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Page added on December 9, 2014
The OPEC Conundrum: Expect Production Cuts Before June 2015
When OPEC met on 27th November they decided to leave production unchanged and to not meet again until June 2015. This at a time of volatility in oil markets and plunging price that leaves many OPEC member states facing budget deficits, some large and unmanageable.
In this post I take a look at the oil production and consumption history of OPEC and find that historically OPEC has been as much controlled by markets as to be in control of them.
Figure 1 Oil production data for OPEC member states. Indonesia and Gabon have both left OPEC. The situation in 1998 was very similar to that in 1973 (see text for details). The $1000 question is whether 2014 is reminiscent of 1979?
Data
There is no satisfactory, easily accessible complete data set for OPEC oil production and consumption. The EIA archives begin in 1980, a bit too late to be helpful. The IEA data I have were transcribed from the monthly Oil Market Reports by Rembrandt Koppelaar and begin in 2002. The BP data begins in 1965 providing the longest time series and reports production for all OPEC countries. But does not report oil consumption for 5 countries – Iraq, Libya, Nigeria, Angola and Gabon.
Related: Global Drilling Slowdown On The Way
BP report annual crude+condensate+natural gas liquids (C+C+NGL) and I elected to use this data since it is easy to use, even though it is incomplete. Oil exports are deduced from the difference between reported production and consumption which is an imperfect approach.
History
OPEC (the organization of petroleum exporting countries) was founded in 1960 by Iran, Iraq, Saudi Arabia, Kuwait and Venezuela. They were soon joined by several other countries and the membership today is twelve strong. Countries have come and gone, most notably Indonesia in 2009 since it became an importing country in 2003. Gabon left in 1995.
OPEC first flexed its muscles in 1974 in response to “western” assistance given to Israel during the Yom Kippur War of 1973. This sent the oil price sky rocketing from $17 (1973) to $55 (1974) (all prices adjusted to $2013). Surprisingly, OPEC at this time, did not cut production and the punishment was delivered by an oil embargo. But up until 1973, OPEC had been expanding production year on year to meet growing global demand. In 1974, production was not increased and was held constant for the following six years supporting the artificially raised price (Figure 1).
The second oil shock of 1979 actually had nothing to do with OPEC but was caused by the Iranian Revolution that sent the price up from $50 in 1978 to $101 in 1979. Careful examination of Figure 1 shows a slump in Iranian production from 1978 through 1979 and 1980. This was initially partially offset by increased output from OPEC who at this time wanted to protect their markets from overpriced oil. The price remained over $100 in 1980 but it then turned downwards, partly in response to the recession caused by the high price and to new supplies that were coming on stream all over the world, most notably in the North Sea and Alaska. Sound familiar?
1980 marked the end of oil shock era and the beginning of an 18 year bear market for the oil price that would collapse to $31 by 1986 and carry on down more slowly to $18 by 1998, actually spending some time below $10 that year. From 1979, with prices collapsing, OPEC cut production dramatically for 6 successive years without managing to halt the slide. But then in 1986 OPEC increased production, precipitating the final price rout. From then on, OPEC began to exert control over the oil market rebuilding market share despite prices that continued to slide. Sound familiar? By 1998, OPEC production had returned to 1979 levels and the price had almost returned to pre-1974 levels. Market equilibrium had been restored.
The nadir of 1998 was a bleak time for the oil industry. I was running a small service company at the time and remember it well. This was pre-information age era. Few of the people I knew in the industry then understood what had just happened and even fewer imagined what was to follow. Enter the era of mega-mergers.
1998 marked the beginning of the great oil bull run that would see daily price peak at $148 in 2008 and the annual price peak at $115 in 2011. This bull run was not caused by OPEC manipulation of events or war but by a simple supply and demand dynamic where rising price has maintained market equilibrium.
Standing back to look at Figure 1 we see some remarkable similarities between the situations in 1973 and 1998. OPEC had just increased production significantly to over 30 Mbpd in each case. The oil price was chronically weak in each case. And in each case in the following years OPEC maintained constant production and the price soared. The situation today is not identical to 1979 but it does rhyme. This time OPEC market share and oil price are not at risk from new giant fields like Prudhoe Bay, Brent and Forties but from US shale oil.
Consumption and Exports
While many oil watchers will be familiar with the roller coaster OPEC production data, less are familiar with the monotonic rise of OPEC oil consumption (Figure 2), especially in the big population countries: Saudi Arabia, Iran, Venezuela and Indonesia – the latter leaving OPEC when consumption overtook production in 2003. For the eight OPEC countries with data, consumption was 1 Mbpd in 1965 and has grown to 8 Mbpd in 2013.
Figure 2 A common feature of oil producing nations is a thirst for oil. OPEC is no different and has witnessed soaring consumption as prosperity and populations have soared. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Figure 3 Because of rampant home demand (Figure 2) oil exports from selected OPEC countries are in decline, a trend that is expected to continue. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Despite raising production to meet rampant demand since 2005, rampant home consumption has meant OPEC exports (selected countries) going into slow decline (Figure 3).
Related: Could Falling Oil Prices Spark A Financial Crisis?
The End of OPEC?
OPEC has had a huge influence on global oil markets and thereby the world economy, but as shown here has been buffeted around by market events as much as it has managed to control them. We have entered a new period of uncertainty.
The organization can be divided into three groups of countries: 1) the dysfunctional – Iraq, Iran and Libya where future production is just as likely to be controlled by politics than by design: 2) the declining countries – Algeria, Nigeria, Angola and Venezuela where resource exhaustion has sent production of conventional crude into reverse (Figure 4) and 3) the super wealthy gulf states – Saudi Arabia, Kuwait, UAE and Qatar where production is still rising to cover for falls elsewhere (Figure 1). How long this can go on for is anyone’s guess. The power of OPEC will increasingly be placed in the hands of these countries who have the capacity to increase production and the wealth to withhold it as they see fit. The other countries are along for the ride.
Figure 4 Just because a country exports oil does not make it immune to the resource depletion that causes production to peak and then decline as observed in many countries around the world. These four countries have all experienced production decline in recent years. This is not necessarily terminal for these countries, but low oil prices will likely accelerate this process.
The press release from the 166th meeting is worth reading and this paragraph caught my eye:
Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30.0 mb/d, as was agreed in December 2011. As always, in taking this decision, Member Countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.
This pretty well sums up the OPEC conundrum. But note the closing sentence. They have elected to take no action but reserve the right to act nonetheless. Expect to see the super wealthy group of gulf producers cut production well before June 2015.
By Euan Mearns
When OPEC met on 27th November they decided to leave production unchanged and to not meet again until June 2015. This at a time of volatility in oil markets and plunging price that leaves many OPEC member states facing budget deficits, some large and unmanageable.
In this post I take a look at the oil production and consumption history of OPEC and find that historically OPEC has been as much controlled by markets as to be in control of them.
Figure 1 Oil production data for OPEC member states. Indonesia and Gabon have both left OPEC. The situation in 1998 was very similar to that in 1973 (see text for details). The $1000 question is whether 2014 is reminiscent of 1979?
Data
There is no satisfactory, easily accessible complete data set for OPEC oil production and consumption. The EIA archives begin in 1980, a bit too late to be helpful. The IEA data I have were transcribed from the monthly Oil Market Reports by Rembrandt Koppelaar and begin in 2002. The BP data begins in 1965 providing the longest time series and reports production for all OPEC countries. But does not report oil consumption for 5 countries – Iraq, Libya, Nigeria, Angola and Gabon.
Related: Global Drilling Slowdown On The Way
BP report annual crude+condensate+natural gas liquids (C+C+NGL) and I elected to use this data since it is easy to use, even though it is incomplete. Oil exports are deduced from the difference between reported production and consumption which is an imperfect approach.
History
OPEC (the organization of petroleum exporting countries) was founded in 1960 by Iran, Iraq, Saudi Arabia, Kuwait and Venezuela. They were soon joined by several other countries and the membership today is twelve strong. Countries have come and gone, most notably Indonesia in 2009 since it became an importing country in 2003. Gabon left in 1995.
OPEC first flexed its muscles in 1974 in response to “western” assistance given to Israel during the Yom Kippur War of 1973. This sent the oil price sky rocketing from $17 (1973) to $55 (1974) (all prices adjusted to $2013). Surprisingly, OPEC at this time, did not cut production and the punishment was delivered by an oil embargo. But up until 1973, OPEC had been expanding production year on year to meet growing global demand. In 1974, production was not increased and was held constant for the following six years supporting the artificially raised price (Figure 1).
The second oil shock of 1979 actually had nothing to do with OPEC but was caused by the Iranian Revolution that sent the price up from $50 in 1978 to $101 in 1979. Careful examination of Figure 1 shows a slump in Iranian production from 1978 through 1979 and 1980. This was initially partially offset by increased output from OPEC who at this time wanted to protect their markets from overpriced oil. The price remained over $100 in 1980 but it then turned downwards, partly in response to the recession caused by the high price and to new supplies that were coming on stream all over the world, most notably in the North Sea and Alaska. Sound familiar?
1980 marked the end of oil shock era and the beginning of an 18 year bear market for the oil price that would collapse to $31 by 1986 and carry on down more slowly to $18 by 1998, actually spending some time below $10 that year. From 1979, with prices collapsing, OPEC cut production dramatically for 6 successive years without managing to halt the slide. But then in 1986 OPEC increased production, precipitating the final price rout. From then on, OPEC began to exert control over the oil market rebuilding market share despite prices that continued to slide. Sound familiar? By 1998, OPEC production had returned to 1979 levels and the price had almost returned to pre-1974 levels. Market equilibrium had been restored.
The nadir of 1998 was a bleak time for the oil industry. I was running a small service company at the time and remember it well. This was pre-information age era. Few of the people I knew in the industry then understood what had just happened and even fewer imagined what was to follow. Enter the era of mega-mergers.
1998 marked the beginning of the great oil bull run that would see daily price peak at $148 in 2008 and the annual price peak at $115 in 2011. This bull run was not caused by OPEC manipulation of events or war but by a simple supply and demand dynamic where rising price has maintained market equilibrium.
Standing back to look at Figure 1 we see some remarkable similarities between the situations in 1973 and 1998. OPEC had just increased production significantly to over 30 Mbpd in each case. The oil price was chronically weak in each case. And in each case in the following years OPEC maintained constant production and the price soared. The situation today is not identical to 1979 but it does rhyme. This time OPEC market share and oil price are not at risk from new giant fields like Prudhoe Bay, Brent and Forties but from US shale oil.
Consumption and Exports
While many oil watchers will be familiar with the roller coaster OPEC production data, less are familiar with the monotonic rise of OPEC oil consumption (Figure 2), especially in the big population countries: Saudi Arabia, Iran, Venezuela and Indonesia – the latter leaving OPEC when consumption overtook production in 2003. For the eight OPEC countries with data, consumption was 1 Mbpd in 1965 and has grown to 8 Mbpd in 2013.
Figure 2 A common feature of oil producing nations is a thirst for oil. OPEC is no different and has witnessed soaring consumption as prosperity and populations have soared. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Figure 3 Because of rampant home demand (Figure 2) oil exports from selected OPEC countries are in decline, a trend that is expected to continue. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Despite raising production to meet rampant demand since 2005, rampant home consumption has meant OPEC exports (selected countries) going into slow decline (Figure 3).
Related: Could Falling Oil Prices Spark A Financial Crisis?
The End of OPEC?
OPEC has had a huge influence on global oil markets and thereby the world economy, but as shown here has been buffeted around by market events as much as it has managed to control them. We have entered a new period of uncertainty.
The organization can be divided into three groups of countries: 1) the dysfunctional – Iraq, Iran and Libya where future production is just as likely to be controlled by politics than by design: 2) the declining countries – Algeria, Nigeria, Angola and Venezuela where resource exhaustion has sent production of conventional crude into reverse (Figure 4) and 3) the super wealthy gulf states – Saudi Arabia, Kuwait, UAE and Qatar where production is still rising to cover for falls elsewhere (Figure 1). How long this can go on for is anyone’s guess. The power of OPEC will increasingly be placed in the hands of these countries who have the capacity to increase production and the wealth to withhold it as they see fit. The other countries are along for the ride.
Figure 4 Just because a country exports oil does not make it immune to the resource depletion that causes production to peak and then decline as observed in many countries around the world. These four countries have all experienced production decline in recent years. This is not necessarily terminal for these countries, but low oil prices will likely accelerate this process.
The press release from the 166th meeting is worth reading and this paragraph caught my eye:
Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30.0 mb/d, as was agreed in December 2011. As always, in taking this decision, Member Countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.
This pretty well sums up the OPEC conundrum. But note the closing sentence. They have elected to take no action but reserve the right to act nonetheless. Expect to see the super wealthy group of gulf producers cut production well before June 2015.
By Euan Mearns
When OPEC met on 27th November they decided to leave production unchanged and to not meet again until June 2015. This at a time of volatility in oil markets and plunging price that leaves many OPEC member states facing budget deficits, some large and unmanageable.
In this post I take a look at the oil production and consumption history of OPEC and find that historically OPEC has been as much controlled by markets as to be in control of them.
Figure 1 Oil production data for OPEC member states. Indonesia and Gabon have both left OPEC. The situation in 1998 was very similar to that in 1973 (see text for details). The $1000 question is whether 2014 is reminiscent of 1979?
Data
There is no satisfactory, easily accessible complete data set for OPEC oil production and consumption. The EIA archives begin in 1980, a bit too late to be helpful. The IEA data I have were transcribed from the monthly Oil Market Reports by Rembrandt Koppelaar and begin in 2002. The BP data begins in 1965 providing the longest time series and reports production for all OPEC countries. But does not report oil consumption for 5 countries – Iraq, Libya, Nigeria, Angola and Gabon.
Related: Global Drilling Slowdown On The Way
BP report annual crude+condensate+natural gas liquids (C+C+NGL) and I elected to use this data since it is easy to use, even though it is incomplete. Oil exports are deduced from the difference between reported production and consumption which is an imperfect approach.
History
OPEC (the organization of petroleum exporting countries) was founded in 1960 by Iran, Iraq, Saudi Arabia, Kuwait and Venezuela. They were soon joined by several other countries and the membership today is twelve strong. Countries have come and gone, most notably Indonesia in 2009 since it became an importing country in 2003. Gabon left in 1995.
OPEC first flexed its muscles in 1974 in response to “western” assistance given to Israel during the Yom Kippur War of 1973. This sent the oil price sky rocketing from $17 (1973) to $55 (1974) (all prices adjusted to $2013). Surprisingly, OPEC at this time, did not cut production and the punishment was delivered by an oil embargo. But up until 1973, OPEC had been expanding production year on year to meet growing global demand. In 1974, production was not increased and was held constant for the following six years supporting the artificially raised price (Figure 1).
The second oil shock of 1979 actually had nothing to do with OPEC but was caused by the Iranian Revolution that sent the price up from $50 in 1978 to $101 in 1979. Careful examination of Figure 1 shows a slump in Iranian production from 1978 through 1979 and 1980. This was initially partially offset by increased output from OPEC who at this time wanted to protect their markets from overpriced oil. The price remained over $100 in 1980 but it then turned downwards, partly in response to the recession caused by the high price and to new supplies that were coming on stream all over the world, most notably in the North Sea and Alaska. Sound familiar?
1980 marked the end of oil shock era and the beginning of an 18 year bear market for the oil price that would collapse to $31 by 1986 and carry on down more slowly to $18 by 1998, actually spending some time below $10 that year. From 1979, with prices collapsing, OPEC cut production dramatically for 6 successive years without managing to halt the slide. But then in 1986 OPEC increased production, precipitating the final price rout. From then on, OPEC began to exert control over the oil market rebuilding market share despite prices that continued to slide. Sound familiar? By 1998, OPEC production had returned to 1979 levels and the price had almost returned to pre-1974 levels. Market equilibrium had been restored.
The nadir of 1998 was a bleak time for the oil industry. I was running a small service company at the time and remember it well. This was pre-information age era. Few of the people I knew in the industry then understood what had just happened and even fewer imagined what was to follow. Enter the era of mega-mergers.
1998 marked the beginning of the great oil bull run that would see daily price peak at $148 in 2008 and the annual price peak at $115 in 2011. This bull run was not caused by OPEC manipulation of events or war but by a simple supply and demand dynamic where rising price has maintained market equilibrium.
Standing back to look at Figure 1 we see some remarkable similarities between the situations in 1973 and 1998. OPEC had just increased production significantly to over 30 Mbpd in each case. The oil price was chronically weak in each case. And in each case in the following years OPEC maintained constant production and the price soared. The situation today is not identical to 1979 but it does rhyme. This time OPEC market share and oil price are not at risk from new giant fields like Prudhoe Bay, Brent and Forties but from US shale oil.
Consumption and Exports
While many oil watchers will be familiar with the roller coaster OPEC production data, less are familiar with the monotonic rise of OPEC oil consumption (Figure 2), especially in the big population countries: Saudi Arabia, Iran, Venezuela and Indonesia – the latter leaving OPEC when consumption overtook production in 2003. For the eight OPEC countries with data, consumption was 1 Mbpd in 1965 and has grown to 8 Mbpd in 2013.
Figure 2 A common feature of oil producing nations is a thirst for oil. OPEC is no different and has witnessed soaring consumption as prosperity and populations have soared. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Figure 3 Because of rampant home demand (Figure 2) oil exports from selected OPEC countries are in decline, a trend that is expected to continue. No data for Iraq, Libya, Nigeria, Angola and Gabon.
Despite raising production to meet rampant demand since 2005, rampant home consumption has meant OPEC exports (selected countries) going into slow decline (Figure 3).
Related: Could Falling Oil Prices Spark A Financial Crisis?
The End of OPEC?
OPEC has had a huge influence on global oil markets and thereby the world economy, but as shown here has been buffeted around by market events as much as it has managed to control them. We have entered a new period of uncertainty.
The organization can be divided into three groups of countries: 1) the dysfunctional – Iraq, Iran and Libya where future production is just as likely to be controlled by politics than by design: 2) the declining countries – Algeria, Nigeria, Angola and Venezuela where resource exhaustion has sent production of conventional crude into reverse (Figure 4) and 3) the super wealthy gulf states – Saudi Arabia, Kuwait, UAE and Qatar where production is still rising to cover for falls elsewhere (Figure 1). How long this can go on for is anyone’s guess. The power of OPEC will increasingly be placed in the hands of these countries who have the capacity to increase production and the wealth to withhold it as they see fit. The other countries are along for the ride.
Figure 4 Just because a country exports oil does not make it immune to the resource depletion that causes production to peak and then decline as observed in many countries around the world. These four countries have all experienced production decline in recent years. This is not necessarily terminal for these countries, but low oil prices will likely accelerate this process.
The press release from the 166th meeting is worth reading and this paragraph caught my eye:
Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30.0 mb/d, as was agreed in December 2011. As always, in taking this decision, Member Countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.
This pretty well sums up the OPEC conundrum. But note the closing sentence. They have elected to take no action but reserve the right to act nonetheless. Expect to see the super wealthy group of gulf producers cut production well before June 2015.
31 Comments on "The OPEC Conundrum: Expect Production Cuts Before June 2015"
Northwest Resident on Tue, 9th Dec 2014 1:49 pm
The literary term “foreshadowing” describes a method used by fiction writers through narrative or dialogue to offer subtle clues as to what is going to happen later in the story.
When I read in the 2010 J.O.E. that U.S. Military strategic analysts were predicting “energy shortfalls as soon as 2015”, I took that as a clue — as a foreshadowing of events to come that we as the general populace could only wait to verify.
I took it as subtle “hint” of what would be.
So it isn’t a big surprise to me to see events lining up for some major energy shortfalls in 2015.
If the U.S. Military strategic command had warned Americans that there “could be” nuclear war as soon as 2015, who among us could possibly have ignored that big “maybe”? But plenty of us ignored the “could be” energy shortfalls as soon as 2015. Now, we see energy shortfalls coming and they will be here right on schedule.
I’m sure that we will see some major changes in our lives in 2015. The descent to a level of human existence that the world can realistically support is going to be the wildest ride we have ever experienced, that’s my guess. Whether it starts in 2015 or a little later is irrelevant in the big scheme of things — but may provide a little amount of time for additional preparation. Take this 2015 date seriously, folks, as your life may very well depend on it.
bobinget on Tue, 9th Dec 2014 3:11 pm
Good points, NWR.
OPEC has already a planned meeting in February
“In Vienna on November 25, Ramirez (Venezuela) organized another conclave between himself, Naimi, ministers from non-OPEC Russia and Mexico, and Rosneft CEO Igor Sechin”.
Showdown time!
rockman on Tue, 9th Dec 2014 3:58 pm
NR – And this is where it gets confusing. How do they define “short fall”? To me it either means they won’t be enough oil available to buy even if you have the funds or that there will be a ample supply of oil available but the inability to pay the market price. Which is always true for some buyers whether oil is selling for $100/bbl or $40/bbl.
So the first question is where the price of oil will settle. OTOH it would seem logical that oil consumption would increase now the price has fallen. But back to the premise that the price has fallen because the global economies as a whole could afford the higher priced oil. And the refiners anticipating this decreased purchasing power refused to pay the higher oil price since it they would lose money selling products at the lower price consumers could pay.
Because, as I’ve said before, refiners in the US aren’t going to price gasoline lower just because they are getting the oil cheaper. If the public would continue buying the same amount of fuel at $4.50/gal as the would at $3.00 the refiners would charge closer to that higher price.
Northwest Resident on Tue, 9th Dec 2014 4:40 pm
rockman — I believe that the 2010 JOE is asserting that a sustained economic growth of X percent will require X amount of oil production increase over a given period of time. The 2010 JOE assumption is that the economy WILL grow. I couldn’t find any discussion that addressed the possibility of a stalling or contracting global economy, probably because the alternative to the economy not growing renders any and all future projections null and void.
Using the 2010 JOE economic growth projections, they are saying that we will need “an additional 1.4 MBD every year until then” — with “then” being 2030.
And so, the definition of energy shortfall in the 2010 JOE would be not meeting the (affordable) oil production growth required to meet the needs of a world with the assumed economic growth.
In other words, rockman, I think you need to give J.O.E. chiefs a call and educate them on POD.
Bottom line, however, is that we are NOT going to experience the steadily growing economy that the 2010 JOE assumed — no matter how hard governments try to fake it or prop it up with trillion$ in new debt. With world economic growth stalling and in fact contracting as many would argue, energy shortfalls will most likely be a combination of not being able to afford available oil and/or not enough available oil at any price to keep the bare minimum economic and infrastructure systems going around the world.
It won’t be long before somebody, and probably a lot of somebodies, will find that for whatever reasons — not enough money to purchase available oil or simply no oil anywhere to be had — they are not going to have the oil they need to support themselves in the lifestyle to which they have become accustomed — and that, to me, would be the simple definition of “energy shortfalls”.
Plantagenet on Tue, 9th Dec 2014 5:13 pm
The 2010 JOE report never envisioned the oil glut we have today. The economy and the oil market are changing so rapidly that seizing on projections made four years ago that already have proven to be wrong as a guide to what will happen in 2015 is ridiculous.
We’re in uncharted waters here—no one expected an oil glut in 2014, no one expected the price of oil to fall by 40%, and no one expected OPEC to keep pumping full out as the price of oil plummeted.
Northwest Resident on Tue, 9th Dec 2014 5:23 pm
What’s ridiculous is to keep crowing about “the oil glut”, which is very tiny and insignificant compared to the drop in price, and which is only due to the demand destruction that put the brakes on economic expansion and resulted in “the oil glut”. What’s even more ridiculous is having these facts explained to you repeatedly, but still just not getting it. And by the way, what you refer to as “seizing on projections made four years ago that already have proven to be wrong” is totally incorrect. Year 2015 hasn’t arrive yet, Plant, so how can energy shortage projections in 2015 have been proven wrong when 2015 hasn’t arrived yet? Please explain that one to me.
Plantagenet on Tue, 9th Dec 2014 5:37 pm
@NR
What’s ridiculous is your assumption that anyone is “crowing” about the current oil glut. The oil glut is simply a fact—WHy not accept reality? No value judgement is necessary. or implied when discussing the facts.
Similarly, you don’t seem to get the significance of the failure of the JOE report to predict the oil glut of 2014. The prediction of the JOE, made in 2010, never envisioned an oil glut in 2014. I know you find math challenging, NWR, but 2014 is FOUR YEARS after 2010. Your faith that their predictions for 2015 will come to pass is touching, but since they didn’t get 2014 right, its highly unlikely they will get 2015 right either.
Euan Meers predictions, shown above, are far more relevant than those of the 2010 JOE report, because they are being made now and have the benefit of being much more up to date. The JOE stuff is already proven to be wrong-headed and inaccurate.
Cheers!
paulo1 on Tue, 9th Dec 2014 5:57 pm
This ‘glut’ merely reflects a sick economy. Who knows if marginal production will ever achieve adequate financing to restart when and if prices rise? Once bilked twice shy might be the case.
We produce 2X what we use domestically and get hosed selling the surplus to US markets. As for the big price relief I still had to pay 1.15/litre for regular. the savings are meaningless.
Plantagenet on Tue, 9th Dec 2014 6:22 pm
@Paulo1
The vast majority of the price of petrol in Canada is taxes. Don’t blame the price of oil for your high petrol prices—most of what you pay goes to taxes.
In contrast, here in the US the oil glut is resulting in some places already having gasoline under $2 bucks a gallon, or about 1/4 of what you still pay there in Canada.
Davy on Tue, 9th Dec 2014 6:24 pm
Planter, I guess 2008 was an oil glut year too(*^*)
NR, I am smelling that 2015 stench. It smells like dead fish with a hint of cat piss. I am just not as extreme as you are on the type of correction. I am an optimistic doomer. I am looking at a bumpy descent because of BAU momentum and financial repression. You know the financial repression is like a drug that will keep many investors hooked. The economic oil glut will continue because the economy is sinking.
People are just not going to have work, paychecks, and confidence to buy. This is and will be global. I can’t wait to see how the US consumer, who is doing relatively OK in global comparison, reacts to a 50% stock market corrections. Marm-a-NOo, tell me guys what the graphs and numbers will look like in the retail sector after a global correction catches up with the US equity bubble. Retailers are already whining just wait until the big correction hits. Corn porn me boys.
Plantagenet on Tue, 9th Dec 2014 6:44 pm
Hi Davy:
Why would you think 2008 was a oil glut year???—the price of oil hit $138 bbl in early 2008 and then collapsed to the 30s when the global economy slowed in late 2008.
Are you suggesting the current oil price collapse is linked to global economic collapse starting two months ago like the 2008 oil price collapse was linked to the 2008 global economic collapse?
Sorry, but the global economy didn’t suddenly collapse two months ago—only the oil price collapsed due to oversupply—and thats why this price drop is considered to be the result of an oil glut.
——————
Cheers!
Makati1 on Tue, 9th Dec 2014 6:55 pm
Guesses…cheap and plentiful. The only for sure thing for 2015 is that it will come and go. But, as some mentioned, I think it is going to be a wild ride.
Davy on Tue, 9th Dec 2014 7:04 pm
Planter what is the difference now. The economy is not preforming or that economic oil glut would not be there. Your definition of glut does not fit mine. Go back to the eighties then we can talk glut but telling me we are in a glut now is corn porn.
JuanP on Tue, 9th Dec 2014 7:22 pm
I expected OPEC to keep the same 30 mbd production goal at their recent meeting because changing it required an agreement. I thought it unlikely that an agreement could be reached at this time because there is no need for it.
I’ve read reports that actual OPEC production is significantly higher, around 30.9 mbd. If this is true, production can be cut by almost a million without any need to agree to change the quotas.
Many OPEC countries can’t afford to make cuts, making an agreement to do so very hard to negotiate. Any cuts will have to come from KSA, Kuwait, and UAE.
The argument that KSA wants to defend its market share has merit, too. A period of lower oil prices makes shale, tar sands, arctic, and ultra deep offshore oil investments more risky and less profitable. Witness the decline in drilling permit applications in the USA in November. Many small oil companies producing shale could become a target for larger oil companies or go bankrupt.
Global oil production could start declining in a few months if oil prices remain this low.
Davy on Tue, 9th Dec 2014 7:42 pm
Juan, this is the needed crisis in the making. It is a perfect recipe of oil depletion POD and economic instability with a bursting bubbles and diminishing returns of QE. IOW a perfect storm. I just hope when this storm hits it is a cat 2 and not a cat 5.
My thoughts are a surgical cut of the cancerous entropic decay lifestyles and attitudes and a turning towards mitigation and sustainable activities as rehabilitation. Here is a simple example I purchased some old AG books from 1915 a few days ago. There were gardening classes taught in schools during this time in many areas. It would be rare to find this as part of the curriculum today. I am sure there is after school programs now but we should have required classes in gardening. This is what I am talking about when I say crisis induced change for the better. I understand that when this train leaves the station that’s all she wrote folks. BAU as we know it will end in short order
Northwest Resident on Tue, 9th Dec 2014 8:00 pm
Plant — “Similarly, you don’t seem to get the significance of the failure of the JOE report to predict the oil glut of 2014.”
Have you even read the 2010 JOE? The entire report is about perceived security threats. It doesn’t make ANY predictions. It discusses possible and likely scenarios. Failure to predict the 2014 oil glut? It never attempted to predict anything. Read it, Plant, then get back to me.
Like Paulo says, we have a sick economy made so by far too expensive oil resulting in an oil glut. But you keep bringing the oil glut up as if it is something really good. Which, it most definitely is not.
You say you know that I find math challenging, which I most definitely do not. You have no facts or information to base that statement on, which is typical of almost EVERYTHING you say — no facts, no information, just accusing and name calling and insulting as suits your mood.
I wish I knew you in person, Plant, because I’d love to have these discussions with you face-to-face where you would have to be accountable for all that foulness that drools out of your brain. But we’re not, and we never will be, so hey — just keep being your wonderful self, and I know you will.
Northwest Resident on Tue, 9th Dec 2014 8:06 pm
Davy — Yeah, I’m still thinking 2015 is the year that we really seriously begin the slide down. It isn’t a prediction, just a strong suspicion and most likely scenario from my point of view. As noted in this article, OPEC is likely to cut production in 2015. And one thing we do know, or at least know is very highly likely, and that is a good portion of the only oil production increase since 2005 — shale/unconventional — is likely to be cut back on severely by the low oil prices and resulting lack of financing for that high-cost production.
In my opinion, we are definitely pushing up hard against a very fragile situation, and it can only get worse. My whole point is that when I first read that 2010 JOE and the “as soon as 2015” verbage related to oil shortages, I took that seriously, and it appears to me that now that 2015 is finally around the corner and coming into focus, it is looking not all that good.
GregT on Tue, 9th Dec 2014 8:31 pm
“In contrast, here in the US the oil glut is resulting in some places already having gasoline under $2 bucks a gallon, or about 1/4 of what you still pay there in Canada.”
Give it up Plant. You’re making yourself look foolish. Anyone with a half a brain and an internet connection can prove you wrong in a matter of seconds.
Plantagenet on Tue, 9th Dec 2014 9:24 pm
@NR
First you post to say you expect economic problems in 2015 based on the fact you are “using the 2010 JOE economic growth projections” and then you claim the JOE report “didn’t attempt to predict anything.”
is it really possible that you don’t know that “projections” are the same thing as predictions? Or did you forget what you previously posted? Or is one of your posts a lie?
Please explain??
Cheers!
rockman on Tue, 9th Dec 2014 9:26 pm
“The 2010 JOE report never envisioned the oil glut we have today.” I don’t think we have definite proof yet but in the next six months…maybe. But a perhaps a different definition of “demand destruction” and “oil glut” is called for:
You want to sell 1000 widget for $100 each. Last year I had the bucks and paid you $100k. But I can’t afford to spend $100k this year. But I need those 1000 widgets and offer $70 each. You need the cash flow to keep your shop open and sell them to me…for $70k.
So I bought 1000 widgets last year and buy 1000 widgets this year. No demand destruction, right? Bullsh*t! LOL. There was significant demand destruction…for $100 widgets. But the demand for 1000 widgets was still satisfied.
But next year you’re got a nice cash reserve and won’t sell widgets for less than $100 each but I still can only spend $70k. So I buy only 700 widgets. So does that mean there’s a glut of widgets in the market place since there’s 300 not being bought? Or does it just mean that the market is adequately supplied…with $100 widgets?
But remember…widgets wear out quickly: you’re pretty sure you’ll sell 1300 widgets next year for $100 each…or maybe more. And though I may have cut back on other purchases next year to pay you $100 each for the 1300 widgets I must acquire. But you know what? You need to make up for that short revenue you had a couple of years ago so you’ll take my $130k…but you only deliver 1000 widgets to me. Does that means there’s a shortage of widgets? Obviously not…you have 300 just sitting in your warehouse. Or maybe it isn’t a shortage because I’ve bought all there are available…at a price I could afford.
GregT on Tue, 9th Dec 2014 10:19 pm
Again Plant,
Both from Merriam-Webster
Projection: an estimate of future possibilities based on a current trend
Prediction: : a statement about what will happen or might happen in the future
Not the same. Two different things.
Northwest Resident on Wed, 10th Dec 2014 12:59 am
Wrong again Plant. Once again you are misinterpreting and mischaracterizing what I wrote. You do that all the time.
It must disturb you deeply to have to face the reality that we are heading into a near term future where there will be economic contraction due to diminishing energy supplies.
My impression is that the majority of your non-Obama blaming posts are dedicated to denying that reality. You cling to oil gluts, future shale developments outside of the USA, to all kinds of denials to prevent you from having to face that reality.
Watching you squirm and lash out and mentally struggle to deny that reality is a lesson for everybody who reads these posts in just how deep denial can go, and just how ugly the attempts to maintain that denial can be.
The article posted above makes a good case that OPEC will cut production next year. With the falling price of oil and the likelihood that those prices are going to hold for a while, shale is already shutting down and will continue to do so. Energy junk bonds are crashing. Shale operators are going to start dropping out.
That translates to less energy — not enough oil to keep our current economy going, “as soon as 2015”. And my own personal point of view is that 2015 it will be when we first find ourselves in a situation where we look around and think, uh-oh, not enough energy.
Twist my words and resort to your denial methods all you want. Play your games. The facts are obvious, and admittedly very uncomfortable to contemplate.
Probably it is more comfortable for you to remain inside your bubble of denial, defended by your willing misinterpretations, your insults, your name calling, your whole bag of tricks that you use to fend off reality. You’re not the only one living in denial, if that’s any consolation to you at all. What makes you different is that you feel obligated to hang out on this forum and actively dispute the truth that makes you so uncomfortable.
Have a good one, Plant. Catch you next time around.
Davy on Wed, 10th Dec 2014 4:40 am
Now, NR, Planter is making headway toward acknowledging doom of POD and DD (death by debt). When I first started visiting this site Planter was a solid corn. He is now inching towards an optimistic doom like myself. Give him some time. Once he joins the home team he will appreciate your reasoning.
Going from a corn porn to a realistic corn is not that bad. This step is primarily one of seeing reality in the facts. The corn porn from Marm-a-NOo is a good example of intelligence in denial of change. Change will swallow the Marm-a-NOo up. Going from a realistic corn to an optimistic doom is a big step. This takes a special mental change. You acknowledge death of a way of life and institutions you have grown up with all your life. A way of thinking drilled into our head in every conceivable way starting with mom’s milk.
The difference between a dark doomer and an optimistic doom is the degree and duration. There is no facts involved yet to determine these viewpoints. The reason for this rests with human nature. It is still possible we will have less sever random descent with good decisions instead of bad combined with a degree of beating the odds IOW luck.
Descent is random decline from abandonment, unsolved problems, physical and abstract entropic decay, and social fabric tearing among many other issues. Diminishing returns from limits of growth are a key element. When energy and complexity decline problems do not get solve and the fester and infect the system. Eventually bifurcations start with feedbacks and convergences. Imagine a flooding rain starting on a mountain and all those small draws filling with water emptying into a river called change. Are we nearing this condition or well into its terminal phase? This is hard to see nowadays. Just nearing diminishing returns of limits of growth will cause economic turbulence. I see turbulence everywhere.
I am not sure TPTB are making bad decisions yet. Is the denial, manipulation, and outright lies paradoxically beneficial by preventing a panic induced destructive reaction from the GP? Maybe. We currently have no effective plan b’s I can see so time is critical. In fact we have corn porn fully in control at the top globally.
I still have hope an immediate crisis will accomplish a rush to a plan B if only the variable time holds out. Once terminal velocity from oil quantity and quality depletion hits all bets are off for a gentle descent. Picture that bullet dropping out of the air.
The corruption and wealth transfer is bad for sure. The wrong growth and the pathetic AGW mitigation efforts are poor decisions. Yet, once degrowth and or AGW mitigation efforts start the train leaves the station friends. BAU will be “Leavin on that midnight train to Georgia”.
https://www.youtube.com/watch?v=IdfZnWsps34
JuanP on Wed, 10th Dec 2014 7:47 am
Davy, I tried to take horticulture or similar classes at Miami’s colleges this year, but the closest ones would require me to buy a second car cause they are too far away, something I am not willing to do. I gave up and continue my learning from books and online.
The school my family founded in Uruguay teaches children how to grow food from PreK to 12 grade. It is the only school in Uruguay that does that. I always feel proud about it because that was my idea, my aunt went along with it, and thousands of children have benefited from it through the years, including my youngest cousin and some of my nephews.
I wish I had had the chance as a child. It takes many years of practice to make a good gardener. Every child should learn how to grow food, IMO.
Davy on Wed, 10th Dec 2014 8:25 am
Juan, if you have time glance at this link. I found the book I was reading online. The education discussion is lesson 104 on page 151.
https://archive.org/details/practicallesson00merrgoog
Northwest Resident on Wed, 10th Dec 2014 9:39 am
Davy — I also noticed that Plant seemed to be converting to the doomer POV with a number of posts he wrote over a two or three week period. I had to scratch my head, wondering what was going on in that mind of his. But as I recall, his doomer-like posts lacked enthusiasm and commitment, they sounded more like an insufferable alcoholic’s admissions to drinking too much might sound, just dry monotonous intonations of basic doomer principles. Then, suddenly, he fell off the wagon and reverted back to his corny denialist and repugnant lashing out ways. I don’t have any hope at all that Plant will ever truly see the error of his ways, but I do wish him the best of luck. In the meantime, I have to live with being his main target for insults, name calling, twisted misrepresentations and all that other crap that he slings around. No big deal. Actually, I’m honored.
I also have hope that our descent will be more or less managed, as you discuss. You know that I believe there are some very smart and powerful people who more or less exert control over events and who feel a moral obligation to preserve the better aspects of human civilization. I could be wrong of course, but I refuse to let go of the perhaps overly optimistic belief that there is a guiding principle, a shared vision of a better version of human civilization that binds these smart and powerful people together. There is good and bad on every level when it comes to humans, and a constant battle between the good and the bad. So, I don’t think I’m stretching my optimism too far to suspect that within the elite power structures and amongst the truly wealthy and powerful people who actually initiate and to a certain degree control events in this world, there are some “good guys” fighting against all the bad to try and lead the human herd to greener pastures. I might be wrong, it could be that forces of evil have taken complete control and are leading us on a one-way trip to extinction, but I doubt it. I think there are plans to mitigate the worst case scenarios, to the maximum extent possible. But that doesn’t mean that there aren’t going to be some very difficult and deadly times heading our way, sooner rather than later. We’ve messed with Mother Nature, and she’s about to get the last laugh on us. Some disasters in the making cannot be prevented, no matter how good the intentions. And that is what we should all be preparing for.
Danlxyz on Wed, 10th Dec 2014 9:41 am
Juan, try your county extension agent. They might have classes or know who does. They also have all kinks of pamphlet and downloads on growing different types of plants.
JuanP on Wed, 10th Dec 2014 10:48 am
Davy and Dan, Thanks! I will.
Davy on Wed, 10th Dec 2014 10:51 am
Well, NR, what is that alcoholic saying…..oh ya “God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
Maybe this is what is going on with Planter. You know falling off the wagon and back on. At least he is trying.
NR, I think you are right about TPTB. Good and bad are at work. Corruption and enlightenment as well are surely at work in this highest levels of power.
The problem is triage will have to be preformed with a significant loss of life and livelyhood. There is no avoiding these awful realities. IOW someone up there At the top will have to play God or the devil or both if there is such things. Maybe God will turn the devil loose to gather his harvest. More likely nature will make herself known and no amount of complexity and energy intensity will resist her.
An old saying says nature enjoys nature and only nature can overcome nature. In a nutshell you can’ t manage nature. You can only manage nature with nature. Modern mans problem he believes he controls nature through exceptionalism and devine destiny. This couldn’t be further from the truth and the reason a great extinction is in progress.
Kenz300 on Wed, 10th Dec 2014 12:41 pm
The drop in oil prices should give many oil producing countries the opportunity to reduce or eliminate the subsidies they provide to their consumers.
Those subsidies are a big reason for the huge growth in internal consumption these countries have.
Northwest Resident on Wed, 10th Dec 2014 12:58 pm
Kenz300 — Maybe the reason they haven’t eliminated the subsidies they provide to their “internal consumption” consumers is because that would result in untold suffering, riot, starvation and other unpleasant side effects not least of which is getting chased out of town, at minimum.
What makes you think the drop in oil prices provides an opportunity for them to do something that they are no doubt thinking about and contemplating doing all the time, but still unable to do?
Those damned overly-dependent internal consumption consumers!! If it weren’t for them, things would be so much easier.