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Page added on August 13, 2014
Oil prices hit nine-month low on IEA ‘glut’ warnings
Oil prices have fallen to a nine-month low as surging supply from Opec and the US floods the market and fresh demand wilts, leading to an “oil glut” in the Atlantic region despite the twin crises in Iraq and Russia.
The International Energy Agency (IEA) cut its forecast for the rise in global consumption to just 1m barrels a day (b/d) this year due to near recession conditions in Europe and as pervasive weakness in the world economy disappoints.
This comes as supply rises by a further 300,000 b/d beyond what was already planned. The warning sent Brent crude prices tumbling to $104 a barrel, the lowest this year.
The sudden shift in the balance of the market has allowed the OECD club of rich states to build up their oil stocks at the fastest rate in eight years, creating an extra layer of protection against any possible supply shock from Russia and Iraq.
The agency said OECD inventories rose by 88m barrels in the second quarter, the most since 2006. Stocks are still below their five-year average but are no longer as dangerously thin as they were last winter.
The IEA said in its monthly report that the oil market seemed “eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world”.
Yet so far the rise in supply has overwhelmed any actual disruptions from crisis zones.
Libya’s output doubled to 430,000 b/d in July from a month earlier despite the continuing war between rival militias for control of the country’s oil wealth. Saudi Arabia cranked up its production to more than 10m b/d, the highest since last September.
Oil demand fell by 440,000 b/d in Europe and the US over the period, a sign of how weak global recovery still is, consistent with a rare fall in the CPB’s index of world trade in May. The big surprise has been a “sharp contraction” in German demand for oil products, down 3.9pc over the past year. It is much the same picture in Italy and Japan.
The supply glut leaves the world economy slightly less vulnerable to a shock if the crisis escalates in Russia. The West has already imposed a funding freeze on Russia’s top oil company, Rosneft. This could ratchet up to Iran-style sanctions on Rosneft deliveries as well if the Kremlin launches a full-blown invasion of eastern Ukraine.
Falling prices will ratchet up the pressure on Russia, which needs a price near $110 to balance its budget. While it has a reserve fund to cover any shortfall, this would be depleted fast if oil falls anywhere near $80 and Russia goes into a deep recession. Most of Russia’s energy revenues come from oil, not gas.
The crisis in Iraq has yet to pose a serious threat to oil exports, though this could change at any time. The vast majority of Iraqi supply comes from Shia-controlled fields in the south.
The most powerful force now holding down global prices is the US fracking industry. Shale will boost US output by a further 1.2m b/d this year to a total of 11.5m, increasing America’s lead as the world’s biggest producer.
23 Comments on "Oil prices hit nine-month low on IEA ‘glut’ warnings"
JuanP on Wed, 13th Aug 2014 12:38 pm
“due to near recession conditions in Europe and as pervasive weakness in the world economy disappoints.”
Most countries in the world have economies that keep performing at disappointing levels to officials all over the world.
Most humans are optimistic creatures and have unrealistic expectations of the future, this leads to their constant dissapointments, IMHO.
shortonoil on Wed, 13th Aug 2014 1:02 pm
This report drove WTI down $2.00/barrel, and the IEA is still driving around at midnight with their sunglasses on. The ISIS is running roughshod over the Middle East, in the Duvernay they are drilling like crazy, which is going to monkey hammer US shale, Russian production is obviously in permanent decline, the Saudi’s are creaming their fields to keep production up, and Central West Africa is literally dying by the truck loads. All the major fields in the world are in decline, or will be shortly. Problem, no problem for these guys, just write another fairy tale.!
rockman on Wed, 13th Aug 2014 1:07 pm
I suppose that if you tell a lie with great enthusiasm some folks will tend to believe the lie: “…as surging supply from Opec and the US floods the market and fresh demand wilts…”
First, according to https://ycharts.com/indicators/opec_crude_oil_production
OPEC crude oil production has fallen from 33.75 million bbls/day in March 2012 to 31.83 million bbls/day in April 2014. I’m not sure how one describes a 5.6% decline in OPEC production in two years as a “surge”. And according to the EIA both OPEC and non-OPEC supply disruptions from July 2012 have increased from 1.3 million bbls/day to the current level of 2.6 million bbls/day in July 2014. Seems like those two FACTS might suggest higher oil prices…not lower.
And as far as the US “flooding” the market with oil: according to the EIA the US is currently importing around 7.719 million bopd. Even if one backs out the approximately 3 million bopd we refine and export to other countries the US currently pulls about 1.7 BILLION BBLS OF OIL out of the global market place per year. Maybe they meant to say “reverse flood”? Or as ole Ross Perot might say: “A giant sucking sound”. LOL.
And now let’s look at how we’ve stopped consuming petroleum products. According to the EIA in the last two years total US consumption of motor fuel, distillate fuel oil and jet fuel has increased from 18.49 million bbls/day to 18.88 million bbls/day. Granted not a surge in consumption but obviously not a “wilting” of demand either.
Not sure what other lies the article might contain. After reading the first paragraph I chose to not waste more time on it.
Porlock on Wed, 13th Aug 2014 1:29 pm
And as usual with both the IEA and the MSM, no acknowledgement of the link between high oil prices and recession. FT reporting today that Japan contracted by an annualized 6.8% in Q2. A 6.8% drop for one of the most sophisticated and most energy-efficient countries in the world! But guess what, they import 100% of their oil. Well maybe, just maybe, all those extra barrels of >$100/bbl oil that they’re importing since Fukushima put their nukes on ice is having an impact on their GDP and hence on their oil demand. Can someone send a memo to the IEA? The world and the oil industry have signed a suicide pact: the world can’t grow with oil at >$100/bbl and the oil industry can’t grow supply even with prices >$100/bbl (as the majors’ cuts to capex in recent months attest).
Pops on Wed, 13th Aug 2014 1:39 pm
Recession = Glut = lower price
But the real question is where does the recession come from?
High Price perhaps?
Welcome to the undulating plateau.
JuanP on Wed, 13th Aug 2014 1:48 pm
Rock, “I suppose that if you tell a lie with great enthusiasm some folks will tend to believe the lie: “…as surging supply from Opec and the US floods the market and fresh demand wilts…””
The worst part is that the phrase is not, technically, a lie, because the total production of the USA and OPEC increased, even if that was because the USA’s production increased more than OPEC’s production declined. And that is even more twisted than a lie if done on purpose. If it was done out of ignorance it is an inadequate representation of facts. But, if done on purpose, the goal would probably be to create the impression that there are many countries in the world with increasing production to fool and pacify the sheeple, not that I have anything against sheep.
rockman on Wed, 13th Aug 2014 2:14 pm
Juan – I suppose it depends on how you read that statement: “surging supply from Opec (that is a lie as the numbers show) and the US floods the market(the US hasn’t “flooded the global oil market…it still draws a lot of oil from that market). Does it matter if the combined production of the US and OPEC has increased? The US isn’t a net exporter of oil…OPEC is. The US hasn’t added 1 bbl of oil into the global market: it pulls 1.7 billion bbls of oil out of the market place every year.
So where exactly is this surging supply of oil in the global market coming from? There’s been an increase in US oil production but we’re still a net importer so that domestic increase adds nothing to supply of oil to other countries.
So again from https://ycharts.com/indicators/world_crude_oil_production
In the last two years (April 2012 to April 2014) global oil production has increased from 76.35 million bopd to 76.51 million bopd. That’s 0.2% over two years. So yeah: I would say describing the situation as a ‘surge’ is a world class lie.
So am I misreading your comment?
JuanP on Wed, 13th Aug 2014 3:57 pm
Rock, I see the global supply as being the total amount produced and sold everywhere. We agree that the article misrepresents and distorts the truth in many ways.
The most significant increases in global oil production have been in the USA, even if the USA remains a net importer and not a drop of that oil is exported.
My point was to highlight how craftfully this writer was distorting the truth to fool and comfort the more ignorant crowd, incapable of seeing past that. The point being it is all about how you read it and who reads it. It is excellent quality BS.
JuanP on Wed, 13th Aug 2014 4:03 pm
Rock, The oil that we no longer import in the US has been fundamental in balancing supply and demand abroad, don’t you agree? Without it something would have to give somewhere as I think will happen when shale oil productio in the US peaks.
Northwest Resident on Wed, 13th Aug 2014 4:30 pm
“Without the markets, or economies, collapsing outright yet, it’s starting to look like while oil cannot save us from economic mayhem, the downfall of our economies is indeed keeping the lack-of-energy monster at bay.”
Nicole Foss at Automatic Earth, commenting on this article, making the point I believe that IF there is a “glut”, then it is obviously due to decreased demand (i.e., demand destruction) than it is due to any actual oil production increases.
SilentRunning on Wed, 13th Aug 2014 6:03 pm
Clearly, there is such an enormous glut that the price *plunged* to a mere $104 a barrel…
I’ll be more receptive to the “glut” story line when the price is south of $20.
bobinget on Wed, 13th Aug 2014 6:13 pm
Apparently lies are having a desired effect. Auto makers profits are ‘surging’ with increased
SUV sales. Most of the public actually believe the US is headed toward oil independency, even export supremacy.
This Wednesday’s EIA report
U.S. crude oil refinery inputs averaged over 16.2 million barrels per day during the week ending August 8, 2014, 179,000 barrels per day less than the previous week’s average. Refineries operated at 91.6% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.5 million barrels per day. Distillate fuel production decreased last week, averaging over 4.7 million barrels per day.
U.S. crude oil imports averaged over 7.8 million barrels per day last week, up by 283,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 4.6% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 470,000 barrels per day. Distillate fuel imports averaged 151,000 barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. At 367.0 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.2 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 2.4 million barrels last week and are below the lower limit of the average range for this time of year. Propane/propylene inventories rose 1.8 million barrels last week and are above the upper limit of the average range. Total commercial petroleum
inventories increased by 1.5 million barrels last week.
Total products supplied over the last four-week period averaged about 19.8 million barrels per day, up by 1.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.0 million barrels per day, down by 1.3% from the same period last year. Distillate fuel product supplied averaged about 4.0 million barrels per day over the last four weeks, up by 0.3% from the same period last year. Jet fuel product supplied is up 6.4% compared to the same four- week period last year.
The WTI price was $97.61 per barrel on August 8, 2014, $0.25 below last week’s price and $8.43 under a year ago. The spot price for conventional gasoline in the New York Harbor was $2.698 per gallon, $0.025 higher than last week’s price but $0.182 below a year ago. The spot price for Ultra-Low sulfur Diesel Fuel in the New York Harbor was $2.875 per gallon, $0.019 more than last week’s price but $0.110 less than a year ago.
The national average retail regular gasoline price decreased for the sixth week in a row to $3.505 per gallon on August 11, 2014, $0.010 per gallon less than last week and $0.056 under a year ago. The national average retail diesel fuel price decreased for the sixth week in a row to $3.843 per gallon, $0.010 per gallon below last week and $0.053 under a year ago.
Shaved Monkey on Wed, 13th Aug 2014 7:11 pm
Pretty convenient timing to help put a bit of economic pressure on Russia.
rockman on Wed, 13th Aug 2014 7:34 pm
Juan – OK…let’s see if we’re looking at the same elephant in the room. LOL.
“The oil that we no longer import in the US has been fundamental in balancing supply and demand abroad, don’t you agree?” I agree that the less oil the US imports leaves more in the global market place. So they want to characterize the US as pulling less oil out of the global market as we’re “flooding the market”. OK…let’s measure this recent flood they describe. For the first 5 months of 2014 the US averaged 222,079,000 million/month. During the first 5 months of 2012 the US averaged 264,465,800 bo/month. That’s a decrease whopping decrease of 1,389,700 bopd. Given current global oil production. So the US has flooded the market by not taking a whopping 1.8% of the global volume of oil production. So just my hardnosed attitude: saying the US has flooded the global oil market by decreasing it’s imports by 1.8% of total global production isn’t misleading or an ignorant blunder…it’s a lie. A 12 year old could pull up the stats I just did so they could have gotten the same numbers. And IMHO we are not talking about varying shades of grey. Another way of calculating: in 2012 the US imported 8.671 million bopd: 10.00% of global oil production. In 2014 the US imported 8.02% of the global oil production.
So again for anyone who has ready access to the data who says the US is “flooding” the global oil market by pulling out 2% less from the market place is a liar in my book. In all fairness shouldn’t they also point out how the PIGGS, especially Greece, have “flooded” the global oil market (and thus causing lower prices)? Does it matter whether it’s an increase in domestic production or demand destruction? The result is the same: more oil “floods” the market place.
So if some countries are “flooding” the global oil market shouldn’t oil be selling for $30 or $40 per bbl. So who is sucking it dry and keeping prices AT HISTORIC HIGH AVERAGE LEVELS? Three guesses…and the first two don’t count. LOL.
Oil prices are not LOW…they are just LOWER then they were. Ten years ago when oil was selling for about 1/3 of current levels prices weren’t low…they were normal. Whether oil is selling for $90/bbl or $110/bbl that price isn’t normal…it’s high.
shortonoil on Wed, 13th Aug 2014 7:45 pm
“Juan – I suppose it depends on how you read that statement: “surging supply from Opec (that is a lie as the numbers show) and the US floods the market(the US hasn’t “flooded the global oil market…it still draws a lot of oil from that market).”
Rock, you missed one very important point. Total world exports are going down, and fast. At the present rate of decent, by 2030 OPEC will no longer be a net exporter of petroleum. The oil producing countries are using more, and more of their own oil! This is an aspect of the energy dynamics of petroleum production; as time progresses it requires more energy to produce petroleum, and its products. That is why we have seen continually increasing production costs for the last hundred years, and this is guaranteed to continue. The IEA is doing everything in their power to placate the markets. They know what is happening, just as we do!
http://www.thehillsgroup.org/
shortonoil on Wed, 13th Aug 2014 8:05 pm
Just as we have been saying it would happen, the shale fiasco is coming apart. If a hydrocarbon process which is used for the production of fuels is not energy positive it can not be monetarily positive. Shale is not energy positive, and the IEA knows that too.
http://www.zerohedge.com/news/2014-08-13/wall-streets-shale-fraud-exposed
http://www.thehillsgroup.org/
Nony on Wed, 13th Aug 2014 10:20 pm
Fastest production rise in the history of the US, Rock. Those shale-ies are getting it done. GOM not so much. Get cracking.
Northwest Resident on Wed, 13th Aug 2014 10:22 pm
shortonoil — Very interesting article that you posted. I also read a lot of the comments by ZH’ers on that article. There are some commenters who seem to know what they’re talking about, and seem to think that the article is B.S., that in fact shale oil/NG is a profitable gig for the drillers.
One comment:
As I sit here in West Texs drilling one of the above mentioned wells.. Let me ask this question. Does the decline rate matter more or less or inversly in conjuction with the intial prodoction rate of a comparable vertical well? We return 100% ROI on these wells in an average of 14 months… so does it matter what the prodction fall of is if it is on 100% profit? Tyler… I appreciate much of what you put out on this site but you are out of your depth on this one.
And another one:
The way those boys are marching those big rigs into west Texas, you all are going to be ass-deep in oil for decades to come.
They’ve got some entertaining commenters on ZeroHedge.
alokin on Thu, 14th Aug 2014 3:06 am
Still prices are down (petrol under $1.40/l I haven’t seen that since ages!) and shaved monkey had the right idea: put pressure on Russia – what comes next?
Assuming that the West can manipulate the prices.
Norm on Thu, 14th Aug 2014 3:31 am
Rockman is right, and the article is wrong. Glad that Rockman wrote up the good rebuttal. IMHO there is still going to be oil shortage. Also entire topic of EROEI is ignored nowadays. They burn up a barrel of oil, to drill a barrel of oil from a mile down. What did that produce? ZERO. What does the USPA (united police states of america) book-keep that as with their crooked greasy accountants? TWO barrels.
That’s the real deal, 2 vs 0, because of EROEI. but everybody too stupid to understand. duuhhhh.
Same with Ethanol. Burn up a prime gallon of gasoline, to create a gallon of yucky ethanol. What was really produced for legitimate usage? zero gallons. What do the dirty slimy republican bookkeepers log it as? TWO gallons.
That is what’s happening with the Shale play. Basically what Rockman said.
shortonoil on Thu, 14th Aug 2014 7:12 am
“We return 100% ROI on these wells in an average of 14 months… so does it matter what the prodction fall of is if it is on 100% profit?”
Actually this is fairly easy to do. You take a well with a 65% decline rate, meaning that it will be pumping about 10 b/d in 3 years, and depreciate it over 30 years. The magic of creative accounting will save humanity!
There is going to be a lot of disappointed people, however, when they discover that nature isn’t fully cooperating. Maybe they can get Congress to pass a law to counter act all these pesky laws of physics.
http://www.thehillsgroup.org/
shortonoil on Thu, 14th Aug 2014 7:27 am
“IMHO there is still going to be oil shortage.”
Actually there is not going to be any shortages of oil. There just won’t be anyone in the trashed out economy with the money to buy it. The IEA calls this diminishing demand, it is not a supply constraint. There will never be a supply constraint, as long as the IEA gets to define “constraint”.
ERoEI, that’s for egg heads, and “those” Peak Oil people. Everything is fine, and the end of the oil age is centuries from now. The IEA says so, and they know it is right because Shell told them so.
http://www.thehillsgroup.org/
Davy on Thu, 14th Aug 2014 8:03 am
Short, demand destruction may precipitate a latent production destruction along with oil exporters experiencing export reductions. It depends on the unpredictable nature of the when, where, and how deep of an economic decline. It is anyone’s guess which situation precipitates the other. A financial system contraction with the corresponding evaporation of capex, rising interest rates, and liquidity deflation will shut in marginally profitable supply. We are in an unpredictable situation because the nature of descent is a randomness of system failures. This global system is far too complex for a reasonable prediction. What we can say is scientifically the range of happenings with the geology and economically with the potential financial system failures. The black swan knowns and unkowns are the political/social reactions. We have a polarizing multipolar world locked in a common global economic system. Attempts at trade wars will not succeed in comparative advantage because of the common adverse systematic results. The flap of the butterfly wings of the DC mafia and dictatorial Putt will sledge hammer China’s export markets for example. It is really a snake eating its tail situation and can only end badly. The only hope now is a real crisis of the global financial system that can be adjusted to before vital distribution and trade mechanisms are destroyed. We can’t see an abrupt change to any of these current BAU mechanisms without unintended consequences. For example a quick end to the dollar as a reserve currency. You can’t take an economy with 25% of the global economy and put it in turmoil. You can quickly rearrange a global financial system with the Euro/Dollar making up most of the reserve currency by weight in. These changes must be slow, gradual, and in cooperation. Yet, just today Putt is calling for the end of the dollar in Russia’s global trade. I think he is a dictator out of control. We know the DC/Wall Street mafia is out of control. This is an ominous time with military mobilizations coupled with a BAU ending trade war.