[EdwinSm]

$this->bbcode_second_pass_quote('', 'T')he International Energy Agency (IEA) has predicted US oil output next year will see the steepest fall since 1992 thanks to low oil prices.

US oil production has increased to a record high in recent years as high prices made investment worthwhile.

Prices halved over the past year as demand fell in line with slower economic growth.

Meanwhile, Opec producers, particularly Saudi Arabia, have maintained high levels of production.
....
The IEA said the resulting lower oil prices would boost demand to a five-year high this year, a trend that the IEA said would help Opec countries.

Opec controls more than a third of the world's oil output. It typically cuts production when prices fall to attempt to push prices higher.

Its recent strategy has been to keep the taps turned on fully in an attempt to curb US output, which is uneconomical at lower prices.

The IEA said: "Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day, the biggest decline in 24 years."

Non-Opec supply contracted by one million barrels a day in 1992 from the previous year after the Soviet Union broke apart.

The IEA expects US oil production to drop by 0.4 million barrels a day in 2016. It grew by 1.7 million barrels a day in 2014.

[dolanbaker]

Possibly one of the worst kept secrets in the oil industry as the price of oil is still falling! (as of the time of this post)

It was only a matter of time before the affects of reduced drilling & fracking started to show in the output figures.
Looks like the ME countries are winning the battle for market share and the US will be importing more instead of producing it themselves.
The high costs of fracking is too high to sustain the tight oil production system at these prices.

Is it THE peak, well time will tell. The EIA have revised downwards their projections several times this year, just like they have been revising it downwards almost every year since about 2001.

[ROCKMAN]

I wouldn't characterize the KSA losing hundreds of $BILLIONS in revenue as winning anything. LOL. I also would characterize selling their finite oil resources at half the price they were a year ago as winning either.

[Cog]

I'm not believing that the KSA are stupid when it comes to oil. They must have some long game in mind.

[hvacman]

Everyone is over-thinking this. Come on, hasn't anyone been paying attention to the lessons that the real oil patch players on this forum continuously give us? Here is what I've learned. I do ask that if my lesson has not been properly learned, please, will one of the experienced OP members provide me, and us all, some remedial instruction?

Yes, KSA is not dumb, just as the US shale players, plus the international Big Oil corps, are not stupid and have (or had) a long-term game in mind. I bet even the RM had a long-term game plan in-mind. But the PO Dynamic RM keeps citing has the unfortunate effect of creating unpredictable changes to the rules of the "game". Everyone is scrambling and retreating to short-term objectives - Job 1 - and some of the players have concluded they must pump MORE in a weak market to meet those objectives.

Small shale players produce MORE to maintain cash flow sufficiently to not go bankrupt. Cash flow is always Job 1 when running a business - before profits, before ROI, before dividends...

Big Oil - Produce LESS to hang onto capex for "better times" and to use what cash flow they have to maintain dividend payouts so they don't get a massive sell-off from their many institutional stockholders. Stock value and dividends to major stockholders is Job 1 for the Big Oil players. So they back off development and produce LESS.

KSA - the sheiks don't want to put their personal $Billions into subsidizing the various social expenses the country, so they tell Aramco to produce MORE to maintain the gov. cash flow as best as possible and keep the citizens happy enough that they don't entertain the heretical idea of rebelling. Hanging onto your personal wealth and your personal head is Job 1 to middle eastern political leaders.

The net effect is that the world market is flooded with oil by sellers at the same time that buyers aren't so anxious to buy - therefore prices plummet. It will take a combination of a rising world economy (not likely), bankruptcies by the shale players (likely), and perhaps even more turmoil in the ME (also likely) to get the supply/demand structure at a point that the price goes up again. hmmm...

[dolanbaker]

I think that they are hoping that the US frackers will shut up shop and the US will end up importing more oil for much longer and for much higher prices in the future, paid for in USD.

Suffering half rations this year while looking forward to the feast in the future.

[loveoregon]

Seems to me that one aspect I haven't seen discussed is that KSA is pumping all out to get price down, both to force out US drillers but also, and perhaps primarily, to get the price as low as possible so as to deny Iran the windfall it’s hoping for when they get to sell all their oil…particularly since when Iran dumps all its pent-up supply it’ll further depress the market. (loveoregon, back from hiatus since TOD went dark)

[ROCKMAN]

hvman - Nailed it well IMHO. But perhaps you and others misunderstand the long term plans of oil patch management. FYI: there were never long term goals by the vast majority. Think about: senior management has been thru the cycles many times. To be blunt: how the f*ck could anyone think this latest bust was a surprise to those who have lived and breathed the POD for many decades? Every oil patch manager (including the Rockman) I know has been positioning themselves for the collapse for years. The only uncertainty was exactly when the very predictable oil patch recession would hit.

As always it ain't personal...just business. LOL.

[kublikhan]

I think hvac and Rockman are right, short-sighted thinking on the oil producers part. If OPEC had done a similar production cut as they did in 2009(~2 million barrels per day, ~6% of OPEC's production), oil prices would not have fallen by half. A small revenue shortfall sure beats revenues getting chopped in half. With demand rising almost that much they could just increase production in a few years after consumption rises catch up with supply.

Although I disagree with the speculation that a rise in oil consumption is unlikely. Oil consumption demand growth in 2015 is double what it was last year:

$this->bbcode_second_pass_quote('', '[')b]Demand Revival
Global demand in 2015 will grow at more than twice the pace last year as low prices spur consumption in the U.S. and economies recover, the agency said. World oil use will expand by 1.6 million barrels a day this year to average 94.2 million barrels a day. The IEA raised its estimate for oil consumption in 2016, projecting growth of 1.4 million barrels a day to total 95.6 million a day. That’s an increase of 400,000 a day from last month’s report. “The IEA is turning more positive as they finally realize that demand will stay strong. We still need to work off the large excess in production, and that takes time, but the market is projected to be balanced in the second half of next year.”

[vtsnowedin]

$this->bbcode_second_pass_quote('loveoregon', 'S')eems to me that one aspect I haven't seen discussed is that KSA is pumping all out to get price down, both to force out US drillers but also, and perhaps primarily, to get the price as low as possible so as to deny Iran the windfall it’s hoping for when they get to sell all their oil…particularly since when Iran dumps all its pent-up supply it’ll further depress the market. (loveoregon, back from hiatus since TOD went dark)

[dolanbaker]

$this->bbcode_second_pass_quote('vtsnowedin', '')$this->bbcode_second_pass_quote('loveoregon', 'S')eems to me that one aspect I haven't seen discussed is that KSA is pumping all out to get price down, both to force out US drillers but also, and perhaps primarily, to get the price as low as possible so as to deny Iran the windfall it’s hoping for when they get to sell all their oil…particularly since when Iran dumps all its pent-up supply it’ll further depress the market. (loveoregon, back from hiatus since TOD went dark)

[vtsnowedin]

Current output is some 91 million barrels per day. Dose anyone here think we will ever see 100 mbpd? Where would the extra 9 come from let alone what will make up declines in old fields?

[ennui2]

No. But not so much due to geology but because of a lack of demand. The world may seem like it has an unlimited thirst for oil, but demand too has a limit and producers have a limit to how much they'll oversupply the world before they are losing too much money to continue.

[loveoregon]

I brought up Iran because it IS a central issue on KSA leaders' radar (witness Yemen, proxy fighting in Syria and elsewhere in the region). Anything they can do to weaken or block Iran. I suspect KSA has known that a deal on Iran's nuclear development has been in the works for over two years, since March 13 when secret US-Iran negotiations resumed. Oil prices began dropping in 2014, in large part because of KSA all-out production. So, yes, dropping price now hurts Iran's oil profits now as well as in the future, since KSA seems to have reasoned that "low oil prices offered more of a long-term benefit than giving up market share" (http://www.investopedia.com/ask/answers ... h-2014.asp).

[vtsnowedin]

$this->bbcode_second_pass_quote('ennui2', 'N')o. But not so much due to geology but because of a lack of demand. The world may seem like it has an unlimited thirst for oil, but demand too has a limit and producers have a limit to how much they'll oversupply the world before they are losing too much money to continue.

[dolanbaker]

$this->bbcode_second_pass_quote('vtsnowedin', '')$this->bbcode_second_pass_quote('ennui2', 'N')o. But not so much due to geology but because of a lack of demand. The world may seem like it has an unlimited thirst for oil, but demand too has a limit and producers have a limit to how much they'll oversupply the world before they are losing too much money to continue.

[kublikhan]

$this->bbcode_second_pass_quote('vtsnowedin', 'C')urrent output is some 91 million barrels per day. Dose anyone here think we will ever see 100 mbpd? Where would the extra 9 come from let alone what will make up declines in old fields?

[Tanada]

$this->bbcode_second_pass_quote('loveoregon', 'I') brought up Iran because it IS a central issue on KSA leaders' radar (witness Yemen, proxy fighting in Syria and elsewhere in the region). Anything they can do to weaken or block Iran. I suspect KSA has known that a deal on Iran's nuclear development has been in the works for over two years, since March 13 when secret US-Iran negotiations resumed. Oil prices began dropping in 2014, in large part because of KSA all-out production. So, yes, dropping price now hurts Iran's oil profits now as well as in the future, since KSA seems to have reasoned that "low oil prices offered more of a long-term benefit than giving up market share" (http://www.investopedia.com/ask/answers ... h-2014.asp).

[ennui2]

$this->bbcode_second_pass_quote('vtsnowedin', 'W')hy do you think there will be a lack of demand? With the world urban population growing 1.8% a year isn't the future demand curve going to trend up unless prices become much higher long term.