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Page added on March 4, 2015
Exxon CEO: Get Used to Lower Oil Prices
Exxon Mobil CEO Rex Tillerson expects the price of oil to remain low over the next two years because of ample global supplies and relatively weak economic growth.
“People need to kinda settle in for a while,” Tillerson said at the company’s annual investor conference in New York.
In a presentation to investors outlining its business plans through 2017, Exxon assumes a price of $55 a barrel for global crude. That’s $5 below where Brent crude, the most important global benchmark, traded on Wednesday. It’s about half of what Brent averaged between 2011 and the middle of last year.
The price of oil plunged in the second half of 2014 when it became apparent that production was outpacing global demand. The rise in U.S. production last year of 1.5 million barrels per day was the third largest in the history of the global oil industry, according to a recent report from BP. Meanwhile, weakening economic conditions in China, Japan and Europe slowed the growth in oil demand.
BP CEO Bob Dudley made remarks similar to Tillerson’s in a recent call with investors. The CEOs comments reflect an increasingly common industry view that new sources of oil around the globe, relatively slow growth in demand, and large amounts of crude in storage will keep a lid on prices for the foreseeable future.
“When you have that much storage out there, it takes a long time to work that off,” Dudley said.
The U.S. Energy Department reported Wednesday that U.S. oil supplies have grown to 444.4 million barrels, the highest level at least 80 years.
Tillerson cautioned that geopolitical turmoil could unexpectedly send prices higher. But he said that if tensions calm, much more oil is ready to hit the market.
Production in Libya has been erratic in recent years because of political upheaval there. Production in Iran, once OPEC’s second largest exporter, has been depressed in recent years because of Western sanctions. Those sanctions could be eased if current talks over Iran’s nuclear program make progress.
“I see a lot of supply out there,” Tillerson said.
Exxon will be adding to that in the coming years, despite the low prices.
Exxon told investors Wednesday that 16 new production projects will begin producing oil and gas through 2017, helping the company increase production to 4.3 million barrels per day, up from 4 million barrels per day last year.
The company said it expects to spend less to develop new projects over the next three years, but mainly because prices that its suppliers charge have fallen considerably with the price of oil — not because it is cutting back exploring for oil and gas.
29 Comments on "Exxon CEO: Get Used to Lower Oil Prices"
penury on Wed, 4th Mar 2015 8:55 pm
I really have a problem with the thought of oil prices remaining low for a considerable amount of time. I can grok that production from existing sources will continue in order to provide capital flow. And I can understand that loss of demand will pressure against rising prices. My problem is? Prices of labor are rising, prices of other goods and services will rise. Eventually interest rates on the borrowed money will rise, deflation will be resisted by every CB on the world. Depletion is like rust, it never sleeps and must be accounted for. Storage of unsold oil will become more and more expensive. To slow production would be a death knell for a majority of producers/ Over supply will lead to shortages fairly rapidly and the funds to re-start production will not be available. Just my uninformed opinion but, I certainly look forward to facts showing my errors.
Perk Earl on Wed, 4th Mar 2015 11:17 pm
Penury, you’re thinking of a world that continually has a certain level of funds available for oil in spite of net energy content of a barrel of oil depleting.
As the net energy available declines the capability for that to translate to the consumer through wages to pay for oil directly (fuel) or indirectly (food and services), declines as evidenced by deflation.
It all comes down to available energy and it is depleting. As we head down the EROEI ladder, consumers are less capable of purchasing goods and services and the price of oil must decline along with that trend.
That’s why Shortonoil has a graph showing consumer affordability dropping quite sharply after the point in time that it took 1/2 of the energy in oil to produce it. A simple word for it is depletion but the implications are enormous as our world economy pincers towards collapse.
Take the analogy of gold in a particular river. The more gold removed, the greater the tonnage of material that must be processed to get the ore, until at some threshold of diminishing returns the process costs more than the gold acquired and the quarry shuts down.
This is happening on a worldwide basis with oil, with some places where conventional is still quite cheap to extract, but the cost to consumers is based on the marginal barrel, the highest costing barrel the economy consumes. As depletion continues to reduce the overall net energy available from a barrel of oil, the consumer has less to pay while conversely production rises.
So the term conversely is our conundrum, as it continually reduces future supply while reducing wages available to purchase oil, directly or indirectly. Some think the price of oil dropping is good, but in fact it reduces ultimate recoverable resources (URR) until it’s game over.
Perk Earl on Wed, 4th Mar 2015 11:21 pm
“As depletion continues to reduce the overall net energy available from a barrel of oil, the consumer has less to pay while conversely production rises.”
Change that last word to drops. It hasn’t dropped yet, but it will soon enough. We are at or very nearly at that tipping point.
Northwest Resident on Thu, 5th Mar 2015 1:29 am
Demand For OPEC Oil Is Falling Off A Cliff
Plummeting demand. Shrinking economies. Retail crashing and burning. Baltic Dry Index diving. Unbearable levels of debt. Extreme population overshoot. Toxic waste buildup. CO2 levels off the charts and increasing daily. Chaos and war erupting around the globe. Water and food shortages.
Soaring stock market! Politicians assuring us that everything is under control! Propaganda blitzes 24/7/365 aimed at keeping the populations ignorant and trusting in their great leaders.
Welcome to LaLa Land! Your last stop before total collapse.
http://www.businessinsider.com/opec-2015-oil-demand-is-set-to-be-weakest-for-12-years-2014-12#ixzz3TUfCPkGs
marmico on Thu, 5th Mar 2015 1:56 am
Yeoman work, Rex. Keep on excising the ten year buildup of lard in the U.S. oil patch for the benefit of consumers.
Perk Earl on Thu, 5th Mar 2015 4:43 am
“CO2 levels off the charts and increasing daily.”
NR, I saw this youtube video – no link, sorry. What it was saying is in the past 400,000 years large increases in CO2 has later were followed by methane increases, which brought sudden temperature increases.
So far 97% of the added energy due to CO2 emissions has gone into the oceans, but at some point that heat build up melts the methane caltrates, and it quickly increases air temperature.
So, not only are we headed for economic dislocation due to oil depletion, but also extreme weather as in much higher temperatures on average and weather events 10-20 times more powerful than what we’ve been accustomed to during this relatively quiet period of weather.
It will certainly make the bottleneck that much more challenging to make it through. I keep wondering if much like the rodents that survived the extinction event 65 million years ago by burrowing under ground, will be the same M.O. by people trying survive the methane bomb. Well, even if that scenario doesn’t occur quite that badly, there’s the coming economic crescendo which will be some very big show! We’ve all got ringside seats for that one.
rockman on Thu, 5th Mar 2015 6:37 am
Listened to Rex questioned by an analyst this morning. Sometime ago folks questioned why XOM was buying their stock back. The analysts nailed it this morning: while the acquisition frenzy is still probably 6 to 12 months out XOM will use that stock inventory for their acquisition efforts. Just as they’ve done it the past: typically little cash is put on the table with the bulk of the value in XOM stock.
Rex was very careful in his choice of words: he predicted a healthy addition to XOM’s reserve but he didn’t say they were going to be drilling a lot to do so. In reality XOM is so large and produces so much oil/NG annually that it’s impossible for them to replace their production by drilling new wells. The year that XOM acquired XTO about 80% of their reserve additions that year came from that stock swap and not from drilling.
XOM’s cash flow may be down but they have many tens of $billions in reserve stock they can use to pick up companies on the cheap. As Mark Twain might say: Rumors of XOM’s death have been greatly exaggerated.
Davy on Thu, 5th Mar 2015 7:28 am
It is the economy stupid! Some politician said that way back when the economy was surprisingly normal with normal business cycles. What we are in today is nothing of the sort and oil is within this sick economy in repression and a debt deflation, wealth transfer, corruption, and manipulation.
The latest casualty is the oil sector with broad based pain from the distorting effects of QE within POD & ETP depletion. This pain is on the balance sheets across the oil sector and will soon be a contagion within the market. I will not put it past TPTB to manipulate oil market in a fight against that contagion.
The problems with the TPTB is oil is a global market with conflicting players. If prices are manipulated to far up this will benefit Russia which at the moment is suffering just where the western TPTB wants Russia. Oil is a foundational commodity in broad based depletion from POD & ETP. But it is also part of a repressed financial system that is manipulating the market for conflicting reason.
Conflicts like the ones that are present in the oil markets do not end well. There are consequences and unintended consequences to conflicting actions. The problem with lies is they multiply. One lie has to be covered often by one or two other lies. When the full extent of the lies become apparent the market is going to panic. Oil is too important to BAU. We are close to that point. The likely outcome of panic is further descent of demand destruction and supply destruction. That will hurt everyone because everyone is a part of BAU.
Davy on Thu, 5th Mar 2015 7:40 am
Marm, You got any Freddy Fluff to prove this article wrong? http://www.zerohedge.com/news/2015-03-05/2015-job-cuts-surge-19-compared-2014-energy-sector-cuts-38-total
marmico on Thu, 5th Mar 2015 8:10 am
Since the prior business cycle trough in 2009, direct oil/gas jobs added were ~200,000 relative to total jobs added of ~10,000,000.
200,000/10,000,000 = 2%.
Direct oil sector payrolls are a small component of overall payrolls. The oil price crash means unemployment for many oil patch workers. But it’s a minor subtraction in the big picture.
GregT on Thu, 5th Mar 2015 8:14 am
“Yeoman work, Rex. Keep on excising the ten year buildup of lard in the U.S. oil patch for the benefit of consumers.”
Considering the seriousness of the dilemmas currently faced by our species, it should not be very difficult to figure out that the Marmico has a corporate agenda.
Davy on Thu, 5th Mar 2015 8:34 am
Marm, not all Freddy Fluff is good.
http://research.stlouisfed.org/fred2/graph/?id=CIVPART
http://research.stlouisfed.org/fred2/series/MEHOINUSA672N
http://research.stlouisfed.org/fred2/series/U6RATE
Kenz300 on Thu, 5th Mar 2015 9:30 am
Oil companies — get used to lower stock price…..
Northwest Resident on Thu, 5th Mar 2015 9:40 am
The Glut
The surplus of oil in storage in Cushing and along the GC is all Bakken and Eagle Ford oil and therefore is in the plus 42 degree range. I know this for a fact as a lot of crude I produce is less than 30 gravity and receives a premium price because of its blendability with LTO. More important that price, my oil gets hauled every month. In S. Texas getting LTO moved off location is not always a gimme anymore. Five days before the end of each month lots of major trunk lines simply get shut down; oil hotels in Houston and points east have no vacancy signs on them. If the LACT stations are down, trucks don’t haul. It won’t be long before they’ll be shutting wells in, IMO. Yet these shale guys keep hammering away at it, like there is no tomorrow.
Conservation principles by regulatory agencies have historically played a role in America’s oil resource management. In the good ‘ol days, States regulated densities and well spacing; some even set maximum production allowables per well. For the most part, small to medium size, non-integrated independents did not borrow money to drill oil or gas wells. We grew off cash flow. The inherent risks of conventional resource exploration helped manage the pace of America’s oil development. Accordingly, the balance between domestic supply and demand stayed in check and oil and gas prices were fairly stable, save the occasional worldwide hiccups that occurred.
Now its like a parking lot at a Mexican wedding out there. These shale knot heads don’t have to worry about well spacing, or well densities; if they want to drill 8 million dollar wells on 20 acre spacing, they can. There is no risk in drilling these shale wells, at least not in the conventional sense of failure or success, and the shale industry can lie thru its teeth and borrow money it will never, ever be able to pay back. It’s been a free for all. The end result is 3 1/2 million barrels of increased domestic oil production, in a short period of time, that has indeed flooded the oil market and upset the fragile balance between supply and demand and futures speculation. The shale industry pee’d down it’s own pant leg.
Comment by Mike on this article:
http://peakoilbarrel.com/us-rig-count-location/
Northwest Resident on Thu, 5th Mar 2015 9:48 am
“The shale industry pee’d down it’s own pant leg.”
More like, the oil industry through one big drunken orgy of a Retirement Party. No hold barred. Max out all the damn credit cards. Withdraw all the life savings and splurge it NOW. One last really good time. Party like there’s NO TOMORROW, because guess what? THERE IS NO TOMORROW!!! Whoo-hoooo
Now the party is over and they’re turning out the lights:
“Default Monday”: Oil & Gas Companies Face Their Creditors
Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook.
And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps.
http://wolfstreet.com/2015/03/05/default-monday-oil-gas-companies-face-their-creditors/
marmico on Thu, 5th Mar 2015 9:52 am
The shale industry pee’d down it’s own pant leg.
The only thing pissing on Mike’s leg is competition. He has never seen it in his life. Some other entity (a regulatory agency or a cartel) choked back production. The great American oil capitalists are a joke. Turn down your spigot to balance the market, Mike.
Davy on Thu, 5th Mar 2015 11:08 am
Funny how Marm refuses to acknowledge consequences. He has been so long at the QE punch bowl party he has been conditioned to believe in markets that balance without limits.
He has recently met his match with POD & ETP of oil. He has tried to discredit the Hills Group report by some back of the envelope scribble but failed to sway me. He hangs around here on PO out of his fascination for collapse.
Marm, I am glad you are here because I need your cool crisp hopium and disregard for limits. I am hoping for 5 more years of the good life. Maybe just maybe some of your BAUtopianism will hold up.
marmico on Thu, 5th Mar 2015 11:18 am
ETP is worthless. POD means whatever you want it to mean which means that it is meaningless.
I note that there is some progression in the cognition of one of the high priests of doomerism. BAU now collapses in 5 years instead of tomorrow. LOL
GregT on Thu, 5th Mar 2015 11:20 am
“Turn down your spigot to balance the market, Mike.”
The market is a dead man walking. Turning down the spigot will do nothing but accelerate the collapse of our failing economies.
rockman on Thu, 5th Mar 2015 12:14 pm
The oil patch jobs are just a small bit of the gain for the national economy. I’ve seen estimates ranging from 1/2 $trillion to 1.5 $trillion added to the GDOP as a result of the boom. In just royalty payments to mineral owners and the production taxes to the states the boom has pumped over $250 billion into the economy. And in 2014 alone the boom decreased our foreign trade balance by more than $70 billion. Of course, on the negative side, the high oil prices also mean US consumers have paid about 3/4 of a $TRILLION more for imported oil in the last 4 years then they did in the previous 4 years.
Davy on Thu, 5th Mar 2015 12:19 pm
Marm, so you don’t believe in above ground issues with oil or the below ground issues of depletion? POD may be abstract but it represents real issues with oil production growth vital to BAU growth. The ETP part of POD can be discounted in an argument but the concept is sound. Depletion will effect production with ample current evidence.
If you would have said Doomer Davy I acknowledge these issues but they are not an issue for several years then I would respect your position. The way you present your position Marm is as an agendist for BAUtopianism of the primacy of technology and markets with few limits and ample substitution for scarcity. You are either blind or in the know with an agenda to promote.
BTW, I have no idea when a collapse will come. I am of the opinion we are in a bumpy descent now with little reference for where we are going. The only concrete evidence is POD & ETP of our foundational commodity oil. That is the train wreck that awaits us in few year with 5-10 at most.
Dredd on Thu, 5th Mar 2015 12:24 pm
But Rex,
It is such haaarrrrrdddddd weeerrrrrkkkk to get used to using poison for what ails us, even when it is cheapo crude.
You got any good ideas El Rex?
Mike989 on Thu, 5th Mar 2015 1:02 pm
If ever an industry needed Real Top Level Management it’s the Fracking industry.
No matter how much they flood into the market, they still drill, driving down natural gas prices even lower.
IF they actually cut back on production, they’d make MORE MONEY.
One way to do that is get your state to raise Fracking Taxes, you’d benefit from the funds needed to clean up this Cancerous Mess they create, and they’d make more money in a tighter natural gas market.
Win, Win.
GregT on Thu, 5th Mar 2015 1:48 pm
According to the latest stats from the Canadian federal government, over half of all Canadian citizens are now living paycheck to paycheck. Many of those are now referred to as the working poor, and are only going further and further into debt.
What you are advocating Mike, is to put an even higher percentage of the population below the poverty line. Which in turn would effect the overall health of the economy. Negatively.
Lose, lose, for everyone, save for the .1% that would capitalize even more from the 99.9%.
Money is debt. More money is not the answer.
apneaman on Thu, 5th Mar 2015 2:10 pm
Greg
I find the silence in this country deafening. No one wants to hear it.
High household debt leaves Canada vulnerable, report warns
Debt levels approaching U.K. and U.S. levels during 2007 financial crisis
http://www.cbc.ca/news/business/high-household-debt-leaves-canada-vulnerable-report-warns-1.2946287
frankthetank on Thu, 5th Mar 2015 9:31 pm
So we’ll have $4 gasoline with $50 oil?
GregT on Thu, 5th Mar 2015 11:26 pm
Hmm Frank,
Up here in western Canada, we are already paying over $5 gasoline. In many parts of the world gasoline has been above $8 for quite some time?
GregT on Thu, 5th Mar 2015 11:36 pm
Apnea,
You continue to be a voice of reason. Keep the links coming. Many people frequent this forum looking for honest information. Most do not post.
As my great grand father always said, you can lead cattle to water, but you can’t make them drink. Some cattle were always smarter than other cattle.
Kenz300 on Sat, 7th Mar 2015 8:57 am
Oil companies — dropping stock prices…….
Wind and solar companies — a better investment