Oil Glut Research Articles

The Asymmetric Relationship between Conventional/Shale Rig Counts and WTI Oil Prices

This work analyses the asymmetric response of conventional and shale oil rig counts to WTI oil price returns. Our analysis shows that the rig count time series exhibited a structural change after the oil glut of 2014. All series are non-stationary in each sub-period but not cointegrated. Therefore, after controlling for possible confounding factors, a vector auto regressive (VAR) model is set up. Our specification accounts for the possible role of oil production and distinguishes between positive and negative oil price changes. It is shown that shale and conventional rig counts reacted differently in each subperiod to signed changes in oil price. Subsequently, by evaluating the response of rig counts to oil price shocks, their intensity and duration over time, we observe that the shale oil rig count reacts more intensively to positive than to negative oil price changes. On the contrary, the conventional rig count exhibits a modest reaction only to positive price changes. Finally, we robustify our findings by focusing on the data of the Permian basin, on the one hand, and the Anadarko, Bakken, Eagle Ford and Niobrara, on the other hand, which are characterized by different patterns in the number of Drilled but not Completed wells.

Volatility spillovers between ethanol and corn prices: A Bayesian analysis

The relationship between corn and ethanol markets has become a popular topic and has been investigated in various studies. However, examining the co-volatility spillover between corn and ethanol markets remains neglected in the literature. This paper aims to fill this gap by analyzing the co-volatility spillover between corn and ethanol markets in the world’s largest ethanol producers and consumers, including the United States, Brazil, and China. To achieve this purpose, we utilize the Bayesian BEKK-GARCH(1,1) model to estimate the degree of co-volatility of corn and ethanol returns. Our empirical results indicate a significant bidirectional volatility spillover between corn and ethanol in all countries. We also find that the co-volatility between corn and ethanol returns is not stable and fluctuates over time, particularly in 2016 and 2020, which correspond to the 2010s oil glut and the COVID-19 pandemic, respectively.

TECHNOECONOMIC ANALYSIS OF REFINING NIGERIAN LIQUEFIED NATURAL GAS CONDENSATE

Condensate refining is among the strategies proposed to solve the light oil glut around the globe. The Nigerian Liquefied Natural Gas (NLNG), which is the Nigerian government’s best performing investment in the natural gas value chain, produces plant condensate as a by-product. In this paper, the economics of a refinery designed to use NLNG plant condensate is evaluated under an optimistic oil price forecast and a pessimistic oil price trend. A gasoline producing refinery configuration was chosen for this study, and it comprises of a naphtha splitter, a Penex isomerisation unit and a Continuous Catalytic Reforming (CCR) unit. The product yields and plant costs were determined by established correlations and industry estimates. The proposed refinery will convert 40,000 bpd plant condensate into 96% gasoline, 3% LPG and 1% hydrogen, and economic indicators such as Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) were used to assess the economic viability of the refinery. The optimistic scenario of oil price forecast resulted in an NPV of $ 531.90 million, an IRR of 20.09% and a PI of 3.16, while the pessimistic scenario gave an NPV of $16.26 million, an IRR of 11.16% and a PI of 1.07. These results prove that a condensate refinery with the proposed configuration is economically feasible and interested investors in Nigeria’s refining space should explore this possibility.

Technology Focus: Deepwater Fields (May 2021)

I cannot overstate that 2020 was one of the toughest years on our industry’s ecosystem. The huge scale of the crisis wreaked by the COVID-19 pandemic has affected us all in such an unprecedented way and added a hard-hitting dimension to our industry’s fragile outlook. The prolonged periods of lockdown and the hiatus mandated in several countries, including some of the high-consuming ones, resulted in the largest oil glut ever, which exacerbated the economics severely. The flat oil-supply curve erased almost all the growth of the last decade and has put our endurance, agility, and resilience to a hard test. The offshore segment, from which approximately 33% of global oil production comes, was confronted by this turmoil, and escalating challenges surrounded the viability and sustainability of deepwater developments like never before. Unlike previous downturns experienced by our industry, the record plunge in oil demand has put the effectiveness of previous measures of recovery, such as deferral of investments or waiting for an upturn in oil prices, under the microscope. As the headwinds of the pandemic continue reshaping the global economy, our industry, and the deepwater segment in particular, have no time to lose to rock the boat and upend assumptions in the post-COVID-19 world. Imminent substantive changes within the industry are inevitable to reduce uncertainty and risk and to prepare for the new decade and beyond of delivery in light of the rapid evolution of renewables. Major deepwater operators have made remarkable achievements in lowering the average breakeven price to around $50 per barrel from around $70 per barrel in the past 5 years. Increasing cost savings are vital, and innovative money-saving engineering notions are an essential tactic to achieve a lower breakeven price. Additional proportionate, strategic, and reinventive initiatives are needed for the deepwater sector to adapt to the new energy landscape and search for new areas of growth. They will govern the future of the sector and differentiate the pioneers from followers. I am in no doubt that redefining fundamental strategies toward the development of partnerships in joint deepwater projects, embracing cutting-edge fit-for-purpose and cross technologies, and prioritizing net-zero emissions are keys to unlocking transformational gains and leveraging the opportunity to promote a sustainable future for the deepwater sector. Recommended additional reading at OnePetro: www.onepetro.org. SPE 200522 - A Novel Deepwater Kick-Control Strategy for Handling Riser Gas Unloading With Data-Driven Parameter Estimation by Qifan Gu, The University of Texas at Austin, et al. SPE 200429 - Investigation of Permeability Impairment Caused by Asphaltene Precipitation During Gas-Injection EOR in a Major Gulf of Mexico Field by M.R. Fassihi, BHP, et al. SPE 202296 - Analyzing Critical Elements in Openhole Gravel-Pack-Treatment Design Cycle: Case Study in Indian Ultradeep Water by Vaibhav Gupta, Schlumberger, et al.

Does COVID-19 effects the United States crude oil imports price?

Introduction. The outbreak of the new coronavirus (COVID-19) crisis monopolizes these days the worldwide public agendas. The COVID-19 pandemic makes fear and uncertainty, defeat the world economy and swelling the financial markets instability. The coronavirus pandemic has led the global economy to slam the brakes, leading to an extremely sharp drop in demand for oil. It has created a massive oil glut and raised concerns about the lack of physical storage space for it. Materials and Methods. The autoregressive distributed lag (ARDL) model has been used for decades to study the correlation between variables using a single equation time series. The ARDL model is one of the most common dynamic unrestricted models in econometric literature. In this model, the dependent variable is expressed by the lag and current values of independent and its own lag value. This paper analyzed the effect of COVID-19 pandemic on the United States (US) Crude oil imports prices, using daily data for the period December 31, 2019 to March 21, 2020. Using the ADF test for stationary and bounds testing approach to cointegration, developed within an ARDL model. Results. Finding of the study showed that the total death, have significant consequence on the crude oil price, the adverse effect shows, if 1 percent increase in total death leads to decrease the crude oil -0.001 percent. The total cases are also negative effect the crude oil price, mean one percent increase in the COVID-19 which lead to decrease crude oil price -10.23. Discussion and Conclusion. The contuse increasing of COVID-19 pandemic generates shock waves on the crude oil markets, as well as in the real economy of US and also in the world. The deepness of the new economic recession will depend on the policy reaction to the coronavirus. This research paper analyzes how the COVID-19 total death and total cases effect the US crude oil price. The results of the study show that the world COVID-19 total death is significant impact on the crude oil price, if one percent increase in the total death in the world which lead decrees the crude oil price. The total cases of COVID-19 also have negative and significant effects the crude oil price.

President's Page

Growing up, 90 was always a big deal — going 90 miles an hour, hitting 90°F outside, getting 90/100 on a test. And now, we celebrate the 90th year of SEG's founding. Happy birthday, SEG! From those days in 1930, when 30 individuals first formed a geophysical association of fellow explorers, entrepreneurs, and scientists, to our Society today with some 12,000 members in 120 countries, it's been almost a century of progress. Traveling back 90 years, we would find a world population of some 2 billion (versus almost 8 billion today), U.S. life expectancy of 60 years (now pushing 80), and oil production of less than 4 million barrels per day compared to current levels of about 90 million. Interestingly, then as now, there was an oil glut and volatile stock market. However, on 18 April 1930 in contrast to our plethora of current events, the BBC announced that, “there is no news today” and played piano music! Oh, for those days … aside from the bit about a 60-year life expectancy.

Notes from the Editors, June 2020

buy this issue
 The current massive oil glut is the product of the effects of the tight oil or shale oil revolution, which for a time turned the United States into the biggest oil and gas producer in the world. Now, suddenly as a result of an overproduction of world oil, made far worse by the sudden falloff in demand due to the COVID-19 pandemic, we are witnessing the possible euthanasia of the U.S. tight oil industry, bleeding cash even before the oil price collapse and encumbered with mountains of debt.

E&P Notes (April 2020)

E&P Notes Historic Oil Glut May Linger for Years Stephen Rassenfoss, JPT Emerging Technology Editor Editor’s Note: The global repercussions of COVID-19 and the oil price drop in mid-March continue to have far-reaching effects on the market, operators, and services companies. This month, JPT editors deliver in-depth E&P market and activity updates. To stay updated, visit the JPT website (www.spe.org/jpt), and sign up to receive JPT’s weekly newsletter (http://go.spe.org/jpt_newsletter) and JPT’s monthly Unconventional Insights newsletter ("http://go.spe.org/JPT_Unconventionals_Newsletter)"http://go.spe.org/JPT_Unconventionals_Newsletter). Price crashes caused by supply gluts have been happening since oil production began, but the latest one is growing to epic proportions. “There has been a dizzying drop in world oil demand and a dramatic pivot in Saudi oil production policy. If this situation persists amidst a recession, it points to the possible buildup of the most extreme global oil supply surplus ever recorded,” said Jim Burkhard, vice president and head of oil markets for IHS Markit. The firm’s estimates of overproduction could range from 4 million B/D to 10 million B/D from February to May 2020, which is in line with a trend of growing oversupply estimates from oil industry observers, who say low prices will be long-lasting. E&P Spending Cuts Spur Requests for Reduced OFS Fees Judy Feder, Technology Editor Fallout for the oil and gas industry from COVID-19 and the production volume war that began when Russia walked away from the suggested OPEC+ deal and Saudi Arabia started flooding the market with oil has been rapid and severe. And, it looks as if US shale will be the hardest hit. The total capital and operational expenditure of exploration and production (E&P) companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level, according to a recent Rystad Energy impact analysis. The shale industry would carry the biggest burden of this supply shock by taking as much as $65 billion of the $100-billion 2020 spending reduction expected globally. And, it may get worse. According to Rystad, if no agreement is reached during the next scheduled OPEC+ meeting in June, E&P companies are likely to slash capital and operational budgets to make up for significantly lower cash flows that are expected this year and next.

Neuromancer: The Cultural Logic of Late Fossil Capital?

This paper develops a take on the cultural moment of the long energy crisis (1973–1992) through two popular science-fiction texts. It divides the period in two: ‘oil shock’ and ‘oil glut’. Further periodizing Fredric Jameson’s intervention into the discussion of postmodernism and his successive naming of postmodernism as the cultural logic of late capital within this framework of crisis, I ask what might be said about postmodernism in light of this moment of fossil-fuelled turmoil in the global system. My essay has two poles each located in a text from the period: Isaac Asimov’s essay ‘The Nightmare Life without Fuel’ (1983) and William Gibson’s Neuromancer (1984). From oil shock to oil glut, this paper uses Patricia Yaeger’s and Graeme Macdonald’s work on the concept of an energy unconscious in order to begin elaborating the cultural logical of late fossil capital.

Crude oil contango arbitrage and the floating storage decision

We investigate charterers’ ability and willingness to exploit floating storage arbitrage opportunities. Using time-series and fixtures data on time-charter rates, we find that arbitrage opportunities were present during the Financial Crisis and the recent Oil Glut. An investigation of storage profits across storage horizons suggests that positive oil supply shocks favour longer storage horizons than negative oil demand shocks. Evidence from spatial ship-tracking data suggests charterers are reluctant to exploit the arbitrage opportunity when the implied value of transportation from Forward Freight Agreements (FFAs) exceeds the storage profit. Our findings are of interest to maritime economists and oil market participants.

Dynamic relationship between Nigeria-US exchange rate and crude oil price

PurposeThe purpose of this paper is to investigate the dynamic relationship between Nigeria-US exchange rate (XR) and crude oil price (OILP) using daily data from 1 January 2001 to 31 December 2015.Design/methodology/approachThe study uses alternative methods, including vector autoregressive-generalised autoregressive conditional heteroskedasticity (VAR-GARCH) within the framework of Baba-Engle-Kraft-Kroner model, constant conditional correlation (CCC)-GARCH and dynamic conditional correlation (DCC)-GARCH models.FindingsThe results from the VAR-GARCH model indicate unidirectional cross-market mean spillovers from oil market (OILM) to foreign exchange market (FXM). In addition, the results show a positive effect of OILP on XR, suggesting that an increase in OILP appreciates Nigerian currency relative to US dollar and a fall in OILP depreciates it. The authors find that the effects of cross-volatility spillovers between the OILM and FXM are bidirectional. The CCC results indicate positive correlations of returns of 16 per cent between the FXM and OILM. Finally, the DCCs results indicate positive correlations between the two markets since the fourth quarter of 2008 (the world financial crisis period) until the recent period of world oil glut and slow demand for crude oil.Research limitations/implicationsFollowing the depreciation of the Nigerian currency vis-á-vis US dollar since the onset of the recent world oil glut and lower oil prices, Nigerian authorities should embark on subsidy reform, such as reduction in fuel subsidies. This may enable the release of fiscal resources that may be used to either rebuild fiscal space lost or finance investment in non-oil sectors in order to reduce overdependence on oil income. Lower fiscal revenues, coupled with the risk that crude oil maintains its low price for some time, imply that government should reduce its expenditure, and continue to draw on available accumulated funds from the excess crude account for some time until the real depreciation required for adjustment is achieved.Originality/valueStudies on volatility spillovers between OILM and FXM are limited in the literature, particularly in Nigerian case. Moreover, the study employs different approaches for broader analysis. These alternative methods, a clear departure from the previous studies, provide comprehensive dynamic nature of the relationship between the FXM and OILM.

Brent prices and oil stock behaviors: evidence from Nigerian listed oil stocks

BackgroundGiven the shale oil glut that culminated in the most recent and continuing oil price drop from June 2014 and the global financial crisis of 2008 that triggered a cyclical downturn in oil prices and stock market activity, this study investigates the impact of Brent oil price shocks on oil related stocks in Nigeria.MethodsThis study uses a vector autoregressive (VAR) model with the impulse response function and the forecast variance decomposition error.FindingsThe empirical evidence reveals that oil price shocks have a negative impact on Nigerian oil and gas company stocks. In theory, this situation should apply to oil importing countries and is therefore uncharacteristic of an oil exporting country like Nigeria.ConclusionsThe findings suggest that oil companies operating in Nigeria should diversify their investments to protect their business from single-sector market forces, and can also embrace the advantages of outsourcing some of their operations to specialist providers to increase flexibility and reduce operating costs. Finally, for vertically integrated oil and gas companies, oil price hedging and energy risk management will be beneficial because it will mean that these companies will take a position in the crude oil futures market. This will allow for better cash flow management and flexibility.Originality/valueThis study extends the existing literature in two distinct ways. First, it provides, to the best of our knowledge, the first examination of the impact of oil price shocks on stock market activities with a focus on the market returns of oil and gas companies listed in the Nigerian Stock Exchange. Second, this study uses daily data because high frequency data contain more information than lower frequency data does, and lower frequency data average out too much important information.

Global impact of energy exports from the USA: assessment of potential consequences for targeted markets

The position of the USA in the global energy environment has undergone substantial change in recent years. Mostly thanks to the introduction of new mining techniques, the USA has once again become a major producer of oil and gas, and the outcome of this is visible both at home and on the global scale. This paper assesses obstacles that stand in the way of these exports, and analyses the potential consequences on major world markets. The oil and gas glut at home is also affecting the use of another traditional US energy source: coal. Coal is being squeezed out of the energy mix and is looking for fresh markets abroad. The paper thus analyses the positioning and views on these exports on the major global markets, as well.

Assessment of Value Added Tax on the Growth and Development of Nigeria Economy: Imperative for Reform

Value Added Tax (VAT) is a consumption tax that is being charged and embraced by many developed and developing countries, which is relatively easy to administer and very difficult to evade. The economic development and growth of any nation depends on government ability to generate adequate revenue in order to effectively provide various infrastructural facilities to satisfy the needs of the population and takes its position among the nations in the global village. The global oil glut has adversely affected the revenue position of Nigeria. The over 60% drop in oil price to below $40per barrel was unanticipated by the government. This has resulted to over 80% fall in the yield(spread) per barrel of oil produced in Nigeria, steep decline in the country’s revenue,2016 budget deficit of over N 2trillion,continuing devaluation of the Naira, slowing Gross Domestic Product( GDP) growth, reduced inflow of foreign direct investment, rising inflation and growing unemployment. The government at the federal level has put a stop on capital projects, while allocation to the states of the federation has reduced resulting in the inability of many states provide relevant infrastructural facilities and pay workers’ salaries ranging from five months to eight months. It is therefore very clear that there is the need to diversify the revenue base of the nation, and Value Added Tax (VAT) is a major revenue source of advanced nations of the world, which much attention is not focused on this area by the federal government of Nigeria. The main focus of this work was to evaluate the impact of VAT on Nigerian economy between its introduction to date to discover the imperativeness of its reform. Ex-post-factor, descriptive and analytical research approach were adopted for the work. Data of VAT and GDP were obtained from 1994-2015, and analyzed to determine the relationship that has been existing between them. It was discovered that VAT has a positive relationship with GDP. The coefficient of the model indicate that a 1% increase in VAT will lead to a 0.88% increase in GDP . This shows a perfect positive correlation between VAT and GDP.It therefore becomes imperative for a reform in VAT.In conclusion,VAT is due for a total reform in rate and clear definition of exempted goods and services.We recommend that the curent 5% should be review upward to a minimum of 10%,Integrated Tax Offices should be stenghtened to increase efficiency and effectiveness,Federal Inland Revenue Service should address tax evasion,government should use VAT revenue judiciously to encourage tax payers and government should clearly define excempted goods and services so as to charge vatable goods that are currently not vatable.

Editor's Viewpoint: Beyond Oil: A New Middle East Vision

Editor's Viewpoint: Beyond Oil: A New Middle East Vision

Nash-profit efficiency: A measure of changes in market structures

Imperfectly competitive markets can be characterized by endogenous prices, limited or no competition, and the exercise of market power. To address the resulting dysfunctionality, this study proposes an alternative efficiency measure estimated by the directional distance function (DDF) with the direction toward Nash equilibrium, and develops the Nash-profit efficiency (NPE) and its decomposition which complements the typical profit efficiency measure. We model the production possibility set and the price functions of inputs and outputs, and then develop the mixed complementarity problem (MiCP). We validate the model with an empirical study of the oil and natural gas industry in New York State between 1981 and 1989. The results show that before 1984, firms exploited a less competitive market; that between 1984 and 1986, the number of new entrants transformed the market; and that after 1986, no firms could exercise market power due to market restructuring (deregulation) and an unforeseen oil glut. Based on the results, we conclude that the direction toward Nash equilibrium can be justified for efficiency estimation in imperfectly competitive markets, and that NPE is appropriate for investigating changes in market structures.

Global oil glut and sanctions: The impact on Putin’s Russia

The Russian economy is highly responsive to oil price fluctuations. At the start of 2014, the country was already suffering from the weak economic growth, partly due to the ongoing crisis in Ukraine and Western sanctions. The recent plunge in global oil prices put even further strain on the Russian economy. This paper analyzes the dynamic relationship between oil price shocks, economic sanctions, and leading macroeconomic indicators in Russia. We apply a vector autoregression (VAR) to quantify the effects of oil price shocks as well as western economic sanctions on real GDP, real effective exchange rate, inflation, real fiscal expenditures, real consumption expenditures, and external trade using quarterly data from 1999:1 until 2015:1. Our results show a significant impact of oil prices on the Russian economy. We predict that Russia’s economic outlook is not very optimistic. If sanctions remain until the end of 2017, the quarter-to-quarter real GDP will contract on average by 19 percent over the next two years.

Kicking the Oil Addiction

Kicking the Oil Addiction

The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?

Beginning in early 2011, crude oil production in the U.S. Midwest and Canada surpassed the pipeline capacity to transport it to the Gulf Coast where it could access the world oil market. As a result, the U.S. “benchmark” crude oil price in Cushing, Oklahoma, declined substantially relative to internationally traded oil. In this paper, we study how this development affected prices for refined products, focusing on the markets for motor gasoline and diesel. We find that the relative decrease in Midwest crude oil prices did not pass through to wholesale gasoline and diesel prices. This result is consistent with evidence that the marginal gallon of fuel in the Midwest is still imported from coastal locations. Our findings imply that investments in new pipeline infrastructure between the Midwest and the Gulf Coast, such as the southern segment of the controversial Keystone XL pipeline, will not raise gasoline prices in the Midwest.

Mass Poverty in Nigeria: Cultural Bases, Causes and Remedies

This paper examines the issue of poverty in contemporary Nigerian society. The new thing about poverty in Nigeria now is that it has become a large-scale affliction. Mass poverty in the country has its genesis in the oil glut of the 80's and the subsequent introduction of economic structural adjustment which, far from being a remedy, has pushed Nigerians, with the exception of the ruling class, further into poverty. Apart from these, mass poverty in Nigeria, is tacitly encouraged by the government whose various policies and programmes have been tailored to further impoverish the masses. The widespread poverty in Nigeria is webbed around a culture that situates people and their offsprings in a particular social strata and engenders certain norms and practices that ensure that they not only remain there but accept their situation as normal. The best ways out of mass poverty in Nigeria may be in the provision of good leadership, equitable distribution of resources, improvements in amenities and more importantly, a cultural revival aimed at tackling wrong norms that support poverty. (African Anthropologist: 2002 1(9): 4-16)