Oil price discussion and analysis

[waterbottle]

Infrastructure requires maintenance.

Is that the actual cause or assumed?

 

[divs4ever]

well Nordstream 2 and the branch that the Ukraine helpfully made safe , won't be maintained , you can bet on that ,
i am guessing the line to Finland ( does it carry on to Sweden ?? ) won't get a lot of servicing either

and MAYBE Russia will have to create some workarounds for worn-out parts that are sanctioned so that could take some time

 

[over9k]

Is that the actual cause or assumed?

Actual

 

[Smurf1976]

Yes but why? Oil output was expected to fall with self imposed EU sanctions

The nature of the oil and gas business is that you have to keep running in order to stand still. It has a lot in common with trying to run up an escalator that's going the wrong way, it's actively fighting against you.

Drill a well, put it on production and out comes oil or gas. Then as pressure drops and water cut rises oil production falls off. You need to keep up the effort in order to maintain flat production, it's not like say a house where once you've built it it deteriorates only very slowly.

Then there's all the infrastructure that needs ongoing maintenance.

Stop putting resources into it and that's akin to standing still on the escalator. You're going straight back down starting immediately.

Now in a country that's at war and which has seen a fairly widespread suspension of trade with others, it's rather difficult to keep up an uninterrupted effort at the oil fields. Doubly so when they're struggling to sell it all anyway such that production won't be a national priority.

 

[over9k]

The nature of the oil and gas business is that you have to keep running in order to stand still. It has a lot in common with trying to run up an escalator that's going the wrong way, it's actively fighting against you.

Drill a well, put it on production and out comes oil or gas. Then as pressure drops and water cut rises oil production falls off. You need to keep up the effort in order to maintain flat production, it's not like say a house where once you've built it it deteriorates only very slowly.

Then there's all the infrastructure that needs ongoing maintenance.

Stop putting resources into it and that's akin to standing still on the escalator. You're going straight back down starting immediately.

Now in a country that's at war and which has seen a fairly widespread suspension of trade with others, it's rather difficult to keep up an uninterrupted effort at the oil fields. Doubly so when they're struggling to sell it all anyway such that production won't be a national priority.

Also worth noting that if you do nothing it can/will fall apart to the point where it *cannot* be repaired and you have to start the whole process again from scratch.

 

[waterbottle]

Yeah, I'm not buying it until I see some evidence...

EU can't even get a ban on Russian oil, plans to keep consuming it for the next few years, but will allow supply lines to fall apart because?
Meanwhile, Russia, dependent on the exportation of commodities to keep its economy floating, will intentionally stop pumping oil/maintaining infrastructure because?
And the cherry-on-top, we have evidence that India & China continue to purchase Russian oil.

Too many questions. Answers being replaced by speculation.

 

[waterbottle]

More weakness from the EU... looks like they're aiming for price caps rather than an outright ban

Weltwirtschaftsforum: Habeck wirbt für einen Öl-Höchstpreis

Die großen Ölverbraucher-Staaten sollen sich auf einen Höchstpreis einigen, zu dem sie Öl kaufen – das schlägt der deutsche Wirtschaftsminister in Davos vor. Er ist nicht der Einzige.

www-faz-net.translate.goog

 

[over9k]

Yeah, I'm not buying it until I see some evidence...

EU can't even get a ban on Russian oil, plans to keep consuming it for the next few years, but will allow supply lines to fall apart because?
Meanwhile, Russia, dependent on the exportation of commodities to keep its economy floating, will intentionally stop pumping oil/maintaining infrastructure because?
And the cherry-on-top, we have evidence that India & China continue to purchase Russian oil.

Too many questions. Answers being replaced by speculation.

The EU doesn't maintain their network and neither does the russian government specifically. It was western companies that went into russia (schlumberger, halliburton etc) and they have all gone.

The EU is set up in such a way that member states have veto rights. It was the eastern states like hungary and poland that said no, but they didn't even say no outright, they said "not yet".

India and china are purchasing the oil at a steep discount and they do not have the pipeline network running into them that europe does.

 

[Smurf1976]

Too many questions. Answers being replaced by speculation.

Or simply an observation of what actually happens in pretty much any country that's at war.

It's not a coincidence that the all time peak for UK coal production was the year immediately prior to the outbreak of WW1 for example. Once the war started, they just couldn't keep up the effort at the coal mines and never recovered.

Plenty of examples for all this. USSR itself was one - once it fell apart, oil production fell in a heap and has thus far not fully recovered. When you see someone say that production is at a record high, they mean a post-collapse high, not a real all time high. The actual high was in the late-1980's at about 12 million bpd , collapsing to a low of about 6 million bpd by 1994 and beginning a recovery from the year 2000 onward. In the following 20 years it never exceeded or even matched the highs of the 1980's however. It came close but didn't actually get there according to most data sources.

Oil by its nature requires constant investment to maintain even flat production. Stop that investment and production slides. Even worse in a country such as Russia where production's near peak anyway according to government projections.

Same reason the US hasn't returned to the oil production levels of early 2020 thus far. Amidst the Covid situation and oil price collapse, oil drilling and related work decreased dramatically with the end result being production capacity decreases. Now it requires a sustained sprint to recover.

 

[Mohammed Hazabig'un]

USD
U.S. Baker Hughes Oil Rig Count
Act: 574 Cons: Prev.: 576

USD
U.S. Baker Hughes Total Rig Count
Act: 727 Cons: Prev.: 728

 

[waterbottle]

I wonder if this hit piece was written in response to the commentary from Goldman Sachs RE:lithium.

Citi: Oil Is Overvalued By $50 Per Barrel | OilPrice.com

Brent crude, trading Wednesday at over $116 per barrel, should be closer to $70, according to Citi’s global head of commodity research, Ed Morse

oilprice.com

 

[Garpal Gumnut]

I wonder if this hit piece was written in response to the commentary from Goldman Sachs RE:lithium.

Citi: Oil Is Overvalued By $50 Per Barrel | OilPrice.com

Brent crude, trading Wednesday at over $116 per barrel, should be closer to $70, according to Citi’s global head of commodity research, Ed Morse

oilprice.com

I'd agree with the assessment that the POI is overvalued.

Once the fat lady takes off her hajib and sings, the show will be over, for this round.

MSB is smarter than the average MBA, and will want to keep the US oil industry guessing between the need to ramp up or down.

gg

 

[waterbottle]

Anyone have a link to the OPEC meeting? I can't seem to get access to their webcast

 

[waterbottle]

OPEC agrees to hike output by 648k barrels/d, 50% increase in agreed output!



This will be interesting... Russia is obviously still able to supply some purchasers (China + India), and now oil supply is increasing via "legitimate" means... One would expect price of oil to fall (particularly as it has been driven by speculation RE: tightening supply).
It would also mean that inflation would also be expected to fall, ergo rate hike pathway should not be too prolonged.
And finally, a third interesting development is the continuation of Resource Nationalism, where we now have Russia serving China & India (as they too export to Russia), and the West further pulling away from Russia and China (not yet India).

That's assuming we don't get another pandemic or global/regional war....

 

[divs4ever]

OPEC agrees to hike output by 648k barrels/d, 50% increase in agreed output!



This will be interesting... Russia is obviously still able to supply some purchasers (China + India), and now oil supply is increasing via "legitimate" means... One would expect price of oil to fall (particularly as it has been driven by speculation RE: tightening supply).
It would also mean that inflation would also be expected to fall, ergo rate hike pathway should not be too prolonged.
And finally, a third interesting development is the continuation of Resource Nationalism, where we now have Russia serving China & India (as they too export to Russia), and the West further pulling away from Russia and China (not yet India).

That's assuming we don't get another pandemic or global/regional war....

BUT the price of oil ( except to 'friendly nations ' ) is priced in US dollars so MOST of the big oil customers are trapped in a system that limits acceptable sources of oil ( China and India can buy off whoever they please )

the increase in crude ( to Western customers ) is straight BS and will not happen soon ( remember that oil glut not so long back , where dozens of tankers were floating around waiting for a port to off-load )

oil production is not done by switching on a turbocharger and just filling up a tanker or two

Europe's Energy Suicide | Peak Prosperity

Europe banned all Russian oil. About 40% of their energy needs come from Russia. This is not just self-destructive, it's energy suicide.

peakprosperity.com

 

[divs4ever]

one might also point out that with the latest round of sanctions and asset seizures Europe and the US risk being seen as unreliable customers

 

[qldfrog]

one might also point out that with the latest round of sanctions and asset seizures Europe and the US risk being seen as unreliable customers

And OPEC /oil producing nations change.Europe via uk/north sea fields used to be a huge non OPEC producer..,oil now gone..same for our own domestic production here in Oz
So who else can counter OPEC cartel.. Russia? Venezuela? All good friends of the west

 

[divs4ever]

from memory BPT is sitting on a few undeveloped wells , while NHC ( through Bridgeport Energy ) has upped output ( but probably not enough to shift the dial even inside Queensland )

MAYBE Australia has a little bit of reserve capacity if the price and government forces align ( am not so sure about the current government policy on that )

ALSO Australia is an energy exporter , so we could turn back time and start building a new refinery or two for local consumption

 

[Smurf1976]

OPEC agrees to hike output by 648k barrels/d, 50% increase in agreed output!

On this one I'll reserve judgement.

Not arguing it's wrong or right, only that I'm unconvinced they can actually do it sustainably (versus a temporary release from storage).

 

[divs4ever]

On this one I'll reserve judgement.

Not arguing it's wrong or right, only that I'm unconvinced they can actually do it sustainably (versus a temporary release from storage).

yes i have been watching those dips into strategic reserves as well , however many years back a friend alerted me the fact crude oil ( above ground ) tends to go 'stale' after a while and needs to be used within a reasonable amount of time

in years gone by i noticed the US strategic reserves were discreetly sold down and refreshed in the resultant dip , providing a predictable buying dip ( for selected oil stocks )

i am wondering if this year all that really happened was that such a reserve sell-down was publicized to fit a political agenda

( sadly no ' dip opportunities' have appeared for me this year )