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Page added on October 28, 2015

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Pouring oil on troubled waters: ‘Surplus until 2017’

Pouring oil on troubled waters: ‘Surplus until 2017’ thumbnail

Thomas Pugh economist at Capital Economics predicts oil could hit $55 per barrel for Brent crude at the end of 2015, with oil to remain in surplus for another couple of years.

“The market is still going to be in surplus by this time next year, so by the time you actually have supply and demand starting to equate, it will be well into 2017,” he told CNBC via telephone.

The oil industry is full of booms and busts. The norm for oil for the last decade has been $90 – $100 per barrel, but Brent is currently trading closer to $45 a barrel.

The U.K. oil giant BP announced on Tuesday it was slashing costs as it prepares for a long term low oil price environment. The company is planning for oil to be around $60 per barrel until 2017.

Jason Gammel, equities analyst at Jefferies, believes that $60 will not even be sufficient to balance the market and highlights pressure coming from Iranian barrels coming back onto the market.

As international sanctions on Iran are lifted, an increase in oil exports is expected from the country, adding to global supply and pressuring prices.

However, Pugh also highlights an obvious concern over Iranian supplies. He explained that the “market is expecting all this Iranian oil to come back”, adding that there is a risk that Iran does not comply with its side of the bargain when it comes to exports.

The Organization of Petroleum Exporting Countries or OPEC, which is largely made up of producers based in the Middle East, is the main group responsible for coordinating production levels in order to influence prices. OPEC’s next meeting will be held in Vienna on December 4, 2015.

Frances Hudson, global thematic strategist at Standard Life Investments said: “The feeling is that oil prices have been unnaturally low, but in terms of supply and demand it seems reasonable as Saudi (Arabia), as a producer, has decided to produce just enough to keep markets at this level. ”

“Saudi is the dominant player within OPEC and is estimated to cut production. When Saudi decides they are going to raise production that changes the output for OPEC.” said Hudson.

Hudson warns there is also an outside chance of an oil price shock within the next few months. If this happens, this would see the oil price rise, he added.

CNBC



59 Comments on "Pouring oil on troubled waters: ‘Surplus until 2017’"

  1. makati1 on Wed, 28th Oct 2015 7:36 pm 

    Another writer trying to justify his pay check. CNBC: Can Not Be Correct.

  2. Plantagenet on Wed, 28th Oct 2015 8:57 pm 

    We’ve been oversupplied with oil since late 2014. I’ll be surprised If the oil glut continues into 2017.

    Cheers!

  3. SugarSeam on Wed, 28th Oct 2015 10:28 pm 

    oversupplied with crap-grade oil, anyway

    cheers!

  4. James Tipper on Thu, 29th Oct 2015 12:09 am 

    “Jason Gammel, equities analyst at Jefferies, believes that $60 will not even be sufficient to balance the market and highlights pressure coming from Iranian barrels coming back onto the market.”

    He should wait till 2017 and see the actual price! It’ll be so low it’ll make his head spin.

  5. GregT on Thu, 29th Oct 2015 12:29 am 

    “We’ve been oversupplied with oil since late 2014.”

    Strange how that oversupply equates to oil prices in the $40+/bbl range, yet for the last 100 years when we weren’t oversupplied, oil was less than half that price.

    Must be all of that demand, seeing as our economies our expanding so rapidly.

  6. MrNoItAll on Thu, 29th Oct 2015 1:15 am 

    So we’ll make it to 2017 without a major breakdown in the global economy? That’s reassuring.

    It is good to know that if the global economy were to meltdown tomorrow, there will be plenty of “glut” oil to keep governments and security forces functioning while Mother Nature and human nature sort things out.

  7. MrNoItAll on Thu, 29th Oct 2015 1:26 am 

    GregT — I realized why I like you so much. You’re every bit as cynical and sarcastic as me, maybe even a little more so. When faced with pure bullshit and officially sponsored prevarication so thick you can cut it with a knife, cynicism and sarcasm are the only appropriate response, I’m sure you agree.

  8. GregT on Thu, 29th Oct 2015 1:47 am 

    Thanks NWR,

    Glad I got a chuckle out of you. 🙂

  9. rockman on Thu, 29th Oct 2015 6:44 am 

    MNIA/Greg – And just one more picky detail: “The oil industry is full of booms and busts. The norm for oil for the last decade has been $90 – $100 per barrel.” Not sure how he defines “norm” but the average price for WTI for the last 10 years has been $81.10/bbl. Not a big fudge but hints a tad bit of propagandizing.

    As far as the old oversupply theme it would appear that every producer is able to sell every bbl he wants to and that every buyer how can afford the current price of oil has all he wants available to him. So I’m not sure where that imbalance is suppose to be.

  10. Hello on Thu, 29th Oct 2015 7:23 am 

    Expensive oil leads to a boom in oil related industries and supply chains.

    Cheap oil leads to booms in non-oil related industries.

    It’s a wash, really. Don’t know why people always get so worked up about high oil prices. Give me 300$/barrel finally. And I give you a humming economy.

  11. Davy on Thu, 29th Oct 2015 7:51 am 

    Come on Hello, there is no wash when the economy gets destabilized. Cornucopians always want to find good. Their view is good is good and bad is good. We see that all over the financial system today. Everything is about spinning good and all is well. You are failing to see the compression of the zone of equilibrium in the critical relationship of our foundational industry of oil in relationship to the global institutions and networks that rely on economic efficiency for growth. Our system cannot survive the end of growth. It is just a matter of when the threshold of collapse is crossed. Will this be a long emergency? Will we collapse quickly or a little of both?

  12. shortonoil on Thu, 29th Oct 2015 8:09 am 

    “Give me 300$/barrel finally. And I give you a humming economy.”

    Sounds like a plan; pay $4 for the oil to produce $1 in goods, and services. That should really make the economy boom. Write it up, and send it to the FED; maybe they can figure out how to monetize it.

  13. paulo1 on Thu, 29th Oct 2015 9:18 am 

    Short,

    I think he meant it as, “a reflection of a booming economy”…..right before it implodes.

  14. rockman on Thu, 29th Oct 2015 9:18 am 

    Davy – Exactly. The oil patch has always INVENTUALLY been hurt much more by high oil prices falling then by prolonged low prices. I can’t really quantify it but bottom line the oil patch in general would have been better off with oil staying at $45/bbl for the last 10 years. And as just pointed out elsewhere oil patch management, primarily with the pubcos, knew the crash was going to come eventually. That’s why they borrowed so much capex and drilled so fast so they maximize their immediate monetary benefit. The vast majority of oil patch management will be dead before we see another boom. And they all new it and that this would be their last rodeo. How their companies fair in the next 10+ years isn’t very important to most of them because they weren’t going to be there anyway…good times or bad.

    Which in a way supports the views shorty has been making for so long. OTOH most of the oil patch didn’t give a sh*t about his views because they had their own agenda. LOL.

  15. joe on Thu, 29th Oct 2015 9:52 am 

    The solution it seems in China is to create another billion poor people (end 1 child policy). So in 30 years China will be India and India will be China and America will be half Mexico half new England and Europe will half atheist half isis, what a future, the waraholics will be happy.

  16. Davy on Thu, 29th Oct 2015 9:59 am 

    Joe, too late, the end of the China 1 child policy will likely never raise population significantly. China is already in a demographic bulge. The other issue is the likely prospects of excess deaths over births coming likely within 10 years if not sooner. China may well have hit peak population now or soon especially if descent gathers steam.

    Every indication I see is we are setting ourselves up for a deflation and depletion descent. In other words supply and demand destruction eventually disrupting the food chain through a failing global economy.

  17. Kenz300 on Thu, 29th Oct 2015 10:27 am 

    The world is moving away from fossil fuels…….

    Electric vehicles, bicycles and mass transit are the future…….

    How The Decline Of Cars Is Changing Cities For The Better

    http://www.huffingtonpost.com/entry/car-decline-cities_561f34dae4b0c5a1ce620dd9

  18. rockman on Thu, 29th Oct 2015 10:49 am 

    “The world is moving away from fossil fuels…….” Of course it is: it’s just an illusion that fossil fuel production have increased in the last 10 years

  19. apneaman on Thu, 29th Oct 2015 11:04 am 

    Kenz, how’s all that liberal green washing working out?

    South Africa Sets Earth’s Hottest October Temperature on Record: 119°F
    By: Jeff Masters , 2:33 PM GMT on October 29, 2015

    http://www.wunderground.com/blog/JeffMasters/comment.html?entrynum=3171

  20. ghung on Thu, 29th Oct 2015 11:06 am 

    Kenz300 – prove you’re not a bot. (4+3) x 2 =?

  21. apneaman on Thu, 29th Oct 2015 11:10 am 

    Kenz, maybe more enviro think tank memes will help. Hopey feels good.

    It’s been Australia’s hottest ever October, and that’s no coincidence

    https://theconversation.com/its-been-australias-hottest-ever-october-and-thats-no-coincidence-49941

  22. BC on Thu, 29th Oct 2015 11:12 am 

    @Hello: Give me 300$/barrel finally. And I give you a humming economy.

    Apparently you didn’t do the homework after our earlier exchange.

    $300 oil would mean $7-$8/gal gasoline and oil consumption to private GDP of 16-17% vs. 2.5% today. Not only would the economy not be “humming”, it would crash long before we got to half that level.

    Historically, a rate above 2-2.5% and rising has been recessionary. In fact, the 3-, 5-, and 10-year average prices of oil put the level of oil consumption to private GDP at 4.5-5% over the same periods, which has resulted in a post-2007 trend rate of real GDP per capita near 0%.

    Good grief.

  23. apneaman on Thu, 29th Oct 2015 11:21 am 

    Kenz, Dave Cohen just wrote about you.

    Saved By “The Internet Of Things”

    “I’ve been doing a lot of thinking lately and not much writing. That will continue for a while.

    In the meantime, in the video below, Jeremy Rifkin, who envisions a Third Industrial Revolution, lays out his plan for wiring up the whole world to make human economies much more efficient. And, by the way, we’re going to have to replace all our current energy systems with renewables too. No problem!

    You know, the usual techno-optimismist, another visionary. And isn’t that just what the world needs right now?

    Here’s what I see when I watch this video: I see a self-absorbed know-it-all spouting fiction to an earnest, attentive audience of people who couldn’t tell the difference between fantasy and reality if their lives depended on it. (And, ultimately, their lives will depend on it of course.)

    I myself can’t even imagine standing up in front of an audience and telling them I’ve got all the answers. The chutzpah! Who is the greater fool? Rifkin? Or those buying what he’s selling?

    I don’t know, but somebody said “there’s a sucker born every minute.” That was in the old days. Here in the 21st century there are 4.3 suckers born every second.”

    http://www.declineoftheempire.com/2015/10/saved-by-the-internet-of-things.html

  24. Davy on Thu, 29th Oct 2015 11:28 am 

    BC, hello is European. They are comfortable with high gas prices.

  25. BC on Thu, 29th Oct 2015 11:37 am 

    Right, Davy. China hit peak fertility in the mid-1960s, 5-7 years after the US and 16-18 years after Japan, which implies that China’s demographics-induced growth peaked in the late 2000s to date and will decline relentlessly hereafter into the mid-2020s.

    With the population growth rate at 0.5% and fertility well below replacement, by 2030, at the end of the next peak fertility cycle, China’s population will not be growing.

    At Peak Oil, overshoot, and resource depletion per capita, the last thing the CCP planners should be doing is trying to increase the rate of growth population, which will only reduce resources per capita for everyone else hereafter. But the demographic transition implies that it won’t work.

  26. Hello on Thu, 29th Oct 2015 11:48 am 

    BC, high oil prices would be wonderful.

    Instead of producing coffee cups for city slicks, I would produce coffee cups for roughnecks. My coffee cup making business would be humming alone quite nicely.

  27. farmlad on Thu, 29th Oct 2015 11:57 am 

    To bad the USA didn’t learn from the Europeans to tax motor fuels higher, while they still had the opportunity. If you are going to tax your people anyways, it makes sense to tax unsustainable and environmentaly hazardous practices, rather then earned income.

  28. BC on Thu, 29th Oct 2015 12:31 pm 

    Davy, WRT European gas prices, yes, the average $6-$7/gal (?) Europeans pay with the price of oil at $45-$50/bbl would soar to $15-$16/gal at $300 oil, all else equal.

    Europeans are not use to that (except perhaps during and after WW II?).

    http://www.api.org/oil-and-natural-gas-overview/industry-economics/fuel-taxes/gasoline-tax

    http://subway.2fh.co/look/Year_1945_Prices/1945_Including_Popular_Culture_Prices_Events_Technology/aHR0cDovL3d3dy50aGVwZW9wbGVoaXN0b3J5LmNvbS8xOTQ1Lmh0bWw=_blog

    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_NUS_DPG&f=W

    The US CPI- and gasoline tax-adjusted average price of gasoline in 2015$ is about ~$1.75/gal compared to the 1940s, which puts today’s average national price about 20-25% lower than 70 years ago.

    However, the CPI- and tax-adjusted price from the 1920s-30s is ~$3.00-$3.25, which puts today’s gasoline price 40-45% lower.

  29. GregT on Thu, 29th Oct 2015 12:33 pm 

    “My coffee cup making business would be humming alone quite nicely.”

    You might want to rethink your business plan. Something that doesn’t require coffee, or water, might be a better idea. Especially if you live in Europe.

    http://www.ucsusa.org/global_warming/science_and_impacts/impacts/impacts-of-climate-on-coffee.html#.VjJXTrxmZug

    http://neurope.eu/article/increase-water-crises-expected-europe/

  30. BC on Thu, 29th Oct 2015 12:34 pm 

    @Hello, you are consuming too much caffeine. At $300/bbl, the economy would be in the deepest depression in history, and the roughnecks would not have paid work or any money to buy coffee or your cups.

    Try decaf. 🙂

  31. BC on Thu, 29th Oct 2015 1:09 pm 

    @farmlad: If you are going to tax your people anyways, it makes sense to tax unsustainable and environmentaly hazardous practices, rather then earned income.

    Absolutely. Don’t tax labor, production, savings, and productive capital formation; rather, highly progressively tax waste, pollution, traffic, net energy consumption, and the high cost of land associated with the monopoly place value and land resource rents accruing to lenders who financialized the scarcity value of land in perpetuity, increasing its cost and reducing its productivity for the economy and society.

    We have an Anglo-Saxon neo-feudal system that creates incentives and outsized rewards for rentier speculation and hoarding of assets at no acceleration of velocity to the productive sectors.

    And now the federal gov’t guarantees the interest and principle for 75-80% of all of the $9.9 trillion in residential mortgages against the alleged market value of properties of $21 trillion.

    Said another way, the gov’t (owned by Wall St., the TBTE banks, builders, NAR, etc.) is guaranteeing the $11 trillion in the imputed compounding interest (~51% of “market value”) in perpetuity to the creditors/securitized investors, keeping land/house prices much higher than otherwise would be the case.

    That $11 trillion is an equivalent of more than 60% of GDP and is 70% higher than private wages. In effect, the imputed compounding interest is a kind of “rentier tax” on land, labor, and production that renders land prohibitively expensive for productive purposes and encourages accumulation of increasing debt to wages and GDP that is now prohibiting growth of real GDP per capita after taxes and net flows to the financial sector, i.e., “rentier taxes”.

    See Henry George and “The Single Tax”.

  32. BC on Thu, 29th Oct 2015 1:12 pm 

    BTW, to all, is the post text running off the right of the screen for anyone else? I find that this occasionally occurs, but not consistently.

    If it is occurring for others, perhaps someone has email contact for the host/moderator of the site and can kindly mention it to him/her/them.

    Thanks.

  33. GregT on Thu, 29th Oct 2015 1:19 pm 

    “is the post text running off the right of the screen for anyone else?”

    Happens sometimes for me as well, but not today.

  34. apneaman on Thu, 29th Oct 2015 1:41 pm 

    It happens for me, often. I want a full refund and an apology from the management or I’ll take my doom business elsewhere.
    humpf

  35. Davy on Thu, 29th Oct 2015 2:10 pm 

    Try being on an IPhone it always run off the screen. During the day when you poor fools are in your cubicles I am under God’s blue sky breathing fresh air. The flip side of that is trying to work the board with an IPhone.

  36. shortonoil on Thu, 29th Oct 2015 2:59 pm 

    “BC, hello is European. They are comfortable with high gas prices.”

    From a barrel of crude the end consumer now receives about 900,00 BTU of usable energy from its 5.8 million BTU total content at the well head. 900,000 BTU is not enough energy to make oil worth $300. At $300 It would be much, much cheaper to use a horse to provide that same energy. Modern civilization was made possible because of vast quantities of very low cost energy. Coal was an improvement over the horse, but it was oil that changed the world. It is not 5.6 cubic feet of liquid hydrocarbons that is important, but the amount of work it can provide. That concept, for some reason, seems to completely escape most people. Go out some day, and try to plow 50 acres with Old Neil, and you will begin to appreciate the meaning of the term work!

    http://www.thehillsgroup.org/

  37. peakyeast on Thu, 29th Oct 2015 3:07 pm 

    I dont know if we are comfortable with high prices, but as the americans and most other people: The general population has been pushed so close to the edge that they have to work all their time just to make ends meet.

    And everybody knows that protesting against the government on issues like this is completely waste of time..

    Actually demonstrations hardly take place anymore – everybody gets rolled flat by government steamrollers.

    Eventually people get tired of that.

  38. antaris on Thu, 29th Oct 2015 3:40 pm 

    Peak, my understanding is (I may be wrong) that before oil and coal, most people had to work all of their time just to survive. If you reached 40 years of age, you were worn out!

  39. shortonoil on Thu, 29th Oct 2015 5:06 pm 

    “is the post text running off the right of the screen for anyone else?”

    Some days it does, some it doesn’t. It seems to happen in some threads, and not others. Its a pain!

  40. farmlad on Thu, 29th Oct 2015 6:25 pm 

    BC Wow; I never knew that such a great man existed. Thanks for the introduction. This concept of the value of labor and the equal right that everyone has to the earth is very thought provoking, and attractive.

  41. Hello on Thu, 29th Oct 2015 6:31 pm 

    shortonoil:

    At $300 It would be much, much cheaper to use a horse to provide that same energy

    Now that is quite a statement. Can explain your calculations? My feeling is, your by orders of magnitude off, but I wouldn’t mind being corrected.

    But one thing is for sure. I’d still be using a gas powered chain saw, even if a horse powered one is cheaper.

  42. BobInget on Thu, 29th Oct 2015 6:34 pm 

    Oil Flows East, Leaving an Oklahoma Pipeline Unusually Empty

    Bloomberg news reports

    Oil Flows East, Leaving an Oklahoma Pipeline Unusually Empty

    A pipeline to America’s largest crude-oil hub is about to find itself in an unfamiliar position: not full.
    One of the main pipelines that carries crude to Cushing, Oklahoma, will run at less than capacity in December for the first time in nearly two and a half years. The drop in supply coincides with the opening of a pipeline to Quebec, giving shippers the option of diverting some oil from the middle of the U.S.
    “There will be less light sweet crude available to make its way to Cushing,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “There’s going to be some significant rebalancing of where oil flows in North America.”

    Shippers on Enbridge Inc.’s Spearhead pipeline only asked to transport about 155,000 barrels of crude a day in December, below the system’s capacity to move about 193,000 to Cushing from Flanagan, Illinois. It’s the first time shippers haven’t filled the line since August 2013. Some months shippers request 10 times more space than is available.
    image: http://assets.bwbx.io/images/iugpDTB5D0l0/v2/488x-1.png

    The drop in Spearhead interest comes as Enbridge plans to start another pipeline carrying 300,000 barrels of crude a day from the Midwest to Montreal by the end of 2015. Suncor Energy Inc. and Valero Energy Corp. have said they plan to use the line to supply refineries in Quebec with crude from Western Canada and the U.S. Midwest.
    Crude in eastern Canada competes with the global benchmark, Brent, which is priced a few dollars higher than West Texas Intermediate in Cushing.
    Enbridge next month will also start filling its Southern Access pipeline, which carries crude within Illinois from Flanagan to Patoka, according to a U.S. regulatory filing. The company expects to put the 168-mile-long spur in service in Decembe

    Read more at Bloomberg: http://www.bloomberg.com/news/articles/2015-10-26/oil-heads-east-leaving-oklahoma-pipeline-unusually-un-full

    Read more at http://www.stockhouse.com/companies/bullboard/bullboard/t.cpg/crescent-point-energy-corp#SBj5EyYu9RQRXrwy.99

  43. BobInget on Thu, 29th Oct 2015 6:41 pm 

    http://www.cbc.ca/news/canada/new-brunswick/energy-east-pipeline-completion-date-pushed-back-to-2020-1.3019311

    (review of “Energy East” Pipeline disposition)

  44. apneaman on Thu, 29th Oct 2015 6:57 pm 

    I
    think
    I’m
    going
    to
    start
    presenting
    my
    comments
    like
    this
    so
    they
    don’t
    run
    off
    the
    edge
    of
    the
    page.
    Kinda
    reads
    like
    a
    Zero
    Hedge
    article.

  45. idontknowmyself on Thu, 29th Oct 2015 7:05 pm 

    What really matters is the energy left to power society. The energy equation could look something like this:

    Energy left = Total Energy before human specie existed – Energy consumed by human specie until now.

    Energy consumed by human specie until now = Energy to extract natural resources + Energy to transform naturals resources + Energy to produce Electricity + Energy to manufacture goods + …

    Energy to extract natural resources = Oil extraction + mineral mining + …

    Energy to transform naturals resources = Crude oil refining + Iron transformation into steel + …

  46. Hello on Thu, 29th Oct 2015 7:46 pm 

    Sorry idontknowmyself. But this is not correct. You fail to understand that the “extraction industry” does not exist in a vacuum. It is part of this economy. And whether I pay for a ticket to a ball game or whether I pay expensive oil instead, is the same thing. Both pay the salary of some worker.
    Granted, one gives me more pleasure, but that’s another story altogether.

  47. GregT on Thu, 29th Oct 2015 10:00 pm 

    “It is not 5.6 cubic feet of liquid hydrocarbons that is important, but the amount of work it can provide. That concept, for some reason, seems to completely escape most people.”

    A very simple concept, that should be very simple to understand. A concept that Hello above appears completely incapable of comprehending.

    I’m willing to bet that he won’t make any effort in an attempt to figure it out, and will continue to make himself look really silly to anybody that is capable of simple rational thought. Like so many others, Hello can’t see the forest through the trees, either because he refuses to look, or he is extremely nearsighted.

  48. GregT on Thu, 29th Oct 2015 10:08 pm 

    “Granted, one gives me more pleasure, but that’s another story altogether.”

    And I’m sure that story would be every bit as entertaining as the one that you wrote above, and every bit as much a work of fiction.

  49. BC on Thu, 29th Oct 2015 10:11 pm 

    apnea, 😀 😀 😀

    To all, thanks for the responses about the text running off the page. Now I feel better that I’m not hallucinating. Then again . . . 😀

  50. GregT on Thu, 29th Oct 2015 10:37 pm 

    I suspect it has something to do with your browser BC. You could always try the old three finger salute, unless of course you’ve upgraded to a Mac. 🙂

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