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Mexico’s Sureste Basin Returns To Super Basin Spotlight

From: Hartenergy / 6 April

HOUSTON—The flurry of bidding activity from oil and gas companies willing to shell out millions of dollars for drilling rights in the shallow waters of the Gulf of Mexico (GoM) during Mexico’s latest bidding round showed there must still be something special about the Sureste (Southeast) Basin.

“I’ve never seen a structure like it in my career,” Mark Shann, subsurface director for Sierra Oil and Gas, said of Sureste during the AAPG’s recent Global Super Basins Leadership conference.

The multiplay basin, which includes prolific sub-basins such as Sonda de Campeche and Chiapas-Tabasco, spans about 65,000 sq km and is believed to hold 50 billion barrels of recoverable oil in the GoM’s shallow water and beyond. Its oil-prone prowess gained prominence in 1976 with Mexico’s game-changing Cantarell oil field discovery. Since then the basin has served as the main hydrocarbon-bearing province for Mexico, which is working to reverse declining production with global players eagerly chomping at the bit in search of oil.

RELATED: Southeast Basin Lures Oil Companies To Mexico’s Shallow Water

The historic Zama discovery made in 2017 by a Talos Energy-led consortium that includes Sierra and Premier Oil and another discovery—Amoca—by Italy’s Eni in 2017 have kept the basin in the spotlight, indicating it still has more to give. The Zama well, the first well drilled by the private sector since Mexico opened its doors to foreign investors, hit 170 m to 200 m (558 ft to 656 ft) of net oil pay in Upper Miocene sandstones. Initial gross original oil in place estimates ranged from 1.4 billion barrels (Bbbl) to 2 Bbbl.

Some would call it the rebirth of a super basin.

Shann said the basin—along with neighboring Tampico-Misantla—has all the qualities of a super basin.

“If you’re going to go into a super basin, you need at least one fantastic source rock and it has to be a mature source rock,” Shann said. He added that multiple reservoirs are also needed. “Having multiple reservoirs takes away the dependency of one reservoir working out or not, and you need seals to hold back hydrocarbons in their reservoirs.”

Having a diversity of traps is fantastic, he added, noting other attributes also define a super basin. These include having a regulatory framework in which to make the entire business work and super data, something Shann said Sureste Basin has plenty.

“Four years ago when we started our company we couldn’t get all seismic data from the country. Today you can access all the seismic,” Shann said. “You can access any well that is older than two years, and there are 39,000 wells in the country. The ability mine data and therefore to compete on an equal level playing field is hugely important,” especially for a small company competing against supermajors.

Sierra has picked up 11,000 sq km of wide azimuth data from Schlumberger and source rock is visible, he said. “The super data has really helped to underpin a story of success in one of the world’s greatest super basins.”

Today Sierra is focused mainly on Sureste, which Shann said extends beyond shallow and into deepwater.

The company said on its website that Sureste’s original oil and gas in place is about 220 Bboe, and the fact that it has numerous mature fields—including Ku Maloob Zaap and Sihil—and little reinvestment signals “significant opportunity for growth.”

Its reservoirs are associated with structural, salt tectonics, stratigraphic and combined traps, and the main structural styles include normal faulting with rotated blocks (Late Miocene-Holocene), salt cored anticlines and salt rollers and diapirs (Jurassic-Late Cretaceous), according to Mexico’s National Hydrocarbons Commission.

In terms of source rock potential, Shann said “we’re definitely in a super basin.” He spoke about how the Zama discovery shed more light on source rock thickness. Taking into account a conservative 50% migration loss among other factors, the company was able to determine the source rock must be about 200 m thick.

Shann said the company and its partners’ plan to test the Jurassic next year.

“Sureste is one of those amazing salt-related basins,” he added, speaking highly of the carbonate potential of the basin in Mexican waters and on the U.S. side. “I think we can still find some big carbonate fields in the Campeche Slope.”

Located about 37 miles offshore, Zama is between Eni’s Amoca appraisal well in the Lower Pliocene and Pan American’s Hokchi 2 in the Middle Miocene.

“Between the three of us, we’re exploiting different parts of this basin, which helps the industry’s understanding of the whole basin,” Talos CEO Tim Duncan told Hart Energy’s Oil and Gas Investor last summer.

RELATED: Talos Energy CEO Talks About Historic Zama Well

Talos, which will merge with Stone Energy, said in its March 15 fourth-quarter earnings release that the company is in the appraisal planning stages for the Zama-1 discovery. Zama-1 is located in Block 7 of the Sureste Basin at a water depth of about 165 m.

Other exploration opportunities exist, according to Talos.

Talos holds a 35% participating interest with Sierra holding 40% and Premier, 25%.

From: Hartenergy / 6 April

 

¿Cuánto costó el derrame del Deepwater Horizon?

El 20 de abril de 2010, la empresa británica British Petroleum (BP) realizaba operaciones de exploración de aguas profundas en el pozo petrolero “Macondo”, ubicado a 75 kilómetros de la costa de Luisiana, cuando se produjo un escape de gas, que provocó una explosión y posteriormente un incendio que duró 36 horas y terminó con el hundimiento de la plataforma semi-sumergible Deepwater Horizon.

Las consecuencias fueron graves: millones de barriles de petróleo derramados en el mar, lo que provocó una superficie contaminada de entre 86,500 y 180,000 kilómetros cuadrados que pudo contenerse casi tres meses después de la tragedia; afectación a especies animales, algunas de ellas en peligro de extinción; el fallecimiento de 11 personas y otras más que resultaron heridas.

Este siniestro es considerado uno de los peores en la industria del petróleo, no sólo por los daños directos provocados, sino también por los perjuicios resultantes, tales como la afectación causada a las actividades pesquera y turística.

Además de BP, la empresa Transocean –propietaria de la plataforma y encargada de su mantenimiento- y Halliburton, fueron consideradas responsables del siniestro[1].

Tan sólo los pagos erogados por BP ascienden, de acuerdo con las cifras de la misma empresa, a USD 61 billones, por concepto de los costos relacionados con el derrame, limpieza, reclamaciones económicas y pagos al gobierno[2].

Adicionalmente, BP tuvo que enfrentar diversos juicios por los cargos de “negligencia grave” que le imputaron por varios demandantes.

Que una compañía del tamaño y solvencia de BP haya enfrentado problemas financieros a partir de un siniestro, demuestra que todos estamos expuestos a sufrirlos, ya que los costos de un siniestro pueden llegar a ser incalculables.

Contratar un seguro con los montos y coberturas adecuadas, es fundamental para responder por los daños y perjuicios que se puedan causar a terceros, pero además con ello el asegurado consigue el doble propósito de proteger su patrimonio.

En NRGI Broker, somos expertos en seguros petroleros. Acércate a nosotros, con gusto te atenderemos.

[1] Deepwater Horizon Incident Joint Information Center. U.S. Scientific Team Draws on New Data, Multiple Scientific Methodologies to Reach Updated Estimate of Oil Flows from BP’s Well [boletín de prensa]. 15 June 2010. Disponible en: http://www.deepwaterhorizonresponse.com/go/doc/2931/661583/

[2] Gulf of Mexico restoration, disponible en: http://www.bp.com/en_us/bp-us/commitment-to-the-gulf-of-mexico/gulf-mexico-restoration.html

 

¿Participarás en consorcio con otras empresas en las Rondas de Licitación de CNH? Conoce de qué se trata la Responsabilidad Solidaria.

En 2014, México promulgó  la Reforma Energética y con ello abrió paso a un hecho histórico, por vez primera en 75 años se permitió a la inversión privada participar en las actividades de Exploración y Extracción de hidrocarburos.

Las empresas y consorcios  interesados en participar en los concursos de licitación organizados por la Comisión Nacional de Hidrocarburos (CNH) lo pueden hacer como licitante individual o licitante agrupado (consorcio). Aquellos que deciden participar como consorcio no están obligados constituir una nueva persona moral, sino simplemente a manifestar su voluntad de presentar una propuesta conjunta para la licitación y firmar el contrato correspondiente.

Al permitir este tipo de agrupación, se pretende promover la participación del mayor número de empresas  sin que se quede fuera el capital mexicano. Por eso, pueden licitar empresas que cuenten con experiencia y comprueben capacidad técnica (como operadores) -requisitos que en su mayoría van a cubrir empresas extranjeras- y empresas con capacidad económica y financiera (no operadores).

La participación en consorcio permite que las empresas reúnan las condiciones, que en conjunto  les aseguren mayores posibilidades de éxito. No obstante, es importante considerar que en cualquier caso las empresas adquieren una responsabilidad total solidaria  por las actividades que se ejecuten en el campo.

En primer lugar, será necesario definir su porcentaje de participación, lo cual no implica que asuman solamente en esa medida las obligaciones  establecidas en el contrato, pues las empresas participantes serán solidariamente responsables de todas y cada una de las obligaciones que asume el consorcio, independientemente de su porcentaje de su respectiva participación.

El operador, por su parte, tiene la obligación de cumplir con las obligaciones del contrato en representación de las empresas participantes. Específicamente, se encarga de todos los aspectos operacionales, pero en caso de algún incumplimiento de su parte, como ya dijimos no releva de su responsabilidad solidaria a las otras empresas.

La figura del operador es central, por eso se requiere que cuente por lo menos con una tercera parte de la participación en el consorcio y ningún otro miembro podrá tener una participación económicamente  mayor a  la suya.

En materia de seguros, por ejemplo, el operador es responsable de contratarlos y presentarlos ante la Agencia de Seguridad, Energía y Ambiente (ASEA), de conformidad con lo establecido en las Disposiciones Administrativas de Carácter General   en materia de Seguros (DAGS] para las actividades de Exploración y Extracción de Hidrocarburos, pero si en el momento de un siniestro las coberturas no fueran suficientes y/o adecuadas para responder por el daño, todos los participantes serán legalmente responsables de repararlo.

En NRGI Broker, somos expertos en materia de seguros, así como de la regulación en  materia ambiental, con la que deben cumplir los operadores petroleros. Acércate a nosotros, con gusto te atenderemos.

 

Oil prices are poised for a pullback after OPEC announces its output cut decision

From CNBC / Tom DiChristopher / 28 de noviembre de 2017

 

Market watchers see few opportunities for oil prices to rally — but plenty of room for them to fall — after a critical meeting of energy ministers later this week.

About two dozen oil exporters, including top producers Saudi Arabiaand Russia, meet on Thursday in Vienna to discuss extending a deal to keep 1.8 million barrels a day off the market. The historic agreement has helped to reverse a three-year oil price downturn that wiped out hundreds of thousands of energy jobs and piled financial pressure on both free market American drillers and countries dependent on oil revenue.

The market largely expects the 14-member OPEC cartel and a group of other producers led by Russia to extend the deal, which began in January and expires in March, through the end of 2018.

But just days before meeting, Russia has not committed to the nine-month extension, raising concerns that OPEC could settle for a shorter extension or push off a decision altogether. Either of those scenarios would spark a sell-off, analysts say, but oil prices will probably struggle to grind higher from recent 2½-year highs even if OPEC lives up to expectations.

Here’s how analysts expect markets to move under three scenarios.
OPEC extends by nine months
Andy Lipow, president of Lipow Oil Associates, expects OPEC to lock down the nine-month extension. But he also expects a pullback on the news.

The reason: Hedge funds have recently increased their long positions in oil futures, or bets that prices will keep rising. That makes prices vulnerable to a slide because traders often book profits by selling high. At the same time, the number of oil rigs operating in U.S. oil fields crept up in November, a trend that tends to weigh on prices.

“The market has gotten very, very long and as a result you can have some profit-taking triggered by the increase in the rig count on Friday,” Lipow said.

Tom Kloza, global head of energy analysis at Oil Price Information Service, also thinks a nine-month extension has been baked into prices, making it hard for U.S. West Texas Intermediate crude to rally beyond Friday’s 2017 intraday high of $59.05.

“We may look back at Black Friday as the as-good-as-it-gets number for U.S. producers,” he said.

U.S. crude could take another run at the $59 per barrel level, but OPEC would have to get the messaging just right, said John Kilduff, founding partner at energy hedge fund Again Capital. That includes a show of unity among regional geopolitical rivals Saudi Arabia and Iran and a clear signal that OPEC will force member countries Libya and Nigeria to cap their output after giving them a pass this year.
OPEC settles for six months
However, Kilduff thinks OPEC will only be able to commit Russia to a six-month extension.

He said the country’s energy companies have pushed back on Russian Energy Minister Alexander Novak and President Vladimir Putin as U.S. producers pick up market share in Asia, an important oil growth market. Russian energy giants are concerned that extending the cuts prematurely could leave the market undersupplied, causing a spike in prices that leads to another crash.

“If they do go six months I would expect them to spin it and say they’re going to review it next year,” Kilduff said. “That’s going to be seen as a disappointment.”

In that scenario, Kilduff sees oil prices falling back to the mid-$50 range.
Barclays expects either a six- or nine-month extension but says the market is asking the wrong question. Michael Cohen, the investment bank’s head of energy markets research, says traders should be asking whether exporters will be held to the same production caps they agreed to last year.

“It would be a misguided assumption in our view to expect the group’s production quotas to remain set in stone in 2018,” Cohen said in a research note Monday. “The sustainability of the deal depends on how much longer Saudi Arabia, Russia, Iran and Kuwait are willing to sacrifice market share in the pursuit of revenue and market stability.”

 

From CNBC / Tom DiChristopher / 28 de noviembre de 2017

Record Year for Europa Oil & Gas

 From: Rigzone Staff / Monday, October 30, 2017

 

2016/17 was a record year for Europa Oil & Gas (Holdings) plc in terms of corporate activity, according to the company’s CEO Hugh Mackay.

During this time, Europa achieved a successful farm-out to Cairn of a 70 percent interest in one of the company’s South Porcupine licenses, two separate sales of Europa’s interest in the Wressle oil field in the East Midlands, the acquisition of Shale Petroleum, and the farm-out of a 12.5 percent stake in the upcoming Holmwood well in the Weald basin.

“In our view, this activity is testament to the quality of the technical work we have carried out on our licenses, the excellent location of our assets both offshore Ireland and onshore UK, and the major uptick in industry interest and activity in new plays across our areas of focus,” Mackay said in a company statement.

“The year ahead should see more of the same. We remain focused on securing farm-outs for the remainder of our Irish licenses with partners with whom we can advance our assets towards drilling. At the same time, we are looking forward to commencing drilling activity at the conventional Holmwood prospect in the Weald, an area that is generating considerable excitement following the opening up of the Kimmeridge limestone play,” he added.

Europa registered revenues of $2.1 million (GBP 1.6 million) for the 12 month period ended July 31, 2017. This marked a slight increase over last year’s figure of $1.7 million (GBP 1.3 million). Net cash balance as at July 31, 2017 stood at $4.7 million (GBP 3.6 million), compared to $2.2 million (GBP 1.7 million) last year.

 

 

 From: Rigzone Staff / Monday, October 30, 2017

Mexico’s Pemex says March crude oil exports hit record low

Reporting by David Alire Garcia; Editing by Andrew Hay

“May 5 Mexican national oil company Pemex said on Friday that March crude exports fell to a record low of just above 1 million barrels per day (bpd), while oil output for the month also dipped.

Pemex’s March crude shipments averaged 1.001 million bpd, the lowest level of monthly exports going back to at least 1990 when records began. March exports were down nearly 6 percent compared with the same month last year.

Meanwhile, crude production during the month fell 9 percent to average 2.018 million bpd.

Pemex’s oil output hit a peak of 3.38 million bpd in 2004, but since then has steadily declined.

A four-year-old energy overhaul that ended Pemex’s decades-long monopoly on production led to the first-ever competitive oil auctions and joint venture partnerships, but fresh output streams from new entrants in the market are not expected for several years.

On Wednesday, despite lower oil production, Pemex reported its first quarterly profit in five years on higher sales and rising prices, gaining some $4.7 billion during the January-March period.”

Fri May 5, 2017 | 1:33pm EDT

REUTERS

Most oil producers want extension of output cuts: Iran minister

“Most oil producers support an extension of output cuts by OPEC and non-OPEC countries, and Iran would also back such a move, Iranian Oil Minister Bijan Zanganeh was quoted as saying.

“(Zanganeh) stressed that most countries want OPEC’s decision to be extended,” the Iranian Students’ News Agency (ISNA) reported.

“Iran also supports such a decision and if others comply, so would Iran,” Zanganeh told reporters late on Saturday, according to ISNA.

The market has been oversupplied since mid-2014, prompting members of the Organization of the Petroleum Exporting Countries and some non-OPEC producers to agree to cut output in the first six months of 2017.

OPEC meets on May 25 to consider extending the cuts beyond June. Saudi Arabia, Kuwait and most other OPEC members are leaning towards this if agreement is reached with other producers, OPEC sources told Reuters last month.”

Reporting by Dubai newsroom; Editing by Sandra Maler / REUTERS

Summer Driving Expectations Get Oil Investors Excited Again

“Summer may be a few months away but oil investors are already getting their hopes up that American drivers will do their part to rebalance the market.

Hedge funds increased bets on higher West Texas Intermediate crude prices for the first time in six weeks, shrugging off rising U.S. supplies, as the coming driving season is expected to help ease the glut. Their wagers on more expensive gasoline jumped the most since last year, U.S. Commodity Futures Trading Commission data show.

U.S. fuel producers typically boost crude processing at this time of year as they prepare for the summer surge in demand. In a sign that they’ve already started, a government report showed refineries operating at the highest rate in about three months. Foreign refiners are also developing a taste for American barrels. Crude exports rose to a record in February as China displaced Canada as the biggest customer, Census Bureau data showed.

“As refinery utilization picks up, and if crude exports to Asia remain high, crude supplies will start to deplete,” Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, said by telephone. “The market is focused on where the market is heading, not where it’s been, and crude supplies are going to be whittled down.”

Money managers’ WTI net-long position, or the difference between bets on a price increase and wagers on a drop, climbed 9.2 percent in the week ended April 4 after tumbling 41 percent in the prior five weeks, according to the CFTC. Net bullish bets on gasoline climbed 59 percent, the biggest increase since December.

Refining Boost

Gasoline and diesel producers used 90.8 percent of their crude-processing capacity in the week ended March 31, the most since Jan. 6, according to the Energy Information Administration. Meanwhile, gasoline inventories have fallen almost 8 percent since mid-February, to 239.1 million barrels.

“Bigger-than-expected draws in gasoline stocks help explain the big gain in gasoline net length,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “It probably helped boost interest in WTI.”

Oil futures touched an 18-month high on the first day of trading this year as an accord between the Organization of Petroleum Exporting Countries and 11 other producers to cut output for six months came into effect. Six members of OPEC and Oman back extending production curbs beyond June, with Saudi Arabia and Kuwait saying oil stockpiles need to fall to the five-year average.

The outlook for an extension of the accord has also helped renew optimism that prices will rebound, according to Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Bears Retreat

“The oil bears were in retreat because OPEC appears to be complying pretty well to the quota and the likelihood that the cuts will be extended,” Lynch said by phone.

The net-long position in WTI rose by 22,415 futures and options to 267,030. Longs advanced 2.3 percent, while shorts retreated 12 percent. WTI rose 5.5 percent to $51.03 a barrel in the report week. The U.S. benchmark crude was trading at $52.59, up 0.7 percent, at 9:47 a.m. London time on Monday.

Gasoline futures increased 5.3 percent to $1.7217 a gallon in the report period. The May contract was trading at $1.7486 on Monday, extending gains from the highest close for front-month prices since August 2015.

“Gasoline is a safe place to hang your hat as summer approaches,” Energy Analytics’ Finlon said. “Crude supplies will fall as utilization ramps up to meet gasoline demand.”

 

by Mark Shenk / Bloomberg

9 de abril de 2017 18:01 GMT-5

 

Gulf Waters

 

Oil Rises as Iraq Pledges to Cooperate With OPEC on Output Deal

Oil advanced as Iraq said it pledged to cooperate with OPEC to reach an agreement this week that’s acceptable to all members.

Futures rose as much as 2.7 percent in New York after earlier declining. Iraq’s Oil Minister Jabbar al-Luaibi said Monday he’s “optimistic” a deal will be reached at OPEC’s summit in Vienna on Wednesday.

 Saudi Arabia previously said that the producer group doesn’t necessarily need to curb oil output, after pulling out of a scheduled meeting with non-members including Russia.

“The market is going to be like a yo-yo reacting to headlines surrounding the Nov. 30 Vienna meeting,” Bart Melek, the head of global commodity strategy at TD Securities in Toronto, said by telephone. Statements out of Iraq lead to the assumption that it is likely a deal to cut output will be reached, he says.

The Organization of Petroleum Exporting Countries is heading into the last stretch of negotiations before its November 30 meeting to adopt a supply deal that was first floated in September. Oil prices whipsawed last week as various OPEC members and Russia tried to position themselves ahead of a final accord to reduce production. Ministers from Algeria and Venezuela headed to Moscow on Monday to get the biggest non-OPEC producer on board.

West Texas Intermediate for January delivery rose $1.02 to $47.08 a barrel at 10:08 a.m. on the New York Mercantile Exchange. Total volume traded Monday was 31 percent higher than the 100-day average.

Brent for January settlement advanced $1.01, or 2.1 percent, to $48.25 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $1.17 premium to WTI.

Saudi Stance

While Saudi Arabia has pushed to reverse OPEC’s pump-at-will policy, Energy Minister Khalid Al-Falih said Sunday the oil market would recover in 2017 even without cuts as consumption grows in countries such as the U.S., according to Saudi newspaper Asharq al-Awsat.

Russia has so far resisted requests to join a cut, offering instead to freeze production at current levels. Energy Minister Alexander Novak has insisted that OPEC reach an internal consensus on output curbs before Russia considers joining an accord. Algerian Energy Minister Noureddine Boutarfa presented a proposal Saturday to Iranian Oil Minister Bijan Namdar Zanganeh for an OPEC cut of 1.1 million barrels a day, according to an Iranian oil ministry official.

“The past weeks’ back and forth of diplomacy reveals how small the common denominator is,” Norbert Ruecker, head of commodity research at Julius Baer Group Ltd. in Zurich, said by e-mail. “Chances for a deal are high but we remain skeptical that it has teeth and see no lasting impact on prices.”

Oil-market news:

Iran’s Persian Gulf Petrochemical Industries Co. is in talks with Asian companies to raise as much as 1 billion euros ($1.1 billion) for an expansion including a methanol project intended to serve China and other Asian customers.

Shale drillers have added 158 rigs since May, according to Baker Hughes Inc. At the same time, companies such as Chesapeake Energy Corp. and EOG Resources Inc. have boosted efficiency by cramming more sand into wells, aiming to extend their reach miles further.

Copyright: Bloomberg

Oil Bets Are Biggest in 9 Years Amid OPEC, Trump Volatility

Money managers, producers and consumers made the biggest bets on West Texas Intermediate crude prices in nine years, amid signals more volatility is coming.

Global markets were roiled after Donald Trump’s election as U.S. president and as OPEC continued negotiations on a deal to cap output. The U.S. dollar climbed to the highest since January. A measure of oil volatility surged last week to a seven-month high, a sign that traders were anticipating bigger price swings.

Wagers on higher and lower prices held by speculators and hedgers reached 1.47 million contracts in the week ended Nov. 15, the most since 2007, U.S. Commodity Futures Trading Commission data show. Trading volume of calls giving investors the right to purchase WTI futures rose to a record that day. The CBOE Crude Oil Volatility Index reached the highest since April. Brent oil shorts, bets that prices will fall, rose to the highest in more than two years.

“There’s tension in the market, with both producers and consumers worried about what OPEC does or won’t do on Nov. 30,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “They want to be protected from surprising price moves.” 

OPEC Meeting

Investors are weighing the chances that the Organization of Petroleum Exporting Countries will complete a deal to cap output at its Nov. 30 meeting in Vienna. While Saudi Arabian Energy Minister Khalid Al-Falih told Al Arabiya television he’s optimistic a deal will be reached, only seven of 20 analysts surveyed by Bloomberg last week expect the group to set output targets for its members.

OPEC agreed in September to cut their collective output to 32.5 million to 33 million barrels a day and has been trying to persuade other suppliers, notably Russia, to join the cuts. OPEC Secretary General Mohammed Barkindo said he’s confident the group can reduce record oil inventories and bring forward the rebalancing of the market.

“The Saudis are working hard to reach a deal,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “You don’t fight the Fed in the bond market and when it comes to oil you don’t fight the Saudis.”

The September agreement marked the end of OPEC’s two-year long experiment with pumping at will. Saudi Arabia led the group in the effort to grab market share and curb the development of more expensive reserves such as U.S. shale.

U.S. Production

While U.S. production has dropped from last year’s 44-year high, the decline is slowing. The Energy Information Administration this month raised its output forecast for 2017. Rigs targeting oil in the U.S. rose the most in 16 months last week, according to Baker Hughes Inc.

Producers and merchants increased short positions, or protection against lower WTI prices, to the highest level since March 2011. They added 66,613 bearish contracts over the past two weeks as prices retreated from last month’s peak at above $50 a barrel.

“The Saudis want higher prices but won’t sacrifice just to see a major competitor, U.S. shale, benefit,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “The Trump election changes things. In one day the U.S. shale business got better. The government will be more responsive to the industry.”

Money managers’ net-long position in WTI advanced for the first time since mid-October, climbing by 3,906 futures and options to 163,321. Shorts climbed 14 percent while longs rose 8.1 percent. WTI gained 1.8 percent to $45.81 a barrel in the report week. It rose 2.7 percent to $46.93 as of 8:48 a.m. on Monday.

Brent Bets

In the Brent market, money managers increased short positions by 11 percent to 157,016 during the week, the highest level since September 2014, according to data from ICE Futures Europe. The net-long position in the global benchmark slipped by 4.6 percent during the week to the lowest since January.

In fuel markets, net-bullish bets on gasoline decreased 35 percent to 25,796 contracts, as futures slipped 2.5 percent in the report week. Money managers were net-short 393 contracts of ultra low sulfur diesel, from net-long 7,791 the previous week. Futures advanced 0.2 percent.

“I suspect that when the OPEC meeting is over there will have been a lot more smoke than fire,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “If they don’t come up with a convincing agreement, they’ll be forced to revisit the issue before long.”

 

Copyright: Bloomberg