Peak Oil is You
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Page added on March 23, 2015
Too Much Oil
We tend to associate oil and crisis with high prices and scarcity. Yet when prices plummet — as they have over the last few months — it creates a different kind of problem for oil producers. As this shock reverberates through the state coffers of Russia and Venezuela, and the oil fields of Texas and North Dakota, how might the Left respond?
Certain provinces of the Left are no doubt befuddled by the development, long confident that humans were exhausting the earth’s oil supply. From Michael Klare to John Bellamy Foster, many during the 2000s also assumed peak oil and scarcity underpinned American imperialist adventures in Iraq and beyond. In this view, powerful corporations and states collude to secure access to dwindling oil reserves and the attendant money and power. The insatiable drive to extract more oil, in other words, is the primary concern.
But as the radical left collective Retort observed a decade ago: “The history of twentieth-century oil is not the history of shortfall and inflation, but of the constant menace — for the industry and the oil states — of excess capacity and falling prices, of surplus and glut.” The problem right now — for oil producers and those of us concerned with climate change — is that there is too much oil.
What of peak oil? The Energy Information Agency (EIA) recently estimated that in 2015, the US will reach an oil production level of 9.3 million barrels per day — a mere 300,000 barrels shy of the 1970 zenith that peak oil proponent M. King Hubbert famously predicted in 1956.
It is possible that the massive boom in fracked “tight oil” from shale formations will “reset” US peak oil nearly fifty years after it supposedly occurred. But peak oil proponents consistently underestimate the capacity of capital to revolutionize the technical capacity to profitably access new deposits.
Timothy Mitchell points out that as much as oil capital seeks out new frontiers of production, it is equally concerned with keeping oil off the market to ensure profitability. If too much oil is accessed and supply is increased, profitability becomes impossible. While oil companies have enjoyed high prices and record profits over much of the last ten years, elevated oil prices (and their mega profits) have proven too tempting to producers, resulting in overproduction and glut.
On the consumer side, the return of cheap oil is often heralded as a positive development for workers and the economy. And indeed, in the United States, cheap gas is one of the few reprieves for a working class beset by unemployment, stagnant incomes, and debt.
But the labor movement can’t expect improvements in living standards to come via the gasoline pump. Whatever the momentary benefit from filling up at under $2/gallon, the collapse of oil prices is extremely dangerous for society as a whole. If the remaining oil (and coal and gas) on the planet is burned, it will become impossible to mitigate the (already perhaps unmanageable) effects of climate change.
Moreover, the threat is not just from the enormous amount of untapped fossil fuels, but a sustained period of low fossil fuel energy prices, such as occurred in the 1950s–1960s and the 1980s–1990s. Historically speaking, fossil-fuel-powered capitalism experiences sustained periods of cheap energy prices — the price booms are the exceptions. And, cheap energy stymies the political will (if it exists at all) to change our energy system.
The problem is that the United States has an energy policy that is primarily directed by the price swings of volatile energy markets. Climate change is a market failure of planetary proportions, and we cannot expect the booms and busts of energy markets to guide us toward a clean energy future.
As Naomi Klein and Christian Parenti (among others) have persuasively argued, climate crisis is so dire that it will take nothing less than a “war-like” mobilization of the public sector (state planning, punitive taxes, and massive subsidies for clean energy) to shift our economy away from fossil fuels.
A left approach to energy must take its provision back from the market, prioritizing ecological and social welfare over price signals. Energy should be viewed as something akin to education, health care, or water sanitation: something so fundamental to the collective good that it cannot be ceded to market forces and the profit motive. Yet unfortunately, market prices have, more than anything else, guided US energy policy over the last few decades.
Since 2008, US natural gas production has jumped by 17%, including a 314% increase in shale gas production (a result of the boom in unconventional gas, which uses horizontal drilling and hydraulic fracturing). The glut of natural gas has led to sustained low prices, declining from nearly $8/million cubic feet (mcf) to under $2 during parts of 2012 and under $3 today. For electric utilities (probably the most important sector from an energy policy perspective), the price of natural gas for power generation in June 2008 peaked at $12.41/mcf. Today it is $4.33.
This rapid price decline has occasioned a massive shift in energy sources. A decade ago, only 17% of our electricity came from natural gas. In 2012, it peaked at 30% before falling slightly over the last couple years to around 27%.
Coal’s share has also seen a simultaneous decrease, declining from 49% in 2007 to 39% in 2013. This change — the kind of massive and rapid one we need toward renewables — has little to do with the cleaner burning qualities of natural gas, or the national security concerns supposedly assuaged by domestically-produced energy. It is simply a product of utilities seeking cheaper fuel.
All of this relates to President Obama’s supposedly strong executive action on climate change last June. In a move celebrated by most green groups, Obama appeared to be harnessing state power — the Environmental Protection Agency (EPA), under the auspices of the Clean Air Act — to force the electric power sector to lower its emissions.
The goal is to reduce emissions 30% by 2030. However, by cleverly choosing 2005 as the baseline — the year in which emissions peaked — much of the reductions mandated by the EPA have already been achieved because of the shift to cheap shale gas. According to the EIA, CO2 emissions have already declined 15% since 2005. Thus, by riding a market driven shift, Obama is able to appease left-leaning climate activists, while still reproducing the bipartisan consensus of the last three decades that energy policy is best directed by market signals.
There are also deeper concerns about the substantial methane emissions leaking from fracking infrastructure (e.g., pipelines and compressor stations) that call into question the purported climate benefits of the shale gas boom. And the market-driven shift to gas has essentially locked in decades of fossil fuel infrastructure: more pipelines, more chemical and fertilizer plants, and more centralized fossil-fuel-powered electricity. This despite the devastating ecological costs of fracking: flaming faucets, water contamination, earthquakes, etc.
The volatility of the oil market over the last twenty years has also been astonishing. In 1999, the Economist ran a cover story about the world market “drowning in oil” as oil prices collapsed to $10/barrel. In 2008, we reached an oil price apex at $147/barrel only to see those prices sink to around $30/barrel in the wake of the financial crisis. After several years of relative price stability around $90–100, prices in 2014 collapsed again to under $50.
Yet at least this acute turbulence made it clear our energy system was in need of major restructuring. The danger now is low, stable prices for a long period of time. The return to cheap energy can create a kind of “sedative” for political forces aiming to transform our energy policy away from carbon-intensive energy.
The sedation of market cycles conforms to a highly neoliberal story (most famously told by Julian Simon in The Ultimate Resource) of the apparently infinite capacity of markets to incentivize production in moments of scarcity. Whenever markets are tight and an energy resource is scarce, prices go up, magically giving the incentive to producers to develop new sources.
For oil, the “new” sources of today include deepwater offshore drilling, tight oil, and tar sands. Eventually the new production leads to a supply glut (like today) and price collapses (one happy environmental side effect is that these extreme and high cost energy projects like fracking and the tar sands might become economically unviable).
After sustained periods of low prices the lack of a “market incentive” causes cutbacks in production and scarcity. And the cycle begins anew. This year feels a lot like 1999, which felt a lot like the 1986, which felt a lot like the 1930s. The sedative of market cycles makes it appear we are in an inescapable hamster wheel of energy scarcity and glut.
Yet the planet cannot withstand another decades-long cycle of cheap fossil fuel — low prices will only forestall the transition to renewables energy. And while the Economist recently suggested that the return of cheap energy is a “historic” opportunity to levy massive taxes on fossil fuel as a means to a clean energy transition, it seems more likely that the cheap oil-fueled processes of social reproduction will be reasserted, so that SUVs, long-distance commutes, and sprawl once more will stand in for freedom and the “American way of life.”
To get off the sedative of market cycles, we need a strategy that recognizes the critical role of public investment in transforming energy systems.
A left energy platform should transform our shared energy infrastructures (e.g., electricity grids, buildings, transport systems). The long-term nature of such investments means they are not well handled by private capital. It will instead take collective commitment and state power to transform these systems.
This is different than simply hoping for private-sector entrepreneurs and market signals (or even a handful of tax credits) to craft our energy transitions for us. By creating a public works program for energy infrastructure, we can transform the nature of the energy system itself.
The United States did not become the largest oil consumer in the world simply because it was the largest supplier of oil commodities. It took massive public investments — using state power to direct funds toward long-term goals not realizable in the short-term world of markets — to financing suburban housing and develop the road and highway networks that ironically ended up becoming the public basis for suburban, oil-powered privatism.
This move toward public control of energy infrastructure is already happening. In This Changes Everything, Naomi Klein recounts several movements to take public ownership of electric power systems, from Hamburg to Boulder. But the kind of large-scale changes needed to solve the global crisis of climate change must go beyond the local municipal level.
In this respect, China provides a good example. Renewable energy in China has exploded not just because of the subsidization of private producers of wind and solar panels (although that is important), but also because the Chinese state has launched a massive, long-term plan to transform its electricity grid via investments in “smart grid” infrastructure (which can manage the sometimes-intermittent flows of solar and wind power).
For example, the State Grid Corporation of China has issued product standards for key smart grid components. Because of its dominant position in the electricity market, it can guarantee a market for manufacturers that produce them. An exemplar of Christian Parenti’s notion of the “Big Green Buy,” by using the buying power of publicly owned electricity grids, the Chinese state is helping make possible a rapid transition toward green and renewable power.
Meanwhile, the US is flooded with cheap shale gas, which it pretends is some sort of bridge to a cleaner future, all while fixing the numbers to show dramatic emission drops from natural gas–based electric power. Worse, the paltry subsidies to solar and wind producers are in danger of expiring at the hands of a Congress that believes subsidies (for fossil fuels according to Democrats, for renewables according to Republicans) hinder a truly competitive and free market for energy.
Climate change is the epitome of a market failure. It is the breakdown of a system we treat as an atmospheric commons — a public and shared system the market does not see or value. Many of course criticize the market for not accounting for the cost of dumping greenhouse gases into the atmosphere (despite the corrupt efforts to establish markets for carbon). Yet we haven’t thought enough about how markets also tend to produce booms and busts that create long periods of low energy prices and lessened political will to change our energy system.
An energy transition won’t happen magically through entrepreneurial innovation and price signals. We need a mobilization of the public sector to both destroy the fossil fuel industry and produce the conditions for a new energy system. It will require massive public works projects to create an electricity grid more conducive to decentralized renewable energy systems (as well as highly centralized ones like the solar thermal plants in the southwest).
Creating an electric sector powered by solar, wind, and other renewable energy can also transform the oil-powered transportation sector. After all, electric vehicles are only truly “green” if they plug into an electric grid that is not powered by coal, natural gas, and nuclear power. Much like our transportation system was transformed through state-directed, federal financing of roads and highways, we must move toward public transit and use the buying power of the state to create mass markets for electric vehicles.
This transformation should be fought for and legitimated as a public project and an answer to the public crisis of climate change — not as something that needs to be “cost effective” or “competitive” in the context of market forces.
Framing climate change as a public crisis also requires us to transform energy itself from a commodity to a public good. This is especially important for poor and working-class consumers already struggling to provide the basics of food and shelter.
Much of “drill baby drill” populism is rooted in everyday concern over rising energy prices (and drill baby drill we did). The Right has been able to prevent any coherent energy policy simply by telling consumers, “It will cost you more.” We need to reimagine energy not simply as a cost, but as a public good that is provisioned with long-term social justice and ecological sustainability in mind.
Workers must be at the center of this transformation, and the new transition itself — as well as the new paradigm — must address the economic insecurity affecting workers by providing steady, well-paying public sector jobs that build a new future. Furthermore, any energy transition away from coal, gas, and oil must take into account the workers displaced from those industries. Public training and jobs for these workers can provide the foundation for constructing a new energy economy.
Finally, this struggle can’t be conceived as merely over one issue or sector called “energy.” The ceding of our energy system to the market is part of a broader neoliberal political economy that privileges the private over collective solutions to the basics of life — energy, health, housing, and even, for some, water.
The building of a socialist politics can only begin by recuperating our basic notions of “public” and “collective” against the ruthless privatism of market logic
42 Comments on "Too Much Oil"
Revi on Mon, 23rd Mar 2015 7:05 am
We need market forces in order to make an energy transition happen, and they aren’t going to happen with $2.50 gas. We are going to be gobsmacked when the peak and decline happens in the next couple of years.
American Idiot on Mon, 23rd Mar 2015 7:16 am
It has nothing to do with market forces, Americans are simply too stupid to change.
Rodster on Mon, 23rd Mar 2015 7:35 am
“We need market forces in order to make an energy transition happen, and they aren’t going to happen with $2.50 gas.”
We are way past the market forces as the 99% have been pretty much been raped economically by the 1%. People have little to no money and $2.50 p/g is still a lot for most folks when you factor inflation for other basic necessities.
We have been in a global depression since 2008 and there are no signs of it getting better unless one chooses to believe the govt lies.
paulo1 on Mon, 23rd Mar 2015 9:01 am
Cheap energy, even cheaper debt, and good steady jobs are still scarce. Imagine if you were young and just starting out? Rodster is right.
shortonoil on Mon, 23rd Mar 2015 9:13 am
According to the 2000 USGS report the world may have petroleum resources of 4,200 Gb. The world has extracted about 1,450 of those. By applying a simple extension of logic it would be safe to say that the world has always had too Much Oil! If one did it would be flawed logic. That statement would assume that all of the world’s hydrocarbon resource is capable of powering the world’s economy. In fact, only about 40% of the world’s 4,200 Gb has the molecular structure that is needed for it to act as a power source; and technology can not do anything to alleviate that problem.
Depletion is reducing the available resource that can be used to power the world’s economy. Depletion is reducing quality before it reduces quantity. The petroleum industry is now extracting that low quality oil that is unable to power the economy; it is all that remains to be extracted . In the process it is supplying the world with oil that can not adequately power the economy, and the economy is declining as a result. As it declines, demand declines and now the price.
The petroleum industry is now in a vicious cycle of low quality oil, slowing economy, declining demand and falling price. The world has too much oil of the wrong kind. The rest of the right kind will soon be gone forever!
http://www.thehillsgroup.org
Mike989 on Mon, 23rd Mar 2015 9:51 am
Here’s a supposition:
Oil CEO’s are just alcoholic drunks with jobs.
– Instead of investing in wind, they funded climate denial.
– Instead of investing in solar, they bought politicians to protect their monopoly position.
– Instead of doing any monitoring of market supply, they stayed in their country clubs and got drunk blaming “Obama”, not reality, “Obama”.
When are you the 1% investor going to FIRE the INCOMPETENT, because it’s costing YOU MONEY.
BobInget on Mon, 23rd Mar 2015 10:34 am
http://www.scmp.com/news/china/article/1744868/top-meteorologist-zheng-guoguang-warns-climate-change-risks-china
The mainland’s top weather official has issued a stark warning on climate change, saying that rising temperatures could have “huge impacts” on the world’s most populous country, state media reported on Sunday.
Global climate change would reduce crop yields, lead to “ecological degradation” and create unstable river flows, Xinhua quoted Zheng Guoguang , chief of China’s Meteorological Administration, as saying. “As the world warms, risks of climate change and climate disasters to China could become more grave,” Zheng said.
China is the world’s largest source of carbon dioxide emissions which cause climate change. Beijing has said it aims for those emissions to peak “around 2030”.
Temperature increases on the mainland over the past century had been more extreme than global averages, Zheng added.
mike on Mon, 23rd Mar 2015 10:40 am
Pleased I can read this item before Plantagenet posts with that hypnotic image of skeletal death loping eternally to nowhere. Not sure which sends me to sleep faster – the bones themselves, or Plantagenet’s tedious repetition of the same old same old. I supppose that is his intention, to bore us all to death with nonsense.
penury on Mon, 23rd Mar 2015 10:41 am
Lets go with the easy answers. Nothing substantial will be done by the U.S. because its always an election cycle. cutting energy usage would create havoc among the lower economic groups. There is no money available to adequately fund alt energy sources. There is currently (and for the forseeable future) no replacement for liquid fuels. Short is correct, energy available will shrink causing greater usage of whatever is produced.
Plantagenet on Mon, 23rd Mar 2015 11:01 am
The article is exactly right that many folks are befuddled by the current oil glut. They had a simplistic view of peak oil and the oil market, and that view did’t include the idea that there could be too much oil.
Revi is exactly right that the low oil prices are going to hinder efforts to transition off oil. The sales of small cars in the US are already falling, and the sale of huge gas guzzling RVs, SUVs and trucks is rising.
Plantagenet on Mon, 23rd Mar 2015 11:04 am
Hi Mike—I like your avatar too. Its boring and grey and exudes empty vacuousness —how very fitting for you.
Cheers!
dave thompson on Mon, 23rd Mar 2015 11:18 am
The current 6-8 days worth of world market oversupply, of expensive, difficult to extract and difficult to refine low EROI crude proves we are in the age of limits. Growth can no longer continue for BAU as the laws of physics are painfully proving evident.
Northwest Resident on Mon, 23rd Mar 2015 11:21 am
“many folks are befuddled by the current oil glut”
The glutster, for example. He thinks that the oil glut is the cause of oil price collapse, despite mountains of fact and evidence clearly explaining that the oil glut is a SYMPTOM of the underlying reasons for oil price collapse. But one thing we do know about the glutster, and that is, he is a faithful and prolific mouthpiece for the MSM meme of the day — spreading the lies and sowing confusion with an obnoxious flair that is his own unique trademark.
Northwest Resident on Mon, 23rd Mar 2015 11:28 am
mike — The glutster’s avatar is meant to distract, annoy and incite. It is meant to support the glutster’s primary goals on this forum, which are all the above.
GregT on Mon, 23rd Mar 2015 11:38 am
“They had a simplistic view of peak oil and the oil market”
There is one person on this forum that has repeatedly proven that he has no abilities to think beyond simplistic terms.
That person would be you planter.
Jerry McManus on Mon, 23rd Mar 2015 11:59 am
It’s official, all these years we have been arguing with software bots:
That Moron Who Spews Garbage and Doesn’t Listen to Reason May Be a Bot
http://www.washingtonsblog.com/2015/03/propagandists-use-automated-software-spread-disinformation.html
Plantagenet on Mon, 23rd Mar 2015 12:05 pm
@GregT and Nordent,
So you guys are still denying there is an oil glut?
When will you stop being befuddled—OF COURSE the world is in an OIL GLUT.
Open your eyes, dudes!!
Northwest Resident on Mon, 23rd Mar 2015 12:34 pm
Pops — Or any site official/owner:
Clearly, you are keeping this website/forum going to generate income. All the ads give that fact away. Also, I have read in the member’s area where the moderator explained that increased traffic is a high priority for this site.
I’m a website developer and software engineer. I have worked with marketing/sales departments in many cases to increase website traffic, and have run my own private websites for profit, and found many ways to increase traffic.
Now, the main point.
I realize that you allow morons and goons like Plantagenet to leave shit stains all over this forum because you think it generates controversy and therefore traffic.
But the larger point you are missing is that obnoxious trolls like Plant turn off many visitors and in the long run end up decreasing overall traffic, not increasing. Sure, with each new idiotic statement made by Plant (see above), you’ll generate a short burst of extra page loads, which increases your traffic count and boosts your per-display ad revenue. But what you don’t realize or seem to care about is that many respectable people will see Plant’s idiotic and inflammatory comments, say “screw this site”, and never return, thinking it a joke which all to often Plant makes it.
Any other website would ban obnoxious idiots like Plant, but you give him, and many other obnoxious troll-like individuals, a public forum to spread lies and misinformation and obnoxious slime.
POPS, why the hell don’t you get rid of Plant. He is a liability to this website. Do you enjoy the crap that Plantagenet spews? Can you explain your reasons for allowing him and others to turn this forum in a toxic mess?
dave thompson on Mon, 23rd Mar 2015 12:40 pm
Yes I agree Planta, the oil over supply/glut of 6-8 days worth of crude on the open market, prove that we are in the midst of collapse. The market can no longer show growth because the net energy return on investment can only go back into the system to feed the over supply/glut.
Plantagenet on Mon, 23rd Mar 2015 12:41 pm
@Nordent
Your potty mouth is overflowing again.
Get control of yourself dude.
Cheers!
Plantagenet on Mon, 23rd Mar 2015 12:44 pm
@Dava
Thank you for making an intelligent post that contains ideas and original thoughts.
I have to disagree with your claim that “the market can longer show growth.” In fact global GDP continues to increase each year. The economy might be bad where you are, but in other parts of the world like China and India GDP growth remains strong at about 7% per year.
Northwest Resident on Mon, 23rd Mar 2015 12:49 pm
plant — Your idiocy and obnoxiousness is overflowing again, as usual. I have total control of myself and say what I mean. You also have control of yourself, and purposely spread the lies and the manure and the discord purposely on this forum, for whatever reasons. The fact that you are allowed to post your stupidity and idiocy on this forum is an outrage. There is only one website that you should be allowed to post your lies and idiocy freely: http://www.idiotsareus.com
dave thompson on Mon, 23rd Mar 2015 12:55 pm
Yes planta the over supply/glut as we agree on is only a sign of collapse, the growth you erroneously cite in China and India is a sign of manipulation of the numbers only and a race to the bottom of the market and the race to the bottom as a whole. Growth as you well know and readily agree on is over, due to the laws of physics and EROI. The over supply/glut is only fueling it’s self. Thanks for showing you understand the facts.
BobInget on Mon, 23rd Mar 2015 1:13 pm
This is almost as important as bashing HRH.
Bloomberg) — Saudi Arabia and its Gulf partners will take “necessary measures” to restore stability in Yemen if peace talks fail to resolve the growing conflict there, the Saudi foreign minister said.
“We hope that this can be done peacefully but if it is not done peacefully, certainly countries of the region will take the necessary measures to protect the region from the aggression,” Saudi Foreign Minister Prince Saud al-Faisal said Monday during a press conference in Riyadh.
BobInget on Mon, 23rd Mar 2015 1:27 pm
IOW’s gang, sheep herders and camel milkers won’t be the only ones getting killed for a refreshing change.
Mark this week in your calendars folks.
Saudis and “other Gulf Staes” go up against
Iranian backed militias in Yemen.
I predict another, yes, another Syria in Yemen. After hundreds of airstrikes,
the Saudis will be forced to put ‘boots in the sand’. Iran will counter-attack with Its thugs
and we are off to the races.
My theory has been all along that Russia, in cahoots with Iran are orchestrating this next
so called ‘civil war’.
When Iranian rockets are sitting on KSA borders, the US, needing to preserve its last
ME influence will join in the fight as will Iran.
It’s shirtless Putin’s move next.
It’s my belief Putin will check mate The House of Saud.
BobInget on Mon, 23rd Mar 2015 1:29 pm
Good thinking Shawn.
Plantagenet on Mon, 23rd Mar 2015 1:31 pm
Hi Dava
The GDP growth in China and India is not just “manipulation of the numbers”
Have you ever been to China? I’ve been there five times, and the transformation in China is absolutely incredible—-its gone from rural socialist communal poverty to first world affluence and glitz in the cities (but still with rural poverty, to be sure).
Now India is going down the same road. The GDP growth of 7% per year in India and China is real—and together thats almost 40% of the world’s population living in countries that are growing quickly.
I’m traveling to India this summer—I’ll give you a report on what I see when I get back.
CHEERS!
Plantagenet on Mon, 23rd Mar 2015 1:37 pm
Nordent:
You need to chill out. You’re going to make yourself even more miserable if you keep getting so riled up over the avatar that someone you don’t even know is using at a chat site. Relax dude.
I suggest you try some meditation. Next time you get so angry, try this: before you post hold your breath and think of something happy. Maybe how much you love your dad the preacher or something like that.
Ok—now inhale.
Hold it in…….a few seconds longer……
Now exhale.
Aaaahhhhhhh.
Now—Isn’t that better?
Cheers!
Northwest Resident on Mon, 23rd Mar 2015 1:54 pm
plant — Goofy, idiotic and bizarre post there. Pops love you for all the clicks you’re generating. Keep up the stupidity plant — your contribution to this site’s traffic is priceless.
dave thompson on Mon, 23rd Mar 2015 2:13 pm
Yes Planta we agree again, The growth in China and India is real manipulation of numbers by the powers that be in charge of the numbers. The oil oversupply/glut that we both agree on is fueling those numbers by providing more fuel to the system we agree on is in a state of collapse. You really do know what you are talking about by how we both agree on the falsehood of your continued agreement that growth has ceased and the numbers you cite are manipulated as we both agree upon therein.
BobInget on Mon, 23rd Mar 2015 2:53 pm
A bit late, don’t ya think?
KSA is currently at war (in actual terms)
with Iran. Venezuela has been driven to near bankruptcy, Algeria’s future has never been more uncertain, Libya is a failed state, elections in Nigeria next week will put that most populous African nation into civil war.
KSA will once again attack Yemen confronting Iran in a mano a mano.
Saudi Arabia stepped in it’s own poop and try as it may it will never shake it off.
Membership must be withdrawn by KSA first.
Saudi Oil Minister Ali Al-Naimi welcomed Russia to the membership of OPEC on Sunday, saying that the organisation had called for many countries to join, but there had been little or no response, Anadolu has reported.
Membership of OPEC (the Organisation of Petroleum Exporting Countries) includes Iraq, Iran, Saudi Arabia, the UAE, Angola, Kuwait, Qatar, Venezuela, Ecuador, Libya, Algeria and Nigeria. Together they produce about one-third of the world’s oil needs. OPEC was established in Baghdad in 1960 when an agreement was signed by Iraq, Kuwait, Saudi Arabia and Venezuela.
Speaking at the second oil forum of the Gulf Cooperation Council held in Riyadh, Al-Naimi told delegates, “We are optimistic regarding oil prices and we have good intentions.” He stressed that oil prices are based on supply and demand, and pointed out that unjustified price increases harm everyone.
The minister revealed the reason behind OPEC’s decision last November to keep the current production rate unchanged by recalling that the US increased production in the 1980s, when OPEC had decided to slow down. OPEC production stands at 30 million barrels a day. He insisted that there is no political reason for maintaining the production status quo.
According to Kuwait’s Oil Minister, oil revenues represent 90 per cent of his country’s income. “As such,” added Ali Al-Omair, “we have not sought to decrease production, nor do we have any harmful intentions towards anyone; we are working with all to achieve a market balance.”
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BobInget on Mon, 23rd Mar 2015 2:55 pm
“No political reason”
Perk Earl on Mon, 23rd Mar 2015 4:31 pm
http://www.reuters.com/article/2015/03/23/us-markets-global-idUSKBN0MJ00N20150323
‘Dollar slips further, crude oil prices rebound’
“The dollar fell further on Monday on views a Federal Reserve interest rate hike will come later rather than sooner, and the decline helped boost oil prices.
Traders and investors are focused on when the Fed will tighten policy, viewed as most likely in September or October.”
What’s happening is in part oil price dropped as much as it did because of the dollar rising vs. other currencies due to the end of US QE. Now the metric is interest rates. If they are raised that boosts the dollar and drops oil price further, but if interest rate hikes are postponed that hurts the dollar and raises the price of oil, which is what happened today. Now, instead of a rate hike in June, it’s perceived by Fed comments to have been put back to September or October.
rockman on Mon, 23rd Mar 2015 5:35 pm
Back to basics folks:
There is a glut of $100/bbl oil. There are too few buyers for oil at that price.
There is a shortage of $20/bbl oil. There world would by millions of bbls above current production levels if it were available.
The world is currently supplied with just the right amount of oil. Every bbl being produced is being bought by someone at the current market price
BTW: that dynamic was true when oil was selling for $30/bbl and $90/bbl.
Remember when oil first reached the current price level some years ago the buzz explained that oil had reached that price due to a shortage. And now that it has reached that price again it’s described as a surplus.
So again is oil priced at the current level a shortage or a surplus?
steve on Mon, 23rd Mar 2015 6:01 pm
whoaa!! Tempers here! Why is it that peak oil is a well to do, former liberal male obsession? I count myself in some of that as well. The conservative group is almost in the abiotic oil camp…I just don’t get where are all the women! I know that peak oil is not a popular thing to talk about but it is reality…
Perk Earl on Mon, 23rd Mar 2015 6:11 pm
“So again is oil priced at the current level a shortage or a surplus?”
Rockman, I’ll take surplus:
http://newsok.com/future-files-oil-storage-filling-up-putting-further-pressure-on-prices/article/5399251
“Future Files: Oil storage filling up,…”
U.S. crude oil prices are coming under pressure again as concerns build about a supply overload. According to the Department of Energy’s weekly storage report, U.S. crude oil inventories are at the highest level since the Great Depression and continue to climb as domestic drillers pump near a breakneck pace.
http://www.zerohedge.com/news/2015-03-21/perfect-storm-oil-hits-two-months-us-crude-production-soar-just-storage-runs-out
The 2nd link has a graph showing oil storage filling up with a projection into the future (whether that is an accurate projection or not) of even higher fill percentages.
jjhman on Mon, 23rd Mar 2015 6:15 pm
Rock:
I was under the impression that in the US oil inventories are filling up. Doesn’t that mean that there is more oil being produced than used, i.e. and imbalance?
jjh
Bandits on Mon, 23rd Mar 2015 7:35 pm
The US imports oil, a whole damn lot of it GET IT, is that oil being stored or not?. What there is, is a surplus of crap overpriced oil that nobody wants. As Rockman says all the quality oil, priced at market value has a buyer.
Perk Earl on Mon, 23rd Mar 2015 7:59 pm
“As Rockman says all the quality oil, priced at market value has a buyer.”
Rockman has also said on occasion, “Oil is oil”.
rockman on Tue, 24th Mar 2015 4:50 am
The US has a total oil storage capacity in excess of 450 million bbls. Total capacity at Cushing represents on 17% of US capacity. At last count about 40% (around 200 million bbls) is still empty.
The current price of oil is determined by the max price refiners are willing to pay for oil. Refiners are not going to pay more for oil the they can sell refined products for at a profit. Refiners did not forecast product consumers paying enough to allow an acceptable profit at the former high oil price. As always oil producers only control how much oil they sell and bot the price. If a refiner can’t buy oil at a price that generates an acceptable profit it won’t buy oil. Obviously they are not in business to knowingly lose money.
OK: So something like “The EIA released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 4.5 million barrels last week”. Wow…so in a week when the US consumed about 110 million bbls of oil we gobbled down 96% of the oil available from domestic production and imports. So this is now the definition of a glut: only consuming 96% of the oil available.
And remember even while zerohedge is hyping the “OMG we’re running out of storage” in the same article they show that there is always an historic build up in storage at this time of year followed by a drawdown over the summer months. Granted we’ve seen higher then average volumes going to storage this year. But we’re also seeing motor fuel consumption ramping up quickly thanks to lower prices. So who’s going to be shocked if we see higher than normal drawdowns in the next 6 months?
Folks need to stop focusing on the Cushing storage fill up IMHO. It gets mentioned a lot because those prices at Cushing are used to determine winners and losers in the oil futures market. The country stores 84% of its physical oil somewhere else other then at Cushing. So what if Cushing gets filled up? That would still leave over 150 million bbls of empty storage nationwide. And if 5 million bbls continues going to storage weekly total capacity wouldn’t be filled for another 7 months.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/03/20150319_oil2
And as their chart shows there’s a very good reason the expect inventories to start being drawn down over the next 6 months.
And lastly lets not forget where domestic oil production is heading. If the current rig count stops decreasing and holds at the current level (not likely IMHO) for the rest of the year there will be more than 4,000 shale wells NOT DRILLED compared to 2014. That’s a big chunk of the shale wells drilling last year which led to record production levels. And lets not forget the fate of all those 2014 wells that boosted production: the Jan 2014 wells are now 1 year old. Which means they’ve already seen their high decline rates kick in. And the Dec 2014 wells? They’ll be seeing the same significant loss of production by the end of 2015. Now add that loss of production from 2014 wells during the course of 2015 with the loss of 4,000+ new wells that WON’T BE DRILLED as a result of the falling rig count.
Just my hunch but I suspect by 3Q and 4Q 2015 the topic of oil storage may be more focused on losses instead of gains.
rockman on Tue, 24th Mar 2015 12:10 pm
jj – “I was under the impression that in the US oil inventories are filling up. Doesn’t that mean that there is more oil being produced than used, i.e. and imbalance?”.
That’s exactly what it means. Just the same as it has meant every late during this part of the year as far back as I can remember. They are saying “we’re filling storage to the highest level in 80 years”. But notice what they aren’t saying: we are producing more oil this time of the year then we are consuming JUST AS WE ALWAYS HAVE.
Keep an eye: I’m sure someone will point out that we are producing a lot more NG then we are consuming next summer and that storage is filling up fast.
You need to appreciate why we have oil and NG storage capacity in the first place: during high demand periods (driving in the summer and heating during the winter) the production out put can not meet demand during those times.
Did you realize that while there’s 54.4 million bbls of oil stored in Cushing as of the second week in March 2015 that there was 51.4 million bbls of oil stored in Cushing the first week of February 2013? February 2013 when oil was selling for $93/bbl. Do you think they were storing that much oil waiting for prices to get back to $146/bbl? LOL.
Many who don’t bother to do a 2 minute Internet search to learn the facts will believe the MSM when they say it’s raining when actually they are pissing on them. LOL.
BobInget on Tue, 24th Mar 2015 12:28 pm
Why, if domestic (oil) inventories are 8.5 months pregnant do we continue to import ever greater quantities each successive week?
Why would anyone buy crude for $100 when
a single so called ‘swing producer’ (KSA)
is flooding markets, increasing production monthly, with $40 crude ?
Why has no one questioned reasoning behind Saudi Arabia’s obvious ‘suicide bragging’ attempt?
Why is so much attention being paid to China’s two percent slowdown and none
to India’s 2% rise in GNP?
Why do marketers keep insisting (oil) demand, even demand growth has fallen off?
(real demand continues to grow)
This entire episode reminds a person of our current global warming drama.
It’s difficult to define where denial leaves off and BAU bias takes up.
How about yet another analogy ?
Reputable science tells us (today) sea levels will rise at least one meter on NA’s East coast in a human timeframe.
That’s tangible. Are we listening ?
Nothing will be done to protect the Atlantic Seaboard until it’s too late.
IMO, An anti science attitude, mixed with generous portions of greed, religion, denial,
ignorance, brain washing, outright criminality has carried over into this fiction of “too much oil”.
We know without much doubt, America’s fourth largest crude oil supplier , Venezuela,
is in hock to China for all it’s available crude exports. In the face of such data, congress
talks of opening US crude oil for export.
WE know for fact, Libya, Yemen, South
Sudan, Syria, Nigeria, even Venezuela are centimeters from becoming failed states.
We know Iran is now and will in future have
greater influence in Iraq. Where Americans spent two trillion dollars of borrowed money,
Iran, Russia, and China, not fa-cocta
ISIL, captured control of the last great pool of oil and gas remaining in the world today.
No wonder everyone is in a bad mood.