Oil Prices Now

[peakbagger]

My guess is we are looking at similar cyclical curve for non conventional oil as there was for natural gas. Interposed on this is the big unknown of the worldwide response to climate change and how it impacts fossil fuels. The Biden plans are a Green New Deal version that means a reduction in fossil fuels. If Europe and the US are on roughly the same bandwagon they can impose punitive carbon surcharges on other countries like China to force carbon reduction.

Natural gas used to cycle "like clockwork" until directional drilling and fracking made a gas glut. The price would creep up, drillers would start drilling new wells based on high prices, that would take 12 to 18 months for the new production to come on line and then the prices would start going down due to new supply. The rigs would pull out because the prices were low and then supply would drop which would raise prices and the cycle would start all over again. Fracking and uncoventional drilling will do the same, rigs will pull out and get auctioned investors will lose money but if the prices rise some other firms will head back into the field and start drilling, eventually it will make a dent in supplies and the prices will drop and the cycle will begin again. The big game changer is the US prior to this new unconventional recovery wasn't in the game so we were dependent on supporting some pretty nasty regimes.

 

[ABMax24]

Figure I'll bring this thread back to the top. Amazing how things have changed in the last year, looking back at my own posts I was right about much of what I posted, except Keystone XL, dead wrong on that. Oil prices are way up, WTI was at $68 last I checked, and lots of room for it to run yet, I don't see how oil won't hit $100 by the end of the year.

 

[clancey]

Like you but I think it will go over even that amount for more reasons than one...clancey

 

[ABMax24]

WTI broke $70/barrel today.

What's interesting is rig counts in the US and Canada are roughly half of what they would traditionally be given current oil prices. The US will have to further rely on imported oil, the question is will OPEC+ continue to open the taps to make up the difference? Or will they maintain current production and drive up prices for higher profits?

 

[EatenByLimestone]

Prices will go up.

 

[vinny11950]

WTI broke $70/barrel today.

What's interesting is rig counts in the US and Canada are roughly half of what they would traditionally be given current oil prices. The US will have to further rely on imported oil, the question is will OPEC+ continue to open the taps to make up the difference? Or will they maintain current production and drive up prices for higher profits?

I don't think the capital is available to the smaller drillers to just keep on drilling. 10 years ago, capital just plowed into the sector. Now not so much. The lenders have tightened their lending standards to the industry. Also, the Anadarko merger was a big mistake for Occidental, as they overpaid for an asset right before the price collapsed.

Add to this the hype of the EVs, and lenders will be wondering if the price will maintain 5 years out when they need to be paid.

 

[begreen]

WTI broke $70/barrel today.

What's interesting is rig counts in the US and Canada are roughly half of what they would traditionally be given current oil prices. The US will have to further rely on imported oil, the question is will OPEC+ continue to open the taps to make up the difference? Or will they maintain current production and drive up prices for higher profits?

The US exported more petroleum than it imported for the first time in at least 70 years

https://www.energy.gov/eere/vehicles/articles/fotw-1189-june-7-2021-us-net-petroleum-imports-negative-2020

www.hearth.com

 

[EatenByLimestone]

The hype over EVs are why the price will stay up.

The politicians dont gave any incentive to increase supply. Expensive gas will get more people to buy an EV.

 

[ABMax24]

I don't think the capital is available to the smaller drillers to just keep on drilling. 10 years ago, capital just plowed into the sector. Now not so much. The lenders have tightened their lending standards to the industry. Also, the Anadarko merger was a big mistake for Occidental, as they overpaid for an asset right before the price collapsed.

Add to this the hype of the EVs, and lenders will be wondering if the price will maintain 5 years out when they need to be paid.

I agree, the days of small oil producers are over. We experienced that here years ago, the vast majority of our small producers have disappeared, even the mid-sized ones are now merging or being bought out. Part of me believes the lack of new development is a strategic business decision, would you rather sell half as much oil for double the price, or spend billions to produce double the oil to sell at half the price? I know what I'd pick out of those two.

IMO EV's aren't yet playing into the 5 year time horizon, manufacturers can't get enough of them on the roads in 5 years to make a significant impact, 10 years might be a different story.

 

[ABMax24]

The US exported more petroleum than it imported for the first time in at least 70 years

https://www.energy.gov/eere/vehicles/articles/fotw-1189-june-7-2021-us-net-petroleum-imports-negative-2020

www.hearth.com

Current data tells a different story, looks like the US is back to being a net importer, or at best breaking even.

U.S. Imports & Exports

 

[blades]

problem with those evs in quanity is the grid can't support them. power companies are not particularly fond of improvements unless someone else is footing the tab.

 

[peakbagger]

Most utilities are monopolies that supply power as regulated utilities. They are by law effectively cost plus. if the state wants them to spend money on something, they are guaranteed a profit. If they are told to upgrade the grid to be EV friendly by the state that regulates them, they will gladly do so as they are guaranteed a profit on that expenditure. They will not do it on their own unless the states rate setting board agrees. Many utilities no longer produce power, they just move it around and sell it to a customer. If the price of power they purchase goes up they just mark it up and sell it to the consumer.

 

[SpaceBus]

Most utilities are monopolies that supply power as regulated utilities. They are by law effectively cost plus. if the state wants them to spend money on something, they are guaranteed a profit. If they are told to upgrade the grid to be EV friendly by the state that regulates them, they will gladly do so as they are guaranteed a profit on that expenditure. They will not do it on their own unless the states rate setting board agrees. Many utilities no longer produce power, they just move it around and sell it to a customer. If the price of power they purchase goes up they just mark it up and sell it to the consumer.

There's some kind of attempted referendum happening in Maine right now to try and get a bill through that will force Versant and CMP owners to sell their assets and have them managed by a publicly elected body. I kind of doubt it will happen, but I think Mainers are scared after watching what happened to Texas, who has a similar method of regulation.

 

[peakbagger]

I am watching the Maine legislative debate closely, I dont think its a referendum yet but no doubt if the legislature votes to proceed there could be one. Both CMP and Versant are an ideal setup, they get guaranteed profits on buying power wholesale and reselling it to retail customers. Investors like that as its money in the bank no matter how bad the economy is as everyone needs power. Their labor, management and infrastructure costs are kept under the regulated side of the business so every dime they spend is a guaranteed profit. Sure they can commiserate with the rate payers when the power rates are high but the higher the power cost they buy, the more they make. Mixed in with that is the ability to set up separate operating entities that are non regulated like CMP is doing with the Clean Power Connect transmission line project in western Maine . CMP set up the CPC project as a subsidiary that is not regulated by the PUC, their return on equity is significantly higher on CPC but those profits are kept in a separate pool for the investors, they are not subsidizing the retail customers with the profits from CPC, they just throw enough crumbs to the state for using transmission facilities and right of ways long since bought by the ratepayers that the state lets it happen. The bet is southern New England does not want wind turbines and solar farms in their backyard if they can get the relatively poor neighboring states host the facilities that is their choice. So both companies are banking on being able to set up ways of sidestepping the regulated side of the business and planning on running more transmission lines on the non regulated side.

If the state sets up publicly owned utility, there are no investors, projects like CPC go right back in the pot to reduce rates. The problem is the devil is in the details, a large publicly owned utility is ripe for the picking by politicians, they want their paws in it. The proposed entity is claimed to be an independent of state government but it can become the 800 pound gorilla in the room. Hydro Quebec has that reputation in Quebec province where they were big enough that they were calling the shots politically in the province.

 

[CaptSpiff]

.......when the power rates are high but the higher the power cost they buy, the more they make.

Great fact based post as usual, however I do not think the above statement is true.
Here on L.I. the utility buys power at wholesale rates which swing significantly thru out the day and season, but the retail price charged via the tariff (analysed several times in-year) has been remarkably stable. There is a monthly Fuel Price Adjustment added on the monthly bill to keep the Utility from needing to make published tariff rate adjustments in-year. Some months it's a credit and some it's a debit. A major function of this monthly adjustment is to prevent the "wholesale price" from becoming a big profit center. Otherwise they would have no incentive to buy at the lowest cost.

 

[begreen]

IMO EV's aren't yet playing into the 5 year time horizon, manufacturers can't get enough of them on the roads in 5 years to make a significant impact, 10 years might be a different story.

Agreed, it will take a while for the impact to be noticed. The US government is the largest institutional consumer of oil in the world. When their procurements change the impact will be notable. Also, increasing pressure on the plastics industry will start having an impact as new legislation gets passed constricting single-use plastics and requiring greater producer responsibility for plastic waste.

 

[ABMax24]

Agreed, it will take a while for the impact to be noticed. The US government is the largest institutional consumer of oil in the world. When their procurements change the impact will be notable. Also, increasing pressure on the plastics industry will start having an impact as new legislation gets passed constricting single-use plastics and requiring greater producer responsibility for plastic waste.

I know the US government is pushing toward renewables and EV's, but I'm not sure how the military will reduce it's carbon footprint, it takes lots of JP-8 to keep the planes in the air, and a bunch more DFM to keep the destroyers and other ships moving.

As for plastics there may be some decrease in oil demand, but at least at our petrochemical plants the majority of plastics are made from natural gas. What I'm curious about is what will be done with agriculture, particularly fertilizers, without converting much more un-disturbed land to agriculture it's very difficult to get away from synthetic fertilizers while still feeding the global population.

 

[peakbagger]

The point where it get real interesting is when folks buying

I know the US government is pushing toward renewables and EV's, but I'm not sure how the military will reduce it's carbon footprint, it takes lots of JP-8 to keep the planes in the air, and a bunch more DFM to keep the destroyers and other ships moving.

As for plastics there may be some decrease in oil demand, but at least at our petrochemical plants the majority of plastics are made from natural gas. What I'm curious about is what will be done with agriculture, particularly fertilizers, without converting much more un-disturbed land to agriculture it's very difficult to get away from synthetic fertilizers while still feeding the global population.

The Us Military is actual spending a lot of money on bio based fuels. There are plenty of options, they are just not cheap.

 

[ABMax24]

The Us Military is actual spending a lot of money on bio based fuels. There are plenty of options, they are just not cheap.

I'll believe it when I see it, in 2012 there were big promises to have a significant portion of military aviation fuel be bio-based by 2016, that never materialized.

As time goes on I become more and more skeptical of biofuels, the amount of land required to grow enough fuel to make a sizable difference in energy supply is staggering. Quite frankly I have no desire to see more land cleared for farm land, particularly if it is being used for fuel. I look at the US ethanol industry, ethanol corn is grown on millions of acres of land, much of which the long term sustainability of is highly questionable, especially considering the use of herbicides, pesticides and synthetic fertilizers, just to eek out a measly 2.1-4:1 (depending on the study) energy return. If the goal is to subsidize corn farmers its a great plan, but the side effect is corn prices are now directly tied to oil prices (price of ethanol rises and falls with the gasoline it is blended with), which allows farmers to offset higher fuel prices, but also increasingly ties the price of food with the price of oil, which further correlates the CPI (consumer price index) with oil prices.

 

[EatenByLimestone]

How would the price of food not be tied to oil? Mechanization gets it in the ground, mechanization harvests it. Mechanization gets it to the grocery store.

The only way to change that is if everybody has a victory garden.

 

[ABMax24]

How would the price of food not be tied to oil? Mechanization gets it in the ground, mechanization harvests it. Mechanization gets it to the grocery store.

The only way to change that is if everybody has a victory garden.

Absolutely it is, to a point. But when $4/bushel corn becomes $7/bushel corn, because that's what ethanol plants can afford to pay, it has a compounding effect on top of the increased costs of transportation. When gasoline prices drop so do ethanol prices, sometimes to the point that these ethanol plants shut down temporarily because it costs more to produce than the ethanol is worth.

I understand that ethanol isn't the only user for corn, but it is close to 40% of demand in the US, and has a pretty significant influence on pricing.

 

[SpaceBus]

Corn for fuel is definitely a problem, but I am not convinced carbon neutral bio fuels will be such an issue. Corn just doesn't have the yield that some other feedstocks do, like the algae, wheat grass, etc.

 

[paulnlee]

Once upon a time we were energy independent , like two years ago

 

[SpaceBus]

Once upon a time we were energy independent , like two years ago

This country is a net producer, but market forces choose to import some energy rather than deplete domestic reserves just to say we can.

 

[bholler]

Once upon a time we were energy independent , like two years ago

Although the official numbers aren't out yet many indicators say we still are. And if we are not it is due to the fact that production was cut due to low demand during the pandemic and demand has now increased but production hasn't caught up yet. Not because of any policy changes.