days are unconventional, which is more mining than exploring, while a whole lot of those wells lose money, ask Shell or Sanchez, very few are dry holes, I'd be shocked if it were anywhere above 2-3%. Assuming 20% of new drills are conventional vertical wells, say 25% of those are dry holes (total guess). Put those together, my guess would be that new drill dry holes are around 5-7%, with the vast majority being conventional wildcatting, which sadly has become a relic of the past. 

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Storm the Field

Storm the Field 5294

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25 minutes ago, Lagunamadre said:

Way too high. I think about 80% of new drills these days are unconventional, which is more mining than exploring, while a whole lot of those wells lose money, ask Shell or Sanchez, very few are dry holes, I'd be shocked if it were anywhere above 2-3%. Assuming 20% of new drills are conventional vertical wells, say 25% of those are dry holes (total guess). Put those together, my guess would be that new drill dry holes are around 5-7%, with the vast majority being conventional wildcatting, which sadly has become a relic of the past. 

Yeah, I had a client drill a dry hole recently but that's probably the only one I've heard of in all the years I've been writing title opinions. And that was specifically a case where they went into an area full of dry holes to test a different formation than had previously been drilled.

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Lagunamadre

Lagunamadre 1975

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14 minutes ago, Storm the Field said:

Yeah, I had a client drill a dry hole recently but that's probably the only one I've heard of in all the years I've been writing title opinions. And that was specifically a case where they went into an area full of dry holes to test a different formation than had previously been drilled.

Yep, same here. Had a client go try some unconventional technology on some old conventional formations in Jim Hogg. It did not work out too well (no pun). That's the last dry hole I can remember anybody in my orbit being involved in and that was several years back. 

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sunset87

sunset87 240

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59 minutes ago, Storm the Field said:

Yeah, I had a client drill a dry hole recently but that's probably the only one I've heard of in all the years I've been writing title opinions. And that was specifically a case where they went into an area full of dry holes to test a different formation than had previously been drilled.

Wow, that blows my mind, "that's probably the only one I've heard of in all the years I've been writing title opinions".  I've been in the conventional exploration business my entire career (a long time).  We still drill only conventional deals.  I would expect about a 20 to 30% rate of success depending upon the prospect (might be higher). So, there is a very good chance we will drill dry holes. Supposed to drill an exploration deal in the Spring (hopefully not dry).  And we operate in the Permian. I suppose that sounds even more outlandish.  That's been the norm for the majority of my career, it's just relatively recently that dry holes are considered "rare". Lmao...

It's crazy how much the industry had changed in the last 5 to 7 years.

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Neonmoon

Neonmoon 38129

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Posted
1 hour ago, Johnny Chimpo said:

Why is Chesapeake continuing to decline? I was under the impression they had made a good acquisition that was going to be accretionary to their cash flow. 

A couple of factors are working against them.

They hedged their gas so these high natty prices aren’t helping them. They just bought a huge oil only company to balance their portfolio and then oil tanked below 50. 

And jury’s out on if that was a “good acquisition”

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Dertyberd

Dertyberd 394

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11 hours ago, sullhorn said:

Economic dry holes or resource dry holes?

 

Resource, but maybe I need to get that clarification from him.  I did not agree with my coworkers argument.  

Part of the argument I was making is that there aren't the same amount of 'mom and pop' conventional/vertical wells being drilled, especially in Oklahoma now that it's legal for lateral wells to go out 2 miles.  The big boys drink all the milkshake, when in the past there was a lot more land around the horizontal wells to pick off profitable scraps.  Those cheaper vertical wells were much more risky than the big rigs, thus the success rate was lower.  Now a lot of that game has slowed. 

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Storm the Field

Storm the Field 5294

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15 hours ago, sunset87 said:

Wow, that blows my mind, "that's probably the only one I've heard of in all the years I've been writing title opinions".  I've been in the conventional exploration business my entire career (a long time).  We still drill only conventional deals.  I would expect about a 20 to 30% rate of success depending upon the prospect (might be higher). So, there is a very good chance we will drill dry holes. Supposed to drill an exploration deal in the Spring (hopefully not dry).  And we operate in the Permian. I suppose that sounds even more outlandish.  That's been the norm for the majority of my career, it's just relatively recently that dry holes are considered "rare". Lmao...

It's crazy how much the industry had changed in the last 5 to 7 years.

Well, to be fair, I don't get continual updates regarding the wells I write Opinions for, so I'm sure there have been others. This was just a case where they informed me that they no longer needed a Division Order Opinion b/c it turned out to be a dry hole and to just bill whatever time I'd spent. Luckily by that point I was like 95% done anyways, so no biggie.

Most of my clients over the years have been mid-majors that are primarily drilling well-known, established fields, so it's not like they're out there wildcatting. 

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Lagunamadre

Lagunamadre 1975

Posted
Posted
30 minutes ago, Storm the Field said:

Well, to be fair, I don't get continual updates regarding the wells I write Opinions for, so I'm sure there have been others. This was just a case where they informed me that they no longer needed a Division Order Opinion b/c it turned out to be a dry hole and to just bill whatever time I'd spent. Luckily by that point I was like 95% done anyways I was 70% done but billed that I was 95% done, so no biggie.

Fixed it for you 

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sunset87

sunset87 240

Posted
Posted
18 minutes ago, Storm the Field said:

Well, to be fair, I don't get continual updates regarding the wells I write Opinions for, so I'm sure there have been others. This was just a case where they informed me that they no longer needed a Division Order Opinion b/c it turned out to be a dry hole and to just bill whatever time I'd spent. Luckily by that point I was like 95% done anyways, so no biggie.

Most of my clients over the years have been mid-majors that are primarily drilling well-known, established fields, so it's not like they're out there wildcatting. 

That makes sense.  I wasn't trying to come across as snarky, but I have become a bit jaded by what's happened over the last several years. The business has become mostly manufacturing, run by PE companies with select "management teams", or stock companies.

There is still a niche for companies like ours, but it has become much more difficult and certainly not as much fun.

In other words...get off my lawn!

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