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Peak Oil Review - Dec 15

Discuss research and forecasts regarding hydrocarbon depletion.

Peak Oil Review - Dec 15

Unread postby Graeme » Mon 15 Dec 2014, 15:34:51

Peak Oil Review - Dec 15

1. Oil and the Global Economy

Oil prices fell steadily last week closing at $57.81 in New York, and $61.85 in London. Traders say the decline was due largely to new downward revisions of official forecasts for oil demand in 2015. Some in OPEC are now saying the markets are oversold; however, most observers see no immediate end to the price slide, and expect still lower prices in the coming week and the first quarter of the new year. The IEA and EIA are saying that growth in production of non-OPEC crude, especially US shale oil, will continue for some time and that it will be months before supply and demand come into balance. Last week the IEA lowered its forecast for oil demand for the 5th time in six months, sending the Dow Jones down by 315 points. Since June the Agency has cut its demand forecast for next year by 800,000 b/d. At the same time IEA says US oil production will rise by 1.3 million b/d next year, while the EIA in Washington says it will be up by 700,000 b/d next year, which is down from last month’s estimate of 900,000. The EIA, however, forecasts that lower rates of production growth will not come until the second half of 2015.

Some are saying there is already an excess of some 2 million b/d going into storage around the world. US stocks were up by 1.5 million barrels last week, but China in particular is taking advantage of low oil prices to store away millions of barrels in their newly built strategic reserve facilities. As there is a limit to how much oil these facilities can hold, the stream of tankers carrying oil to Chinese strategic stockpiles will likely slow soon adding to the supply/demand imbalance.

Unless there are major, and unexpected, production cuts in the immediate future, some are saying we could see oil prices down in the $30s as we did in 2008, simply because there is no place to store the excess production. With the Gulf Arabs and Russians, who are low-cost producers, insisting they will not cut production, the most likely place where there will be cuts in the short term will be among the high-cost producers in the US and Canada. As offshore and tar sands projects are mostly large and expensive, and cannot be easily slowed, most attention is focusing on US shale oil producers who must drill hundreds of new wells every month simply to keep production level.

In the US we are already seeing signs of a drilling slowdown despite IEA and EIA forecasts that there will be robust growth in US shale oil production for the first half of next year. Last week Baker Hughes reported that the number of rigs drilling for oil in the US dropped by 29 to 1,546. North Dakota reported that there was a small but unusual drop of 4,000 b/d in its oil production between September and October leaving it at 1.182 million barrels per day. The number of new well completions dropped from 193 in September to 134 in October, although some of this drop may have been due to weather and new regulations. Of more interest is the note that Bakken shale oil is now selling for close to $40 a barrel at the well head, a price which outside observers say is well below costs of production for many if not most new wells being drilled in North Dakota. While some North Dakota drillers still tout their ever-increasing efficiencies, mostly for the benefit of their Wall Street bankers, numerous smaller drillers in the Bakken have announced plans to cut back in the coming year.

The debate over whether lower oil and gasoline prices is a good or bad thing is picking up. Obviously if your income depends directly or indirectly on the oil business, you are already doing worse than you were six months ago. Much of the oil industry, at least six US states and many localities are already looking at next year’s budgets with an eye to making substantial cuts. On the oil consumer side, the US Secretary of the Treasury said last week that the drop in oil prices is the same as a massive tax cut as much of our wealth is no longer being shipped to the treasuries of foreign countries. In the short run some of us are doing better and some worse.

In the long run, however, it may be a different story. Since the 2008 recession, the energy industry has been the major creator of those new jobs that were created. Without the boom in shale oil and gas the employment situation in the US would be much worse. Ditto for capital expenditures, some one third of which in recent years came from spending to develop more energy. Now that the energy boom may be turning into an energy bust, the economic picture for the next few years might not be so rosy. The trouble is that the US is both a major producer and consumer of energy. Reuters says that the number of new drilling permits issued in November were down by 40 percent which may be a more realistic clue as to what the coming year will bring. The shale oil boom is estimated to have created some 1.3 million jobs many of which will be lost as drilling slows.

An even more important issue is whether a contraction of US shale oil production could trigger a major financial crisis. The energy industry is said to be holding some 18 percent of the high-yield “junk” bonds outstanding and some say that as much as 40 percent of energy junk bonds could default if oil prices remain low for an extended period. A default of this magnitude could be enough to trigger a financial market meltdown.

Over the weekend, agreements were reached at the UN climate change meeting in Peru that set the stage for a new agreement on climate change among 190 nations present. A key meeting is set for December 2015 in Paris to conclude a new treaty that will replace Kyoto. The significance of the Lima agreement is that it pledges all countries, not just the “rich” ones, to make efforts to reduce emissions. There is a long way to go to get a workable treaty, however, as the argument over climate change vs. economic growth with ever increasing emissions continues in many countries including the US.

2. The Middle East & North Africa


resilience
Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.
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Re: Peak Oil Review - Dec 15

Unread postby BobInget » Mon 15 Dec 2014, 16:43:15

When elephants fight, grass all around gets trampled.
In this case, elephants are Russia, Iran vs Saudi Arabia. KSA seeks to destroy
Russian oil production. (this all goes back to Syria's proxy civil war)

I cannot see Russia (V.Putin) absorbing more pain without retaliation. Remember we are talking a 45% correction over a 1.5 % imbalance.

I cut the following from another respected analyst:


AmStocks, the price of crude is dropping 5% per day. This is no normal price reduction.

The Russian currency dropped 12% TODAY. Roseneft, the largest oil company by production I believe in the world, has its back against the wall and may even default on foreign bonds.

Venezuelan bonds are crashing about 5% a day as well and are now priced at barely bankruptcy recovery levels. PDVSA cannot pay for any parts or foriegn labor at this point. Venezuela makes no oilfield equipment that I know of.

PBR in Brazil is a straight shot to zero, and needs tens of billions in lending to continue its drilling campaign.

The regional prices today in the central United States look like a list of winter temperatures rather than a oil price list.

I really see people underestimating the power of this hit on companies and countries. I don't believe ANY executive whose telling me about this whole things being no big deal except amongst the tiny number of the strongest, best players. Those are not nearly enough to prevent a production decrease.

I am very concerned about real world black swans at this point. No matter what investments I have, this kind of action could precipitate a crisis from which investments are the least of the issues.
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