Crude, Gas, and the End of the Simple Oil Market

[Luis Gonzalez]

Crude, Gas, and the End of the Simple Oil Market

The Last Wire

Gas should fall when oil falls.

That used to be the rule.

It isn’t anymore.

What broke wasn’t oil. It was the system behind it.

After COVID, we flooded the economy with liquidity while real-world capacity shrank. Refineries closed. Producers stopped chasing volume. Supply chains tightened. Add geopolitical pressure on top of that, and you don’t have a clean market anymore.

You have a constrained one.

That’s why crude can drop and gas barely moves. It’s not just about supply and demand now. It’s about bottlenecks, discipline, and who controls the margins.

This isn’t random. And it’s not going back to the way it was.

The Last Wire

[Free Vulcan]

Ah, linky no worky my homey!

[Luis Gonzalez]

Ah, linky no worky my homey!

Thanks brother! All fixed.

PS. There are two links to the articles.

Always one right under the title.

 

[Free Vulcan]

Thanks brother! All fixed.

PS. There are two links to the articles.

Always one right under the title.

 

In other words I had a 50/50 shot and chose poorly. Sounds about my usual luck, hahaha. 

After WWII if we needed refining capacity we just built it. Eyes forward and pedal to the floor. No longer. So there's a bottleneck with no short term solution.. China and India are fully in the game with around 3B available consumers, the Fed keeps pumping in money, and blessedly we have our own supply of crude that gives incentive to not have lower prices.

I guess the way I look at it now is that we have to give thought to both producers and consumers now that we didn't before in the cheap oil days. The thing is in the old days cheaper prices meant more discretionary income that consumers could spent on other items and boosted the economy.

Today though, the oil sector is big enough that lower prices actually hurts the economies of the oil producing American states and less income for their residents, but also increased discretionary income goes straight to importing Chinese trinkets, so how much of that really helps us?

I guess I'm coming around of @Idiot that maybe oil price should should stay out a profit point where US producers can survive. I guess I'm willing to pay a little more to have a secure oil supply while tech will ultimately improve and lower the breakeven over time.

The refinery issue however, won't go away and in the regulatory and monetary climate now I don't know how it will fixed.

[Luis Gonzalez]

In other words I had a 50/50 shot and chose poorly. Sounds about my usual luck, hahaha. 

After WWII if we needed refining capacity we just built it. Eyes forward and pedal to the floor. No longer. So there's a bottleneck with no short term solution.. China and India are fully in the game with around 3B available consumers, the Fed keeps pumping in money, and blessedly we have our own supply of crude that gives incentive to not have lower prices.

I guess the way I look at it now is that we have to give thought to both producers and consumers now that we didn't before in the cheap oil days. The thing is in the old days cheaper prices meant more discretionary income that consumers could spent on other items and boosted the economy.

Today though, the oil sector is big enough that lower prices actually hurts the economies of the oil producing American states and less income for their residents, but also increased discretionary income goes straight to importing Chinese trinkets, so how much of that really helps us?

I guess I'm coming around of @Idiot that maybe oil price should should stay out a profit point where US producers can survive. I guess I'm willing to pay a little more to have a secure oil supply while tech will ultimately improve and lower the breakeven over time.

The refinery issue however, won't go away and in the regulatory and monetary climate now I don't know how it will fixed.

Great response. Thanks.

If we build in the thrashing of the US Dollar via the Fed’s massive liquidity injection of 2020 and 2021, today’s gas price should be @$3.30/gl.

We will end up with a world-wide crude oil glut, with nearly all Iranian storage ability maxed out, containers and ships being used for storage instead of transport, possibly full of crude oil executing contracts signed months before the war, now out of line with current prices.

Interesting times.

[Smokin Joe]

One thing missing from the before and after (COVID) supply equations...well, actually, two things.
First, when oil went negative, and prices remained very low (and frankly, for many there was no guarantee they'd recover any time soon), those holding stripper wells (producing <20 BOPD) found themselves in the unenviable situation where expenses (saltwater disposal, trucking, equipment upkeep, utilities) cost more than the well could produce. If a company had a lot of that sort of production, it was bleeding money, and the decision left was to plug and abandon the well while the resources were in the bank, or to try to continue forward with an open ended loss and perhaps reach the point where the resources to deal with the P&As were no longer present.
Many got out while the getting was good, preserving what wealth they could by plugging those wells. Because most leases are held by continuing (at least intermittently) production, simply shutting the wells in (indefinitely) was not an option, and the corrosion and other problems that beleaguer production equipment would continue whether the well was active or not.

Now, production of under 20 barrels of oil per day might not seem to matter, but in aggregate, some sources have said as much as 1.2 million barrels of oil per day of production were lost, as people sought to preserve what money they had in the face of an uncertain future.

To compound that problem, the Keystone XL Pipeline, after more than a decade of preliminary work, numerous obstructionist lawsuits, sorting out the leases and rights of way, and even pouring pump house foundations and stockpiling huge piles of pipe  in storage areas in preparation for building out, was shut down by Executive Order by Joe Biden on day one of his administration.
Not only did this have a devastating effect on those who lost 11,000 jobs, but on all the small businesses that had invested in catering to the crews when the construction crews made their sweep through their towns.
 
But the lingering aftereffect is that up to 800,000 BOPD of Tar Sands crude (along with about 100,000 BOPD from the Bakken mixed in so it went through the line better) would not be headed to US Gulf refineries from Canada, refineries which could have readily handled crude oil similar in nature to the heavy crude of the Orinoco Basin in Venezuela, what the refineries had been built to refine.
When demand bounced back, there was now a shortfall.
Effectively, between price sweeps and the reaction to lows in an unprecedented market (no one knew what the pandemic would bring, nor how long it would last, everyone instead had visions fostered by media panic mongers of the next Black Plague or Spanish Flu) stripper well production was lost from the equation, unlikely to ever return because the ROI on a redrill would be negative, and the ability to adjust to that loss when demand went back up was hobbled by policy, politics, and climate hysteria.

[Luis Gonzalez]

One thing missing from the before and after (COVID) supply equations...well, actually, two things.

Thanks!

I didn’t do a deep enough dive to get to this! Appreciate it!

Learned many new things.

I am intrigued by the speed and efficiency of fracking

[Free Vulcan]

The biggest problem I see for the US is the regulatory climate clamping down on everything to limit supply, and now reading at what @Smokin Joe says they've done near permanent damage to the sector both psychologically and physically.

[Luis Gonzalez]

The biggest problem I see for the US is the regulatory climate clamping down on everything to limit supply, and now reading at what @Smokin Joe says they've done near permanent damage to the sector both psychologically and physically.

Hopefully, someone in DC is looking into that.

[Smokin Joe]

The biggest problem I see for the US is the regulatory climate clamping down on everything to limit supply, and now reading at what @Smokin Joe says they've done near permanent damage to the sector both psychologically and physically.

I'm not sure psychology is such a factor for those of us in the upstream end of the industry, at least those of us who have been around a while. It takes a different mentality to survive long term, when your income can go from six figures to zero overnight, and back again with a phone call. Most job applications I filled out were done after I was hired, not before.

We know nothing is permanent in terms of income or position, so we don't often buy things on payments, and when we do, we make sure we can make them if the patch goes flat. That means a bit more modest living, or going from boom to bust to boom again, just like the industry. I opted for the former and do not regret it.

What does get frustrating in that we spent decades listening to people decry "Big Oil" for everything, and drive to the airport to fly wherever...(If I ever have an oil company, that's what I'm going to name it. I'll hire squadrons of lawyers to sue the Media every time they blame "Big Oil" for the woes of everything from the economy to the weather.) Only when we (once again) brought America to the point where we could supply ourselves if need be did we get any credit, but our supply is only part of what the world consumes, and it is the global market which sets the trends.

Here, in North Dakota, I think we're pretty much over the animosity, as farmers who bought the latest round of equipment to farm spreads of 5 to 15 square miles (about a million dollars worth of equipment to plant those crops) realize we aren't out to make a mess of things or steal any land, pay good royalties if they are the mineral owners, production and drill site rent if they only own the surface and not the minerals, and we are all working to make this a prosperous place. Oil extraction tax money has provided property tax relief, so much that I only had to pay the special assessments on my home, not property taxes this year.  Oil is a big part of why the State is running in the black.

The regulatory climate we have to worry about is Federal. The States rules are laid out for everyone to see, and complied with, with few exceptions, because they are actually common sense rules designed to prevent damage to the number one all time economic driver--the land itself, the means of agricultural production. Silly bullshit need not apply. Yes, we have windmills, and coal mines, too, so there is a balance of power, so to speak, with coal, wind, natural gas, and hydropower all contributing to make twice as much electricity as the State needs, the surplus is sold off.

I just wish we had more refining capability, and then we'd be completely self sufficient.

But it's the Federal rules that get thrown in at the drop of a hat, and some of them make no sense at all, mainly because they are based on the panic of coastal (and other) urbanites who have no clue what life is like in flyover country.
Unfortunately, that scale has tipped nationally, and that means the people who make or allow the rules are often clueless.

I take a Jeffersonian view, but 80% of the American population lives in the urban areas, and only 20% of us occupy 90+% of the land.

[IsailedawayfromFR]

The biggest problem I see for the US is the regulatory climate clamping down on everything to limit supply, and now reading at what @Smokin Joe says they've done near permanent damage to the sector both psychologically and physically.

All one has to do to preview the effects of burgeoning climate crap clamp is to witness the effects of such in
California.

That state has a bounty of oil(4 of the top 10 oil fields ever discovered in the lower 48) yet the stifling bureaucracy has caused the entire oil industry there to crater and with it the state economy.

That can happen to our country as a whole if the reckless adventures of the climate socialists are permitted to control the rest of the country.

[Luis Gonzalez]

The BEST thing about this forum, also happens to be the most nerve wracking part of it.

There is always someone who will understand the subject I am writing about better than I do!

Thanks for all the new information. I am already doing a bit of editing. We have amazing knowledge in here.

Maybe I should stick to writing about food… 

[Smokin Joe]

The BEST thing about this forum, also happens to be the most nerve wracking part of it.

There is always someone who will understand the subject I am writing about better than I do!

Thanks for all the new information. I am already doing a bit of editing. We have amazing knowledge in here.

Maybe I should stick to writing about food… 

You're doing fine. Keep it up!