[Tanada]

The Saudi's have been on cruise control, relative to the US.

Yep Dolan is right from OP

in 2010 US oil production was 8.6 million barrels a day, Saudi production was 10.8.

In 2014 US production was 12.5, Saudi 11.6.

So the US increase production by 3.9 million barrels a day, the Saudis by 0.8 and yet the Saudis get the blame for the glut.

For reasons best left to the imagination of the reader the so called West has just assumed that KSA would always be willing to take the hurt to balance supply and demand. From the KSA point of view the collect we of the west insisted that they should give up some of their market share so we could maintain our oil industry from stripper wells on the bottom to fresh fracked multi completion wells at the top. Well they proved in 1986 they were no longer willing to do that to support their fellow OPEC members cheating on the quota system, but apparently the memo never sunk in with the thought processes of many financial 'leaders' around the westernized countries. Instead they have created a slew of theories about how 'low' oil prices are destroying the economies of every OPEC nation plus Russia, despite the fact that all of them were managing just fine in 2005.

Any of the three largest producers, the USA/Russia/KSA could end the glut today by declaring a modest cut in production. ROCKMAN tells me it is still legal for the TRRC to declare a production level for every well in Texas, which would put a pretty solid limit on USA production. For Russia and KSA it is even easier for the people in the decision making capacity to declare a cut. The simple fact is it doesn't even have to be a substantial physical cut, just announcing a cut and proving you mean it would cause the speculators to rear up and stop depressing the price of oil. Oil yesterday was at a 5 year low and was selling for less than half of year ago prices. So far every drop that has been offered for sale has found a buyer, even if it went straight into storage.

Here is my prediction for whatever it is worth. One of two things is about to happen, either the oil producers run out of buyers because we hit that 'tank full' moment and nobody has any storage capacity left they can fill which will crash the price, very temporarily. Or on the other hand some combination of events, could be natural declines catching up, a war disrupting sales, or a big player declaring a new floor price they will defend, will put a bottom on the price declines. KSA used to do that frequently just to promote stability even when they did not do anything else to effect their production. KSA or Russia announcing they will not sell for less than say $40.00 would mean giving up a little of their market share, but the price would stabilize with a large portion set at that price. There simply is not enough capacity anywhere willing to sell to replace the Russian or KSA exports, in fact there has not been for a very long time, say around 2000.

[onlooker]

I think Tanada analysis is spot on. I also believe, or my imagination believes that the reason for the full out of LTO was as always money. Lots to be made by massive lending hooking in even marginal producers just like the sub-prime mortgage affair. As for what scenario is more likely, I would say the former one in which nobody cuts back and prices continue to descend and Oil companies continue to go belly up. Russia and KSA figure no matter what they will still be around as they're more State enterprises as opposed to the US comprising many oil companies. Why do I think that? Because I think Russia and even KSA is no longer playing ball with US/West and it is now survival of the fittest time.

[ROCKMAN]

"Any of the three largest producers, the USA/Russia/KSA could end the glut today by declaring a modest cut in production. ROCKMAN tells me it is still legal for the TRRC to declare a production level for every well in Texas." And once again, boys: if the world is currently consuming more oil then every before where is the glut? There was certainly a huge glut/over capacity in the early 80's when oil consumption fell an 11%. But by mid 1980 those resultant low oil prices spurred an in crease in consumption for the next 30 years.

And we've seen an even faster response to lower oil prices this time around. From Reuters last year:

"World oil demand surged in the first six months of 2015 compared with the same period in 2014, according to national estimates submitted to the Joint Oil Data Initiative (JODI). Petroleum demand is responding in the expected manner to a halving in the price of crude and significant declines in the price of most fuels in most consuming countries, as well as continued economic expansion in much of the world. Fifty-nine countries, accounting for 75-80 percent of global oil consumption, have submitted demand estimates for both the first half of 2014 and 2015 to JODI."

To each his own but my definition of a glut is when there's more of a commodity then there are buyers. Given how the world is gobbling up as much oil as possible I don't see a glut. Now back when oil hit $145/bbl a glut of oil certainly developed" a lot more production available then there were buyers. But that was also true when oil was $90/bbl...wasn't it? Given how quickly some producers open up their spare capacity obviously there was more IMMEDIATE production available when prices were higher then there is today. IOW when oil was $90+/bbl there obviously was a glut of production that but back sales due to a lack of buyers.

If I'm sitting on the side of the road selling corn and half of it rots away because I don't have enough buyers then there's a "corn glut". If folks are standing in line buying every ear I can bag then there is no corn glut. Of course I cut my price in half but I'm selling all I can and making a lot more income then I was before.

[onlooker]

Rock I am starting to see with more clarity your argument. Do you think buyers then are hedging anticipating an eventual rise in prices and thus not keen on re-selling for the time being? A kind of buying on the short.

[Outcast_Searcher]

"Any of the three largest producers, the USA/Russia/KSA could end the glut today by declaring a modest cut in production.

Yup. But no one wants to take the pain, and in the US they'd have to pass some sort of laws to force private businesses to do cut production, vs. just decreeing cuts. Alternatively they could collude and all cut production modestly. If they could trust each other, they'd have a cartel and the price would rise. OTOH, oil cartels (like OPEC) have been notoriously unreliable in the longer run. (Too many cheaters).

To each his own but my definition of a glut is when there's more of a commodity then there are buyers. Given how the world is gobbling up as much oil as possible I don't see a glut.

Half right, it seems to me. Clearly global demand is increasing due to low oil prices, but world storage capacity filling and lots of tankers sitting around with extra oil waiting for higher prices sure looks like there's more oil than needed (in the short term) to me. Maybe not a big glut, but it sure looks like a glut. Else, why do prices continue to drop?

Of course I cut my price in half but I'm selling all I can and making a lot more income then I was before.

Using what's happening to oil and the KSA as a proxy for this statement, I don't get it at all. If the KSA is producing 10%ish more than they were before, but the price is about a THIRD of what is was in the 2010-2014 period, HOW are they making "a lot more income" exactly?

It looks to me like they are getting reamed, and their budget deficits, cuts to subsidies, and the (slow) draining of their sovereign wealth fund to pay the bills in the mean time sure don't look like "more income" to me.

This whole analysis seems like me to the simple supply/demand analysis I had in first year microeconomics in college in the late 70's. What am I missing?

[AgentR11]

Russian crude exports up: 2.5% for 2015
Russian coal exports up 9.1% for 2015

The bubble didn't burst; the big players got tired of Western economies getting their slice of it. We are being DELETED. lol. jk.. sorta... well maybe... not.
http://en.portnews.ru/

[ennui2]

Maybe not a big glut, but it sure looks like a glut. Else, why do prices continue to drop?

Only on a site like this would there even be an open question about whether we're actually in a glut.

[dohboi]

Royal Bank of Scotland sees deflation looming and advises "SELL EVERYTHING!"

http://money.cnn.com/2016/01/12/investi ... -year-rbs/

The definition of a self-fulfilling prophecy??

Are falling oil prices just one of the more visible signs of a general global deflationary spiral that is just getting underway?

[peripato]

Arch Coal, the second-largest mining company in the US, filed for bankruptcy on Monday.

Another blow for the ailing fossil fuel sector, as it struggles to adapt to environmental regulations dampening demand.

US coal production fell to 900 million short tons in 2015, the Energy Information Administration revealed on Friday, a 10% decline on the previous year.

[onlooker]

http://www.zerohedge.com/news/2016-01-1 ... ale-assets
Another sign of Carbon bubble busting.

[ennui2]

The Saudis get the blame because for 30+ years they were the swing producer, or in the past they cut production to balance production

Unbelievable. The word blame in one of your posts not associated with Obama. Will wonders never cease?

[ennui2]

http://www.zerohedge.com/news/2016-01-15/worlds-largest-miner-books-massive-72-billion-writedown-us-shale-assets
Another sign of Carbon bubble busting.

Please do yourself a favor and read something beyond zerohedge. This constant appealing to authority via zerohedge isn't very credible.

[onlooker]

I do not see this as being an article voicing an opinion but simply stating a event that has occurred.
but if you prefer: http://subterrnews.blogspot.com/2016/01 ... ive-7.html

[Tanada]

Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs.

Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20 or even $10 oil play out.

For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector."

JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.

"The biggest area of stress" is the oil and gas space, Marianne Lake, JPMorgan's chief financial officer, told analysts during a call on Thursday. "As the outlook for oil has weakened, we would expect to see some additional reserve build in 2016."

Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that "oil prices are likely to remain low for a longer period of time."

If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.

http://money.cnn.com/2016/01/18/investi ... index.html

[Pops]

Arab Light (KSA) and Bonny Light (Nigeria) imports into the US were replaced by LTO and Venezuelan heavy was losing to Canada.




OPEC was losing market share from around 2012. They attempted to replace that with China and other Asia but those economies were slowing.

So even at the higher price they were losing revenue. OPEC revenue peaked in 2012



As LTO/tar continued to grow they would have continued to lose not only market share but because the price would have fallen regardless of their actions they would have lost revenue in any event.

It all comes back to LTO and free money to frack it.

[dohboi]

Thanks for the great info, T & P.

Sooo, is the collapsing oil market this year gonna play a similar role to the collapsing realestate market in '08 to threaten to bring down the whole global financial system?

[Subjectivist]

Thanks for the great info, T & P.

Sooo, is the collapsing oil market this year gonna play a similar role to the collapsing realestate market in '08 to threaten to bring down the whole global financial system?

If it does who will be able to stop the market slide?

[AgentR11]

JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.

JPM always seems to have "tells" in their statements. Translating the above for mortals: We anticipate oil to stay at or below $30 / bbl for at least 18 months, and are preparing to handle losses on our books in this sector in the neighborhood of a billion dollars. Oh.. and we laugh at you idiots that went nuts financing the most unstable, poorly capitalized drillers in the pack! Muhahahahaha. At least that's how AgentR11 reads the statement.

Oh,and what time period did the Opec guy mention again? 12-18 months? Yep.

Don't mistake a market share fight for a solution to peak oil or an invitation to a cheap energy recovery.

[Pops]

I believe mining (includes drilling) is the only sector of the US labor market losing jobs. Overall 200k jobs on average added every month for 6 years, wages increasing for the last 2-3 and spending is up (aside from gas of course) this last year, arguably because of gas.

You can have a stock market correction without a recession.

"Does a 10 percent-plus decline in the S&P 500 predict that a U.S. recession will soon be at hand? Not according to history, which shows that while all recessions were preceded by corrections or bear markets, there were nearly three times the number of 10 percent-plus declines than there were recessions since 1948," says Sam Stovall, managing director at S&P Capital IQ in New York.

http://money.usnews.com/money/personal- ... -recession

Equities are overvalued, they need to correct.

China overbuilt, it needs to retrench.

Oil is oversupplied, it needs to correct.

Ditto most commodities...

I think those are pretty well face-value statements. No dogma attached I'm pretty sure, maybe...