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Extreme Supply Outages Prevent Oil Prices From Crashing


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Extreme Supply Outages Prevent Oil Prices From Crashing

By Nick Cunningham - Aug 22, 2019, 6:00 PM CDT

The oil market is facing a near-term supply deficit, despite the growing cracks in the global economy and stagnant oil demand. At the same time, the market is poised for a major surplus next year.

The combination of the OPEC+ cuts, the worsening supply disruptions in Iran and Venezuela, and a slowdown in U.S. shale have all helped to tighten up balances. The second half of 2019 could see a rather significant pace of inventory drawdowns, erasing some of the glut.

In fact, the degree of uncertainty and risk to global oil supplies is staggering, and the sheer number and volume of production outages around the world would have historically sent oil prices skyrocketing. OPEC is keeping 1.2 million barrels per day (mb/d) offline, Venezuela has lost around 1 mb/d relative to 2017 levels, and Iran’s exports have fallen by more than 2 mb/d since the re-introduction of sanctions last year. Meanwhile, tanker attacks and high tensions in the Persian Gulf put even more supply at risk.

Iran’s oil exports have fallen as low as 450,000 bpd, according to July figures. However, U.S. State Department’s special representative for Iran, Brian Hook, said that the export figure is likely down to about 100,000 bpd, close to the “zero” level that he has been targeting. “We have effectively zeroed out Iran's export of oil,” Hook said during a press briefing in New York. “I can't overstate the significance of this accomplishment.” Harsh U.S. sanctions have effectively blocked Iranian oil exports, but they have also exacted a major human toll on the Iranian population, as the economy suffers and hospitals struggle to find adequate supplies.

The precise oil export numbers offered by Hook differ from other sources, but either way, exports are significantly down from the roughly 2.5 mb/d of exports from early 2018.

Iranian President Hassan Rouhani warned that international waterways “can’t have the same security as before” if Iran’s oil exports were completely forced to zero. “So unilateral pressure against Iran can’t be to their advantage and won’t guarantee their security in the region and the world,” Rouhani added. Related: Hong Kong Billionaire Loses $20 Billion In Canadian Oil Sands

“In the meantime, the short term market balance has been tightened slightly by the reduction in

supply from OPEC countries,” the IEA said in its August Oil Market Report. “If the July level of OPEC crude oil production at 29.7 mb/d is maintained through 2019, the implied stock draw in 2H19 is 0.7 mb/d, helped also by a slower rate of non-OPEC production growth.”

In short, the market is in a situation where supply is already in a state of deficit, and geopolitical risks put even more barrels at risk. And yet, oil prices languish.

That is because even as many analysts see a supply deficit, weak demand seems to keep catching forecasters by surprise. In the first half of 2019, demand only grew by 0.6 mb/d, which was largely the result of the 0.5 mb/d increase in China. In other words, outside of China, oil demand barely grew at all.

U.S. oil inventories fell in the latest EIA release, which seemed to offer some small evidence backing up the notion that the market is in a deficit and will continue to draw down inventories. However, the bullish impact was offset by an increase in gasoline stocks. “The inventory report was tarnished by unexpected increases in oil product stocks: gasoline stocks rose by 312,000 barrels while distillate stocks even grew by 2.6 million barrels,” Commerzbank said in a note. “Gasoline stocks normally fall at this time of year due to high seasonal demand.”

“Just a few weeks before the end of the summer driving season, gasoline stocks are a good 4% up on the long-term average – i.e. at a comfortable level,” Commerzbank added. That has resulted in weaker-than-expected refining margins, which in fact, are at their worst since February.

“Refineries are likely to respond by reducing their processing rate, which had risen again last week. A significant decline can be expected here in the coming weeks. The resulting lower demand from refineries could cause US crude oil stocks to rise again,” Commerzbank said. Related: U.S. To “Drown The World” In Oil

Meanwhile, the slowdown in U.S. shale can be interpreted in different ways. Lower oil prices, financial stress and investor skepticism have forced spending cuts. That has begun to translate into slower growth, contributing to a tighter oil market – or, at least, tighter than things might have been otherwise. In Texas, well completions fell by 12 percent in the first seven months of 2019 compared to the same period a year earlier. Year-on-year production growth slowed to 1.65 mb/d in May, down from a peak of 2.1 mb/d in August 2018.

But production is still growing by quite a lot. “We expect non-OEPC production growth (YOY) of 1.8mb/d for 2019e and 1.9mb/d for 2020. These are very high non-OPEC growth rates in an historical

context, but significantly below the record-high 2.8mb/d growth (YOY) in 2018,” DNB Bank said in a report.

The 1.8 mb/d supply growth from non-OPEC this year stands in sharp contrast to the expected increase in demand of just 0.8 mb/d, according to DNB. OPEC+ cuts have been required to keep the oil market from an utter meltdown, including deeper-than-required cuts from Saudi Arabia, and harsh U.S. sanctions on Venezuela and Iran.

The market may see temporary drawdowns in inventories in the coming months due to extraordinary supply outages, but non-OPEC supply growth and demand grinding to a halt means that the surplus is still set to return in 2020.

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US To Sell 10 Million Barrels Of Crude Oil From SPR Next Week

By Julianne Geiger - Aug 22, 2019, 3:00 AM CDT

The US will sell another 10 million barrels of sour crude oil, the Department of Energy said on Wednesday in a Notice of Sale, according to S&P Global Platts.

The Department of Energy will be accepting offers to purchase the crude through August 28, and  delivery must be taken between October 1 and November 30.

The 10-million-barrel offering is the latest in a series of SPR sales under a mandatory sales program that seeks to sale 260 million barrels through 2027, and is not part of conscious act to influence the markets.

The SPR holds 645 million barrels of crude oil, 395 million of which is of the sour variety.

The US has periodically sold off part of the SPR, the last of which was in March. Marathon Petroleum, Motiva, and Phillips 66 together purchased 4.32 million barrels for $285.7 million.

Earlier this year, questions were raised about the quality of the SPR after ExxonMobil complained that the crude oil it purchased from the SPR in 2018 contained high levels of hydrogen sulfide. It was not the first company to complain about the issue, with Shell, Macquarie Group, and PetroChina all raising similar concerns. The Department of Energy disputed the claims.

The previous concerns as to the quality may give SPR shoppers pause this time around, as high levels of hydrogen sulfide pose risks to refinery equipment and to humans.

The US is now considering leasing SPR space to Australia, and is also contemplating shuttering at least one of its SPR storage sites and changing the ratio of sweet to sour crude oil. A study is now underway to determine the wisest course of action.

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Pompeo: US Sanctions Took 2.7 Million Bpd Of Iranian Oil Off The MarketOil tankers

At a time when oil markets are particularly sensitive to anything that might signal weak demand for oil now or in the future, US sanctions on Iran has effectively taken nearly 2.7 million barrels of oil per day out of what is perceived as an oversupplied market, U.S. Secretary of State Mike Pompeo said on Tuesday in an interview with MSNBC.

Pompeo claims that the US Government was confident that it could continue with its maximum pressure campaign on Iran that has stifled the Middle Eastern country’s oil exports.

“We have managed to take almost 2.7 million barrels of crude oil off of the market, denying Iran the wealth to create their terror campaign around the world, and we have managed to keep the oil markets fully supplied,” Pompeo said on Tuesday.


Refinitiv Eikon data shows that Iran’s crude oil and condensate exports fell to 120,000 barrels per day in July, according to Reuters. The true measure of its exports, however, remains a mystery, as there are no official accounts that track its exports. Iran now considers its oil exports a hush-hush matter, according to Hassan Soleimani, editor in chief of IRGC-affiliated Mashregh newspaper, who said the way Iran evades sanctions to “sell our oil and how we move the money is now the country’s most vital and sensitive information.”

While its exports may be shrouded in secrecy, its production figures are somewhat less so, thanks to its OPEC membership. Iran does not provide directly reported figures to OPEC, but according to OPEC’s secondary sources, Iran’s July oil production was 2.21 million bpd. Iran’s average daily production for all of 2018 was 3.55 million bpd.

OPEC is still curbing its production in an effort to rebalance the oversupplied oil market, and any additional export decreases from Iran will assist OPEC in its efforts to bolster prices.i

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U.S. Is Now Largest Oil… And Gas Producer In The World

By Tsvetana Paraskova - Aug 20, 2019, 4:00 PM CDT

Petroleum and natural gas production in the United States jumped by 16 percent and 12 percent, respectively, in 2018, setting new production records and placing the United States as the world’s single largest producer of oil and natural gas, the Energy Information Administration (EIA) said on Tuesday.

The U.S. had already surpassed Russia as the world’s biggest natural gas producer back in 2011.

Last year, the United States beat Saudi Arabia to become the single largest petroleum producer, the EIA said, noting that “Last year’s increase in the United States was one of the largest absolute petroleum and natural gas production increases from a single country in history.”

While Saudi Arabia is bound by the OPEC+ production cut pact and has been curbing its oil production, eager to prop up prices, U.S. shale production has surged over the past two years, also supported by the higher oil prices that the OPEC deal has brought.

Crude oil production in the U.S. jumped by 17 percent in 2018, setting a new production record of almost 11.0 million bpd, with the Permian contributing to most of the production growth, the EIA said.  

This year, however, the U.S. shale production has been growing at a slower pace amid lower oil prices as companies scale back drilling plans and budgets as investors clamor for more returns.

U.S. shale producers need to slow down this production growth and focus more on capital discipline in what is an oversupplied market, Continental Resources’ Harold Hamm said last week.

In its latest Short-Term Energy Outlook (STEO) earlier this month, the EIA sees U.S. shale’s monthly production growth slowing at least until 2020, averaging 50,000 bpd a month from the fourth quarter of 2019 through the end of 2020, down from average growth of 110,000 bpd a month from August 2018 through July 2019. Despite the growth slowdown, the EIA still expects U.S. crude oil production to set record production levels in 2019 and 2020, at 12.3 million bpd and 13.3 million bpd, respectively.   

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Do the math people.  If the US sells just 1 million barrels of oil a day x 365 days you can see the economic power of the American oil businesses.  This doesn’t include LNG which is also a huge part of our petrochemical industry.  Who is funding the Democrats, Russia, China, Iran?  Probably all 3 and a few more.  


Now a question.  Why should America be the only country to get rid of their Petrochemical industry?  What are you going to replace it with Bernie?  Why do you never hear the Dems going after Russia’s, SA, Iran, Venezuela’s, Libya’s, Nigeria’s, Qatar, Kuwait, Norway, Britain, Brazil, Iraq, etc etc oil businesses.  The Dems only rail about OUR Oil Companies.  Bernie and the Dems are Socialists hell bent on ruining America’s 


I would like to see Bernie bring that Green Deal BS to Texas.  I’m thinking it would not play to well for old Bernie.  Don’t Mess with Texas or its livelihood.  

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Russia’s Breakeven Oil Price Falls To Decade Low

By Tsvetana Paraskova - Aug 22, 2019, 9:30 AM CDT

Amid internal and external economic uncertainties, Russia keeps a conservative budgeting policy and has its 2019 budget break even at an Urals price of $49.20 a barrel, the lowest breakeven price in over a decade, Alexandra Suslina, a budget specialist at the Economic Expert Group, told Bloomberg on Thursday.

Urals, Russia’s key export grade, currently trades at $56.80 a barrel.

Probably worried by the effect of the sanctions on Russia and anemic economic growth, Russian President Vladimir Putin continues to keep a tight financial policy, Danske Bank strategist Vladimir Miklashevsky told Bloomberg.  

Russia doesn’t need oil prices to be too high and sees the $60-65 a barrel price—the price at which Brent Crude currently trades—as “quite satisfactory,” Putin said in early June, a month before OPEC and the Russia-led non-OPEC group of producers rolled over their production cuts into March 2020.

“The Russian processing industry itself is not interested in very high oil prices. Well, the average price around 60-65 dollars per barrel is quite satisfactory, we don’t need to drive up [price] to the top, we already have a decent margin, in terms of budget,” Putin said in June.

A month later, the Russian president admitted that economic realities including the volatile international oil prices are among factors interfering with the Russian government’s economic program.

Russia’s budget for this year is based on an average price of US$40 per barrel of crude as Moscow continues its cautious budgeting approach after the fallout of the 2014 price crisis. Saudi Arabia, on the other hand, needs oil at US$80-85 per barrel to break even this year.

In fact, for Russia, the oil price level that would suit Middle Eastern producers could be prohibitively high as it would weaken demand for the commodity that, together with natural gas, makes up as much as 40 percent of federal budget revenues.

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 Trump has already helped them get started on their green new  deal in Iran and Venezuela by stopping production and export of oil Thru sanctions but does he get any credit NO! Those two countries have already shown what happens to an economy without oil. Anyone with common sense can see what happens to a nation when you take fossil fuels out of the equation. 

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