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Mass media / Periodicals

The oil market: "black swans" and "white crows"

"Oil of Russia" 04.10.2019 at 14:18

During Russia's energy week (REN), the new energy Minister of Saudi Arabia Prince Abdul Aziz bin Salman reported full restoration of the country's extractive capacity to 11.3 million barrels./day. The Saudi Prince confirmed the statements made by Saudi Aramco on restoring production after an attack drones on September 14 at the oil infrastructure in the area of Hail and on the field Khurais.

Rapid recovery of production in the Saudi Kingdom was the cause of the fall in oil prices below the level at which they were before September 14.

the REDUCTION of the RESERVES IN SAUDI ARABIA

However, according to several sources, the current production capacity of installations for processing of oil in the Hail is only 4.9 million barrels./day. against 5.5 million barrels./day. before the attack, and on the field Khurais – 1,3 million Barr./day. against 1.5 million barrels./day.

According to the company Ursa, which monitors industrial facilities with the help of space satellites, to perform contractual obligations Saudi Aramco continues to use oil reserves in storage in Saudi Arabia. To determine the amount of oil in storage Ursa uses the radar synthetic aperture (SAR). In addition, the space can effectively monitor the number of flaring of associated gas, which allows high accuracy to assess the volume of production at the fields, Saudi Aramco.

the biggest store of oil in Saudi Arabia located in RAS Tanura, Khafji Yanbu and. A month before the attack stockpiles has been relatively stable, but within two weeks after the attack has fallen by more than 20% to 62 million barrels.

in addition, sources of Western agencies in Saudi Aramco reported that the company buys crude oil in neighbouring countries, mainly in Kuwait – to put it abroad. Market participants confirm that currently, Japan receives from Saudi Aramco heavier oil than before the attack drones. The chemical composition of this oil is very similar to Kuwaiti.

the Decrease in reserves in Saudi Arabia does not have a significant impact on the world market, who have already played the rise black Swan – drop extraction two times after the attack drones in the country, which is the largest oil exporter in the world.

"In the past the Saudis have always been able to take the necessary measures to compensate for losses. Now the situation is different: the serious difficulties the country with the largest spare capacity (oil – ed.)", – quotes the message of the consulting company Wood Mackenzie, the newspaper the Wall Street Journal.

In one of the "tweets" Wool Mackenzie appeared: "If there is other failures (in the supply of oil – ed.) then, as they say, we will find ourselves in a boat without oars in the middle of the stream".

Many Western experts believe that this risk is not reflected in current oil prices. In the event of another "black Swan" to fill the loss will be nothing.

the PRODUCTION of SHALE OIL is REDUCED

During REN energy Minister of Saudi Arabia said that in determining the balance in the oil market must consider not only the demand growth rate is slowing, but supply. Talking about the prospects of the oil market, Abdul Aziz bin Salman pointed to the possibility of reducing production of shale oil in the United States.

According to the official revised data of US EIA (energy information Administration USA), in July oil production in the country has fallen by 276 thousand barrels./day. compared to the previous month – up to 11,806 million barrels./day. American shale companies reduce production for a third straight month in may and June, a decrease from the previous month amounted to 10 thousand Barr./day. and 31 thousand bbl./day. respectively.

a Significant decline in July can be attributed to bad weather in the Gulf of Mexico storms and hurricanes – which forced the American company to suspend work on oil platforms. However, you can also say that in 2019, the growth in US production has virtually stopped. Some experts even said that peak production was achieved in April 2019 and built 12,123 million barrels./day.

the Stable growth is kept only on the structure of shale Permian Basin, the largest in the United States, which produces more than a third of all American oil. In July, production in Texas, where the Permian Basin is located, has grown on 40 thousand Barr./day. in comparison with July. However, in 2017 and 2018, the growth rate exceeded 100 thousand Barr./day.

However, in Texas, the oil pantry United States – the decline in the growth rate are the most significant. In January-July 2019 production in the state increased by only 125 thousand bbl./day but over the same period a year earlier – on 474 thousand Barr./day.

HAMM changed his mind

Even in the West, "oil guru" recognize the end or imminent end of the "second shale revolution", but the reasons are called different.

Until recently, the us shale companies were "white crows" among the participants of the oil market. After the collapse of oil prices in late 2014 of US shale arrogant rejected proposals for OPEC to agree on production cuts in order to reduce excess inventory and thus to achieve a balance of supply and demand in the oil market.

the Head and owner of Continental Resources Harold Hamm kept saying that his company would not make any compromises with the OPEC will not go, since the ability to produce oil even at the price of $25/bbl. During the shale boom, Continental Resources – "oil is the champion of America" – and other shale companies could generate losses, but their capitalization was growing up, as investors hoped for income after recovery of oil prices.

Having virtually unlimited access to financial resources, the us oil companies were developing shale structures, without paying attention to costs and the growth of debt to banks. This explains the explosive growth of production in 2017 and 2018, not the efficiency of American companies that use the most advanced technology of production of shale oil. In the second half of last year, the US became the largest oil-producing country in the world, ahead of Russia and Saudi Arabia.

But the banks are disappointed with the financial results of the shale companies that are able to increase production, but not profit. In addition, the cost of production of shale oil in the US is not decreasing, but increasing, as evidenced by the results of the first six months of 2019. If last year the cost of production of shale oil was estimated at an average of $45/barrel. the results of the first six months of this year it became obvious that the generation of positive cash flow is possible only when the price of WTI $60/bbl. and above.

Hamm in an interview with CNN recently acknowledged that "it is necessary to observe financial discipline, to prevent the cost increase," and this can only be achieved by reducing the volumes of drilling and production.

PERMIAN BASIN is NOT THE same

in addition, there are signs of depletion of shale structures – primarily the Permian Basin. Due to the intense production, wells drilled into the most productive areas, give less oil, and drilled in the new areas do not meet expectations.

According to the investment company Raymond James, wells productivity in new areas within Permian Basin declined by 10%. Thus, to maintain the existing level of production necessary to increase the volume of drilling work. This leads to increased costs, which is impossible in the current environment, as investors and banks were disappointed in the shale companies and has significantly reduced funding for the drilling operations.

According to Baker Hughes, from October 2018 until the end of September 2019 in the U.S. the number of rigs in operation fell by 175 units, or 20%.

Low oil prices, the fall in productivity of shale wells and reduced drilling leads to stagnation and subsequent decline of oil production in the United States, many experts believe.

the words of the Saudi Minister of energy on the reduction of supply due to the decrease of production of shale oil could be prophetic. If the growth of shale oil in the US will stop the OPEC countries+, led by Saudi Arabia and Russia, will be able to regulate the oil market, depending on demand.

Source: PRIME