Summary of the Simmons and Company Oil and Gas Macro Outlook
Oil
Simmons estimates crude oil prices to average $24 WTI for 2000 and $21 WTI for 2001, with 1Q00 at $28, 2Q00 at $24, 3Q00 at $23 and 4Q00 at $21. For 2001, they see 1Q01 at $22, 2Q01 at $20, 3Q01 at $21 and 4Q01 stable at $21. Their thesis, relying on inventory-price dependence, is as follows.
Crude oil stocks are at long-term lows, with OECD inventories approaching the 2,300 mmbbl range and US inventories well below 640 mmbbl. US motor gasoline as well as distillates inventories are at record lows, just below 200 and 100 mmbl, respectively. Domestic demand, however, continues to grow, with robust mogas demand at around 8.5 million barrels per day trending upwards. A high demand for distillates at 4.2 millon barrels per day is surprising considering the warmer-than-expected winter. DOE data displays continued total inventory outperformance throughout 1999, peaking at withdrawals of 51.8 million barrels in 4Q99. Opec compliance has remained high. Low crack spreads indicate refinery discipline.
Simmons forecasts an increase of OPEC crude production at or around 1.0 mmbl/d after the March 27 meeting, as well as another hike of 1.5 mmbl/d at their second semi-annual in 3Q00. Their supply and demand forecast for 2000 predicts an average supply shortage of 1.2 mmbl/d, estimating supply and demand at 75.3 and 76.5 mmbl/d respectively. Supply will exceed demand most widely in 1Q00 with 3.6 mmbl/d, while easing to a surplus of 0.3 mmbl/d in 2Q00. Simmons sees 3Q00 undersupply at 1.0 mmbl/d and 4Q00 at 1.2 mmbl/d. The 2001 estimates depict OPEC production remaining stable at 29 mmbl/d, factoring in an additional 0.1 mmbl/d for possible problems with compliance. 2...
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...he term "half life", which got a few laughs). Implications of these decline rates seem to be an increased pace of depleted reserve replacement, indicating a need for further exploration and quicker development spending cycles.
Not discussed, though perhaps equally important, is the question of AGA summer injections, which were low at around 1600 bcf in 1999, but may be different in 2000, considering previous years' levels.
All in all, Simmons also remains in line with most other analysts on its estimates, though veering slightly lower in its storage level forecasts. Constraints in quality rigs are not expected within the next 6-12 months, though a definite demand increase is forecast. Possible labor shortages are not factored into their analysis and were predicted as being either unlikely or irrelevant.
Data used: DOE, AGA, Bloomberg and Baker Hughes.
One of these factors was the logistical nightmare of redeveloping the infrastructure needed to transport oil to the refinery. As early as 1881, Standard oil operated approximately 3,000 miles of pipelines, eventually owning ninety percent of the nation’s pipelines. Although transcontinental railroads were an available alternative, pipelines were cheaper, reduced handling and storage fees, and were more efficient. The fact that modern oil companies invest hundreds of millions of dollars into speculating for sustainable natural oil deposits implies that such deposits are rare and hard to identify with a passing glance. If the spurts of oil proved to be isolated incidents, the capital invested in building pipelines and reestablishing a monopoly would have been squandered.
At the turn of the century there was a new law named “Capture” therefore; whoever produced the oil owned the oil. If you did not produce the oil then somebody else would be willing to produce the oil. The consequences if the production of the well ran dried out weight the reward. “Oilmen were not the only ones who knew that production was often short-lived; bankers quickly learned that no prudent lenders extended a loan on the basis of oil production. “ It was a reality that oil production started of strong and quickly dropped off within a matter of a couple months. The risk was not worth the reward for either party which is the bakers or the oilmen. The ferocious cycles from boom to bust, from having more than enough oil to not enough would swing the price for oil up and down like a roll coaster. When a new oil field came in, the local markets hand more than enough oil, pushing the prices lower, making oil more affordable. However, whenever the oil production dropped it would send the prices sky rocketing making it unprofitable to stay in business. Pattillo Higgins would be willing to take on this challenge head on of producing oil. [Who is Higgins, Ernest? By giving at least a short introduction the readers w...
Why now? This a complicated question, but it boils down to the simple economics of supply and demand. Supply and demand means a relationship between how much of a particular product is available and how much of it people want, and especially the way that this affects the level of pricing. Now of course there would be a shortage of gasoline during the summer time when everyone is traveling Brent crude, the main international benchmark, was trading around $48 a barrel. The American benchmark was at around $45 a barrel (Clifford Krauss).
Texas has prospered with many business such as through the cattle, cotton, and technology industry to keep the economy on top. One business in particular has set Texas economy a part from all the other businesses. The oil and gas industry has significantly changed Texas economy from the first discovery in the twentieth century until this exact moment.
In 2004, crude oil producers around the world expected a 1.5% growth in the world’s demand for crude oil. The actual growth rate was more than double the projections at 3.3%. This growth was due to rapidly industrializing of foreign countries such as, China and India. Therefore the lack of crude oil affected the supply of gasoline to consumers at the pump.
In the early 1920’s, Odessa had a small populace of seven hundred and sixty people and the primary way to make a living was through ranching and farming. Originally, only the hardy and self-reliant dared to live the tough lifestyle due to the infrequent weather patterns and infertile soil. The rugged terrain and arid weather discouraged the timid and sent them eastward retreating to where the physical demands of life were less harsh, where there was a guaranteed job in the booming panhandle petroleum business, and where civilization offered the amenities of an easy life. Fierce heat in the summer and sharp freezes in the winter as well as the vast expanses of rolling grassland, mesquite scrub and the occasional creek made farming that much
Since the 19th century, gas has gradually become a necessity to mankind. It has been used for lighting our houses, to produce heat, to cook our food and to run our vehicles. As time passed, the price of gas has known many changes in Montreal. By the year of 2008 the price was relatively low, but suddenly became very high in 2014. This year in Montreal, the prices are as low as 3.4 US $/G. When considering the previously mentioned facts, we ask ourselves why the price of gas is low and what are the factors fluctuating its price. The main factor responsible of gas price changes is the cost of oil.
U.S. Energy Information Association. "U.S. Total Crude Oil and Products Imports." Eia.doe.gov. Web. 26 May 2011. .
Currently, the most important factor in the rise of gas prices is the increasing cost of crude oil. Unfortunately, the United States has three percent of the world’s oil reserves. (Horsley) In 2009, the United States was third in crude oil production as well as the world’s largest petroleum consumer. (e. I. Administration) Such consumption required and still requires the United States to import petroleum/crude oil from other countries.
Without bias, any United States citizen has thought of Texas of being a big oil producer in the country. Afterall, since the largest discovery of oil in the United States in 1901 was discovered near Beaumont, Texas it would cause some changes not only in the local area but the entire state as well. We all take oil for granted each day but maybe one day you should thank Texas for fueling the United State’s oil production and making the economy a lot better.
In 1970 oil reserves became more scarce, leading to a decrease in production, while consumption continued to grow rapidly (Wright, R. T., & Boorse, D. F. 2011). In order to fill the gap between rising demand and falling supply of oil, the United States became more and more dependent on imported oil, primarily from Arab countries in the Middle East. (Wright, R. T., & Boorse, D. F. 2011). As the U.S and many other countries became highly industrialized nations, they became even more dependent on oil imports. With demand being higher than the actual amount of supply, prices kept rising reaching a peak of $140 a barrel in 2008. (Wright, R. T., & Boorse, D. F. 2011).
The recent surge in the cost of heating oil, diesel fuel, and gasoline in the United States has had significant impact on many sectors of the U.S. economy, but most importantly it has had quite a devastating affect on the trucking industry. This is important due to the fact that nearly “70% of U.S. communities rely solely on trucking for their supplies” (“ATA” 23). If the government continues it’s trend of non-intervention and refuses to place pressure on OPEC, the prices will continue to soar well over the two-dollar mark, and cause the trucking industry as a whole to shut down bringing the U.S. economy to a grinding halt.
Mast, Tom R. Over a Barrel: A Simple Guide to the Oil Shortage. Austin: Hayden, 2005. Print.
... production costs is amongst the lowest in the world. Iraq has the potential of overthrowing OPEC's regime if OPEC countries like Russia and France are ready to develop Iraq's oilfields so that it can be used to full efficiency. Does this mean that, to stop a monopoly, another monopoly must be used to overcome it? Time will tell, especially when UN sanctions are lifted and the new Iraqi government is formally established.
In conclusion, the supply and demand of oil is a complex issue that depends on several factors. Geopolitical affairs are the major issues that affect supply and demand of oil. Geopolitical factors include wars, uprisings and political inconsistencies in the world. Other factors that influence the demand and supply of oil include market domains, availability of oil, recession and the world GDP. Since 1859, the price of oil has been inconsistent. Despite the fact that oil prices increased and fell, there has been a considerable rising trend in those prices. In most cases, the falling of the price reaches the previous price level. However, increase of prices goes beyond earlier prices. This trend has seen oil prices rise over the years. With this in mind, it is clear that by 2020 the real price of oil will be more than 200 dollars.