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Page added on September 27, 2014

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The Return To $30 a Barrel Oil

Consumption

While the world starts to understand that behind the evil behind ISIS there is also another element to it, greed. US airstrikes hit mobile oil refineries in Syria that was help fund the terrorist group. Ideology is always best suited when it is being funded with oil and to strike at these mobile units is a step in destroying this ISIS terror threat. That was clear that when they were fighting over the Brega refinery in Iraq they went to great measures to kill people but save the refinery.

While the Brent Crude fell hard against the WTI as Libyan oil comes back on line a late surge led by RBOB gasoline as refinery glitches and a larger than expected drop in US crude supply brought the market back. Yet with a soaring dollar it is hard to be too excited about the long side of almost any commodity.

Yet behind the noise is a larger story in oil is something that is really changing the world.  It is a story and that is the new era of US oil production and how it is buffering the global economy from a price shock. If it were not yet beyond that it is a technological revelation that may lead to even more price drops in the future. In years gone by when I started to talk about how the US might someday be oil independent and we were entering a new era of lower oil and gas prices it was hard for many people to fathom.

The mind set was that you could not drill yourself to oil indepdence was proven wrong.  People believed in ‘Peak Oil” instead of learning from history. If the price gets high enough they will always find a way. Technology took over and the fracking resolution was born and what is more technology does not stand still. Now it is possible that oil producers will take it a step further as the combination of directional drilling and fracking will inspire even more innovation allowing for even more gas and oil production in the future. Oil recovery rates at new wells and old wells will only improve as will technology to search out and find out where oil actually exists.

Not only that, technology will also impact the demand side as well. The sudden abundance on natural gas will compete with oil as a transportation fuel. Break throughs in battery technology with electric vehicles and bio fuels will offer more competition.

This will result in a production boom and asumming that we don’t see runaway inflation we are more than likely going to see a return to $30 barrel oil in the next 5 to ten years. While in the short term oil and gas will spike and fall the long term is lower.

I know I am getting old because not only did I predict the new era of higher oil prices back in 2000 now I am predicting a slow return to those price levels. Back in the early part of the last decade being bullish on oil was not cool. I used to say that I was bullish on oil before being bullish was cool. Along the way at different price levels and after what are now seen as minor corrections the naysayers tried to tell us oil was in a bubble yet the trend was higher. The cycle and the trend were clear demand was going to outstrip supply.

Yet now fracking has changed that trend and now long term the trend on oil over the next decade is going to be lower. This is not a new prediction by me as we have been talking about it for years but instead of sounding like wild predictions now more people are starting to get it.

bar chart



48 Comments on "The Return To $30 a Barrel Oil"

  1. penury on Sat, 27th Sep 2014 5:31 pm 

    Oh yeah, call me when it gets to 95 dollars a barrel. To repeat, the U.S. has a mid -term election in Nov. currently the deficit is large, and with the wars will continue to grow. Shortly after the elections, the bad news will be give to the tax payers. Costs are going up-all costs- be prepared. Wars are not free- eventually the piper will be paid, and 30,000 mercenary soldiers will not re-place the US mlitary for long.

  2. rockman on Sat, 27th Sep 2014 5:33 pm 

    IMHO either this piece is presented as over the top sarcasm or the author knows absolutely nothing about the oil exploration business. But that doesn’t necessarily mean his prediction won’t come true but for a very different reason: massive global recession as experienced in the mid 80’s.

  3. eugene on Sat, 27th Sep 2014 6:16 pm 

    BS is the grease upon which the world turns. This article is confirmation. Ever more expensive drilling for an ever diminishing resource. Yep $30 is on it’s way but it’s in the land of Oz.

  4. Nony on Sat, 27th Sep 2014 7:30 pm 

    That mid-80s blabla is a bunch of crap, Rock. We had 20 YEARS of low prices. We were not in a continuous recession.

  5. Plantagenet on Sat, 27th Sep 2014 7:45 pm 

    You can’t just take current trends and assume they’ll continue forever. Frakking has been great, but Bakken is about to peak. Other frakking plays are still growing, but will soon also peak. Meanwhile global conventional oil production has already peaked and is heading DOWN.

  6. Davy on Sat, 27th Sep 2014 7:48 pm 

    Noo, listen to Planter he is on to something.

  7. Nony on Sat, 27th Sep 2014 8:58 pm 

    Maybe. Nothing lasts forever. Of course, the people talking it down now talked it down the whole way it came up. A gazillion failed (negative) predictions on the Bakken, Marcellus, Eagle Ford, Permian, etc. Why should I trust the peakers when they were wrong before and won’t fess up (e.g. Rune Red Queen)?

  8. Makati1 on Sat, 27th Sep 2014 9:20 pm 

    Net energy per capita is the important number, and that peaked in 1970. Oil, NG, solar, nuclear, etc. ALL combined is the number that makes the world go round.

    http://ourfiniteworld.com/2012/03/12/world-energy-consumption-since-1820-in-charts/

  9. Makati1 on Sat, 27th Sep 2014 9:29 pm 

    BTW: Energy use in kg of oil equivalent per capita. 2012.

    USA = 6,794
    China = ~2,029
    Russia = ~5,113
    Kenya = ~ 480
    Philippines = ~ 426
    Canada = 7,270

    http://data.worldbank.org/indicator/EG.USE.PCAP.KG.OE

  10. marmico on Sun, 28th Sep 2014 12:51 am 

    You can’t just take current trends and assume they’ll continue forever

    U.S. petroleum consumption as a percentage of the total energy mix has declined from ~45% in 1975 to ~36% in 2013. Why would this 40 year trend not continue for the foreseeable future?

  11. Davy on Sun, 28th Sep 2014 6:37 am 

    Marm-a-duck and Noo, you are demonstrating the classic corny behaviors. Noo is talking up a small global source of oil/gas like it is a game changer when it isn’t. Noo, it made a short term difference that is it. It is almost over. Marm, your trend licking is fallacious. Why should it continue? Is it a law? I know of no physical laws that say it should continue. Your statement is superficially fallacious because the majority of this energy decline in relation to GDP is not efficiency but structural change to the economy. We exported heavy industry to China and are sucking back that energy in imports. Marm, you are just talking up a corny dream of energy not being as important in the overall economy. You cornies know energy is ruining you corny bliss so you grasp for anything that puts cloths on your nakedness.

  12. Davy on Sun, 28th Sep 2014 6:45 am 

    There the dog goes again barking per-capita figures for China like that is going to make the earth killing Asian consumption go away. Asia is wiping away our world carrying capacity abilities with cancerous growth and an exploding population. You can’t put perfume on poop and expect it to smell better. The west is declining with both population and economic activity.
    Woof woof
    ^*^

  13. paulo1 on Sun, 28th Sep 2014 9:15 am 

    Mak

    Canada is largest and coldest country in world. Comparing per capita with tropical is pretty much apples and oranges, red herring stuff designed to attack.

    My woodstove is blazing away as I write this…cold and foggy this morning. One cf bulb going in the kitchen. My energy use right now? probably much less than what you are using.

    regards….Paulo

  14. marmico on Sun, 28th Sep 2014 9:17 am 

    More word salad and never a datum from Davy-boy. 2013 U.S. industrial consumption of petroleum has risen ~2% relative to 1975 but industrial production has risen ~150%.

  15. Nony on Sun, 28th Sep 2014 9:28 am 

    You’re tilting at windmills. I’ve always agreed that the US LTO was less than 5% of World oil. I think you live in a world of unsubtlety. Pure peaker or pure cornie.

    It’s impossible for you then to understand that US LTO has NOT given us $30 oil. In fact, it CAN’T. Because it goes away with oil much below $80. However, it CAN (and HAS) stop oil from going to $150.

    Furthermore, the peaker failer to be honest and face facts, shows a lack of intellectual honesty. Where is Rune’s apologia? Where are Berman and Rogers who talked down the Marcellus in 2009!? If you can’t be honest about even small things (not $30 oil) like U.S. LTO or the regional gas market, then why should we trust you to be unbiased and fair on the big topics?

  16. Davy on Sun, 28th Sep 2014 9:33 am 

    Marm, Davy Bro loves talking salad. It sounds good and fun.

    Marm, ever heard of diminishing returns? forget about the 70’s do your number since 08 and get back to me.

  17. Davy on Sun, 28th Sep 2014 9:36 am 

    Noo, simplistic again. The consumers inability to pay much over what he is paying now has played a significant part in the equation. You choose to ignore that for corny reasons.

  18. Davy on Sun, 28th Sep 2014 9:38 am 

    Bravo Paulo, that’s the way to shut the dog up!

    woof woof
    ^*^

  19. Nony on Sun, 28th Sep 2014 10:07 am 

    Some customers will pay 100. A smaller portion will pay 150. A greater portion will pay 50.

    And it’s not ability to pay that matters but willingness to pay (I can afford $50 wine, I just choose not to bother.)

    These really are econ 101 concepts:

    http://education-portal.com/academy/lesson/the-law-of-the-downward-sloping-demand-curve.html#lesson

  20. JuanP on Sun, 28th Sep 2014 10:17 am 

    Paulo “Canada is largest and coldest country in world.”
    According to the CIA World Factbook, “Canada is slightly larger than the USA”
    https://www.cia.gov/library/publications/the-world-factbook/geos/ca.html
    Russia is the “largest country in the world in terms of area” according to the same source. Russia is almost twice the size of canada.
    https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html
    As far as Canada being the coldest country in the world, I have my doubts, too. There are a few other options there, too, like Greenland, Russia, Norway, and Finland I’d check before making that claim.
    I think “Canada is one of the largest and coldest countries in the world” is more like it. But, I appreciate your patriotism, something I have always lacked. I have never felt or been patriotic in my life.
    I dislike superlatives and only use them when certain they apply, personally.

  21. Nony on Sun, 28th Sep 2014 10:21 am 

    You are my favorite* peaker, JuanP.

    *get the joke? 😉

  22. JuanP on Sun, 28th Sep 2014 10:26 am 

    Paulo, According to Wikipedia, Canada is the second largest country in the world. The top 5 are:
    1 Russia
    2 Canada
    3 China
    4 USA
    5 Brazil
    You can claim second largest in the world after Russia, and largest in the Americas.
    http://en.m.wikipedia.org/wiki/List_of_countries_and_dependencies_by_area

  23. JuanP on Sun, 28th Sep 2014 10:29 am 

    Nony, got it! 😉 Thanks!

  24. shortonoil on Sun, 28th Sep 2014 11:28 am 

    “If it were not yet beyond that it is a technological revelation that may lead to even more price drops in the future.”

    Another believer in the tooth fairy, big foot, aliens, and the miracle of technology. In 2000 he predicted higher oil prices, and so did two thirds of the rest of the world. It was kind of like predicting what will happen when you stand in front of a Mack Truck.

    His basic problem is that his predictions are dart board predictions with little consideration given to cause and effect. The cost of production is ever increasing, and the price that the economy can bear is not. Actually, what the economy can now bear is going down. Technology doesn’t reduce production costs, never has, never will. Otherwise, prices would not have increased constantly for the last hundred years. The technological advances have been quite extraordinary. All that technology has ever achieved is to allow access to otherwise inaccessible oil, at ever higher costs.

    A little reality check is needed here. Producers can not operate below the cost of production forever. Eventually someone runs out of money. You don’t have to be a rocket scientist to understand that!

    http://www.thehillsgroup.org/

  25. Northwest Resident on Sun, 28th Sep 2014 12:04 pm 

    “Where are Berman and Rogers who talked down the Marcellus in 2009!?”

    Still focused on shale oil production, Nony? Shale bought us a little time. Marcellus may be producing, but at what cost to the economy, and how much excess energy is being produced from that play to power the general economy? Do you think that if we had one hundred Marcellus plays that the world economy could run off of their combined production? Truth is, Nony, Marcellus is just a blip on the radar screen — perhaps the largest of a bunch of small shale play blips — but a blip nonetheless. Marcellus and other shale plays prove beyond any doubt that we are AT peak oil, scraping the bottom of the barrel in a last desperate attempt to keep BAU going for a little while longer. I’m glad for Marcellus and for EF and other shale plays — they bought us time, but nothing more. I’m sure you see that and understand the consequences.

  26. Nony on Sun, 28th Sep 2014 12:20 pm 

    I love them. 🙂

  27. Davy on Sun, 28th Sep 2014 12:21 pm 

    Noo, life is too short to drink cheap wine. Again Noo, you fail to see the systematic impact on the economy as a whole with oil prices. You choose to take it to an individual level. The individual and the economy can’t be compared.

  28. Davy on Sun, 28th Sep 2014 12:26 pm 

    Juan, I think Paulo meant modern developed countries. Russia is an undeveloped banana republic with a super modern political Capital (Moscow) and to the north a cultural capital (St Petersburg) run by a dictator and mafia oligarch. The rest of the country is just above third world status.

  29. Nony on Sun, 28th Sep 2014 1:09 pm 

    Davy, you (like Gail) fail to understand one of the simplest things in the world. The sloping demand curve. Somehow you believe in some circular fashion that $150 oil would kill the economy and thus reduce demand and then we would be back at 100. You have probably never worked with chemical equilibria. A reduction in supply would SURELY lead to an increase in price from 100, just as it did from 30 to 100. Heck, we have already been at 150 once. There are segments that will pay for oil at 150 at 140, 130….100, 90, 80…30, 20, 10.

  30. Northwest Resident on Sun, 28th Sep 2014 1:21 pm 

    “There are segments that will pay for oil at 150 at 140, 130….100, 90, 80…30, 20, 10.”

    Sure, Nony. Even at $100 per barrel, the only thing that keeps the economy chugging along is massive infusions of debt to compensate for the too-expensive oil/energy.

    The segments that will pay for oil at 150, 140, 130 are few and far between, most definitely not enough to generate the profit that the oil industry needs to keep it going. How could you NOT see that, Nony. At $150/$140/$130 per barrel, business can’t afford to operate or the products that they produce will be too expensive for all but a few. Food prices would skyrocket leading to mass starvation, riots and chaos on an epic level. If you don’t get that, Nony, then you are not even close to as smart or as analytical as you like to think you are.

  31. Davy on Sun, 28th Sep 2014 1:27 pm 

    Thank you NR, maybe if it comes from you it will blow through Noo’s corny filter. BTW, NOOO, I am proud to be associated with Gail. She is an exceptional lady and spot on with the systematic issues related to limits of growth and PO.

  32. rockman on Sun, 28th Sep 2014 2:00 pm 

    “A reduction in supply would SURELY lead to an increase in price from 100, just as it did from 30 to 100.”

    Damn facts keep getting in the way of gold plated BS:

    The last time oil was $30/bbl (2003)the global supply of oil was 79.6 mmbopd.

    In 2013 oil hung around the $105/bbl as the world supplied about 90 mmbopd.

    90 mmbopd is a decrease from 79.6 mmbopd? Must be that new math I’ve been hearing about. LOL.

    Yes…I understand you misspoke and left out the demand side of the dynamic. But you chose your words…not me.

  33. Nony on Sun, 28th Sep 2014 2:01 pm 

    NR: OF COURSE they are few(er) segments at 150. That’s the concept of a demand curve. There’s more demand at 100 than at 150. More demand at 100 than at 50.

  34. Nony on Sun, 28th Sep 2014 3:12 pm 

    Rock,

    1. both the demand and supply curves changed in the picture you described because you are comparing 2003 to 2014.

    2. We are at 100 now. This reflects a certain volume of production and consumption. (minus small temp changes in inventory, production and consumption are equal). Given we are currently at 100 with 90 MM bpd, if 10 million BPD left the market (say Russia exited instantly), price WOULD rise.

    ***

    Seriously, this is econ 101. Right out of a book. You may know the mudlogger, but you don’t know even the basic concepts of crossed supply and demand curves and the difference between price response (with set demand curve) to a supply change and movement of the demand curve itself.

    I’m not just being haughty. This really is basic stuff. It’s OK, not to know everything, but…go learn. When someone says “dolomitic”, I go look it up to learn the chemistry, morphology, and formation. You need to stop puffing yourself up as some big salt and go learn. If you can’t do that in a simple message board discussion, I question if you even keep up to speed in your technical work.

    http://www.investopedia.com/university/economics/economics3.asp

    (read in particular section F. This explains the difference of a movement along a curve versus the curve shifting.)

  35. Nony on Sun, 28th Sep 2014 3:16 pm 

    BTW, Rock, if consumption is higher and also price is higher in 2014 than in 2003, than the demand curve has shifted up. This is mathematically required. Ask any econ teacher. There’s no getting around it. It’s like if the derivative is positive than the function slopes upwards. It’s just math.

  36. Nony on Sun, 28th Sep 2014 3:18 pm 

    But a shift in the demand curve itself, does not change the concept of the fixed curve and movement along it.

    In all seriousness, this is an incredibly common, student starting econ, logic mistake. Go survey 100 econ teachers. Everyone will back me up.

  37. shortonoil on Sun, 28th Sep 2014 5:10 pm 

    @Davey,

    The whole argument above breaks down to two pieces of information:

    1) How much energy a unit of oil provides to the economy,

    2) What is the value of a unit of energy in $ terms.
    http://www.thehillsgroup.org/depletion2_008.htm

    To determine what the economy can pay for it you simply divide one into the other. Now this is dirt simple, stupid easy. To pay more would be like swapping $20 bills for $10’s. The economy would soon collapse if it tried to pay more.

    The functions generated when this is done over time are fairly complex, but the basic process is as simple, as simple can be. By late 2016 the economy will be able to afford no more than $117/barrel. Period!!

    http://www.thehillsgroup.org/

  38. Northwest Resident on Sun, 28th Sep 2014 7:18 pm 

    Nony, through all my years of college it seemed there was always “one of you” in the class. The guy who thought he was smarter than the teacher, who asked bizarre questions frequently while the rest of the class groaned, the guy who was obviously intelligent but in a cross-circuited and warped kind of way, the guy who just liked to be a contrarian and argue minute details to prove how smart he was to everybody. You’re stuffed full of “facts” but you don’t know how to arrange them into a logical and coherent picture. Econ 101 — that class was a joke, and any modern day application of economics is just as big of a joke. I aced that class, but snickered all the way through it, and never one time in that class was the concept of finite resources discussed. Modern day economics does not recognize finite resources — does not compute. Come on Nony, step back, take a deep breath, reevaluate.

  39. Makati1 on Sun, 28th Sep 2014 8:03 pm 

    Interesting group of heads butting solid walls above.

    The Western economy could NOT support $150 oil, but, I bet a lot of expanding countries could. Maybe you need to rethink your ideas and see if they are Western based or World based. It all depends on whether your economy is based on production or waste.

    Americans are crying over $4 gas. While, here in the Ps, a country with a small fraction of the income, per capita, that the US enjoys, gas has been around $5. (51-53 Pesos/liter) for the 6+ years that I have been living here and growth is still going on. About 6%+ this year.

  40. Davy on Sun, 28th Sep 2014 8:30 pm 

    Thanks Short

  41. northwestresident on Sun, 28th Sep 2014 9:23 pm 

    Makati1 — You are correct of course that other countries can afford to pay $150 for oil — as long as global BAU continues more or less on track. Reason why obviously is those countries put that oil to use manufacturing things that they sell to America or on the world market. Whereas America, as we know, burns most of its oil driving back and forth to work, stalled in traffic, in line at McD’s or other “frivolous” uses. But where your logic always seems to break down is when you think that the rest of the world can do just fine while America sinks economically. Ain’t gonna happen. And one other point — that $150 barrel of oil will only be available to the Philippines as long as the very expensive American military is there to protect the oil production regions, the shipping lanes and the Philippines. I know you don’t see that, Makati1, we’ve been over this before. But just stating it for the record, for any other readers who happen to be surfing this article and comments.

  42. Davy on Sun, 28th Sep 2014 9:32 pm 

    Woof Woof
    ^*^

  43. wildbourgman on Sun, 28th Sep 2014 9:34 pm 

    Good discussion going, but how do even know how to compare 1980’s, 2003, 2014 when the entire value structure of the dollar is warped?

    There are so many angles to this debate but once you bring in currency manipulation that’s taken place maybe 100 dollars a barrel today is like 30 dollars a bbl was back then.

    Oh and Nony for folks in the oilfield we did have a 20 year recession that started in the early 1980’s.

  44. Makati1 on Mon, 29th Sep 2014 12:33 am 

    NWR, You seem to think that the West is all that holds the world together…lol. You seem to forget or poo-poo the rest of the world as not being important. The Philippines mostly exports to non-western countries. Ditto for most of the growing economies of the world. Sure, if the West died, the rest of the world would suffer a bit, until they rebalanced.

    After all, the West is about 1/7th of the world’s consumers and has only a small percentage of its resources and real wealth. The rest resides in South America, Africa, and Asia. These days, the West is the 3rd world in drag. Pretending to be something it isn’t.

    Most Westerners are a few steps from poverty. Over half of Americans receive money from the government printing presses in order to survive. Ditto for the EU. When that system breaks down, it is ‘game over’ for the West and ‘reset’ for the rest. ^_^

  45. northwestresident on Mon, 29th Sep 2014 1:02 am 

    Makati1 — I don’t recall forgetting or poo-pooing the rest of the world as not being important. You’re just making that up, right?

    Top 5 Products exported by The Philippines

    Integrated Circuits (23%), Computers (10%), Semiconductor Devices (4.7%), Office Machine Parts (3.5%), and Electrical Transformers (3.0%)

    American investment set up the manufacturing and probably still own big percentages of the companies that the Philippines is dependent on for their export income. Philippine exports are totally dependent on BAU, which “the West” created, maintains and controls through Western banking and protects and insures by use of the very powerful American military.

    It is an eyesore to see you over there in the Philippines standing on your podium preaching about how great Asia (except Japan of course) is and how evil and destined for self-destruction America and “the West” is. Your sermon is well known, totally illogical, way too often repeated and just plain dufus material. You’ll never get it.

  46. Davy on Mon, 29th Sep 2014 5:35 am 

    NR, some folks are doomers but selective propagandist doomers. They practice a type denial of reality where they smugly live with the feelings the people they hate will die and they and their people will live on. Anyone that thinks the west can die off and the rest of the severely overpopulated world that can’t feed itself will get along fine is delusional. Europe and the US are critical nodes in the global system on so many levels. The only level they maybe could be ignored would be metal resources. Otherwise food, finance, critical industry, to communications and a hundred industries in between are either dominated or supported by these two regional powers. The Philippians is a joke with 100MIL in a space of the state of Arizona. I would like to see them rebalance when nobody is buying their third world factory goods. I like to see them feed themselves and manage without fuels. It is a joke to think that many people can rebalance. Asia is much the same ½ the world’s population in an area from Northern China down to the Philippians over to India. It is the location where famine and unrest will wreak havoc and despair. Someone is living in a fantasy world.
    Woof woof
    ^*^

  47. Northwest Resident on Mon, 29th Sep 2014 9:45 am 

    Davy — I usually try to skip past Makati1’s monotonous and repetitive predictions of America’s self-immolation and of Asia’s (and especially China’s) glorious future where they lead the world once the evil America has eaten itself and disappeared from the face of the earth.

    Regarding Makati1’s shining light for the new world order once America has self-destructed, check this out:

    ht tp://finance.yahoo.com/news/why-next-global-crisis-may-stem-china-112256351.html

    You Won’t Believe How Bad Pollution In China Has Become — some really gnarly pictures…

    ht tp://all-that-is-interesting.com/pollution-in-china-photographs#1

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