US Frackers Keep Adding Barrels lweb.es/f1428 9.20.2016
Nimble U.S. shale oil producers continue to show an uncanny ability to squeeze more and more crude from new wells, allowing them to do more with less as they try to weather another dip in oil prices to $40 a barrel, so they are still seeing output gains from improved well designs and fracking techniques. The pace of innovation is increasing. Pioneer Natural Resources said it was introducing its third generation of well completion techniques, called version 3.0, using even more sand and water than the super-sized volumes introduced as version 2.0 earlier in the price crash to pull more oil out of rock. For its part, Devon Energy Corp has cut costs to drill and complete new wells by 40 percent and plans to cut $1 billion in costs this year.
OEF REVIEW:Oil analysts are looking to next year for a rebound. Crude has plunged as refineries created a glut of gasoline while failing to eliminate excess supply of crude. That wrecked refining margins. Yet, global oil prices will average $57 a barrel in 2017, according to the median of at least 20 analyst estimates compiled by Bloomberg. “We’re looking at a market that’s still in a very slow process of rebalancing and we don’t think that you’ll get a sustainable deficit until the second quarter of 2017,” said Michael Hsueh. Oil companies’ capital expenditure reductions are set to reach $1 trillion by 2020 and this lack of investment “will have a big impact on global supply,” said Hans Van Cleef who forecast Brent will reach $70 next year. 
OEF REVIEW:After a long period of dwindling demand, China’s oil consumption showed first signs of stabilizing in June. Total apparent oil demand in the world’s second-largest oil consumer averaged 11.32 million barrels a day that month, up 4% from May. Beijing does not release official data on oil demand and stocks, but Platts, by adding refining output as reported by the National Bureau of Statistics, and net imports as reported by the customs department, apparent demand for gasoil of 3.39 million barrels a day in June was down 6.4% year-on-year but up from the 70-month low of 3.14 million barrels a day in May. Fuel oil demand in June dropped 31.6% year on year to 765,000 b/d, and was 10.9% lower from May levels, and apparent demand for gasoline in June recovered from May, with a 4.6% month-on-month rise to 2.81 million barrels a day, which was also 2.6% higher than the same month last year. 
OEF REVIEW:Crude could return to $100 a barrel because the two-year market downturn has curbed investment. Except during the financial crisis in 2008, average Brent prices increased every year from 2002 to 2012, and topped $100 a barrel from 2011 to 2014 and leading companies into higher-costs projects and capacity building that outstripped demand leading eventually to a collapse in prices. 
OEF REVIEW: Mid-August saw the longest period of rig expansion since the final days of the drilling boom in early 2014, according to World Oil, marking the longest period of oilfield expansion since April of that year when drillers added oil rigs nine weeks in a row, reported Baker Hughes Inc. Prompted by an oil price recovery from a 12-year low in February, producers have begun returning parked rigs to service after idling more than 1,000 rigs since the start of last year. The long-term decline in drilling expansion has led to a slowdown in production. Crude output fell by 15,000 barrels per day to 8.45 million barrels per day during the week ended August 5th. “I think it’s just a matter of time before we come into balance,” Paul Crovo, a Philadelphia-based oil and equity analyst at PNC Capital Advisors said. “We think the fundamentals will take care of themselves as we come into the third quarter and later into the fourth quarter and early 2017.”
OEF REVIEW:According to the U.S. Energy Information Administration (EIA) world tight oil production is expected to more than double between 2015 and 2040, increasing from 4.98 million barrels per day in 2015 to 10.36 million barrels per day in 2040. Most of the projected increase will come from the United States, with much of the rest coming from countries such as Russia, Canada, and Argentina. U.S. tight oil production is expected to reach 7.1 million barrels per day in 2040. Tight oil production in Canada will continue to decline until 2020, and then increase over the rest of the projection period, reaching 0.76 million barrels per day in 2040. Argentina is still in the early stages of commercial tight oil production, but projections are that production will double from 2015 to 2020 and will reach 0.69 million b/d in 2040. Russia, Mexico, Colombia, Australia, and other countries that hold large technically recoverable tight oil resources are expected to contribute 18% of the projected total world tight oil production by 2040.
OEF REVIEW:Oil investors are buying contracts that will only pay out if crude oil rises well above US$100 a barrel over the next four years – a clear sign some believe today’s bust is sowing the seeds of the next boom. The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch. Over the last month, investors have bought call options for late 2018, 2019 and 2020 at strike prices of US$80, US$100 and US$110 a barrel. Previously, some investors had already built super-bullish positions. The options deals suggest a concern about shortages as demand begins to outstrip production – the traditional boom and bust commodities cycle.
OEF REVIEW:India’s fuel markets could be a lucrative prize for the world’s oil majors as they seek outlets for their gasoline and diesel. India posted the fastest oil demand growth in the world in the first quarter of 2016 and is replacing China as the driver of growth globally, the International Energy Agency said in its latest report. Fuel marketing in India has turned profitable after the government ended decades-old control over the retail prices of gasoline and diesel, and local private oil refiners Reliance Industries and Essar Oil have started opening their mothballed fuel stations, adding new ones to expand business. India recently offered Saudi Aramco a stake in refineries and petrochemical projects; Total and Royal Dutch Shell are also keen to strengthen their presence in the fuel retailing business; BP could market jet fuel in the country; and Rosneft may take up a 49% stake in Essar Oil’s in a 49% 400,000 barrels per day Vadinar refinery in western Gujarat state. 
OEF REVIEW:Technical analyst Clive P. Maund lists the reasons he believes oil prices, which recently peaked above $50 a barrel, are headed for a fall: “It still looks like oil is topping out here at about the $50 level after its substantial recovery uptrend from its February low. While we cannot be sure until it breaks down from its uptrend, the chances of its doing so soon look high for various reasons.”
OEF REVIEW:Ship tracking data, sourced from Bloomberg, shows that 83 supertankers carrying around 166 million barrels of oil are headed to China, which has stockpiled an impressive 787,000 barrels a day in the first quarter of 2016 – the highest Chinese oil stockpiling rate since 2014. Additionally, in January 2015 it was reported that China’s strategic petroleum reserve would be increased from 30 days to 90 days. Later in January 2016, it was revealed that China was building underground oil storage facilities to complement its above-ground storage tanks. So it could be considered in the light of this that in contrast to Saudi Arabia, which is a swing producer, China is acting like a swing consumer. Such increased demand from China has helped in lapping up excess oil production, and if If its imports drop, according to Oil Price, the world will return to the oil supply glut and oil prices will retrace back to the lower $30 a barrel.
OEF REVIEW:The new magic number in the oil industry is $50. BP Plc, rig-owner Nabors Industries Ltd. and explorer Pioneer Natural Resources Co. all said in the past 24 hours that prices above $50 will encourage more drilling or provide the needed boost to cash flow. With oil bouncing close to $45 a barrel, an industry that has been shaving costs to stay competitive is ready for signs of stability at a price level less than half of 2014’s average. At an average price of $53 per barrel of oil means the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to oilfield consultant Wood Mackenzie Ltd. Nabors, which owns the world’s largest fleet of onshore drilling rigs, said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise “comfortably” above $50. “It’s not just about touching $50,” Fraser McKay, vice president of corporate analysis at Wood Mackenzie in Houston, said Tuesday in a phone interview. “It’s about touching, maintaining and having the perception of future prices above $50 a barrel before you start sanctioning projects that are economic at $50 a barrel.” 
OEF REVIEW:The Liard Basin is a lightly drilled region at about 60°N that straddles the boundaries of the Northwest Territories, Yukon, and the province of British Columbia. It is located at the far northwest corner of the Western Canada Sedimentary Basin, Canada’s major oil and gas producing area… 
OEF REVIEW:India is poised to replace China as the world’s center of oil-demand growth, according to authors of a study published by the Oxford Institute for Energy Studies. As growth of Chinese oil demand slows, India’s is increasing, note Amrita Sen, chief oil analyst of Energy Aspects, and Anupama Sen, senior research fellow at the Oxford Institute. India’s development has characteristics similar to those of China 10-15 years ago, the analysts say.