The Power of Data in Energy Trading

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Welcome to EnergyRogue.com, the go-to source for the latest insights and analysis on the energy commodities market. Led by two industry veterans, Bill Shanahan and Brian Pieri, the weekly commodity market recap dives deep into the world of energy trading. With over 55 years of combined experience, Bill and Brian break down market trends, share their insights, and answer the pressing question: What data is important in energy trading?

Introduction to Energy Rogue

Bill: We have seen it all.

Brian: Have we? I keep thinking we’ve seen it all, but people keep surprising me. But nuke was still confused.

Bill: Exactly. So today, we’ll talk about the power of data in energy trading. Now, what does that mean? What kind of power is that, Brian?

Brian: Well, one question we get a lot is what data is important. We’re surrounded by data. Ten to 20 years ago, getting the data was difficult. Now, it’s about what to do with it and how to interpret it. The power of data in energy trading comes from various key sources, and we’re going to step through a tutorial on what’s important and what data matters.

Key Energy Markets: Crude Oil and Natural Gas

We’re primarily focused on crude oil and natural gas, but we also cover ultra-low sulfur diesel and RBOB (Reformulated Blendstock for Oxygenate Blending).

Bill: The word for RBOB is a mouthful. How do you say it?

Brian: Reformulated blendstock for oxygenate blending. Or just RBOB.

These markets are interconnected, but for simplicity, we’ll focus on crude oil and natural gas. Remember, we’re only scratching the surface of what’s necessary to understand the energy markets.

Why Data is Crucial

The essence of our trading strategy revolves around a comprehensive understanding of the following types of data:

  • Physical Markets:
    • Where: Identifying key trading points inside the United States like CIG in the Rockies.
    • When: Understanding the timeline for transactions in physical and financial markets.
  • Financial Markets:
    • Exchanges: Multiple exchanges like CME (Chicago Mercantile Exchange) or Nymex (New York Mercantile Exchange) are the platforms for trading commodities.
    • Timing: Contracts have different timeframes, important for understanding current and future market conditions.

Tools and Resources

Key Reports and Platforms

  • EIA Weekly Petroleum Status Report: Crucial for tracking stocks, production, imports, and refinery inputs in the U.S.
  • Federal Reserve Beige Book: Offers narrative insights into economic conditions across the U.S. regions.
  • OPEC Monthly Market Report: Provides an extensive look at international supply, demand, and economic conditions.
  • CFTC Commitment of Traders Report: Offers insights into market positions of various players.
  • Interactive Charts: Available through our Rogue Edge platform, providing easy visualization of market trends.

Understanding Physical and Financial Markets

  • Physical Market:
    • Example: NYMEX futures price minus 60 cents gives the theoretical value of CIG in the Rockies.

Financial Market:
Exchanges: Primary trading happens on NYMEX in the U.S., but crude oil also trades 24/7 on international exchanges like Hong Kong and London.

The Crude Oil Market

EIA Petroleum Status Report

This weekly report covers stocks (inventories), production, imports, exports, and refinery inputs. For example, a snapshot from the report might show:

  • Current stocks: 445 million barrels
  • Last week’s stocks: 448 million barrels
  • Draw: 3 million barrels

Analyzing Stocks and Changes

  • Crude Oil:
    • Stocks decreased from 448 to 445 million barrels – indicating a draw.
    • SPR (Strategic Petroleum Reserve) dynamics.

Importance of Historical Perspective

Our platform places this data in a historical context to highlight trends over time. For example:

“Our production is at the very top of the five-year average, setting new highs.”

Understanding these trends helps in making informed trading decisions.

International Perspectives: OPEC

The OPEC monthly report is a treasure trove of data, usually between 80-120 pages covering:

  • Price movements
  • World economy
  • World demand and supply
  • Product markets and refining operations

Impact of Geopolitical Events

Recent geopolitical changes, such as conflicts in key shipping routes, significantly impact tanker markets and trade dynamics.

### Specific Country Insights

  • Iran: Despite sanctions, Iran’s production has nearly recovered to pre-sanction levels (3.2 million barrels/day from a max of 3.8 million).

Natural Gas Markets

Key U.S. Reports

  • EIA Natural Gas Weekly Update
  • EIA Weekly Storage Report

Analyzing Supply and Demand

  • Supply: Currently at 109.8 bcf/day, including Canadian imports.
  • Demand: Power, industrial, LNG exports, Mexican exports.

Here’s a snapshot of our data trends:

> “Since 2019, we’ve seen higher highs and higher lows in electricity consumption, indicating growing demand.”

Export Dynamics

  • Mexico Exports: Growing from 4.5 bcf/day in 2018 to 6.6-7 bcf/day.
  • LNG Exports: Substantial increase from 2018, now a significant part of U.S. demand.

Using Data to Forecast Trends

Example Analysis

  • Permian Basin: Vital to track production and decline rates to forecast future supply.

“Currently, the Permian declines by 424,000 barrels/day every month. So, to grow by 10,000 barrels, we need 435,000 barrels of new production.”

Our platform helps visualize these intricate relationships, turning data into strategic insights.

Final Thoughts

Bill: Evaluating the energy complex is not as difficult as it seems. With the right data, you can do this.

Brian: Headlines can often be misleading. Making decisions based on detailed, accurate data is crucial.

We encourage businesses that depend on energy markets to dive deep into reports like the EIA Petroleum Status Update, OPEC Monthly Report, and the Fed Beige Book. It’s not just about what data you have, but what you do with it.

Join Us

For those looking to take control of their energy market strategies, join us at Energy Rogue. With our platform, you’ll access interactive charts, expert insights, and a supportive community.

Bill: Remember, taking action based on accurate data can significantly improve your business outcomes.

Brian: Thanks for tuning in. We’ll see you next Wednesday. Don’t get confused – join us and take control!

Bill: See you, folks.

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Unlocking the Secrets of Energy Production: Understanding “Decoding Decline”

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In today’s constantly evolving energy landscape, having a deep understanding of the intricacies of oil and gas production is vital in making well-informed decisions. With a combined 55 years of industry experience, Bill Shanahan and Brian Pieri from energyrogue.com have successfully unraveled the mystery of “decoding decline” – a phenomenon that has a significant impact on the energy commodities market.

What You’ll Gain:

  • Understanding the natural decline in oil and gas well production and its effects on supply
  • Analyzing supply data, decline curves, new production layers, and net effects across major basins
  • Using rig counts as a leading indicator for future productio
  • Estimating ultimate recovery (EUR) and rig efficiency to project declines and new output requirements
  • Transforming supply and demand insights into actionable strategies

The Dilemma of Decline:

Over time, oil and gas wells experience a natural decline in production, with the US witnessing a staggering 3.6% or 3.6 bcf per day decline every month. To maintain supply levels, new production must continuously offset this decline. Shanahan and Pieri use interactive charts and data to analyze supply data, decline curves, new production layers, and the net effect on various basins such as the Permian, Eagleford, and Anadarko.

Tracking the Trends:

For instance, in the Eagleford basin, new production of 357,000 mcf/day is lower than the base decline of 382,000 mcf/day, resulting in an overall decline. Rig counts serve as a leading indicator for future production, with the Anadarko basin’s rig count declining from 24 to 16 in the Cana Woodford formation, signaling potential future supply declines.

Projecting Production:

Factors such as the estimated ultimate recovery (EUR) and rig efficiency, which have shown improvement but are now flattening out, are crucial in projecting declines and new production requirements. Shanahan and Pieri offer three service tiers: Rogue Edge for data access, Rogue Premium ($179/month) for strategic guidance, community access, and monthly consultations, and Rogue Advantage for personalized consulting.

Transforming Data into Strategy:

By closely monitoring the net change in production and understanding the interplay between various factors such as renewables and electricity demand, Shanahan and Pieri strive to provide affordable, data-driven insights and strategies to effectively navigate the energy markets. As Pieri explains, “We created energyrogue.com to make it easy, simple, and affordable for people to access this information. We monitor the net change in production to determine if they are declining or shrinking, and then we take a closer look.”

Key Takeaways:

  • Oil and gas wells experience a natural decline in production, requiring continuous new output
  • Analyzing supply, decline curves, new production layers, and net effects across basins is crucial
  • Rig counts, EUR, and rig efficiency are key factors in projecting declines and new output requirements
  • Transforming supply and demand insights into actionable strategies is the ultimate goal
  • Energyrogue.com offers affordable, data-driven tools for effectively navigating energy markets

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US LNG Export Delays – what does it actually mean for Supply & Demand in the United States?

LNG Tanker

In the wake of the recent decision by the Biden administration to delay the consideration of new natural gas export terminals in the United States, there has been a significant shift in the landscape of the energy market. This decision comes at a time when gas shipments to Europe and Asia have seen a remarkable increase, primarily due to the ongoing conflict in Ukraine.

The Political Landscape

Biden’s decision aligns with the concerns raised by environmentalists. These groups argue that the surge in exports, primarily in the form of Liquefied Natural Gas (LNG), could potentially lock in harmful, planet-warming emissions. This is particularly alarming, given Biden’s commitment to halving climate pollution by 2030.

In a recent statement, Biden emphasized his administration’s commitment to climate action, stating:

“While MAGA Republicans willfully deny the urgency of the climate crisis, condemning the American people to a dangerous future, my administration will not be complacent. We will not cede to special interests. We will heed the calls of young people and frontline communities who are using their voices to demand action from those with the power to act.”

This political stance is in stark contrast to his predecessor, Donald Trump, who withdrew from the Paris climate accords, citing climate change as a hoax.

Evaluating the Economic and Environmental Impact

The current methodologies employed by the Energy Department to evaluate LNG projects have faced criticism for allegedly not accounting for potential cost increases for American consumers and manufacturers or the impact of greenhouse gas emissions. This perceived inadequacy has led to the White House’s decision to halt the consideration of new LNG projects.

Environmentalists have welcomed this decision as a significant step towards countering the approval of the massive Willow oil project in Alaska last year. However, industry groups have condemned the move, labeling it a “win for Russia.”

Environmental activist Bill McKibben lauds the decision as brave and savvy. In his words:

“This decision is brave, because Donald Trump (the man who pulled us out of the Paris climate accords on the grounds that climate change is a hoax) will attack it mercilessly. But it’s also very, very savvy: Biden wants young people, who care about climate above all, in his corner. They were angry about his dumb approval of the Willow oil project.”

The Environmental Inequity

A proposed LNG export terminal in Louisiana could reportedly produce about twenty times the greenhouse gas emissions of the Willow project. This revelation underscores the urgent need for reevaluating the environmental impact of future LNG projects.

McKibben notes the potential for this decision to be overturned if Biden isn’t reelected:

“And of course everyone understands that if Biden is not reelected this win means nothing. It will disappear on Day One when (Trump) begins his relentless campaign to ‘drill drill drill.'”

The Response from the Energy Department

In response to the controversy, Energy Secretary Jennifer Granholm assured that the pause will not impact already authorized exports. Granholm also noted that the US’s gas exports reached record highs last year.

“Nor will it impact our ability to supply our allies in Europe, Asia or other recipients of already authorized exports,” she said. “We remain committed to ensuring our partners’ medium-term energy needs are met.”

The Energy Department, according to Granholm, could allow exceptions for national security needs if required.

The Future of LNG Projects

While the exact duration of the permitting pause remains undisclosed, Granholm confirmed that a study examining the impact of proposed LNG projects on the environment, the economy, and national security would take “some months.” This study, followed by a public comment period, could potentially delay decisions on pending LNG projects until after the 2024 presidential election.

The US has seen significant growth in LNG exports since they began less than a decade ago. This growth has skyrocketed following Russia’s February 2022 invasion of Ukraine. With the US now the world’s largest gas exporter, Biden and Granholm have celebrated the delivery of US gas to Europe and Asia as a key geopolitical weapon against Russian President Vladimir Putin.

The Industry’s Perspective

However, the American Petroleum Institute (API), the largest lobbying group for the oil and gas industry, views Biden’s action as a betrayal. API’s president and CEO, Mike Sommers, argues that the move is a “win for Russia and a loss for American allies, U.S. jobs and global climate progress.”

In Sommers’ view, there is no need for a review to understand the benefits of US LNG exports. He contends that these exports are vital for stabilizing global energy markets, supporting thousands of American jobs, and reducing emissions worldwide by transitioning countries towards cleaner fuels and away from coal.

Sommers criticizes Biden’s action as a “broken promise to U.S. allies,” urging the administration to cease playing politics with global energy security.

The Energy Secretary’s Take

Granholm, who has worked closely with oil and gas executives, notes that a lot has occurred since LNG exports commenced about eight years ago. She believes that a more profound understanding of the global energy market need, long-term supply and demand of energy resources, and environmental factors is necessary.

“So by updating the analysis process now, we will be better informed to avoid export authorizations that diminish our domestic energy availability, that weaken our security or that undermine our economy.”

Granholm emphasizes that the delay is not a retroactive review of already authorized exports, nor is it intended to punish the oil and gas industry. She reaffirms the commitment to strengthening energy security in the US and with its allies and protecting Americans against climate change as the nation leads the way into a clean energy future.

The Environmental Perspective

Jeremy Symons, an environmental consultant and former climate policy adviser at the Environmental Protection Agency, views Biden’s decision as a “game-changer” in the fight against climate change.

“The president is drawing a line in the sand to put the nation’s interests first and listen to climate science,” Symons said in an interview. “The days of massive fossil fuel projects like the CP2 project escaping scrutiny from the federal government are over. We now have a president who cares about climate change.”

Symons, along with other activists, has taken aim at the $10 billion Calcasieu Pass 2 project, or CP2, along Louisiana’s Gulf Coast. If built, this would become the nation’s largest export terminal, exporting up to 20 million tons (18.1 million metric tons) of chilled natural gas per year. This would create more greenhouse gas emissions than even the Willow project, which environmentalists have criticized as a “carbon bomb.”

Symons calls the gas project “bad for our nation, bad for our health, and bad for our economy.”

The Industry’s Response

Shaylyn Hynes, spokeswoman for the project’s owner, Virginia-based Venture Global, argues that the Biden administration “continues to create uncertainty about whether our allies can rely on U.S. LNG for their energy security.”

Hynes warns that a prolonged pause on LNG exports “would shock the global energy market … and send a devastating signal to our allies that they can no longer rely on the United States.”

Hynes argues that this policy would hurt the climate and lead to increased greenhouse gas emissions, as it would force the world to pivot to coal instead of natural gas.

Conclusion

The decision by the Biden administration to delay the consideration of new LNG export terminals in the US has triggered a significant shift in the energy market landscape. While environmentalists applaud the decision, industry groups condemn the move, citing it as a victory for Russia and a betrayal of US allies. As the debate continues, one thing is clear: the future of LNG exports in the US is uncertain, and the implications of this decision will undoubtedly have a far-reaching impact on both the national and global energy markets.

Bear in mind, we have over 14 BCFD of online LNG projects, 5 BCFD under construction (most by 2025), and 20 BCFD “APPROVED” LNG Projects.  It will take years to develop the existing projects – so pausing “NEW” projects does not impact the market much before 2035.


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How much does crude oil production decline? How quickly does crude oil production decline?

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Oil has been the lifeblood of modern civilization, powering industries, transportation, and even the food we eat. However, extracting crude oil from the earth is not a never-ending process. Once a well is drilled, its production rate starts to decline over time. This article delves deep into understanding the decline in crude oil production, the factors contributing to it, and its global implications.

Crude Oil Production Decline: An Overview

Crude oil production decline refers to the decrease in the extraction rate of a well, oil field, or a geographical area over time. This decline is a natural phenomenon and is a critical aspect of petroleum economics. It is important to understand that the rate and pattern of this decline can vary significantly based on multiple factors, including geological conditions, extraction methods, government policies, and market conditions.

The Hubbert Peak Theory

TheHubbert Peak Theory, named after the American geophysicist M. King Hubbert, provides a predictive model for the production rates of non-renewing resources like oil. According to this theory, the production curve of these resources generally follows a bell curve. This means that the production starts slowly, accelerates until it reaches a peak, and then enters an irreversible decline. This peak point is often referred to as ‘Peak Oil’.

The Role of the Energy Information Administration (EIA)

TheUnited States Energy Information Administration (EIA) plays a pivotal role in studying and predicting oil production and consumption trends. In 2006, the EIA predicted that global oil consumption would increase to 98.3 million barrels per day in 2015 and 118 million barrels per day in 2030. With 2009 world oil consumption at 84.4 million barrels per day, achieving these projected levels would represent an average annual increase of 2.7% per year.

Factors Influencing Crude Oil Production Decline

Crude oil production decline is influenced by a multitude of factors. Understanding these factors can help industry stakeholders, policymakers, and researchers predict future production and devise strategies accordingly.

Geological Circumstances

The geological characteristics of an oil reservoir significantly influence its production rate and decline. These characteristics include the reservoir’s size, depth, pressure, and the type of rocks it contains. Additionally, the type of reservoir drive mechanism (gas-cap drive, water-drive, gas solution drive, and oil expansion drive) can also impact the decline curve.

Governmental Policies

Government policies and regulations can directly impact oil production rates. For instance, a government may restrict oil production to manage its reserves or meet its environmental commitments. Conversely, it may incentivize production to boost economic growth or achieve energy independence.

Engineering Practices

Engineering practices and technologies used in drilling and extraction can also affect the production decline. Advanced techniques like horizontal drilling and hydraulic fracturing (fracking) can significantly enhance oil extraction and slow down the decline. On the other hand, improper or inefficient practices can lead to rapid declines and even premature exhaustion of the reservoir.

Understanding Production Decline Models

Production decline models are mathematical representations used to predict future oil production based on prior production data. These models are essential tools for oilfield companies, investors, and analysts to anticipate future output and plan their strategies. There are two primary types of decline models – exponential and hyperbolic.

Exponential Decline Model

In an exponential decline model, the production rate decreases at a constant percentage per time period. This means that the decline rate remains constant throughout the life of the well. This model is generally applicable to wells in gas solution drive and oil expansion drive reservoirs.

Hyperbolic Decline Model

The hyperbolic decline model assumes a higher initial decline rate, which gradually decreases over time. This model provides a more accurate prediction for reservoirs where the production rate does not decline uniformly. The EIA uses a variant of the hyperbolic decline model, known as the automated hyperbolic decline curve analysis, to estimate the expected profitability of drilling a well.

Modeling Production Decline: An Example

To better understand how production decline is modeled, let’s consider an example of a shale oil well. The EIA uses an automated routine to analyze the production decline curve of such wells. This routine involves several steps:

  1. Initial Production Rate Estimation: The initial production rate and the initial decline rate are estimated based on observed well-level production data.
  2. Normalization of Production: The production in all months, except the first, is normalized to 30.4 days to account for the variation in the number of days in different months.
  3. Conversion to Exponential Decline: The decline curve transitions from a hyperbolic decline to an exponential decline when the monthly decline rate falls to 0.8% (10% annual decline).
  4. Estimated Ultimate Recovery (EUR) Calculation: The EUR for a well is calculated as the sum of the observed monthly production values plus the sum of the monthly production values estimated using the decline curve. This estimation is done for a total of 30 years (360 months).

Using such a systematic approach, the EIA updates its EUR estimates for each play annually, incorporating the latest technological and operational improvements and the most recent production data.

Implications of Crude Oil Production Decline

The decline in crude oil production has far-reaching implications that extend beyond the oil industry. These implications can be broadly categorized into economic, social, and environmental impacts.

Economic Impacts

A decline in oil production can lead to a spike in oil prices, affecting various sectors of the economy. Higher oil prices can increase the cost of transportation, manufacturing, and heating, leading to inflation. Moreover, oil-exporting countries may experience a decrease in their revenues, affecting their economic stability.

Social Impacts

Rising oil prices can lead to an increase in the cost of living, affecting people’s purchasing power and quality of life. Moreover, as oil is a significant input in agriculture, a decline in oil production can lead to higher food prices, impacting food security.

Environmental Impacts

On the positive side, a decline in crude oil production can contribute to environmental sustainability. As the availability of oil decreases, there could be a stronger push towards renewable energy sources, reducing greenhouse gas emissions and mitigating climate change.

Looking Towards the Future: Alternatives to Crude Oil

As the world grapples with the impending decline of crude oil production, the search for alternative energy sources has gained momentum. These alternatives include renewable energy sources like solar and wind power, as well as advanced technologies like nuclear fusion.

The Promise of Renewable Energy

Renewable energy sources like solar and wind power offer a sustainable and environmentally friendly alternative to crude oil. The challenge lies in effectively storing and transporting this energy to meet the world’s energy demands.

The Potential of Nuclear Fusion

Nuclear fusion, the process that powers the sun, has the potential to provide a virtually unlimited supply of clean energy. With recent advancements in nuclear fusion research, this technology could play a crucial role in the world’s energy future.

Conclusion

Understanding the decline in crude oil production is crucial to navigating the dynamic landscape of global energy markets. As the world inches closer to ‘Peak Oil’, the need for alternative energy sources becomes increasingly urgent. Whether it’s renewable energy, nuclear fusion, or yet-to-be-discovered technologies, the future of energy is bound to be as exciting as it is challenging.

If you’re interested in staying ahead of the curve in the ever-evolving world of energy investment, subscribe to Rogue Edge and get access to enlightening discussions with industry leaders, cutting-edge analyses, and groundbreaking insights. Together, let’s unlock the power of knowledge. Go Rogue and focus on the WHY on Energy Markets. Sign up here.

For more information, feel free to drop us a line at rogue@energyrogue.com or join Rogue Edge TODAY at this link. Remember, we are not financial advisors and are not recommending any stock or commodity. We offer our opinion as perspective and insight into energy markets using Fundamentals and Technicals. If you want to read our full Risk Disclaimer, visit here.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Always perform your own research and consult a financial advisor before making any investment decisions.

Diesel price crisis brewing for 2024?

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Introduction

The global diesel market is bracing for a tumultuous period in 2024. Several factors, from geopolitical tensions to regulatory changes, are converging to create a perfect storm. This article will delve into these factors and their potential impacts on the diesel market, including oil refining and production, diesel consumption, and the broader economic implications.

The Global Oil Market’s Tightening Grip

The world’s oil market is becoming increasingly tight. According to the International Energy Agency, global oil demand is projected to rise by 2.2 million barrels per day in 2023, reaching 101.8 million barrels per day. This surge in demand is expected to be led by a resurgence in Chinese consumption, jet fuel, and petrochemical feedstocks[^1^].

At the same time, supply is being curtailed. In October 2022, OPEC+ agreed to cut production by 2 million barrels per day, marking the largest cut since the COVID-19 lockdowns started in early 2020^2^. Saudi Arabia and Russia have also confirmed they will continue their combined 1.3 million barrel per day cuts until the end of 2023[^3^].  (shameless plug:  Rogue Edge Members see updated supply numbers from Saudi Arabia, Russia, and all major supply sources of crude oil and refined products.)

[^1^]:International Energy Agency[^3^]:Russia, Saudi Arabia Oil Production Cut

The Declining U.S. Strategic Petroleum Reserve

The U.S. Strategic Petroleum Reserve (SPR), a key buffer against oil market disruptions, is at its lowest level in four decades. Currently holding just over 348 million barrels of oil, the SPR could only satisfy America’s consumption for 46 days if it had to rely solely on the reserve[^4^].

The depletion of the SPR is a result of various factors. Ahead of the November 2022 U.S. midterm elections, the reserve was heavily drawn to keep fuel prices down[^5^]. Moreover, the influence of the U.S. over OPEC kingpin Saudi Arabia seems to be dwindling, further exacerbating the supply situation[^6^].

[^4^]:U.S. Strategic Petroleum Reserve[^5^]:U.S. Midterm Elections[^6^]:Saudi Arabia’s role in OPEC

Diesel Refining Capacity Challenges

To meet the growing demand for diesel, oil refining capacity needs to keep up. However, several issues are posing challenges to this.

In Russia, diesel exports have been restricted to Belarus, Kazakhstan, Armenia, and Kyrgyzstan[^7^]. The country’s oil refining industry, which produces 6.8 million barrels of refined oil per day, mostly diesel and jet fuel, is thus largely off-limits to the rest of the world[^8^].

In the U.S. and the U.K., refining capacity has also been reduced significantly. In the U.K., the capacity has halved over the past two decades[^9^]. In the U.S., dozens of refineries were shuttered during the COVID-19 pandemic, and the country’s refining capacity is now around one million barrels below the 2019 level[^10^].  (shameless plug:  Rogue Edge Members learn from our tracking of supply and stocks of oil and refined products – including gasoline, distillates, jet, and so much more)

[^7^]:Russian Diesel Export Restriction[^8^]:Russian Oil Refining Industry[^9^]:U.K. Refining Capacity[^10^]:U.S. Refining Capacity

The Role of Regulatory Changes

Regulatory changes, particularly those aimed at reducing carbon emissions, are also affecting the diesel market.

In Germany, the government has agreed to a higher national CO2 price for transport and heating fuels for 2024^11^. The fixed carbon price for fossil fuels such as diesel, petrol, and heating oil is set to rise from the current 30 euros per tonne to 45 euros from 1 January 2024^12^.

This increase in the CO2 price will make diesel more expensive, affecting both consumers and businesses. It underscores the global trend of using carbon pricing as a tool to reduce greenhouse gas emissions and mitigate climate change[^13^].

[^13^]:Carbon Pricing

The Potential Impacts of Diesel Shortages

The convergence of these factors could lead to a global diesel shortage, with far-reaching implications.

First, the high cost of diesel would impact almost every aspect of the economy. From transportation to manufacturing, industries would face increased operational costs, which could be passed on to consumers in the form of higher prices for goods and services[^14^].

Second, a diesel shortage could disrupt critical services. For instance, a potential railway strike in the U.S. could disrupt coal-by-rail deliveries, affecting power generation and leading to higher natural gas prices[^15^].

Finally, on a macroeconomic level, higher diesel prices could fuel inflation, leading to higher interest rates and potentially triggering a global economic crisis[^16^].  (shameless plug:  Rogue Edge Members gain insight to the every changing supply and demand balance each and every week)

[^14^]:Impact of High Diesel Prices[^15^]:Impact of Railway Strike[^16^]:Inflation and Economic Crisis

Conclusion

The diesel crisis forecasted for 2024 is a complex issue, with multiple factors at play. The tightening global oil market, declining refining capacity, and regulatory changes aimed at reducing carbon emissions are all contributing to the potential shortage.

The potential impacts of such a crisis are far-reaching, affecting everything from the cost of goods and services to critical infrastructure and the broader economy. It emphasizes the importance of understanding and addressing the challenges facing the diesel market today to ensure a stable and sustainable energy future.

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How the Suez Canal Impacts Oil and Natural Gas Markets

Suez Canal Image

Introduction

The Suez Canal, a vital waterway connecting the Red Sea with the Mediterranean Sea, serves as a critical artery for global trade. It plays a significant role in the transportation of various goods, including crude oil and natural gas. In this article, we will explore the importance of the Suez Canal to the oil and natural gas markets and analyze its impact on global supply chains. We will delve into the history, significance, and current challenges faced by the Suez Canal, shedding light on its role in shaping the energy landscape.

The Significance of the Suez Canal

The Suez Canal holds immense importance due to its strategic location, serving as the quickest sea route between Asia and Europe. It provides a direct connection between the Arabian Sea, the Indian Ocean, and the countries of the Asia-Pacific with the waters of Europe. Without the Suez Canal, shipments between these regions would have to circumnavigate the entire continent of Africa, resulting in significant costs and longer journey times.

The time saved by utilizing the Suez Canal is invaluable. For instance, a ship traveling from a port in Italy to India would cover approximately 4,400 nautical miles if it passed through the Suez Canal. This journey, at a speed of 20 knots, would take around nine days. In contrast, the alternative route via the Cape of Good Hope and around Africa would extend the journey to three weeks, covering a distance of 10,500 nautical miles.

In addition to its time-saving benefits, the Suez Canal is also the only route that directly connects Europe with the Asia-Pacific region. Land masses are not narrow enough to support an artificial waterway like the Suez Canal. As a result, the canal hosts nearly 19,000 vessels each year, making it one of the busiest trade arteries in the world.

Historical Significance and Construction of the Suez Canal

The idea of connecting the Mediterranean and Red Seas dates back centuries, with numerous attempts made to realize this vision. However, it was not until the mid-19th century that the construction of the Suez Canal became a reality. Initiated by French interests and exploration, the canal was built over a period of ten years, utilizing a combination of forced labor from local peasants and the contribution of European workers. The construction of the canal was made possible by the discovery that the Mediterranean and Red Seas were roughly at the same altitude.

Financial difficulties eventually led to the sale of a controlling stake in the Suez Canal to Britain in 1875. Thirteen years later, a multinational summit resulted in an agreement that the canal would be free for all countries to use, both in times of peace and war. The strategic importance of the Suez Canal became apparent in the 20th century, as it was a flashpoint in both World War I and World War II. Turkish forces attempted to attack the canal from the east during World War I, while the Nazis’ Afrika Korps aimed to do the same from the west during World War II.

The Role of the Suez Canal in Oil and LNG Trade

Suez Canal Oil Trade

The Suez Canal plays a crucial role in the transportation of crude oil and petroleum products. Approximately 9% of total seaborne traded petroleum passes through the canal. In 2018, more than half of the petroleum transiting the Suez Canal was sent northbound to destinations in Europe and North America. Persian Gulf countries, including Saudi Arabia, Iraq, and Iran, accounted for 85% of the northbound traffic.

However, there have been notable shifts in recent years. Northbound crude oil flows have decreased due to various factors. The rise of U.S. crude oil exports has displaced Persian Gulf crude oil that historically went to Europe. Key Middle East producers, such as Saudi Arabia and Iraq, have redirected their crude oil exports to growing Asian markets using alternate routes instead of the Suez Canal. Additionally, renewed U.S. oil sanctions on Iran have contributed to a decrease in Iran’s crude oil exports to Europe.

Conversely, southbound crude oil shipments have witnessed a significant increase, particularly to Asian markets such as Singapore, China, and India. Russia is a major contributor to southbound petroleum traffic, accounting for the largest share. The past two years have seen increased production and exports of U.S. crude oil and petroleum products, further driving southbound traffic through the canal.

The Suez Canal, a pivotal artery in global LNG transportation, facilitated the transit of 686 LNG carriers in 2020, of which 388 were laden, contributing to 7% of worldwide LNG shipments. Approximately 276 laden carriers traversed from east to west, predominantly delivering LNG from Qatar to Europe, while 112 navigated from west to east, mainly channeling Russian and US LNG to the Asia Pacific region. Notably, laden LNG carriers conveyed over 32 million tonnes per annum (mtpa) through the canal, constituting 3% of the overall tonnage transiting the canal, while the shipment of crude and oil products comprised 23%.

The Impact of the Suez Canal Blockade in 2021

In March 2021, the Suez Canal faced a major disruption when the MV Ever Given, a massive container ship, ran aground and blocked the waterway. This incident highlighted the vulnerability of global supply chains and the criticality of the Suez Canal for global trade. The blockage caused a backlog of vessels and significant delays in shipments, impacting various industries, including the oil and natural gas markets.

The Suez Canal blockage had immediate consequences for oil and gas markets. The disruption resulted in increased shipping costs, as vessels faced costly and lengthy deviations if the canal remained closed. Diverting ships around the southern tip of Africa added approximately two weeks to their journey times. Furthermore, the blockage exacerbated the shortage of shipping containers, which was already caused by COVID-19-related supply chain issues.

The Suez Canal blockage also had implications for crude oil prices. The uncertainty surrounding the duration of the blockade and the potential impact on global supply chains led to a temporary increase in oil prices. However, the long-term impact on prices will depend on the duration of the disruption and how quickly normal operations can resume.

The Role of the SUMED Pipeline

Sumed Pipeline

In addition to the Suez Canal, the SUMED Pipeline serves as a crucial route for Persian Gulf crude oil shipments. The pipeline, spanning 200 miles, transports crude oil northbound through Egypt from the Red Sea to the Mediterranean Sea. It consists of two parallel pipelines with a combined maximum flow capacity of 2.8 million barrels per day.

The SUMED Pipeline serves as an alternative route when ships cannot navigate through the Suez Canal. If the canal is blocked or unavailable, crude oil can still be transported from the Red Sea to the Mediterranean Sea using the pipeline. The pipeline has played a vital role in ensuring the continuous flow of oil even during times of disruptions or conflicts in the Suez Canal.

Current Challenges and Future Outlook

The recent blockage of the Suez Canal has highlighted the vulnerabilities and challenges faced by this critical waterway. The incident underscores the need for continuous monitoring and improvement of infrastructure to prevent disruptions in global supply chains. Efforts to enhance the capacity and efficiency of the Suez Canal, such as the ongoing canal-widening project, are crucial for accommodating the growing demand for trade and ensuring the smooth flow of goods, including oil and natural gas.

Furthermore, geopolitical tensions, conflicts, and changing trade patterns can significantly impact the role of the Suez Canal in the oil and natural gas markets. Shifts in production, exports, and consumption patterns among major oil-producing countries and regions can influence the flow of petroleum through the canal. The rise of alternative routes and transportation methods, such as pipelines and LNG terminals, also present potential challenges and opportunities for the Suez Canal.

In conclusion, the Suez Canal plays a pivotal role in the global oil and natural gas markets, serving as a critical trade route for the transportation of energy commodities. Its strategic location and time-saving benefits have made it a key artery for the movement of crude oil and petroleum products between Asia, Europe, and other regions. However, the recent blockage of the canal highlights the need for continuous investment in infrastructure and risk management to ensure the uninterrupted flow of energy resources and the stability of global supply chains.

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Sources:

  1. Article 1
  2. Article 2
  3. Article 3
  4. Article 4
  5. Article 5
  6. Article 6

LNG Prices – where are they now and what will they be tomorrow?

The global market for liquefied natural gas (LNG) has experienced significant volatility in recent years, with extreme price fluctuations and demand shifts. As we look to the future, it is crucial to understand the current state of LNG prices and anticipate their trajectory. In this comprehensive analysis, we will delve into the key factors influencing LNG prices, explore market trends, and provide insights into the future of this vital energy resource.

Current State of LNG Prices

The year 2020 was marked by unprecedented challenges for the gas and LNG markets. While gas demand declined by 3%, LNG demand remained relatively resilient, growing by 1%. However, market volatility was a defining characteristic, with extreme oversupply and tightness occurring throughout the year. (shameless plug:  Rogue Edge Members have access to LNG pricing:)

Factors Driving LNG Demand

Despite the challenges faced in 2020, the long-term outlook for LNG demand remains optimistic. Asia, particularly China and India, continues to be a significant driver of LNG demand growth. In the short term, demand is expected to grow by 3.4% per annum until 2035. To meet this increasing demand, additional liquefaction capacity of approximately 100 million metric tons (MT) will be required by 2035, and over 200 million MT by 2050. (shameless plug:  Rogue Edge Members have access to European Weather Discussion and LNG ship Traffic discussion)

The Role of Gas in the Energy Transition

While gas demand is expected to decline gradually after peaking in 2037, it remains the strongest-growing fossil fuel. Gas will continue to play a crucial role in the chemical and industrial sectors, limiting the impact of declining gas use for power generation. Additionally, gas demand in the transport sector is projected to grow, driven by a shift towards cleaner fuels.

Addressing Emission Intensity

The emission intensity of LNG is a critical consideration in the industry. As global emission regulations become more stringent, LNG suppliers must adapt to meet these requirements. Major LNG markets, such as China, the European Union, Japan, and South Korea, have introduced carbon-neutrality aspirations, emphasizing the need for reduced emission intensity. Survey data suggests that emission-intensity clauses in contracts are expected to become more common, shaping the industry’s future and potentially impacting supply opportunities for higher-emission projects.

LNG Price Volatility and Market Balance

LNG prices have exhibited significant volatility in recent years, with unpredictable events causing fluctuations between tight supply and excess supply. The balance between supply and demand will play a crucial role in determining future price trends. As the market moves towards 2025, prices are likely to remain volatile due to the delicate balance between supply and demand. (shameless plug:  Rogue Edge Members track this every single week with updated viewpoints on US, Europe, and Asia)

Regional Shifts in LNG Demand

The drivers of LNG demand growth are expected to shift regionally over time. While Asia, led by China, has been a primary driver of LNG demand, other regions, such as South and Southeast Asia, will become increasingly important. China’s demand for LNG is projected to peak around 2040, while South and Southeast Asia will emerge as key demand drivers.

Future LNG Projects and Capacity

To meet the growing demand for LNG, significant investment in new liquefaction capacity will be required. The United States is poised to play a vital role in meeting this demand, with several LNG projects under construction. The expansion of existing projects and the development of new ones will be necessary to bridge the supply gap and ensure a stable market.  (shameless plug:  Rogue Edge Members track LNG Export Expansions)

The Impact of the Energy Transition

As the energy transition gains momentum, the use of gas is expected to evolve in different sectors. While gas demand for power generation is projected to decline in Europe, Japan, and North America, the transport sector is poised for significant growth. Gas will continue to be essential in the industrial and chemical sectors, supporting these industries’ growth even as overall gas demand declines.

Conclusion

The future of LNG prices is shaped by a complex interplay of factors, including market volatility, regional demand shifts, emission intensity considerations, and the evolving energy transition. While challenges persist, the long-term outlook for LNG remains positive, with strong demand growth anticipated. As the industry navigates these dynamics, stakeholders must adapt to changing market conditions and embrace the opportunities presented by the evolving energy landscape. By staying informed and proactive, participants in the LNG market can position themselves for success in the years to come.  (shameless plug:  Rogue Edge Members are engaged in the conversation to learn how this Natural Gas GLOBAL SHIFT is going to fundamentally change Nat Gas for years to come)

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For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Note: The analysis provided is based on comprehensive research and industry insights. However, it is essential to consult with market experts and conduct further research before making any investment or business decisions.

Crude Oil Benchmarks- what does it all mean? WTI, WCS, Brent, Dubai, Bonny Light…

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Crude oil is a vital commodity in the global energy market, serving as the primary source of fuel for transportation, power generation, and various industrial processes. As a result, the pricing and trading of crude oil play a crucial role in the functioning of the energy industry. To facilitate this process, several benchmark crude oil streams have emerged, each with its unique characteristics and market significance.

Understanding Crude Oil Benchmarks

Crude oil benchmarks serve as reference points for pricing and trading crude oil in the global market. They represent specific types or blends of crude oil that are widely recognized and traded by market participants. These benchmarks help establish a common language for buyers and sellers and provide a basis for determining the value of different types of crude oil.

The pricing of crude oil benchmarks is influenced by various factors, including supply and demand dynamics, geopolitical events, global economic conditions, and market sentiment. Changes in benchmark prices often have a significant impact on energy markets, influencing fuel prices, investment decisions, and industry profitability. (shameless plug:  Rogue Edge Members have access to crude benchmarks – Clearbrook, LLS, Midland, Houston)

West Texas Intermediate (WTI) as a Benchmark

One of the most well-known crude oil benchmarks is West Texas Intermediate (WTI). WTI is a type of light, sweet crude oil that is produced primarily in the United States, specifically in Texas, Louisiana, and North Dakota. It is highly regarded for its quality and convenient refining properties, making it a preferred benchmark for oil pricing in the United States.

WTI crude oil is traded on the New York Mercantile Exchange (NYMEX) and serves as the U.S. benchmark for oil pricing. The price of WTI is measured in barrels, with trades typically sold in 1,000 barrel increments. Market participants, including oil producers, refineries, and traders, use WTI as a reference point for pricing and hedging their crude oil transactions.

The pricing of WTI is influenced by various factors, such as U.S. oil production levels, inventories, refinery demand, and global market conditions. Fluctuations in WTI prices often reflect changes in supply and demand dynamics, geopolitical tensions, and macroeconomic factors affecting the energy industry.  (shameless plug:  Rogue Edge Members receive daily insight into the forward market of WTI)

Western Canadian Select (WCS) as a Benchmark

Another significant crude oil benchmark is Western Canadian Select (WCS). WCS is a heavy crude oil stream produced exclusively in Western Canada, primarily from the oil sands. It is a blend of various conventional and unconventional oils, including bitumen, synthetic crude oil, and conventional heavy oil.

WCS is known for its density and high sulfur content, which make it a heavy sour crude oil. It is priced at a discount to other lighter and sweeter crude oil benchmarks, reflecting its lower quality and refining challenges. WCS is primarily used by refineries in North America, particularly those on the U.S. Gulf Coast, that have the capability to process heavy sour crude oil.

The pricing of WCS is influenced by factors such as Canadian oil production levels, transportation constraints, refinery demand, and global market conditions. Fluctuations in WCS prices often reflect changes in regional supply and demand dynamics, pipeline capacity constraints, and the price differentials between heavy and light crude oil grades.

Other Crude Oil Benchmarks

In addition to WTI and WCS, there are several other significant crude oil benchmarks in the global energy market. These include Brent Crude, Dubai Crude, Oman Crude, Bonny Light, and many others. Each benchmark represents a specific type or blend of crude oil from different regions of the world, with its unique characteristics and market dynamics.

Brent Crude, for example, is a light sweet crude oil benchmark that is primarily produced in the North Sea. It serves as the global benchmark for oil pricing and is widely used in the trading of crude oil futures contracts. Brent Crude is known for its high quality and is often used as a reference point for pricing other crude oil grades.

Dubai Crude and Oman Crude are benchmarks for Middle Eastern crude oil, primarily sourced from the Arabian Peninsula. These benchmarks represent the pricing and trading of crude oil in the Asia-Pacific region and serve as references for pricing oil in the Middle East and Asia.

Each crude oil benchmark has its own unique characteristics, pricing mechanisms, and market dynamics. Market participants, including producers, refiners, and traders, closely monitor these benchmarks to assess market trends, make informed trading decisions, and manage their crude oil portfolios.

Conclusion

Crude oil benchmarks play a crucial role in the global energy market, providing a reference point for pricing and trading crude oil. Benchmarks like WTI and WCS represent specific types or blends of crude oil and help establish a common language for market participants. Understanding these benchmarks and their significance enables industry stakeholders to navigate the complexities of the energy market and make informed decisions based on market trends and pricing dynamics.

Curious about Rogue Edge?

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For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading commodities, including oil, involves risk, and past performance does not guarantee future results. It is essential to conduct thorough research and consult with a qualified financial advisor before making any investment or trading decisions.

Energy Commodity Trading – hedging, fundamentals, technicals

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Oil Trading

Oil trading is a complex and volatile market that requires expert knowledge and strategic decision-making. As the world’s most widely traded commodity, oil plays a crucial role in global economic stability. Understanding the intricacies of oil trading and implementing effective hedging strategies is essential for businesses and investors looking to navigate this dynamic market.

In this comprehensive guide, we will explore the future of oil trading, including key trends, market dynamics, and innovative hedging strategies. From the fundamentals of oil trading to advanced risk management techniques, this article will equip you with the knowledge and tools to optimize your oil trading activities and capitalize on market opportunities. (shameless plug:  Rogue Edge Members receive a free session designed for your trading/hedging plan.)

I. The Current State of the Oil Trading Industry

1.1. Overview of the Oil Trading Industry

The oil trading industry has experienced significant growth and volatility in recent years. As the global demand for energy continues to rise, so does the importance of oil as a key commodity. The industry has witnessed substantial value pools, with EBIT for oil trading estimated to have increased by over 90 percent from 2018 to 2021, reaching $18 billion.

1.2. Energy Transition and its Impact on Oil Trading

The ongoing energy transition has introduced structural volatility and market disruptions in the oil trading landscape. Decarbonization efforts, geopolitical turbulence, and supply chain bottlenecks have created challenges and opportunities for market participants. The transition to renewable energy sources and the integration of new technologies have redefined the concept of oil as a commodity. (shameless plug:  Rogue Edge Members have access to over 150 charts on supply, demand, imports, exports to help decipher the future market prices.)

1.3. Trade Flow Disruptions and Regionalization

The flow of global commodities, including oil, is susceptible to disruptions caused by various factors such as geopolitical events, natural disasters, and pandemics. Recent events, including the COVID-19 pandemic and geopolitical tensions, have reshaped global trade flows. Market participants need to navigate these disruptions and adapt to changing dynamics to optimize their trading activities.

1.4. Financing Challenges in Oil Trading

Volatility in oil prices has led to increased collateral requirements and tighter credit conditions in the industry. Market participants, especially small and medium-sized traders, face challenges in accessing trade financing and maintaining working capital. However, larger traders can leverage their balance sheets to take advantage of credit restrictions and enhance their margins.

1.5. Increase in Liquidity and Financially Tradable Products

The oil trading industry has witnessed a surge in liquidity and the availability of financially tradable products. Producers and customers have increasingly turned to trading platforms to capture additional value and optimize their supply chains. This has led to greater price transparency, contract standardization, and the emergence of new exchanges and platforms.

II. Hedging Strategies in Oil Trading

2.1. Understanding Futures Contracts

Futures contracts are a popular hedging instrument in the oil trading market. These contracts give market participants the right and obligation to buy or sell the underlying commodity at a predetermined price at a future date. While physical delivery is possible, most futures contracts are utilized for hedging purposes and are closed out before expiration.  (shameless plug:  Rogue Edge Members can learn how to optimize their hedging portfolio with Rogue Edge.)

2.2. Hedging with Oil Futures Contracts

Companies can hedge their exposure to oil price fluctuations by buying or selling oil futures contracts. For example, a corporate fleet that consumes a significant amount of diesel fuel can hedge their future fuel costs by purchasing oil futures contracts. By fixing or locking in the price, they can mitigate the risk of price volatility and ensure cost stability.

2.3. Hedging Strategies with Options Contracts

Options contracts offer additional flexibility for hedging oil price risk. These contracts provide the right, but not the obligation, to buy or sell the underlying asset at a predetermined price within a specified timeframe. Options can be used to protect against price fluctuations while allowing for potential upside gains.

2.4. Spread Trading and Calendar Spreads

Spread trading involves taking simultaneous long and short positions in related oil futures contracts. This strategy aims to capitalize on price differentials between different delivery months or related commodities. Calendar spreads, in particular, involve taking opposite positions in futures contracts with different expiration dates.  (shameless plug:  Rogue Edge Members share trading ideas on the private discord community.)

2.5. Basis Swaps and Physical Market Hedging

Basis swaps allow market participants to hedge the difference between the price of a physical commodity and the price of a related futures contract. This strategy is commonly used to hedge locational price differentials or to manage exposure to specific delivery points. Physical market hedging involves directly purchasing or selling physical oil to lock in prices and mitigate price risk.  (shameless plug:  Rogue Edge Members have access to basis changes for Crude Oil, Natural Gas, and Refined Products)

III. Technical Analysis in Oil Trading

3.1. Introduction to Technical Analysis

Technical analysis is a popular approach to analyzing market trends and making trading decisions. It involves studying historical price and volume data to identify patterns and predict future price movements. Technical indicators, such as moving averages, trend lines, and oscillators, are used to generate buy or sell signals.

3.2. Key Technical Indicators in Oil Trading

Several technical indicators are commonly used in oil trading to identify price trends and potential reversals. Moving averages, such as the 50-day and 200-day moving averages, can help identify long-term trends. Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are oscillators that indicate overbought or oversold conditions.  (shameless plug:  Rogue Edge Members view updated technical indicators every morning)

3.3. Chart Patterns and Candlestick Analysis

Chart patterns and candlestick analysis provide valuable insights into market sentiment and potential price reversals. Common chart patterns, such as head and shoulders, double tops, and triangles, can indicate trend reversals or continuation. Candlestick patterns, such as doji, engulfing, and hammer, provide signals of potential market reversals.

3.4. Using Technical Analysis in Oil Trading

Technical analysis can be combined with fundamental analysis to enhance trading decisions in the oil market. By analyzing both historical price patterns and fundamental factors, such as supply and demand dynamics, traders can gain a comprehensive understanding of the market and make informed trading decisions.

IV. Fundamental Analysis in Oil Trading

4.1. Understanding Fundamental Analysis

Fundamental analysis involves evaluating the underlying factors that influence the supply and demand dynamics of the oil market. This analysis considers factors such as geopolitical events, production levels, inventories, and economic indicators to assess the fair value of oil and make trading decisions based on long-term trends.  (shameless plug:  Rogue Edge Members see the latest supply, demand, imports, exports, stocks, and storage for crude oil, refined products, and natural gas)

4.2. Key Fundamental Indicators in Oil Trading

Several key indicators are used in fundamental analysis to assess the health of the oil market. These include oil production levels, global inventories, geopolitical events, OPEC decisions, and economic indicators such as GDP growth and inflation rates. Monitoring these indicators can provide valuable insights into future price movements.

4.3. Supply and Demand Dynamics in the Oil Market

Supply and demand dynamics play a crucial role in determining oil prices. Changes in production levels, geopolitical tensions, and economic growth can significantly impact supply and demand imbalances. Understanding these dynamics and their potential impact on prices is essential for successful oil trading.

4.4. Impact of Macroeconomic Factors on Oil Prices

Macroeconomic factors, such as global economic growth, interest rates, and currency fluctuations, can have a significant impact on oil prices. Strong economic growth often leads to increased oil demand, while interest rate changes and currency movements can influence the cost of oil production and transportation.

V. Conclusion

In conclusion, oil trading is a complex and dynamic market that requires a deep understanding of market fundamentals, technical analysis, and effective hedging strategies. By staying informed about market trends, implementing robust risk management techniques, and utilizing advanced trading tools, market participants can navigate the challenges and capitalize on the opportunities presented by the future of oil trading. Whether you are a corporate fleet manager, an investor, or a trader, adopting a comprehensive approach to oil trading will empower you to make informed decisions and achieve success in this ever-evolving industry.  (shameless plug:  Rogue Edge Members see the value of the latest fundamental, technical, and sentiment in the market – find out more below…)

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Click Here To Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Click Here To Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading commodities, including oil, involves risk, and past performance does not guarantee future results. It is essential to conduct thorough research and consult with a qualified financial advisor before making any investment or trading decisions.

Sources:

  1. McKinsey & Company. “The Future of Commodity Trading.” January 29, 2023.Link
  2. Mercatus Energy. “Energy Hedging 101 – Futures.”Link
  3. Commodity.com. “Everything you wanted to know about commodity trading.”Link

Oil & Gas Drilling

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The Ultimate Resource for Understanding Oil and Gas Drilling

Introduction

The oil and gas industry is a dynamic and complex sector that plays a crucial role in the global economy. From exploration and production to drilling and completions, every step in the process is driven by economic factors. Understanding the economics of oil and gas drilling is essential for companies, investors, and stakeholders to make informed decisions and maximize profits.

In this comprehensive guide, we will delve into the intricacies of oil and gas drilling economics. We will explore the exploration process, the cost of geology and geophysics, the significance of seismic data, the expenses associated with drilling, and the total cost of exploration. We will also examine the development phase, the cost of production drilling, and the various factors that influence development costs. Additionally, we will discuss production techniques, recovery rates, and the impact of technological innovations on drilling economics.

The Exploration Phase

1. Geology: Unveiling the Secrets of the Subsurface

Geology is the foundation of the exploration phase. Geologists study large areas to identify potential hydrocarbon accumulations. They analyze source rocks, reservoir rocks, and impermeable overburden rocks to determine the presence of hydrocarbons. Geographical surface studies and subsurface maps help geologists deduce the characteristics of the subsoil. Geophysics, the measurement and interpretation of physical quantities of the subsoil, complements geology in the exploration process. (shameless plug:  Rogue Edge Members have access to oil production, gas production, and rigs for every Oil & Gas Play in the US)

2. Geophysics: Unveiling the Secrets of the Subsurface

Geophysics plays a crucial role in understanding the subsurface and identifying potential drilling locations. Seismic reflection, the main approach in geophysics, involves sending elastic waves into the subsoil and recording the reflected waves to gain insights into the underground structural formation. Seismic campaigns involve data acquisition, processing, and interpretation, contributing to the total cost of exploration.

3. Seismic Cost: Evaluating the Financial Investment

Seismic campaigns are a significant component of exploration costs. The cost of a seismic campaign includes field data acquisition, data processing, and interpretation. The total cost of a seismic campaign depends on factors such as the difficulty of access, desired coverage, and the area covered. The competitiveness of local markets also influences seismic survey costs. Despite the expenses, seismic data is essential for assessing the prospect’s interest and making informed decisions about drilling.

4. Drilling: Unlocking the Subsurface Potential

Drilling is the ultimate step in exploration, providing direct access to the subsoil. Drilling wells involves reaching the target depths and perforating geological layers. Different drilling techniques are used, such as attacking the rock with a rotating drill bit. Onshore and offshore drilling differ in terms of rig support, with offshore drilling requiring platforms or floating structures. Drilling costs vary depending on factors like depth, rig type, and geographical location. (shameless plug:  Rogue Edge Members have access to weekly rigs by basin with special focus on Oklahoma permits and completions)

5. Cost of Drilling: Factors Influencing the Economic Investment

Drilling costs include the rental of drilling rigs, supervision expenses, consumables, and other equipment required for drilling operations. The duration of drilling varies based on depth and hardness of the layers traversed. Exploration wells have a lower success rate, meaning that costs must be considered even if a well does not lead to a discovery. The cost of drilling represents a significant proportion of the total cost of an exploration program.

The Development Phase

6. Delineation and Reservoir Appraisal: Confirming the Discovery

Once a discovery is made, the focus shifts to delineation and reservoir appraisal. These processes involve gathering additional information about the reservoir boundaries, rock characteristics, and production conditions. Economic studies complement technical assessments to determine the commercial viability of the field and its alignment with the company’s strategy and financial resources.

7. Production Drilling: Exploiting the Reservoir

Production drilling differs from exploration drilling in terms of operation duration and control. Production wells are drilled faster, and completion times for connecting the producing area to the wellbore are considered. Well completion ensures the security of the wellbore walls. Techniques such as horizontal drilling and multi-drain drilling are employed to maximize production efficiency.  (shameless plug:  Rogue Edge Members know every week if rigs have increased or decreased by shale basin and play within the basins.)

8. Production Drilling Cost: Balancing Efficiency and Investment

The cost of production drilling is influenced by factors such as well completion requirements, drilling techniques, and environmental regulations. Horizontal wells have higher costs but increased productivity. Environmental considerations, such as waste treatment, can affect well costs. Offshore drilling requires the use of floating supports, which adds to the overall development costs.

9. Floating Supports: Enabling Offshore Production

Offshore drilling necessitates the use of floating supports. Shallow water depths can utilize fixed structures like jackets, while deeper waters require semi-submersible platforms, SPAR structures, or Floating Production Storage and Offloading (FPSO) vessels. The choice of floating support depends on water depth, field characteristics, and the need for autonomous production and storage capabilities.

10. Total Development Costs: Evaluating the Investment

Development investments encompass development drilling, production facilities, storage tanks, pumping units, and discharge systems. The duration of the development phase varies but typically ranges from 1 to 4 years. Development costs depend on factors like field location, depth, and oceanographic conditions. Identifying key parameters and conducting thorough evaluations are crucial for defining and optimizing the project’s profitability.

Conclusion

The economics of oil and gas drilling are multifaceted, influenced by factors spanning from exploration to production. Geology and geophysics provide insights into potential hydrocarbon accumulations, while seismic data helps assess the prospect’s interest. Drilling involves significant costs, with a success rate that must be considered. Development drilling and production techniques further contribute to the overall investment. Understanding these economic aspects is essential for stakeholders in the oil and gas industry to make informed decisions and navigate the complexities of drilling economics.

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