Oil Is Killing Communism

There are not a lot of communist countries left. Two of them reside in Central America. Venezuela and Cuba. Being socialist BFF'S, they like to share things. Like oil. Cuba gets oil, and Venezuela gets teachers and social workers. This has been going on for years and everyone was happy. Until now. Venezuela is broke and their oil production is steadily dropping. They can no longer afford to hand away free crude. Exports to Cuba are down 20% already and further drops are expected to continue. Cuba doest have the strongest economy to begin with, so having to import oil from other sources is a tough pill to swallow. Venezuela is so broke that foreign drillers have cut them off over unpaid bills. So their death spiral will continue unabated.

North Sea

While people panic over inventory data, there is trouble a brewing in the North Sea. Workers are holding a one day strike, and are threatening more work stoppages over pay cuts and longer shifts. This may be just a blip now, but could blow up into a major outage if it continues.

The Sauds Are Full Of Shit Part 2

For the past few years the Sauds have been pumping at a record pace of ten and a half million barrels per day. They claim that this is still two million barrels a day off of their theoretical peak, but few beleive that they have that much spare capacity. Mostly because they are currently exporting more than they produce. For the past few months they have been drawing from their stockpiles to meet foreign demand.

Tight Oil

The current oil glut and the future of production is and will be driven by "tight oil", as made famous by the US oil shales.
Conventional oil reserves are big pockets of oil and gas that can be drilled straight down into, and can produce large amounts of oil for decades. Tight oil requires a lot more work for a lot less reward. Instead of one large reservoir, the fields are small pockets spread out over a larger area. Drilling straight down into them is not practical or economical at any price. It was not until horizontal drilling became established, and hydraulic fracturing was employed that these fields started being looked at. And when the price in the twenty tens surged to well over a hundred dollars a barrel, there was enough profit to develop those fields. With the surge of the US shale fields, other countries started to look in their own backyards. There are vast shale fields in Russia, Canada, and Argentina.

The future of global oil is these tight fields. There are tens of billions of barrels. The current issue is the economics. A typical oil well in the US Bakken or Eagle Ridge field only produces about a hundred barrels per day. And because of the specialized drilling and hydraulic fracturing required, the cost per barrel at those fields is around $60. The more economical Permian basin in Texas still costs about $40. Both are a far cry from the big Arab fields that cost less than ten bucks a barrel. 

Tight oil is also why US rig count data is so important. Conventional US oil is in decline, with most fields being fully mature. So it requires thousands of wells for oil shales to swing US production a million barrels one way or another. So when the rig count drops by 80% in a few months, it is a forecast of the US supply constraints in the future.

Tight oil is also why this current price devaluation can not continue for much longer. Global conventional crude has peaked. Tight oil is making up the difference, and will keep increasing as a percentage of total oil. Petro companies can not run those fields at a loss, so to meet global dand in the coming years the price of oil will be pulled up by production costs if nothing else.

Russia

The oil collapse severely hurt most of the large petroleum companies, except the Russian ones. Because Russia's economy revolves around oil, the Ruble tanked in value. This benefited the petros though. Globally oil is bought and sold in USD. So while every barrel is worth a third of what it was two years ago in USD in Russia it only experienced a twenty percent drop in Rubles. So by fucking over the country by over producing, the Russian petros (Putin) can continue to over produce and still take in all of the money. It's a beautiful thing.

The Idiocy Of US Drawdown Data

Every week day traders get all worked up over fluctuations of a few million barrels in Cushing. And the global price of oil swings one way or another. It is not a very good metric though. What should be more concerning is how much oil is at sea. The Arabic countries are increasing their production, and all of this extra production is being transported by ship to ports in Asia. And these ports are receiving ships faster than they can be offloaded. This is enough of a problem that the Saudi's have ordered thirty odd new VLCC class tankers. Each ship with a two million barrel capacity. That is a hell of a lot of additional oil that will go out to sea. And should be a lot more concerning than one or two million barrels in Oklahoma.

Canada

Canada is in a wierd place for oil production. Like the US, light oil peaked in the seventies, but we still produce enough to meet domestic needs. Where Canada is special is the oil sands. An almost unfathomable amount of bitumen. A reserve that will last for over 200 years at extraction rates of four million barrels per day. It has only been developed recently because of the extreme difficulty in mining it. Bitumen differs in crude in that it has a lower hydrogen content and more carbon. Crude at room temperature is a fluid, that makes it nice and easy to pump. Bitumen is a solid. It will only flow if heated or disolved. And because of this, it has a hight cost per barrel to extract. It only became economical to develop those fields once the price of oil reached a suitable level. But now that the industry has been set up, it has vaulted Canada into being a global partner and a hugely important partner to the US.
But while Canada has a damn near infinite amount of oil within driving distance of the US, we have a whole lot more. In northern Alberta and the Northwest Territories there is a vast shale field that potentially rivals the American Bakken formation. It has not been touched for one tiny reason. It is in the middle of absolute nowhere. It is very hard to set up a major oil drilling operation when the only roads exist in winter when trucks can drive on frozen lakes and rivers. Eventually though when other global reserves deplete, those fields will become economical. And by that point most of the Arctic should be melted, and we will have access to any fields in the Arctic Circle as well.