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Fundamentals point toward market balance but pessimism is dragging oil prices down. IEA has apparently succumbed to this negativity but their data suggests that things are getting better, not worse.

In a business-as-usual world in which nothing unusual happens, the world will be close to market balance some time in 2016. If anything unusual happens, all bets are off and oil prices could rebound much faster than anyone imagines.

A Year of Extreme Price Cycles

NYMEX WTI futures prices have fallen 34 percent since October 2015, and are below $30.00 per barrel for the first time since 2003. Prices have gone through four cycles of 30-40 percent increases and decreases over the past year (Figure 1).

Figure 1. NYMEX WTI futures prices and price cycles in 2015. Source: EIA, Bloomberg & Labyrinth Consulting Services, Inc.

(Click image to enlarge)

The two price rallies from March-to-June and from August-to-October were based largely on hope and the price decline from June-to-August represented a return to the reality of supply and demand fundamentals.

The most recent price decline that began in October is a bit different. Here, confirmation bias has replaced critical thinking about the oil market. The ruling paradigm is that prices are likely to stay low for years or even for decades and evidence is easily found that favors and confirms this bias. I believe that this paradigm is incorrect.

Despite troubling signals of structural weakness in the global economy, data suggests that the oil market is stumbling toward balance. Although I have said that prices must go lower in order to flush out the zombie producers, IEA’s statement in the January Oil Market Report that the world could drown in over-supply is based more on sentiment and pessimism than on data.

…click on the above link to read the rest of the article…

EIA Says Shale Continues to Decline

December 9, 2015

EIA Says Shale Continues to Decline

The EIA’s Drilling Productivity Report has US shale oil on a steep decline. The below shale oil production charts are the EIA’s estimate of what shale production will look like through January 2016. Keep in mind this is the EIA’s estimate and not hard production numbers.

The big drops here are Eagle Ford, Bakken and Niobrara. They have the Permian still increasing in production. An expected drop of 116,000 barrels per day drop in January is very significant.

They have the Bakken in a continual decline after July. It is important to note that the EIA’s Drilling Productivity Report has the Bakken decline, July thrugh September, very close to what the North Dakota Industrial Commission has. So it appears that the DPR is getting better with its production estimates.

Eagle Ford is where the action is, or isn’t, depending on your point of view. Dropping 77,000 barrels per day to start the New Year does not bode well for shale production in 2016.

Niobrara appears to have the steepest drop since the March peak. But actually they, if the DPR is correct, will be down 28.37% since March while Eagle Ford is down 29.81%, The Bakken will be down 10.35% while the Permian will be up 7.59%.

…click on the above link to read the rest of the article…

A Surprising Look at Oil Consumption

November 25, 2015

A Surprising Look at Oil Consumption

The EIA publishes oil consumption numbers for all major nations. However they have data for most nations only through 2013. They do have data for some nations through 2014. Nevertheless a lot can be gleaned from just looking at those consumption numbers. If oil consumption numbers are growing year after year, then there is a good chance that nation is growing economically. But if oil consumption numbers are continually declining year after year, then it is more than a little silly to say all is well, economically, with that nation. Or that is my opinion anyway.

First, who’s oil consumption is increasing year after year, or who’s economy is booming? All charts below are consumption as total liquids in thousand barrels per day. Some charts are through 2014 while others are through 2013. Whatever the last year is on the yearly axis is the last year for that data.

Important: All charts are consumption, not production.

No doubt the Middle East is booming. The reason, most of them are oil producers and oil, for most of this chart anyway, the price of oil was increasing. They had lots of income, their consumption was increasing every year as was their economies.

Saudi Arabia, by far the Middle East’s largest consumer, has increased consumption every year since 1995.

…click on the above link to read the rest of the article…

Ivy League Universities Pushing Oil Industry Agenda With No Accountability

October 23, 2015

Ivy League Universities Pushing Oil Industry Agenda With No Accountability

Harold Hamm isn’t the kind of guy you’d expect to be name dropping Ivy League schools. Born in Oklahoma, his education ended with his graduation from high school. Which didn’t stop him from becoming a multi-billionaire by building his own oil and gas fracking company, Continental Resources — a company that bills itself as “America’s Oil Champion.”

So for a self-made man from oil country, it wasn’t surprising to see a PowerPoint slide with the bullet points “Rigs, Rednecks, and Royalties” during his presentationthis June at the annual Energy Information Administration conference in Washington, D.C. Although when he referred to the oil producing sections of the U.S. as “Cowboyistan” it didn’t get the laugh he was probably expecting.

What was a bit surprising was to see him touting the work of Columbia and Harvard to support his argument to lift the ban on exporting crude oil produced in the US.

“There have been a dozen studies so far, everyone of them come[sic] out with the same thing – lower gasoline prices….These are not folks who write about our industry all the time. We’re talking Columbia, we’re talking Harvard…”

Now, Hamm’s attempt to distance Columbia and Harvard from the oil industry was probably a clever tactic and not based on ignorance. Hamm has probably spent more time in D.C. this year than some members of Congress.

From the EIA conference to multiple appearances before congressional committees, Hamm has been pushing to get the oil export ban lifted.

Either way, he is wrong to say that Columbia and Harvard don’t write about the oil industry all of the time.

At Columbia University there is a rather new division of the school that does just that called the Center on Global Energy Policy(CGEP).

…click on the above link to read the rest of the article…

EIA Short Term Energy Outlook

October 8, 2015

EIA Short Term Energy Outlook

The EIA is out with the latest Short Term Energy Outlook. All charts below are in million barrels per day. The one table is in thousand barrels per day. The projected data is through December 2016.

The EIA has Non-OPEC total liquids dropping 620,000 bpd in September, up 280,000 bpd in November but bottoming out in January, February and March, then climbing until October of 2016.

The EIA expects Non-OPEC average total liquids to increase by 140,000 bpd in 2016. The chart above shows the change they expect each country to make. Canada, by far, has the largest increase in production, up by 340,000 barrels per day. Without Canada’s input the EIA says, Non-OPEC total liquids production would be down by 200,000 bpd.

Here are the changes in Non-OPEC production the EIA expects each country to make 2015 to 2016 in thousand barrels per day. Countries not listed had zero expected change from 2015 to 2016.

The EIA says US total liquids production dropped 180,000 bpd in September.

Canada, the EIA says, was down 240,000 bpd in September and up again 270,000 bpd in October and then continue to climb at a steady pace through the end of 2016. The upward trend the EIA expects in Canadian production seems to match the same upward trend that Canada has experienced since 2011. It seems that the EIA expects the drop in the price of crude oil to have almost no effect whatsoever on Canadian total liquids production.

…click on the above link to read the rest of the article…

JODI Data and Giant Field Depletion

September 24, 2015

JODI Data and Giant Field Depletion

I am starting this post off with a news article because it explains why JODI has U.S. production numbers wrong for July.

No, U.S. Oil Production Probably Didn’t Rise in July

The Joint Organizations Data Initiative (JODI) releases monthly oil supply-and-demand data for about 80 countries, which it gathers by directly surveying the countries. It is widely cited by analysts, especially for its figures on demand, imports and exports.

The latest JODI data released Sunday showed that U.S. crude-oil production rose from 9.3 million barrels a day in June to 9.5 million barrels in July.

But the EIA’s latest forecast called for July production to fall to 9.2 million barrels a day in July, continuing the trend of declining U.S. production as companies cut spending in the face of low prices.

For the charts below I have used JODI data for all Non-OPEC nations except those that do not report to JODI. For them I use the EIA data and carry forward the same data that the EIA reported, (April). For the USA, since the JODI data is obviously wrong for July, I simply carried forward the June data which also came directly from the EIA. And for OPEC I use the OPEC MOMR’s “secondary sources”. JODI also uses the MOMR for their data but uses the “direct communication” data instead of the secondary sources data.

The data below is through July 2015 and is in thousand barrels per day.

In July we remained at or near the world’s all time peak at 75,631,000 barrels per day, down just 15,000 bpd from June.

JODI Non-OPEC stood at 44,100,000 bpd in July, down 567,000 bpd from the peak in December.

…click on the above link to read the rest of the article…

Tight Oil Reality Check

September 22, 2015

Tight Oil Reality Check

Much of the cost-benefit debate over fracking has come down to the perception of just how much domestic oil and gas it can produce and at what cost. To answer this question, policymakers, the media, and the general public have typically turned to the U.S. Department of Energy’s Energy Information Administration (EIA), which every year publishes its Annual Energy Outlook (AEO).

In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA’s AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.

Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA’s projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeperand up-to-date production data from key shale gas and tight oil plays.

In July 2015, Post Carbon Institute published Shale Gas Reality Check, which found that in 2015 the EIA is more optimistic than ever about the prospects for shale gas, despite substantive reasons for caution.

This month we turn our eyes to the EIA’s latest projections for tight oil.

Key Conclusions

The EIA’s 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.

The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.

At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.

…click on the above link to read the rest of the article…

Decline In U.S. Oil Production Accelerates

September 11, 2015

Decline In U.S. Oil Production Accelerates

New EIA data once again points to a deeper contraction than previously expected.

The revelation was initially revealed in late August, when the EIA reported that the United States produced much less oil than expected in the first half of 2015. On the whole, the country produced 40,000 to 100,000 fewer barrels than previously reported between January and May. The August report also showed that U.S. oil production peaked in April at 9.6 million barrels per day (mb/d), before falling to just 9.3 mb/d in June.

The declines suggested that the contraction in the U.S. shale industry was deeper than the world had initially thought. And one can only assume that the decline either kept up at a similar rate, or even accelerated in the intervening months since June.

The latest data from EIA confirms this trend. In its Short-Term Energy Outlookreleased on September 9, the EIA estimates that the U.S. oil industry lost another 140,000 barrels per day between July and August. That is a faster rate than the 100,000 barrels lost in June. Moreover, the agency predicts that output will continue to decline for another year until August 2016, before picking up again.

The U.S. is expected to produce 9.2 mb/d on average in 2015, which will drop to just 8.8 mb/c in 2016. Both of those figures are 0.1 mb/d lower than last month’s projection.

(Click to enlarge)

This contraction is one of the biggest determining factors to oil prices finding their footing. At its expected low point one year from now in August 2016, U.S. oil production will bottom out around 8.6 mb/d, about 1 mb/d below the peakreached this past April. That could go a long way to cutting into excess global oil supplies.

…click on the above link to read the rest of the article…

The EIA Changes Data Collection Methods

September 5, 2015

The EIA Changes Data Collection Methods

EIA begins monthly survey-based reporting of U.S. crude oil production

With the release of today’s Petroleum Supply Monthly, EIA is incorporating the first survey-based reporting of monthly U.S. crude oil production statistics. Today’s Petroleum Supply Monthly includes estimates for June 2015 crude oil production using new survey data for 13 states and the federal Gulf of Mexico, and revises figures previously reported for January through May 2015.

From the EIA’s Monthly Crude Oil and Natural Gas Production webpage.

Beginning with the June 2015 data, EIA is providing estimates for crude oil production (including lease condensate) based on data from the EIA-914 survey. Survey-based monthly production estimates starting with January 2015 are provided for Arkansas, California, Colorado, Kansas, Louisiana, Montana, New Mexico, North Dakota, Ohio, Pennsylvania, Texas, Utah, Wyoming, and the Federal Gulf of Mexico. For two states covered by the EIA-914—Oklahoma and West Virginia—and all remaining oil-producing states and areas not individually covered by the EIA-914, production estimates are based on the previous methodology (using lagged state data). When EIA completes its validation of Oklahoma and West Virginia data, estimates for these states will also be based on EIA-914 data. For all states and areas, production data prior to 2015 are estimates published in the Petroleum Supply Monthly. Later in 2015, EIA will report monthly crude oil production by API gravity category for the individually-surveyed EIA-914 states.

This is great news for those of us who have been complaining for years about the EIA’s poor and misleading data collection methods.

June C+C production, according to the Monthly Energy Review, was almost 9.6 million barrels per day. But the Petroleum Supply Monthly cuts that by 303,000 bpd. And they have production dropping by 316,000 barrels per day in the last two months, May and June.

…click on the above link to read the rest of the article…

This Is Why The Saudis Are Unlikely To Accept Any Production Cutback

September 5, 2015

This Is Why The Saudis Are Unlikely To Accept Any Production Cutback

‘Clack! cla-cla clack-clack clack-clack CLACK!!’ (today’s fanfare for Nonfarm Friday was played on football helmets to celebrate the start of college football season). It is the first Friday in September, which means we see official US employment data, aka nonfarm payrolls. Today’s report has showed 173,000 jobs were created in August, which was less than the expected 220,000, but has been offset by a drop in the unemployment rate to 5.1%. Given the market response, it believes this report is good enough to usher in an interest rate hike later in the month….and crude is heading lower.

Elsewhere in the world today, Russia’s Energy Minister has said that Russia and Venezuela have agreed to continue talks between OPEC and non-OPEC oil producers to try to come up with initiatives to stabilize oil prices. He did add, however, that the two countries are not necessarily pushing for a coordinated cut to support prices – because ‘no producing country is willing to reduce its output‘.

Saudi Arabia’s King Salman is set to meet President Obama at the White House today, and the below image highlights how far the US has come in terms of oil independence in the last decade or so. Back in 2003, the US relied on Saudi for 1.7 million barrels a day of imports, while pulling in 7.3mn bpd from other countries:

Fast forward 12 years and domestic production has risen by nearly 70% (h/t shale revolution), while both Saudi imports and imports on the whole continue to be marginalized:

From our #ClipperData, we can see imports from Saudi have held below 1mn bpd in recent months (EIA data above is lagged). Volumes have averaged 923,000 bpd in the first eight months of the year, highlighting that EIA data in the coming months will show Saudi volumes are still dropping:

…click on the above link to read the rest of the article…

EIA On Board With Lifting U.S. Crude Export Ban

September 4, 2015

EIA On Board With Lifting U.S. Crude Export Ban

A new report from the Energy Information Administration adds more weight to the notion that crude oil exports from the U.S. would not damage the economy.

The EIA studied the prospect of oil exports in response to questions from Congress, and it builds on several prior reports completed by the agency over the past year and a half. The report is full of caveats and other drawbacks, but the headline takeaway could fuel political momentum to remove the export ban.

According to the results, the EIA believes that if U.S. oil production remains below 10.6 million barrels per day through the next decade, there would be few differences between leaving the export ban in place versus removing it. If production is set to rise beyond that level, however, removing export restrictions would have several effects: higher domestic oil production, higher crude exports, slightly lower gasoline prices, but also lower refined product exports.

Digging into the findings, the EIA says that if the export ban stays in place it would have the effect of maintaining the current discount at which WTI trades relative to the Brent crude marker. Moreover, if U.S. oil production increases, the spread between WTI and Brent would only widen, perhaps as high as $10 per barrel under one scenario. And that spread would increase in corresponding fashion the more U.S. oil production increases.

Of course, removing the export ban would shrink that spread, allowing for higher oil prices at the wellhead for American oil and gas drillers. That would incentivize more drilling, leading to higher oil output than would otherwise occur under the export ban.

…click on the above link to read the rest of the article…

US Oil Production Nears Previous Peak

August 31, 2015

US Oil Production Nears Previous Peak

The EIA’s Monthly Energy Review came out a couple of days ago. The data is in thousand barrels per day and the last data point is July 2015.

US consumption of total liquids, or as the EIA calls it, petroleum products supplied, reached 20,000,000 barrels per day for the first time since February of 2008.

Something I never noticed before, consumption started to drop in January 2008, seven months before the price, along with world production, started to drop in August 2008. This had to be a price driven decline. Could the current June and July increase in consumption be price driven also?

US Production was down 96,000 barrels per day in July to 9,503,000 bpd. That is 190,000 bpd below the March level of 9,693,000 bpd.

Here is what the last 50 years of US production looks like. The peak was in 1970 or 1971, depending on what you call the peak.

In March 2015 we were still 351,000 barrels per day below the peak month of 10,044,000 bpd in November of 1970. But right now we are headed in the wrong way to break that record. In July we were 541,000 bpd from that record. Right now the 2015 average, January through July, is 9,534,000 bpd. That is 103,000 barrels per day below the 1970 average. But the 2015 average is likely to get smaller as the year plays out.

I have another chapter from Peter Goodchild’s Tumbling Tide: Population, Petroleum, and Systemic Collapse. I really like this book. The author comes closest to matching my sentiments than anyone I have read to date.

Tumbling Tide Chapter 10

The Pollyanna Principle

The problem of explaining peak oil does not hinge on the issue of peak oil as such, but rather on that of “alternative energy.” Most people now have some idea of the concept of peak oil, but it tends to be brushed aside in conversation because of the common incantation: “It doesn’t matter if oil runs out, because by then everything will be converted to [whatever] power.” Humanity’s faith in what might be called the Pollyanna Principle—the belief that everything will work out right in the end—is eternal.

…click on the above link to read the rest of the article…

Lifting Ban On U.S. Crude Oil Export Would Enable Massive Fracking Expansion

August 11, 2015

Lifting Ban On U.S. Crude Oil Export Would Enable Massive Fracking Expansion

In a recent Washington Post editorial supporting oil industry efforts to lift the existing ban on exporting crude oil produced in America, the editors stated:

“The most serious objection to lifting the ban comes from environmentalists who worry that it would lower fossil fuel prices and lead to more oil consumption.”

And then they make the case that this is actually a positive as there may be some negotiations that result in support for “energy research funding, efficiency programs or, in an ideal world, a charge on carbon dioxide emissions to the package could balance its possible effects on the environment.”

In an ideal world, the climate wouldn’t be changing either. But we don’t live in an ideal world, do we? And the oil industry usually gets what it wants and environmental concerns go by the wayside regardless of who is in the White House. See arctic drilling permits for recent proof.

Existing Export Ban Limits Ability of Fracking Industry to Expand

The reality is that lifting the oil export ban will result in large increases in fracking for oil in the U.S.

At the annual Energy Information Administration conference in Washington, D.C. in June, Harold Hamm, CEO of fracking giant Continental Resources, presented a slide that predicted oil production could reach 20 million barrels per day by 2025 if the crude export ban is repealed.

That is a massive increase over the existing amount of oil produced by fracking (aka “tight oil”) in the U.S. Tight oil current accounts for approximately half of the 9 million barrels a day of oil produced in the U.S. To get to Hamm’s predicted production levels that means a doubling or tripling of the scale of the current tight oil fracking industry.

…click on the above link to read the rest of the article…

What Does Exxon Know That We Don’t?

May 24, 2015

What Does Exxon Know That We Don’t?

Forecasts from the IEA and Goldman Sachs this week are trying to say that crude barrels are still overpriced – but the market isn’t listening. I’ve been convinced that crude prices above $60 are counterproductive as Goldman said in their recent note – but other factors are continuing to help push prices higher.

Let’s take a closer look and see what’s going on – and what might go on in the near future.

Some short-term fundamentals continue to push traders into long positions in oil. I’ve been among the first to point out the large outflows of capital from just about every other asset class, save for energy stocks and commodities. This isn’t particularly smart analysis, but clearly money managers and institutional investors are looking for ‘value’ in a very hot market – and oil stocks and commodities look just too low to them. For these ‘value searchers’, it’s damn the fundamentals – full speed ahead, and oil catches a bid with every, even small bullish indication.

As appears to be the case with Chinese demand, which has incrementally picked up in recent months. But it’s not like Chinese imports aren’t being met for the most part – they are finding more oil now than ever before in their history. And imported oil is not being used. Several reports have Chinese oil stockpiles growing for the last 7 weeks – an obvious way for China to hoard oil that they think is going to get more expensive later.

US stockpiles have come slightly down in the last few EIA reports – a surprise for many who believed that storage would increase throughout the summer. Many are extrapolating that this drop in stockpiles is a harbinger of slower production from slashed numbers of rig counts, but this may be very premature.

…click on the above link to read the rest of the article…

Saudi Arabia Continues To Turn Screws On U.S. Shale

May 13, 2015

Saudi Arabia Continues To Turn Screws On U.S. Shale

Saudi Arabia continues to ratchet up production, taking market share away from U.S. shale producers.

According to OPEC’s latest monthly oil report, Saudi Arabia boosted its oil output to 10.31 million barrels per day in April, a slight increase over the previous month’s total of 10.29 million barrels. That was enough for the de facto OPEC leader to claim its highest oil production level in more than three decades.

Saudi Arabia has increased production by 700,000 barrels per day since the fourth quarter of 2014 in an effort maintain market share. The resulting crash in oil prices is forcing some production out of the market, and Saudi Arabia intends for the brunt of that to be borne by others.

There is a lag between movements in the oil price and corresponding changes in production. OPEC says there was a 23-week time lag between the fall in rig counts and the resulting dip in oil production in the United States. But the effects of the oil price crash are now being felt. New data from the EIA says that U.S. oil production is declining. Having already predicted a 57,000 barrel-per-day decline for May, the agency now says that another 86,000 barrels per day in output will vanish in June.

In other words, as Saudi Arabia ramps up, U.S. shale is being forced to cut back. This story has been told many times over the past few months, but the data is finally confirming the success of Saudi Arabia’s strategy, albeit a minor one thus far.

…click on the above link to read the rest of the article…

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Existing Export Ban Limits Ability of Fracking Industry to Expand

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