In the stormiest market environment for crude oil in many years, it’s hard to find a spot where the sailing is smooth. If even-keel conditions exist anywhere in the oil-producing world today, it might be the offshore Gulf of Mexico, where producer decisions to invest in new platforms or subsea tiebacks are based on very long-term oil-price expectations and the production, once initiated, is steady. In the second half of the 2010s, Gulf producers significantly reduced the average breakeven prices needed to justify their most promising new investments — from more than $55/bbl back in 2015 to less than $35/bbl today. Given what’s happened to crude oil prices the past few days, however, it’s logical to wonder whether any of even the best prospective Gulf of Mexico projects will be sanctioned this year. Today, we discuss how cost-cutting and efficiency improvements have made the offshore Gulf a comparatively steady, growing base of U.S. crude oil production that so far has been less vulnerable than shale output to oil-price gyrations.
Posts from Bob Tippee
New U.S. liquefaction trains and export terminals have added LNG to an oversupplied global market. International gas prices are at their lowest levels in several years, price spreads between the U.S. and destination markets have collapsed and — to make matters even worse — a coronavirus pandemic threatens to undermine LNG demand growth. U.S. LNG exports nevertheless have been increasing with each new liquefaction train that comes onstream, though, mostly because their long-term offtake contracts make cargo liftings relatively insensitive to global prices. The question is, will dire global market conditions somehow undo U.S. LNG production growth? Today, we discuss highlights from our new Drill Down Report on the future of U.S. LNG exports.
It’s a new world, folks. The Saudis and Russians, who until a few days ago had been trying to prop up crude oil prices through supply management, are now engaged in an all-out war for market share. Crude oil prices are sharply lower. Three weeks ago, West Texas Intermediate was selling for $53/bbl and Western Canadian Select for $37/bbl; yesterday, they were selling for $34/bbl and $22/bbl, respectively. And things may get worse. All this has profound implications for North American production, but the effects on production in U.S. shale plays versus the Canadian oil sands will be very different. Today, we explain how the oil sands provide steady-as-she-goes baseload supply through pricing peaks and valleys while U.S. shale plays serve as a global swing supplier.
Oil-production restraint by OPEC and 10 cooperating countries grows more challenging with time, and just when market projections began to hint at relief for the OPEC-Plus group, the spread of the new coronavirus in China and beyond became a sudden and possibly serious impediment to global economic growth and oil demand. Yesterday’s slide in crude oil prices amid newly heightened concern about the potential pandemic’s effects will only add to the challenges that OPEC-Plus countries will face in managing crude supply. So far, the OPEC-Plus group has achieved unprecedented compliance with its production ceilings, which it implemented in January 2017 and has adapted a few times since in response to market pressure. That effort has kept the crude price above the ruinous levels of 2015, memories of which have encouraged quota discipline. But the threat of a major, coronavirus-related slowdown in global oil demand could seriously undermine OPEC-Plus’s efforts, which already had been hurt by dissent within its ranks. Today, we continue our series with a look at Monday’s price drop, the latest supply and demand forecasts and a discussion of the obstacles that might affect OPEC-Plus going forward.
U.S. shale oil production and exports have contributed to global oversupply in recent years, which, in turn, has amplified pressure on OPEC to implement production cuts to keep crude oil prices from collapsing to untenable levels. That’s led to an agreement among most OPEC countries and nearly a dozen other non-member producing countries — together known as OPEC-Plus — to limit production, an accord that’s remained in place since January 2017. However, oversupply conditions now are also prompting U.S. oil and gas producers to pull back on their planned capital expenditures for 2020, suggesting a slowdown in U.S. production growth later this year and into 2021. Recent global oil supply and demand forecasts by the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC itself suggest that such a slowdown, if it materializes, could present a window of opportunity for OPEC-Plus to relax its quotas and potentially reclaim some of its lost oil market share, at least for a time. Today, we examine what the recent changes in monthly data from IEA, EIA and OPEC indicate about potential shifts in the OPEC versus non-OPEC oil supply and demand balance and what that could mean for OPEC’s role in meeting global demand.
In the global crude oil market, at least some degree of coordinated management of supply has been the norm since the end of World War II. From the mid-1940s to the early 1970s, the cabal of oil companies known as the Seven Sisters jointly managed production to keep crude prices at levels that accommodated their interests. Then it was OPEC’s turn. More recently, the efforts to keep supply from overwhelming demand — and help prevent oil prices from crashing — have been led by a combination of OPEC and some other major producers, including Russia. U.S. shale producers — who’ve contributed significantly to the global supply growth in recent years — have both benefited from this supply management and partially thwarted it by continuing to increase production to offset cuts by “OPEC-Plus.” But a projected slowdown in U.S. production growth in 2021 may change these market dynamics. Today, we begin a short blog series on global oil supply and demand trends, supply management efforts by OPEC-Plus, and what it all means for OPEC, U.S. producers and the broader oil market.
Fear about supply interruption isn’t the frantic force it used to be in the crude oil market. A deadly confrontation that might have pushed the U.S. and Iran to the verge of war raised the spot Brent crude oil price to above $70/bbl early in the week of January 6. Despite continuing regional concerns, the price quickly subsided. By January 13, Brent spot had fallen to $64.14/bbl, its lowest point since December 3. Before the Shale Era, a U.S.-Iranian face-off may well have launched Brent crude to well over $100/bbl as oil traders blew fuses over the heightened possibility of disruption to Persian Gulf oil production and transportation. There’s nothing like adequacy of supply, globally dispersed, to keep things calm — or at least calmer than they would have been if the U.S. and Iran had drawn so much sword a dozen years ago. In this blog, we’ll discuss where U.S. crude exports have been heading, how close the oil gets to strategically touchy areas, and whether the market still has reason to worry about disruption to oil supply.