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Why Growing Oil Glut May Be a Long-Term Expedient

Consumption

With periodic OPEC meetings increasingly becoming non-events, due to the waning influence of this once mighty price setter, controlling one-third of the world’s oil supply, market share protection by dominant Saudi Arabia has become the weakened monopoly’s guiding principle.

What had driven the post “great financial recession” (2008-10) world prices above the $100 mark, before a 50% mid-year crash in 2014, was the Saudis’ fear of U.S. hydraulic fracturing (fracking). This had brought America’s fading conventional production of 3.4 million barrels per day to near 10 million and upward in a short four years. This turn of events panicked the Saudis into pumping their daily volume to a full-blown effort, currently reaching their highest level ever, 10.5 million barrels per day.

Despite the desperate protests of the likes of Iran and Venezuela, whose annual budgets have barely balanced at the $100 mark, Riyadh’s fear of the U.S. becoming totally energy-independent and, worse, a potential global exporter, overrode these plaintive protests of most OPEC members, now facing huge budget deficits going forward.

Despite this disintegrating geopolitical facade, involving the traditional Shia/Sunni confrontation, complicated by the ISIS threat, the Saudis continue to “stick to their guns;” despite the probability that their huge, dominant five oilfields may be “tapped out” in the next decade. Their trillion dollar financial capital reserve provides a safe cushion against the improbability of oil prices declining to even lower levels.

While peak oil demand is dependent on the growth of both global population, expected to reach 9.5 billion by mid-century, and the accelerated needs of their increasing commercial and industrial development, these should be met with supply from U.S. fracking, and the newly discovered oil sand reserves in Canada and Venezuela, which carry huge potential. These are superseded only by the U.S. and Russia, as independently verified.

While Saudi Arabia’s claimed 266 billion reserve barrels have been suspect for years, their breakeven production price of $7 per barrel, gains them significant leeway. Iraq’s $13, and Iran’s low 20’s, also provide comfortable profit margins at present global price levels.

Conversely, Russia at $46, Canada in the mid-50’s average, and the U.S. close to the high 50’s, when averaging new “fracking” and conventional excavation, give the Saudis massive price advantage. At this stage of the global “oil wars,” Saudi Arabia seems as the solitary oil price dictator, with protection of global market share their primary objective.

The big question mark to be answered in the months and years ahead will assuredly be determined by the intensifying military antagonisms that are now brewing on all sides.

desert sun



45 Comments on "Why Growing Oil Glut May Be a Long-Term Expedient"

  1. Newfie on Mon, 27th Jul 2015 11:38 am 

    Meanwhile, back on Earth, the temperature due to climate change is steadily rising and the ice caps are melting. Hellooooo ?

  2. penury on Mon, 27th Jul 2015 11:52 am 

    I really wish that I also could “dream the impossible dream,” Increasing utilization of a finite resource by an ever increasing population will assure that more resource will be available and the world economy will expand to make this all possible. Sort of like religion.

  3. dave thompson on Mon, 27th Jul 2015 12:07 pm 

    This had brought America’s fading conventional production of 3.4 million barrels per day to near 10 million and upward in a short four years.” This implies that the fracking oil is conventional oil?

  4. Plantagenet on Mon, 27th Jul 2015 12:10 pm 

    It’s ironic that the shale oil boom occurred on Obama’s watch as more oil makes more co2 makes climate change even worse

  5. dave thompson on Mon, 27th Jul 2015 12:27 pm 

    The true irony is that I would respond to your comments planty and expect an intelligent conversation.

  6. Plantagenet on Mon, 27th Jul 2015 12:35 pm 

    The irony is that you would post about intelligent conversation at all davethompson

  7. Apneaman on Mon, 27th Jul 2015 12:38 pm 

    Planty, it’s ironic that you continue to cheer-lead the industry while your home state is converted into a wasteland because of it. A glut of destruction.

    Alaska’s terrifying wildfire season and what it says about climate change

    “The staggering 2015 Alaska wildfire season may soon be the state’s worst ever, with almost 5 million acres already burned — an area larger than Connecticut. The pace of the burn has moderated in the last week, but scientists say the fires are just the latest indicator of a climatic transformation that is remaking this state — its forests, its coasts, its glaciers, and perhaps most of all, the frozen ground beneath — more than any other in America.

    Alaska has already warmed by more than 3 degrees Fahrenheit in the past half-century, much more than the continental United States. The consequences have included an annual loss of 75 billion metric tons of ice from its iconic glaciers — including those covering the slopes of Denali, the highest peak in North America — and the destabilization of permafrost, the frozen ground that underlies 80 percent of the state and whose thaw can undermine buildings, roads and infrastructure.

    Also pummeled are the state’s Arctic coastlines, which are facing intense erosion as seas rise and declining sea ice exposes shores and barrier islands to punishing waves. The situation has grown so bad that some native communities, including tiny Kivalina, Alaska, sitting on a barrier island along the Chukchi Sea, may now have to be relocated, given the dangerous loss of land to the sea.”

    http://www.washingtonpost.com/news/energy-environment/wp/2015/07/26/alaskas-terrifying-wildfire-season-and-what-it-says-about-climate-change/

  8. Plantagenet on Mon, 27th Jul 2015 12:55 pm 

    Apie

    It’s itonic that you think facts are cheerleading for industry. Its just a fact that the world is in an oil glut right now. You can lie about ithe world and deny reality all you want but it doesn’t change the facts

    Cheers

  9. dave thompson on Mon, 27th Jul 2015 1:07 pm 

    You are so right about those facts planty,your intelligent conversation about the “oil glut” is so enlightening, now that you have told us about “the oil glut” for the umpteenth time. We can rest assured that planty will give the guiding light to the facts of the “oil glut” once more. Now please tell us all once more about intelligence and the “oil glut” as we await with bated breath.

  10. shortonoil on Mon, 27th Jul 2015 1:22 pm 

    “Riyadh’s fear of the U.S. becoming totally energy-independent and, worse, a potential global exporter,”

    This is one of those self serving articles for people who are just too lazy to do their own investigating. The EIA provides all the data needed to make a reasonable determination:

    Imports:
    http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_m.htm
    click, all countries, then graph

    The graph started down in 2006, before the shale boom began.

    Consumption:
    http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_m.htm

    US imports peaked in August of 2006 at 10.92 mb/d. They headed down four years before LTO began having a significant impact on production levels. As of April 2015 they had fallen to 7.2 mb/d. US consumption has followed a similar pattern, it peaked in August 2005 at 22.34 mb/d, and as of April 2015 stood at 19.04 mb/d.

    If US imports fall at the same rate that they have since 2006, it would take 17.4 years before the US would become a net neutral importer. The Saudis might have a concern about the US becoming an oil exporter in about 20 years. Taking a $50/ barrel hit, or $120 billion per year now, as the author suggests, to prevent that from happening sounds absolutely incredible. The author is either an idiot, or is lying through their teeth. I would suggest the later.

    They then throw in new tar sands discoveries in Canada, which no one can afford to produce at $48/ barrel, and Venezuela’s reserves of heavy oil; supposedly to be produced by a country that can’t afford toilet paper! This is nothing more than a well constructed PR piece, with just the right amount of obfuscation to baffle the general reader. It was written with someone’s best interest in mind, unfortunately, it wasn’t yours!

  11. rockman on Mon, 27th Jul 2015 2:17 pm 

    Let’s digest this concept of an “oil glut” for a moment. Does it mean there’s more oil in the market place then there are buyers? If so then we’ve been in an oil glut for many decades. After all there has never been a time when the oil producers had to significantly restrict production because there weren’t enough buyers. Except of course when the Saudis reduced their production to a very low level by the mid 80’s. But even with the KSA pull back the inflation adjusted price of oil fell from $107/bbl in 1980 to $31/bbl in 1986. During that time the world reduced oil consumption from 60 million bopd to a low of 52 million bopd…a 13% reduction. Of course the proof of the glut was obviously the 70% decrease in the price of oil from 1980 to 1986.

    And the IA price of oil stayed in the $20 -$30 per bbl range for the next 18 years. So if the price of oil is the determinant factor for defining a glut then the world had been experiencing a glut for 23 years…1980 to 2003. But at the end of that period the world increased oil consumption from 52 mm bopd to around 65 mm bopd…a tad more than during the previous max production in 1980…when there wasn’t a glut of oil.

    But the IA price of oil was in the same “low” price range from 1947 to 1973. So, again, based on that “low” price of oil the world had experienced an “oil glut” for that 26 year period. From a time when the world went from consuming only 5 mm bopd to 60 mm bopd in 1973. But suddenly IA price of oil increased 428% in just 7 years. That’s confusing: why did the price of oil suddenly spike up so high coming off of a 26 year “glut” when global oil consumption has increased 1,200% up to that point in time? And now we just went thru a “non-glut” period when the IA price of oil increased 260%. Until the present day when prices have dropped 260% and we have thus returned to “glut” status in the opinions of some. Well, maybe not full blown glut status yet since the price of oil is still almost double that of the price during the established glut periods. Maybe we should tag this the “pre-glut phase” of the dynamics at play.

    So bottom line: based on the logic of defining the current situation as a glut the world has experienced an “oil glut” for 41 out of the last 56 years from 1947 to 2014. And now we’re slipping back into an oil glut. So I guess the final remaining question: did we experience 41 years of an oil glut or 15 years of an oil shortage? Folks can make up the definitions anyway they wish but typically aberrations tend to be defined as diversions from the norm. And since the norm for the last 65 years has been around $25 to $35/bbl perhaps we shouldn’t refer to the current situation as a glut but as “normal”. Well, maybe not normal yet since oil is still selling for almost twice the typical historical price. But in the next 12 months or so we may see global oil production return to its normal level.

  12. rockman on Mon, 27th Jul 2015 2:20 pm 

    Woops: “Until the present day when prices have dropped 260%” Meant to type “…40%…”

  13. dave thompson on Mon, 27th Jul 2015 4:10 pm 

    Thanks Rock, I was worried that planties obvious high level of conversational and written intelligence was overshadowing this chat room. At least now you have truly established that planty is only about a thousand times smarter then me.

  14. Nony on Mon, 27th Jul 2015 4:33 pm 

    The terms “glut” and “shortage” are silly and distracting. There is a glut of $100 oil (more oil can be produced at 100 than market will buy) and a shortage of $30 oil (less oil produced at 30 than market would buy). And just the right amount of $47 oil. Let’s end the silly discussion of glut term and actually think about the arbitrate insights.

    There are a lot of interesting things going on with oil price. For instance the WTI DEC16 contract as it its lowest price EVER, at less than $55 right now. Lower than last JAN. Lower than 2009. And that is several months out. So clearly, the “betting line” is that oil prices will recover slightly (55 is higher than 47) but still that the medium-long term equilibrium is very different than the “POD” regime of years past. See the chart below and really think about what it tells you.

    http://www.marketwatch.com/investing/future/clz6/charts?symb=CLZ6&countrycode=US&time=13&startdate=1%2F4%2F1999&enddate=7%2F27%2F2015&freq=1&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013

  15. Apneaman on Mon, 27th Jul 2015 5:02 pm 

    The real carbon glut to worry about is that which is locked in the permafrost. Actually there really is no use worrying about it – it’s already being released and will soon go exponential. Which in turn will cause more warming and trigger massive methane releases and all the other positive feedbacks will kick into higher gear as well. At which point our situation will become crystal and the fun will really begin. Climate science, like much of what we do now, is just a huge waste of resources.

    Beneath Alaskan Wildfires, A Hidden Threat: Long-Frozen Carbon’s Thaw

    http://www.kplu.org/post/beneath-alaskan-wildfires-hidden-threat-long-frozen-carbons-thaw

  16. BobInget on Mon, 27th Jul 2015 6:15 pm 

    I’m still a believer in all that methane loop de loop, feedback Apneaman keeps reminding us of. Now, could at least one poster admit
    that current ‘conflicts’ AKA ‘unrest’, fing wars use up great quantities of oil? I posit that mythical ‘glut’ goes up in military smoke daily.

    Today I read any number of articles on supply and demand. None even mention, like here,
    7.5 million Syrian refugees, 200,000 dead Syrians.

    In Sudan; w.aljazeera.com/indepth/features/2015/03/soaked-oil-cost-war-south-sudan-150302102747401.html

    A Forty One nation participation in various vigilante, so called ‘coalitions’, fighting IS
    air and ground wars resulting in yet another five million homeless refugees in Africa and the Mid East.

    You all must believe the military have some magic fuel made from human waste.
    Where are all the fuels coming from to run modern wars? No one seems to know…or care.

    Answers are painfully simple.

    Keep up a fiction that these wars are being fought over religious differences. Otherwise
    far to much value placed on crude oil .

    Russia and China are running rings around
    our energy ‘strategies’ (were there some).

  17. Plantagenet on Mon, 27th Jul 2015 7:18 pm 

    @nony

    The term “glut” is not distracting. It is a technical term used by economists to describe an oversupply of a commodity.

    If you don’t know what the word “glut” means then look it up

    Cheers!

  18. dave thompson on Mon, 27th Jul 2015 7:44 pm 

    “If you don’t know what the word “glut” means then look it up” Wow planty does it again, shows his superior intellect AND gets his digs in.

  19. BobInget on Mon, 27th Jul 2015 8:55 pm 

    That ‘glut’ has gotten so bad yet another war brews over oil and gas rights.

    http://en.mercopress.com/2015/07/27/guyana-warns-in-washington-about-the-venezuelan-threat-to-its-territory

    If what happens in Venezuela bores you, how about this?
    http://www.wsj.com/articles/china-tells-oil-companies-to-choose-sides-in-territorial-dispute-1405529382

    Or this;
    http://www.alternet.org/story/155372/6_global_conflicts_that_have_flared_up_over_oil_and_gas

    And this;
    http://www.bbc.com/news/world-latin-america-18425572

    Oil is worth killing for but not $100 a barrel.

  20. Makati1 on Mon, 27th Jul 2015 8:59 pm 

    Articles about oil and the economy are like arguing about where the deck chairs should be placed while the Titanic sinks into the cold Atlantic. Not important in the long run, and the long run is the one we should be concerned about.

    Who give a rat’s ass how much oil there is or what a barrel costs, if we have to use a respirator to breathe and the only food left are those rats? THAT is where we are heading and I fear that it is too late to do much about it except prepare to make it as painless for ourselves and our loved ones as we can. We ignored the warnings for decades. Now the payment is due…

    “On four continents, historic droughts wreak havoc”

    “‘Apocalyptic’ Wragg Fire Races Through Thousands of California Acres”

    “Cruises on two of Europe’s most popular rivers came to a halt this week due to a lack of water”

    “Study finds traces of cocaine, other illegal drugs in Ontario drinking water”

    “Deadly Amoeba found in New Orleans water supply”

    “Smallest Pigs in Years Boost Price as Heat Stifles Hogs’ Hunger”

    “Greenland’s Undercut Glaciers Melting Faster than Thought”

    “World wildfires”

    “Ecstasy and LSD use reaches new high among young”

    “Shrinking Colorado River is a growing concern for Yuma farmers — and millions of water users”

    “Another Month, Another Global Heat Record Broken”

    And on and on…. See http://ricefarmer.blogspot.fr/ if you are interested in any of these stories.

  21. shallowsand on Mon, 27th Jul 2015 9:27 pm 

    Nony, Plant.

    WTI futures stay here, or go lower, and remain through end of 2016, almost all US shale oil companies are toast, that includes your Continental’s and Whiting’s

    Once those are toast, and no one will invest in or loan on shale oil, OPEC will cut, you pay $4 for gas again.

    Don’t believe me, see 1999 and 2009.

    Then wash, rinse, repeat.

  22. BC on Mon, 27th Jul 2015 9:32 pm 

    @BobInget:

    http://www.theatlantic.com/magazine/archive/1994/02/the-coming-anarchy/304670/

    Exactly.

    The Anglo-American and European rentier Power Elite, Establishment intellectuals, and mass-media influentials foresaw current conditions decades ago, including Peak Oil, overshoot and mass die-off, Limits to Growth, mass migration of desperate people, increasing racial/ethnic/religious conflict, and the last-man-standing war between the West and Radical Islam and and China-Russia for the planet’s remaining resources.

    The narrative is the definition of the Four Horsemen of the Apocalypse on a global scale.

  23. Plantagenet on Mon, 27th Jul 2015 10:12 pm 

    @shallowsand

    Your claim that “no one will invest….on shale oil [sic”} is nonsense.

    Check the news—the Saudis are looking to buy US shale oil reserves now that they can pick them up cheap.

  24. dissident on Mon, 27th Jul 2015 10:24 pm 

    The only glut we have here is that of rubbish articles harping about some fictional glut of oil.

    Anyone recall the 2% annual demand growth for oil projected by the IEA and EIA? There should have been over 100 million barrels produced per day by now. Where is all this production? We clearly have a shortfall. But we are spammed with drivel about some oil glut.

  25. dave thompson on Mon, 27th Jul 2015 10:34 pm 

    “Check the news—the Saudis are looking to buy US shale oil reserves now that they can pick them up cheap.” I looked planty and found nothing of the sort. Perhaps you can post some links and enlighten us all as you always seem to do, with your superior intellect.

  26. idontknowmyself on Mon, 27th Jul 2015 10:39 pm 

    I read half of the Atlantic article. This is exactly what I had in mind once the supply chain start to collapse and electricity stop.

    The world will be ruled by violent uneducated, stupid people while intelligent people will probably suicide themself right at the begging.

    I think we are already run by uneducated stupid people, just by looking at the Chinese steps taken to stop the collapse of the Chinese stock market. Really amateur Chinese official reactin.

  27. Nony on Mon, 27th Jul 2015 10:43 pm 

    Shallow, shale oil is easy on again. It’s not like deep offshore or the like.

    Look at how the crazies started drilling again when WTI was at 60. It doesn’t matter if CLR goes bust as another entity can drill the land just as easy.

    WTI futures are below 65 all the way out to 2023.

    Tight oil is scale-able (can do different amounts). Is easy on/off (quick production, fast decline). And there is a large amount of resource (relative to marginal barrels). Yes, it’s more expensive than Ghawar. but it’s less expensive (in general) than $100/bbl. This creates a dynamic where there is a long term equilibrium price. [Sure we will have jitters from wars or recessions or the like…but in general there is a new stabilizing force at around 50-65 dollars.]

    Hoping for a quick shakeout and no one going back into shale and prices back to the disco is crazy. The gas boys were hoping for that and look where they ended up. Rock got his butt kicked out of the shallow gulf because Marcellus crashed the national price for gas.

    Now oil is not quite the entity that gas is. Harder to get out of shale, fewer resources, and global pricing. But it is still something where hundreds of companies can participate if the economics are there. And they won’t give a damn about history. And the money won’t care either. Heck they can hedge to two years out and the good part of fast decline is that means most of the project is paid for in hedged time period.

    For your stripper wells, stop mooning about a quick crash (negative thinking) and then return to sustained 100+ pricing (overly optimistic). Just look at the futures strip and figure that is what will happen. It will be wrong, but at least it is 50/50 to be wrong high or low. Not biased by political leanings (peakers, cornies), but based on the market bets.

  28. Nony on Mon, 27th Jul 2015 10:44 pm 

    Plant, I know what the word glut means in the dictionary. The problem is it’s meaningless in terms of supply and demand. Take an econ 101 course and learn about price rationing.

  29. Plantagenet on Mon, 27th Jul 2015 10:46 pm 

    dave thompson

    Don’t give up yet.

    Even if your intellect is inferior as you claim, you can still participate in these discussions.

    I suggest you acquaint yourself with this wonderful internet company called “GOOGLE” that allows you to search the internet. After you acquaint yourself with GOOGLE, and then please do a search on the terms”Sabic US shale”.

    When I did it, I got over 40,000 hits about Saudi firm Sabic looking to buy US shale gas reserves.

    Give it a try yourself.

    CHEERS!

  30. Plantagenet on Mon, 27th Jul 2015 10:47 pm 

    Nony

    If you knew anything about economics, then you’d know that the term “glut” has a specific meaning in economics.

    Your claim the term is meaningless just shows you don’t know what the word “glut” means.

    CHEERS!

  31. Plantagenet on Mon, 27th Jul 2015 10:50 pm 

    I use the term “glut” because it accurately and appropriately describes current world oil market conditions.

    Why should we use terms other then the most accurate and appropriate ones?

    CHEERS!

  32. dave thompson on Mon, 27th Jul 2015 10:57 pm 

    Planty I was asking for the one you were referring to so that I might be able to respond in an educated way. You said;”The irony is that you would post about intelligent conversation at all davethompson” Up at the top of this page. I am only going by your opinion of me.

  33. Nony on Mon, 27th Jul 2015 11:01 pm 

    The amount of oil produced and sold are equal saving temporary, small changes in inventory or slight losses in transport, Plant. Instead of talking about a glut or a shortage, you should just talk about price. There is not a glut of oil if you want to buy it for $30.

  34. Nony on Mon, 27th Jul 2015 11:33 pm 

    In the absence of price controls (and they don’t exist for crude oil) then quantity demanded and supplied will equal. This was true at 100 last summer and at 47 today. There are no shortages or gluts if price controls are absent.

    Watch this video.

    https://www.youtube.com/watch?v=JUCH_JFq-Zk

  35. Plantagenet on Tue, 28th Jul 2015 12:12 am 

    @Nony

    You’ve got your facts wrong.

    Supply and Demand are NOT equal in the oil market now—-don’t you know that the Cushing oil storage depot has been filling up for months and dozens of old oil tankers are being filled with oil and then the oil is stored at sea? Please educate yourself on the facts, dude.

    The supply of oil currently exceeds the gobal demand by ca. 800,000 bbls/ day resulting in a 50% collapse in oil prices, i.e. we are in an oil glut.

    CHEERS!

  36. Nony on Tue, 28th Jul 2015 12:17 am 

    The inventory is a minor issue, Plant. We are not at the most stuffed in inventory we have been, Plant. We had continued low prices even as there was a drawdown. The inventory stuffing is related to the contango spread of a few dollars. That is a minor item compared to the 100 versus 50 change.

  37. dave thompson on Tue, 28th Jul 2015 12:29 am 

    Hey planty when was supply and demand ever equal in the market? Storing crude oil is a losing proposition by all accounts. But thanks for letting us all know once again about the oil glut I was worried that it had ended because you did not mention it for a few minuets.

  38. shallowsand on Tue, 28th Jul 2015 7:12 am 

    Of course, when I say no one will invest in shale, that is an exaggeration.

    However, I do not see what the corns are, being a lid on prices indefinitely due to shale.

    What I do see in the next few years will be price volatility. How high and low, I have no idea.

    I have no idea how things will shake out. I don’t think $100 is sustainable in todays dollars, nor do I think $40 is. $100 Hurst the economy. There is no incentive to produce shale at $40, unless you are about broke and trying to convince those you want money from that all is well.

    Gas in most worldwide markets is 2-3 times higher than in the US. Transport is much more of an issue. Also, the gas wells, thus far, are much more economic than the oil wells. More production plus lower operating expenses on a per BOE basis.

    More important to oil are world wide supply and demand issues. A ton of deep water has been eliminated.

    Also, I do agree there is likely much shale to be recovered in other parts of the world. The question is what oil price is needed to recover it in significant quantities.

    Gulf OPEC can deal with oil prices which fluctuate from $40-$100 but as we are seeing after just 8 months, US shale oil cannot.

    We have high LOE production, it is risky because it’s economics are heavily dependent on oil price. The fact that we are still operating at a slight profit, and shale oil is generally going broke, says something. When oil goes below $40, we will be losing money, but price will need to stay there for 3-4 years to put us out of business.

    I have looked at shale financials closely. Almost none can survive that.

    Keep in mind, major companies such as ConocoPhillips and Marathon oil have sold overseas production to invest in US shale. This is not always due to quality of reserves, but ability to do business. Land based production on privately owned land is the best place to operate in the world. Those companies will likely survive, but they are getting hammered too.

    I know corns are only concerned about the cost of gasoline. I would be in that camp too absent working interests we own. However, I follow the economics, and the economics will absolutely affect how things go down.

    Ultimately, OPEC is still in control. I do not see why people think otherwise.

  39. shortonoil on Tue, 28th Jul 2015 7:26 am 

    The volume of unsold oil in the market place is now 100 million barrels
    more than the long term average. This is oil that has no buyers for it. This
    excess is appearing because the economy can not use it. Its cost is higher than
    the return that the oil would provide. This is the natural course of depletion that
    occurs as the quality of oil produced declines. Producers always take the highest
    quality oil first leaving behind lower quality product for later. It is now later:

    http://www.thehillsgroup.org/depletion2_022.htm

    The cycle of continually lower quality production is now firmly in place. The world’s economy will continually have an excess of petroleum that is not cost effect to use. The petroleum
    industry is rapidly approaching the point where it will no longer have a product that is
    affordable to the economy. This will be apparent from the growing debt in the energy sector, shut-ins, and bankruptcies. The economy will decline as the amount of unaffordable oil rises.
    We have consumed 84% of the petroleum that can ever be produced. The last 16% will be squeezed out of the ground with little, or no profit for the producers.

    http://www.thehillsgroup.org/

  40. Kenz300 on Tue, 28th Jul 2015 8:41 am 

    The transition to safer, cleaner and cheaper alternative energy sources can not come soon enough. The drop in oil prices will slow the transition to electric vehicles but it will not stop it.

    Climate Change is real….. we need to deal with the cause (fossil fuels)

    Listen Up: Pope Calls for the Replacement of Fossil Fuels, Renewable Energy and Solar Subsidies – Renewable Energy World

    http://www.renewableenergyworld.com/articles/2015/07/listen-up-pope-calls-for-the-replacement-of-fossil-fuels-renewable-energy-and-solar-subsidies.html

  41. Davy on Tue, 28th Jul 2015 8:44 am 

    Short said “The volume of unsold oil in the market place is now 100 million barrels more than the long term average. This is oil that has no buyers for it. This excess is appearing because the economy can not use it. Its cost is higher than the return that the oil would provide.”

    Short, I am one of your staunchest supporters. I agree with your message. I will discount it though. There is more to it than oil. Demand issues are a product multiple issues oil being one. While I know you know that your message is focusing a primary message on oil and affordability. Demand and or demand growth destruction depending on the economy in question is being destroyed by multiple reason.

    I will acknowledge oil is a significant reason but only part of the equation. I would put systematic reasons at the same level as oil. Overpopulation is the biggest reason. Systematic overconsumption is another reason. Our overpopulation is overconsuming for the wrong reasons. That is three strikes you’re out situation. We are finished because this is now a predicament of irreversibility of a unsustainable arrangement. We frankly are not living properly as a species.

    If you look at most other ecosystems they have a tendency to avoid overshoot. Most species instinctively work towards a common good in an ecosystem of natural cooperation through specie niches. Humans are programed to overshoot by an overly large brain that feels individually and collectively exceptional. We feel a divine manifest destiny to expand and grow from the individual to the collective level. This is the real problem. Peak oil dynamics is a result of a species in a flawed living arrangement.

  42. Nony on Tue, 28th Jul 2015 3:06 pm 

    Shallow: price goes down and shale starts going out of business. Production drops. Price goes up then. Some shale comes back on then. At the end of the day, you have some equilibrium where part of the shale is operating and part is out of business. And the price is not 40 and not 100. Probably more like 55 plus or minus 10. This is simple conventional econ 101.

  43. Nony on Tue, 28th Jul 2015 3:08 pm 

    I mean look at gas. There is a limited market for it. Companies that overextended based on hopes for $8+ gas got burned. But we still have some companies in the game and have lots of gas coming out and even at a pretty decent price. Just have to compete harder than the other guy. That’s life.

  44. shortonoil on Tue, 28th Jul 2015 3:54 pm 

    “Peak oil dynamics is a result of a species in a flawed living arrangement.”

    That may very well be true, but unfortunately, there is no quantitative means to measure it. If the question has been reduced to when, not just if, a time table is indicated. Petroleum accounts for 38% of the world’s GDP, and as previously mentioned it is a foundational commodity. The present socio-economic structure can not function without it. Petroleum is the best quantitative proxy available to us. It establishes a boundary condition that is not likely to be exceeded. Our present complex socio-economic structure may fall into a chaotic state before the oil age ends, but it can be almost guaranteed not to happen after.

  45. taw on Wed, 29th Jul 2015 12:21 am 

    Hi Short,
    I’m fascinated by your statistics, but a bit puzzled. My physics degree is way out of date, but I muddled through the first portion of your graphs.

    So, may I ask two questions?

    First, the 100 million unsold barrels. Is that because they are inferior in API or some other quality, or is it the demand is not there?

    The second question is more fundamental. Your maximum affordable price curve follows a logistic function and plummets over the next 5 years. That seems to be what is different between your view and your critics. The critics argue from a demand and supply point of view. You are coming from net energy budget view. Could you expound on the validity of the maximum affordable price logistic curve prediction. Clearly you have bet your resources on the validity of the prediction. I deeply respect that. But your prediction is so draconian that it merits being vetted.

    Thanks
    TAW

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