Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Tropical Storm Nate is going to future reduce crude oil supply as it shuts down some production in the Gulf of Mexico. This comes as Russian President Vladimir Putin says he is in favor of extending the OPEC/ NON-OPEC productions as we see more signs that U.S. shale oil output will fall back even as overall U.S. production is at a two-year high right now. And according to a report, Iran, Iraq and Turkey will be working as a group to shut down Kurdish oil exports after the region elected to seek independence from Baghdad in a referendum in September. Kurdistan produces about 600,000 barrels of oil per day.
Nate is not a major storm but it is still nasty. Offshore oil and gas operators in the Gulf of Mexico are evacuating platforms and rigs in preparation for Tropical Storm Nate. The Bureau of Safety and Environmental Enforcement (BSEE) said that the “Hurricane Response Team “is activated and monitoring the operators’ activities. They report that based on data from offshore operator reports submitted as of 11:30 CDT yesterday it was estimated that approximately 14.55 percent of the current oil production in the Gulf of Mexico has been shut-in, which equates to 254,607 barrels of oil per day. It is also estimated that approximately 6.42 percent of the natural gas production, or 206.71 million cubic feet per day in the Gulf of Mexico has been shut-in.
Reuters reports that BP and Chevron were shutting production at all platforms, while Royal Dutch Shell and Anadarko Petroleum suspended some activity. Exxon Mobil, Statoil and other producers have withdrawn personnel.
Nate is also in sites of the Louisiana Offshore Oil Port, one of the most important fuel handling facilities in the Gulf of Mexico, said on Friday that it had suspended operations. The BSEE say that after the storm has passed, facilities will be inspected. Once all standard checks have been completed, production from undamaged facilities will be brought back on-line immediately. Yet it will still impact inventory number this week and next.
What Vladimir Putin wants, Vladimir Putin gets. Putin favoring an extension of production cuts means that it is a done deal. If Russia and Saudi are on board the deal will get done. MarketWatch reports that Saudi King Salman is currently on a visit to Moscow, a first for a Saudi monarch. Saudi Arabia, a heavyweight member of the Organization of the Petroleum Exporting Countries, and non-OPEC member Russia, were expected to discuss a possible extension of production cuts.
Shale Slowdown. The shale slowdown, that Energy Report Readers knew was coming, is becoming more mainstream thinking. The Wall Street journal reports that “U.S. Shale Juggernaut Shows Signs of Fatigue Forecasts that abundant American oil can permanently meet global needs may be ‘myth,’ company leaders warn.
The Journal writes the pace of innovation that allowed shale drillers to maintain production even as prices fell appears to be slowing, experts say. The cost of labor and services, meanwhile, is rising in the most popular oil fields, driving up drilling expenses. And companies are facing a backlash from investors, who have grown weary of drillers focusing on growth over profit and insist they live within their means.
“There’s always a lot of exuberance,” said Robert Clarke, an analyst with energy consulting firm Wood Mackenzie. “But then something happens that kind of puts the brakes on.”
Future oil production is notoriously difficult to predict, and a surge in prices could certainly improve the economics of American shale. But a growing chorus of oil industry leaders, including some shale trailblazers, believes U.S. growth may peak sooner than government forecasters think—a development with ramifications for global oil markets. In recent years, shale production has reliably filled any voids in world supply, effectively taming volatile price gyrations. Potential limits to shale growth call into question predictions that this trend will continue.
“There are no new shale plays that have come forward,” said Mark Papa, chief executive of Centennial Resource Development Inc. and former CEO of EOG Resources Inc. “Their ability to spew forth infinite streams of oil is really just a myth.” A Must Read
Reuters reports that the Saudis are afraid of no shale. U.S. shale oil coming to the market is not a concern, Saudi Energy Minister Khalid al-Falih said on Thursday, adding that demand will absorb it. “Shale coming in and happening again in 2018 doesn’t bother me at all. The market can absorb it,” he said, speaking at an energy forum in Moscow. Falih said oil demand was healthy around the world, and there was a steady reduction in global oil inventories. The rebalancing of oil inventories is well under way, he said. The recovery in oil markets has helped other commodities, he added. Falih also said that Saudi Arabia was looking at investments in India.
This is a great time to be looking at long-term bullish oil. Last quarter for oil the beast in years. This quarter could do even better.
Questions? Ask Phil Flynn today at 312-264-4364
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