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An OPEC production cut is unlikely until U.S. production declines by about another million barrels per day (mmbpd). OPEC won’t cut because it would accomplish nothing beyond a short-term increase in price. Carefully placed comments by OPEC and Russian oil ministers about the possibility of production cuts achieve almost the same price increase as an actual cut.

Bad News About The Oil Over-Supply from IEA and EIA

The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) shook the markets yesterday with news that the world’s over-supply of oil has gotten worse rather than better in recent months. IEA data shows that the global liquids over-supply increased in the 4th quarter of 2015 to 2.24 million barrels per day (mmbpd) from 1.62 mmbpd in the 3rd quarter (Figure 1).

Figure 1. IEA world liquids market balance (supply minus demand). Source: IEA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

Supply increased 70,000 bpd and demand decreased 550,000 bpd for a net increase in over-supply of 620,000 bpd. The sharp decline in demand is perhaps the most troubling aspect of IEA’s report. The agency forecasts tepid demand growth of only 1.17 mmbpd in 2016 compared with 1.61 mmbpd in 2015. The weak global economy is the culprit.

EIA’s monthly data showed the same trend. Over-supply in January increased to 2.01 mmbpd from 1.35 mmbpd in December, a 650,000 bpd net change (Figure 2). Supply fell by 370,000 bpd but consumption dropped by a stunning 1.02 mmbpd.

Figure 2. EIA world liquids market balance (supply minus consumption). Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

The January 2016 Oil Price Head-Fake

Recent comments about a possible OPEC cut were largely responsible for the late January “head-fake” increase in oil prices (Figure 3). WTI futures increased 27 percent from $26.55 to $33.62 per barrel between January 20 and 29.

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

IEA in Davos 2016 warns of higher oil prices in a few years’ time

February 9, 2016

IEA in Davos 2016 warns of higher oil prices in a few years’ time

World Economic Forum

The Transformation of Energy

Fig 1: WEF energy panellists

22/1/2016 From right to left: moderator Daniel Yergin (IHS), Fatih Birol (IEA), Hiroaki Nakanishi (Hitachi), Ignacio Sánchez (Iberdrola), Eric Xin Luo (Shunfeng International Clean Energy)

This recent forum was about how to transition away from fossil fuels, after the UN conference on climate change in Paris in November 2015. Moderator Yergin – who is a known peak oil denier – started by asking Fatih Birol what low oil and gas prices mean for the development of renewable energies. Fatih responded by first warning about the impact of lower oil prices on investments in the oil and gas sector:

(video 3:24)
Fatih Birol: “For the oil markets what worries me the most is that: last year we have seen oil investments in 2015 decline more than 20%, compared to 2014, for the new projects. And this was the largest drop we have ever seen in the history of oil. And, moreover, in 2016, this year, with the $30 price environment, we expect an additional 16% decline in the oil projects, investments. So, we have never seen 2 years in a row oil investments declining. If there was a decline 1 year, which was very rare, the next year there was a rebound”

Daniel Yergin: “What does that lead you to?”

Fatih Birol: “this leads me to the very fact that in a few years of time, when the global demand gets a bit stronger, when we see that the high cost areas such as the United States start to decline, we may well see and upward pressure on the prices as a result of market tightness. So my message, my 1st message is: don’t be misled that the low oil prices will have an impact on the oil prices in the market in a few years’ time”

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

The IEA’s Oil Production Predictions for 2016

February 4, 2016

The IEA’s Oil Production Predictions for 2016

The IEA Oil Market Report, full issue, is now available to the public. Some interesting observations:

Non-OPEC oil supplies are nevertheless seen sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December’s drop. Production in Vietnam, Kazakhstan, Azerbaijan and the US was also seen easing from both November’s level and compared with a year earlier. Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline.

As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.

IEA Forecast 2

The IEA has every month of 2016 Non-OPEC production below the year over year 2015 production.

IEA Non-OPEC YoY

For the past four years, North America has carried the load as far as the increase in Non-OPEC production is concerned. Now the IEA believes North America will suffer the lions share of the decline in 2016.

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

Only Recession Can Prevent An Oil Price Spike

January 27, 2016

Only Recession Can Prevent An Oil Price Spike

The biggest result from the collapse in oil prices could be a future price spike.

Oil prices at $30 per barrel have put most producers under water. That has led to austere budgets and severe cuts to spending. Wood Mackenzie recently estimated that $380 billion in major oil projects have been delayed or cancelled since. That means that about 27 billion barrels that had been slated for production from those projects will now not be produced.

But more cuts are expected moving forward. “There has been a $1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014,” historian and oil expert Daniel Yergin said at the World Economic Forum in Davos, according to the Telegraph.

The oil industry has long been spending beyond its means. The shale boom was made possible by the massive monetary expansion from the U.S. Federal Reserve since 2009, with near zero interest rates allowing nearly every mom-and-pop driller to access credit. The result was a surge in oil production. Many companies struggled to be profitable before the collapse in crude oil prices. Now most are losing money on every barrel sold.

But the problem is that the market will overcorrect. The $1.8 trillion cutback in spending that Daniel Yergin cites will lead to a shortfall in supply in the coming years. The world needs to replace about 5 percent of total production each year just from natural depletion. That is somewhere around 5 million barrels per day (mb/d) each year in new output.

Moreover, demand is expected to rise. The IEA says that oil demand grew by at a five-year high of 1.8 mb/d in 2015, and while that is expected to slow in 2016, the world will still consume an extra 1.2 mb/d of oil this year. That will continue to rise. Assuming a little more than 1 mb/d each year in new demand growth, the industry will need to supply an additional 7 mb/d by 2020.

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

Oil Markets Are Balancing Faster Than IEA Would Have Us Believe

January 22, 2016

Oil Markets Are Balancing Faster Than IEA Would Have Us Believe

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…

No glut in Australian petroleum inventories

January 12, 2016

No glut in Australian petroleum inventories

The Australian Capital’s daily newspaper Canberra Times started the New Year by reprinting an article of the Daily Telegraph referring to an abundance of oil – without checking whether this also applies to Australia, especially after a year of political football games between a Senate committee and energy bureaucrats on one side and between the Industry and Foreign Ministers on the other, over Australia’s non-existent strategic oil reserve.

So let’s check on Australia’s commercial stocks, using the Australian Petroleum Statistics
http://www.industry.gov.au/Office-of-the-Chief-Economist/Publications/Pages/Australian-petroleum-statistics.aspx of the Department of Industry.

Consumption cover

Fig 1: Gasoline stocks and consumption cover in days

Average Gasoline stocks over 5 years were 740 Kt with seasonal fluctuations of around ±100 Kt (table 6). These stocks cover consumption of around 21 days or 3 weeks (table 7). The month-to-month fluctuations are caused by the arrival of tanker ships.

Fig 2: Diesel stocks and consumption cover in days

Average diesel stocks are 860 Kt equal to a consumption cover of only 17 days.

Fig 3: Jet fuel stocks and consumption cover in days

Average jet fuel stocks are 300 Kt equivalent to 18 days’ consumption.

Fig 4: LPG stocks and consumption cover in days

Average LPG stocks are 160 Kt equal to 27 days’ consumption.

Fig 5: Crude oil stocks and refinery input cover

Crude oil stocks have been reduced after the closure of 2 oil refineries.

The Shell refinery in Sydney (85 kb/d) closed in September 2012 which is about 340 Kt/month.

The Caltex refinery in Sydney (135 kb/d) closed in December 2014 equivalent to 550 Kt/month. So at around one month refinery input in stocks, these refinery closures would explain a drop in stocks of around 900 Kt.

The next refinery closure will be BP in Brisbane (100 kb/d)

Net import cover

As a member of the IEA and a net oil importer Australia is obliged to keep stocks of 90 days of net oil imports (crude and products)

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

The Crude Oil Export Ban–What, Me Worry About Peak Oil?

December 28, 2015

The Crude Oil Export Ban–What, Me Worry About Peak Oil?

Congress ended the U.S. crude oil export ban last week. There is apparently no longer a strategic reason to conserve oil because shale production has made American great again. At least, that’s narrative that reality-averse politicians and their bases prefer.

The 1975 Energy Policy and Conservation Act (EPCA) that banned crude oil export was the closest thing to an energy policy that the United States has ever had. The law was passed after the price of oil increased in one month (January 1974) from $21 to $51 per barrel (2015 dollars) because of the Arab Oil Embargo.

The EPCA not only banned the export of crude oil but also established the Strategic Petroleum Reserve. Both measures were intended to keep more oil at home in order to make the U.S. less dependent on imported oil. A 55 mile-per-hour national speed limit was established to force conservation, and the International Energy Agency (IEA) was founded to better monitor and predict global oil supply and demand trends.

Above all, the export ban acknowledged that declining domestic supply and increased imports had made the country vulnerable to economic disruption. Its repeal last week suggests that there is no longer any risk associated with dependence on foreign oil.

What, Me Worry?

The tight oil revolution has returned U.S. crude oil production almost to its 1970 peak of 10 million barrels per day (mmbpd) and imports have been falling for the last decade (Figure 1).

Figure 1. U.S. crude oil production, net imports and consumption. Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

But today, the U.S. imports twice as much oil (97%) as in 1974! In 2015, the U.S. imported 6.8 mmbpd of crude oil (net) compared to only 3.5 mmbpd at the time of the Arab Oil Embargo (Table 1).

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

IEA: China might have passed ‘peak coal’ in 2013

December 18, 2015

IEA: China might have passed ‘peak coal’ in 2013

China possibly saw its coal consumption peak in 2013, according to the International Energy Agency (IEA).

The seismic shifts underway in China have global implications for both coal use and emissions.

Global coal use fell by 0.9% in 2014, the first fall this century, says the IEA’s Medium Term Coal Market Report 2015. It says demand is “likely” to fall again in 2015, echoing reports that global emissions will fall this year as coal use declines.

As a result, the IEA’s 2020 demand coal forecast is now 10% lower than its previous outlook. Even so, it sees rising demand between now and 2020, reversing the current two-year decline.

Paris perspective

Before getting into the details of the IEA’s coal market report, it’s worth noting that it was written before the Paris climate deal was agreed.

Anticipating that an agreement might be reached, however, the report lays out a series of trends likely to weigh increasingly on coal demand over the coming years.

These include the falling cost of renewables, the spread of CO2 pricing and coal taxes, the divestment movement and development banks and export credit agencies restricting coal finance.

Fatih Birol, the IEA’s chief executive, writes in a foreword to the report that the business case for coal use is diminishing. He writes: “The window of opportunity for high-carbon sources is closing.”

A feature article for the New York Times this week looks at the mass layoffs facing China’s coal mining industry. One miner tells the paper: “There is no future in coal.”

While some reports suggest the Paris deal depressed coal stocks, views differ on its significance for fossil fuel interests. Nonetheless, it would be hard to argue coal’s prospects have improved.

With that in mind, let’s turn to the forecasts in the IEA’s medium-term coal market outlook.

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

IEA: US$ 40 oil means 3 mp/d less oil by 2020

November 16, 2015

IEA: US$ 40 oil means 3 mp/d less oil by 2020

You want $40 oil? Yes, please. But according to the World Energy Outlook 2015 of the International Energy Agency, recently released in London, that would mean 3 mb/d less US tight (shale) oil by 2020. That’s about 4% of global crude production.

Fly less and drive less.

Fig 1: Slide from the WEO 2015 presentation

http://www.worldenergyoutlook.org/media/weowebsite/2015/151110_WEO2015_presentation.pdf

Let’s put that into a graph for the $50 scenario:

Fig 2: US monthly crude production

The graph shows a 4 mb/d increase in US crude oil production, mainly tight oil from Texas (Eagle Ford, Permian), North Dakota (Bakken) and Niobrara (Colorado, Wyoming) between 2011 and 2015. The other States plus the Gulf of Mexico and Alaska remained on an undulating production plateau. The red production line descends by 2.5 mb/d over 5 years to 2020, with an oil price of $50 a barrel (dashed black line)

The EIA data for the above graph are from here:

US crude oil
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M

WTI oil price
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=m

The latest drilling productivity report from here
http://www.eia.gov/petroleum/drilling/
shows some details about peaking tight oil production

Bakken

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

IEA Sees No Oil Price Rebound For Years

November 11, 2015

IEA Sees No Oil Price Rebound For Years

Oil prices are likely to stay below $80 per barrel for another five years, according to a closely watched energy report.

The International Energy Agency released its 2015 World Energy Outlook (WEO), with predictions for energy markets out to 2040. Although there are no shortage of caveats, the IEA projects that oil prices will only rebound slowly and intermittently, and the supply overhang will slowly ease through the rest of the decade. In its “central” scenario, it sees oil prices rebalancing in 2020 at $80 per barrel, with increases in the years following.

At issue, as always, is supply and demand dynamics. The IEA estimates that the oil industry will slash upstream investment by 20 percent in 2015, which will cut into long-term supply figures. Non-OPEC supply will peak before 2020 as a result of much lower investment, topping off at 55 million barrels per day.

U.S. shale will recover as prices rebound, but the IEA still sees it as a passing fad. As the sweet spots get played out in the U.S., and costs remain elevated compared to other sources of production from around the world, shale will not be around for the long haul. The IEA sees U.S. shale output plateauing in the early 2020s at 5 million barrels per day. Thereafter, it declines.

The IEA weighs a scenario in which oil prices don’t actually rebound in the medium to long-term, however. In this scenario, OPEC continues to pursue market share, U.S. shale remains resilient, and the global economy doesn’t perform as well as expected. All of that adds up to oil prices remaining at $50 per barrel through the remainder of the decade and only rising to $85 per barrel by 2040.

Of course, there is a flip side to that coin. Persistently low prices gut investment in new sources of supply, which sow the seeds for a supply shortage in the years ahead. As a result, prices could spike.

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

Liam Fox’s Speech to the IEA on Honest Money

October 31, 2015

Liam Fox’s Speech to the IEA on Honest Money

Dr Fox gave his speech on honest money to the IEA last week. The video can also be viewed here: http://www.iea.org.uk/multimedia/video/rt-hon-liam-fox-on-honest-money

It is almost universally accepted that the first duty of government is the protection of its citizens. As a former Secretary of State for Defence I am only too aware of the external threats to the safety of our people and our country.

But there are other threats that I believe we have a right to be protected from – the debasement of our currency, the erosion of our earnings and the devaluation of our savings. I believe it is fundamentally wrong for governments to engage in structural profligacy, spending excessively across the economic cycle and passing ever larger amounts of debt onto future generations.

History is littered with examples of where economic failure led to compromised security. In my book, Rising Tides, I pointed out that by 1788, a year before the French Revolution, France was spending 62% of royal revenues on servicing its debt. The Ottoman Empire was spending 50% of its budget on debt interest payments by 1875 with the final repayment being made by the Republic of Turkey in 1954, even though the Empire had been abolished 36 years previously. The lessons from history are clear – if the destinations we wish to reach are security, prosperity, and honest money, then the road we must travel is that of fiscal restraint and monetary realism.

Today, I want to look at how close we are to those objectives, especially in the light of the great financial shock that came to the global economy following the events of 2008.

The policies of fiscal restraint imposed by the current government have seen our annual budget deficit fall from the terrifying heights of the 11.4% of GDP which we inherited from Labour in 2010, although at 5.7% of GDP it remains the third-highest in the EU.

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

Libs Need Clearer Energy Security Plan, Says ‘After the Sands’ Author

October 26, 2015

Libs Need Clearer Energy Security Plan, Says ‘After the Sands’ Author

Increased oil patch ownership can help Canada meet emissions goals, says Gordon Laxer.

Gordon Laxer says Canada is highly vulnerable to another oil crisis. Pipeline photo via Shutterstock.

[Editor’s note: Join Dr. Gordon Laxer, political economist and co-founder of the Parkland Institute, for a free talk about ‘After the Sands,’ a new book for anyone concerned about rising sea levels, pipeline and tanker spills, climate change chaos and Canada’s future in a carbon restricted world. Tuesday, Oct. 27 at 7 p.m., The Hive, 128 W. Hastings St., Vancouver.]

Justin Trudeau has to move beyond his murky energy policy and set out clear plans to reduce carbon emissions and improve oil security, says political economist Gordon Laxer.

And the new Liberal government should take steps to increase Canadian ownership in the energy sector if it wants to achieve those goals, said Laxer, whose latest book, After the Sands, argues that Canada must improve its energy security and become a low-carbon society.

Laxer said Canada is highly vulnerable to another oil crisis, which he expects in the next couple of years. The United States is working to lower oil imports and has created strategic oil reserves, Laxer said. Other countries have also focused on energy security.

“We import 40 per cent of our oil, and we have no program,” he said. “We belong to the International Energy Agency. There are 28 countries; 26 of them have strategic petroleum reserves. Canada and Australia do not.”

Improving energy security will also play a big part in reducing greenhouse gas emissions and reshaping the economy, said Laxer, former head of the Parkland Institute at the University of Alberta.

The Canadian government has focused on increasing energy exports, and the country now exports about four times as much oil as it imports.

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

Liam Fox on Sound Money

October 19, 2015

Liam Fox on Sound Money

Liam Fox has written a piece in The Times on sound money:

http://www.thesundaytimes.co.uk/sto/comment/regulars/guestcolumn/article1620451.ece

Dr Fox also spoke at the IEA this morning about sound money and how it can be achieved:

http://www.iea.org.uk/events/keynote-speech-the-rt-hon-dr-liam-fox-mp

The title of the speech will be: “The Road to Honest Money”

In his speech, Dr Fox will highlight what he sees to be the right approach for the UK economy, including examining:

the severe risks and unintended consequences associated with the extraordinary monetary policy measures pursued since the global financial crisis;

the spending restraint and reform of age-related entitlements required to improve the UK’s bleak long-term fiscal outlook

Fox will map out his ideas to return us to sound money and sustainable public finances.

– See more at: http://www.cobdencentre.org/2015/10/liam-fox-on-sound-money/#sthash.ao5RUJzT.dpuf

Bakken Production Down plus IEA Predictions

October 14, 2015

Bakken Production Down plus IEA Predictions

The Bakken and North Dakota production data is in.

Bakken production was down 19,502 bpd in August while all North Dakota was down 20,552 bpd.

Here is an amplified chart of Bakken and all North Dakota production.

Bakken barrels per well per day is now 112 while all North Dakota gets 94 barrels per well per day.

This chart shows the monthly change in North Dakota production. It is likely that by next month the 12 month average change in production will be negative.

Bakken wells producing increased by 69 and ND wells producing increased by 65.

From the Director’s Cut

July Permitting: 233 drilling and 0 seismic
Aug Permitting: 153 drilling and 1 seismic
Sep Permitting: 154 drilling and 1 seismic

July Sweet Crude Price1 = $39.41/barrel
Aug Sweet Crude Price = $29.52/barrel
Sep Sweet Crude Price = $31.17/barrel
Today’s Sweet Crude Price = $35.00/barrel
(low-point since Bakken play began was $22.00 in Dec 2008)
(all-time high was $136.29 7/3/2008)

July rig count 73
Aug rig count 74
Sep rig count 71
Today’s rig count is 67
(in November 2009 it was 63)(all-time high was 218 on 5/29/2012)

Comments: The drilling rig count increased 1 from July to August, decreased 3 from August to September, and dropped 4 more this month. Operators are now committed to running fewer rigs than their planned 2015 minimum as drill times and efficiencies continue to improve and oil prices continue to fall. This has resulted in a current active drilling rig count of 10 to 15 rigs below what operators indicated would be their 2015 average if oil price remained below $65/barrel. The number of well completions fell from 119(final) in July to 115(preliminary) in August. Oil price weakness now anticipated to last well into next year is the main reason for the continued slow-down. There was one significant precipitation event in the Minot area, 6 days with wind speeds in excess of 35 mph (too high for completion work), and no days with temperatures below -10F.

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

Will declines in U.S. and Canadian oil production lead to a global decline?

September 28, 2015

Will declines in U.S. and Canadian oil production lead to a global decline?

At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits–tight oil in the United States and tar sands in Canada–that the precipitous drop in oil prices would lead to declines in production in both countries.

I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.

Well, declines in the both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:

The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July–and here’s the important part–“mainly on lower non-OPEC output.” That’s a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.

The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that’s down from 9.6 mbpd in early June.

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

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