Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on March 14, 2015
Peak Oil Pulled a Fast One on Me
I’ll admit that I was completely caught off guard by the recent (and ongoing?) crash in oil prices. It’d be a stretch to say I’m embarrassed by my lack of foresight, although perhaps “dumb-ass” would be a bit deserving.
I would say I’m well enough versed with the reality of peak oil: I’ve read perhaps a couple dozen books on the topic, poured through several of the peak oil blogs (upon deciding to end my 5-year Internet hiatus a year ago), have seen several talks given by authors and writers on the topic, and I’ve attended two Age of Limits conferences.
Nevertheless, even though there were bloggers out there discussing the possible ramifications of low oil prices, its possibility still didn’t register with me. I’ll explain what I mean by that shortly, but to do that it’d be best if I first give a recap of what the mainstream media have been saying about collapsing oil prices the past couple of months.
If you’ve been following the recent oil-related news stories then you’ll be familiar with two things: first, that the price of a barrel of oil has been crashing (to nearly 50% of its value half a year ago), and second, that OPEC (Organization of the Petroleum Exporting Countries) has refused to cut back its production, the hope being that a cut in supplies would have resulted in a rise in prices.
The first sign of trouble came after OPEC’s November 27th meeting in Vienna whereupon it was announced that OPEC was going to maintain its production levels. Seeing how no explanation or elaboration was given, it was no surprise when the expected theories on the topic began appearing, and, of course, the conspiracy theories.
Some of the more mundane theories (not to say that there isn’t any truth in them) include (1) that a rising US dollar has resulted in a downward pressure on the price of oil (since oil is priced and predominantly purchased in US dollars); (2) that Libyan production has increased and so contributed to a glut in supply; (3) that demand in Europe has been declining, also leading to a glut in supply; and (4) that increased production in the United States has meant increased consumption of domestic supplies and so a decrease in need for imports, once again resulting in a glut on world oil-supply markets. To name just a few.
Jumping over into the conspiracy theory realm (again, not to say that there isn’t any truth in them), first is the notion that Saudi Arabia has colluded with the United States (something to do with the United States’ Secretary of State having made a trip to Saudi Arabia a few months back), the intent being to bring down oil prices so as to crush the Russian economy (oil and natural gas make up about three-quarters of Russia’s exports and more than half of its budget revenues).
(image: Peak Oil Barrel)
Another of the popular conspiracy theories is that rather than colluding with the United States, Saudi Arabia is actually attempting to crush the tight oil (otherwise known as shale oil or fracking) boom in the U.S., the idea here being to restore its and OPEC’s dominance in the oil markets. For what’s been going on is that since 2008 the United States has increased its production levels of oil – thanks to fracking – by some 4 million barrels a day, nearly doubling its previous extraction rate.
Secondly, since the peak in conventional oil supplies (that found under the ground and deserts and such) occurred in 2005, the only thing that’s been keeping overall extraction levels increasing (in order to maintain worldwide economic growth) are the newly tapped unconventional oils – tight oil, tar sands, and deepwater offshore oil. And since tapping these forms of oil is similar to the extra effort required when scraping the bottom of a barrel, these unconventional sources require more energy and so cost more money to extract.
The idea then is that since tight oil in the United States is rather expensive to produce, if Saudi Arabia lets the oil price drop, this could very well bankrupt shale oil producers in the U.S. With a drop in production levels, prices would level off if not rise again, and not only would OPEC reap the restored higher prices, but they wouldn’t have lost any market share.
That all being said, deciding to finally end the silence and partially put to rest lingering conspiracy theories, Saudi Arabia’s oil minister was quoted on December 18th as stating that “The share of OPEC, as well as Saudi Arabia, in the global market has not changed for several years… while the production of other non-OPEC [countries] is rising constantly.”
Similarly, the oil minister for the United Arab Emirates stated that “No one likes the price drop, but it is not right that one party should interfere to fix the matter. [The party] responsible for the price fall [by causing the current oil glut] should contribute to fix the imbalance in the market.”
In other words, while OPEC members have maintained their overall production levels of roughly 30 million barrels a day for about a couple of years now, it is the United States’ fracking industry that since 2008 has significantly increased worldwide production levels, earning itself, no less, the rather idiotic moniker of “Saudi America.”
A few days after the aforementioned statements were made, Saudi Arabia’s oil minister again pleaded for non-OPEC members to cut back on production, then adding that those countries “will realize that it is in their interests to cooperate to ensure high prices for everyone.” Furthermore, he also added that OPEC doesn’t intend to cut supply “whatever the price is.” “Whether it goes down to $20, $40, $50, $60, it is irrelevant.”
And finally, in his response to conspiracy theories bandied about regarding Saudi Arabia pulling out the oil weapon on so-and-so countries, Saudi Arabia’s oil minister stated that “Talking about such alleged conspiracies… is absolutely incorrect and indicates a misunderstanding in some minds… Our economy is based on strictly economic strategies, no more, no less.”
So. I suppose that what one could do is wonder whether these statements are simply a smoke-screen for some nefarious, underhanded deals going on. But not only do I not have the faintest clue whether that’s the case or not, and see no good reason for throwing uneducated guesses around, author Ugo Bardi put it even better when he said that “we tend to interpret the present downward cycle as the result of strategic choices or conspiracies, but this is mostly an illusion (the illusion of control).” That being said, what I do see as being important (and useful) is looking at why prices started to get so low in the first place.
First off, certain OPEC members – namely Saudi Arabia, the United Arab Emirates, and Qatar – have either built up such substantial financial reserves and/or can extract oil so cheaply that they are able to bear the brunt of low oil prices for some time. Not so much others.
While Iran needs oil in the $100+ range in order to balance its books, Venezuela is in the worst position of all. While the Latin American country is already a very polarized nation, oil accounts for 95% of its export revenue. Low oil prices could therefore easily make a grim situation worse, some people having a propensity to become hostile when their standards of living continually depreciate. Likewise, a default on Venezuela’s debt wouldn’t be out of the blue.
But perhaps more pertinent and interesting to readers of this blog is what of the non-OPEC producing countries? This, I think, would be a much better area to look at, seeing how it would shed much light on how we got into this situation in the first place.
First off, it’s worth noting that for the past three years or so, before oil’s recent crash, the price of crude has been bouncing around the $100 mark. This was a relatively expensive range, particularly in comparison to its long-standing rate of $20-$40 per barrel for more than a decade, before its gradual then meteoric rise to $147 in 2008.
Since oil is entwined with the price of pretty much everything nowadays, its changes in price can have a significant effect on economies (as we currently [mis]understand the term). With higher and higher oil prices sapping a greater percentage from expenditures – be it of “consumers” or businesses – a price point is eventually reached where goods become so expensive that those who can’t afford them anymore simply stop buying them. This is what is called “demand destruction.”
When demand dries up and fewer goods thus end up being bought and sold, a glut in oil supply results, which ends up crashing prices. This is simple supply and demand. Along with other factors, this is what happened after the $147 oil price spike in July of 2008, and resulted in oil tumbling down to $32 by December of that same year.
While the ensuing low oil prices get seen by some as a boon (via the expectation that consumers will have more money to spend), the opposite problem actually kicks in – namely, “offer destruction.” Since many businesses get forced to close down due to crashing oil demand and so in effect fewer sales, and since a number of people get their hours cut or even lose their jobs, there often-times isn’t enough money to pay for oil and other goods, regardless of how low the prices go. This is what happened in 2009, gets referred to as being the Great Recession, and can be fairly described as “the beauty of the market.”
To return to the first paragraph of this post, this is where I got thrown off. To digress:
As mentioned earlier, 2005 is seen by some as the year that conventional supplies of oil peaked. It is because of this (and a few other factors, like speculation) that oil climbed to $147. Although prices subsequently crashed due to demand destruction, they eventually made their way back up, to the point that several unconventional forms of oil (shale oil/fracking, tar sands, and deepwater offshore oil) became somewhat profitable.
The problem with peak oil is that when (if?) growth kicks in again, and since more and more energy is getting used, soon enough the increasing levels of energy-use may very well butt up against maximum extraction levels, resulting in a shortage in supply and causing the whole demand and offer destruction cycle to kick back in again.
Furthermore, and as far as one theory goes, higher highs and higher lows will occur. That is, instead of maxing out at $147 per barrel, oil will reach, say, $200 per barrel, before crashing down to $80 or so instead of $32. And so forth.
And it is because of this notion that peak oil pulled a fast one on me. Expecting the higher high having to happen, what I didn’t clue into was that oil prices at a high enough level for a prolonged period of time would be enough to have a similar effect as a quick rise to $147.
Case in point, one can look at countries that have recently slipped into recession or simply haven’t gotten out since 2009 – Greece, Spain, Italy, Brazil, and so forth. Furthermore, some of the more robust and rich countries are seeing their growth wane – Japan, China, Germany, to name just a few. For what is a slowdown in Europe leads to fewer consumer purchases from China leads to less iron ore and coal bought from Australia.
For a closer look, take a look at Italy. Oil and gas consumption peaked in 2004 and has been on a decline ever since. According to Ugo Bardi over at Resource Crisis, “Italy is in full collapse.” One not only sees that industries are closing down, but also that restaurants are popping up in the attempt to attract the wallets of globe-trotting, placeless tourists, along with all the chic restaurant-hoppers. What is being witnessed, says Bardi, is “unreal.”
Unfortunately, and much like the aforementioned countries, if one is looking for solid explanations about these economic collapses from mainstream news sources, then one is pretty much SOL. As Bardi then explains,
When the crisis is mentioned, different culprits periodically appear in the first pages of the newspapers: the Euro, the European Union, politicians, immigrants, government employees, bureaucracy, lazy workers, terrorism, femicide, Angela Merkel, Vladimir Putin, Silvio Berlusconi, and more. It is a cycle that never stops, it keeps turning, every time pointing at something – new or old – that the government will target to solve the crisis once and for all.
In turn, not only could low-priced oil ($20!?) usher in another Great Recession via a meltdown of the oil market, but the newly enshrined oil ventures are at serious risk of collapse, and whose bubble bursting could be akin to the recent housing bubble. (To be fair, I can’t imagine oil reaching that low if not staying there for very long, for the very simple reason that any number of unfortunate conflicts around the world could cause its price to increase overnight.)
(image: The Oil Drum)
In short, many of the unconventional sources of oil require $100 prices in order to remain financially viable (or at least give that impression). Since many of the fracking plays in the United States are owned by independents who don’t have the financial reserves to weather a prolonged period of prices below costs of production, things could get hairy.
Furthermore, since fracking is capital-intensive, drillers have borrowed ridiculous amounts of money in order to acquire leases, drill wells, as well as purchase and install processing equipment and infrastructure. And since fracked wells have both steep production increase levels and decrease levels, drillers have been forced to continually drill more and more wells to keep up the semblance of growth – and to keep the debt piling up. What’s resulted is a junk bond market possibly akin to what was witnessed a few years back with the housing fracas.
And not to let all the boosters off the hook, for it was once again an all-too-giddy media that kept itself busy cheering on the latest (fraudulent?) money-making scheme, pumping up all the debt with nary a peep about any possible consequences.
And so what’s going on now that prices have crashed? That would be sellers panicking to unload their energy-related junk bonds and other investments in unconventional oil and related industries, and it’s anybody’s guess as to how much of a collapse will occur in these fields – and if it’s significant enough, if they’ll even have a chance to recover.
And as mentioned earlier, a round of offer destruction is expected to kick in after a round of demand destruction. For instance, nearly 40% of the jobs created since 2009 in the United States have been in energy related fields, those being some of the higher paying jobs in the nation, a catastrophe to the U.S. economy if lost.
As John Michael Greer recently put it over at The Archdruid Report, “If I’m right, the spike in domestic US oil production due to fracking was never more than an artifact of fiscal irresponsibility in the first place, and could not have been sustained no matter what.”
What we might be about to find out is how vulnerable the United States’ shale boom is to low prices, and how profitable fracking actually is.
Regardless, what happens next is anybody’s guess, and it would be a fool’s game to try and give any predictions. Nonetheless, it’s worth quoting Terry Lynn Karl from a recent conversation with Andrew Nikiforuk. “We are in a situation where oil supply limits can cause recessions and oil supply gluts can cause stock market failures.”
The reasons to get off oil seem to be piling up.
19 Comments on "Peak Oil Pulled a Fast One on Me"
rockman on Sat, 14th Mar 2015 3:44 pm
“What we might be about to find out is how vulnerable the United States’ shale boom is to low prices, and how profitable fracking actually is.” If one understood the very basic nature of the control over drilling decisions that the oil price has they always understood the vulnerability of the US shale plays.
As the great Texas comedian Ron White once said: You can educate someone but you can’t fix stupid.
As far as the Deep Water being “expensive” it is in absolute terms. But expensive doesn’t mean uneconomical at today’s oil prices. Here’s a chart (which I can’t vouch is exactly correct) that shows DW oil still has a positive though small rate of return at $40/bbl with the shales hitting 0% ROR at $60/bbl. And the success of any decision made to drill a DW GOM exploration well won’t be determined by the price of oil today or even in three years. If a new field is discovered the ROR will be based on the price of 5 to 7 years in the future.
peakyeast on Sat, 14th Mar 2015 5:53 pm
According to several articles I have seen here on PO the results of low oil prices would materialize just about now in the form of bankruptcy.
I remember a prediction saying 100 days of low oil prices would kill the shale industry.
Are we seeing this profecy coming true?
Plantagenet on Sat, 14th Mar 2015 6:04 pm
There is a long history of boom and bust cycles in the oil biz. High prices of a commodity like oil attract more investment which results in greater production (the boom) which produces a glut which results in a collapse in the price of the commodity (the bust).
We’re in the oil glut phase now, and lots of small oil companies are going to go bust.
Then, when oil production drops and oil prices go back up, we’ll see activity pick up again in the oil patch.
BobInget on Sat, 14th Mar 2015 6:08 pm
US Oil Workers in KSA asked to take precautions. US Embassy closes early.
http://www.foxnews.com/politics/2015/03/14/us-embassy-in-saudi-arabia-halts-operations-amid-heightened-security-concerns/
(Reuters) – Western oil workers in Saudi Arabia may be the target of militant attacks, the U.S. embassy warned on Friday.
“The U.S. Embassy has information stating that, as of early March, individuals associated with a terrorist organization could be targeting Western oil workers, possibly to include those U.S. citizens working for oil companies in the Eastern Province, for an attack(s) and/or kidnapping(s),” it said.
The message did not identify the militants.
Tensions are growing in the country’s oil-rich Eastern province, one of the main centers of the Shi’ite community in majority Sunni Muslim Saudi Arabia, as neighboring Yemen, Iraqand Syria contend with violent sectarian conflict.
Some leading clerics of Saudi Arabia’s official Wahhabi school of Sunni Islam view Shi’ites as heretics.
But the kingdom has also joined a U.S.-led coalition against Sunni Islamic State militants, partly out of concern that the ultra-violent group, which is likely to include hundreds of Saudis, could gain a foothold at home.
The U.S. warning comes after gun attacks in recent months have rattled the world’s top oil-exporting nation.
In the last attack targeting Americans, a U.S. citizen was shot and wounded by unknown gunmen as he was traveling by car through al-Ahsa city in Eastern province in January. A gunman killed a U.S. citizen and wounded another in the capital, Riyadh, last October.
In November, seven Shi’ite Muslims were shot dead in al-Ahsa as they marked their holy day of Ashoura. Saudi Arabia has arrested the four main suspects and said it believes the attack was ordered by Islamic State militants from abroad.
The Eastern province has been a focus of anti-government demonstrations in support of Shi’ites, who complain of discrimination. The Saudi authorities deny any discrimination.
(Reporting By Noah Browning; Editing by Larry King)
BobInget on Sat, 14th Mar 2015 6:21 pm
Saudi Royals stepped up public beheadings. Might be insecurity talking. IMO, KSA is sending a message to would be dissidents.
Gruesome footage circulating on social media shows Saudi authorities publicly beheading a woman in the holy city of Mecca earlier this week. The execution is the tenth to be carried out in country in the last two weeks; setting 2015 up to be even more bloody than last year, when 87 people were punitively killed by the state.
Rare video of Monday’s killing shows the woman, a Burmese resident named as Lalia Bint Abdul Muttablib Basim, screaming while being dragged along the street. Four police officers then hold the woman down before a sword-wielding man slices her head off, using three blows to complete the act.
In the chilling recording, Bashim, who was found guilty in a Saudi Sharia court of sexually abusing and murdering her seven-year-old step-daughter, is heard protesting her innocence until the very end. “I did not kill. I did not kill,” she screams repeatedly.
(the fact that these ISIS like executions were
videoed, then released to media proves political intent).
Filming of executions is normally strictly prohibited by Saudi authorities raising speculation that a security official may have covertly videoed the killing.
BobInget on Sat, 14th Mar 2015 6:28 pm
Expectations of a militant attack on ‘Saudi Heartland’ (oil distribution choke points)
may be premature. Instead, tactics seems to point towards going after Western Interests and personal.
Jimmy on Sat, 14th Mar 2015 6:36 pm
That’s again Plant for pointing out the painfully obvious. You should be a professor of a CIA analyst or something.
BobInget on Sat, 14th Mar 2015 6:39 pm
Shale adds Years not Decades
Excellent presentation:
https://www.youtube.com/watch?v=5Ae1fg44l7E
rockman on Sat, 14th Mar 2015 7:11 pm
peaky – “Are we seeing this profecy coming true?”. Not a prophecy…simple economics. Every prospect has a price required to justify drilling it. There is no magic price where the shales aren’t drilled. At $X/bbl a number of wells will be drilled. A price higher than $X…more wells drilled. Less than $X…few wells. No predictive powers needed. Today we have a price much lower when Y shale wells were drilled so fewer wells then Y will be drilled.
How many fewer wells? Lots of guesses but no one can estimate the number because no one company has all the required data. But there’s no point in guessing IMHO. The EIA will tell us on a regular basis exactly how many wells were drilled.
Makati1 on Sat, 14th Mar 2015 7:45 pm
Being an American is becoming dangerous in many places in the world these days.
Oil is the life blood of Capitalism in the 21st century.
What an interesting world we live in. Always looking for that “Goldilocks” moment/point/price and failing to find it.
Apneaman on Sat, 14th Mar 2015 9:21 pm
Thanks for the link, Bob.
IMO Art Berman has as much courage as any of the petroleum geologists since he is still involved in the industry to a degree. Colin Campbell never really “came out” until after he retired and I saw him admit (in the movie) that he lied when he was getting his pay cheque from BP. David Hughes works for a think tank. So, do all or most of the working petroleum geologists know the truth of the matter, but are trapped? I understand the trap, but I would have thought more retired guys would be speaking out.
Plantagenet on Sat, 14th Mar 2015 10:17 pm
I’d take Berman’s predictions more seriously if he hadn’t been wrong over and over again over the lat 7 years with his predictions that shale oil production was about to collapse.
And somehow Berman aka Mr. Predicition—never predicted that shale oil production would rise to the point that it would create a global oil glut?
What has he ever predicted correctly?
Apneaman on Sat, 14th Mar 2015 10:49 pm
Berman does not claim to have a crystal ball. I have heard him say that many times and in the video you obviously did not watch he said he may be wrong. My point was that he is not simply going along with the hype. There is this dead guy named Nostradamus that you might want to check out Lil Planter. Apparently he is quite popular with people who believe some people have the power of prediction. Also, I don’t know if you ever noticed Lil Planter, but the name of this site is peakoil.com. Why are you even here? Why not start your own site for like minded confused ones – oilglut.tard
keith on Sat, 14th Mar 2015 11:34 pm
The US dollar has soared in value. How does this change the break even point for these Countries? They trade oil for dollars to buy food and other things through imports. I don’t think the bottom four Countries are suffering as much as we are lead to believe.
Kenjamkov on Sun, 15th Mar 2015 1:11 am
The US is fighting a currency war and oil is one of it’s big weapons.
Jim on Sun, 15th Mar 2015 7:56 am
Have been following the ‘Peak Oil’ fact for over 10 years now and have to agree with this excellent analysis of the current situation. For me, Richard Heinberg has already provided the most accurate assessment of what we’re experiencing from his book “The Party’s Over” published in 2003. More recently there is the “End of Growth” which is also plain to see in the world around us.
A global financial collapse worse than 2008 is pretty much guaranteed ahead as there’s no way out of this. Right now it’s a race to the bottom with currency wars in full flow and increasingly dangerous proxy wars risking bring nuclear armed states eyeball to eyeball for the first time. Crazy times, and all being crushed and distorted by the relentless process of depletion.
Excellent article !!
BobInget on Sun, 15th Mar 2015 12:16 pm
I would like to share this short essay;
The IEA joke of a report that caused this sell off
The IEA is supposed to be a credible international institution focused on insuring steady supply of energy for its 29 member countries. This is how the IEA define itself and its mission from its website:
The International Energy Agency (IEA) is an autonomous organisation which works to ensure reliable, affordable and clean energy for its 29 member countries and beyond.
Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets.
While this continues to be a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative statistics, analysis and recommendations.
http://www.iea.org/about us/whatwedo/
As part of the IEA mission to analyze and advice, they issue the monthly Oil Market Report (OMR). The OMR is defined by the IEA as follows:
The Oil Market Report (OMR) is a monthly IEA publication which provides a view of the state of the international oil market, and projections for oil supply and demand 12-18 months ahead.
Since its inception in 1983, the International Energy Agency’s monthly Oil Market Report (OMR) has become recognised as one of the world’s most authoritative and timely sources of data, forecasts and analysis on the global oil market – including detailed statistics and commentary on oil supply, demand, inventories, prices and refining activity, as well as oil trade for OECD and selected non-OECD countries.
The OMR is closely followed by government officials and policy makers, oil market participants, strategic planners, industry officials, academics, NGOs, multi-government organisations, the financial community and others.
https://www.iea.org/oilmarketreport/about/
Upon reading the above, you would think that the IEA is an indispensable institution, and a much needed entity in a world that is highly dependent on the steady supply of energy, you would imagine their reports would be professionally written and balanced neither complacent with its conclusions nor panic inducing, yet when you read the latest OMR commentary, you would think you are reading a Seeking Alpha article written by an oil futures trader, here are some excerpts:
First starting with the title “Head Fake” is this title suitable for an energy analysis written by an inter-governmental agency in charge of supervising the world oil supply? or more like a Yahoo Finance post by someone with the alias “startrader4527”?
The rest of the summary proceeds to make what I would qualify as a trading call, no different from any I have read from Wall Street:
The partial rebound in oil prices that occurred in late January and early February seems to have marked a pause. Prices have since become range-bound, with Brent futures trading around $60/bbl and WTI closer to $50/bbl, and at the time of writing slightly below those levels. On the face of it, the oil price appears to be stabilising. What a precarious balance it is, however. Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.
Translation: Short as much as you can, it is going down!. Then comes the analysis:
Steep drops in the US rig count have been a key driver of the price rebound. Yet US supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations.
Who’s expectations? Ever since this oil collapse has started nobody expected supply to respond before the 2H-2015. The investment banks, traders, investors and the industry as a whole have been saying that there is a lag between rig declines and a supply response. The EIA (the US version of the IEA) was expecting US shale growth to peak at 9.4m in Q2, last I checked we are still in Q1. The most bullish analysts I have read are expecting supply to flatten this month or next month, thus I am not yet clear who is being sidetracked by growing US supply until last week?
We continue with the analysis:
The unwinding of seasonal refinery maintenance may slow US crude stock builds in 2Q15 but will not stop them, and stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive.
We are back to the topping of US storage speculation, but 9 days before the IEA report the EIA (which arguably knows more about US storage) came with its report explaining that that US storage is nowhere close to be full: http://www.eia.gov/todayinenergy/detail.cfm?id=20212
After that they move to the supply risk:
At the same time, supply disruption risks are on the rise. Producer countries that depend on high oil prices and that do not enjoy large buffers will find it hard to balance their budget and fund social spending programs at current prices. That is not a recipe for social stability. The surging dollar will also make it harder for companies such as cash-strapped Petrobras to pay back dollar debt and overcome financial hurdles. Iraq and Libya continue to experience disruptions amid MENA political turmoil.
Yet strangely known of this seems to have an impact on their supply outlook for 2015. Then they move to an overview of the strong rebound in demand:
Product markets, meanwhile, have proved unexpectedly strong. Not only have product prices lagged those of crude during the selloff – as is common in a downturn — but they have raced ahead of them in the rebound, keeping refining margins remarkably firm, and supporting unexpectedly strong throughputs in once-depressed refining centres such as Europe and OECD Asia. Product demand has shown signs of life, with even European demand emerging from a secular decline to show strong growth of 3.2% in December and 0.9% in January. That demand strength has widened the deficit of OECD product inventories to their seasonal average, a trend largely obscured by surging US crude stocks.
Sounds bullish isn’t it?..not so fast, they quickly move to discredit the demand numbers in the next paragraph:
Whether such strength in product demand and refining activity can be sustained is unclear. Both have benefited from one-off factors. Frigid weather in North America has raised heating demand, drawing distillates from across the Atlantic. Refinery outages in North and South America have also helped support margins elsewhere and fueled long-haul product trade. Distillate cargoes were booked from as far off as Saudi Arabia and the UAE to make up for outages in Brazil and the US East Coast.
Demand may also have been supported by opportunistic buying and growing interest in storage plays. While that would have helped tighten product markets, such demand is less sustainable than that driven by underlying economic growth, and there are still few firm signs at this stage that lower prices are giving the economy a real boost. China, for one, remains in cooling mode.
They basically conclude that most of this demand was stock building and weather related and focusing on solely on China yet ignoring strong US job growth numbers, and most importantly ignore the strong growth numbers in Europe (where the IEA is based) where both the ECB and the EU raised their economic outlook for the year, both of the US economic and European numbers seems to support the thesis that demand is indeed at least partially driven by a stronger economy, an economy that is responding to low oil prices in part.
Finally they conclude with this amazing line:
Facing exceptional uncertainty, many market participants remain on the fence. But market forces are not sitting still.
What does the IEA do in the face of this exceptional uncertainty? It adds fuel to the fire by issuing a report full of conjuncture and drama not even worth posting on a free blog. All this would so funny, if it was not for all the supply destruction that it will be causing to global oil supply as traders capitalize on a report (that was obviously written for them) and drive oil prices ever lower, thus insuring a future spike down the line and great hardship for millions of people, people that this agency is suppose to insure adequate oil supply for.
Regards,
Nawar
BobInget on Sun, 15th Mar 2015 12:48 pm
Libya= Off line
Nigeria= Off line
Mexico= Production, plummeting.
Venezuela= Chinese loan’s servicing redefined exports, linked with lower production.
Canada= Determined to ship oil Eastern Prov.
Equador= Exporting to China
Iraq= Unable to pay oil companies due to low oil prices, high war expenses.
North Dakota, down one million barrels per month.
Iran= Busy, with Russia taking over Iraq.
Chevron CEO admits Shale production drops 70% in one year.
Exxon in liquidation mode, unable to replace
reserves.
Alaska= Poster child for Climate Changes, shows oil production lower, pipeline
in danger of closing.
Graphic shows US drilling drops;
http://www.bloomberg.com/graphics/2015-oil-rigs/
Consumption has grown every single week.
http://ir.eia.gov/wpsr/wpsrsummary.pdf
Saudi Arabia’s glut contributions slowed last week for the first time. This could signal
new lows followed by reversals of dramatic proportion.
After-all most of the really big ‘short’ money has been made. Now, it’s close.
rockman on Sun, 15th Mar 2015 3:53 pm
The only thing Art was wrong about is the timing of the oil shale collapse (correct about the Barnett and Haynesville NG collapse). And he was wrong because he didn’t accurately predict the timing of an oil price collapse. A prediction that has been incorrect by nearly everyone whose has taken the bait to try to do the impossible. Even those that have predicted correctly just got lucky IMHO.
The oil production from the shales is going down the toilet as I type. That’s should be obvious to the most stubborn amongst us whether they are willing to admit it now or not. In 6 months when the lag time catches up to the production ledger it will be undeniable. There’s no point in debating the issue today. By the end of summer there will be no debate IMHO.