OIL PRICES - 2018: VOLATILE
Real OPEC and Russian output will break Algiers (1.8 million barrels off the world market until September). Price range to $62.50 WTI high in the first half of the year and $38.65 at end of the second half or one year from today; 2019 would resemble most of 2015.
There is a second threat to price and production in the Southwest and Dakota. Hedge funds invested in public or listed companies want share buy-backs or dividends. In short, they want to make money now as opposed to operators sinking more cashflow into new production projects. The conflict inside Hess is the first example.
Traditional oil operators are 5-year business planners for returns on investment while the new private equity owners or investors are quarterly or payback pressure points for higher stock market share prices and distribution. OPEC/Russia is the external market threat leading to the lower price range alongside an internal investor/owner threat of less cash flow plow back for future production projects and more for short-term return on investment.
Oil price and production will also reflect Saudi Arabian domestic instability over its simultaneous offensive against Iranian influence in the Middle East and social and economic modernization against traditionalism. The plan is for less dependence on oil exports with technology and manufacturing in the national economy: social change and the status of women in the "revolution."
President Trump and oil and gas policy chief Secretary Ryan Zinke will complete the massive deregulation implementation with the so-called methane rule tabled in response to industry self-initiation of methane curtailment or elimination in air emissions.
This would be a response to state government substitution for the objectives of the Paris Agreement on Climate Change which the Trump Administration rejected. Democratic state governors of oil and gas producing states will be under party pressure to follow California's Governor Brown's state and local substitution for United States participation.
Trump-Zinke have established oil and gas "world domination" as American policy and eliminated the "dependence" since 1973 as a pervasive consensus.
American oil and much less natural gas exports have displaced OPEC and Russian foreign mainly as a deterrent to Russia and an alternative to the Middle East. If exports of oil are nearly 2 million bpd, how much of that is displacement of OPEC-Russia under the production cut-back agreement, and how much will OPEC-Russia recover when world oil balancing allows them to produce at market?
The Obama Federal Lands policy will have been rejected and BLM implementers replaced. Nuclear energy should be stabilized and coal burning power replaced by natural gas under market conditions. Changes and reforms in royalty determinations on federal land for oil and gas should reflect market reasonableness as opposed to the politics and climate change bias.
The State of New Mexico's Delaware Basin oil reserve study from the United States Geological Service (USGS) should be completed with 23-25 billion barrels of oil.
This will be larger than the Texas part of the Permian Basin and will deliver revenues to state and local governments accordingly. However, the price of WTI oil will determine the size of those revenues. With oil averaging $44 per barrel, the low cost or prolific wells are the "sweet spots" and Chevron, for example, will endure the low end of prices with its refining capacity. The Delaware will look better on the balance sheet than Venezuela or offshore in the Gulf of Mexico outside the U.S.
There will be a new Governor-elect and an energy policy review. Oil and gas energy in New Mexico benefited from the Governor Susana Martinez "all of the above" energy policy which rejected the previous Governor's alternative fuel/conservation efforts (dependency and climate change objectives). Her energy policy and its oil price recovery success should be a substantial part of the election voting mix.
The San Juan Basin natural gas in the Mancos Shale will generate an upward recovery in the Four Corners. A technological revival of coal-bed natural gas is taking place. Strike the world "declining" from a description of the San Juan Basin in 2018.
Natural gas prices are not determined by the factors discussed (above). New markets for natural gas exports from the Delaware Basin (gas associated with oil) and the San Juan Basin will emerge. Storage and weather remain a dominant variable. LNG for American export is here with geopolitical opportunity, for example, the future of world-dominant supply from Qatar caught between Saudi Arabia and Ukraine.
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U.S. EIA - Energy companies’ free cash flow—the difference between cash from operations and capital expenditure—was $119 billion for the four quarters ending June 30, 2018, the largest four-quarter sum during 2013–18 Companies reduced debt for seven consecutive quarters, contributing to the lowest long-term debt-to-equity ratio since third-quarter 2014
OPEC - Total oil demand for 2018 is now estimated at 98.82 mb/d. In 2019, world oil demand growth is forecast to rise by 1.41 mb/d. Total world oil demand in 2019 is now projected to surpass 100 mb/d for the first time and reach 100.23 mb/d.
ARAB NEWS - Oil exports from southern Iraq are heading for a record high this month, two industry sources said, adding to signs that OPEC’s second-largest producer is following through on a deal to raise supply and local unrest is not affecting shipments.
PLATTS - The International Energy Agency expects the US to account for 75% of the global growth in natural gas exports over the next five years, a bullish outlook for LNG developers facing challenges at home getting projects off the ground and abroad with tariffs affecting trade flows.