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The oil glut and low prices reflect an affordability problem
The oil glut and low prices reflect an affordability problem
For a long time, there has been a belief that the decline in oil supply will come by way of high oil prices. Demand will exceed supply. It seems to me that this view is backward–the decline in supply will come through low oil prices.
The oil glut we are experiencing now reflects a worldwide affordability crisis. Because of a lack of affordability, demand is depressed. This lack of demand keeps prices low–below the cost of production for many producers. If the affordability issue cannot be fixed, it threatens to bring down the system by discouraging investment in oil production.
This lack of affordability is affecting far more than oil products. A recent article in The Economist talks about LNG prices being depressed. LNG capacity ramped up quickly in response to high prices a few years ago. Now there is a glut of LNG capacity, and prices are far below the cost of extraction and shipping for many LNG suppliers. At least temporary contraction seems likely in this sector.
If we look at World Bank Commodity Price data, we find that between 2011 and 2014, the inflation-adjusted price of Australian coal decreased by 41%. In the same period, the inflation-adjusted price of rubber is down 58%, and of iron ore is down 59%. With those types of price drops, we can expect huge cutbacks on production of many types of goods.
…click on the above link to read the rest of the article…
The Chilling Thing Devon Energy Just Said About the US Oil Glut
The Chilling Thing Devon Energy Just Said About the US Oil Glut
The oil-price plunge hit the industry when it was drunk on its own exuberance and awash in money. At the time, over-indebted junk-rated drillers had no trouble borrowing even more to drill more, efficiently or not. Dreadful IPOs flew off the shelf. Misbegotten spin-offs made Wall Street a ton of money. But in July, everything started to go awry. By October, it was clear that the oil-price plunge wasn’t a blip. By November, oil was in free fall.
Soaring production in the US, reaching 9.2 million barrels per day in January, and lackluster demand have caused US inventories to balloon. The “oil glut” was born.
So the industry adjusted by announcing waves of layoffs, whittling down operating costs, renegotiating prices with suppliers, and slashing capital expenditures. The number of rigs actively drilling for oil – a weekly gauge that indicates what’s going on in the oil field – has plummeted by 553 rigs, or 34%, since the peak in October. Never before has it plummeted this fast this far [The Fracking Bust Hits Home].
The crashing rig count was supposed to curtail production, and lower production would bring supply and demand into balance and allow the price of oil to recover. But the opposite is happening. And Devon Energy Corp. just told us why.
…click on the above link to read the rest of the article…
Oil Plunges, Inventories Soar to Record, Glut Gets Worse
Oil Plunges, Inventories Soar to Record, Glut Gets Worse
Crude oil had rallied 20% in three days, with West Texas Intermediate jumping $9 a barrel since Friday morning, from $44.51 a barrel to $53.56 at its peak on Tuesday. “Bull market” was what we read Tuesday night. The trigger had been the Baker Hughes report of active rigs drilling for oil in the US, which had plummeted by the most ever during the latest week. It caused a bout of short covering that accelerated the gains. It was a truly phenomenal rally!
But the weekly rig count hasn’t dropped nearly enough to make a dent into production. It’s down 24% from its peak in October. During the last oil bust, it had dropped 60%. It’s way too soon to tell what impact it will have because for now, production of oil is still rising [my post from Friday… Oil Price Soars, Rig Count Plunges Worst Ever, But Bloodletting Just Beginning].
And that phenomenal three-day 20% rally imploded today when it came in contact with another reality: rising production, slack demand, and soaring crude oil inventories in the US.
The Energy Information Administration reported that these inventories (excluding the Strategic Petroleum Reserve) rose by another 6.3 million barrels last week to 413.1 million barrels – the highest level in the weekly data going back to 1982. Note the increasingly scary upward trajectory that is making a mockery of the 5-year range and seasonal fluctuations:
…click on the above link to read the rest of the article…
The Latest Oil Glut: Once Bitten, Twice Shy
The Latest Oil Glut: Once Bitten, Twice Shy
It comes as little surprise that the author of a book entitled Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future is a critic of the natural gas industry and a proponent of peak oil theory. With the recent plunge in oil prices, it feels like the right time to check back in with Richard Heinberg of the Post-Carbon Institute and get his perspective on how plunging oil prices will affect the energy and transportation industries. Heinberg and host Alex Wise discuss the impact of cheap oil on the North American natural gas boom, how it may alter consumer behavior in the near term, and the need for sound policy to guide us through the long-term challenge of living in a post-carbon world.
…click on the above link to listen to the podcast…
