Friday, September 25, 2015

#Iran's Next Challenge: Courting #Oil Investors

Iran is preparing to formally open up its economy to Western investment, a prospect that has drawn the attention of the world's biggest oil companies. But Tehran may have more difficulty reviving its oil and natural gas sector than it hopes. On Sept. 24, the organizers of the Iran Oil and Gas Summit announced that the event would be delayed until February 2016. Originally set for Dec. 14-16, the London conference is important because it will officially mark the start of Iran's economic reintegration with the rest of the international community. At the summit, Iran plans to unveil the final draft of its new petroleum contract, which is expected to lay out significantly more attractive investment terms for international oil companies than seen in previous models.
The conference, delayed for the fourth time, will now align more closely with the expected timetable for the easing of sanctions outlined in the Iranian nuclear deal, known formally as the Joint Comprehensive Plan of Action, released in July. According to that schedule, sanctions will probably be lifted sometime during the first quarter of 2016. Because the sanctions have prohibited Western companies from participating in Iran's oil and natural gas sector for several years, their removal is key to Iran's goal of bringing its production and exports back online. But even if the West eases sanctions and Iran successfully attracts the interest of major international energy companies, as will likely happen, Tehran will struggle to meet its long-term goal of producing 6 million barrels of oil per day. 
Read the whole analysis on Stratfor here: Iran's Next Challenge: Courting Oil Investors

Monday, September 21, 2015

The #Shale Delusion: Why The Party’s Over For U.S. Tight #Oil |

#Opec/ #SaudiArabia has so far won in maintaining market share as U.S. Tight oil production declines, and "with #Iran poised in early 2016 to add almost as much oil as the amount of the U.S. production decline to date, the outlook for tight oil producers could not be worse."

The shale delusion: Why the party is over for U.S. tight oil

An employee works on oil pumping gear, also known as nodding donkeys or pump jacks, at an oil plant operated by MND AS in Uhrice, Czech Republic, on Monday, March 23, 2015. Oil rose as the dollar weakened for a third day, making commodities priced in the U.S. currency more attractive to investors. Photographer: Martin Divisek/Bloomberg
The party is over for tight oil. Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies. Reports this week from IEA and EIA paint a bleak picture for oil prices as the world production surplus continues.

The EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.”

IEA made the point more strongly.

“..the latest price rout could stop US growth in its tracks.”

In other words, outside of the very best areas of the Eagle Ford, Bakken and Permian, the tight oil party is over because companies will lose money at forecasted oil prices for the next year.

Global supply and demand fundamentals continue to worsen
IEA data shows that the current second-quarter 2015 production surplus of 2.6 million barrels per day is the greatest since the oil-price collapse began in 2014 (Figure 1).

Screenshot 2015-09-18 11.47.50

EIA monthly data for August also indicates a 2.6 million barrel per day production surplus, an increase of 270,000 barrels per day compared to July (Figure 2).

Screenshot 2015-09-18 11.48.08

It further suggests that the August production surplus is because of both a production (supply) increase of 85,000 barrels per day and a consumption (demand) decrease of 182,000 barrels per day compared to July.

The world oil demand growth picture is discouraging despite an increase in U.S. gasoline consumption (Figure 3).

Screenshot 2015-09-18 11.49.48

World liquids year-over-year demand growth has fallen by almost half from 2.3 percent in September 2014 to 1.2 percent in August 2015. This is part of overall weak demand in a global economy that has been severely weakened by debt.

The news from both IEA and EIA is, of course, terrible for those hoping for an increase in oil prices.

U.S. production has fallen 510,000 barrels of crude oil per day since April 2015 while OPEC production has increased 1.2 million barrels per day since the beginning of the year (Figure 4). U.S. production increases in the first quarter of 2015 were partly because of an oil-price rally that ended badly this summer, and because of new projects coming on-line in the Gulf of Mexico.

Screenshot 2015-09-18 11.50.22

It appears that OPEC is winning the contest with U.S. tight oil producers to see which can continue to over-produce oil at low prices. IEA ended its September Oil Monthly Reportsaying,”On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, “inefficient” production.”

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