Saudi Flexing Met With Crickets by U.S. Shale Frackers
Nov. 4 (Bloomberg) -- Nasdaq Advisory Services Lead Energy Analyst Tamar Essner and Oilprice.com Senior Contributor Dan Dicker discuss the price of oil on “Street Smart.” (Source: Bloomberg)
Saudi Arabia’s rivals in the shale fields from North Dakota to Texas aren’t flinching as the Persian Gulf kingdom wages a price war to reclaim market share and chill competition.
The U.S. companies believe they have a lot more staying power than many of Saudi Arabia’s partners in the Organization of Petroleum Exporting Countries, or OPEC. Several producers plan on increasing production.
“Saudi Arabia is really taking a big gamble here,” Archie Dunham, chairman of shale producer Chesapeake Energy Corp. (CHK), said during a telephone interview. “If they take the price down to $60 or $70 a barrel, you will see a slowdown in the U.S. But you’re not going to see it stop. The consequences for other OPEC countries are far more dire.”
The decline of global benchmark Brent crude, touching a four-year low yesterday, added to market jitters as Saudi Arabia prepares to meet with its 11 fellow cartel members on the U.S. Thanksgiving holiday Nov. 27. After cutting its price for crude sold to the Americans, the worry is Saudi Arabia will choose not to pare production to help balance supplies and boost prices.
That may work for Saudi Arabia, which has enough cash and other assets stashed away to withstand oil around $50 a barrel, said Dunham, also former chairman and chief executive officer of ConocoPhillips. But “the vast majority of the OPEC producers cannot make their budgets and keep their people happy with prices below $80 a barrel.”
Raising Production
Executives at several large U.S. shale producers, including Chesapeake and EOG Resources Inc. (EOG), have vowed to maintain -- and even raise -- production as they reported earnings this week. They say their success in bringing down costs means they can make money even if prices slump further.
“It doesn’t scare us here at Whiting to compete at the current oil prices or even a little lower,” Whiting Petroleum Corp. (WLL) Chairman and CEO James Volker said during a conference call with analysts last week. “It shows the quality of our inventory, our ability to grow and still add net asset value per share.”
Oil Prices
Continental Resource Inc. (CLR) and Pioneer Natural Resources Co. are among shale drillers that have indicated they have no plans to curtail drilling in response to the price collapse. Same for ConocoPhillips and Marathon Oil Corp. (MRO), which said their opportunities in formations from Texas to North Dakota are among the most profitable options they have for investing.
New York oil futures lost almost one-third of their value in the past 4 1/2 months, dropping below $76 a barrel on Nov. 4 on concern about a potential supply glut.
Saudi’s Decision
The OPEC meeting later this month in Vienna will be the organization’s first since oil prices began their descent in June. Saudi Oil Minister Ali Al-Naimi is heading to fellow oil producers Venezuela and Mexico for meetings ahead of the official session.
State-controlled Saudi Arabian Oil Co.’s decision this week to cut the price it charges American refiners for crude was seen as a move to shore up its customer base in a market that accounts for more than 20 percent of global crude demand. Shale oil has been capturing more of the domestic refining market at Saudi Arabia’s expense as U.S. crude production jumped to the highest in three decades.
Lower Costs
Shale producers cite their success in reducing costs as proof that they can still be profitable at prices below $70. In Chesapeake’s two largest production areas -- Pennsylvania’s Marcellus Shale and the Eagle Ford formation in Texas -- well costs dropped 11 percent and 13 percent, respectively, during the first seven months of this year compared with 2013, the company said yesterday.
EOG can make money at $40 a barrel in the Eagle Ford, Chairman and CEO William Thomas said yesterday on a conference call with investors. The region produces about 1.6 million barrels a day, about the same as the nation of Qatar.
U.S. producers will come under more pressure to throttle back spending if crude prices continue to fall, and stay at $70 a barrel or less through 2015, Barclays Plc (BARC) said in a report yesterday. Even with lower costs, companies that have relied on debt to fund drilling will face greater pressure as interest rates rise and access to funding is reduced.
About half of U.S. shale resources would be “challenged” next year if prices remain at $70, according to the Barclays analysts.
“The shale drillers can’t get into a price war,” said Ed Hirs, who lectures on energy economics at the University of Houston and runs a small oil and gas production company. “They’ll lose. The Saudis can enforce some discipline on the markets and run the shale guys out of business.”
Different Results
Some shale drillers are better-positioned to weather the price squeeze than others for one simple reason: all shale is not alike. Geologic variances, underground pressure differences and even the size of the microscopic pores within the stone can make or break a shale discovery.
For example, in the Bakken formation, producers with wells in an area known as the Nesson Anticline have lower production costs and reap more crude than those in other sections because the highly-pressurized nature of the oil trapped there makes the wells gushers. Conversely, weak underground pressure in the northernmost areas of the Bakken makes those wells more costly, less productive and more vulnerable when energy markets drop.
On average, Bakken and Permian shale oil producers need prices around $67 and $65, respectively, to make drilling worthwhile, according to ITG Investment Research. At the other end of the range are the Cana Woodford shale in Oklahoma, where producers need $100 to make a profit, and the Anadarko formation on the Texas-Oklahoma border, where $79 is the threshold.
Operator Expertise
The price shale producers need to turn a profit also varies depending on the expertise of the operator. EOG would get a 10 percent rate of return in Texas’s Eagle Ford field at an oil price of $40 a barrel, the company said. Royal Dutch Shell Plc (RDSA), which sold many of its holdings in the same area, would only profit with a price above $112, according to an analysis by ITG.
Investors have shown little faith in shale explorers’ ability to maintain profits in a cheap-oil environment. In the last three months as prices fell, the 18 members of the Standard & Poors Oil & Gas Exploration Index lost an average 19 percent, shedding more than a $100 billion in market value.
Diamondback Energy Inc. (FANG), a Midland, Texas-based oil producer in that state’s Permian Basin, lost 25 percent of its value since crude touched its $107.73-a-barrel peak for the year on June 20. Pioneer, another Permian-focused driller, fell 23 percent.
Bakken Producer
Whiting, which agreed in July to shell out $3.8 billion for shale explorer Kodiak Oil & Gas Corp. (KOG), has tumbled 34 percent in that period. The Kodiak deal will make Whiting the biggest crude producer in North Dakota’s Bakken shale formation and boost Whiting’s output by 50 percent next year.
For the best operators, the downturn could prove to be a boon if cash-strapped companies are forced to sell assets, giving them the chance to reinforce their drilling portfolios.
Whiting’s Volker, 68, told analysts and investors during an Oct. 30 conference call that falling prices aren’t all bad for the industry.
“That particular downturn that we’re existing in here -- and I might say that yours truly has lived through six of these in my 40-year career -- and I can tell you that they all provide opportunities as well as pain.”
So far, there’s no evidence that shale drillers have been discouraged by the price plunge. U.S. crude production has risen for 11 straight weeks, topping 8.9 million barrels a day in the week ended Oct. 24, according to data compiled by Bloomberg.
“This is not a boom here in America,” Harold Hamm, the billionaire CEO of Continental Resources Inc said in an interview. “It’s a renaissance. It’s going to be here for 50 years. It’s not something that’s going to come and go.”
BHP Seen Shipping First U.S. Condensate Without Ruling
BHP Billiton Ltd. (BHP) plans to export condensate from the U.S., the first company seen to ship the fuel abroad without express permission from federal regulators.
BHP sold a cargo after deciding that it’s a processed product eligible for export and without a direct ruling from the U.S. Commerce Department, said a person familiar with the trade, asking not to be identified because the information isn’t public. The company plans to export condensate from Texas’s Eagle Ford formation that’s been run through distillation towers, Eleanor Nichols, a Melbourne-based BHP spokeswoman, said in an e-mailed statement today.
t shows how companies are increasingly finding ways around a four-decade-old law prohibiting most oil from leaving U.S. shores. Enterprise Products Partners (EPD) and Pioneer Natural Resources Co. (PXD) received rulings this year from the Commerce Department allowing them to send the lightly-processed oil overseas. South Korea bought at least one of the cargoes.
“This is a sign of things to come,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said by phone yesterday. “More people are going to say, ‘We’ve got some leeway here to go ahead and do something now rather than waiting for a decision later.’ It’s something that’s on the horizon. It’s going to keep going.”
Up until now, companies have applied to the Commerce Department for rulings that allow them to export processed condensate. Jacob Dweck, an attorney who represented Enterprise, said he expected companies to engage in shipments abroad without first obtaining the agency’s blessing.
Crude Ban
Eugene Cottilli, a spokesman for the department’s Bureau of Industry and Security, didn’t respond to e-mail and phone requests for comment about BHP’s shipment.
Federal policy makers are under pressure to lift the ban on U.S. crude exports as drillers pull record volumes out of shale formations, propelling domestic production to the highest level in more than three decades. Despite the prohibition, U.S. companies sent 401,000 barrels a day abroad in July, 54,000 shy of the record set in March 1957, government data show.
U.S. benchmark West Texas Intermediate oil for December delivery gained $1.37, or 1.8 percent, to $78.56 a barrel on the New York Mercantile Exchange at 2:12 p.m. East Coast time.
BHP’s plan has a “bullish feel to it,” Oil Outlooks’ Larry said. “The more it becomes a reality, the more bullish it’ll be.”
Due Diligence
BHP, which gets more than a fifth of its revenue from petroleum operations, decided to export condensate after taking “the necessary time to thoroughly examine the issues involved and ensure that the processed condensate was eligible for export,” Nichols said. The company “worked through a robust due diligence” to ensure the quality of the condensate, she said.
Vitol bought a cargo of processed condensate from BHP Billiton, a person familiar with the deal said today. The person, who asked not to be identified because the information isn’t public, declined to say where the shipment would be delivered.
Exports of unprocessed U.S. condensate derived from natural gas, which the U.S. considers to be crude oil, jumped 21 percent in September from a month earlier, even as total crude shipments declined, Census Bureau data show.
“This is not completely surprising given the significant amount of distillation capacity that exists in the Eagle Ford production area,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “It’s probably pretty easy to come up with 500,000 barrels a day. I would expect that other producers are also looking at exports.”
OPEC Oil Basket Price Falls Below $80 to Least in 4 Years
By Jake Rudnitsky Nov 5, 2014 7:43 PM GMT+0800
OPEC members’ average crude price fell below $80 for the first time in four years as Saudi Arabia and other members of the group supplying 40 percent of the world’s oil maintained output amid slowing demand growth.
The OPEC basket, the best measure of what the oil exporters earn per barrel, fell to $78.67 yesterday, the group said by e-mail today. That’s the lowest since October 22, 2010, according to data compiled by Bloomberg.
U.S. oil production rose to the highest in at least 31 years amid slowing global demand, helping drive crude into a bear market last month. The largest producers in the Organization of Petroleum Exporting Countries reduced prices rather than cut output, with Saudi Arabia, Iraq and
Iran offering the biggest discounts to buyers in Asia this month since at least 2009. The group will meet in Vienna on Nov. 27 to discuss whether to cut output to support prices.
“Saudi Arabia seems to have other aims than protecting the price,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by e-mail. “The Saudis’ attitude might only change if the other members agree to contribute to a cut, the likelihood of which is slim at best.”
Brent futures, the world’s most actively traded crude contract, fell as much as 1.4 percent to $81.63 a barrel in London today. The December contract traded at $82.14 a barrel at 11:28 a.m.
Price Surprise
Saudi Aramco surprised traders last month when it trimmed November official selling prices for its Arab Light crude to a six-year low for buyers in Asia. The move was interpreted as a shift in the stance of OPEC’s biggest producer to prioritize defending market share over supporting prices. Iran and Iraq followed the Saudi cuts.
While Saudi selling prices to Asia for December increased, the cost of Arab Light for U.S. buyers was cut by 45 cents a barrel to the smallest premium in a year.
Members of OPEC are engaged in an internal “price war” as they seek to preserve their share of an oversupplied market, Iraqi Oil Minister Adel Abdul Mahdi told the parliament in Baghdad Oct. 30.
OPEC’s crude production rose to a 14-month high of 31 million barrels a day in October, led by Iraq, Saudi Arabia and Libya, according to a Bloomberg survey of oil companies, producers and analysts.
Weaker Producers
“As the price continues to slide, calls for action from some of the weaker producers may intensify,” Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail. “Even a 1 million barrel cut in production would only help stabilize the price, not support a recovery.”
Saudi Arabia is unlikely to cut more than 500,000 barrels in daily production, leaving other members to reduce output by at least as much for an agreement to be reached, according to Commerzbank’s Fritsch.
The world’s largest exporter is pumping oil at close to the fastest pace in more than two decades. Average daily production of about 9.7 million barrels this year is down from the 10 million peak in September 2013, according to production estimates compiled by Bloomberg.
Saudi Oil Minister Ali Al-Naimi will attend energy events in Venezuela and Mexico, Latin America’s two biggest oil producers, this week and next, according to two people with direct knowledge of his plans who asked not to be identified because they’re not authorized to speak to the media.
“As recently as 2010, the Saudis said $75 was a fair price for consumers and producers,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by phone. “They can live with the current levels.”
U.S. Oil Suppliers Seen Hurt First by Slump as Saudi Pumps at $4
By Lananh Nguyen Nov 5, 2014 11:18 PM GMT+0800
U.S. shale-oil producers could curb new output as soon as next year should a price slump worsen, while OPEC nations including Saudi Arabia can keep pumping at a fraction of the cost, Barclays Plc said.
About half of proven and probable tight U.S. oil reserves would be “challenged” next year should West Texas Intermediate, the U.S. benchmark, drop to $70 a barrel and stay there, analysts including Michael Cohen in New York said in a report today. The grade, which fell into a bear market last month, traded at $77.91 as of 3:18 p.m. in London. Tight oil normally refers to oil extracted from shale rocks.
“If prices remain at these levels through 2015, it could compromise significant potential new volumes that are needed to offset declines from existing wells,” the analysts wrote in a note about U.S. supply. “Tight oil producers are likely to be first affected in a low-price environment.”
The slump prompted speculation about whether the Organization of Petroleum Exporting Countries, supplier of 40 percent of the world’s oil, will respond by cutting output. While falling oil prices would strain some OPEC nations’ budgets, the group’s members have “low” production costs, Barclays said. For Saudi Arabia, that figure’s as little as $4 a barrel, according to the bank.
WTI fell 22 percent this year, pressured by rising U.S. production and slowing global demand growth. The biggest producers in OPEC so far resisted calls to reduce production, amid speculation they’re discounting their crude to maintain market share.
OPEC Move
While Barclays anticipates a price recovery in the second half of next year, a sustained drop to $70 would cut the growth in shale output by 100,000 barrels a day and more in 2016, Barclays said. Total supply growth outside OPEC will be 1.5 million barrels a day in 2015, it estimates.
Oil’s slide may continue in the short term unless OPEC intervenes or consumption rises, Barclays said. The bank cut its oil-price forecasts twice last month, citing expectations that OPEC won’t cut supplies sufficiently to remove a global surplus. The 12-member group meets in Vienna on Nov. 27 to discuss its production policy.
Barclays reduced its 2015 estimate for the average West Texas Intermediate price to $85 a barrel from $89 and Brent to $93 a barrel from $96, the bank said in a note last week.
“We expect downward price pressure to mount unless OPEC supplies less or demand rebounds,” the bank said.
More Refinery Closures Likely After Third U.K. Plant Shuts
By Nidaa Bakhsh and Rupert Rowling Nov 5, 2014 10:27 PM GMT+0800
A third U.K. refinery shutdown in five years will put hundreds of people out of work while making only a small dent in the estimated 2 million barrels a day of European capacity that must go by 2020.
Murphy Oil Corp. (MUR) will close the Milford Haven refinery in Wales after a sale to Klesch Group collapsed, ending a four-year search for a buyer and resulting in “significant” redundancies, the U.S. oil company said late yesterday. All but 60 of 400 positions will probably go, the BBC reported without saying where it got the information.
European refiners have struggled to turn a profit as recession curbed demand for fuel, more efficient plants opened in Asia and the Middle East and a boom in U.S. shale-oil output closed a major export market. That led to more than a dozen plants shutting, the biggest wave of closures since the 1980s.
“It’s been a slow demise of the refining sector and is a sign of a bigger malaise in the European manufacturing sector,” Stephen George, chief economist at KBC Advanced Technologies Plc, an energy consultant, said by phone.
Profit margins for turning oil into gasoline will fall to $1.30 a barrel in the last three months of the year and collapse to 10 cents in the first quarter, according to estimates by Jonathan Leitch, an analyst at Wood Mackenzie Ltd. That compares with $3.30 in the third quarter.
About 1.5 million to 2 million barrels of capacity in the region still needs to close by 2020, according to Wood Mackenzie and FGE Group. Eni SpA of Italy and Total SA of France have said they may shut capacity.
Exiting Downstream
The latest shutdown leaves the U.K. with six operating refineries. Milford Haven was the smallest, with a processing capacity of 135,000 barrels of oil a day. Murphy Oil, based in El Dorado, Arkansas, boosted capacity by about a quarter in 2010, three years after it paid $250 million to Total for its 70 percent stake.
The company is getting out of all retail and refining in the region, Bryan Kelly, vice-president of U.K. operations, said in a phone interview.
Kelly met with half the plant’s 400 employees this morning and will meet with the rest later today. Workers will receive 30 weeks of pay and outplacement support, he said.
“It’s very disappointing what has happened at Milford Haven and we’ll continue to work with the company concerned and try to find employment opportunities for all those who work there,” Prime Minister David Cameron said in parliament today.
Kelly declined to comment on why the deal with Klesch collapsed. The Geneva-based company agreed to buy the Welsh refinery in July, hoping to have it producing fuels within weeks of the deal being finalized. The plant has been closed since May.
An official at Klesch’s offices in London couldn’t immediately comment.
Unite, the U.K.’s largest labor union, called on the Welsh and U.K. governments to intervene to secure an alternative buyer. A plant in Scotland got government support last year after threats by the owner Ineos Group AG to shut it down.
Previous plants that shut in the U.K. include Teesside and Coryton, owned by Petroplus Holdings AG, which went bankrupt. Total and ConocoPhillips had sought to sell their facilities in the east of the country without success.
IMF Sees U.A.E.’s Diverse Economy Weathering the Oil-Price Slump
By Anthony DiPaola Nov 5, 2014 10:26 PM GMT+0800
The United Arab Emirates has the diverse economy and budget discipline needed to weather lower oil prices, the International Monetary Fund said, as Dubai crude slumped below $80 a barrel for the first time in four years.
The Persian Gulf state with about 6 percent of global crude reserves has been trimming government spending as economic growth slows, enabling it to balance the budget at a lower price for oil, its main export, according to Harald Finger, head of the IMF’s mission to the country. Dubai crude, a regional benchmark, fell today as much as 1.9 percent to $79.27, the lowest since Oct. 22, 2010.
Global oil prices fell into a bear market last month as demand growth slowed while supply rose from the U.S., Russia and members of the Organization of Petroleum Exporting Countries. The price drop spurred speculation that OPEC may cut production in an effort to boost prices when members meet on Nov. 27 in Vienna. The U.A.E. needs an average oil price of $66.50 a barrel this year to cover government spending, down from $92.40 in 2011, according to IMF data compiled by Bloomberg.
“There is no need now to immediately adjust fully for the drop in oil revenue,” Finger, a deputy division chief for the Middle East at the IMF, said today in an interview in Dubai. The government has already curbed excess spending and reduced its budget so the country “can minimize the drag on growth” from falling prices, he said.
Regional Benchmark
Dubai crude is an indicator of income for Persian Gulf oil producers including Saudi Arabia, the region’s largest, which use it as a benchmark for their export prices. Dubai oil is freely traded, allowing the market to set the price, unlike crude from Saudi Arabia and some other Gulf countries that must be consumed by its first buyer. Most of the output from Abu Dhabi, the U.A.E.’s largest emirate, is sold with this restriction.
Omani crude, which also slumped below $80 today, is another freely traded crude used as a regional benchmark. Saudi Arabia, Iran, Iraq and Kuwait price their exports to Asia at a premium or discount to a monthly average closing price of Oman and Dubai grades together.
Abu Dhabi, which holds most of the U.A.E.’s crude and natural gas reserves, sets the prices for its crude retroactively, informing buyers of the per-barrel cost for shipments made the previous month. State-owned Abu Dhabi National Oil Co. bases its prices on conditions including the price of crude benchmarks and the number of cargoes sold.
Adnoc cut Murban crude, the emirate’s main grade, to $87.35 a barrel for October, it said by e-mail yesterday. That’s the lowest since November 2010, according to data compiled by Bloomberg.
YPF 3Q Net Income Doubles on Higher Output and Sales
By Pablo Gonzalez Nov 6, 2014 5:36 AM GMT+0800
YPF SA (YPF), Argentina’s largest oil company, said third-quarter profit more than doubled on higher production and sales as its fuel price increases beat inflation.
Net income rose to 3.2 billion pesos ($376 million), or 8.19 pesos a share, from 1.4 billion pesos, or 3.6 pesos, a year earlier, Buenos Aires-based YPF said in an Argentine regulatory statement after the market closed today. That beat the 6.13 peso per share profit, excluding some items, of four estimates compiled by Bloomberg.
More than two years after President Cristina Fernandez de Kirchner’s government expropriated YPF from Repsol SA, the producer increased gas output by 26 percent and crude by 5 percent in the quarter. The increase was triggered by production from Vaca Muerta, a Connecticut-sized formation in southern Argentina considered the world’s second-largest shale gas deposit and fourth-largest shale oil field. Chevron Corp. and Dow Chemical Co. are among YPF’s shale development partners.
While controlled by Madrid-based Repsol, the company’s output slid at an average 6 percent rate for almost a decade. Argentina expropriated YPF in April 2012 to stem fuel imports that doubled to $9.4 billion in 2011 because of the decline.
Government controlled-YPF has raised fuel prices by 42 percent this year, allowing the company to beat inflation and devaluation. Consumer prices have risen an estimated 39.5 percent in the past year, according to Buenos Aires-based research firm Elypsis.
Chesapeake Lifts Output Target as Drilling Costs Tumble
By Joe Carroll Nov 6, 2014 5:08 AM GMT+0800
Chesapeake Energy Corp. (CHK) raised its full-year oil and natural gas production target and said drilling wells is getting cheaper in every field where it operates.
Chesapeake expects to pump the equivalent of 700,000 barrels of crude a day this year, based on the midpoint of the range the Oklahoma City-based company reported on its website today. That’s 5,000 barrels, or 0.7 percent, higher than the previous target released in August.
The worst oil bear market in more than half a decade hasn’t deterred Chief Executive Officer Doug Lawler from increasing output because the costs to drill new wells are plunging.
In Chesapeake’s two largest production areas -- Pennsylvania’s Marcellus Shale and the Eagle Ford formation in Texas -- well costs dropped 11 percent and 13 percent, respectively, during the first seven months of this year compared with 2013, the company said in a statement today. Those two shale regions accounted for 34 percent of Chesapeake’s third-quarter output.
Chesapeake shares jumped 6.9 percent to close at $22.76 in New York. Before today, the stock had lost 17 percent of its value this year.
Lawler has been selling or spinning off gas fields, pipelines, office buildings and drilling rigs as part of a strategic shift into more profitable crude-oil production.
Profit Increase
Lawler, who succeeded Chesapeake co-founder Aubrey McClendon last year amid an investor revolt, has also been cutting costs and untangling complex financial arrangements favored by his predecessor.
The new output target was released at the same time the company said third-quarter net income increased to $662 million, or 26 cents a share, from $202 million, or 24 cents, a year earlier. The per-share result, excluding certain one-time items, was 5 cents more than the 33-cent average of 26 analysts estimates compiled by Bloomberg.
Chesapeake announced a $5.4 billion deal to sell gas and oil fields to Southwestern Energy Co. (SWN) on Oct. 16. in the largest asset divestment in Chesapeake’s 25-year history. The transaction is expected to close by the end of the year.
About 85 percent of Chesapeake’s output is comprised of gas and so-called gas liquids such as propane. Only Exxon Mobil Corp. (XOM) produces more gas from U.S. wells. Benchmark U.S. gas futures rose by 11 percent during the quarter to an average of $3.95 per million British thermal units from $3.56 a year earlier, according to data compiled by Bloomberg.
Brent falls on eurozone worries
Brent moving closer to $80, while midterms give push for WTI.
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NEW YORK, Nov. 5 (UPI) -- Brent crude oil prices continued their drift toward the $80 mark in early Wednesday trading after the European Commission said it expected slow economic growth.
Brent for December delivery was off nearly 50 cents per barrel to trade at $82.26, one of the steepest discounts in years and a continuation of a major price drop-off that started the trading day Tuesday.
Crude oil price indices suffered huge losses Tuesday after Saudi Arabia adjusted its oil prices further to shore up its market position. That was followed by the autumn economic forecast from the European Commission, which predicted a slower pace of economic recovery.
Following a stress test that found major European banks could withstand another economic crisis, the EC's report said real gross domestic product growth would not hit the 2 percent mark until 2016.
"There is no single, simple answer to the challenges facing the European economy," Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said in a statement.
In the United States, Republican leaders seen as favoring a pro-oil agenda took control of the Senate, a move seen as a further stimulus to the country's vibrant shale sector.
West Texas Intermediate, the U.S. benchmark, rallied in early Wednesday trading from its Tuesday lows to sell for $77.38 for December delivery.
BHP: Eagle Ford shale products OK for exports
HOUSTON, Nov. 5 (UPI) -- Australian company BHP Billiton said it's concluded oil products processed from the Eagle Ford shale play in Texas are legally eligible for exports.
The company said it plans to export so-called condensate produces from the Texas oil field, which it says it can do without explicit consent from U.S. federal authorities.
"BHP Billiton plans to export processed condensate that has been fractionated in distillation towers at our Eagle Ford operations in south Texas," a statement sent Thursday to UPI said. "After taking the necessary time to thoroughly examine the issues involved, we concluded that processed condensate is eligible for export."
In June, Pioneer Natural Resources and Enterprise Products Partners were authorized by the U.S. Bureau of Industry and Security, a division of the Commerce Department, to export condensate.
BHP said it exercised due diligence to ensure its Eagle Ford products were of a suitable quality for exports.
"The processed condensate that BHP Billiton plans to export is not crude oil under BIS regulations," the company said.
Crude oil exports are banned under legislation enacted in response to the 1970s oil embargo by Arab members of the Organization of Petroleum Exporting Countries. There are no such restrictions for petroleum products like gasoline and other fuel products.
An increase in U.S. crude oil production has led to calls to lift the ban. The Commerce Department in June said the decision on condensates does not represent a major shift in U.S. export policy.
Senate Democrats in the wake of the BIS export consent given to Pioneer and Enterprise said the Commerce Department "does not appear to possess the authority to issue exemptions for condensates or some subset of condensates from the crude export restrictions."
U.S. oil, gas sector economic bright spot
WASHINGTON, Nov. 5 (UPI) -- Job and wage growth in the U.S. oil and gas industry has increased since 2003 and Texas is leading the way, the U.S. Energy Department said Wednesday.
The Energy Information Administration, a division of the Energy Department, said oil and natural gas production jobs increased at a rate of 63 percent from 2003-08, declined during the recession, and then rallied again by 28 percent between 2009-13.
EIA said Texas, the No. 1 oil producer in the nation, adding the most jobs in the period ending last year.
"Texas added more than 19,000 new private sector jobs in oil and natural gas production in 2013, almost six times the number added in New Mexico, the next highest state for oil and natural gas production jobs added last year," EIA said in a report.
The EIA assessment on private sector jobs does not include those employed at oil and natural gas corporate headquarters in Texas.
Last year, shale production gains in North Dakota, Oklahoma and Texas helped boost their respective economies. A drawback for North Dakota is that crime rates have increased in parallel with job and economic gains.
On average, the annual wage for someone working in the production sector of the United States was $108,000, more than twice the average wage for all other private sector industries, EIA data show.
"Since 2009, average wages from oil and natural gas production jobs have increased by 12 percent, compared with a 10 percent increase for all private sector industries," it said.
Lundin keeps chin up in era of low oil prices
STOCKHOLM, Sweden, Nov. 5 (UPI) -- Swedish explorer Lundin Petroleum said Wednesday it has a strong investment agenda that stresses long-term growth over short-term consequences of low oil prices.
Lundin said its production for third quarter 2014 was 21.7 million barrels of oil equivalent per day, a 26 percent decline from third quarter 2014. Revenue of $189.2 million was 28 percent less than the same period last year.
C. Ashley Heppenstall, president and chief executive officer at Lundin, said in a statement his company was impacted by the steady slump in oil prices "like all other oil and gas companies.
"We will manage our balance sheet prudently during times of uncertainty such as we are experiencing today, but we will continue to spend money developing our discoveries as well as maintaining our exploration focus," he said. "We are in an industry which requires us to take a long-term perspective and to do that, we need to invest."
Crude oil prices have shed about 20 percent of their value since June, curbing the capital needed for energy companies to continue with a strong investment agenda.
Heppenstall said production for third quarter was lower than in the past, but in line with its expectations. Lundin is keeping its forecast for 2014 in place, despite the decline in oil prices.
Next year's exploration forecast is robust, the CEO said.
"I am confident that this will lead to further exploration success," he said.
Norwegian developments represent 72 percent of Lundin's production forecast. In April, the company said it spent roughly $127 million on exploration programs during the first quarter of the year without success.
Keystone XL may be filibuster-proof
WASHINGTON, Nov. 5 (UPI) -- The outcome of the U.S. midterm elections means there may be enough votes in the full Senate to force a vote on Keystone XL legislation, results show.
A shift in control in the Senate from Democrats to Republicans means there may now be at least 60 votes in favor of the pipeline, overcoming the majority needed to break a filibuster.
In states from West Virginia to Colorado, Republicans took the place of Democrats long opposed to the controversial pipeline planned to cross the U.S.-Canadian border.
"I think you're going to see us bring up energy legislation right away and Keystone will be one of the first things we pass," Sen. John Hoeven, R-N.D., said late Tuesday.
Hoeven and Sen. Mary Landrieu, D-La., chairwoman of the Senate Energy Committee, introduced legislation in May that would immediately authorize pipeline company TransCanada's application to build Keystone XL.
Similar bills have stalled because of opposition from Senate Democrats. Hoeven was not up for election during the midterm. Landrieu was unable to take the majority of the votes needed to stave off a challenge from Bill Cassidy, her Republican challenger in Louisiana. That contest now heads to a runoff in December. Sen. Lisa Murkowski, R-Alaska, will take over as chairwoman of the Senate Energy Committee.
When members of the House of Representatives passed legislation in favor of Keystone XL early this year, the White House said it "strongly" opposed the measure and threatened a veto.
Advocates said before Tuesday's vote a Republican-controlled Senate was bad news for an environment that several U.N. reports have said is threatened by the continued reliance on fossil fuels. Tar sands, the type of oil designated for Keystone XL, is viewed as more toxic to the environment than conventional oil.
When Hoeven and Landrieu introduced their bill in May, Oil Change International, an advocacy group opposed to Keystone XL, said both had received major campaign support from the oil industry.
Campaign contributions finds the nine Democratic senators who joined the entire rank of Senate Republicans in co-sponsoring the bill received an average $375,000 each in "dirty energy money," the advocacy group said.
Keystone XL planner TransCanada submitted an application to the U.S. government more than six years ago. A special permit is needed because it would cross the federal border.
TransCanada said in a conference call on third quarter earnings the cost of building the pipeline has nearly doubled to $8 billion since it was initially proposed.
Keystone's fate rests in part with the Nebraska courts. In April, the U.S. State Department said challenges to a state law giving Nebraska Gov. Dave Heineman authority over the pipeline's route and the more than 2.5 million public comments meant more time was needed for federal review.
A decision from the Nebraska court is expected in early 2015.
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BAGHDAD, Nov. 5 (UPI) -- An Iraqi source told Iranian state media the threat from the Islamic State is causing delays in receiving natural gas from across the border.
Hamid Reza Araqi told the semiofficial Fars News Agency natural gas deliveries should rise once four new phases of the South Pars natural gas field in the Persian Gulf come on stream through 2017.
"Right now we only have a contract to supply Baghdad," he said in an interview published Tuesday. "We will be ready to export gas if they can be ready to receive it from us."
A 60-mile pipeline crossing the Iranian border into Iraq was completed in August. It's designed to export 176 million cubic feet of natural gas per day from South Pars. Iraq, for its part, has struggled to ensure around-the-clock electricity despite its vast natural resource wealth.
A source from Iraq told Fars power plants should've received full supplies of Iranian gas by now, but terrorist threats were inhibiting progress.
"We will be able to receive Iran's gas more safely due to the efforts of the (Iraqi) armed forces to get rid of the Islamic State," he said.
The band of support for IS extends from Aleppo in western Syria to parts of Diyala province in eastern Iraq, which shares a border with Iran.
Ukraine pays first debt installment to Gazprom
MOSCOW, Nov. 5 (UPI) -- Russian energy company Gazprom said Wednesday it received the first installment of the debt owed by its Ukrainian counterparts at Naftogaz.
"Gazprom received from banks confirmation of the transfer of funds from Naftogaz of Ukraine to the amount of $1.45 billion as a partial repayment of debt for earlier supplied gas," the company said.
The Ukrainian government under the terms of a deal brokered last week with the help of European negotiators agreed to pay its $3.1 billion debt in installments. In return, Russian delivers gas under a pre-payment mechanism that extends through March.
The interim contract frees Ukraine from a take-or-pay clause, which would've obligated it to pay for set volumes of natural gas regardless of usage. Gas is also delivered to Ukraine at a discounted rate.
A report in the Ukrainian News Agency said the government in Kiev is working to minimize the amount of natural gas it purchases from Gazprom until it gets the discounted rate.
Political upheaval that saw Kiev move closer to the European Union in November left a weakened Ukrainian economy in shambles. Gazprom cut gas supplies to Ukraine in mid-2014 in response to unsettled debt.
Similar rows in 2006 and 2009 left downstream consumers in Europe without gas supplies for part of the winter season. Europe gets about a quarter of its gas needs met by Russia, though most of that runs through the Soviet-era gas transit network in Ukraine.
OPEC shaken by Saudi price cuts to the US
By George Jahn
| Associated Press November 05, 2014
Saudi Arabia showed little concern for fellow OPEC members by unilaterally cutting its oil prices to the U.S. this week, a move that casts doubts on the cartel’s credibility and its ability to find a common plan to stabilize the slumping energy market. Oil prices were near multi-year lows on Wednesday Nov. 5, 2014 after dropping sharply on Saudi Arabia’s move to cut its prices for U.S. customers. (AP Photo/Ronald Zak, File)
Ali Ibrahim Naimi, Saudi Arabia’s Minister of Petroleum and Mineral Resources, gestures as he speaks to journalists at the start of a meeting of the Organization of the Petroleum Exporting Countries in June.
VIENNA — Saudi Arabia showed little concern for fellow OPEC members by unilaterally cutting its oil prices to the US this week, a move that casts doubts on the cartel’s credibility and its ability to find a common plan to stabilize the slumping energy market.
And while OPEC struggles to find consensus, oil prices risk remaining low — or falling further — to the benefit of consumers and businesses in the US and worldwide.
OPEC is already riven by differences among its members on what the ideal price level should be. That is exemplified in the rivalry between heavyweights Saudi Arabia, which can withstand lower prices, and Iran, which relies on a stronger market to remain profitable.
The Saudis’ unexpected move on Monday to cut prices to the US, aimed at protecting their market share there, will exacerbate those conflicts — weighing on the market and hurting most other OPEC members economically.
‘‘At the end of the day, this is still the Saudis’ cartel for better or worse, and for smaller members this is definitely worse,’’ says oil analyst Phil Flynn, alluding to the fact that despite OPEC’s credo of consensus and unity, the organization is de-facto controlled by its top producer.
The prime motivator for the Saudis is to compete against US shale oil. But John Hall, chairman at Alfa Energy, sees other benefits for the desert kingdom.
Russia, which competes with OPEC, is already hurting from low oil prices and Saudis are tightening the vise — ‘‘seizing the opportunity to reduce prices, hit Russia and hit Iran in one go,’’ he says.
When the cartel meets later this month to discuss how to manage the recent market slump, tensions are likely to fly high — and hopes for concerted action are low. Flynn calls the current price slump the ‘‘biggest threat [to OPEC’s unity] since oil hit the $10 range’’ 15 years ago.
The price of crude hit three-year lows on Tuesday on news of the Saudi move. On Wednesday, the benchmark New York contract recovered only slightly to trade just above $77 a barrel. The international grade of crude also hit multiyear lows.
These levels are manageable for the Saudi government, as its coffers are well-padded and its oil production costs are relatively cheap.
Not so for many others within the 12-nation oil producing organization with higher extraction costs and national budgets dependent on higher crude revenues.
Even without the Saudi price discounts, Iran’s ability to export oil was slashed by international sanctions imposed over its nuclear program. Tehran, which once hoped to displace the Saudis as OPEC’s top producer, has seen its oil revenues nearly halved as a result.
If sanctions were to be lifted as part of a nuclear agreement later this year, Iran still would need prices close to $140 a barrel to finance the government budget. Crude export revenues finance more than 50 percent of the government’s outlays.
Venezuela will also be hurt. The International Monetary Fund says Venezuela needs to sell oil at around $120 a barrel to avoid the threat of national bankruptcy. Bank of America estimates that for every dollar that oil prices drop, the state loses $770 million in net revenue over a year. That puts revenue $12 billion a year below peak levels even if current prices don’t fall further.
Venezuela traditionally supports Iran in calling for high oil prices and OPEC meetings and the Saudi price concessions mean it will push that demand even harder at the Nov. 27 OPEC ministerial gathering.
Nigeria also needs a stronger market to flourish. Bismarck Rewane of the Financial Derivatives Consultancy in Lagos says the government had organized its 2015 budget around an oil price of $78 a barrel based on production of 2.4 million barrels a day — but the country is pumping only about 2 million barrels a day. He warns that even if oil prices do not fall further, the government will have to revise some of its spending plans.
Angola, Ecuador, and other OPEC members with limited production may also suffer — but not so Saudi Arabia’s wealthy allies Qatar, the United Arab Emirates, and Kuwait.
The upshot of the Saudis’ willingness to live with low prices to protect their market share in a world of high supplies is that households and companies worldwide may enjoy a period of lower fuel bills.
Adam Slater, senior economist at Oxford Economics, estimates that the recent fall in oil prices could add around 0.4 percent to GDP in the US in two years, and a little less in Europe. China, which is the second-largest oil consumer and on track to become the largest net importer of oil, could see its economy grow an extra 0.8 percent.
Saudi, Venezuelan Oil Officials Meet as Price Slump Continues
By Summer Said, Kejal Vyas and Sarah Kent
Top oil officials from major producers Venezuela and Saudi Arabia are set to hold a rare bilateral meeting later on Wednesday as OPEC member countries grapple with a continuing price slump.
Venezuelan foreign minister Rafael Ramirez--until recently head of state energy giant Petroleos de Venezuela, or PdVSA, and still his country's OPEC representative--and Saudi oil minister Ali al-Naimi usually meet only at scheduled gatherings.
But their meeting on the sidelines of a climate conference on the Venezuelan resort island of Margarita is sign of the pressure on the Organization of the Petroleum Exporting Countries following oil's more-than 25% drop since the summer. The exact timing of the meeting is yet to be confirmed.
The two countries hold opposing attitudes to oil's slump. Venezuela's public finances are reliant on high prices while the Saudis are reluctant to take steps to help support prices by cutting its oil output. This week Saudi Arabia cut the price at which it sells its crude to the U.S.--a move seen as an effort to maintain market share for its exports there.
Mr. al-Naimi had long planned to attend the Venezuela conference, but the private meeting with Mr. Ramirez was only added to his agenda recently, according to people familiar with the situation.
But if Mr. Ramirez is hoping the meeting will yield action by the OPEC kingpin, he will likely be disappointed, Saudi officials said.
"The message is going to be clear, and will be repeated again in the OPEC meeting: Saudi Arabia is not going to act as swing producer," one of the officials said.
During past oil price slumps, OPEC has acted collectively to rein in production to support prices. This time its influence over the market is limited because much of the oil flooding the market comes from booming shale oil production in the U.S., outside the producer group's control. That's also left OPEC members reluctant to cut their output in an increasingly competitive environment.
"[Mr.] al-Naimi is going to explain to [Mr.] Ramirez that not much can be done at the moment and it is a cycle the market is going through," said another Saudi official.
Of all of OPEC's members, Venezuela has been the most vocal about the rapid slide in oil prices since June, making an unheeded call for an emergency meeting of the producer group last month.
Even before oil prices plummeted this summer, Venezuela was battling a weak economy, but the steep drop in the commodity that makes up to 96% of the country's export revenues has compounded the economic challenges it faces. President Nicolás Maduro has seen his popularity plummet to a record low, polls show, as dollar shortages have led to a precipitous decline in the value of the local bolivar currency and contributed to scarcities of food and consumer goods.
The average price of OPEC's oil fell to its lowest level since October 2010 earlier this week, sliding to $78.67 a barrel, according to data from its secretariat published Wednesday. Deutsche Bank estimates Venezuela needs a much higher oil price of $121 a barrel to balance its annual budget, one of the highest break-even prices in OPEC.
Saudi Arabia requires a lower oil price to balance its budget and has a healthier economy that could endure lower oil prices for longer. By far the most powerful member of OPEC, the Kingdom has remained quiet about the steep drop in oil prices.
That silence is contributing to a rift emerging within the producer group ahead of its next semi-annual meeting later this month. Other OPEC members besides Venezuela, such as Libya, have called for a reduction in the group's output to help support prices but Saudi Arabia has made it clear it will not act alone.
Write to Summer Said at summer.said@wsj.com, Kejal Vyas at kejal.vyas@wsj.com and Sarah Kent at sarah.kent@wsj.com
What the Saudi Oil Price Cut Means for U.S. Producers
By Diane Alter, Contributing Writer, Money Morning
Crude oil prices made a sharp reversal today on two new developments …
After two punishing days of declines, the price of oil jumped nearly $2 a barrel shortly after 11 a.m. following unconfirmed reports of an oil explosion in Saudi Arabia.
Also stoking prices Wednesday was weekly inventory data released at 10:30 a.m. showing stockpiles rose by a modest 640,000 barrels.
What the Saudi oil price cut means for u.s. producersAs of 4 p.m., light, sweet crude for December delivery was up $1.70, or 2.2%, at $78.89. Brent, meanwhile, was higher by $0.46, or 0.56%, at $83.28.
Traders are looking for gains anywhere they can get them. Crude prices closed at a three-year low of $77.19 Tuesday (after falling as low as $75.84) after Saudi Arabia announced Monday it would slash the price at which it sells oil to the United States. At the same time, the world's largest oil exporter hiked export prices to Asia.
The 2% drop marked oil's lowest closing price since Oct. 4, 2011. WTI is now down a painful 30% since its June high of nearly $108 per barrel. Brent fell $2.32, or 2.7%, to $82.46 a barrel on Tuesday. That was its lowest level since October 2010.
Saudis had cut prices to Asia four months in a row from August to November. It wanted to make its oil more attractive compared to exports like Angola and Libya, according to The Wall Street Journal.
Now Saudi Arabia's focus is on U.S. customers.
The country needs to prop up the struggling oil price – but this move marks a different tactic from Saudi Arabia.
You see, the last time the oil leader wanted to stop a price plunge, it cut production. In 2008 and 2009, the country was the biggest contributor to the Organization of Petroleum Exporting Countries' (OPEC) 5 million-per-day production cuts.
This move comes less than a month after Saudi Aramco, the state-run oil producer, cut prices for all its exports.
"There appears to be a direct battle underway among OPEC members for market share in a pricing environment increasingly defined by unconventional (shale and tight) reserves," said Money Morning Global Energy Strategist Dr. Kent Moors at the time of the previous price cut. OPEC isn't used to pricing oil in a shale-boom environment.
Moors said the move suggests that Saudi Arabia, OPEC's biggest member, would rather charge less for oil than cede market share through lower output, according to a comment from Commerzbank, the Frankfurt-based global banking giant.
So what does the oil price cut mean for U.S. oil producers?
WTI finds support from bullish oil report, but will the rally last?
Best analysis
Crude oil is trading higher for the first time in four days. But whether the gains can be sustained on a closing basis remains to be seen with prices already drifting lower from their best levels achieved earlier. WTI spiked higher on the back of a somewhat bullish oil report that was published by the US Department of Energy earlier. It showed crude stockpiles increased last week by only half a million barrels. Not only was this lower than a build of 1.8m expected, it was also considerably smaller compared to the increases seen in the previous weeks. On top of this, gasoline and distillate stocks both fell by 1.4 and 0.7 million barrels, respectively. Oil prices were also boosted by reports of an oil pipeline explosion in Saudi, plus some mixed bag US data (ADP payrolls increased by an above-forecast 230,000 last month while the non-manufacturing PMI printed 57.1, missing the estimates by one whole point). However the data underpinned the US dollar further and this kept the gains for oil and other buck-denominated commodities in check.
Following the break of the key $80 support level on Monday, WTI has dropped by a further $4 to reach a low so far of just under $76 a barrel. On a percentage basis, this breakout alone represents a drop of 5%, which is huge especially at these already-depressed levels. Thus a bounce back in prices should not have come as a surprise. But for as long as prices remain below the now broken $80 level, the path of least resistance will be to the downside. If oil breaks below $76 then a move down to $75 would become highly likely. But as the daily and weekly RSI indicators show, prices remain extremely oversold. The daily RSI has also created a positive divergence, suggesting the bearish momentum is fading. However we have seen similar divergences in the past, so this should be taken with a pitch of salt. While a bottom for WTI may be just around the corner, or already reached, I remain bearish on oil until proven wrong.
