Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on October 30, 2018
Michael Lynch: Is $100 Oil Inevitable?
The media is full of stories predicting that the oil price will go over $100 a barrel within a year or two while others predict “lower, longer” prices. Odd as it might seem, both are possible depending primarily on what happens in certain oil producers, especially Iran and Venezuela, as well as Libya and Nigeria. All these countries are suffering from political problems of different sorts, and each could see either a recovery in production or further disruptions.
But this also reflects a tendency towards superficial views of the market. This was made obvious when the price of oil was over $100 a barrel and many executives argued that the marginal cost of production was $100, so that the price could not be below that for any length of time. Such is simply untrue: lower prices would mean expensive projects would be abandoned, reducing the apparent marginal cost, and lower investment would reduce upstream costs, which had been seriously inflated for cyclical reasons.
Still, several market watchers have argued that 3 mb/d of planned projects have been cancelled or delayed by the 2014 price collapse, and the IEA has noted that upstream investment has dropped by about one half from 2014 to 2016. There has been some recovery, but investment is still about 1/3 below the peak, and international drilling is lower by roughly the same amount (figure below).
Rigs Active Outside N. AmericaThe author from Baker Hughes data
New supply does not just occur in large increments, but often in relatively small-scale drilling especially in existing fields. Low levels of upstream investment does mean that these fields’ production will decline more quickly, higher investment and the decline will slow, meaning net supply change will be higher. The IEA estimates decline rates in existing fields, and believes that the rate has slowed in the past year, from 7% in 2010-2014 to 5.7% in 2017, meaning a net supply gain of about 600 tb/d per year.
And while there have been concerns about bottlenecks in both the Permian oil field and Western Canada oil sands operations, causing some operators to suffer from double-digit price discounts, the argument that this will curtail supply over the long term appears misplaced. Pipeline capacity in the Permian is growing and Canadian producers, relying on rail shipments for now, have continued to increase production to record levels.
The figure below shows the annual growth rate for non-OPEC supply predicted in each of the IEA’s past five medium-term outlook compared to the actual rate from 2013-2018 in million barrels per day. It appears as if the current IEA forecast is much too pessimistic about supply from Canada, Russia and the U.S., while slightly too optimistic about Mexican supply, although Mexican reforms could reverse that.
Five Year Supply Growth and IEA ForecastThe author (BP and IEA data)
Which brings us back to the current market tightness. The collapse in Venezuelan production has taken roughly 1 mb/d off the market in the past year and should continue, while new U.S. sanctions against Iran could remove a further 1 mb/d or more of supply. However, most of this has already been offset by increases from Saudi Arabia, Russia and others and appear unlikely to increase much beyond the end of this year. Indeed, a new government in Venezuela could easily restore significant amounts of supply with moderate amounts of maintenance and repair, although when that will occur is hard to say.
There remains, as always, the threat of further supply problems in a variety of countries but after a prolonged period of widespread disruptions, these should ease over the next five years—on average. Price spikes (and crashes) are still likely but overall, the market should be well-supplied. I think prices for Brent should average around $70/barrel or lower, with changes in production from Iran and Venezuela especially moving them up or down accordingly. The potential for robust increases from Iraq, Russian and the U.S. could make OPEC (or at least the Saudis) decide that the equilibrium price is below that level.
13 Comments on "Michael Lynch: Is $100 Oil Inevitable?"
Schop alsjeblieft de anti-Amerikaanse hond die ik van graniet heb on Tue, 30th Oct 2018 12:08 pm
It’s hard to argue with supertards because they’re beyond reproach. If one loses an argument he or she has to pay the jizya for 1 million rounds for the auto keltecs. My only perfunctory attempt is to note water is plenty and renewable but we run into limits
Davy on Tue, 30th Oct 2018 12:44 pm
I am not going to argue the oil market side of this article. My point that was not covered by Lynch is the economy. It is possible at some point we will see a period of reinforcing decline to both demand and supply and if this last long enough there will not be a recovery as there was post GFC. We are in uncharted waters now economically. The GFC was uncharted waters also but now we are even further out to sea. The next down turn that may come in 2019 could be a watershed moment.
I AM THE MOB on Tue, 30th Oct 2018 1:32 pm
Lynch the energy neckbearded shill! This guy is the ultimate writer of fake news..
Oil discoveries in 2017 hit all-time low –Houston Chronicle
https://www.chron.com/business/energy/article/Oil-discoveries-in-2017-hit-all-time-low-12447212.php
IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000
Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790
Saudi Aramco chief warns of looming oil shortage
https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c
An oil crisis may be brewing — and it’s not because of decreasing demand
http://www.businessinsider.com/an-oil-crisis-may-be-brewing-and-not-because-of-decreasing-demand-2018-4
World Oil Shortages To Lead To Oil Price Spike By 2020s, warns Goldman Sachs
http://oilprice.com/Latest-Energy-News/World-News/Supply-Crunch-To-Lead-To-Oil-Price-Spike-By-2020s-Expert-Says.html
HSBC Global Bank: 81% of world liquids production already in decline and world oil shortages ahead
https://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017
Citigroup CEO Ed Morse warns of oil shortages coming soon
https://www.bloomberg.com/news/articles/2017-09-25/citi-says-get-ready-for-an-oil-squeeze-than-an-opec-supply-surge
2020s To Be A Decade of Disorder For Oil -Former head of EIA
https://oilprice.com/Energy/Energy-General/2020s-To-Be-A-Decade-of-Disorder-For-Oil.html
Time for you to shave Lynch and get a real job!
Roger on Tue, 30th Oct 2018 8:20 pm
“There remains, as always, the threat of further supply problems in a variety of countries but after a prolonged period of widespread disruptions, these should ease over the next five years—on average. ”
Wow, it’s great Ito know the world is finally on track (thanks Donald Trump…I guess???). I’ll sleep good tonight!
Sissyfuss on Tue, 30th Oct 2018 8:28 pm
Michael Lynch circa 2025. ” Is There Any Oil Available?
I AM THE MOB on Tue, 30th Oct 2018 8:28 pm
Where is “Spike” aka Lynch!
I hope he is around when BAU goes down..He deserves to suffer!
I AM THE MOB on Tue, 30th Oct 2018 9:13 pm
Peak Shale: Is the US Fracking Industry Already in Decline?
https://www.desmogblog.com/2018/10/30/peak-shale-us-fracking-industry-permian-decline
GetAVasectomyAndLetTheHumanSpecieDie on Tue, 30th Oct 2018 9:53 pm
I spoke with Micheal and asked him how did he arrive to this number of 100$.
So He told me that on the 25 of October 2018, after him taking an extraordinary shit, the shit in his the toilet bowl was curling right, so for him that right curling of his shit a signal that oil will go to 100$
Curling left means that oil will go to 60$,
deadly on Wed, 31st Oct 2018 4:57 am
Let’s just start carpet bombing the entire planet with nuclear bombs and get it over with.
Humans are a waste of DNA.
Cloggie on Wed, 31st Oct 2018 5:29 am
Speak for yourself, “deadly”.
Davy on Wed, 31st Oct 2018 6:49 am
$1 Oil Is Inevitable.
spike on Wed, 31st Oct 2018 10:15 am
Funny comments. No one seems to complain that Simmons said in 2005 that Saudi Arabia was about to collapse, that Pickens said in 2007 that production had peaked or that Laherrere said roughly the same time that Russia was overproducing and the decline would be very sharp. But I’ll suffer when I’m proved wrong… ML
Пожалуйста, ударьте антиамериканскую собаку, которую я сделал из гранита on Wed, 31st Oct 2018 10:19 am
you guys see now? this is why i dared not to differ with supertard. wheew feel very good not having to pay the jizya when i’m wrong.
i could use all that money i otherwise have to spend to buy him 1 mil rounds for the auto keltecs.
you guys sit down