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Page added on December 13, 2016
Can OPEC Send Oil To $70?
OPEC managed to convince almost a dozen non-OPEC producers to take part in oil production cuts over the weekend, and the news immediately sent international benchmarks higher, prompting a fresh wave of bullish forecasts.
The latest, by hedge fund manager Pierre Andurand, is that crude will reach US$70 by June 2017. Andurand made this call before the weekend deal between OPEC and external producers was announced, noting that the Vienna agreement reached among the members of the organization was a “major turning point”.
Three months ago, Andurand had forecast that crude would reach US$60 by the end of the year and US$70 in 2017, so he’s now just repeating his earlier prediction, with a sounder basis this time. Back in September, he had said that Saudi Arabia is aware of the long-term implications of a depressed oil market and was ready to take steps to avoid a deficit in the longer run.
The hedge fund manager is not alone in thinking the ultimate goal of the cuts is to restore the balance between demand and supply: Goldman Sachs said in a note from Sunday that the deal reached by Saudi Arabia and the 11 non-OPEC producers is aimed at helping trim down the glut rather than just propping up prices. The non-OPEC group includes countries such as Azerbaijan, Kazakhstan, Mexico, and Brunei, as well as Sudan and South Sudan, plus Malaysia and Bahrain.
What’s more, Saudi Arabia said it is ready to go above and beyond its pledge for the OPEC deal and cut production to below 10 million bpd. This statement by Oil Minister Khalid al-Falih also had an immediate effect on prices, suggesting the largest producer in OPEC was determined to bring markets back to balance no matter what it takes.
It looks like tactics are changing on the fly. Earlier this year, everyone was scrambling to maintain its market share—OPEC and non-OPEC alike. Now, the priority of maintaining market share has yielded to the priority of lifting prices and plugging budget holes.
There is a chance that this tactic will work, though it will probably take more than six months. While some are cutting, others are building, including the U.S., Nigeria, Libya, and Iran, and it’s also uncertain that all parties to these two deals will keep their word.
U.S. shale producers are ready to start pumping more the moment prices inch up, and are more than likely to do just that. They’ve already started hedging against price risks in 2017 and 2018, which means not just downward pressure on current prices, but also higher likelihood that shale output will rise further. Also, most shale boomers have substantial debt piles to deal with, which is further motivation to increase production.
Nigeria, Libya, and Iran have been allowed to continue increasing their output, and while Nigeria and Libya have internal problems that might interfere with immediate production growth plans, Iran is already welcoming Western companies back into its energy industry – something that a lot of analysts believed was unlikely to happen because of mutual mistrust.
At the same time, however, underinvestment resulting from the price crash is lending upward potential to prices, and is contributing to a rebalancing of the fundamentals. It could turn out to be the single decisive factor determining the success of OPEC’s efforts. However much energy companies talk about diversifying into renewables, most of them are ready and willing to up production the moment prices inch up. However, over the last two years, the global energy industry was hit hard by the price crash, with little cash for new investments of substantial magnitude.
Of course, underinvestment could be good for prices, pushing them up significantly higher than any OPEC deal, as fundamentals trump speculative price fluctuations at the end of the day. But there are now alternatives to fossil fuel energy, and the world may intensify its drive to adopt these alternatives instead of paying US$140 per barrel of crude again, should prices tick up too much.
Sticking to reasonably high prices is the most sensible thing to do for both OPEC and non-OPEC producers, and it looks like this is exactly what they are trying to do.
By Irina Slav for Oilprice.com
16 Comments on "Can OPEC Send Oil To $70?"
rockman on Wed, 14th Dec 2016 8:31 am
“Russia, the biggest oil exporter outside the group, alongside 10 other countries such as Mexico, Oman and Azerbaijan on Saturday agreed to reduce their production by 558,000 barrels a day.” And Russia promising to reduce half of the 600k bopd. So 10 other companies will cut, on average, 30k bopd. IOW a rather small sacrifice. So small to be almost invisible in the shipping dynamics and thus impossible to vertify.
But more important not only is Norway not cutting any of its approximately 2 mm bopd it’s increase capex to expand its oil production. Probably not fast enough to offset the OPEC et al cuts immediately. But that’s IF those cuts materialize. And the there’s always the question of how much demand destruction develops with a price increase. And on the other side of the ledger there are 100’s of million of bbls in storage those investors have been waiting to unload on a price increase. Stored oil sales dynamics: many times the volume of the proposed production cut can be sold in a matter of hours.
As the name implies the “free” market is just that: free to quickly respond to changing conditions
Kenz300 on Wed, 14th Dec 2016 9:25 am
It is time to get off the fossil fuel addiction.
Wind and solar energy along with battery storage are the future.
Clean energy production with wind and solar coupled with battery storage.
Clean energy consumption with electric vehicles.
How battery-powered homes are unplugging Australia
http://www.smh.com.au/business/energy/how-batterypowered-homes-are-unplugging-australia-20150731-giogk2.html
Renewable energy overtakes coal as world’s largest source of power capacity
https://electrek.co/2016/10/25/renewable-energy-overtakes-coal-as-worlds-largest-source-of-power-capacity/
Wind Power Lifting Rig Builders Past Oil’s Downturn
http://www.renewableenergyworld.com/articles/2016/09/wind-power-lifting-lift-rig-builders-past-oil-s-downturn.html
Truth Has A Liberal Bias on Wed, 14th Dec 2016 1:17 pm
kenz you’re fuvking delusional. You think solar is gonna replace oil? How do we grow food and make fertilizer you stupid fuck? You remind me of that Robert scribbler guy and his circle jerk of hope. He thinks people are actually gonna stop global warming and save the day. Get fucking real dumb ass. Humanity will get serious about our problems once the problems are kicking us in the face. By then it’s too late. What powers the manufacture of solar panels, unicorn farts?
Tom S on Wed, 14th Dec 2016 1:40 pm
Truth, you are perhaps the most profoundly stupid person I have ever encountered. I think you should worry about yourself, not kenz.
“How do we … make fertilizer you stupid fuck?”
Fertilizer does NOT REQUIRE FOSSIL FUELS, YOU STUPID FUCK. Fertilizer can be made from water using electrolysis and nitrogen (from air), and that’s how fertilizer was actually made for decades before natural gas was used.
That’s chemistry 101, and it has been repeated here DOZENS of times already. The chemical formula for ammonia is NH3 which has no carbon atoms in it, and does not require fossil fuels for its synthesis. What part of “NH3” was confusing to you?
You don’t even bother to learn the first thing about any of this stuff? After many years of repeating the nonsense talking points you memorized from your doomsday group, which you repeat like a parrot? You don’t even bother to learn the first thing about this stuff?
You know less about this than someone who spent 5 minutes reading about it. If you looked up fertilizerr in wikipedia, you’d know right away. You’ve been here for YEARS and you still know nothing about it.
“What powers the manufacture of solar panels, unicorn farts?”
Electricity, dumbfuck. Look it up.
-Tom S
Cloggie on Wed, 14th Dec 2016 2:21 pm
Well done Tom.lol
High time that “dumbfuck” THALB gets disciplined.
Perhaps that our resident “dumbfuck” would care to enlighten himself that you can produce solar panels with electricity only, produced if necessary by solar electricity, produced by panels that left the factory earlier (EROEI in action):
https://youtu.be/CiYfcZJmBNE
Anonymous on Wed, 14th Dec 2016 2:24 pm
Unbelievable that Tom S claims to have spent 5 mins (google expert?), on fertilizers, didn’t bother checking out what a typical fertilizer plant actually looks like.
http://bv.com/Home/news/solutions/energy/fertilizer-plant-demand-driven-by-low-natural-gas-prices
That particular facility, seems to be owned by the koch assholes.
They all look like that. Large, complex, sprawling facilities that strongly resembling oil refineries. They consume a lot of energy, and not just directly, but IN-directly as well. And not just electricity. Contrary to your assertion fertilizers are created by mixing a few benign compounds together, is well, ridiculous. The plants themselves, are energy intensive and major polluters, but the REST of the production chain, the activities that provide the feedstock for plants like those, is also very energy intensive. Those plants are supplied by mining operations, and they use more than just ‘electricity’. They use oil and lots of it. If they didn’t, those sprawling fertilizer plants would shut down in an afternoon.
The other thing is, I can find lots of imagery on fertilizer plants, and I didn’t see a single one that had solar, wind, or unicorns farting in a field adjacent to those facilities to power it. In fact, most of the articles relating to those plants often refer to natgas. Electricity and ‘renewable’ are words not often used.
Fertilizer is a vast industrial scale activity, mining, transportation and so on. Its not run in backyards with a chemistry set and a wall socket.
Kenz IS an idiot btw, he just parrots the same mindless mantras with very slight modifications, and has for years.
Apneaman on Wed, 14th Dec 2016 3:25 pm
Tom S, there is a big difference between how something CAN be manufactured and how it IS manufactured. How much of your solar panel mining, smelting, foundries and transportation is done with electricity? I’ll await your response same as I have for a few years now. How much of total world energy demand is electricity? I’ll await your response same as I have for a few years now. How much of your claims are actually a projection of your hopes and wishes? No need to await your response. You always check min like this never 3-4 making the exact same claims and always dropping the doomsday accusation, yet you never want to discuss the AGW and human cancer consequences that happen in the intervals. Nothing changes for you. Not the mounting destruction of the biosphere or the ever rising Keeling curve or 200+ daily species extinction or increasing ocean acidification and ever more dire warnings from a growing number of the people who monitor and study such matters. You are single mindedly obsessed with your unchanging techno utopian claims and have be for years. No amount of evidence can budge the religious. All the technology hasn’t made one fucking bit of difference to solve any of the problems it is claimed to be an answer for. Fell free to lay out a case for all the problems it has solved and prevented. IMO the humans biggest problems ( predicaments actually) are overpopulation, rapidly worsening AGW, ocean acidification, mass extinction, unraveling of almost all institutions, income inequality, diminishing resources and denial. Can you make a case for your solar panels addressing any of those? Do solar panels prevent fucking? No and neither has all the technology or policy. Don’t give me an example of some tiny euro postage stamp country that claims to have gone full “alt” for one whole day. No no no, at the very least we need to see a multi year roll back of all the big metrics to have anything resembling even the start of an argument in your favor. Everything gets worse every year and the speed and severity of the consequences are only matched by your repeated insistence that it’s not happening and anyone who says so, including tens of thousands of scientists and their findings, are doomers.
Apneaman on Wed, 14th Dec 2016 3:32 pm
Not “could” IS
How Rising Ocean Acidity Could Send Us Into A Downward Spiral
https://archive.fo/wzA9p#selection-1741.0-1741.61
Nobody panic. Tom S has a super duper high tech solar panel that will restore the worlds oceans to their pre industrial PH
Cloggie on Wed, 14th Dec 2016 4:06 pm
How much of your solar panel mining, smelting, foundries and transportation is done with electricity?
Everything can be done with electricity but is not yet, because the renewable energy infrastructure is still in its infancy. You can use electricity for transport. In The Netherlands for instance no new cars will be allowed that still run on fossil by 2035. Parliament wants to change that to 2025. Smelting can obviously be done with electricity:
https://en.wikipedia.org/wiki/Electric_arc_furnace
I’ll await your response same as I have for a few years now.
Are you a woman? Waiting for years? Why can’t you google it up yourself? Spent some time for some useful purpose rather than hunting for yet another flood that should serve as proof that humanity “f*”.
Cloggie on Wed, 14th Dec 2016 4:08 pm
How Rising Ocean Acidity Could Send Us Into A Downward Spiral
Like nuclear fusion, climate change offers endless opportunities to make a living. the more alarmist, the better. Maybe the claims are even true, what’s not to like.
Apneaman on Wed, 14th Dec 2016 5:30 pm
ClogO, is that it? Is that all you have? Is that what qualifies as evidence of something in Holland or just in your paranoid and uneducated mind? There are retarded kids in North Korea who can formulate a better argument than that. We know, it’s not your fault that you are brain damaged because your mom had to subsist on Nazi sperm while pregnant with you just before the war ended. At least until the Canadian air force pilots risked their live making low speed, low flying air drops to save millions of Dutch from starvation. That was shorty before the Canadians captured their beach head on D-Day then made their way north to liberate your country. Apparently, y’all forgot how to fight for the two world wars but not in the east Indies going against savages who did not even have metal. Is that why you so rabidly promote the global right wing putsch? To make up for your life of emasculation? Get everyone else to do all the fighting again while you sit back and watch. Pretty clever strategy letting others pay in blood and money. Sorry, living vicariously don’t count, so you will always be a little half faggot euro pussy.
Apneaman on Wed, 14th Dec 2016 5:34 pm
ClogO, I know smelting is done with electricity because I have done shutdowns repairing the coal fired power boilers that generate said electricity at a couple of smelters.
Cloggie on Wed, 14th Dec 2016 6:19 pm
Oh-la-la, there is not a second the mongol from Hangover, I mean Hongcouver, the one who constantly fantasizes of killing white American Republican voters, who hardly can carry his own weight, depressed as he is and full of spleen, isn’t thinking about me, it corrodes him on the inside. I’m always on his mind.lol I own you and there is no way you can mentally escape me.
Oh and say hallo to your sweet mother from me, will ya, Friday?
http://www.newciv.org/pic/nl/artpic/10/1436/eskimo.jpg
…and keep dreaming of a Nazi mother. Maybe in a next life. Probably not.
http://tinyurl.com/z8ogomn
GregT on Wed, 14th Dec 2016 8:10 pm
“Electricity, dumbfuck. Look it up.”
Sounds like Mr. Bountiful Energy is starting to lose it. Not to worry Tommy, still tons of shit left for the apes to burn.
Tom S on Thu, 15th Dec 2016 10:43 am
Apneaman,
“Tom S, there is a big difference between how something CAN be manufactured and how it IS manufactured. How much of your solar panel mining, smelting, foundries and transportation is done with electricity?”
I am saying that the economy transitions to new sources of energy, and is doing so far faster than fossil fuels are being depleted.
Not much smelting etc is done using renewables right now. However, most energy used to make PV is electricity, and some of that electricity comes from renewable sources already and the share is increasing.
I’m not claiming that all these things are done using renewables right now. I’m claiming that most of them could be done using renewables, and the transition is already underway, far earlier than is necessary to avoid any kind of energy decline.
“I’ll await your response same as I have for a few years now.”
Really? I answer all objections posed to me. I don’t see any questions or objections from you posted on my website. I’m easy to reach.
“How much of total world energy demand is electricity?”
IIRC, only 20% of end energy use is electricity. However, almost 40% of fossil fuels are used to generate that electricity because of large waste heat losses. As a result, replacing FF power plants with renewables would displace about 40% of fossil fuel demand.
Of course, that number could become higher, by electrifying transport and some other things, which is happening already, albeit gradually.
“How much of your claims are actually a projection of your hopes and wishes”
That’s ad hominem and not a valid argument.
“No amount of evidence can budge the religious.”
What evidence have you presented?
“IMO the humans biggest problems ( predicaments actually) are overpopulation, rapidly worsening AGW, ocean acidification, mass extinction,”
I’m not disputing any those things, at all. I’m not trying to downplay AGW, or downplay the seriousness of it. I’m not disputing ocean acidification and I view mass extinction as tragic.
That said, that stuff just has nothing to do with imminent collapse of civilization because of peak oil/eroi/etc, which is what i AM disputing.
“anyone who says so, including tens of thousands of scientists and their findings, are doomers.”
Tens of thousands of scientists? I’m disputing the peak oil/eroi/energy decline doomsday group. I think there are about three scientists who support that stuff, and even they have uncertainties and qualifications, while the rest ignore it. This site is now the epicenter for that kind of thing, because all the other websites (like the oil drum) have shut down. I don’t think there are any scientists here. This stuff is fringe material.
The ETP model was actually presented in a scientists’ forum recently (by SumYunGai) and they emphatically rejected it. I don’t think that has broad support from scientists.
I appreciate that you are addressing the content of what I wrote.
-Tom S
Davy on Thu, 15th Dec 2016 10:53 am
Sure, Tommy S, we are listening to you as everything continues to worsen and your shiny new alternative world looks further from reality daily. What a joke