What's going to happen to crude oil

tgo

Old-Salt
Petrol in one of our rural locations is 94.9p Sadly i haven't had to buy any since March.

I used to get 25 mpg now I'm getting 3 months/Gallon.
 
Aye. I filled up two months ago, still got three quarters of a tank left.
If possible, I would suggest takin the car out every few weeks for a reasonable run to make sure the battery stays charged up and to ensure that condensation is cleared out of the fuel system.
 
Oil prices are showing a gradual recovery, with some optimism in the market. However, there is still a lot of concern about the world economy and about the prospects of a second wave of COVID-19, which could destroy demand again. Brent crude is at $32 atm.
 
It seems that the shale oil production is more robust and flexible in the face of oil market price adversity than most would predict. With the current crisis in full swing, analysts are already predicting the timing of the bounce back on the shale patch.

One of the most surprising comments is this:
"Stable WTI oil prices in the low- to mid-$30s are required to see this recovery in selected core acreage positions operated by producers with strong balance sheets,“ said Artem Abramov, Rystad Energy Head of Shale Research.

Until fairly recently, not many people imagined that shale producers could be viable below $50, although there were always highly productive sweet-spots, it was generally assumed that they were few and far between. With West Texas Intermediate already trading today at $33, this looks cautiously optimistic for the shale patch, and perhaps not so optimistic for our Middle Eastern friends.
 
It seems that the shale oil production is more robust and flexible in the face of oil market price adversity than most would predict. With the current crisis in full swing, analysts are already predicting the timing of the bounce back on the shale patch.

One of the most surprising comments is this:
"Stable WTI oil prices in the low- to mid-$30s are required to see this recovery in selected core acreage positions operated by producers with strong balance sheets,“ said Artem Abramov, Rystad Energy Head of Shale Research.

Until fairly recently, not many people imagined that shale producers could be viable below $50, although there were always highly productive sweet-spots, it was generally assumed that they were few and far between. With West Texas Intermediate already trading today at $33, this looks cautiously optimistic for the shale patch, and perhaps not so optimistic for our Middle Eastern friends.
Thank God for small miracles!
 
It seems that the shale oil production is more robust and flexible in the face of oil market price adversity than most would predict. With the current crisis in full swing, analysts are already predicting the timing of the bounce back on the shale patch.

One of the most surprising comments is this:
"Stable WTI oil prices in the low- to mid-$30s are required to see this recovery in selected core acreage positions operated by producers with strong balance sheets,“ said Artem Abramov, Rystad Energy Head of Shale Research.

Until fairly recently, not many people imagined that shale producers could be viable below $50, although there were always highly productive sweet-spots, it was generally assumed that they were few and far between. With West Texas Intermediate already trading today at $33, this looks cautiously optimistic for the shale patch, and perhaps not so optimistic for our Middle Eastern friends.
Note the phrasing of the statement:
Stable WTI oil prices in the low- to mid-$30s are required to see this recovery
They need prices to remain at least above the low to mid 30 dollar range. If prices drop below that again, or bounce up and down, then all bets are off.

in selected core acreage positions
Recovery will only happen in the best oil fields with the lowest operating costs.

operated by producers with strong balance sheets
Only companies with lots of cash in hand will be able to take advantage of this.

And this last one gets to the heart of the matter as mentioned by many oil industry analysts. A very large proportion of the oil companies involved in fracking are up to their ears in debt. Their ability to do all the fracking they have done in the past few years is more a factor of American financiers being willing to throw money at them rather than any ability of their own to finance growth out of cash flow.

Recent reports have said that already having been left holding the bag on a lot of fracking loans that will never be repaid, these financiers will be reluctant to throw money at the sector again for some time in the future.

There are wells that were already drilled and fracked that could be brought back into production in order to get cash flowing again. The question though is how many new wells are going to get drilled and fracked again from scratch. Fracked wells produce most of their output right at the start of production and then tail off fairly rapidly compared to conventional wells. If the producers don't continually drill and frack large numbers of wells, overall production could begin to decline fairly rapidly once that initial spurt of output is over.

So if these analysts are right, the oil fracking sector may climb back up off rock bottom once prices recover and stabilise, but it will involve a slower and more cautious expansion than seen in recent years.
 
Note the phrasing of the statement:

They need prices to remain at least above the low to mid 30 dollar range. If prices drop below that again, or bounce up and down, then all bets are off.


Recovery will only happen in the best oil fields with the lowest operating costs.


Only companies with lots of cash in hand will be able to take advantage of this.

And this last one gets to the heart of the matter as mentioned by many oil industry analysts. A very large proportion of the oil companies involved in fracking are up to their ears in debt. Their ability to do all the fracking they have done in the past few years is more a factor of American financiers being willing to throw money at them rather than any ability of their own to finance growth out of cash flow.

Recent reports have said that already having been left holding the bag on a lot of fracking loans that will never be repaid, these financiers will be reluctant to throw money at the sector again for some time in the future.

There are wells that were already drilled and fracked that could be brought back into production in order to get cash flowing again. The question though is how many new wells are going to get drilled and fracked again from scratch. Fracked wells produce most of their output right at the start of production and then tail off fairly rapidly compared to conventional wells. If the producers don't continually drill and frack large numbers of wells, overall production could begin to decline fairly rapidly once that initial spurt of output is over.

So if these analysts are right, the oil fracking sector may climb back up off rock bottom once prices recover and stabilise, but it will involve a slower and more cautious expansion than seen in recent years.
Of course, all of this is correct, some of which I pointed out already.
During the last downturn in 2015/16, a lot of the operators took advantage of the very lost cost of drilling at that time and kept drilling and capping wells. A percentage of those wells are in sweet-spots on the shale, and those operators that have chosen well, stand to come out on top. To bring those wells online, they will still have to frack them, but I fracking costs have never been lower than they are now - for obvious reasons. At the height of the shale boom, just about everything in the chain was tight on supply from water, through sand to pumps, rigs and operators, meaning that costs were commensurately high.

As you point out, finance is the main issue. I don't know how many operators have cash and how many don't, but I'm pretty sure there are some looking for an opportunity to buy up productive acreage from cash-poor companies for peanuts.

This business is far from dead.
 
Of course, all of this is correct, some of which I pointed out already.
During the last downturn in 2015/16, a lot of the operators took advantage of the very lost cost of drilling at that time and kept drilling and capping wells. A percentage of those wells are in sweet-spots on the shale, and those operators that have chosen well, stand to come out on top. To bring those wells online, they will still have to frack them, but I fracking costs have never been lower than they are now - for obvious reasons. At the height of the shale boom, just about everything in the chain was tight on supply from water, through sand to pumps, rigs and operators, meaning that costs were commensurately high.

As you point out, finance is the main issue. I don't know how many operators have cash and how many don't, but I'm pretty sure there are some looking for an opportunity to buy up productive acreage from cash-poor companies for peanuts.

This business is far from dead.
I have read analysts saying that a lot of the choicer oil fracking assets will be bought up by larger companies who have cash in the bank.

The fracking boom in the US has been led by smaller companies financed largely by debt. They pursued fracking because they lacked the size and financial resources to expand overseas or off shore while US production was declining.

According to these analysts many of these smaller companies will disappear, either bought up or liquidated. The larger oil companies remaining will be more driven more by bean counting than hope and faith, and will be more cautious about pouring money into oil plays that require high prices to be profitable.

There's a huge variation in operating costs between different fields. The more exuberant press reports will talk about costs being "as low as $x". That however is sort of like how certain package holiday companies will talk about seat prices "starting as low as $x", without mentioning that most of the places you want to go at the times of the year you want to go there actually cost a good deal more.
 
At the beginning of April I said that if COVID-19 keeps the protesters away then that might help getting new export oil pipelines built in Canada and the US.
(...) Actually if COVID-19 keeps the environmental protesters at home in the US, that might be of help in getting pipelines to the US done. The first one, Line 3, is already built up to the border, and they hope to get approval in the US in the June or July time frame. Construction in the US will take 6 to 9 months. Once that's running then capacity limits in Alberta will be eased, and prices to producers will go up. (...)
Well, it looks like the minister of energy in Alberta agrees with that sentiment. She recently said that pandemic social distancing restrictions will limit the sizes of gatherings, and so limit the size of protests. This apparently makes it "a great time to be building a pipeline". I guess that every cloud has a silver lining for someone.
Limits on gatherings make it a 'great time to be building a pipeline,' says Alberta energy minister
Alberta's energy minister says it's a good time to build a pipeline because public health restrictions limit protests against them. (...)

"Now is a great time to be building a pipeline because you can't have protests of more than 15 people," Savage said. "Let's get it built." (...)

Unprompted, Savage goes on to suggest the economic turmoil caused by the pandemic favours pipeline construction.

"People are not going to have tolerance and patience for protests that get in the way of people working," she said on the podcast, which was posted on the association's website.

"People need jobs, and those types of ideological protests that get in the way are not going to be tolerated by ordinary Canadians."
 

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