[rockdoc123]

Came across this article in Bloomberg this morning....really worth a read as it discusses a lot of the problems the Saudis face going forward in delivering both energy and social programs at home and how that impacts the price of oil they require (we discussed this issue on another thread). Some of it is misleading I think but judge for yourself

http://www.bloomberg.com/news/2012-12-12/oil-at-60-or-120-doesn-t-prevent-u-s-supplanting-saudi-arabia.html

this quote from the article suggests they don't understand supply and demand to my mind

U.S. average daily output will climb 14 percent this year, the most in six decades, according to the Energy Department, as Anadarko Petroleum Corp. and Chesapeake Energy Corp. exploit new deposits from North Dakota to Texas. Even though America’s 6.8 million barrels a day in November was 30 percent less than Saudi Arabia’s 9.7 million, the International Energy Agency says the U.S. will be bigger by 2020.

West Texas Intermediate, or WTI, will rise about 15 percent through 2015, to $100 a barrel, according to the median of 13 analyst estimates compiled by Bloomberg. Brent, the benchmark for Arab Light and Arab Medium grades, may gain less than 1 percent, to $110, the forecasts show.

So they are saying that US production will continue to rise and that so will WTI? Makes no sense to me given there is already a large gap between WTI and Brent and more US production should just increase that gap unless the US suddenly starts exporting large quantities of oil which of course defeats the purpose of being "energy independant".

[Keith_McClary]

Analysis: Exports will be next divisive U.S. oil tangle

LAW DATES TO ARAB OIL EMBARGO ERA

The main law governing U.S. crude oil exports is the 1975 Energy Policy and Conservation Act.

Passed in the aftermath of the Arab oil embargo of the early 1970s, the law requires the president to restrict trade of domestically produced crude oil outside the country. Only a handful of other commodities are similarly regulated, including such things as unprocessed Western red cedar and horses exported by sea.

While companies can easily export crude oil products, such as gasoline and diesel, sending unrefined crude oil out of the country requires a license from the Bureau of Industry and Security in the Commerce Department.

Unlike other policy areas that require legislative action to change, the president is able to expand crude oil exports when a finding is made that doing so is in the country's best interest.

President Ronald Reagan made such findings in 1985 and 1988 to permit exports to Canada, as well as the finding in 1985 that allowed exports from Alaska's Cook Inlet. In 1992, President George Bush approved the limited export of heavy crude oil from California after environmental laws in the state greatly reduced demand domestically.

In both cases, these exceptions were made for crude oil production that was relatively cut off from the rest of the nation and in which access to foreign markets was necessary to support the output.

Exports are also allowed in some cases where the crude is part of a swap that will result in an equal amount of petroleum products being imported into the United States. In these cases, companies have to prove the crude oil could not have been reasonably marketed domestically.

Former Commerce Department officials said crude oil applications have typically made up only a small part of the export bureau's work.

"I don't think these laws existed at any time we've had an oil surplus," said Bill Reinsch, who was
Undersecretary for the Export Administration at the Commerce Department in the 1990s under President Bill Clinton.

"They were designed to deal with when we have an oil deficit. We still do, but it's not the same," said Reinsch, who is now president of the National Foreign Trade Council.

This is Central Planning by Presidential decree. Forget about "supply and demand".

[sparky]

.
The report is really bad ,
it assume an large increase of production in the Midwest and the price of WTI catching up with Brent
those two situation would happen only if the demand for oil in the Midwest increase dramatically

The WTI is now the lower 48 production price ,
ten dollar lower and the production rate would suffer ,
after all Canadians do feel being ripped off.

As for the Saudi , the OPEC basket price show some heavy intervention to keep the crude in the 105 $/B
their production is reportedly decreased ,

[Tanada]

Wait a minute, I always assumed the Canadians sold us their oil at the international Brent price, not the USA WTI price. If they are selling at WTI they are getting ripped off.

[kublikhan]

this quote from the article suggests they don't understand supply and demand to my mind
So they are saying that US production will continue to rise and that so will WTI? Makes no sense to me given there is already a large gap between WTI and Brent and more US production should just increase that gap unless the US suddenly starts exporting large quantities of oil which of course defeats the purpose of being "energy independant".

The low WTI price is because of transportation bottlenecks, not supply and demand fundamentals. They can't get the oil to where it is needed. New drilling outpaced new pipelines. They need a new pipeline from Cushing to the Gulf Coast. Continuing to rely on rail and trucks to transport oil is going to continue to hold down the price of WTI relative to Brent. Although the Seaway reversal should help somewhat.

[Keith_McClary]

Wait a minute, I always assumed the Canadians sold us their oil at the international Brent price, not the USA WTI price. If they are selling at WTI they are getting ripped off.

Eastern Canada imports at Brent price, western production is exported at market price at the border. I think that is even lower than WTI.

We definitely need to join OPEC.

[rockdoc123]

The low WTI price is because of transportation bottlenecks, not supply and demand fundamentals. They can't get the oil to where it is needed. New drilling outpaced new pipelines. They need a new pipeline from Cushing to the Gulf Coast. Continuing to rely on rail and trucks to transport oil is going to continue to hold down the price of WTI relative to Brent. Although the Seaway reversal should help somewhat.

Thats true but it is almost certainly better economics to ship crude along existing pipelines to an offloading port than to spend billions in facility construction if the spread between WTI and Brent increases not withstanding having to deal with the numerous organizations in the US that would fight against any further infrastructure related to oil. More North American oil is just going to exacerbate the transportation to internal markets. If I saw a $60 price differential between WTI and Brent and I figured out a way to keep transportation costs down to $40 I would definitely be looking at shipping the oil to another market.

Canadian oil is traded at a very heavy differential, partly due to gravity but also due to transport issues. I think it is closer to $70/bbl (I was looking at a graph of historically prices for all North American crude by region just recently, can't find it though). Hence one of the pressures to try and get the oil to a terminal on the West Coast.

[Pops]

Couple of points, Buffet has made a big effort to provide 1MMb/d BNSF rail capacity, he's making up for lost coal tonnage and he must be offering a good price because the pipe planned to be built starting next year down to Cushing was canceled because of lack of interest. I linked a Rigzone story elsewhere.

As a side note, the conoco/philips pipeline that skirts my property is being expanded - that would be Cushing to a tank farm in SW MO, although it went all the way to Chicago once upon a time. I can't find any news but will report in when I do.

The Brent, WTI, etc prices are benchmarks, basically gauges of market price. As I understand it, most oil is traded off the open market by agreement. Lets say we are making a deal, we agree to Brent as a benchmark to determine how hot or cold the overall market is, that's our base. We then would add or subtract x amount for weight, impurities, FOB location, etc of the specific crude we are trading.

I think it is illegal to export crude from the US except a few specific exceptions, we can export product, I don't know if there is a limit.

[evilgenius]

Yeah, but is it illegal to build a pipeline from Canada in order to export Canadian oil from the Gulf? Ostensibly the effort is to get Canadian oil to the Gulf Coast refineries, but without some legal barrier how long will it be before it turns into an export heavy business? Who knows, if they get the right kind of laws passed they can even export US oil, or refined products, under the guise of 'percentage of expected five or ten year average output'. In which case they can borrow against high expected fracking output, which may never materialize. If that happened I wonder if at some point down the road, due to the politics, the US would be awash in gasoline, at a time when the rest of the world is really hurting?

[rockdoc123]

The Brent, WTI, etc prices are benchmarks, basically gauges of market price. As I understand it, most oil is traded off the open market by agreement. Lets say we are making a deal, we agree to Brent as a benchmark to determine how hot or cold the overall market is, that's our base. We then would add or subtract x amount for weight, impurities, FOB location, etc of the specific crude we are trading.

Yes, in principle, but because North America doesn't trade hydrocarbons outside of its landlocked boundaries it has to deal with the market fundamentals which includes North American supply and demand as well as the transportation and crack split adjustments. As a consequence you are stuck with the current (Brent to WTI) differential and if oil production from shales increases as predicted I can't see how this gap would not widen without the potential for additional markets. Too bad Pup55 has disappeared as he always had an astute view on such matters.

You are correct that currently US legislation does not allow for export of oil (a law that was put in place during the Arab oil embargo) but there will be huge pressure on Obama to revisit this legislation if the shale oil production meets predictions. Note that the refineries on the East Coast are not well suited for the type of crude coming from the shales so keeping this oil from export doesn't make a lot of sense. Also there would be pressure on the government given that if oil companies see higher profits elsewhere they will push their business in that direction. The US still has a huge trade imbalance as I remember so I would think allowing oil exports of some amount would be a smart move.

[Pops]

The thing is, the US average producer acquisition price is around $100/bbl now because... we import 2x what we produce.

When the dakotas are producing 10MMb/d and selling at the well for $60 why wouldn't it be cheaper to ship it to Chicago or Richmond CA than China via GOM?

Are the refiners pushing for relaxing the laws?

As mentioned above, there was not enough interest to proceed with a pipe from ND, even tho BNSF "only" has 1MMb/d of rail capacity. If you were one of the big guys up there and expected to pump big numbers for a long time, wouldn't you want to lock in pipeline capacity? Especially knowing that it wouldn't come online for a couple of years when rail cars would be getting cramped?

[kublikhan]

The thing is, the US average producer acquisition price is around $100/bbl now because... we import 2x what we produce.

When the dakotas are producing 10MMb/d and selling at the well for $60 why wouldn't it be cheaper to ship it to Chicago or Richmond CA than China via GOM?

This was my thought as well. Even if we hit every single shale target, we still will not satisfy the US demand for crude. In addition to the new shale crude, we must still import even more crude. And if for whatever reason we decided we wanted to sell that shale oil instead of consume it, we must still resolve the transportation bottleneck to get the crude to where it is needed. Thus I am having a hard time understanding the argument that we must export shale oil to make economic sense. To me, it seems if the transportation issues must be resolved whatever option we choose. I recently read an article that said they want to ship Bakken to Wisconsin instead of Cushing to avoid the glut there. Whatever works!

Enbridge Inc. plans to build a new oil pipeline to transport Bakken crudes east in an effort to avoid a bottleneck at the U.S. supply hub in Cushing, Oklahoma. Dubbed “Sandpiper,” the line would carry as much as 200,000 barrels a day from the booming Bakken formation in North Dakota to Superior, Wisconsin, and eventually to refineries in eastern Canada.

Crude oil inventories at Cushing were 43.9 million barrels in the week ended Sept. 28, a seasonal high in Energy Department data going back to 2004, amid higher flows of Canadian heavy oil and U.S. light oil. That’s prompted Enbridge and other pipeline companies to seek new routes away from the oversupplied U.S. Midwest market.

One direction Enbridge is looking is east, where U.S. and Canadian refineries take higher-priced imported crudes. The Calgary-based company is planning to reverse the flow of the Line 9 pipeline from Montreal to Sarnia, Ontario. Sandpiper would support that “Eastern access” strategy, Wuori said.

Chief Executive Officer Al Monaco said the rapid increase of Bakken production made it necessary to expand the pipeline and rail projects the company already has in North Dakota, including some 325,000 barrels a day of capacity scheduled to be completed next year.

“I don’t think anybody saw the explosive growth continuing in the Bakken like we are now seeing,” Monaco said. He said the expansion project and Sandpiper would help to avoid a bottleneck on Enbridge’s Mainline crude oil pipeline north of Superior.

Enbridge plans oil pipeline from Bakken to avoid Cushing

Thats true but it is almost certainly better economics to ship crude along existing pipelines to an offloading port than to spend billions in facility construction if the spread between WTI and Brent increases not withstanding having to deal with the numerous organizations in the US that would fight against any further infrastructure related to oil.

I agree. If the infrastructure already existed to do that then that would make sense. However as far as I know, our transportation bottleneck precludes that possibility as well. I think new pipelines would be needed for this as well. And the new pipelines for the "oil to port" option seem just as likely to get bogged down in political fights.

When President Obama rejected the Keystone oil sands pipeline expansion last week, critics immediately sounded the China alarm. "If we don't build this pipeline ... that oil is going to get shipped out to the Pacific Ocean and will be sold to the Chinese." Yet experts say the situation is more complicated than that.

In an effort to diversify its export base and sell to growing markets, Canada has been looking to build a pipeline to its West Coast long before the Keystone controversy even began. And actually laying a pipeline to the West Coast will be just as hard as building one through the United States.

Known as Northern Gateway, the pipeline is a $5 billion project to carry crude from the oil sands region in Alberta to Kitimat, a deepwater port on Canada's West Coast about halfway between Seattle and the Alaska border. From there it would likely be loaded onto tankers and sent to Asia.

The desire to fast track Gateway may indeed be there, but environmentalists say it won't happen. Canada has a stringent process for environmental permitting, and thousands of people have already signed up to protest the Gateway project. "Plus, in order to reach the Pacific the pipeline has to cross over tribal lands controlled by the First Nation people. "First Nation people all along the proposed path are pretty united in their opposition," said Casey-Lefkowitz. "I don't see Northern Gateway being built."

"We do expect that as production volumes grow there will be opportunities for Canadian producers to move their oil offshore to other markets than the U.S.," said Pourbaix. "But under almost any scenario, we believe [Keystone] can be in service far before any project to the West Coast." Despite last week's rejection, TransCanada said they will resubmit their application, as the Obama administration invited them to do, and hope to have Keystone up and running by 2014. Gateway, meanwhile, isn't slated to be operational until 2017.

The Keystone - China connection is overblown