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Page added on December 12, 2014
The Relentless Production of Shale Oil Is Breaking OPEC’s Neck
The world’s biggest oil companies faced ruin in the summer of 1931. Crude prices had plummeted. Wildcatters were selling oil from the bonanza East Texas field for a nickel a barrel, cheaper than a bowl of chili. On Aug. 17, Governor Ross Sterling declared a state of insurrection in four counties and sent 1,100 National Guard troops to shut down the fields and bring order to the market. A month later the Railroad Commission of Texas handed out strict production quotas.
That heavy-handed intervention in the free market was remarkable enough. Even more remarkable was who pulled it off. The person in charge of shutting down the wildcatters, National Guard Brigadier General Jacob Wolters, was the general counsel of Texas Co., an ancestor of Chevron (CVX). And the Texas governor who ordered Wolters in was a past president of Humble Oil and Refining, a forerunner of ExxonMobil (XOM). Big Oil played hardball in those days.
History is repeating itself, with a twist. The stressed-out giants of today are Saudi Arabia and its fellows in the Organization of the Petroleum Exporting Countries. The descendants of the 1930s wildcatters are today’s producers of oil from shale, who are driving down the world price of crude by flooding the market with millions of barrels of new oil each day. At $64 a barrel, Brent crude is down 44 percent since June. The twist is that today’s upstarts aren’t draining oil from neighbors’ plots, as happened in the 1930s. And OPEC can’t call in the National Guard against them. All it can do is gape at the falling price of crude and contemplate the destruction of their cartel at the hands of the Americans, whom they thought they had supplanted for good 40 years ago. Energy economist Philip Verleger says shale is to OPEC what the Apple II (AAPL) was to the IBM (IBM) mainframe.
Theories as to why OPEC didn’t reduce quotas at its meeting in Vienna on Nov. 27 are as cheap and abundant as crude in North Dakota. One holds that the Sunnis of Saudi Arabia want to hurt the Shiites of Iran, who need high-priced oil to finance their government. Another, expressed by Russian President Vladimir Putin, is that the whole thing is a conspiracy to undermine Russia, the world’s biggest oil producer. Yet another is that the Saudis hope to drive oil prices below where it makes sense for American shale producers to invest in new production. But shale producers have lowered their costs so much that in key fields they can make profits at $50 to $70 a barrel. That’s above core OPEC members’ exploration and production costs but below what many need to cover their government spending. “If my calculations are correct, this will go down as one of the worst commodity trading decisions ever,” Wilbur Ross, billionaire investor and chairman of WL Ross (IVZ), wrote in an e-mail.
In fact, prices are being forced down not by any action (or inaction) of the Saudis but by the American shale producers, who are simply producing all the oil they can to maximize their profits. “Collectively, they’re not the most sophisticated folks, especially when it comes to world markets,” says Charles Ebinger, a senior fellow in the Energy Security Initiative at the Brookings Institution.
With apologies to Ebinger, the shale producers don’t need to be sophisticates. Each operator is so small, it can increase production without pushing down the market price. That makes them price “takers,” not price setters. And because shale wells are short-lived, producers don’t have to plan far ahead, says Karr Ingham, a petroleum economist in Amarillo, Texas. Singly the shale busters are nothing. Collectively, their breakneck production is breaking OPEC’s neck. This is the remorseless, leaderless free market at work.
OPEC used to be something to reckon with. For a brief period in the 1970s its influence was so strong, it could set prices to the penny for scores of crudes, says Bhushan Bahree, senior director for OPEC Middle East research at market researcher IHS (IHS). Its power has waned considerably, but until this year Saudi Arabia could still be counted on to cut output for the good of the cartel when gluts emerged. The Saudis’ refusal last month to take one for the team is historic, says Michael Wittner, head of oil research at Société Générale (GLE:FP) in New York. “That is such a tremendous, dramatic change,” he says. “It’s hard to think of a way to exaggerate how fundamental it is.”
Strategic reserves and futures markets are better tools than cartels to tame oil’s chronic volatility
And rare. For nearly all of oil’s history it’s been under some kind of price control. John D. Rockefeller created the Standard Oil trust in the 19th century to dominate the market. Later came the “prorationing” rules of the Railroad Commission of Texas, which set the world price for decades. The Western oil companies known as the Seven Sisters carved up world oil supplies among themselves. Then came OPEC, which was at first confrontational toward oil-consuming nations but soon achieved a modus vivendi with the International Energy Agency, the group representing them. “They do good lunches. Vienna is a very good city to visit,” says Christopher Segar, an IEA energy analyst who’s been responsible for the agency’s relations with OPEC.
Given oil’s chronic volatility, it would be a mistake to count OPEC out for good. The glut that’s undermining the cartel today will set the stage for future shortages that could restore its influence. Cheap oil from shale already shows signs of shaking out investment in costlier technologies. Rystad Energy, a Norwegian consulting firm, estimates that oil averaging $60 a barrel next year would lead to the delay or cancellation of one-third of all oil and gas projects slated for go-aheads in 2015, mainly higher-cost investments in the Alberta oil sands, the Arctic, Brazil, West Africa, and the North Sea. As night follows day, scuppering projects will lead to shortages and a price spike. Untamed oil is “in a continuous boom-bust cycle,” says Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin.
For now the greater risk for consumers is a move to prop up prices and save marginal drillers. Mike Cantrell, a veteran Oklahoma oilman, recalls lobbying Washington in the 1980s for a tax on imported oil. “When you’re looking at going out of business, there are a lot of things you’ll try. I am not proud of those things, but I did them to try and survive.”
There are better ways than tariffs or cartels to tame oil. One is a crude reserve that an oil-consuming country can tap if supplies are disrupted, says Jason Bordoff, who was President Obama’s energy adviser from 2009 through 2013 and now directs Columbia University’s Center on Global Energy Policy. China is already adding to its strategic reserve at today’s low prices, putting a floor under the market—“wisely,” says John Studzinski, a senior managing director at Blackstone Group (BX). The other calming force is the futures market, which guides investment by reflecting investors’ collective judgments about the trajectory of prices. Alas, there is less trading in contracts out past two years, when the guidance would be most useful. Meanwhile, cheap oil isn’t all good. To fight global warming, the world needs to tax carbon fuels to promote the transition to renewable energy.
The U.S. is in a good place at the moment. In international affairs it often plays the galumphing giant bedeviled by small, nimble foes. With shale, it’s the American upstarts who are small and nimble. Says the IEA in its latest monthly report: “It is increasingly clear that we have begun a new chapter in the history of the oil markets.”
52 Comments on "The Relentless Production of Shale Oil Is Breaking OPEC’s Neck"
Northwest Resident on Fri, 12th Dec 2014 9:34 am
Yeah, right. I’d like to see the lineup of doofusses that believe this spin. There’s pure BS, as demonstrated in this posted article, and there’s the cold hard reality, as demonstrated in this article:
The Oil Crash is Under Way
“When you are felling a really big tree, the first signs that it is coming down are subtle; a crack here and there, a twitching of the crown. By the time these clues register on you, the tree is on its way down. The cracks and twitches from the U.S. oil industry are coming almost hourly now, and although it is a really big tree, and won’t actually hit the ground until next year, its fate is pretty well sealed. Here are this week’s signs and portents:”
http://www.dailyimpact.net/2014/12/11/the-oil-crash-is-under-way/
In 2015, we are going to find ourselves with a LOT less oil to burn. That translates directly to significant shrinkage in economic activity, and that’s if the economy doesn’t just collapse on itself altogether which it just might do, in fact, the chances are very good that it will do just that.
Here comes the pain.
coffeeguyzz on Fri, 12th Dec 2014 9:53 am
There has been mention that the processing/stabilizing procedures that North Dakota has ordered to be implemented by April, 2015, prior to any Bakken crude being loaded on trains, will enable the oil to be exported as it will be considered a refined product. If so, the market for ND crude will be global and not as prices constrained as it is at present.
Ralph on Fri, 12th Dec 2014 9:56 am
In 2005-8 we had a slowly rising oil price which steadily accelerated before a sharp crash, and slow recovery to a stable price 5 times higher than a decade earlier.
This time I think we are seeing a slowly falling oil price which is steadily accelerating and leading to what?
Plantagenet on Fri, 12th Dec 2014 11:02 am
Far from “finding ourselves with a LOT less oil to burn” we find ourselves in an oil glut.
I know its hard for some people to accept, but the combination of slow global economic growth combined with of excess oil supply due to fracking has produced an oil glut and falling oil prices.
Northwest Resident on Fri, 12th Dec 2014 11:07 am
Plant — We may find ourselves in an “oil glut” now. But my statement, repeated here for you to read once again in order to hopefully enable a more complete understanding on your part, was:
“In 2015, we are going to find ourselves with a LOT less oil to burn.”
That is in 2015, not now. And I am not the one making this prediction — many others much more qualified than myself are making that prediction. That prediction is based on the fact that financing/funding for shale oil operators is drying up, rig count is going down, new exploration and development is being cancelled.
Oil glut now. Much less oil in 2015. Does that make sense now?
shortonoil on Fri, 12th Dec 2014 11:11 am
After 7 years, and the accumulation of $800 billion in debt, the US shale industry is still producing fewer barrels of oil than Iraq; a county that only a few years ago was ripped to shreds by war. One half of US shale production is feedstock material, and it is no competition for most of OPEC’s that has output which is used for the production of transportation fuels. Between 2003, and 2004 world production increased by a greater amount in that one year than the entire US shale industry produces after seven years; and the price took a big jump upward that year.
High cost producers are looking at building a mountain of new debt in this low price environment, and they are pulling out all the stops to keep the public from going into a panic, and pulling their funding from these ventures. This article is just a rather hokey attempt to keep their hand in the investors’ pocket. They are wasting their, and our time. The market isn’t buying it!
http://www.thehillsgroup.org/
Davy on Fri, 12th Dec 2014 11:12 am
Planter, big difference between a production oil glut and an economic oil glut. A glut comes in different shades and colors. You are stuck with Econ 101 thinking that goes “dude gluts are cool”. Reality say a glut’s benefits are situationally dependent on economic dynamics. Producer and consumer glut benefits are in another category.
BTW guys, where the hell is Marm-a-NOo?
Plantagenet on Fri, 12th Dec 2014 11:14 am
NorRes—Your prediction for oil shortages in 2015 may come to pass….or it may not. Time will tell.
By the way—congrats on finally accepting that we are in an oil glut now. It might not last very long, but we are seeing a remarkable plunge in oil prices just now.
Cheers!
GregT on Fri, 12th Dec 2014 11:17 am
Plant,
You’re trying to spin this as a positive development, when it is not. The oil age will not end due to lack of oil. It will end when oil is no longer affordable for society. With your logic, we will be in an oil glut when the oil age has come to an end.
Plantagenet on Fri, 12th Dec 2014 11:17 am
Daver:
I’m not sure what you mean by “dude gluts are cool”—are you suggesting there are too many dudes around?
As far as oil goes, global oil production has gone up since the 2005-9 production plateau ended. So has global GDP. But Oil production has clearly outpaced demand, producing the oil glut we are experiencing just now.
Nony on Fri, 12th Dec 2014 11:19 am
CG: nothing was stopping producers from doing this stabi-refining before (and then exporting). If it was economically in their interests to do so, they would have already done it. Paid the cost and gotten the wTI-Brent differential (but remember also a cost of shipping overseas!) The stabilization is a lot like the flaring.
These are regs to drive practices that will increase cost. They will not incent more production, but have (perhaps mildly) an opposite effect.
This is how markets function…you don’t need the government to order you to do something that makes more money. You need them to order you to do things that make less money.
Plantagenet on Fri, 12th Dec 2014 11:19 am
GregT,
Any “spin” is purely in your head. I’m just pointing out there is an oil glut just now, because there is an oil glut just now.
NorRes has finally accepted this reality. Why not join us in bravely accepting what is going on in the world?
Northwest Resident on Fri, 12th Dec 2014 11:20 am
Davy — It could be that Planter’s problem is that he is overly confident that he already knows everything that needs to be known about the oil business. He often poses as an “oil expert”, and makes pompous accusations, judgments and statements that derive from his self-image as an oil expert. My impression is that Plant, being smugly confident in his own “I already know everything” state of mind, fails to actively monitor and understand the vast amount of information now available on the true state of the financial/energy situation we find ourselves in. I never, ever read any post by Plant that reflects knowledge or understanding of current headline-breaking developments as they come out daily now. Just an observation…
Northwest Resident on Fri, 12th Dec 2014 11:24 am
Plant — Your twist-of-the-knife style of sarcasm expressed with your “congratulations” and “cheers” is a reflection on you, and not a favorable one. I have already in several posts and on several different articles acknowledged the “oil glut”. As usual, you have no clue what you’re talking about and are just being your rude, falsely accusing, trollish self. Why can’t you just keep it civil, polite and on an “agree to disagree” basis. Why do you always attempt to pull others into that slime hole that you like to operate from? Come on man, get over yourself.
GregT on Fri, 12th Dec 2014 11:27 am
I accept what is going on in the world Plant. Economic contraction. It is only a glut for those who can still afford it. For those that cannot, it is austerity. Remove your blinders, and you might be able to see the big picture.
Davy on Fri, 12th Dec 2014 11:38 am
Planter, you are really showing some “dude GDP numbers are rad!” with your comments. GDP numbers are not the same today in an environment of repression and excessive debt. It’s like having a big balance in the bank account after you looted the home equity.
Plantagenet on Fri, 12th Dec 2014 12:01 pm
NorWes
If you think someone saying “cheers” to you is a “twist of the knife”, then you are one paranoid dude. Cheers! is what is known as a salutation—its just a pleasantry.
Relax, dude.
Cheers!
Plantagenet on Fri, 12th Dec 2014 12:08 pm
Daver
Its true that US GDP numbers can be inflated by borrowing and other various ploys. But thats not the big factor driving gains in global GDP—the most important factor on the global scene is that China and India are still growing at ca. 7% per year, with concomitant increases in their oil consumption. I made a third trip to China a couple of years ago—the construction boom and economic growth and other changes there are INCREDIBLE.
Northwest Resident on Fri, 12th Dec 2014 12:26 pm
No, Plant. Only when it comes from you. That’s not paranoia. It is interpreting the meaning correctly. When you do nothing but throw sarcasm and twisted words and insults and derogatory comments from that little slime hole you exist in, why should I interpret your obviously sarcastic “cheers” and “congratulations” any differently? Come on, Plant, face up to who and what you are — a rude, obnoxious, intolerable troll who needs to think he knows it all because that’s all you’ve got. You call me paranoid. I call you pathetic. Now, can we please end this conversation. And stop sniping at and biting the ankles of other posters on this board who are far more intellectually superior to you. In fact, Plant, would you please just go away. Come back when you’ve decided to play nice for a change.
Davy on Fri, 12th Dec 2014 12:27 pm
Planter, China growth is primarily of the mal-I vestment variety, ecologically destructive, and In aggregate significant unrealized bad debt. Planter bad debt means an investment that does not make a return. You really want to call the GDP? I say it is corn porn BS. Believe it if you like at your own peril.
Plantagenet on Fri, 12th Dec 2014 12:29 pm
NorRes:
You’re not a happy person, are you?
Plantagenet on Fri, 12th Dec 2014 12:34 pm
Daver:
1. I don’t call world GDP. Those numbers are calculated by armies of economists at various banks and institutions like the World Bank and the UN.
2. China is doing a remarkable job of growing their economy. Raising one billion people out of abject poverty is an amazing accomplishment. There is still a lot of poverty in rural areas, but people there are doing much better then they were a generation ago.
Cheers!
Northwest Resident on Fri, 12th Dec 2014 12:34 pm
Wrong again, Plant. As usual. You being wrong is like the sun rising in the east and setting in the west. Plant making brain dead and trollish comments is as entirely predictable. If Plant says it, then you know its going to be rude, obnoxious, falsely accusing or some other completely off-topic BS.
So, lay another one on us Plant. Prove my point. Again.
Northwest Resident on Fri, 12th Dec 2014 12:38 pm
China is doing a remarkable job of growing their economy.
Via massive debt, total disregard for environmental degradation, fraud and financial gimmickry so blatant that it is in a class all by itself, by building entire cities and other massive infrastructure where nobody lives and nobody needs it, by sucking in millions of peasants from the countryside to live in basement holes in the cities where they will end their miserable lives rotting away, through slave labor and repression of dissent.
Yes, you did it again Plant. A remarkable job of growing their economy. Brilliant analysis.
rockman on Fri, 12th Dec 2014 12:43 pm
Davy – I was going to make the same point: what does a “glut” mean? Does that mean there’s more producible oil then there are buyers who can buy that oil? If so then we’ve had an oil glut for decades if one believes that at least the KSA has had some extra production capacity as they’ve claimed for years. Or does it mean there’s a lot less oil being sold then can be produced? At the moment we appear to be buying as much oil as we have been for a good while. So in the last 6 months consumption has changed very little and production capabilities have changed very little. So why is anyone saying there’s an “oil glut” right now? Granted consumers are paying a lot of oil for less than they were paying 6 months ago. But that’s a price metric and it seems that folks tossing around the “g” word are focused on the volume metric. The volume metric that has changed very little as oil prices dropped from about $100/bbl to less than $70/bbl.
All I can imagine is that they are referring to a glut of $100+/bbl oil. It would seem that if the producers wouldn’t price oil for less than $100/bbl they wouldn’t be selling as much as they are now and would have a “glut” of production capability they weren’t utilizing. Which is no different than when oil went above $140/bbl in ’08: it created a huge glut of unproducible $140+/bbl oil. But then very quickly oil fell to less than $50/bbl.
But here’s the odd thing: despite the big increases and big decreases in oil prices over the last 10 years there’s been no big swings in production according to the EIA. Which also indicates there have been no big changes in the consumption of “petroleum and other liquids” as calculated by the EIA:
2004 – 82.40 mbopd
2005 – 83.88
2006 – 85.11
2007 – 85.88
2008 – 84.47
2009 – 84.70
2010 – 87.35
2011 – 88.49
2012 – 89.14
2013 – 90.48
2014 – 91.44
So a nice gradual increase with some flat spots along the way but no big swings in production rates correlating to big swings in prices.
As far as increased US production let’s step back and look at production from all the OECD (non-OPEC) countries including the US. From 2004 thru 2014 that production has decreased from 50.04 million bopd to 45.80 million bopd in 2014. In fact OECD production (adding in the huge increase in US shale production) has decreased from 2013 to today by about 87 million bbls per year. And during that same 10 year period the non-OECD (essentially OPEC) countries have increased production from 32.36 million bopd to 46.52 million bopd.
So in the world that includes the OPEC producers and the OECD producers (non-OPEC)including the US here’s the score card: OPEC has added to the production of oil and the OECD, including the US, hasn’t done sh*t. LOL. So if someone one’s to single out the increase in US production as the cause for the price drop then I can point to any number of OECD countries that have decreased oil production.
Bottom line: you can’t single out production increases in just one OECD country, like the US, and say that’s the cause for lower oil prices. That’s the same as presenting US oil production as a surrogate for all non-OPEC oil production. And it isn’t. OPEC competes on a price basis with all the other oil producers on the planet…not just the US. And the irrefutable fact is that the countries that OPEC competes against are producing less oil today then they did a year.
FACT: over the last 10 years the non-OPEC countries, including the US, are producing 1.5 BILLION bbls of oil LESS per year TODAY while the OPEC countries are producing 4.8 BILLION bbls of oil MORE per year TODAY. So it’s really simple: the USA, when it comes to oil production, is not the whole f*cking world. LOL. The US may have increased oil production in recent years but not enough to offset the loss of production by the other non-OPEC countries.
The completion driving prices down is between the individual OPEC countries and Russia.
Nony on Fri, 12th Dec 2014 1:24 pm
There were a lot of comments about U.S. shale would not amount to much, that it would taper off (even at 100/bbl) because of “running out” and stuff like that. Even Mark Papa made remarks to that effect. Instead what happened is that linear growth at 1 million bbl/day/year continued and actually accelerating (we were on pace to add 1.4 MM bpd in 2014). Mark Papa has admitted that he was too conservative.
After 3 years (and with the prospect of it continuing), it had to have an impact. Price dropped because of SUPPLY. People like Rock are just in denial. You can’t blame a price drop on reduced demand when the volume consumed is UP! It’s mathematically impossible.
Now…price drops and shale becomes constrained. What’s the outcome in the end? Oil is produced with shale as the marginal barrels. There will be some equilibrium. Is it possible that we overshoot low? Sure. Futures market shows this. 57 right now. 60+ for the next several years. Markets are very good at handling “excess” or “shortage”. There is no such thing. There are just buyers with different willingness to pay (and volumes) and suppliers with different fullin costs (and their volumes). This is literally microeconomics 101.
Too bad you all don’t think this way. Too bad, you have econ profs like Jim Hamilton who preen themselves up as some sort of oil gurus who don’t even THINK like economists.
shallowsand on Fri, 12th Dec 2014 1:39 pm
It is a combination of increased supply and decreased demand. Unfortunately, it appears the greater factor may be decreased worldwide demand. Will have to wait and see whether dramatic drop in prices affects the demand issue. I do think it will affect the supply issue, as decreased CAPEX certain to lead to that. Depletion never sleeps.
Wonder why we all insult each other on this board. Oh yea, this is the internet where everyone has “beer muscles”. LOL.
MSN Fanboy on Fri, 12th Dec 2014 1:39 pm
NR, what is so rude about cheers?
I read your little diplomatic spats daily and cant figure out ‘the big difference’ in your positions.
There is an oil glut you both agree.
It will end you both agree.
Am I missing something?
BTW Plant, you are espousing a makati1 style argument with Chinese economic growth… it is not all it seems to be.
I seem to own this house, I am also 400,000 in debt to the bank, who owns the house? lol
Plantagenet on Fri, 12th Dec 2014 1:48 pm
MSN:
1. I don’t understand why NorRes is so upset either.
2. I agree with you that debt is a real concern in China. Another point of concern is that their GDP grout rate is also slowing—they’ve gone from 10-12% annual gap growth a few years ago to ca. 7% now. ANd even those numbers may be overly optimistic. Its as hard to trust China’s GDP numbers as it is to trust obama’s unemployment rate numbers.
Northwest Resident on Fri, 12th Dec 2014 1:48 pm
MSN — Nothing is rude about cheers when it is said in sincerity. If you can’t figure out the difference between my and Plant’s positions, it figures. Weren’t you the one denouncing me several times on this forum for hyping the Ebola threat when in fact my one and only post on that subject was that I believed Ebola would be contained unless it went airborne. Yes, you are missing something.
Plantagenet on Fri, 12th Dec 2014 1:49 pm
make that GROWTH rate not “grout rate”.
Damn these built-in spell checkers.
Northwest Resident on Fri, 12th Dec 2014 1:54 pm
I don’t understand why NorRes is so upset either.
Definitely not upset. Just sparring with trolls, nothing better to do while I wait for the QA department to test my new software release. I have time on my hands, and btw, there is a difference between being upset and pointing out false statements and rude obnoxious behavior.
MSN, this about the fourth or fifth time I’ve seen you post in defense of Plant shortly after he’s been pummeled by other commenters on this site for being so thoroughly wrong and troll-like. Why is it that you seem to always make an appearance shortly after Plant gets a good beating? Do you guys know each other? Sure looks that way. Maybe it is a right hand/left hand sock puppet relationship? Neither of you make any sense whatsoever, so it wouldn’t be surprising to learn that the same damaged brain is driving you both.
Speculawyer on Fri, 12th Dec 2014 2:09 pm
There is a “glut of $100/barrel oil” is a good way of putting it. More oil at $100 than needed. So the price drops and the expensive oil will stop being drilled until there is a match up of supply & demand. I’m guessing we have to be near the price bottom now but who knows? I’m guessing we’ll have oil at $75/barrell for a couple years after the bottom is reached.
GregT on Fri, 12th Dec 2014 2:39 pm
A better way of putting it is, there isn’t the demand for $100 bbl oil, because high oil prices have decimated the world’s economies.
Plantagenet on Fri, 12th Dec 2014 2:41 pm
NorRes:
1. Saying “cheers” to people is not rude.
2. People who constantly call other people “trolls” are typically trolls themselves. You are a classic example of this.
3. Earlier you said you had “daddy” issue because your dad was a deeply religious man. Is it possible your psychological issues about your dad are the reason you make all these on-line attacks on me and other folks?
3. If so, then please realize that MSN is not your Dad. You probably need to go talk to your dad—you’re not helping anything by hiding from your dad and attacking MSN or anybody else.
4. When you get things sorted out, lets just discuss peak oil? Ok?
Cheers!
Hiruit Nguyse on Fri, 12th Dec 2014 2:42 pm
I have seen so much BS about ‘gluts’ that I am going to add my opinions that I learned years ago about bis-speak.
Glut: I am going to make spaghetti tonight, and there are 5 jars of tomatoes on the shelf. I use 4. Therefore I have a tomato glut. Next week, I am going to make spaghetti again, and suddenly I have a tomato shortfall.
Much more than 60 days of Oil, Food, beanie babies, or any other product in this short sighted society where people live from SNAP card to VISA card, is considered a glut. A loaf of bread unsold over at the Dollar General is a glut by bis-speak.
Trader Talk:
SELL: Means you should have already dumped a long time ago.
HOLD; Means Dump at Once.
BUY: Means Avoid, You already missed the boat.
HN
Dredd on Fri, 12th Dec 2014 2:50 pm
There is a glut of pollution.
OPEC (Oil Produced Ecosystem Catastrophe).
“Even with a deal to stop the current rate of greenhouse gas emissions, scientists warn, the world will become increasingly unpleasant. Without a deal, they say, the world could eventually become uninhabitable for humans.”
(NY Times, 11/30/14)
Plantagenet on Fri, 12th Dec 2014 3:04 pm
glut (ɡlʌt)
n
1. an excessive amount, as in the production of a crop, often leading to a fall in price
————-
Why the hangup on the word “glut”. All it means is that there is more supply of a commodity then demand, so the price drops. Oil is clearly in a glut—the price has dropped by 40% in just a few months.
Plantagenet on Fri, 12th Dec 2014 3:08 pm
Yes, there is a glut of $100/bbl oil.
There is also a glut of $90/bbl oil.
$80/bbl oil? It must be in a glut—can’t sell it.
$70/bbl oil? Also in a glut.
$60/bbl? A week ago it was in demand, but today its in a glut.
Todays price is $57.72/bbl for WTI oil.
Check it out: http://www.nasdaq.com/markets/crude-oil.aspx
GregT on Fri, 12th Dec 2014 3:41 pm
Plant,
There is not a larger supply of oil than there is demand. Oil will always be in demand, whether people can afford the price or not is an entirely different thing. You are confusing price with volume. Oil is not in a glut, it is overpriced.
Davy on Fri, 12th Dec 2014 3:50 pm
No hang up Planter but you fail to ask the question of how and why. A glut is a glut no doubt but an economic glut is another animal from a production glut.
An economic oil glut is negative with weak or contracting economic activity. A production glut is a surplus of production in a normal economy.
This is important now because there are many indication of a contracting global economy in an environment of manipulation and distorted statistics. IOW oil is an honest indicator of SHTF.
GregT on Fri, 12th Dec 2014 4:01 pm
Also Plant,
You are again over-simplifying things. Oil is not just another commodity. Oil is THE key resource that fuels our economies. As long as economies require growth, oil demand will continue to increase over time. It is high oil prices that have caused economic contraction, which has lead to the unaffordability of oil at higher prices. As prices fall, economies will temporarily pick-up, which will lead to higher oil prices which in turn will cause more damage to our economies.
It is the price that matters, not the demand.
Plantagenet on Fri, 12th Dec 2014 4:41 pm
@Daver: You may very well be right that contracting demand is playing a role in the current oil glut. However, we know for certain there is increasing global oil supply from the time series plots of global oil production produced by the EIA, Ron Patterson, etc.
@GregT: You are right that it is the price that matters. Now—please take a deep breath and acknowledge that the price of oil has dropped 40% because of the oil glut.
Salud!
nemteck on Fri, 12th Dec 2014 5:27 pm
The title should read: The Relentless Production of Shale Oil Is Breaking producers’ Necks
There are many fantastic phrases in the text but my favored one is this: because shale wells are short-lived, producers don’t have to plan far ahead.
Just the opposite is true. Producers must plan well ahead to line up drilling successive wells before the previous ones decline 90% in 3 years.
Kenjamkov on Fri, 12th Dec 2014 5:28 pm
During the collapse, oil prices are gonna bounce like a heart-rate monitor until, eventually, we flat-line.
GregT on Fri, 12th Dec 2014 8:34 pm
Yup Plant,
Just like terminal cancer patients die from pneumonia. Again, you are not looking at the big picture. Your view is very narrow minded and simplistic. As usual.
MSN Fanboy on Fri, 12th Dec 2014 9:12 pm
2. People who constantly call other people “trolls” are typically trolls themselves. You are a classic example of this. … BINGO
I notice this with NR, if you don’t EXPLICITLY agree with the detail the ad hominem rhetoric begins.
Planter is always the defensive reactionary lol… even though he gives Obama too much infamy.
MSN Fanboy on Fri, 12th Dec 2014 9:14 pm
LOL now GregT & Davy join.
PEOPLE WHO THROW STONES SHOULDN’T LIVE IN GLASS HOUSES
GregT on Sat, 13th Dec 2014 2:25 am
“3. Earlier you said you had “daddy” issue because your dad was a deeply religious man. Is it possible your psychological issues about your dad are the reason you make all these on-line attacks on me and other folks?”
“3. If so, then please realize that MSN is not your Dad. You probably need to go talk to your dad”
The above are prime examples of trollish behaviour MSN.
From Wiki:
In Internet slang, a troll (/ˈtroʊl/, /ˈtrɒl/) is a person who sows discord on the Internet by starting arguments or upsetting people, by posting inflammatory, extraneous, or off-topic messages in an online community (such as a newsgroup, forum, chat room, or blog) with the deliberate intent of provoking readers into an emotional response or of otherwise disrupting normal on-topic discussion.
Northwest Resident on Sat, 13th Dec 2014 2:44 am
MSN — I wouldn’t expect anything other than obnoxious, false and pointless coming from you. The “daddy issues” crap is a regurgitation of a Plant slime attack from a few months back, straight from the sewer, based on no fact or evidence whatsoever. And you, being Plant’s sock puppet, are merely wallowing in that slime because you apparently don’t have anything better to do. I consider your opinion worthless. Why don’t you just go back to being a clown. Please stop addressing me in your gutter level posts. Go be a troll somewhere else.