Oil prices rise as demand surges

56 Comments on "Oil prices rise as demand surges"

Davy on Tue, 26th May 2015 7:01 am 



You get a little spike and it is all good again. These business reports cannot be trusted. They are selling a message and this makes them bias with an agenda. If there is some demand increase it is not enough per the demands of the world economy for the necessary growth. The global economy is a mess. If this were not so the central banks would not be playing the QE game and rates would normalize.

The real picture is an oil complex in disequilibrium with healthy supply and demand ranges. Instead of health we are seeing demand and supply destruction. The demand destruction is only at this point a bumpy plateau of growth. A bumpy plateau of growth is not enough for a global system that must have robust growth especially in Chindia.

Supply sources are being damaged and will likely never come back online. Oil production cannot just ramp up as demand can ramp up. Supply takes time to bring on line. What we are seeing now is high cost sources not being invested in at the same time depletion is taking its relentless toll.

We have a global economy that sooner or later will go into a business cycle drop. In a normal pre 2008 economy this would be adjusted to by central bank, government, and business actions. Today all three are in disequilibrium. Central banks are stuck with repressed rates and huge amounts of debt. Governments are broke everywhere with the threat of insolvency if rates go up. Businesses are in equity market bubble with the threat of revenue and investment drops from that bubble popping. So this business insider is market making in an environment of goal seek. IOW they are working the Ponzi scheme.

rockman on Tue, 26th May 2015 7:28 am 



“What we are seeing now is high cost sources not being invested in at the same time depletion is taking its relentless toll.” And add that to what will be the net production effect of the drop in US shale rig count later this summer. There will probably be $billions made/lost in the oil futures market by the end of the year. Too many major dynamics at play to make a very confident call IMHO.

shortonoil on Tue, 26th May 2015 8:06 am 



We are getting a barrage of nonsense out of the Media. First they report that because of a surge in world production a glut was created that drove down prices. Between 2012 and 2013 world production increased by less than a tenth of what it has been increasing on average over the last 50 years; 0.23% vs 2.51%. Hardly exploding production.

Now they want us to believe that exploding demand (exploding production has taken a back seat) is going to drive prices higher. Oil is around $60 this morning, the same it has been for the last two months. Petroleum prices are now range bound because the value of oil to the non petroleum producing sector of the economy is declining. That comes from a rather straight forward calculation. Of course the Media is not going to use that, it is not as entertaining as what the Saudi oil Minister had for breakfast.

The long term price of oil is downward, and that is not good news for the oil industry. But, to the Media the show must go on. Next week it will be some obscure fact about Russian exports, or Bangladeshi diesel imports. Since they are not very good at dazzling with brilliance, they’ll keep trying to baffle with truckloads of BS.

http://www.thehillsgroup.org/

Davy on Tue, 26th May 2015 8:18 am 



Short, the “Baffle with truckloads of BS” is at every level globally. When you have a system and people that are normalized to growth any growth disruption must be spinned. Expect this spin to get worse especially when a crisis develops. As the ship is sinking the spin will hit a crescendo.

GregT on Tue, 26th May 2015 8:37 am 



Big Oil, their lap dogs the politicians and the eCONomists vs the environmentalists, the scientific community, and all life on Earth.

Greed is winning. When the dust settles, everyone will lose. We can have a healthy natural environment without economies, we cannot have economies without a healthy natural environment. Without a healthy natural environment, life itself will become unbearable.

Northwest Resident on Tue, 26th May 2015 9:16 am 



Dude, Oil Markets Can’t Ignore The Fundamentals Forever

“Present data, however, suggests that the global over-supply has gotten worse, not better, that overall demand for liquids remains weak, and the world economic outlook is discouraging.”

No shit.

http://oilprice.com/Energy/Oil-Prices/Oil-Markets-Cant-Ignore-The-Fundamentals-Forever.html

rockman on Tue, 26th May 2015 10:13 am 



NR – Here’s the problem I see with the “weak demand” comments: the word is consuming more oil today then ever before in history with even more growth projected:

“EIA estimates that global consumption of petroleum and other liquids grew by 0.9 million b/d in 2014, averaging 92.0 million b/d for the year. EIA expects global consumption will grow by 1.2 million b/d in 2015 and by 1.3 million b/d in 2016. Forecast global consumption growth was revised upward from last month’s STEO by an average of 0.2 million b/d in both 2015 and 2016, as lower oil prices stimulate demand growth more than previously expected. Projected global oil-consumption-weighted real gross domestic product (GDP), which increased by an estimated 2.7% in 2014, is projected to grow by 2.5% in 2015 and by 3.0% in 2016.”

Here’s perhaps a better way to make the point: there is obviously a huge demand for oil today AT THE CURRENT PRICE…the oil is being bought and consumed. And that demand is increasing. OTOH there was a declining demand at the end of 2014 for $90+/bbl oil.

So back to the basic stat: the world is buying more oil today since the beginning of the oil age. So how exactly does that denote a “weak demand”?

Northwest Resident on Tue, 26th May 2015 10:23 am 



rockman — I wonder if I can get Arthur Berman to answer that question? Because I certainly can’t!

I wonder if it is a case of having to buy MORE oil just to get the same amount of energy as was previously provided by a lesser number of barrels?

In any case, the whole “demand” thing is a tough nut to crack. We have record production — in terms of barrel count, that is — AND we have a glut. But the “record production” isn’t all that much higher than the trending average, is it? So, if demand is off the charts, as EIA would like to have us believe, then why do we have a GLUT?

I personally doubt EIA stats. Sometimes they seem to give the whole truth and nothing but the truth, and other times they are clearly in la-la land.

But your points are well taken. Damn, I’m so confused…

Plantagenet on Tue, 26th May 2015 11:10 am 



Just as some people could never understand that oil prices fell in early 2015 because the world was in an oil glut, now some people can’t understand that oil prices are trending back up because oil demand continues to grow.

This isn’t rocket science, folks. Get with the program.

shortonoil on Tue, 26th May 2015 11:15 am 



“rockman — I wonder if I can get Arthur Berman to answer that question? Because I certainly can’t!”</i?

On a per barrel bases it appears things are pretty level at present. Production is growing, but it is miniscule; 0.23% per year compared with the long term average of 2.51%. So demand must be increasing an equal amount, as inventories appear to have almost stabilized. Neither one, supply or demand are growing by leaps and bounds. On a volumetric bases things appear to have stabilized.

Under the lid of that barrel is another story. Prices are down 40% from their high, and it doesn't look like they are likely to move higher in the near future. The demand that is present must be coming from the production side as the energy to produce petroleum is growing by about 2.5% per year. That is almost 10 times the production increase rate. More, and more producers must be falling below their full life cycle production cost. It looks like we are merely in the calm before the storm.

http://www.thehillsgroup.org/

tita on Tue, 26th May 2015 11:18 am 



I’m also confused. But if you take the data from EIA, the supply is at 94 mb/d, and growing. This is higher than the projected consumption growth for 2015. They plan that supply and demand will meet at Q1 2016.
What “global weak demand” means for Art Berman is probably related to the weakness against supply and the “only” 7% growth of China for 2015. The happy hour of crude didn’t create any strong demand yet.
http://www.eia.gov/forecasts/steo/report/global_oil.cfm

Northwest Resident on Tue, 26th May 2015 11:28 am 



Plantagent, you’re the dumbest piece of shit and the most consistently wrong moron on this forum. The amount of disrespect you incite, the pure idiocy of your posts combined with the obnoxious and deplorable personal style you utilize marks you as the “most hated” troll on peakoil dot com. You have nothing of value to contribute. You’re posts are a waste of digital space.

World Oil Demand: And Then There Was None

http://www.brookings.edu/blogs/planetpolicy/posts/2014/10/17-world-oil-demand-ebinger

What you need to know about falling oil prices

http://fortune.com/2014/12/02/oil-prices-us-energy/

Plant, the internet is packed full of thousands of articles that explain WHY demand is falling.

But here you are, posing as the pompous know-it-all who is cock sure that oil demand is up, and that it is all just so simple for everybody to understand. Which leads to the conclusion that what seems “simple” to you is only so because you in fact are a simpleton. NOBODY knows everything — you pretending to know is just more evidence of what a dunce you are. And a really gross one too.

Let’s hear your clever comeback. God, you reek of trollish foulness.

Northwest Resident on Tue, 26th May 2015 11:43 am 



Plant, the annoying running skeleton, an outstanding symbol of what Plant is — all bone, no meat, running in place going nowhere but annoying everybody.

Hey Plant, shortonoil just explained that magnificent “demand increase”.

“demand that is present must be coming from the production side”

The oil producers are using more and more of their own product to get more oil out of the ground. Some “demand increase”. And you think that’s a good thing???

BC on Tue, 26th May 2015 11:52 am 



@Short: “The demand that is present must be coming from the production side as the energy to produce petroleum is growing by about 2.5% per year. That is almost 10 times the production increase rate. More, and more producers must be falling below their full life cycle production cost. It looks like we are merely in the calm before the storm.”

Yes, I suspect you’re right that the demand for supply at the increasing energy cost of energy extraction is driving marginal demand, not to mention the rising military demand for an increasing number of military actions in the world.

But look at the lack of growth of trade, the sucking sound of US and Japanese FDI leaving China, and the aggregate of 70-75% of the world’s real GDP per capita below historical stall speed prior to the onset of recession, and there is no basis for concluding that demand for petroleum is increasing or will do so in the foreseeable future.

Once the shale bubble fully deflates and production rolls over and declines, oil demand will decline significantly in the US for the shale and energy-related transport sectors.

Perk Earl on Tue, 26th May 2015 1:26 pm 



“But look at the lack of growth of trade, the sucking sound of US and Japanese FDI leaving China, and the aggregate of 70-75% of the world’s real GDP per capita below historical stall speed prior to the onset of recession, and there is no basis for concluding that demand for petroleum is increasing or will do so in the foreseeable future.”

It seems likely the R word, recession will ensue at some point and when it does how much farther down will oil price descend? But apparently in spite of that fact the Fed will supposedly be ready to begin raising rates later this year, putting even more pressure on drillers. The squeeze is on folks.

rockman on Tue, 26th May 2015 1:30 pm 



“The demand that is present must be coming from the production side as the energy to produce petroleum is growing”. A problem: the amount of energy needed to drill any well and create new oil production hasn’t changed by any meaningful extent in the last 6 to 12 months. What has changed significantly over that period is the price of oil. And, son of a gun, consumption has increased and is expected to continue increasing as long as prices stay low.

Damn, this is so complex and confusing I just can’t figure it out. LOL.

And: Once…production…declines, oil demand will decline significantly in the US for the shale and energy-related transport sectors.” Is that what you really meant to say? The less oil we produce the less oil folks will want to use? Maybe you meant eventually when production falls off the price of oil with increase bringing about demand destruction.

Or maybe you mean lower production will lead to less drilling which will lead to less energy used by the oil patch. The decrease in drilling activity has not decreased our energy footprint by a meaningful amount. But increased refinery activity has increased demand by that segment. And, of course, with gasoline prices dropping about 30% in just the last 12 months it would seem reasonable to expect increased consumption/demand, wouldn’t it?

Northwest Resident on Tue, 26th May 2015 2:20 pm 



My oil/gas consumption sure hasn’t increased as a result of lower prices. I read in numerous places that the big shopping spree that the FED expected out of the American people with the dramatic drop in gas prices never happened — people saved their money or paid down debt. I think it is relatively few people who are thinking they’ll go burn a bunch more gas because prices are lower.

What about businesses? Are they taking the lower gas/fuel costs and using the savings to boost production? No. To build out factory capacity? No. To fire up new projects that will earn them mega-profits in the future? No. All the big companies are dumping everything but the kitchen sink in stock buybacks, the metaphorical equivalent of circling the wagons and digging in for a fight to the death.

Economies are tanking all around the world. That equates directly to less demand for oil and oil products.

So, if demand is up a tiny little bit, is it because of dramatically lower fuel costs? Maybe, even probably, a little. But there probably — and ARE — other equally rational explanations as well.

“One hears many things, my Lord. But the truth of the matter is not clear.”

— One of Voldemort’s henchmen

dubya on Tue, 26th May 2015 2:26 pm 



OK, Rocky, the cost of drilling a well is still insignificant – if you hit oil. But there seem to be so many other ancillary costs associated with modern oil production – building offshore platforms, helicoptering crews out to them, frack trucks, pumps; oil trains rather than pipelines.

So for anyone –

What’s all that overhead worth? What are the ‘deductions’ necessary to make the profits; and how have they changed in the past 50 years.

Let’s assume that at some point people are ‘happy’ spending $100 on a barrel of crude. But the industry is using (say) 40% of that just operating. Would the rest of us only be willing to pay $60 per barrel? This does not make sense, as each individual barrel/liter has as much energy as it did in 1915.

However as a society “we” say it is only worth $60 as the producers are skimming off 40% of the usefulness.

Or is the calculation that we are producing 100 mbpd but the producers are using 40% so we only get 60 million barrels equivalent, thus the price should be about $140?

Does anybody else have trouble making sense of this? And can anyone make a better guess than 40% (which sounds improbably high).

Northwest Resident on Tue, 26th May 2015 2:49 pm 



The true cause of “increased demand”?

If you wonder why the price of oil has been going UP, while all producers keep pumping more (with the number of rigs at the record lows and the inventories “magically” dropping), here’s the answer — Strategic Petroleum Reserve.

The total number is supposed to be 691 Million Barrels. However, DOE’s own website shows that as of May 15 it was 1,400 Mbbls, and the projected number for June 15 is 1,797.5 Mbbls.

What a great way to perpetuate the “recovery” myth by quietly doubling the SPR and blaming the falling inventories on the “increased demand”.

Now, where are my tin foil hat, tin foil gloves and tin foil glasses? 🙂

Looney

http://www.spr.doe.gov/dir/dir.html‘

From a post on this article (which I highly recommend):

http://www.zerohedge.com/news/2015-05-26/were-living-make-believe-world-biderman-warns-global-recession-inevitable

nony on Tue, 26th May 2015 2:59 pm 



Basic supply and demand.

nony on Tue, 26th May 2015 3:02 pm 



At lower price, consumers buy more and producers produce less. And the converse. And price will settle out to where the supply curve and demand curve cross. Nothing new.

Apneaman on Tue, 26th May 2015 3:08 pm 



We will all become externalities in the end. Even the industry itself is becoming a victim. In addition to the human toll there will be damages to infrastructure of all sorts. We will just stop repairing and rebuilding more and more.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Floods Bring Death and Destruction to Texas and Oklahoma

http://www.nytimes.com/2015/05/27/us/texas-rains-bring-flooding-to-houston-area.html?hp&action=click&pgtype=Homepage&module=photo-spot-region&region=top-news&WT.nav=top-news&_r=2

Northwest Resident on Tue, 26th May 2015 3:25 pm 



Nony — At least you’re consistent.

Apneaman on Tue, 26th May 2015 3:28 pm 



Nothing New Nony – One of humanity’s biggest blind spots.

Normalcy Bias

The normalcy bias, or normality bias, is a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster and its possible effects. This may result in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations.

The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It can result in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.

rockman on Tue, 26th May 2015 3:37 pm 



NR – Check your sources again: the US SPR can’t physically hold more than around 750 million bbls.

Northwest Resident on Tue, 26th May 2015 3:44 pm 



rockman — The spr.doe.gov website (linked above) shows “SPR OIL MOVEMENTS in Millions of Barrels” of 1400 for May 15, 1797.5 for June 15.

The “CURRENT SPR INVENTORY AS OF May 22,2015” is 691.8, with 262.8 sweet and 429 sour.

BTW, I was just copying a post by somebody else and asking the question, IS this the reason? Not saying it is.

You know a lot more than I do about this. What does 1400 SPR OIL MOVEMENTS in Millions of Barrels mean?

rockman on Tue, 26th May 2015 3:52 pm 



dubya – You can’t characterize oil company profits as $X per bbl. I’ve never seen economic analysis based upon that concept. We invest $A to generate, lease, drill, complete and produce a project. Those expendatures are time sensitive as is the revenue generated from a successful well. The time element is dealt with using a discount factor…usually 10% to 15%. With all that imput a rate of return is calculated. Historically the oil patch has averaged between 8% to 12%.

Of course some do better and some do worse. And that ROR varies over time with changes in oil prices. Obviously the ROR of wells that went on production 12 months ago has significantly decreased.

Northwest Resident on Tue, 26th May 2015 4:11 pm 



In answer to my own question to rockman above:

It appears that “SPR OIL MOVEMENTS” is the amount of oil that the SPR is moving around from place to place at any given time, by rail, by tanker or other means.

If true, that means that the SPR is buying and in control of a significantly greater amount of oil than what they are actually storing in the SPR.

Somebody who actually knows something about this, please correct me if I am wrong.

If true, then the original POV expressed by poster named “Looney” on zerohedge article posted above is making a good and valid point — that “demand increase” is due in part to SPR purchasing (creating demand) for oil — regardless of whether there is enough space to store that oil in the SPR or not. They got it and they’re moving it — therefore, they must have bought it.

Or not?

Perk Earl on Tue, 26th May 2015 4:45 pm 



“The total number is supposed to be 691 Million Barrels. However, DOE’s own website shows that as of May 15 it was 1,400 Mbbls, and the projected number for June 15 is 1,797.5 Mbbls.

What a great way to perpetuate the “recovery” myth by quietly doubling the SPR and blaming the falling inventories on the “increased demand”.”

Good one, NR! More slight of hand, back door strategies to sucker the people and investors into thinking all is well.

Northwest Resident on Tue, 26th May 2015 5:10 pm 



Perk — So true. But rockman made an excellent point, which is, SPR actually only holds about 750 million barrels, and it is currently sitting at about 692 barrels full. SO, with SPR “MOVING” 1400 million barrels as of May 15, and predicted to MOVE another 1797 million barrels in June, the BIG QUESTION is:

Why are they buying so much oil if the SPR is already at or near capacity?

Where the hell are they moving it to, if NOT to the SPR which can’t possibly hold that much oil?

So many questions. So few answers.

Perk Earl on Tue, 26th May 2015 6:25 pm 



Yeah, lots of questions. I just wouldn’t be surprised if it was yet another effort to convince people all is well, when in fact it is not.

Meanwhile ck. out the graphs in the link below. World trade has recently taken a sharp downward dive.

http://www.zerohedge.com/news/2015-05-25/global-trade-dives-most-financial-crisis

Global Trade Dives Most since the Financial Crisis

dubya on Tue, 26th May 2015 6:33 pm 



Rockman, I was thinking of oil consumption, not dollar profit.

What I’m picturing is a guy using a springboard in oil springs ontario for the first well in 1861 vs an offshore rig with all it’s fuel consumption drilling 10,000 ft of rock.

If both produced the same amount of oil the modern well would consume more thus produce less oil.

Perk Earl on Tue, 26th May 2015 6:35 pm 



http://www.cnbc.com/id/102706478

NR, after checking out the graphs, here’s a link to what the stock market did today. Dow down 242!

Doesn’t mean the stock market won’t rally tomorrow like it seems to keep covering periodic losses (by way of corporation buybacks), but still there finally seems to be some concern for where things are headed.

GregT on Tue, 26th May 2015 6:57 pm 



Every time there is talk about raising interest rates, (which seems to be happening quite frequently lately) the markets take a hit.

Somebody is making a shitload of money.

GregT on Tue, 26th May 2015 7:00 pm 



Anybody who still doesn’t believe that the markets are being manipulated, needs to give their head a shake.

http://www.cbc.ca/news/business/6-big-u-s-u-k-banks-to-pay-5-6b-in-fines-in-foreign-currency-probe-1.3080428

Northwest Resident on Tue, 26th May 2015 9:01 pm 



Every dip into the red for the stock market makes we wonder if this is the beginning of the big dump. It is amusing to think of the Plunge Protection Team guys and gals frantically scurrying around, trying to push all the right buttons and follow what must be very complicated instructions. How much longer can they stretch it out? When do the fireworks begin? It’s gonna be brutal! Pass the popcorn…

Northwest Resident on Tue, 26th May 2015 9:06 pm 



Perk — I read that world trade plunge article on Wolf Street last night I think. Ominous. Hard to hide. And what about the double adjustment to GDP? How many moves do these guys have left before they just step back and let reality kick in?

GregT on Tue, 26th May 2015 9:10 pm 



There’s still plenty more sheep to fleece NWR. They’re not quite done yet.

Davy on Wed, 27th May 2015 6:40 am 



This will end when the 1%er’s and 1% of the 1%’ers panic. They control this new normal of wealth transfer and repressed global markets. They have the power to steer the course for a while longer. It has mystified me for a long time now but lately with all I reading and watch I can see the patterns. Even if we have a down turn the powers to be can still keep this going. It is only when the social fabric frays enough that states fail and vital networks go dysfunctional will this end.

Tell me why would the rich and powers to be end it? There is no reason for them to give up their wealth. They will talk and goal seek their projections for a return to growth to placate the global sheeples until it just doesn’t work. What people must realize is this will work until it don’t. It will just stop like a car you are driving when you are unaware of a problem. It is different when you know you are driving on borrowed time with a bad transmission. It is another story when the car is sick but you have no idea why it is sick.

rockman on Wed, 27th May 2015 6:41 am 



NR – “If true, that means that the SPR is buying and in control of a significantly greater amount of oil than what they are actually storing in the SPR.” Those comments you’re reading make no sense. The movement in and out of the SPR is not only of public record but also controlled by Congressional law. When the SPR releases or buys oil it’s in the public record.

Now if someone wants to float a grand conspiracy theory that the govt has hundreds of millions of bbls of oil hidden in stealth storage then they can have at it. But without hard proof to back up it up then it’s just one more piece of delusional fantasy IMHO. LOL.

rockman on Wed, 27th May 2015 7:03 am 



dubya – Sorry…misunderstood. Yep…obviously modern deep/offshore wells use more Btu’s to drill. But as I’ve pointed out before most folks greatly over estimate exactly how much diesel is used to drill a well. A big frac’d Eagle Ford well needs to produce just 20,000 bbls or so of oil to replace the diesel used to drill it…and then you still have all the other products cracked from that oil in addition to the diesel yield. Of course that big floating Deep Water rig uses a lot more diesel but OTOH those wells individually produce millions of bbls each so they more readily replace the consumed fuel.

And I’m not ignoring the embedded energy in the infrastructure. But remember that’s “sunk energy”: it has already been burned. So it’s already gone whether that infrastructure is used to drill 300 wells, 30 wells or no wells. Yes…no wells. Back in the 80’s bust I watched three huge onshore rigs that were completed just as the drilling slump hit. They never left the yard…never drilled a single well. In a few years the motors etc. were stripped away and the steel sent to the scape yard. OTOH there are rigs drilling the Eagle Ford today that were built more than 30 years ago. Even taking into account maintenance and repairs over that time span the prorated infrastructure energy has to be spread across hundreds of wells. IOW very little per well.

This goes back to the point I’ve made several times: the cost of fuel to drill a well is rarely more than 10% of the total cost of a well. Which is why EROEI never has been nor ever will be a direct determining factor of any well being drilled or not. IOW once the EROEI gets somewhere below 6 or so the poor economics of a well will kill it…not EROEI.

I won’t bother digging up the numbers but I might bet you lunch that last year all the fast food restaurants in the US consumed much more energy than all the wells drilled in the US. So maybe place the cause on increased consumption on selling so many Happy Meals. LOL

rockman on Wed, 27th May 2015 7:37 am 



NR – Here’s some more meat to chew on:

“The Department of Energy is planning to buy up to 5 million barrels of oil to replenish the Strategic Petroleum Reserve after a test sale last year. The planned purchase of sweet crude between June 1 and July 31 is required by federal laws forcing the Department of Energy to buy back petroleum products within one year, using the proceeds from a test sale. In this case, the recent collapse in crude prices means the government is set to make money on the two transactions — effectively buying low now after selling high last year.

During the March 2014 test sale, the government sold 5 million barrels of oil to five companies — with the crude delivered in 41 separate batches, via boats and pipeline, to refiners in Texas and Louisiana. The average purchase price was $93.75 per barrel. On Friday, West Texas Intermediate crude was selling for $47.05 per barrel. Some of the proceeds from the 2014 sale have already been used to establish a gasoline reserve in the Northeast, said a Department of Energy spokesperson. “With the remaining funds left in the account, the Department of Energy is initiating a buyback process to purchase additional crude oil for SPR sites along the Gulf Coast,” the spokesperson said.

Policymakers in the Energy Department and on Capitol Hill have been weighing changes to the emergency stockpile and questioning whether the government should sell off some of the stored crude amid a steep decline in net oil imports into the United States. The United States is obligated to maintain a reserve of crude oil or production products equivalent to at least 90 days worth of net imports, as part of the country’s membership in the International Energy Agency. The United States is well above that threshold now. Energy Secretary Ernest Moniz has suggested that the current approach to the strategic petroleum reserve — established in 1975 in the wake of the OPEC oil embargo — doesn’t mesh with today’s booming domestic production, and the surge in light, sweet crude being pulled out of wells in North Dakota, West Texas and other parts of the country.

Moniz has called for a “modernization” of the emergency oil stockpile but hasn’t provided specifics. More detailed recommendations are expected when the Obama administration releases the first phase of its quadrennial energy review later this smooth. That broad multi-year analysis will focus first on energy infrastructure and is meant to provide a roadmap for federal energy policy, executive actions and government-sponsored research programs.”

shortonoil on Wed, 27th May 2015 7:46 am 



“and there is no basis for concluding that demand for petroleum is increasing or will do so in the foreseeable future.”

BC … I didn’t say that demand is going to increase in the future. Quit to the contrary, it is likely to go into steep decline sometime in 2016. Probably starting for much of the reason that you stated. The Etp Model indicates that it should have already started down, but it hasn’t as yet. There are other factors involved that have convoluted the short term picture. In the shale industry there is still a lot of money flowing into it from unidentified sources. There are a number of possible backers for the industry that could have a vested interest in it other than its profitability. The refining industry comes to mind as a $40/barrel differential saves the industry $270 billion per year in raw material cost. Keeping shale alive keeps prices down, at least for now.

“A problem: the amount of energy needed to drill any well and create new oil production hasn’t changed by any meaningful extent in the last 6 to 12 months.”

It only takes a very small change in the energy used to extract petroleum to have a significant effect on the total energy required for the entire process:

http://www.thehillsgroup.org/depletion2_019.htm

Capital flows kept the price elevated for a considerable period of time after when it should have begun its decline:

http://www.thehillsgroup.org/depletion2_022.htm

That resulted in the price crash that began in July of 2014. Monetary flows can, and do change the short time timing of the market. They can not, however, change the inevitable outcome.

shortonoil on Wed, 27th May 2015 9:15 am 



“Does anybody else have trouble making sense of this? And can anyone make a better guess than 40% (which sounds improbably high).”

It takes a huge amount of energy to produce petroleum, and its products. The extraction energy cost is a minor part of the entire process. Raw crude, left unrefined, is close to worthless. It also requires that a huge infrastructure must be maintained to facilitate its usage. Petroleum, without roads, would never leave the well head. There are literally thousands of outputs that must be supplied to employ the energy that comes from petroleum. Roads, military, harbors, judicial services, legislative services, regulatory services are but a few of the places where energy must be supplied to keep the full cycle production process working.

The Etp Model calculates the Total Energy needed to produce petroleum and its products. That includes the gas that the Rough Neck pours in his truck to get out to the drilling site every day. A strict economic analysis would be incapable of adding up all the quantities input to the process. Neither would it be able to account for the double counting that must occur with such an approach. A thermodynamic approach is the only available method to accurately encompass the entire process. It tells us that it takes a huge amount of energy to drive that process. It also tells us that when the energy needed to drive it becomes equal to the energy content of the petroleum, the process stops.

http://www.thehillsgroup.org/

Northwest Resident on Wed, 27th May 2015 9:46 am 



rockman — spr.doe.gov updated their link between yesterday and today, now showing a future move of 1000 million bbls on July 15.

http://www.spr.doe.gov/dir/dir.html

I just wish I knew what it meant. I did a google search on the phrase “SPR OIL MOVEMENTS”, and found a number of links/pdfs referring to SPR moving oil by train, by cargo ship/tanker and maybe another “movement method” or two. In other words, what it seems to indicate to me is that the SPR is in control of and moving these volumes of oil.

And IF that is true, then it just goes back to the original point that hey, maybe “demand is up” — somewhat — because the SPR is purchasing oil (and moving it somewhere) behind the scenes.

I just wish an expert would weigh in and explain it all to me. Any volunteers???

Oh, so you want to talk grand conspiracy theory? How about this? The US Gov/SPR is secretly purchasing and transporting all that additional oil NOT because they are seeking to give “oil demand” a little boost, but because they know that the moment of TSHTF is scheduled on the calendar and they want to get a good store of oil in preparation for that day.

I’m not conspiring. I’m simply asking, why is the SPR suddenly moving so many extra millions of barrels of oil around — to where — and why? It is a FACT — based on their own website page recently updated that these movements are taking place, where NONE took place in January – April this year.

What’s going on? Anybody?

Northwest Resident on Wed, 27th May 2015 11:02 am 



Davy, shortonoil — Do either of you have any idea what is going on with the SPR moving those huge volumes of oil?

Is it a no big deal, nothing to see here type of scenario?

Or is everybody just so befuddled by this situation (like me) that there just isn’t anything worthwhile to say about it?

Davy on Wed, 27th May 2015 11:24 am 



N/R, I have seen nothing on the subject lately. You would think the Feds would be buying up some of the Planter glut on the cheap to help out their shale friends. Yet, they may be following the short EPT theory that prices are heading down so they will wait until they go lower to purchase.

Northwest Resident on Wed, 27th May 2015 12:07 pm 



Davy — When the SPR only holds 750 million barrels, then I find it more than just a little curious that SPR is “moving” 4200 million barrels total of oil in May – July timeframe. Especially given that the SPR is almost full. I guess none of our resident experts know what is going on and don’t want to speculate. Can’t blame them. Any speculation would lead to some potentially uncomfortable conclusions, I suppose. Maybe I’ll go over to Peak Oil Barrel and ask the question — in fact, I think I will.

marmico on Wed, 27th May 2015 12:28 pm 



http://www.energy.gov/fe/articles/contracts-awarded-repurchase-oil-strategic-petroleum-reserve

shortonoil on Wed, 27th May 2015 12:49 pm 



NR, I heard a “rumor” some time ago that one of the four salt domes used by the SPR was leaching impurities into the oil that was in storage. Like I said, it was just chatter from engineers working in a consulting capacity for the DOE. It is possible that they are just moving it to new storage facilities. Why the secrecy? The US government has copped quit an attitude about the public. They seem to think that we work for them. Payed employees shouldn’t be privy to non essential information.