[Quinny]

I thought that as well withnail.

[ROCKMAN]

With all the chatter about US shale production driving down oil prices I thought it good to repeat a small portion of some facts I just posted on the front page. Just a reminder about the obvious: OPEC, including the KSA, doesn’t just compete against the US when it comes to oil production. There are essentially three major oil producing entities on the planet: OPEC, Russia and the OECD countries which are everyone else including the US. All numbers are from the EIA:

As far as increased US production let’s step back and look at production from all the OECD (non-OPEC) countries including the US. From 2004 thru 2014 that production has decreased from 50.04 million bopd to 45.80 million bopd in 2014. In fact OECD production (adding in the huge increase in US shale production) has decreased from 2013 to today by about 87 million bbls per year. And during that same 10 year period the non-OECD (essentially OPEC) countries have increased production from 32.36million bopd to 46.52 million bopd.

So in the world that includes the OPEC producers and the OECD producers (non-OPEC) including the US here’s the score card: OPEC has added to the production of oil and the OECD, including the US, hasn’t done sh*t. LOL. Bottom line: you can’t single out production increases in just one OECD country, like the US, and say that’s the cause for lower oil prices. That’s the same as presenting US oil production as a surrogate for all non-OPEC oil production. And it isn’t. OPEC competes on a price basis with all the other oil producers on the planet…not just the US. And the simple irrefutable fact is that the countries that OPEC competes against are producing less oil today than they did a year. Of course, it’s a different story with Russia: it has increased oil production from 9.27 million bopd to 10.53 million bopd in 2013.

FACT: over the last 10 years the non-OPEC countries, including the US, are producing 1.5 BILLION bbls of oil LESS per year TODAY while the OPEC countries are producing 4.8 BILLION bbls of oil MORE per year TODAY. And Russia is producing about 0.5 BILLION bbls of oil MORE per year TODAY.

So it’s really simple: the USA, when it comes to oil production, is not the whole f*cking world. LOL. The US may have increased oil production in recent years but not enough to offset the loss of production by the other non-OPEC countries. OPEC and Russia are producing yearly about 5.5 BILLION bbls more today than they were 10 years ago. And all the other countries, including the USA, are producing yearly 1.5 BILLION bbl of oil LESS than they were 10 years ago.

And more recent history: In 2014 Russia and OPEC were producing about 440 million bbls of oil MORE per year then they were in 2013. In 2014 the OECD countries, including the USA, were producing about 90 million bbls of oil LESS per year then in 2013.

So whose production, combined with the weakened state of the global economy, is pushing down oil prices?

[dorlomin]

Apparently the multinationals are seriously scaling back on exploration and development. That will be bigger than frackers who can turn it on and off (relatively speaking), their projects are much more long term and will be offline for a lot longer.

Who imagined Saudi would be hurting the US with low oil prices.

[ROCKMAN]

dorlomin - Let's try this hat on: "Who imagined oil consumers would be hurting all the oil producers with the low prices they are only willing to pay for refinery products? Last time I looked the US consumer decided how much gasoline they would buy when is was $3.70/g in June of this year. Obviously not as much as they are willing to buy at the $2.68/g on 8 Dec. Just like when the consumers decided in June 2008 that they weren't going to continue buying a lot of gasoline at $4.11/g. So the US consumers didn't begin buying more until refiners dropped the price to $1.61/g just 6 months later.

Am I the only one who remembers the US consumers forced the price of gasoline down 60% back at the end of '08? And guess what happened to the price of WTI when consumers started reducing consumption due to high fuel prices: the average 2008 price was $99.67/bbl and the 2009 average price fell to $61.95/bbl. So did oil prices drop so much from 2008 to 2009 because of a surge in oil production? Average oil rate during 2008 was 85.77 million bopd and during 2009...84.95 million bopd. Production actually decreased.

So was the crash in oil prices between 2008 and 2009 due to a "glut" (actually a slight decrease) of oil production or due to consumers unable/unwilling to pay high prices for refined products? So was the crash in oil prices between June 2014 and Dec 2014 the due to a "glut" of oil production increasing from 91 million bopd to 92 million bopd or due to consumers unable/unwilling to pay high prices for refined products?

[Tanada]

Am I the only one who remembers the US consumers forced the price of gasoline down 60% back at the end of '08? And guess what happened to the price of WTI when consumers started reducing consumption due to high fuel prices: the average 2008 price was $99.67/bbl and the 2009 average price fell to $61.95/bbl. So did oil prices drop so much from 2008 to 2009 because of a surge in oil production? Average oil rate during 2008 was 85.77 million bopd and during 2009...84.95 million bopd. Production actually decreased.

So was the crash in oil prices between 2008 and 2009 due to a "glut" (actually a slight decrease) of oil production or due to consumers unable/unwilling to pay high prices for refined products? So was the crash in oil prices between June 2014 and Dec 2014 the due to a "glut" of oil production increasing from 91 million bopd to 92 million bopd or due to consumers unable/unwilling to pay high prices for refined products?

You are not the only one who remembers six years ago LOL, however it was not just US consumers who hit the wall. At the time discussion around these parts was hot and heavy about the poorer consumers world wide being squeezed out of oil consumption at those prices. Turned out that we were wrong, the run up was so rapid no country had time to adapt and all oil consuming economies crashed in one big bang.

We all have our individual blind spots, mine caused me to buy a brand new HVAC system for my house in 2005 because the 2004-2005 winter natural gas prices were horrendous and destroyed my budget plan for the year. A few months later the price of Natural Gas tumbled to its lowest level in years when the Fracking boom for gas flooded the market with more methane than ever before. My brand new system that would have paid for itself in savings in 5 years suddenly had a 20 year pay off period. I would have been better off spending much less money on a system tune up, but I have always been an efficiency bug and when I bought the house in 2004 it had a 1952 model 55 percent efficient beast of a furnace in it.

Point being (yes I actually have one) as a long term member of Peakoil.com I was a firm believer then that Natural Gas was peaking just like Petroleum. I knew that not all Natural Gas was associated gas, but I thought enough of it was percentage wise that when oil peaked it would take gas with it, and in 2005 I had read several books as well as many magazine pieces over the course of my adult life that all added up to oil peaking now, today in 2005.

Rockman you keep saying this is a consumer driven drop in oil demand. Maybe it is, maybe it isn't, either you are missing something or I am. I think this drop is supply driven because that is my bias and has always been my bias even though I know others see things differently. In 2008 we saw prices reach unprecedented levels world wide and crash budgets of individuals all over. In 2014 the exact opposite appears to have happened from my point of view. What I see is a world economy that adapted to oil being over $100.00/bbl because that was what we had to work with for many months cycling up and down in a more or less normal fashion from 2010 to 2014. This year things did not spike rapidly or even go higher than usual before prices started to fall off, and if this was strictly consumer driven consumption should be growing to beat the band at these prices.

Pops had an interesting chart of USA consumption he put up a few months ago. When the world wide prices dropped in the fall of 2013 our consumption spiked upward almost a million barrels a day over 2012 levels. He believed this was proof that price was driving demand and as fast as prices fell demand soaked up what budgets allowed. I think he was right because that fits my bias. You said in a post I saw right before I went to bed last night that OPEC as a whole has increased world oil supply somewhere on the order of 10 Billion bbl/year.

Any chance you could link the source data for that information? I for one would be very interested in looking at it, I have a tendency to pour over data sources and look for nuances. Sometimes I find them, sometimes I don't but sometimes I do. One thing I know for certain, looking at second or third hand summaries makes all nuances disappear LOL.

[sjn]

Tanada, I'm inclined to give credit to the premise independently arrived at by shortonoil (ETP model) and pops (the Wedge), that there's a ceiling in the affordable price of oil that's determined by the net energy delivered by that oil. Less energy entering the general economy means less economic activity, means less money to spend on oil products, thus maximum affordable price declines.

IMO, this is Peak Oil! I've being saying on here for years that it's the net energy delivered to the general economy that's the vital variable, not the volume of products supplied. Even just looking at the component make-up of the Total Liquids volume should be enough to put the lie to the idea that it's the volume that matters, especially when you consider how much is double-counted, such as for example the oil utilised in the production of biofuels. The dynamic nature of the global political-financial-econonic-energy (human-ecological) system and associated feedbacks meant that the symptoms of Peak Oil would never present themselves as simple shortages, but the system would adapt and become distorted.

[DesuMaiden]

How much oil does the USA now produce?

[ROCKMAN]

T - I always try to use EIA data. Not that they are perfect but an easy source for most to find. But the crash in 2008 was not due to the $140+/bbl spike IMHO. It's certainly easy to remember for most. But check out this EIA chart of WTI prices leading up to the crash.

http://www.eia.gov/dnav/pet/hist/LeafHa ... s=RWTC&f=D

It's easy to see the more gradual increase in the price starting at $25/bbl in 2002. It doesn't require much imagination to see that prices where heading to $100/bbl by EARLY 2008. The impact of higher oil prices on the global economy began 6 years before the crash. Just look at that chart: oil prices doubled between the summer of 2003 and the summer of 2005: from $30/bbl to $60/bbl. Wouldn't you think that the global oil bill doubling in just 2 years would significantly and NEGATIVELY impact the global economy? So yeah, oil prices spiked to a record high in 2008 but the degradation of the global economy as a result of higher oil prices was well under way by then IMHO: the price of oil was about $90/bbl a full year before the price spike...360% higher then it was just 5 years earlier. And a year before the price spike folks tend to focus upon. The global economy was suffering from high oil prices long before the $140+/bbl spike.

Let's look at yearly averages. 2002 ($26.18) - 2008 ($99.67) - Jan 2009 ($61.95) - 2013 ($97.98) - June 2014 ($105.79) - Jan 2015 - ($60 est). See the trend: a 6 year increasing price trend starting in 2002 that eventually degraded economies enough to collapse the price of oil. And now a 6 year increasing price trend starting in 2009 that eventually degraded economies enough to collapse the price of oil. Kind of spooky coincidence, eh: both were 6 year cycles.

Now world petroleum consumption in million of bbls per day. 2002 (78.5) - 2008 (86.0) - 2009 (85.0) - 2013 (90.4) - Nov 2014 (92.5) - 2015 (?). So consumption increased by 7.5 million bopd before the 2009 price collapse. And consumption increased by 7.5 million bopd before the current price collapse. Even spookier, eh? LOL.

IMHO we've become so enamored with the 24 hour news cycle we tend to forget that the dynamics of the global economy takes years to cycle through different phases.

[Subjectivist]

The Wall Street Journal says it is all Texas oilmen causing the collapse of prices.

http://www.wsj.com/articles/tracing-oil ... Collection

I don't think it is as simple as all that, demand has grown year in and year out since 2005 except one brief down turn. I think a bg part of the blame goes to the incredibly easy money policy of the central banks. Investors had virtually free money and parked it all sorts of places including the Fracking industry.

[godq3]

Firstly we have to accept that we don't know what world net oil production is. IEA, and EIA doesn't track this. They just track barrels out of the ground. For them using 4 barrels to extract 5 is the same, as using 1 to extract 5. Oil and gas capex rose from 200 bn usd a year, to 700bn usd during last 10 years. That 500bn difference was worth 5 bn barrels of oil couple months ago (now it's even more, but capex probably will be down too). And for IEA&EIA it doesn't matter!
Just look how much energy is used for fracking: https://www.youtube.com/watch?v=NOfadg9xavE

[ROCKMAN]

"Just look how much energy is used for fracking". Unfortunately other then serving as propaganda the video adds nothing to the discussion. The actual amount of fuel used to drill and frac a well, including how much diesel those frac trucks in the video are burning, is small compared to how much oil the typical shale well produces. As I've outlined before the poor economics of drilling any well, including the shale plays, will shut own drilling long before the EROEI will. Just consider how many wells won't be drilled now due to the drop in oil prices and yet the EROEI hasn't changed for any of them.

[godq3]

Just consider how many wells won't be drilled now due to the drop in oil prices and yet the EROEI hasn't changed for any of them.

And why oil price dropped? Maybe because EROEI of oil extraction is falling due to increasing share of nonconventionals like tight oil, which consumes much more energy to extract than conventional oil?

[ennui2]

IMO, this is Peak Oil!

If this is peak oil then it's not something anybody should be concerned about.

This is what peak oil was supposed to be.

[ROCKMAN]

"And why oil price dropped? Maybe because EROEI of oil extraction is falling due to increasing share of nonconventionals like tight oil". The EROEI of the extraction of oil from the unconventional reservoirs (regardless of how one tries to estimate it) hasn't changed at all from when prices were $100+/bbl to where they are today. In fact in the Eagle Ford Shale, thanks to much improve drilling efficiency, the EROEI of those wells have slightly improved.

As I've pointed out many times before no oil buyer determines how much he'll pay for my oil based on what it cost me to find it: he'll pay me $60/bbl next month whether it cost me $20/bbl or $80/bbl to develop my production. So obviously the EROEI will have no bearing on the price.

[Strummer]

If this is peak oil then it's not something anybody should be concerned about.

Tell that to the 50% unemployed youth in Greece or Spain, with absolutely no perspective to improve. Or you could tell it to the Ukrainians. Those countries, dependend on energy imports as they are, are never coming back.

[ROCKMAN]

Strummer - PO was nothing to worry about here in Texas: we're fat and happy. Wait a sec...what is WTI selling for this morning?!? As they say: falling off a 20 story building doesn't hurt. It's that sudden stop at street level that's a tad unpleasant. LOL.

[ennui2]

Tell that to the 50% unemployed youth in Greece or Spain, with absolutely no perspective to improve. Or you could tell it to the Ukrainians. Those countries, dependend on energy imports as they are, are never coming back.

There have always been countries with high unemployment. "Peak oil" is not required to have a crap economy. It's also possible to barter the GDP of a highly skilled workforce against limited natural capital. Japan has done that successfully for decades, as has Israel proper (not the Palestinians of course.). And most island nations rely on tourism to compensate for the fact that so much of their resources need to be imported. Until BAU truly collapses (and it ain't gonna happen in the short run with oil this cheap) this sort of resource arbitrage is viable. If countries fail to arrange themselves in a smart way, that's a societal failure, not "peak oil".

So if you are relying on the above as your go-to talking point with people around you to prove that we're in the throes of peak-oil doom, it's a pretty unconvincing argument.

[h2]

http://peakoilbarrel.com/peak-oil-2014/

Ron's latest on global oil supplies, which drill down a bit into what rockman notes above re global oil production vs US. All his typical graphs etc.

It's easy to see why people in denial post a words but no data, and certainly no graphs.

It's now growing clear that there is definitely an upper limit to what societies will pay for petroleum. It's also grown clear the cost to non producing nations re their actual economies of buying higher priced oil. While I can appreciate the insulated typical american who likes to pretend that problems in the rest of the world aren't real and don't matter, they certainly do matter to people who live there. Most of southern europe has ground to a halt, and their economies appear to be shaken to the core. More peripheral nations aren't registering on our radars because americans don't care about them. Israel is a really bad example to use because of the massive foreign aid they get, so the only thing they demonstrate is it pays to be a non islamic mideastern nation with a history that yields massive ongoing subsidies from USA and Germany.

However, the presence of the real upper limit in total expenditures tolerated by a state for fossil fuel purchases relative to its overall gdp means that as far as I can tell, the dynamic of peak oil is going to look a lot like, well, the present seems to fit pretty well. The notion that we are doing 'fine' right now shows an almost complete cluelessness about reality. Almost all major first world players are suffering under massive, just gigantic, debt burdens. Why would we be falling into such massive debt? http://www.usdebtclock.org/

Easy, too much embodied resources capital (money) is being used on oil to leave room for other non sustainable development. So we are borrowing from our future in vain hope that this situation will magically reverse itself. http://rt.com/usa/166352-us-total-debt-sixty-trillion/



That's the USA alone, I believe almost all the world's countries except net petroleum exporters are facing similar situations.

So that covers the absurd and naive and frankly ignorant comment that we are doing 'fine with peak oil'. What we are doing is borrowing against the future to keep the semblance of normalcy going. That semblance is failing in counties like ukraine (which, if you ignore all the posturing, was and is totally unable to pay for its natural gas, and owed Russia billions), Spain, Italy, Greece, etc. I don't follow the details closely any longer because there's no point, we are here now.

But this isn't the interesting question, the really interesting one to me is this:

what is the cost per barrel where new tight / shale oil development stops? Ie, when you as an industry decide to stop drilling, sell off assets, and declare bankruptcy? I think 60 a barrel is pretty close to that point.

Now, at that point, all this magical growth in debt based tight oil drilling vanishes, and that spike in tight oil production Ron so nicely covers in the first link I gave you begins to taper off, then probably drop. And all the deep sea, and expensive, oil, doesn't get drilled, while global fields continue to decline, as fields will do.

It's worth remembering that the US military gave in their recent study the year of roughly 2015 as the year global supplies would start to drop in absolute numbers.

There's some other interesting things, for years we were subjected to this total economist nonsense that expensive oil would be drilled simply as a natural result of demand driving up price, but as rockman notes above, the two aren't really linked, and it appeas that there is an upper limit that the societies will pay to buy oil, if that upper limit is about 80 ongoing, then that means more expensive oil will not be viable long or short term.

And that is I believe precisely what peak oil looks like, the present, that is, massive debt levels, the attempt to stave off economic failure by debt funded continuation of bua, and rising real costs per barrel to develop new resources.

The fact we are mining tar sand to produce oil is really all the proof you need to know we're here, if there was anything better, we'd be using it, so there clearly isn't, and that's the definition of the peak.

It's very interesting watching this process unfold, I think we can safely drop the ereoi as I noted before, it's not a useful abstraction, just use money. Right now the market is saying, we can only pay 60, we tried 100 and it's killing us, so we have to drop price.

The real question now is what the next year will bring, that's when the otucomes of this price drop will start to become evident.

[ralfy]

IMO, this is Peak Oil!

If this is peak oil then it's not something anybody should be concerned about.

This is what peak oil was supposed to be.

Peak oil is everyone's concern because much of industrial civilization is heavily dependent on oil for mining, manufacturing, mechanized agriculture, etc. Those are the sources of goods and services that communities need but are not available locally.

Given that, the result will not be like Mad Max but similar to what is taking place in poor countries. A worst-case scenario will be similar to that depicted in The Road.