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The 2014 Oil Price Crash Explained | Energy Matters
The 2014 Oil Price Crash Explained | Energy Matters.
- In February 2009 Phil Hart published on The Oil Drum a simple supply demand model that explained then the action in the oil price. In this post I update Phil’s model to July 2014 using monthly oil supply (crude+condensate) and price data from the Energy Information Agency (EIA).
- This model explains how a drop in demand for oil of only 1 million barrels per day can account for the fall in price from $110 to below $80 per barrel.
- The future price will be determined by demand, production capacity and OPEC production constraint. A further fall in demand of the order 1 Mbpd may see the price fall below $60. Conversely, at current demand, an OPEC production cut of the order 1 Mbpd may send the oil price back up towards $100. It seems that volatility has returned to the oil market.
…click on the above link to read the rest of the article…
Oil Rebounds On Reports OPEC Will Cut Supply, Seek Stricter Compliance | Zero Hedge
Oil Rebounds On Reports OPEC Will Cut Supply, Seek Stricter Compliance | Zero Hedge.
Less than two hours after Venezuela noted that no supply cut had been pre-agreed, The Wall Street Journal reports…
- *OPEC MEMBERS SAID TO MOVE TOWARD CUTTING OIL SUPPLY: WSJ
And oil prices are jumping. However, a big below the surface shows this story is more about stricter compliance than an actual supply cut.
…click on the above link to read the rest of the article…
Challenging (Crude) Convention | Daniel Davis
Challenging (Crude) Convention | Daniel Davis.
Media reports regarding the American crude oil industry have been uniformly positive in the past few months. Oil prices have dropped to their lowest level since 2010 and along with it prices at the pump. According to some reports, the US now produces as much or more oil than either Saudi Arabia or Russia. As the US closes in on energy independence, our reliance on foreign suppliers dwindles. Some suggest we are nearing a time of oil and economic security not seen in decades. If only that were true.
The above rendering of events is taken, almost without examination, as gospel truth in the United States. The only subject of debate seems to be ascertaining whetherhydraulic fracturing (“fracking”) is safe for the environment of if burning the additional hydrocarbons is adding to risks of climate change. We find this near-religious belief in looming US oil “independence” to be troubling, as a considerable body of publicly available information leads to a very different conclusion.
Instead of being on the dawn of a new age of plenty, a careful analysis of all available data indicates the probability of near to mid-term trouble even maintaining current levels of production, let alone eliminating the chasm between US production and consumption.
…click on the above link to read the rest of the article…
Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, “Profit Recession” To Follow | Zero Hedge
While OPEC has been mostly irrelevant in the past 5 years as a result of Saudi Arabia’s recurring cartel-busting moves, which have seen the oil exporter frequently align with the US instead of with its OPEC “peers”, and thanks to central banks flooding the market with liquidity helping crude prices remain high regardless of where actual global spot or future demand was, this Thanksgiving traders will be periodically resurfacing from a Tryptophan coma and refreshing their favorite headline news service for updates from Vienna, where a failure by OPEC to implement a significant output cut could send oil prices could plunging to $60 a barrel according to Reuters citing “market players” say.
By way of background, the key reason OPEC is struggling to remain relevant is because, as the FT reported over the weekend, “US imports of crude oil from Opec nations are at their lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. The lower dependence on imports from the cartel, which pumps a third of the world’s crude, comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day – the highest level since the mid-1980s.”
The US “shale miracle” is best seen on the following chart showing the total output of the US compared to perennial crude powerhouse, Saudi Arabia:
…click on the above link to read the rest of the article…
Oil at $75 Means Patches of Texas Shale Turn Unprofitable – Bloomberg
Oil at $75 Means Patches of Texas Shale Turn Unprofitable – Bloomberg.
With crude at $75 a barrel, the price Goldman Sachs Group Inc. says will be the average in the first three months of next year, 19 U.S. shale regions are no longer profitable, according to data compiled by Bloomberg New Energy Finance.
Those areas, which include parts of the Eaglebine and Eagle Ford in East and South Texas, pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations. That compares with the 1.03 million-barrel gain in daily national output over the past year, government figures show.
The expansion of U.S. oil supply to more than 9 million barrels a day is contributing to a global glut, driving down prices by as much as 32 percent since June. The data compiled by BNEF, which take into account the costs of drilling, royalties and transportation, show that certain shale patches fail to make money at the current price. Companies such as SandRidge Energy Inc. (SD) and Goodrich Petroleum Corp. (GDP) said they expect to pump more oil for less money so they can withstand the rout.
…click on the above link to read the rest of the article…
OPEC MOMR October Production Data – Peak Oil BarrelPeak Oil Barrel
OPEC MOMR October Production Data – Peak Oil BarrelPeak Oil Barrel.
OPEC just published their November Monthly Oil Market Report which contains crude only production data for all OPEC nations. The only big surprise was that everyone had declining production except Libya and Algeria, that is according to “secondary sources”.
I find it interesting that Venezuela has, for the last several months, refused to give OPEC their production data.
…click on the above link to read the rest of the article…
IEA Says Oil Supplies May Not Keep Up With Demand
IEA Says Oil Supplies May Not Keep Up With Demand.
Despite what appears to be a saturated oil market in 2014, oil producers around the world will struggle to meet rising demand over the next few decades.
In its latest annual World Energy Outlook, the International Energy Agency (IEA) warned that the current period of oil abundance may be fleeting, and in fact, without heroic levels of production increases, oil markets will grow dangerously tight in the coming years.
Global oil demand is expected to increase by 37 percent by 2040, with a dominant proportion of that coming from developing countries – i.e. China and India. In fact, the IEA says that for every barrel of oil the industrialized world expects to eliminate from demand through efficiency or other ways of reducing demand, developing countries will burn through two additional barrels.
The IEA predicts that the world will need to extract an additional 14 million barrels of oil per day (bpd) by 2040, which comes on top of today’s production levels of about 90 million bpd. While there is a lot of triumphalism in the United States about shale oil production and how places like the Bakken and the Eagle Ford have ushered in an era of abundance, the IEA says that tight oil production in the U.S. – along with Canadian oil sands – will only last until the mid-2020’s.
…click on the above link to read the rest of the article…
Watching the Watchdogs: 10 Years of the IEA World Energy Outlook « integral permaculture
Watching the Watchdogs: 10 Years of the IEA World Energy Outlook « integral permaculture.
The International Energy Agency (IEA) is the energy watchdog of the industrial world. The developed nations of the world were caught off guard by the oil crisis of 1973. They then realized energy resources are so fundamental to all of civilization, and recognized how vulnerable we are to supply disruptions. Forty years ago in 1974, the International Energy Agency was formed, tasked with keeping an eye on these precious resources, and providing policy makers around the world with information to make better informed planning decisions.
The primary deliverable from the IEA is the massive World Energy Outlook (WEO) report that is released annually in November. Concerned about peak oil, I began reading the Executive Summary to this report 10 years ago. Five years ago I wrote a summary of what the report has been telling us from 2005 – 2009, concerning issues related to peak oil: The IEA and World Oil Supply Projections. Given that another 5 years have passed, I offer an update, which will bring us to today’s release of the 2014 World Energy Outlook.
The short version is this: The IEA World Energy Outlook has gradually moved from rosy to pessimistic reports over the last ten years, or what Stuart Staniford called “increasingly reality-based.” Over the last decade, the report’s projected oil demand has gradually decreased by 20 million barrels per day (mb/d), and the projected costs have continued to rise. Yet even their most pessimistic reports, I believe, fail to capture true reality. It seems that politics plays a strong role in what is allowed to be published. It also must be stated that predicting the future “is a fool’s errand,” as Kurt Cobb reminds us in his review of the 2013 report.
…click on the above link to read the rest of the article…
Bullish Oil Wagers Cut in Sign of Growing OPEC Skepticism – Bloomberg
Bullish Oil Wagers Cut in Sign of Growing OPEC Skepticism – Bloomberg.
Speculators are the least bullish on U.S. crude in 20 months as they lose faith in OPEC’s willingness to ease a global supply glut.
Money managers reduced net-longpositions in West Texas Intermediate by 8 percent in the week ended Nov. 4, U.S. Commodity Futures Trading Commission data show. Long positions retreated to the least since May 2013 while short holdings rose.
WTI tumbled into a bear market this year as crude supply expanded from the U.S. toLibya and demand sputtered from Europe to China. Saudi Arabia cut its export charges to the U.S. this month, signaling a preference for market share over prices. The kingdom accounts for almost a third of OPEC’s output and the 12-nation group meets in about two weeks to debate supply.
“The market needs some OPEC action and the only thing we get out of the Saudis is the price cut to the U.S.,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Nov. 7 “That makes people think ‘Gee, this doesn’t look hopeful.’”
…click on the above link to read the rest of the article…
Oil Price Slide – No Good Way Out | Our Finite World
Oil Price Slide – No Good Way Out | Our Finite World.
The world is in a dangerous place now. A large share of oil sellers need the revenue from oil sales. They have to continue producing, regardless of how low oil prices go unless they are stopped by bankruptcy, revolution, or something else that gives them a very clear signal to stop. Producers of oil from US shale are in this category, as are most oil exporters, including many of the OPEC countries and Russia.
Some large oil companies, such as Shell and ExxonMobil, decided even before the recent drop in prices that they couldn’t make money by developing available producible resources at then-available prices, likely around $100 barrel. See my post, Beginning of the End? Oil Companies Cut Back on Spending. These large companies are in the process of trying to sell off acreage, if they can find someone to buy it. Their actions will eventually lead to a drop in oil production, but not very quickly–maybe in a couple of years.
So there is a definite time lag in slowing production–even with very low prices. In fact, if US shale production keeps rising, and Libya and Iraq keep work at getting oil production on line, we may even see an increase in world oil production, at a time when world oil production needs to decline.
…click on the above link to read the rest of the article…
Why The Current “Oil Glut” Could Lead To A Price Spike
Why The Current “Oil Glut” Could Lead To A Price Spike.
Back in March 1999 “The Economist” magazine carried a cover photo of two men drenched in oil as they attempted to close a faulty valve that was spraying a huge stream of crude skyward. Over the photo was the headline: “Drowning in oil.” At the time it really did seem as if the world were drowning in oil.
The previous December crude oil on the New York Mercantile Exchange touched $10.72 per barrel. That month U.S. gasoline prices averaged 95 cents per gallon. “The Economist” opined that oil might go down to $5 per barrel.
But, of course, in retrospect the magazine’s cover proved to be the perfect contrarian indicator, for oil had already begun its historic ascent toward $147 per barrel. The 2008 price spike was the culmination of a 10-year bull market that had begun in December 1998.
…click on the above link to read the rest of the story…
Resource Insights: Is there really an oil glut?
Resource Insights: Is there really an oil glut?.
Back in March 1999 “The Economist” magazine carried a cover photo of two men drenched in oil as they attempted to close a faulty valve that was spraying a huge stream of crude skyward. Over the photo was the headline: “Drowning in oil.” At the time it really did seem as if the world were drowning in oil.
The previous December crude oil on the New York Mercantile Exchange touched $10.72 per barrel. That month U.S. gasoline prices averaged 95 cents per gallon. “The Economist” opined that oil might go down to $5 per barrel.
But, of course, in retrospect the magazine’s cover proved to be the perfect contrarian indicator, for oil had already begun its historic ascent toward $147 per barrel. The 2008 price spike was the culmination of a 10-year bull market that had begun in December 1998.
After dipping briefly to around $35 per barrel at the end of 2008 in the wake of the financial crisis, the new oil bull market sent world benchmark Brent Crude to a daily average of more than $100 per barrel for all of 2011, 2012 and 2013. Through October 27 the average daily price for this year has been $104.86, not all that different from the last three years.
…click on the above link to read the rest of the article…
World Crude Oil Production and the Oil Price | FRACTIONAL FLOW
World Crude Oil Production and the Oil Price | FRACTIONAL FLOW.
In April 2012 I published this post about World Crude Oil Production and the Oil Price (in Norwegian)which was an attempt to describe the developments in the sources of crude oils (including condensates), tranches of total life cycle costs (that is [CAPEX {inclusive returns} + OPEX] per barrel of oil) and something about the drivers for the formation of the oil price.
Rereading the post and as time passed, I learnt more and therefore thought it appropriate to revisit and update the post as it in my opinion contains some topics from what I have observed, learned and discussed that have been given poor attention and appears poorly understood.
I will continue to pound the message that oil prices are also subject to the reality of;
…click on the above link to read the rest of the article…
Why Oil Prices Are About To Settle
Why Oil Prices Are About To Settle.
If you are paying attention, you will be aware that oil prices have been falling dramatically since the end of June, losing over 20 percent from the highs at that time. This is bad news for investors in the energy sector and for the companies that produce the black stuff, but for the global economy as a whole it will provide an unexpected boost to growth. All energy costs are benchmarked against oil, so declining oil prices equate to declining energy costs, and that is a positive for growth. Whether you are benefitting from that or worried about your energy investments, however, there is one obvious question…”How low can it go?”
The answer, it seems, is not much lower.
The drop has been caused by two factors, one on the supply side, and one on the demand side. Supply of oil has been growing as unconventional recovery methods, primarily hydraulic fracturing of “fracking”, have gained ground, particularly in the U.S. At the same time, the growing demand for oil has come into question due to a slowing growth rate in China and the prospect of deflation in Europe. Economics 101 tells us that if supply is increasing faster than demand, price will fall.
…click on the above link to read the rest of the article…
WTI Crude Tumbles Under $80 Following Goldman Downgrade | Zero Hedge
WTI Crude Tumbles Under $80 Following Goldman Downgrade | Zero Hedge.
While large shifts in positioning precipitated a sell-off in oil prices that far exceeded the actual weakening in fundamentals, Goldman Sachs’ confidence in a 2015 oversupplied global oil market has increased. As a result, they have brought forward their medium-term bearish oil outlook (WTI crude oil forecast is $75/bbl for 1Q15 and 2H15 (from $90/bbl previously)). WTI just broke below $80 back to June 2012 levels once again as Goldman also downgraded the entire oil service space (happily buying up muppets’ positions as they sell).
As Goldman Sachs notes,
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