[Niagara]

Hey folks, remember me? I joined nearly 10 years ago - where did the time go?
It's nice to see some familiar names.

I kind of got distracted and lost focus of PO. Trying to catch up.

Can anyone bring me up to speed real quick? The 30 second "elevator pitch"?

-What's happened with Mexico's Cantarelli? Is she toast yet?

-Olduvai Gorge - when do the lights go out?

-Is Ghawar still dying or has SA stabilized production?

[Peak_Yeast]

The newest I have seen about Ghawar:
http://peakoilbarrel.com/closer-look-saudi-arabia/

[Pops]

Hi Niagara!

PO is alive and well but below the radar ATM due to oversupply.
The big dot however is that cheap conventional oil, the 80% of supply from the old giant fields, has been flat since 2005 -
10 years equals PO in my book, at least for the most important part of the supply

US and OECD demand fell thru the high price period but is growing now on low price, China demand is way down from the oughts but globally demand is still growing slowly, for now anyway, next year who knows.

KSA and OPEC are drilling without quota limits today, pretty well flat out. Hard to tell if KSA even has any actual spare capacity (they say they do). But all the supply growth lately is N American, either Tar from Canada or Fracked Light/Nat Gas Liquids (pretty well the same thing)

The downside is those methods require oil 2- 3 times as high as the current price to develop. Plus each LTO well has a low initial production amount and steep decline - like 40-50% the first years— they are instant strippers after a couple of good years. (reminds me of a few girls I've,,,, nevermind)

IMO, the upshot is another year or 3 of fairly low then rising price as the glut clears.
Then we get to see who is left standing when the price gets back up into fracking territory.

The upshot is the cheap oil has peaked but not begun decline, so for now all appears peachy.

As for Olduvai, I'd be more worried about cyberwar or a HANE flipping the switch.

[Niagara]

Thanks pops! I remember you well, you sure know your stuff.

That's about how I figured it. I think the global depression must be FAR worse then the media led us to believe. Demand must be in the gutter.

I think the next oil shock will be a doozey. 2008 was what $150/bbl if I recall?

I tell friends, it reminds me of a tsunami. The sea *recedes* at first....then , look out!

[ROCKMAN]

"Demand must be in the gutter." Actually demand is at an all time high. The world has never consumed as much oil per day as it is right now.

[Shaved Monkey]

I think the low oil price is there to kill Russia, Iran and Venezuela economically.
Civil wars arent cheap

[rdberg1957]

Not so sure that low prices are there to kill off other nations such as Russia and Venezuela's market, but more likely to prop up Middle Eastern governments whose welfare states depend on getting a good price for oil.

[Shaved Monkey]

Surely a higher price would be a better way to do that

[radon1]

I kind of got distracted and lost focus of PO. Trying to catch up.

Can anyone bring me up to speed real quick?

PO means PutinObama these days.

[Pops]

Like ROCK said both demand and supply have been growing right along.
In the US we couldn't waste as much as we were with the higher price so we cut back a spec but the Chachka Builders were lapping it up!

Here is the picture (last few points are predictions of course)



But yeah, the tide going out may be apropos.

[ROCKMAN]

Niagara - For balance let me offer an alternative view that counters thoughts that someone (the Saudis, the CIA, the Grinch that stole Christmas, etc.) has forced down oil prices to hurt someone.

I've been selling crude oil for 40 years and not once have I been able to force a single buyer, like a refinery, to pay one penny more then they offered for my production. And I've yet to see one report from an OPEC producer, like the Saudis, that claimed they have ever forced a buyer to pay more then that buyer was willing to pay. I'm trying to not sound patronizing while explaining the obvious. The vast majority of the oil produced is bought by refineries. Refineries process the oil into products they sell. A refiner's profit is based solely on the difference between what they sell those products for and what the oil (and their processing expense) costs it. But the refiners, like the producers, can't force consumers to pay more for those products then they can afford. IOW when the price of gasoline gets so high that you can't afford to use as much as you normally do you simply use less. Right?

Refiners are THE experts when it comes to predicting what price the future consumer market will be able to bare. And how do we know they are THE experts? A simple answer: if the refineries were constantly paying more for oil then they were selling the products for they would consistently being running at a loss. If so would you expect to see any refineries operating these days? The refiners estimate the max they can pay for the oil they buy and still turn a profit. IOW the buyers/refiners set the price of oil...not the Rockman or OPEC. All either one of us can do is decide how much of our production we are willing to sell at the price the buyers are willing to pay. So since the Rockman, OPEC and almost every other oil producer is keen to max our revenue there's a simple response to the lower prices the buyers are willing to pay: sell as much f*cking oil as we possibly can. lol. Even if it means depleting a significant amount of our reserve base in the process. Folks have asked why the KSA has not cut production but have actually increased it. If that question makes sense you must also ask the same question of US oil companies. IOW ask those companies, like the 37 that have filed for bankruptcy this year, why they haven't volunteered to reduce their production in an effort to increase oil prices.

Go ahead and pretend you're sitting in the room with a bunch of US oil companies CEO's and see if you can ask them that question with a straight face. lol. Now pretend you are sitting there with Putin and the king of Saudi Arabia and ask the same question. So tell me: did those imaginary conversations make you feel a tad foolish? lol

[JV153]

But the refiners, like the producers, can't force consumers to pay more for those products then they can afford. IOW when the price of gasoline gets so high that you can't afford to use as much as you normally do you simply use less. Right?

I don't know, just had an employee at a fast food place try and charge me twice for a salad.. and I've heard some (quite true) stories about Italian taxi drivers.

As to the pricing - keep in mind that most countries in Europe and even Brazil now - have high fuel taxes. Right now in Finland, 95 E gasoline is 1.41 €/ liter (down from 1.70) even though Brent is down from near 100 USD/barrel to 36 USD/barrel.

I don't think you're ["refiners are experts at predicting the price the markets may bear statement", is quite true] - it seems to me the pricing is more or less automated based on the closing raw barrel price (the refinery input) for that day.

[sjn]

Controversial perhaps, but not everybody agrees with this prognosis. Refugees from The Oil Drum Raúl Ilargi Meijer and Nicole Foss now at http://theautomaticearth.com are sticking to their deflation prognosis for the drop in the prices of commodities, and fellow ex-drummer Gail Tverberg at http://ourfiniteworld.com goes further and provides analysis explaining recent political-ecomomic events through the lens of Limits of Growth.

Meanwhile, consistent with the above analysis our "shortonoil" (BW Hill) http://www.thehillsgroup.org/ proposes a thermodynamic model to quantify the effect of declining energy and entropy through petroleum production.

There's a long running thread here (http://peakoil.com/forums/the-etp-model-q-a-t70563.html) discussing it all, Pops and I have been disagreeing about the validity of the ideas presented, hence the controversy.

I'm very sceptical of official data, which hasn't helped me make my case.

[AgentR11]

I think the low oil price is there to kill Russia, Iran and Venezuela economically.
Civil wars arent cheap

Russia will be fine, she's not dependent on imports for anything interesting volume wise, which is the only thing the export sales amount matters for.
Iran? They haven't had good income from oil in a long time as a result of sanctions.
Venezuela? who cares about Venezuela. And they're probably screwed high or low price.

Nah, this is a market share fight; Russia and NEMA-OPEC want to be the major oil producers, and don't want the US slicing off large chunks of their market by super high tech/expensive processes. In short, Russia would prefer to get a guaranteed $20 today, than a maybe $50 three years from now. So Rus&NEMA have gone full throttle to monetize as much as they can, as fast as they can.

I think they're making the right call.

[onlooker]

Rockman's expert analysis makes sense to me. Their is no oil glut and oil is being produced at full throttle to meet real demand. And that real demand has required a readjustment of price to a level that the market can bare. It is the same as any business if you have extra inventory that is not selling you lower the price via discounts, price rebates, specials etc till you are able to sell the surplus.

[ROCKMAN]

JV - "it seems to me the pricing is more or less automated based on the closing raw barrel price (the refinery input) for that day". If you're referring to closing future prices refineries don't pay on that basis. They pay as per their negotiated contract prices with producers like the Rockman. Granted some benchmark prices are used in that calculation but adjusted to what refiners project for their potential selling prices for their products. A refiner projects what he thinks the product market will bear for his output. And the folks buying refinery production decide daily what they are willing to pay and they don't give a sh*t what the futures market thinks. lol.

Do you think any refiner is going to pay a prices for oil that guarantees he'll lose money cracking and sell the products made from it? I’m actually one of the few folks here that sells crude oil every month. I either take the price the refiners off or I shut my wells in and lose 100% of my revenue stream. Exactly how long do you think most companies can kill their income like that? I work in the real world of oil producers and buyers. And this is exactly how it works. The KSA can either sells its 10 mm bopd at the price the refiners are willing to pay based upon their projections of the product market or the KSA can shut in all their wells. That’s their only control in the situation. Of course if they did that oil prices would increase. But again only to a level the refiners can project a profit. But the KSA would still have zero income from oil sales so why would they do that? Remember the refiners care not only about the price they sell products for but also the volume. Regardless of how the price for products might be the refiners still have to make enough total revenue to cover overhead and other fixed costs. Selling wholesale gasoline for $20/gallon isn’t going to keep it in business if there aren’t enough retail buyers for $25/gallon gasoline.

It really isn’t complicated: you sell widgets and see where next month the public won’t buy you widgets for more than $1. So are you going to pay $1.25 for the components you need to make a widget? It doesn’t matter if none of you suppliers will sell those components to you for less than $1.25…you’re not going to buy them. BTW this is also why a lot of widget makers buy futures of those widget components: to offset those sudden price swings as a result of their projected widget sales prices being off. It tends to stabilize their revenue stream…somewhat.

[ROCKMAN]

looker - "It is the same as any business if you have extra inventory that is not selling you lower the price via discounts, price rebates, specials etc till you are able to sell the surplus." Not only that it isn't that uncommon for a company to sell inventory BELOW REPLACEMENT COST in order to generate revenue. If a company has $10 million in widgets sitting in a warehouse it might sell them for $5 million even if they cost him $7 million to originally make them and $8 million to replace them.

It's just a function of the revenue he might desperately need at the time. Like the revenue the KSA desperately needs right now to keep it's natives on the reservation. lol. Yes: the KSA may be selling oil at a price less then what it will cost them in the future to develop new reserves. But the future is just that...the future. If the kingdom ends up with their own version of a "Arab Spring" that potential future isn't very relevant today.

[onlooker]

Oh wow Rock, I think with that explanation you just put some sanity into the whole debate about what KSA/OPEC is up too.

[onlooker]

By the way Rock, how do you see the production potential of KSA ever since that Matthew Simmons book Twilight in the Desert and subsequent discussions here and on the Oil Drum it still is not clear in what situation exactly they are in. I guess it is tough to know considering they are so secretive about Reserves and such. But if you had to guess what stage of depletion is their fields in like Ghawar ?