Overcapacity and the price of oil

Dr. Daniel Fine
New Mexico Center for Energy Policy
Daniel Fine, associate director of New Mexico Center for Energy Police at New Mexico Tech and a project leader of the Energy Police, State of New Mexico Department of Energy Minerals and Natural Resources speaks,  Tuesday, March 1, 2016, at San Juan College's Quality Center for Business in Farmington.

With the Saudi Arabian-American strategy of removing ISIS and terror roots in Middle East societies and governments, the global oil and gas service companies have new projects to expand oil capacity of Saudi Arabia. This moves Saudi Aramco into overcapacity production range and a Second Downturn in early 2019 as forecast in this column six months ago.

Saudi oil production capacity should increase to 13 million barrels per day with Haliburton and others working on projects to increase reserves. This is prepared to flow into export markets to deprive Occidental of its short- term export of domestic oil which the production cut-back under the 1,800,000 barrels per day OPEC and Russian “deal” provided as a temporary marketing opportunity.  The price of de-terrorism in the Middle East is more Saudi Arabian oil and lower world prices.  Saudi Arabian demand forecasts are no more than 1 percent per annum growth:  its new capacity addition could reach 4 percent per annum in the next five years following the service company projects signed weeks ago.

OPEC production and imports to the U.S are up as this column is prepared for publication. The Commodity Market, which determines the price of world oil, would have a trading range breakout if Iranian gunboats break the isolation of Qatar and engage the U.S. Persian Gulf naval capability. However, such incidents would move traders for hours only.  

Natural gas prices should continue to move upward as risk hedging begins to focus on buying gas and selling crude.  This is a contract which oil price risk is hedged 
A laying of the risk of crude oil price declines with a simultaneous buying of natural gas. 

Natural gas storage favors San Juan natural gas producers in the winter months ahead. This stimulates a regional Texas offset with new Eagle Ford dry gas promotion.
Lithium prices have sharply declined mainly because of South Korean mining production and investments. This explains the stock market and Tesla Motors. Tesla may not need its mining investment in Nevada to lower the cost of the battery pack.  
This shift to downstream concentration which will re-start statewide competition for expanded facilities to relieve its Fremont, California plant. New Mexico economic development competed with three states to capture the giga-factory in Nevada. A second chance for Santa Fe to win in a second round?  

Five rigs working in the Four Corners suggests five more from Hilcorp. Encana has sold its natural gas reserves and production in Colorado to pay off its debt in buying Permian Basin oil in Texas.  Its San Juan Basin assets remain non-core in capital outlay. Nonetheless,

There is private equity finance on the sidelines to buy Rocky Mountain natural gas. 
The Paris Agreement on climate change depended on American funding of the $100 billion transfer from the “North” to the “South” to developing countries.  

President Trump said “no” and removed the United States from Paris saying he represented Pittsburgh and not Paris. Some globalist, integrated American companies argued that it was “better to be at the table” and supported U.S. membership.  American small and independent producers are winners since there is no cash flow from “sitting at the table.”  Trump is with the economic nationalists in the White House who support American oil and gas first. Climate change globalist politics has been set back.

Silicon Valley high tech and Bloomberg can privatize climate change with their investment capital just as Turner gave two million dollars to the United Nations over two decades ago.

This columnist is preparing a lecture and open discussion in the Four Corners on an assessment of economic nationalism and globalism in oil and gas in the Trump Administration and what it means in petroleum history and U.S. foreign Policy and Defense. The San Juan Basin outlook in the debate. Follow the Daily Times for the date and place.

Dr. Daniel Fine is associate director of the New Mexico Center for Energy Policy at New Mexico Tech and State of New Mexico energy and minerals coordinator for natural gas exports to Mexico. Analysis is individual and independent.