Why the OPEC Target of $100/bbl?

[william the wie]

Based ion market reactions at $60/BBL fracking will resume and given that the US is already exporting LNG that resumption price is going to go down.

 

[CrusaderFrank]

Typo...should be $10/barrell

 

[Mr. H.]

Based ion market reactions at $60/BBL fracking will resume and given that the US is already exporting LNG that resumption price is going to go down.

Can you expand on this a little more? As in, what did you just say?

 

[william the wie]

The breakeven point for oil from particular wells determines whether it continues or resumes pumping. The assumed breakeven point of fracked oil minus leverage was in the $80+/bbl range so when Bloomberg ran the numbers for 14 wells in the Eagle Ford without subtracting out leverage costs the results were very different from assumptions. The surviving rigs had breakeven points down to the high $20s, if memory serves. As fields and wells work through deleveraging avg breakeven points look like they will decline below $60/bbl due to economies of scale and scope. The more well-log data from the same field the lower the number of dry/expensive holes drilled.

As to LNG as long as sales price exceeds disposal costs for Natural Gas oil costs less and LNG plants make it possible to sell the gas on the world market.

 

[Mr. H.]

This is just because I haven't brotch-slapped you in a while... .

 

[waltky]

OPEC gonna cut back oil output...

OPEC agrees modest oil output curbs in first deal since 2008
September 28, 2016 - OPEC agreed on Wednesday modest oil output cuts in the first such deal since 2008, with the group's leader Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices.

"OPEC made an exceptional decision today ... After two and a half years, OPEC reached consensus to manage the market," said Iranian Oil Minister Bijan Zanganeh, who had repeatedly clashed with Saudi Arabia during previous meetings. He and other ministers said the Organization of the Petroleum Exporting Countries would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its current output at 33.24 million bpd. "We have decided to decrease the production around 700,000 bpd," Zanganeh said. The move would effectively re-establish OPEC production ceilings abandoned a year ago.

However, how much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia. Oil prices jumped more than 5 percent to trade above $48 per barrel as of 2015 GMT. Many traders said they were impressed OPEC had managed to reach a compromise after years of wrangling but others said they wanted to see the details. "This is the first OPEC deal in eight years! The cartel proved that it still matters even in the age of shale! This is the end of the ‘production war' and OPEC claims victory," said Phil Flynn, senior energy analyst at Price Futures Group.

Jeff Quigley, director of energy markets at Houston-based Stratas Advisors, said the market had yet to discover who would produce what: "I want to hear from the mouth of the Iranian oil minister that he’s not going to go back to pre-sanction levels. For the Saudis, it just goes against the conventional wisdom of what they’ve been saying.". Saudi Energy Minister Khalid al-Falih said on Tuesday that Iran, Nigeria and Libya would be allowed to produce "at maximum levels that make sense" as part of any output limits. That represents a strategy shift for Riyadh, which had said it would reduce output to ease a global glut only if every other OPEC and non-OPEC producer followed suit. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions earlier this year.

The Saudi and Iranian economies depend heavily on oil but in a post-sanctions environment, Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 percent this year, according to the International Monetary Fund. Riyadh, on the other hand, faces a second year of budget deficits after a record gap of $98 billion last year, a stagnating economy and is being forced to cut the salaries of government employees.

OIL PRICE PRESSURES

 

[william the wie]

From when I started this thread 5 months have passed and breakeven in the US oil patch is $40/bbl and more rigs running. What kind of compound interest rate is that 6.2% a month or thereabouts?

 

[waltky]

Granny says, "Dat's right - it's a buncha BS - dey just tryin' to gouge us atta pump while we fight dey's war fer `em...

David Petraeus: OPEC production cut is 'nonsense'
September 29, 2016 - One of the world’s most astute analysts of the Middle East doubts OPEC nations will cut oil production as they pledged to do on Sept. 28.

OPEC officials said the group of oil-producing nations would trim output by about 700,000 barrels per day, a pullback of about 2%. Global oil prices leapt on the news of the first OPEC output cut in eight years. US crude prices rose nearly 4%, to more than $47 per barrel. Don’t buy it, says retired Gen. David Petraeus, the former CIA chief and head of the Pentagon’s Central Command. “It’s nonsense,” he said of the promised production cut, at an Asia Society event in New York City on the evening of September 28th. “Oil prices never should have gone up. The Saudis will continue to pump. So will the Iraqis and the Libyans if they can.”

Petraeus is now a partner at the storied private-equity shop KKR, advising the investing firm on geopolitics and other global matters. At the Asia Society event, he noted that Saudi Arabia in particular is feeling the sting of collapsing oil prices. “The Saudis don’t have the money they used to be able to throw around,” Petraeus said. A production cut might boost oil revenue for Saudi Arabia and other OPEC nations, but only if new supply didn’t materialize from someplace else and push prices back down.

OPEC is a notoriously fragmented organization, with Saudi Arabia, the unofficial leader, losing the clout it once had to dictate how much oil other members would pump. Some OPEC members, such as Russia and Venezuela, have dysfunctional economies and are desperate for any revenue they can get. US shale production has flooded the market with new sources of oil and triggered the 60% plunge in prices that began in 2014, when oil peaked at nearly $110 per barrel.

Oil prices are notoriously volatile, and many analysts expect them to drift down toward $40 per barrel by the end of the year, perhaps reaching back up to $50 or a bit higher by the end of 2017. The biggest factor is tepid demand, with the world economy growing by barely 2%. Without stronger demand, OPEC members will be fighting for a smaller pie of oil revenue, perhaps proving Petraeus right sooner than markets realize.

David Petraeus: OPEC production cut is 'nonsense'

 

[william the wie]

Granny says, "Dat's right - it's a buncha BS - dey just tryin' to gouge us atta pump while we fight dey's war fer `em...

David Petraeus: OPEC production cut is 'nonsense'
September 29, 2016 - One of the world’s most astute analysts of the Middle East doubts OPEC nations will cut oil production as they pledged to do on Sept. 28.

OPEC officials said the group of oil-producing nations would trim output by about 700,000 barrels per day, a pullback of about 2%. Global oil prices leapt on the news of the first OPEC output cut in eight years. US crude prices rose nearly 4%, to more than $47 per barrel. Don’t buy it, says retired Gen. David Petraeus, the former CIA chief and head of the Pentagon’s Central Command. “It’s nonsense,” he said of the promised production cut, at an Asia Society event in New York City on the evening of September 28th. “Oil prices never should have gone up. The Saudis will continue to pump. So will the Iraqis and the Libyans if they can.”

Petraeus is now a partner at the storied private-equity shop KKR, advising the investing firm on geopolitics and other global matters. At the Asia Society event, he noted that Saudi Arabia in particular is feeling the sting of collapsing oil prices. “The Saudis don’t have the money they used to be able to throw around,” Petraeus said. A production cut might boost oil revenue for Saudi Arabia and other OPEC nations, but only if new supply didn’t materialize from someplace else and push prices back down.

OPEC is a notoriously fragmented organization, with Saudi Arabia, the unofficial leader, losing the clout it once had to dictate how much oil other members would pump. Some OPEC members, such as Russia and Venezuela, have dysfunctional economies and are desperate for any revenue they can get. US shale production has flooded the market with new sources of oil and triggered the 60% plunge in prices that began in 2014, when oil peaked at nearly $110 per barrel.

Oil prices are notoriously volatile, and many analysts expect them to drift down toward $40 per barrel by the end of the year, perhaps reaching back up to $50 or a bit higher by the end of 2017. The biggest factor is tepid demand, with the world economy growing by barely 2%. Without stronger demand, OPEC members will be fighting for a smaller pie of oil revenue, perhaps proving Petraeus right sooner than markets realize.

David Petraeus: OPEC production cut is 'nonsense'

My only disagreement with Petraeus is that he did not add in the LNG glut but he may have thought it pointless to try to explain that to liberal arts major journalists. It may be necessary to use very simple concepts with the modern MSM.