Nuclear deal with Iran could lead to $2 gas

 

http://www.autoblog.com/2015/07/15/nuclear-deal-iran-could-two-dollar-gas/?icid=maing-grid7|main5|dl29|sec1_lnk2%26pLid%3D104338133

 

Oil prices that slumped steeply earlier this year may decline again once this week's historic deal between the West and Iran allows that country to start pouring more crude into a market already brimming with supply.

Many analysts estimate that Iran, OPEC's fourth-largest oil producer, has piled up tens of millions of barrels on floating barges that can be exported in fairly short order after sanctions have been lifted. The country will follow that with increased production from its oil fields.

Tom Kloza, chief oil analyst with the Oil Price Information Service told CNN that in a few months we could see big savings at the pump.

"Once we get past Labor Day, we should see gas falling by 10 to 15 cents a month," Kloza said. "By December a lot of places are going to see gasoline at $2 or less."

Oil prices are affected by multiple factors, however, and lower gas prices aren't assured. Energy prices can depend on production levels in other countries, currency rates and demand sparked by the health of global economies. Plus there are questions about the state of Iran's oil infrastructure and its ability to increase production.

Iran produced about 2.8 million barrels a day last month, but its oil exports have fallen to about 1.1 million barrels since sanctions were enforced in 2012. The country's oil fields are estimated to be capable of raising daily production to 3.4 million to 3.6 million barrels within months of sanctions being lifted, according to the International Energy Agency's July oil market report.

However, potential roadblocks stand in the way. Sanctions likely will be eased slowly, and the Iranians may find it harder than they expected to bump up production, said Amy Myers Jaffe, an energy consultant and executive director for energy and sustainability at the University of California, Davis.

She noted that sanctions made it difficult for the country to obtain spare parts and assistance in operating its oil fields. Oil is essentially harder to extract from Iran's fields than from those in other countries like Iraq, and international oil companies planning to start production there need to be wary of problems like corruption.

"Companies are going to have to be very careful about how they go in," she said. "There's just this bureaucratic bottleneck that comes from trying to do contracting with international companies ... and those things can go very slowly."

Oil industry analyst Blake Fernandez expects Iran's production to grow gradually, with the country adding about 600,000 barrels a day through 2017. Over the long term, that additional volume may have a more limited impact on price if demand for oil continues to grow by an expected rate of approximately 1 million barrels a day.

The Associated Press contributed to this report.

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Oil prices slide as Iran's nuclear deal spells trouble for U.S. shale

One of the oil world's oldest powers is set for a long-term comeback. Photograph by Vahid Reza Alaei — AFP/Getty Images

http://fortune.com/2015/07/14/oil-prices-slide-as-irans-nuclear-deal-spells-trouble-for-u-s-shale/

The end of sanctions will allow Iran to attract investment in its massive oil and gas reserves, putting a long-term damper on prices.

Crude oil prices are testing three-month lows after Iran struck a deal that will lead to the lifting of international sanctions on its struggling economy in return for curbs on its nuclear program.

 

The benchmark futures contract for U.S. crude fell by over a dollar a barrel in early trade in Europe Tuesday after negotiators confirmed that they had struck an agreement after years of fraught talks.

 

The gradual end to sanctions foreseen under the deal will allow Iran, which has the world’s third-largest oil and gas reserves, to attract investment into its long-isolated energy sector, adding to world oil supplies at a time when the market is already “massively oversupplied”, according to the Paris-based International Energy Agency.

 

The Financial Times reported in June that European oil majors such as Royal Dutch/Shell RSDA and Italy’s Eni SpA E 0.52% have already visited Tehran, with a view to clearing old debts and paving the way for new deals.

 

That’s bad news for U.S. shale oil producers, which have struggled to adapt to a world of lower prices since Saudi Arabia pushed the Organization of Petroleum Exporting Countries into a fight for market share at the end of last year.

 

However, it’s not the Iran deal per se that’s the bad news, but the fact that it adds to a list of factors that have stopped the rebound in oil prices in its tracks in the last couple of weeks.

 

“Onshore storage space is limited. So is the tanker fleet. New refineries do not get built every day. Something has to give,” the IEA wrote in its latest report on the world oil market. That something, it added, is most likely to be U.S. light, tight oil.

 

Analysts at Wood Mackenzie estimate as a base case that Iran will only add 120,000 barrels a day by the end of the year to the 2.7 million it currently produces. That’s little more than a drop in the bucket next to the surge in output that’s already happened this year as Saudi Arabia, smaller Gulf producers, Russia and Brazil have pumped furiously to ensure they keep their share of the pie.

 

WoodMac reckons that it could add a total of 600,000 b/d by the end of 2017, with 260,000 b/d coming next year and another 220,000 b/d the year after. That’s based on the assumption that sanctions are fully lifted by the middle of 2016.

 

Iran itself wants to increase its oil output to 5 million barrels a day by the end of the decade. That may seem ambitious, but Iraq has managed a similar increase since the toppling of Saddam Hussein despite having to cope with the constant chaos of civil war and, more recently, the rise of Islamic State.

 

If the deal holds, and Iran can overcome its diplomatic isolation for good, then it seems destined to have a major impact on global supplies in the long term. Over three-quarters of its recoverable reserves are still to be developed–and most can be developed without the state-of-the-art technology required in most new oil producing regions, whether in shale formations or offshore.

 

That can’t help but have an impact on the math for the U.S. shale industry. So far, the weaker companies in the sector have relied largely on new stock issuance and drastic cutbacks in investment spending to ride out what they hoped would be a temporary setback. If Iran ever starts to realize its full potential as a producer, the sector will have to accept that prices are going to stay lower for longer.

China Retakes Top Oil-Buyer Spot From U.S. Amid Stockpiling

 

http://www.bloomberg.com/news/articles/2015-07-13/china-crude-oil-imports-rebound-as-new-emergency-reserves-open

 

China regained its status from the U.S. as the world’s biggest crude oil importer as shipments surged to fill the Asian country’s strategic petroleum reserves.

 

Overseas purchases by China rose to 29.49 million metric tons in June, a 27 percent increase from May when shipments were the least since February 2014, according to preliminary data released by the Beijing-based General Administration of Customs on Monday. That’s equivalent to about 7.2 million barrels a day, Bloomberg calculations show. U.S. crude imports last month averaged 7.08 million barrels a day, according to data from the Energy Information Administration.

 

China’s crude imports rose as it began filling the second phase of emergency reserves in the eastern city of Qingdao that have a capacity of 3 million cubic meters (about 19 million barrels). Oil imports may climb in the third quarter from the previous three months as another storage site in the southern Chinese city of Huizhou is scheduled to open, ICIS China, a Shanghai-based commodity researcher, said July 1.

“Filling of the strategic reserves in Qingdao definitely played a part in the increase,” Amy Sun, an analyst with ICIS China, said by phone from Guangzhou. “China will overtake the U.S as a permanent top crude importer in a year or two.”

Slower Imports

China’s crude imports in the first six months of the year grew by 7.5 percent, slower than the 10 percent pace in the same period of 2014, according to customs data. The country’s gross domestic product expanded by 6.8 percent in the second quarter, according to the median estimate of 39 economists surveyed by Bloomberg before official data released Wednesday. That compares with 7 percent in the first quarter.

 

“An important driver of strong crude imports has been filling for China’s Strategic Petroleum Reserve program,” Ivan Szpakowski, a Hong Kong-based analysts at Citigroup Inc., wrote in a report Monday. “The past nine months has seen the perfect storm of low oil prices with increased storage capacity.”

 

China overtook the U.S. as the largest crude importer in April for the first time this year. The country bought a record 7.4 million barrels a day from overseas that month, surpassing U.S. imports of about 7.3 million. Brent, used to price more than half the world’s oil, is little changed this year after tumbling almost 50 percent in 2014.

 

China may add 100,000 barrels a day of oil to strategic stockpiles this year and increase it to 200,000 barrels a day in 2016, PIRA Energy Group, a New York-based energy consultant, said in May. The government has filled four sites in the first phase with 91 million barrels of crude, the National Bureau of Statistics said on Nov. 20. The second phase, which includes the Qingdao and Huizhou sites, is designed to take in 168 million barrels, according to Gao Shixian, a deputy director at the National Development Reform and Commission’s energy research institute.

 

The nation’s crude processing is poised to climb 2.5 percent in the next three months from the previous quarter amid reduced refinery maintenance, ICIS China said on July 6.

New Orleans accepts $45M from BP in oil spill settlement

http://www.chron.com/business/energy/article/New-Orleans-accepts-45M-from-BP-in-oil-spill-6377129.php

 

NEW ORLEANS (AP) — The city of New Orleans has accepted $45 million from BP to compensate for damages from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.

 

Mayor Mitch Landrieu's office announced in a news release Thursday the money will be used for "resilience initiatives, including water management and coastal and ecosystem restoration."

 

Local governments around the region have been taking action as part of a proposed $18.7 billion settlement the oil company agreed to pay Louisiana and four other states as a result of the disaster. Louisiana's share could total $6.8 billion.

 

U.S. District Judge Carl Barbier set a July 15 deadline for governments to approve the proposed settlements.

 

The Deepwater Horizon explosion killed 11 oil rig workers and spill millions of barrels of oil into the Gulf of Mexico.

China wants to steal gold-market ‘reins’ from New York, London

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By

MyraP. Saefong

http://www.marketwatch.com/story/china-wants-to-steal-gold-market-reins-from-new-york-london-2015-07-09                              

 

Markets/commodities reporter

China has been making it very clear that it wants more control over the global gold market, but it’ll have to go through New York and London first.

 

“Given that China is the epicenter of the physical gold market, it does make sense that the Chinese government would want its physical Shanghai gold market to supplant the Comex derivative market (and others) as the primary global price-setting mechanism,” said Anthem Blanchard, chief executive officer of online precious-metal retailer Anthem Vault.

 

China is, after all, the world’s largest producer and one of the biggest buyers of the metal, often running neck and neck with India as the globe’s top consumer.

Last month, the Bank of China became the first Chinese bank to join the group of lenders that set the London Bullion Market Association’s gold price benchmark, and two more Chinese banks are reportedly working to become members.

 

“This will allow Chinese banks to participate in the gold market on a global basis,” said Julian Phillips, founder of and contributor to GoldForecaster.com.

 

The LBMA Gold Price replaced the historic London Gold Fix in March.

 

New York and London have generally been the hubs for setting gold prices. But with “so little gold going through Comex in physical terms, this is a distortion of demand and supply as it only reflects the trading picture of speculators in New York,” said Phillips. He noted that only 5% of contracts are delivered on Comex after notice has been given of this intention.

‘Control over the gold price is exercised in New York and London, leaving China at the mercy of those two centers.’

Julian Phillips, GoldForecaster.com

“Control over the gold price is exercised in New York and London, leaving China at the mercy of those two centers,” he said.

 

So despite China’s huge presence in the physical market, it hasn’t had much control over the global gold price.

 

Having New York and London as the price-setting locations has “kept gold prices well below the level of demand and supply should reflect,” Phillips said. China does not want an uncontrolled gold price, but it also “does not want the U.S./U.K. to have control over this market if they are minor players.”

 

On Thursday, August gold futures GCQ5, -0.03%  settled at $1,159.20 an ounce on Comex in New York, and in London, the afternoon LBMA Gold Price was $1,164.25.

 

What makes China’s stock market unique?

(1:51)

The Chinese stock market behaves differently from most other big markets in the world in normal times. During a big selloff, things can get really weird. Photo: Getty Images.

 

Gold prices haven’t found much support in the wake of China’s recent stock-market drop, but Blanchard said that if Chinese stock investors become “increasingly disillusioned” about losses in the country’s stock market, gold prices could “benefit greatly.”

 

Meanwhile, China’s greater presence in the world gold market could also help the country’s currency.

 

China can “promote yuan USDCNY, -0.0451%  trading in gold, with Chinese banks taking up stock and selling it to other buyers in yuan,” Phillips said. Add that to a yuan gold “fix” price in Shanghai, expected before the end of the year and you will have a market “that is not distorted by the banks, their proprietary trading, or control of the gold distribution system globally.”

Instead, “China will hold these reins,” he said.

 

In the end, it may be really about China operating independently of the U.S. financially, Phillips said.

Gold isn’t just a commodity, it is “money” and recognized by all global central banks as such, he said.

 

To have a global multi-currency system, the expectation is that gold will act in a pivotal role alongside the U.S. dollar DXY, -0.66% sterling GBPUSD, +0.8973% the yen USDJPY, +0.92%  and Swiss franc USDCHF, -1.1499% —and, this year, the yuan, he said.

 

He believes the dollar will lose a lot of its influence in global trade—“so it is not just about gold for China, it is a new monetary system relatively independent of the U.S. and the dollar.”

Southern California motorists could see gasoline prices soar by 30 cents per gallon

A man pumps gas at the Arco AMPM at Topanga Canyon Boulevard and Nordhoff Street in Chatsworth. Staff file photo

 

Chevron’s refinery in Richmond also did an unplanned shutdown in April for flaring, which occurs when too much pressure builds up due to over-pressurizing of equipment and flammable gas is released through pressure-relief valves.

 

Consumer Watchdog, a Santa Monica-based consumer advocacy group, has alleged that oil refiners are gouging California motorists by charging branded stations an average of 30 cents more per gallon than unbranded stations.

 

The organization presented its analysis last week at a meeting in Berkeley with the California Energy Commission Petroleum Market Advisory Committee.

 

Southern California motorists soon will feel the sting of higher gasoline prices — prices that could rise as much as 30 cents a gallon.

 

A report released Wednesday from the Energy Information Administration details a “perfect storm” that shows the West Coast’s gasoline inventory fell by more than a million barrels last week while fuel imports into the region dropped to zero for the first time since March.

 

Shortly after Wednesday’s report was released, wholesale prices for Los Angeles CARB-mandated gas spiked. Average retail prices in Southern California could rise 10 cents or more over the next 24 to 48 hours, according to GasBuddy.com. And the fuel-price tracker said prices will likely be 15 to 30 cents more per gallon by next week.

 

But before you rush out to the nearest pump, GasBuddy is advising motorists that filling up unnecessarily may further boost prices.

 

Allison Mac, a West Coast petroleum analyst with GasBuddy, said it’s hard to tell where prices might go after next week.

 

“Anything could happen,” she said. “Prices are like a roller coaster in Southern California but they could drop again if we get more imports coming in.”

 

When viewed through a longer lens, the current prices aren’t so bad.

 

The average price for regular gas in Los Angeles County was $3.54 a gallon on Wednesday, down 21 cents from a month ago and down 63 cents from the year-ago price of $4.18 a gallon.

San Bernardino County has seen a similar trend. The average price there was $3.47 a gallon on Wednesday. That was down 22 cents from a month ago and down 67 cents from a year earlier.

 

Mac said the decline in gasoline inventory for the West Coast is likely tied to reduced production at California refineries.

 

“This has been one of the worst years with refineries,” she said. “We had all of those problems earlier this year, and on top that a labor strike. And we had a refinery explosion — that doesn’t happen every year.”

 

California has certainly weathered its share of refinery problems.

 

The ExxonMobil refinery in Torrance suffered an equipment failure in mid-February which resulted in an explosion that injured four people. That facility is still not producing gas, according to Mac.

 

Tesoro’s Golden Eagle refinery in Martinez shut down on Feb. 1 when steelworkers at the facility joined in a nationwide strike. The facility was later restarted, but a processing unit was briefly shut down in mid April, although it has since resumed operation.

The group also says oil refiners are drawing deep profits from gasoline price spikes.

 

Figures from the California Energy Commission show that the state had 4.5 million barrels of the state’s specially formulated gas in stock for the week ending Friday. That was down 1.4 percent from the previous week and down 1.1 percent from a year earlier.

 

Regardless of the reason, Southern Californians aren’t happy to learn that gas prices will soon be heading north again.

 

“We just pay the price and hope that we’ll get more sales to make up for it,” said Faye Sokolsky, an office manager at Michael’s Furniture Warehouse in Panorama City. “It’s not something we like to dwell on.”

 

Michael’s averages about 100 deliveries a week, according to Sokolsky, and most of those are done through a delivery service.

 

Many Southland motorists are likely grumbling at the thought higher gas prices. But Steve Lubanski, who owns the Open Road Bicycle Shop in Pasadena, isn’t one of them.

 

“I’m lucky because I only drive three miles a day to work,” the Pasadena resident said. “I spend $10 to $12 a week on gas at the most, so I’m barely on the fringe of what you’d consider to be a commuter.”

Second Wave of U.S. Oil Boom Will Bankrupt OPEC

U.S. crude oil prices have plunged by 11 percent over the last two days to a low of $50 a barrel before settling at $52. The mainstream-media blames the fall in prices on the turmoil in China and Greece, but the real driver is the outbreak of discounting by U.S. oil-rig operators.

 

http://www.breitbart.com/big-government/2015/07/08/second-wave-of-u-s-oil-boom-will-bankrupt-opec/

 

The resulting fall in the average U.S. “break-even” cost necessary to sustain domestic oil production is now around $32 per barrel. America’s new hyper-competitive cost structure has launched a second wave of an oil boom that threatens to bankrupt OPEC.

 

The 55 percent plunge in oil prices over the last year is the fourth-longest in the number of trading days for declines of 40 percent or more. But unlike the normal price movements of commodities based on changes in supply and demand, the current decline, which started exactly one year ago, was due to a predatory effort by the Saudi Arabia-dominated OPEC cartel to regain market share volume it has lost to the U.S. oil boom.

 

As Energy Information Administration (EIA) data reveal, hydraulic fracking allowed the US to reverse three decades of falling oil production to pass Saudi Arabia as the world’s largest producer of petroleum and other liquids by 2013.

 

The early 2014 all-in break-even price for domestic oil exploration and production was estimated at $65 per barrel, according to a study by Morgan Stanley. Adding on the 9 percent profit necessary to sustain the boom, it was estimated that a fall in the price of oil below $71 per barrel would severely shrink oil production in the U.S.

 

By continuously keeping the price oil above $70 a barrel since 2009, OPEC realized by June of 2014 that it was encouraging U.S. competition. The cartel assumed that if it pushed prices down to $50 a barrel for a while, the U.S. boom would quickly implode.

 

OPEC began its “bear raid” on the week of July 4, 2014. The active US drilling oil-rig count at the time had just hit a multi-decade high of 1873. By knocking the price down to under $60 a barrel over the next 12 months, OPEC was able to shrink the active U.S. oil-rig count down to 628 by late June 2015, the lowest since August 6, 2010.

 

But to OPEC’s shock, U.S. oil production, rather than falling from 8.6 million barrels a day (bpd), actually rose by April to 9.7 million bpd. OPEC’s exports of Middle East “light sweet crude” to U.S. refineries on the Gulf Coast decreased by 45%,

 

IHS CERA business analysts attribute the continued U.S. production momentum to the cost of oil production dropping by 32 percent in the U.S. as drilling and service vendors have slashed prices to stay busy.

 

The U.S. “fully burdened exploration and production “break-even” cost is now $51 per barrel, and falling fast. Furthermore, with hundreds of American oil companies having already paid the exploration lease acquisition costs to accumulate tens of thousands of drilling sites, the production-only break-even cost for positive cash-flow is about $29 a barrel. After tacking on a 9 percent profit, U.S. domestic oil companies are now incentivized to produce domestic oil any time the price is above $32 a barrel.

 

That explains why the U.S. active oil-rig count, after 29 straight weeks of decline, rose by 12 to 640 for the week of July 4, 2015, according to Baker Hughes Inc.

 

OPEC’s action has been a disaster. The cartel has managed to  drive down the sustainable break-even cost for U.S. production, thus helping the domestic oil companies take even more market share from OPEC.

 

Since OPEC members essentially run 75 percent or more of their economies on oil revenues, the average cartel member needs the same “break-even” price of $106 per barrel that Saudi Arabia needs to balance their budgets. Kuwait is the lowest-cost OPEC producer at $54 a barrel, and Libya is the highest at $184 a barrel.

 

With every OPEC member now at a higher break-even cost than the U.S., it is OPEC members that are at risk of being bankrupted in the second wave of the U.S. oil boom.