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6 years ago
This meeting will pot ERY or ERX
June 22 summit may prompt changes to 18-month-old output-cut pact
The Organization of the Petroleum Exporting Countries will its 174th meeting on June 22 in Vienna.
The Organization of the Petroleum Exporting Countries can claim success in its roughly 18-month-old effort to curb production—easing a global glut of supply and raising oil prices.
What the oil producers decide to do next at their meeting on June 22 in Vienna, however, could largely erase that progress.
“OPEC countries will be contemplating production levels that could potentially tip the supply/demand balance currently in place, leaving crude oil pricing susceptible to oversupply,” said Ben Cook, portfolio manager at energy investment management firm BP Capital Fund Advisors.
“Great work has been achieved in coordinating OPEC and non-OPEC countries together to minimize global inventory levels,” he said. “Preserving that cooperation will be extremely tricky, given the higher oil price [and] revenue-generating environment that we find ourselves in today.”
OPEC, along with 10 big nonmember oil producers led by Russia, agreed in late 2016 to hold back crude production by about 1.8 million barrels a day beginning in 2017. The pact is set to expire at the end of this year. The compliance rate among OPEC members was 158% in May (meaning they cut 158% of the agreed-upon daily reductions), said the International Energy Agency.
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The agreement has been “successful in an unprecedented manner,” said Omar Al-Ubaydli, economist at think tank Derasat in Bahrain. “OPEC has never achieved such high levels of coordinated restraint.”
Still, even as crude production quotas “have served their purpose eliminating the inventory glut plaguing the market, real risks to global supply have materialized since the quotas were implemented,” said Cook.
OPEC-member Venezuela’s output has taken a hit on the back of an economic crisis, with the nation losing more than 1 million barrels a day of production in just over two years “due to mismanagement, chronic underinvestment, and corruption,” said the IEA.
U.S. plans to impose sanctions on oil exports from OPEC member Iran have also contributed to concerns over further involuntary declines in global production and supplies.
Those worries have prompted talk of possible increases in production. Saudi Arabia already raised output in May by 100,000 barrels a day, to just over 10 million barrels a day, though it still delivered more than 100% compliance with output cuts, according to the IEA.
“The Saudis and Russia want to raise production to keep oil from losing long-term market share to other energy sources,” said James Williams, energy economist at WTRG Economics. “The higher the price, the more substitution, increases in efficiency, and higher production growth in the U.S., all of which have a long-term impact on demand for OPEC oil.”
U.S. crude production is forecast to hit an annual record of 10.79 million barrels a day in 2018, according to the Energy Information Administration.
The June meeting will be “the most important gathering of OPEC ministers since the November 2014 meeting in which OPEC agreed to engage U.S. shale producers in a battle for market share,” said Cook.
Anas Alhajji, a Dallas-based energy-market expert, said public statements from oil producers so far point to the “continuation of the production-cut agreement, but with lower compliance.” Producers may also decide to “stick to the agreement as is, with [a] promise to increase production in case of shortages.”
In the event of an oil shortage, he added, the U.S. Strategic Petroleum Reserve will be “used first to mitigate the impact on prices” as “OPEC spare capacity will take time to arrive in the market.”
There’s also the possibility that OPEC may decide to eliminate output quotas entirely, said Cook. That could prompt Brent crude prices to drop $1 to $3 a barrel on the news, and gradually rise by $4 by year end. On Thursday, August Brent LCOQ8, -0.97% was trading just above $76 a barrel on ICE Futures Europe.
But under what Cook sees as the most likely scenario for the meeting, OPEC would decide to “modestly” relax production limits in order to acknowledge “the impact of falling production in Venezuela and sanction-related reduction in Iran.”
If that happens, Brent crude oil prices would likely stabilize at current levels, then rise $5 by year end, he says.
By relaxing quotas, OPEC would take care to “keep the market adequately supplied” but be “mindful of the significant progress in inventory reduction made over the last year and a half,” said Cook, “ultimately reserving the option to expand production should the market require it.”
zsvq1p
6 years ago
A reason that 46 could fill..
US Oil Firms Use Shale Know-How To Revitalize Old Oilfields
BURTON, Texas, June 14 (Reuters) - Among vineyards and cow pastures in east Texas last month, roughnecks started to drill in an oilfield that is 25 years past its production peak.
Houston-based oil producer Wildhorse Resource Development Corp tasked the crew with breathing new life into the field by using technology developed for fracking shale rock. In the limestone and clay Austin Chalk formation, which stretches across south Texas into central Louisiana, Wildhorse is among a growing group of U.S. producers opening a new front in the nation's energy revolution.
"The application of new technology to older plays is a winning bet," Drew Cozby, Wildhorse's finance chief, said in an interview.
After shale producers pushed U.S. oil and gas output to all-time highs, some are now taking what they have learned to fields that until recently were considered played out.
If they are successful, the U.S. energy boom could find another gear as producers find profitable ways to extract the billions of barrels of oil remaining in older fields.
Production from the Austin Chalk jumped to 57,000 barrels per day (bpd) last year from 3,000 bpd five years ago and up 50 percent from the previous year, according to consultancy Wood Mackenzie, which expects rapid production gains to continue.
The number of drilling rigs in the Austin Chalk has doubled in the past six months to 14, according to data from energy researcher DrillingInfo.
Heavyweights ConocoPhillips, Marathon Oil Corp and EOG Resources Inc have leased land or drilled here in the past year.
Other non-shale plays getting fresh attention include the Meramec in Oklahoma and the Central Basin Platform in Texas.
Devon Energy Corp is one of the biggest producers in the Meramec, where it plans to boost output to 140,000 bpd by the end of the year from 107,000 bpd at the end of 2017.
In the Central Basin Platform in the Permian oilfield, smaller producers such as Ring Energy Inc have begun investing heavily, hoping to rejuvenate an area that first produced nearly a century ago. There is no publicly available data on Meramec and Central Basin's total production.
Many of the tools developed to unlock vast shale reserves are working in these different geological settings - including longer wells, steerable drilling technology, complex mixtures of sand and chemicals and the hydraulic fracturing of bedrock.
"These fringe areas, like the Austin Chalk, could be the next big thing," said Bernadette Johnson of DrillingInfo.
More oil from Austin Chalk and other similar fields could push U.S. production to fresh records. Shale producers have for several consecutive years outstripped government forecasts, taking U.S. output to a record 10.5 million bpd in March.
Even without innovations such as those under way in the Austin Chalk, the government predicts nearly 12 million bpd by late next year.
"This is something that people haven't baked into the supply side yet," said Jeremy Gottlieb, who has helped finance companies bringing shale technology to inexpensive, older fields. "This is going to take people by surprise."
New Tech, Old Fields
Wildcatters first pumped oil from the Austin Chalk nearly a century ago, but output reached its peak in the early 1990s even though the formation still contains about a billion barrels of crude, according to U.S. government's Geological Survey.
That is not unusual. Oil producers have historically extracted less than half the oil from any particular field because the rest has not been accessible at a profit.
That is changing in fields like the Austin Chalk.
Based on test wells and modeling techniques, Conoco believes long, horizontal wells with multiple fracks - a technique used often in shale fields - will deliver strong results from its acreage in the Austin Chalk.
"What we were seeing with some of the newer technologies work really well in the Austin Chalk," Conoco Chief Executive Ryan Lance told Reuters.
Some wells they have fracked in the Austin Chalk have produced more prolifically than shale wells. Wildhorse's newer Austin Chalk wells produced more than three times the initial output of wells at the Eagle Ford shale field, the company said this month.
EOG also said an Austin Chalk well it drilled this year in Texas produced nearly 3,000 bpd in its first month, more than twice the first month rate of a shale well it had completed in the Permian during the same period.
The field's proximity to Gulf Coast refiners and export ports make it that much more attractive, she said. Rising oil prices have also increase the number of potentially profitable plays.
Some portions of the Austin Chalk also sit on top of the Eagle Ford shale field, allowing drillers to potential extract oil from multiple layers and types of rock.
"It's a stacked play," said Johnson, of DrillingInfo.
Louisiana Revival
Land is still cheap in the formation, which has helped lure more producers. Conoco leased its land for less than $5,000 an acre. That compares with as much as $75,000 an acre in the Permian Basin in West Texas and New Mexico, the center of U.S. shale drilling and its largest oilfield.
About 350 Austin Chalk drilling permits were approved in the last 16 months, a nearly four-fold increase from the previous 16-month period, according to DrillingInfo.
Analysts say they expect more activity to spread to the Louisiana portion of the play. There are 3,500 Austin Chalk horizontal wells in Texas, but only 32 in Louisiana, according to Wood Mackenzie.
Louisiana is counting on the Austin Chalk developments to revive the state's declining oil output, which fell 11 percent last year to 40.4 million barrels, the lowest level since 1945.
That might stop the drain of oil workers to Texas, said Gifford Briggs, head of the Louisiana Oil and Gas Association, an industry trade group.
Oil industry employment in the state fell 4 percent in the past year despite a rise in commodity prices, largely due to workers leaving to develop Texas shale fields, according to U.S. government data.
"It's an opportunity for some of our workers to stay in state," Briggs said.
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