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$90 Oil Is A Very Real Possibility

$90 Oil Is A Very Real Possibility thumbnail Refinery

U.S. sanctions on Iran could push oil prices up to $90 per barrel later this year.

The first round of U.S. sanctions on Iran just took effect, a slew of measures targeting Iran’s currency and its financial sector. The U.S. sanctioned the trading of bank notes issued by the Iranian government, the trade of gold and precious metals, any transactions involving the Iranian rial, Iran’s sovereign debt and its automotive sector.

The sanctions will tighten the screws on the Iranian economy, and the measures have already sent the currency tumbling. However, the more important sanctions – targeting Iran’s oil exports – take effect in November.

There is still a wide range of possibilities for what is set to occur over the next three months in regards to the impact on production and exports. Originally, the Trump administration stated its desire to push Iran’s exports to “zero.” The subsequent spike in oil prices forced them to backtrack quite a bit.

But, the Trump administration has made it clear that it wants to cut off as much Iranian supply as the market can bear without sending prices up too much. Those are, in many ways, conflicting goals, but it likely means that a significant chunk of Iranian production will be disrupted.

“I don’t think the market has fully baked in losses over a few hundred thousand barrels [per day]. That’s where the price impact potentially would come in,” Richard Nephew, a senior research scholar at the Center on Global Energy Policy at Columbia University, told S&P Global Platts Capitol Crude on Monday.

“I think Iran will lose between 600,000 and 1 million barrels per day in exports, and that’s up from what I would have thought back in February,” he added, citing the Trump administration’s determination to push exports as close to zero as possible and the willingness from countries around the world to comply with American sanctions.

Meanwhile, U.S. shale is already slowing down, and, in fact, shale output might have been slowing much more significantly in recent months than previously thought. EIA data released last week showed only tepid growth in the Permian for May, whereas the agency had previously expected growth to be robust for that month. The pipeline constraints in the Permian are clearly already starting to bite.

In other words, the oil market could see a disruption in Iranian supply at the same time that U.S. shale output is slowing down. All the while demand continues to grow.

“As we go more towards (the fourth quarter) … that’s when we really see the risk of prices going well into the 80s and potentially even into the 90s but very critical is how much Iranian production we lose,” Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” on Monday. She expects Iran to lose between 1.2 and 1.5 million barrels per day by the end of the year compared to the April peak.

In the short run, oil prices received a lift on news that Saudi Arabia cut production in July to just 10.29 mb/d, down about 200,000 bpd from June levels. The unexpected reduction reportedly came in response to Saudi Arabia’s inability to find buyers for its oil at the price that it had wanted. Instead of offering a lower price, Saudi Arabia apparently decided to simply cutback on output.

The move was not anticipated but it is an indication that Riyadh is determined to keep prices somewhat elevated, and has no interest in letting them fall ahead of the implementation of sanctions on Iran. Instead, it seems that Saudi Arabia will try to calibrate production so as to keep prices within a desired range, tweaking output up or down in a given month to achieve market “balance.”

However, that could prove difficult if the Trump administration aggressively tries to disrupt Iranian supply. Saudi Arabia, Russia and a handful of other Gulf States can ramp up output to offset the declines from Iran, “but then you are running out of spare [capacity] for accidents,” Richard Nephew told Capitol Crude. “You’re running out of spare for Venezuela. You’re running out of spare for Libya. And that’s not a great place to be. I candidly think that that is also going to start affecting prices as well.”

By Nick Cunningham of Oilprice.com

 



19 Comments on "$90 Oil Is A Very Real Possibility"

  1. Cloggie on Fri, 10th Aug 2018 9:45 am 

    If the US blocks Iranian oil export, the Iranians announced they will block Saudi export.

    $90 would be a benign forecast in that case.

  2. Davy on Fri, 10th Aug 2018 10:33 am 

    The US is not blocking Iranian oil it is sanctioning Iranian oil. It is very unlikely an oil blockade would happen nor is it likely possible considering the geography and Iranian military capabilities. This talk is just extremist.

  3. Cloggie on Fri, 10th Aug 2018 11:34 am 

    New German solar car: “Sono Sion”

    http://www.spiegel.de/video/sono-sion-e-auto-mit-solarzellen-fuer-16-000-euro-video-99019704.html

    16,000 euro + 4,000 euro for battery.

    Special are the solar cells mounted to the the car, that can generate an extra range of 30 km on a sunny day (=6 hours walk).

    The car is somewhat WW3-compatible, if you will.

  4. Cloggie on Fri, 10th Aug 2018 11:38 am 

    The US is not blocking Iranian oil it is sanctioning Iranian oil. It is very unlikely an oil blockade would happen nor is it likely possible considering the geography and Iranian military capabilities. This talk is just extremist.

    The US navy is absolutely able to block ships with Iranian oil outside the Strait of Hormuz, nothing Iran can do about that.

    Just like the US army/navy is unable to stop Iran (literally) torpedoing oil shipment from the Gulf.

    The only extremists here are those who again are opting for a war of choice, based on lies, Eurasia no longer accepts.

    The EU, Russia and China and even the UK will continue to back the Obama deal.

    The US ignoring that will create a Eurasian front against the US.

    You can still back off.

  5. Cloggie on Fri, 10th Aug 2018 1:55 pm 

    Largest installed wind turbine is 8.i MW, Vattenfall, Scotland. Rotorblades 80m.

    Next generation is being prepared by GE France: 12MW, 100m rotor blades, sufficient to supply 16,000 households or a town of 40,000 people:

    http://www.spiegel.de/wissenschaft/technik/offshore-windraeder-stromversorger-planen-gigantische-windraeder-a-1220753.html

  6. Bloomer on Fri, 10th Aug 2018 2:33 pm 

    It’s likely China will gobble up Iran’s sanctioned oil. And market supply demand forces means they will get it at a discount.

  7. Davy on Fri, 10th Aug 2018 2:37 pm 

    Thanks neder, at least you contribute great info on wind and solar unlike our board trolls.

  8. Anonymouse1 on Fri, 10th Aug 2018 5:28 pm 

    RoFL. Cant make stuff like that up. Unless you you are…… THE exceptionalturd(tm). In which case, you can.

  9. MASTERMIND on Fri, 10th Aug 2018 5:36 pm 

    Iran can just smuggle their oil onto tankers..They do it all the fucking time in the middle east and elsewhere..go to tankertrackers.com and see for yourself..

    I swear the people on this site are so fucking dumb and uneducated..

  10. Davy on Fri, 10th Aug 2018 6:02 pm 

    aspergers last comment with intellectual content was…drum roll…:

    Anonymouse1 on Sat, 28th Jul 2018 2:02 pm

  11. JuanP on Fri, 10th Aug 2018 7:14 pm 

    Delusional Davy “Thanks neder, at least you contribute great info on wind and solar unlike our board trolls.”

    You do know that all those other personalities are still a part of you, right? LOL! Poor widdle Davy, he’s getting very confused!

  12. JuanP on Fri, 10th Aug 2018 7:19 pm 

    Delusional Davy “aspergers last comment with intellectual content was…drum roll…:
    Anonymouse1 on Sat, 28th Jul 2018 2:02 pm”

    I am happy to see that the board’s qualifier had things under control while I was gone! LOL! Where would this board be wothout contributions like his? I want to be the first one to thank you, Exceptionalist. Don’t think that nobody has thanked you in over five years for your moderation, balance, and comment qualification because we are not thankful. It’s just that we’ve been very busy! LOL!

  13. JuanP on Fri, 10th Aug 2018 7:31 pm 

    Delusional Davy “This talk is just extremist.”

    The board’s qualifier has rendered his judgment and brought balance to the board once more with his moderating. Thank you, Davy. You guys better stop being “anti-American extremist” and start showing some respect and gratefulness to the board’s moderator or else you will have to deal with his wrath. Be careful, he could try to get you deported, but don’t worry, he is a weak, impotent lunatic and is only dangerous to himself and those close to him.

    Send Davy to Guantanamo now! Are you listening, FBI! This guy is dangerous!

  14. Davy on Fri, 10th Aug 2018 7:35 pm 

    deport the ugly mooching resident alien back to his shithole little Uruguay where he belongs. I realize his family does not want him back but that is not our problem.

  15. makati1 on Fri, 10th Aug 2018 8:03 pm 

    Bloomer: “It’s likely China will gobble up Iran’s sanctioned oil. And market supply demand forces means they will get it at a discount.”

    I absolutely agree. If not China then others will step forth and buy the remaining. Maybe even Russia. Iran has too many powerful friends for American “sanctions” to work.

  16. MASTERMIND on Fri, 10th Aug 2018 8:46 pm 

    Mak

    China has a bigger problem than the trade war — a ‘mountain of debt’

    “Since 2008 China has been on this massive debt-fuelled binge,” McMahon says.

    “It has been fuelled by debt at every step of the way, to a point where now Chinese debt levels are in excess of those in the United States.”

    The biggest problem isn’t the overall levels of debt, McMahon says, but the pace at which it’s been accumulated.

    He says that around a decade ago, China’s debt levels were about 160 per cent of the size of its GDP.

    “Now it’s somewhere between 280 and 300 per cent,” he says.

    When other countries have accumulated debt that quickly, they have “almost invariably experienced a financial crisis”, McMahon says.

    “That’s like the United States before the sub-prime crisis, or Thailand before the Asian financial crisis,” he says.

    http://www.abc.net.au/news/2018-08-08/chinas-view-of-trumps-trade-war-is-massive-debt-a-bigger-problem/10055192

    Better find a new horse to plug..This one died at the gate..

    LMFAO!

  17. Cloggie on Sat, 11th Aug 2018 1:16 am 

    Rethinking single personal transport. Swiss-made Microlino will also get you where you want to be, energy-efficiently for 12k euro’s and 15 km/kWh:

    https://deepresource.wordpress.com/2018/08/11/microlino/

  18. Bob Inget on Sun, 12th Aug 2018 8:57 am 

    I’ll entitle this post: Follow the Money

    Top US shale oil fields decline rate reaches new record half million barrels per day
    Paper published by srsroccoreport. Spectacular graphs in the paper. Text only below.
    The constant and rapid increasing of the decline rate in 2018 must be alarming, no matter what: +26% in 8 months.

    https://srsroccoreport.com/top-u-s-shale-oil-fields-decline-rate-reaches-new-record-half-million-barrels-per-day/

    Top U.S. Shale Oil Fields Decline Rate Reaches New Record…. Half Million Barrels Per Day

    While the U.S. reached a new record of 11 million barrels of oil production per day last week, the top five shale oil fields also suffered the highest monthly decline rate ever. This is bad news for the U.S. shale industry as it must produce more and more oil each month, to keep oil production from falling.

    According to the newest EIA Drilling Productivity Report, the top five U.S. Shale Oil fields monthly oil decline rate is set to surpass a half million barrels per day in August. Thus, the companies will have to produce at last 500,000 barrels of new oil next month just to keep production flat.

    Here are the individual shale oil field charts from the EIA’s July Drilling Productivity Report:

    The figures that are shown above the UP arrow denote the forecasted new production added next month while the figures above the DOWN arrow provide the monthly legacy decline rate. For example, the chart on the bottom right-hand side is for the Permian Region. The EIA forecasts that the Permian will add 296,000 barrels per day (bpd) of new shale oil production in August, while the existing wells in the field will decline by 223,000 bpd.

    If we add up these top five shale oil fields monthly decline rate for August will be 503,000 bpd. Thus, the shale oil companies must produce at least 503,000 bpd of new oil supply next month just to keep production from falling. And, we must remember, this decline rate will continue to increase as shale oil production rises.

    We can see this in the following chart below. Again, according to the EIA’s figures, the top five U.S. shale oil fields monthly legacy decline rate increased from 398,000 bpd in January to 503,000 bpd for August:

    In just the first seven months of 2018, the total monthly decline rate from these top shale fields increased by 26%. These massive decline rates are the very reason the shale oil and gas companies are struggling to make money. A perfect example of this is PXD, Pioneer Resources. Pioneer is the largest shale oil producer in the Permian. According to Pioneer’s Q1 2018 Report:

    Producing 260 thousand barrels oil equivalent per day (MBOEPD) in the Permian Basin, an increase of 9 MBOEPD, or 3%, compared to the fourth quarter of 2017; first quarter Permian Basin production was at the top end of Pioneer’s production guidance range of 252 MBOEPD to 260 MBOEPD; as previously announced, freezing temperatures in early January resulted in production losses of approximately 6 MBOEPD; Permian Basin oil production increased to 170 thousand barrels of oil per day (MBOPD); 63 horizontal wells were placed on production.

    Pioneer spent $818 million on capital expenditures (CapEx) for additions to oil and gas properties (drilling and completion costs) during Q1 2018, brought on 63 horizontal wells in the Permian, and only added 9,000 barrels per day of oil equivalent over the previous quarter. So, how much Free Cash Flow did Pioneer make with oil prices at the highest level in almost four years?? Well, you’re not going to believe me… so here is Pioneer’s Cash Flow Statement below:

    Pioneer reported $554 million in cash from operations and spent $818 million drilling and completing oil wells in the Permian and a few other locations. Thus, Pioneer’s Free Cash Flow was a negative $264 million. However, Pioneer spent an additional $51 million for additions to other assets and other property and equipment shown right below the RED highlighted line for a total of $869 million in total CapEx spending. Total net free cash flow for Pioneer is -$315 million if we include the additional $51 million.

    Therefore, the largest shale oil producer in the Permian spent $264 million more than they made from operations drilling 63 new wells in the Permian and only added a net 9,000 barrels per day of oil equivalent. Now, how economical is that???

    How long can this insanity go on??

    If we look at the Free Cash Flow for some of the top shale energy companies in Q1 2018, here is the result:

    Of the ten shale companies in the chart above (in order: Continental, EOG, Whiting, Concho, Marathon, Oasis, Occidental, Hess, Apache & Pioneer), only three enjoyed positive free cash flow, while seven suffered negative free cash flow losses. The net result of the group was a negative $455 million in free cash flow.

    Even with higher oil prices, the U.S. shale energy companies are still struggling to make money.

  19. Robert Inget on Sun, 12th Aug 2018 9:08 am 

    Oh, BTW: Most oily shale fields are currently flaring almost all natural gas.
    In a few years there will be more energy flared than shipped to refineries, electrical generation, chemical plants.

    IOW’s w/o expensive pipelines for either oil or gas, flaring will slow to stop along with our economy.

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