U.S. Sen. Kevin Cramer Asks Trump to Embargo Saudi/Russian Oil

U.S. Senator Kevin Cramer, Republican from North Dakota, sent President Trump a letter on Wednesday asking the President to take “immediate action” in slapping an embargo on crude oil imported from Russia, Saudi Arabia, and other OPEC countries. In 2018 (most recent stats) the U.S. imported nearly 1.5 million barrels per day of oil from Russia, Saudi Arabia, and Iraq. Cramer wants the spigot turned off from those countries in order to give our own companies the opportunity to supply oil to ourselves. We personally love the idea–but there are others (whom we respect) who strongly disagree with an embargo or any kind of governmental interference in the free market.
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Bloody: Permian Oil Dips to $16.24/Bbl; NYMEX Dips to $1.55/Mcf

It’s getting bloody out there. Just two days ago we told you the “unthinkable” may happen, that oil may approach or hit $20/barrel (see Oil Heading for $20/Barrel; Price in Freefall; Uncharted Territory?). Yesterday (one day later) the price for West Texas Intermediate (WTI) crude closed at $20.37. However, the price in the Permian traded as low as $16.24, the weakest level since 1999. That’s less than the price of a steak at the Outback Steakhouse! As for natural gas, the NYMEX futures price closed yesterday at $1.60/Mcf, but not before briefly hitting $1.55/Mcf. Some analysts now say the price of oil could hit (gulp) $0/barrel. Is such a thing really possible?
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Oil Price War: U.S. Senators Ask Saudis to Dial Back Oil Dumping

Yesterday we wrote that the price of oil is in a free fall, heading toward $20/barrel (see Oil Heading for $20/Barrel; Price in Freefall; Uncharted Territory?). The reason is, of course, because Saudi Arabia and Russia are pumping as much oil as they can, flooding the world market and causing the price to crash, all in an effort to bankrupt American shale oil companies. Continental Resources’ Chairman Harold Hamm wants the two countries investigated for dumping, perhaps with tariffs on imported oil (see Continental’s Harold Hamm Plans to Fight Saudi/Russia “Dumping”). Another potential solution to the oil price crash would be if the Saudis would scale back their pumping. A group of Republican U.S. Senators have just sent Saudi Crown Prince Mohammed bin Salman a letter asking him, pretty please, to quit pumping so much oil. Will it work?
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Oil Heading for $20/Barrel; Price in Freefall; Uncharted Territory?

In early January, the average price for a barrel of oil was $63. Yesterday the price closed at $28.70. Word on the street is that the price may go as low as $20/barrel, soon, and stay there for a while. Why? Because the Saudis and Russians have oil-pumping fever. They’re pumping as much oil as fast as they can. And that’s producing a global surplus of oil chasing buyers who don’t want it. According to IHS Markit VP and head of oil markets Jim Burkhard, “The last time that there was a global surplus of this magnitude was never. Prior to this the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more.” The price of oil has crashed–and unless the Saudis and Russians let up, the price will stay crashed for some time to come.
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Shale Oil Drillers Ask OFS Providers to Slash Prices at Least 25%

If you operate a company that sells a product (particularly a commodity product) you only have two ways of making a profit: Sell the product for more money or cut expenses (or both). For oil drillers, the price of the product sold is pretty much fixed. Some drillers have “hedged” their production, pre-selling future production at a specific price. But many don’t hedge. And hedging contracts typically don’t extend beyond a year. In the case of oil, the world market sets the price, and the price this week is about half of what it was last week. That means most shale oil drillers won’t make a profit–unless they can trim costs. One of the ways drillers are attempting to cut costs is by asking the companies that do the actual drilling and perform services for them (oilfield services companies, or OFS) to cut the rate they charge.
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Continental’s Harold Hamm Plans to Fight Saudi/Russia “Dumping”

Back in the day, your humble editor, Jim Willis, worked first an intern and later as a paid staffer in the Ronald Reagan White House. Very cool experience for a hick kid from Upstate New York. After a stint at the White House, Jim stayed in D.C. and went to work on Capitol Hill, working for Congresswoman Helen Bentley (Republican from Maryland). One of Bentley’s favorite issues was to fight against the dumping of machine tools by foreign companies on the American market. Companies in other counties would sell machine tools here more cheaply than it cost them to make, using backdoor funding from their governments to make up the difference. Eventually, our machine tool companies couldn’t compete and would go out of business, leaving the market wide open to foreign competitors, at which time they would jack their prices up.
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NatGas Trader Predicts Max Upside is $2.20/Mcf Foreseeable Future

The price of natural gas in various locations, including the NYMEX futures price, has been inching up over the past few days. Yesterday the NYMEX price closed down slightly, at $1.88/Mcf. But that’s better than the $1.60 territory where it’s been bumping around. The price is inching up because of the Saudi-Russian oil price war. Most traders figure there will be less shale oil drilling in the U.S., and because of it, less associated natural gas production from places like the Permian (and Bakken). Which in turn means less supply, driving up prices for natgas. How long will prices go up? And, how high will the price go? We spotted one trader’s take on where he believes prices are heading.
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Vultures Circle: Which Shale Companies Will Survive Price Crash?

We’re already beginning to see articles (complete with company names) speculating on which shale drillers will weather the current oil price war between Saudi Arabia and Russia, and which will go under in the next 12 months. It’s like vultures are circling. There’s little doubt some shale companies will not make it. The question becomes, who buys those that go under? We certainly hope it’s not a foreign entity from Russia or Saudi Arabia. That would be insult added to injury.
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IHS Markit Energy Analysis: Oil Markets, Industry Brace for Crash

We continue our coverage of the historic (in a bad way) oil price war started by Russia against American shale drillers, now complicated by Saudi Arabia as they have turned the spigot wide open to pump as much oil as they can, resulting in a price crash for oil. From time to time we’ve featured comments and reports issued by IHS Markit, a global analytics company that tracks data in the oil and gas industry. Yesterday we received IHS Markit’s “key conclusions” from the latest assessment of oil markets. It’s called, “Oil Markets and Industry Brace for Crash as Supply Floodgates Open.” We think it’s about the best summation of what has happened (so far), and what’s likely to happen in the near- and medium-term.
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Oil Price War: Saudis Target Russia, Flood Market, Prices Collapse

Something truly historic happened yesterday. And there is a tie-in to the Marcellus/Utica (which we’ll get to, stick with us). At its core, what happened yesterday is pretty simple to grasp, although most media stories you read either miss it or bury it. Last Friday Russia told OPEC it would no longer participate in coordinating production cuts with Saudi Arabia and the other OPEC countries in an effort to boost the price of oil (see Russia’s Vladimir Putin Declares War on American Shale Oil). Russia’s goal is to bury American shale oil producers.
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OOGA 73rd Annual Mtg: More Downsizing Ahead

Over 700 people gathered yesterday in Columbus, OH for OOGA’s (Ohio Oil & Gas Association) 73rd Annual Meeting. Industry leaders soberly assessed the state of current affairs. According to OOGA president Matt Hammond, the industry may have to downsize for a while. Jeff Fisher, CEO of Ascent Resources, agreed. Hammond said, “it’s just going to look a little bit different in the next few years” before the price of gas rebounds. The sentiment was clearly what we’ve been preaching: Expect lower for longer when it comes to gas prices.
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How Coronavirus is Affecting the Oil & Gas Industry

A great many things affect the price of oil and natural gas–weather, economic conditions, supply/demand balance, sunspots. Can a human virus affect the O&G industry too? It seems the answer to that is, YES. We’ve resisted bringing you blow-by-blow the daily coronavirus tripe peddled by mainstream media in their attempt to harm the American “Trump” economy. But we can’t ignore how media-generated panic is affecting world markets–and (now) the oil and gas industry, including the industry here in the U.S.
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Bottom Drops Out: Feb Natural Gas Price Lowest in 20 Years

More obsessing and hand-wringing over the low price of natural gas (we can’t help it!). Our favorite government agency, the U.S. Energy Information Administration (EIA) published a post on Friday that points out the NYMEX price of natural gas has hit its lowest level for a February day in the past 20 years, closing at $1.77/MMBtu on Feb. 10 (up slightly since then). EIA also points out these are the lowest absolute prices (for any day in any month) we’ve seen in the past four years–since the price crash of 2016. Again, the price crash is happening in February! Yuck.
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Warm Weather Forecasts Cause NatGas Prices to Crash and Burn

Gasmageddon, as this current low natural gas price climate is being called, is getting worse. Based on the latest weather models (the natgas market has some of the best long-range weather forecasting in the world), gas prices have crashed and are burning (pun intended). Yesterday the NYMEX futures price closed at $1.77–in the dead of winter! Spot prices for gas bought and sold in the northeast lead the loss in value. A Raymond James survey of energy executives found most execs believe we will exit 2020 with the price of gas in the $1.50-$2.00 range, and that gas will not go above an average of $2.50 this year. Although we now use 50% more natgas than just 10 years ago, prices remain stubbornly low. Why?
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Low Price Silver Lining: Power Generation Uses More Natural Gas

If there’s any silver lining to the ongoing low price for natural gas (NYMEX price closed at $1.86 yesterday), it is that gas-fired power generation kicks in with more demand, which will ultimately cause the price to rise–or at least not fall any further. Electric generation is a critically important market for natural gas. We spotted a couple of interesting articles. The first, from Platts, outlines the relationship of low gas prices to more switching from coal to gas. Platts says if gas stays under $2/Mcf, “power burn could see significant upside risk.” The other article, from Rigzone, says natgas will generate nearly 40% of all electricity in 2020–double what it generated just 10 years ago.
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EIA Annual Energy Outlook 2020 Says Gas Under $4/Mcf Thru 2050

According to our favorite government agency, the U.S. Energy Information Administration (EIA), the price of natural gas will, on average, remain below $4 per thousand cubic feet (Mcf) for (gasp)–the next 30 years. You read that right. Lower for longer is, according to EIA, the reality for the next full generation. EIA recently released its “Annual Energy Outlook 2020” (full copy below). In addition to low gas prices, EIA predicts that so-called renewables will eclipse natural gas in electricity production by 2050. We say: When pigs fly.
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