(Oil and Gas 360) - Several headlines about the international oil business have surprised market observers over the past few weeks:
OPEC+ Group decided to increase its productivity by 411,000 barrels in May (b/d).
The Trump administration has decided to tighten sanctions on Iran's oil outbreak, including secondary sanctions. Iran exports from 18 to 20 million b/d. This exported oil is mainly purchased by China.
The next title last weekend pointed out that OPEC+ will increase production by 411,000 b/d in June. This is a bigger surprise for the market, as the price of oil is already soft.
The impact of these lower oil prices on oil supply and company performance has raised questions. The oil industry should be regarded as international industry and domestic industry respectively. More than 80% of the world's oil is produced by governments or government-led companies. Some of these companies trade on public exchanges and are similar to private enterprise companies, but their government owns a large stake and acts as government agencies.
The domestic oil and gas industry in the United States consists primarily of hundreds of private enterprise companies, ranging from small operators with some wells to major integrated international companies Chevron and Exxon. In recent years, these companies have made the United States the world's largest oil producer. This is done through the individual initiative and innovation provided by free enterprise. Other countries have found it difficult to implement technological innovations developed by U.S. companies.
Many countries that produce oil have little income. The IMF estimates that its oil revenues “break-even” oil prices can meet the country’s national budget. These estimates range from $50 barrels in the UAE to between $115 and $125 in Kazakhstan, Algeria and Iran. Saudi Arabia is $90.94. Because of low oil prices, these countries must adjust their budgets to drop into reserves, or can increase their productivity, which is equivalent to cheating on quota agreements with other producers.
RBC Capital estimates that the London quoted Brent oil prices by the large integrated international oil companies: Chevron and ExxonMobil and UK companies are $56 and $57 per barrel, respectively, Shell is $48, and BP $71. These estimates include maintaining dividend payments.
The Federal Reserve Office of Dallas and Kansas City conducted a survey of private enterprise companies operating in the domestic oil and gas business, with 130 respondents being Dallas first-quarter surveys and 36 respondents to Kansas City. The companies surveyed were divided into "large" manufacturers, producing more than 10,000 b/d and "small", producing up to 10,000 of about 1,000 b/d.
These surveys compile “power-off” WTI prices, which correspond to operating costs in several different site areas. The numbers commonly quoted are the average response of the company. These costs range from about $26 in the Eagle Ford area of South Texas to $33 to $35 per barrel in the Permian Basin, and can reach up to $42 to $45 per barrel in other basins, including non-massive production. These are the oil prices required to pay for operating costs for existing production.
The Fed investigation also requires the price required to drill new wells. The company's average response to oil prices required to drill to replace production declines ranges from about $50 per barrel to $65 per barrel.
As mentioned above, the numbers widely cited in the press are the average of company responses. The response range is wide - from about $12 to $80 barrels. Some companies need a much higher price than these offers, while others can run or drill at a lower price. A major point is that the price quoted by the oil is the price of the New York Mercantile Exchange trader vs. the price of the Brent price is the price of the London ice. This is not the price paid by the on-site operator. The on-site sale price of an oil company is the price the buyer will pay and is affected by the nature of the oil and its location (the distance to the refinery). A company will sell different oil from different projects at different prices, but it will usually be clear that its price is higher than the exchange's price.
The Kansas City survey also asked what oil prices are needed to launch an aggressive growth drilling program to increase production. These responses range from about $78 per barrel to about $85 per barrel, with an average of $81 per barrel.
The investigation includes general questions about the operator's prospects. Comments show a general sense of uncertainty. As we experience a period of restructured U.S. economy and trade relations, disruptions and uncertainties are expected. The Federal Reserve Chairman reported that the economy was in good condition. Although concerns about a possible recession seem to be widespread, such recession has not yet developed. The big and beautiful tax bill passed Congressional efforts to reduce income and capital gains taxes and include capital costs in January, which should reduce costs and reduce the cost of “branch tickets”.
All in all, without significant turmoil, the rest of the year should keep the oil price range narrow and help reduce inflation. Various world conflicts may undermine supply or affect demand. Europe will be busy solving the future it wants. The Iran confrontation is a direct problem and could lead to a brief and intense military action to end Iran's nuclear program. I expect the Trump administration’s destruction to the economy to a large extent and settle down in the fall. I hope drilling will maintain productivity at a moderate rate, but the "drill, baby, drill" boom will not happen at these prices.
By OilAndas360. Dr. Comm Charles Kohlhaas.
“The views expressed in this article are merely those of the author and do not necessarily reflect the opinions of oil and gas360.