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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;
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OPEC Head Tells Oil Market to Stop Panicking About Prices – Bloomberg
OPEC Head Tells Oil Market to Stop Panicking About Prices – Bloomberg.
Everyone in the oil market should stop panicking because crude supply and demand will return to equilibrium, OPEC’s Secretary-General said.
Members of OPEC, who pump about 40 percent of the world’s oil, aren’t waging a price war and haven’t demanded an emergency response to the plunge in crude futures, Abdalla El-Badri said at the Oil & Money conference in London yesterday. While the direction of oil prices, which have collapsed about 25 percent since June, remains unclear in the short term, they will have to rebound to guarantee long-term supply, he said.
“We don’t see really fundamental changes in the supply side or the demand side,” El-Badri told reporters during a briefing at the event. “Unfortunately everyone is panicking. The press is panicking, consumers are panicking. We really should think and see how this will develop.”
Crude collapsed into a bear market this month as Saudi Arabia and other producers deepened price discounts for their oil. U.S. crude production climbed to the highest level in at least 31 years last week as the shale boom moved the country closer to energy independence. Global consumption will increase this year at the slowest pace since 2009, according to the International Energy Agency.
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Peak Oil: Same Nonsense, Different Day Pt 2 – Peak Oil Matters
Peak Oil: Same Nonsense, Different Day Pt 2 – Peak Oil Matters.
This is a follow-up to my most recent post, in which I offered a few observations on commentary attempting to debunk the concept of peak oil courtesy of this recent article by John Kemp. [Quotes here are from the Kemp article unless noted otherwise.]
Economist James Hamilton, a professor at the University of California, recently shared areport of his which concluded that high oil prices are the new standards all of us should accept as one of the unpleasant realities of 21st Century energy supply and production. Of course, not all are inclined to accept realities which interfere their agendas.
No denier worthy of the name will of course offer up their contribution of nonsense without making certain that the “running out of oil” allegation makes its appearance, and this article honored that mandate:
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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.
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Andrew Nikiforuk Breaks Down the Global Oil Price Slump | The Tyee
Andrew Nikiforuk Breaks Down the Global Oil Price Slump | The Tyee.
The dramatic slump in global oil prices has, as usual, caught governments, industry and markets off guard. In fact, Brent oil prices, a global standard, have dropped by 25 per cent since last June.
Given the chaos in Iraq, Syria, Libya and the Ukraine — Russia is a major oil exporter — some analysts would have predicted rising prices.
But that’s not what’s happening for a constellation of reasons.
As a consequence, falling prices are telling us something about changing oil markets, the stagnating state of the global economy, and the poor quality of extreme hydrocarbons.
The price drop may also be signalling a new angst among global investors due to an enlivened climate change fight and the adoption of the Keystone Principle by community groups across the world.
RESOURCE CRISIS: Oil prices keep going down, but this is not good news
RESOURCE CRISIS: Oil prices keep going down, but this is not good news.
There is plenty of movement in the oil world: after five years of relatively stable prices, the legendary“barrel” is coming down from over $ 100 to under 90, and it looks like it will keep falling. What’s happening?Has anyone found new resources? Or is it Saudi Arabia using the “oil weapon” to bring down Russia, the heir of the old “evil empire”?
In reality, it is nothing like that. There are no major new discoveries of oil in the world and the Saudi oil weapon is much less fearsome than it is normally described in the media. But, then, why are prices going down? There are good reasons, but we need to understand them and, more importantly, to explain why thelikely future drop in oil prices would NOT be a good thing; indeed it could be a planetary disaster.
First of all, we should take into account that oil is a finite resource, but also that it is subject to the laws ofsupply and demand; it cannot escape the control of the entity we call “the market“. So, we are seeing twocontrasting trends in the oil market. One is the gradual depletion of the so-called “conventional” oil; that isliquid oil extracted at relatively low cost from wells. As a consequence, the production of conventional oil is static or declining almost everywhere. The other trend is the increase in the production of “unconventional” oil, that is combustible liquids which are obtained, for example, by treating oil sands, or biofuels, or “oilshale,” the kind you obtain by means of the “fracking” process.
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Falling Coal Prices Wreaking Havoc With Corporate Balance Sheets
Falling Coal Prices Wreaking Havoc With Corporate Balance Sheets.
The slide in oil prices has raised speculation that oil companies in the U.S. could be forced to cut back on production, but a market slump in another commodity is also putting pressure on producers.
Coal markets are currently experiencing a supply glut that is showing no signs of recovery. Mining companies drew up plans for billion-dollar projects in the mid-2000s, when commodity prices were on the upswing. With many of those projects now coming online, coal production is rising.
BHP Billiton, an Australian mining giant, just opened a $3.4 billion mine in Queensland, which will add 5.5 million tonnes of coal capacity per year to the global market. The mine allowed BHP Billiton to push its production to record levels. Australian Prime Minister Tony Abbott was on hand for the ribbon-cutting ceremony, where he proclaimed “coal is good for humanity.”
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Saudi Arabia Surprises Market With Supply Cut Announcement, Oil Jumps | Zero Hedge
Saudi Arabia Surprises Market With Supply Cut Announcement, Oil Jumps | Zero Hedge.
Saudi Arabia, it appears, had enough of shooting itself in the foot for its American ‘partners’, and has admitted for the first time that it slashed supply in September. As Bloomberg reports, OPEC’s biggest producer cut supply to mkt by 328k b/d in September to 9.36m b/d, from 9.688m b/d in August, according to a person with knowledge of Saudi Arabia’s oil policy. Prices in September were flat admit this supply cut which suggests along with the build in EIA inventories seen yesterday that Saudi Arabia may have also been forced by global demand weakness to cut supply through October also.
It appears the Saudi supply cut in September offset any demand weakness as prices remained flat… which makes one wonder what the plunge in October represents (global demand weakness or a flip-flopping Saudi Arabia?)
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Plunging oil prices a game-changer for major pipeline projects | Jeff Rubin
Plunging oil prices a game-changer for major pipeline projects | Jeff Rubin.
A sharp correction in oil prices is putting the debate around major pipeline projects, such as Keystone XL, into a more nuanced light.
Part of the impetus behind constructing new pipelines to carry bitumen from northern Alberta to the U.S. Gulf Coast, Kitimat on the Pacific, or even all the way across the country to Saint John, New Brunswick was to help close the substantial discount between Canadian oil and world prices. Well, crude’s recent drop into the $85-a-barrel range has basically collapsed the once wide-open spread that had existed between West Texas Intermediate and Brent crude with hardly any new lengths of pipe being laid into the ground at all.
It’s quite a turnaround considering that not that long ago WTI had traded as much as $40 a barrel lower than Brent. The difference between Brent and a barrel of Western Canadian Select, the benchmark price for oil sands product, was even more significant, a fact that had caused considerable hand wringing in downtown Calgary as well as on Parliament Hill.
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Meanwhile, This Is Who Is Quietly Buying All The Cheap Oil | Zero Hedge
Meanwhile, This Is Who Is Quietly Buying All The Cheap Oil | Zero Hedge.
With the US Shale Oil industry up in arms, Venezuela screaming, and Russia awkwardly quiet (as the Ruble slides with the falling oil price stabilizing domestic inflows), the ‘secret’ Saudi-US oil dealthat pressured prices for crude down to $80 (18-month lows today) has ‘hurt’ a lot of the world’s producer nations. However, as Bloomberg reports, there is one nation that is very grateful. The number of supertankers sailing toward China’s ports surged to a nine-month high as over 80 very large crude carriers (VLCCs) – the industry’s biggest ships – sail toward the Asian country’s ports. At an average of 2 million barrels each, the 160 million barrels will help refill China’s 727 million barrel SPR which it started in 2012.
There are 89 tankers sailing for Chinese ports, 80 of which are VLCCs – the highest since January 3rd.
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Low Oil Prices Hurting U.S. Shale Operations
Low Oil Prices Hurting U.S. Shale Operations.
Slumping oil prices are putting pressure on U.S. drillers.
The number of active rigs drilling for oil and gas fell by their most in two months, according to the latest data from oil services firm Baker Hughes. There were 19 oil rigs that were removed from operation as of Oct. 17, compared to the prior week. There are now 1,590 active oil rigs, the lowest level in six weeks.
“Unless there’s a significant reversal in oil prices, we’re going to see continued declines in the rig count, especially those drilling for oil,” James Williams, president of WTRG Economics, told Fuel Fix in an interview. “We could easily see the oil rig count down 100 by the end of the year, or more.”
Baker Hughes CEO Martin Craighead predicted that U.S. drilling companies could begin to seriously start removing rigs from operation if prices drop to around $75 per barrel. Some of the more expensive shale regions will not be profitable at current prices. For example, the pricey Tuscaloosa shale in Louisiana breaks even at about $92 per barrel.
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How will Saudi Arabia respond to lower oil prices? | Econbrowser
How will Saudi Arabia respond to lower oil prices? | Econbrowser.
Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
When oil demand fell in the 1981-82 recession, the Saudis cut production by 6 million barrels a day in an effort to soften the decline in oil prices. They also cut production in response to lower demand in the 2001 recession and the most recent recession. On the other hand, the kingdom boosted production quickly beginning in August 1990 and January 2003 in anticipation of lost production from Iraq in the two Gulf Wars. This historical behavior led many observers to believe that Saudi Arabia would always play the role of a swing producer to stabilize the price of oil.
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‘Saudi policy of downplaying oil prices to backfire on them’ — RT Op-Edge
‘Saudi policy of downplaying oil prices to backfire on them’ — RT Op-Edge.
Saudi Arabia wants to use lower oil prices to pressure Russia to change its stance on Syria, to antagonize Iran, and to force US shale gas out of the market, roving correspondent for the Asia Times Pepe Escobar told RT.
RT: Russia’s economy is surely being hit by the falling oil prices. But what about other oil producers like the OPEC states?
Pepe Escobar: A lot of people are being hurt. There are more or less 20 nations that need oil at least for 50 percent of their budget. Among these nations we’ll find especially a mix of African countries and Persian Gulf countries, that includes Saudi Arabia and Iraq as well, Venezuela and Ecuador. So it’s very complicated, it’s not only to hurt Russia…
RT: Saudi Arabia is one of the OPEC members and it is supposed to collaborate its oil price policy with other members. Why it is acting like this?
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“Omenland” | KUNSTLER
Did a few loose strands of Ebola seep into the organs and tissues of global finance last week? The US equity markets sure enough puked, the Nikkei bled out through its eyeballs, all the collagen melted out of Greek bonds, and treasuries bloated up grotesquely on a putrid stream of terrified “liquidity” that led two Federal Reserve proctologists to maunder about the possibility of a QE-4 laxative, out of which, in due time, will surely gush explosive bloody fluxes of deeper financial sickness.
The oil price fell on its face so hard it crashed through the floorboards. One particular idiot at NPR wrote that this means peak oil was a hoax (Predictions Of ‘Peak Oil’ Production Prove Slippery). I guess she didn’t notice that the junk financing associated with shale oil capex is also dissolving like the poor late Thomas Eric Duncan’s circulatory system. That is, expect a whole lot less drilling in the Bakken and the Eagle Ford in the months ahead, and a substantial fall in production. Unless the US government finds a back door to shovel money at shale (a possibility considering the crucial myth of “Saudi America” to Wall Street psychology), the investment will not be there for the relentless drilling and re-drilling.
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Peak oil review – Oct 20
1. Oil and the Global Economy
Oil prices continued to fall through Thursday when New York futures traded below $80 a barrel and London as low as $82.60. Prices then rebounded to close Friday at $82.75 in NY and $86.15 in London. As has been the case for several weeks, the 25 percent price drop from the year’s highs was based on the perception that there is a glut of oil on the world market; the Saudis and other Gulf Arab states refusal to cut back production immediately; and fear. There are mixed opinions as to whether we have seen the bottom of the price plunge. Better economic data appeared on Friday and Goldman Sachs issued a report challenging the notion that the world markets are over supplied. They believe prices have overshot on the downside. Others, however, note that the pause in the price decline may only be profit-taking and that there is unlikely to be any change in OPEC policies until at least the end of November. Taking advantage of the relatively low prices, China seems to be stepping up its imports, likely to bolster its strategic reserves.
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