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Page added on January 8, 2015
U.A.E. Energy Minister Says Oil Glut Could Run for Years
Oversupply in crude markets could take months or even years to fix depending on when producers outside OPEC cut their output, Abu Dhabi-based The National reported, citing comments by U.A.E. Energy Minister Suhail Al Mazrouei.
“We are experiencing an obvious oversupply in the market that needs time to be absorbed,” the newspaper reported Mazrouei as saying in e-mailed comments. The United Arab Emirates supported the November decision by the Organization of Petroleum Exporting Countries to maintain production, The National reported Mazrouei as saying.
Brent crude, a pricing benchmark for more than half of the world’s oil, tumbled 48 percent last year, the most since 2008. OPEC decided Nov. 27 to maintain production instead of cutting output to eliminate a surplus left by increased supplies from the U.S. to Russia.
“Depending on the actual production growth from non-OPEC countries, this problem could take months or even years,” the U.A.E.’s Mazrouei was quoted as saying in The National, referring to oversupply. “If they act rationally, we can see positive corrections during 2015.”
Saudi Arabia won’t cut its output, though producers outside the group are welcome to do so, Ali Al-Naimi, that country’s oil minister, said at a conference in Abu Dhabi Dec. 21. OPEC would find it “difficult, if not impossible” to give up part of its share in global oil markets by cutting output, he said Dec. 19.
OPEC’s Contribution
Mazrouei said OPEC didn’t contribute to putting too much crude up for sale “and shall not be blamed if other non-OPEC countries oversupply the market,” according to The National.
U.A.E. oil output averaged 2.77 million barrels a day last year, down from 2.92 million barrels daily in August 2013, according to data compiled by Bloomberg. Saudi oil production at 9.5 million barrels a day is near a three-decade high of 10 million barrels daily reached in September. OPEC production at 30.2 million barrels a day in December exceeded the group’s own 30 million barrel a day target for a seventh consecutive month, according to the data compiled by Bloomberg.
Saudi Arabia and the U.A.E. have boosted output this decade to compensate for losses in OPEC production from countries such as Libya and Iran. The higher output from those countries and in North America combined with slowing demand growth in Asia to drive prices lower, OPEC’s Secretary General Abdalla El-Badri said last month in Abu Dhabi.
Boosting Demand
The low oil prices could encourage economic growth and, in turn, boost demand for crude, Mazrouei said, according to The National.
The U.A.E. plans to boost oil production capacity to 3.5 million barrels a day in 2017 and won’t change its development plans due to crude price fluctuations, The National reported Mazrouei as saying. The country can currently pump about 3 million barrels a day, according to data compiled by Bloomberg.
“Most of the projects are committed and under construction and we don’t foresee any delays on the capacity expansion,” he said. “But building the capacity is something and using it is something else. We will always be wise and considerate of the world supply and demand.”
18 Comments on "U.A.E. Energy Minister Says Oil Glut Could Run for Years"
Plantagenet on Thu, 8th Jan 2015 11:16 pm
Given the speed at which tight shale oil wells deplete I expect this oil glut to last only ca one year
GregT on Thu, 8th Jan 2015 11:58 pm
Given the speed at which tight shale oil wells deplete I expect this oil shortage to really pick up speed as we go forward. Manipulation and geopolitics will not maintain the facade for long.
Davy on Fri, 9th Jan 2015 6:09 am
Given the speed at which tight oil wells deplete and the skyrocketing interest rates for energy junk bonds we know how the US energy sector is going to go through severe turmoil. Shortages are more than temporary phenomenon they carry contagion and feedback risk. Systematically if shortages are allowed to go on too long they can cause irreversible damage. We are entering that zone of irreversible damage. IMA we are likewise entering a zone where financial trends are going to lead to a similar results. Both finance and the oil markets are in stress currently and have been since 08. The too high and too low no longer work in today’s cheap energy starve world with underlying excessive debt.
I am curious how shortages will play out. We know the knowns about shortages but there will be unintended consequences that we have little understanding of because we have never been in a hyper complex globalized world with oil shortages. The 70’s shortages were a different animal. Today we have vast distribution systems, Just-in-time manufacturing, vast food monocultures, and global money flows. Shortages will end badly for this arrangement. I also wonder if we will have a polarization of the geopolitical situation much like musical chairs where countries and regions will be left in the dark because of comparative disadvantage. It will be interesting and dangerous times.
paulo1 on Fri, 9th Jan 2015 7:21 am
The key statement you made Davy (for me) was “hyper complex globalized world”. Add to that rousing social media communication, hungry angry ripped off people, armed populations with expectations…..
It is indeed a recipe for upheaval.
rockman on Fri, 9th Jan 2015 9:45 am
So again back to definitions of gluts and shortages. At the moment there appears to be huge glut of $90/bbl oil: I see no producer selling any of their $90/bbl inventory they have in storage. OTOH there doesn’t appear to be a glut of $55/bbl since almost every bbl of that oil available is being bought by the consumers. In fact, if the recent jump in US gasoline consumption isn’t a one-off situation and the trend continues we might see a shortage of $55/bbl oil soon. Just as we have a tremendous shortage on $30/bbl oil today. There’s a huge global market in the third world that would gobble up every bbl of $30 oil if it were available. That market has been starved for oil for 11 years since 2003.
So here we are at the beginning of 2015 and we have a huge glut of $90/bbl oil, a balanced supply/demand dynamic for $55/bbl oil and a crippling shortage of $30/bbl oil.
Glad we got that all straightened out. LOL
Dubya on Fri, 9th Jan 2015 9:47 am
Can anyone inform me how big this glut is? If we have, say, 15 billion barrels in bulk tank storage and tankers with nowhere to go – that would be useful information. But improbable, I suspect.
GregT on Fri, 9th Jan 2015 10:03 am
Dubya,
Ask Plant. He’ll do a tanker count for you.
GregT on Fri, 9th Jan 2015 10:10 am
Rock,
When you say $90/bbl oil, $55/bbl oil, etc., how exactly are those prices being set? If production costs, then why produce it if it can’t be sold?
Northwest Resident on Fri, 9th Jan 2015 11:35 am
A huge glut of $90/bbl oil and a dire shortage of $30/bbl oil.
If that fundamental truth doesn’t put a stake through the heart of the “oil glut responsible for plunging oil price” lie, then nothing will.
Of course, those among us with secret agendas and/or are just too friggin dense to “get it” will continue to push the whole “oil glut” lie as fact, as we see daily demonstrated on this forum.
Speculawyer on Fri, 9th Jan 2015 11:39 am
It COULD last years, but I doubt it will. I wouldn’t be surprised if these low prices cause some instability in some oil exporting country which then blows up. (Libya, Venezuela, . . . *gulp* . . . Russia, etc.
GregT on Fri, 9th Jan 2015 12:24 pm
The …*gasp*…US?
http://www.globalresearch.ca/will-falling-oil-prices-crash-the-markets/5419484
Speculawyer on Fri, 9th Jan 2015 12:38 pm
Rockman, as usual, you have a great way of explaining the situation.
GregT:
“When you say $90/bbl oil, $55/bbl oil, etc., how exactly are those prices being set?”
Yes, I presume production costs.
“If production costs, then why produce it if it can’t be sold?”
Lots of reasons:
1) Because of sunk costs. If you’ve already drilled the well and oil is coming out, you might as well sell it at loss and at least pay your employees or debt instead of go bankrupt.
2) Lease requirements – Many leases can be lost unless you start drilling, so you may start drilling and hope the price rises.
3) Large liquidated damages clauses – If you are going to have to pay millions to break your contract to lease a rig, you might lose less money by drilling and selling at a loss.
4) Can’t stop – Apparently some wells just can’t be stopped because if you stop them they won’t keep flowing as they have been because they’ll freeze up. I’ve heard this is an issue in Russia.
Northwest Resident on Fri, 9th Jan 2015 12:45 pm
From that globalresearch article linked above:
“Rasmus also believes that the current oil-glut is politically motivated. Washington’s powerbrokers persuaded the Saudis to flood the market with petroleum to push down prices and crush oil-dependent Moscow.”
So much BS being stated as fact these days, without substantiation, without supporting evidence. Just pure unadulterated crap flying around everywhere. No wonder there are so many confused and clueless people in this world.
Davy on Fri, 9th Jan 2015 12:58 pm
Greg, you would think the mayham in the junk bond markets would create widespread market havoc but I still see a market extending and pretending. The market still trusts the central banks have their back. I am starting to think it will take a full blown energy crisis complete with liquid fuel shortages to baseball bate the markets. I see this coming sooner than many think.
This market is amazingly stubborn to bad news. In fact bad news is good news for the financial gangsters. Bad news means more wealth transfer policies and more canibalization of the social fabric. NR’s year of the shitstorm might not be the end all shitstorm. It may just be the end of the beginnings of the shitstorm season. Now the son of a bitchin shitstorm needs to travel over some warm ocean to build up some really good mojo for the knock out landfall.
GregT on Fri, 9th Jan 2015 1:41 pm
Well then Spec,
If producers are selling at a loss, so much for the huge glut of $90/bbl oil then.
GregT on Fri, 9th Jan 2015 1:54 pm
NWR,
I’ve looked at this recent pullback from every angle possible. Other than some sort of collusion to fix prices, nothing else makes any sense. Given the geopolitical atmosphere of the last decade, it is difficult for me not to come to the same conclusions that the Russians, the Iranians, and the Venezuelans have come to.
Northwest Resident on Fri, 9th Jan 2015 2:21 pm
GregT — I haven’t seen any evidence anywhere that the Saudis have flloded the market with petroleum. Have you?
How about this as an explanation for dramatic oil price drop? Heavy reading, but very revealing if you ask me. To understand completely the short one-sentence excerpt I’m including in this post, you’ll have to read and assimilate the whole damn thing.
Black Swan Dive
“Low priced fuel means there are no businesses with credit.”
http://www.economic-undertow.com/2015/01/07/black-swan-dive/
Speculawyer on Fri, 9th Jan 2015 8:10 pm
“If producers are selling at a loss, so much for the huge glut of $90/bbl oil then.”
Indeed. When the market price is $50 and there are millions of barrels of $90/barrel oil easily available, that glut of $90/barrel oil is gonna stay in the ground.
But that oil is still there and when price goes back up, they’ll start drilling it again. So there doesn’t seem to be any big worries about a shortage of oil in the near term.