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The Peak Oil Crisis: A $4 Trillion Hole
The Peak Oil Crisis: A $4 Trillion Hole
Last week reporters at the Wall Street Journal sat down and did some arithmetic. They looked at how much oil was selling for in the spring of 2014 (over $100 a barrel); looked at what it is selling for today (under $50); and concluded that if prices stay low for the next three years, the global oil industry and the countries it finances will be out $4.4 trillion in revenues. As these oil companies, nationalized and publically traded, will be producing roughly the same amount of oil in the next few years, the $4 trillion will have to come mostly out of profits or capital expenditures.
This is where the problem for the future of the world’s oil supply comes in. The big oil companies, especially those that export much of their production, have been doing quite well in recent years. National oil companies have earned vast profits for their political masters. Publically traded ones have developed a tradition of paying out good dividends which they are loathe to cut.
This leaves mostly capital expenditures on exploring for and producing more oil in coming years to take a dive as part of the $4 trillion revenue hit. Even if oil prices of $50 a barrel or less do not continue for the next three years, this still works out to a revenue drop of $1.5 trillion a year or about three times the planned capital expenditures of some 500 oil companies recently surveyed.
The International Energy Agency just came out with a new forecast saying that while current oil prices have the demand for oil products increasing rapidly, there is still so much over-production that the oil glut is expected to last for another year or more before supply/demand comes back into balance. The return of Iran to unfettered production would not help matters.
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Peak Oil Review – Dec 22
1. Oil and the Global Economy
Oil prices were volatile last week with New York futures trading around $55 a barrel and around $60 in London with little change at week’s end. In the absence of any solid news on supply or demand, traders jumped in and out of the markets in a attempt to find a price bottom. On Thursday, London’s Brent closed below $60, the lowest close since May 2009, before rebounding, largely on optimism and technical issues, to close out the week at $61.38.
The issue of just where the bottom of the price decline will be found is the subject of much commentary. Most observers are saying that the markets will likely go lower next year as more supply is slated to come on line, and the markets are expected to remain weak. The UAE’s oil minister and President Putin both mentioned $40 a barrel in public recently. A more sophisticated analysis was published by Reuters pointing out the reasons we could see a new trading range, with a bottom at $20 a barrel and a top at $55. Under this scenario, US shale oil producers, who can be very fast on their feet due to the large number of wells they must drill every year to maintain production levels, would become the new swing producers.
Peak Oil Review – Nov 11
1. Oil and the Global Economy
Oil prices fell sharply on Monday and Tuesday last week taking New York futures down from $81 a barrel to touch above $76 on Tuesday. Prices then recovered leaving NY oil to close out the week at $78.65, down 2.4 percent for the week and 27 percent since June. London futures performed similarly dropping from $86 to $83 on Monday andTuesday and then rising to close out the week at $83.39, down 2.9 percent for the week and 28 percent since June. The price drop on Monday and Tuesday came as the Saudis cut prices for shipments to the US. The rebound later in the week had a number of causes including much colder weather due to engulf the US this week and better jobs numbers.
As could be expected, forecasts that the polar vortex will return to the US this winter sent natural gas prices sharply higher – climbing from $3.65 per million BTUs in late October to a close of $4.41 on Friday. US natural gas production continues to break records with production in October running at 7.9 percent above last year with expectations that total US production will be above 72 billion feet per day by the end of the year. Robust production of gas this summer combined with mild weather have left US natural gas stocks only 7 percent less than the five-year average as the winter heating season starts.
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Peak Oil Review – Oct 27
New York futures continued to slide last week closing Friday at $81.01 for the fifth weekly loss. London oil traded quietly around $86 a barrel to finish out the week at $86.13, also down for the fifth consecutive week. There has been no change in the markets’ perception that there is still too much oil chasing too little demand. The only foreseeable change in the situation will come at the November 27th OPEC meeting when we will know whether the Saudis and other Gulf Arab states will cut their production in an effort to raise prices. The other major exporters, particularly Russia, Iran, and Venezuela, are in near desperate need of all the oil revenue they can get and are unlikely to cut anything.
There was a rebound in the markets at mid-week when it was reported that Saudi sales in September were 328,000 b/d lower than in August, but the rally died when it was further reported that Saudi production had increased by 100,000 b/d last month with the rest of the oil going into storage. The weekly US stocks report showed the crude inventory increased by 7 million barrels the week before last. The stockpile at Cushing, Okla. was up a bit to 20.6 million barrels which about what is necessary for a smooth flow of futures market deliveries.
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