In reviewing BP’s latest Statistic Review of World Energy, the big story for world oil last year was obvious: the USA’s third straight record-breaking increase in average annual production. Just over 75% of the net increase in world oil production during 2014 came from the USA; add in Canada and 90% of the total increase came from North America. Throw in Brazil’s first significant increase in three years and you have all the world’s net gain in world oil production accounted for by three non-OPEC players. Production from all other producers combined was flat. So the question for 2015 is straightforward: will we see a repeat of those gains…and the flat-liners?
Tom Whipple is the editor of ASPO-USA’s two flagship publications, Peak Oil News and Peak Oil Review. Tom is a former senior analyst for the Central Intelligence Agency (CIA). Since retiring from the CIA, Tom has become a well-known researcher and writer on energy and oil issues. Tom writes a weekly column on peak oil for the Falls Church News, a daily newspaper based in northern Virginia. Tom holds degrees from Rice University and the London School of Economics.
“Corruption in Nigeria has virtually developed into a culture where honest people are abused. The amount of money [involved] is mind-boggling but we have started getting documents where some of the senior people in government and former ministers have as much as five accounts and were moving about one million barrels per day on their own. We have started getting those documents.”
Nigeria’s President Buhari
The slide in oil prices continued with New York futures closing Friday at $48.14, down 6 percent for the week, and London futures closing at 54.42, down 4.3 percent during the week. This time the decline was aided by an increase of 21 rigs drilling for oil in the US suggesting that US shale oil production will increase or at least decline more slowly. The decision to reactivate these rigs was likely taken a month or more ago when prices seemed to be stabilized around $60 a barrel. In addition to the increase in rigs, the now normal factors of a stronger US dollar, a contracting Chinese economy, increasing inventories, and higher oil output from Saudi Arabia and Iraq contributed to the falling prices. The prospect that more Iranian oil will be coming on the the market before the end of the year also keeps pressure on the market.
While still volatile, oil prices continued to decline last week with New York futures closing at nearly a three-month low of $50.89 – down 3.5 percent for the week and 14 percent this month. In London oil futures followed a similar pattern with Brent also finishing at close to a three-month low of 57.10 – down 3.2 percent for the week and 10 percent this month. This was the third consecutive weekly loss for oil futures.
“The Economist has examined the books of the 62 largest listed exploration and production firms in America whose collective output is mainly from shale. The results suggest many first are more vulnerable than the bullish noises from their bosses suggest. There are three sets of concerns: the juicing-up of the results announced for the first quarter of 2015; high leverage; and the industry’s returns on capital.”
The Economist, July 4th issue
Last week US oil prices had their biggest weekly decline since March as concerns about over supply, the Greek debt crisis and China’s stockmarket plunge all came together to force prices down. Most of the decline came on Monday and Tuesday in the wake of the Greek Austerity referendum with New York futures trading below $51 a barrel, down $10 from where they had been in the previous week and London got close to $55 a barrel before a rebound set in. By Sunday night the Greeks reached a deal with the other Eurozone members over a bailout and Beijing “stabilized” its equity markets using draconian measures. New York futures closed out the week at $52.74 and London at $58.57.
“The initial [round of layoffs] was an absolute bloodbath to get rid of all the people who were not core, but if things don’t improve, they’re going to have to start cutting again. If the price of oil – or when the price of oil comes back—the question is whether we are going to have sufficient folks out there to meet the increased demand [for well completion services].”
Bob Gray, a partner in the transactions practice at Mayer Brown LP
The gradual down trend in oil prices which began in early May continues with New York futures closing the week at $55.52 and London at $60.32 – down about 13 percent from the spring highs. The Greek crisis; the Iranian nuclear negotiations; reports of near-record oil production by Russia and OPEC resulting in a circa 2 million b/d global surplus; the steep decline in the Chinese equity markets; and the announcement that the US drilling rig count increased last week after 29 consecutive declines all contributed to weak prices. At $55 a barrel, NY futures have now broken out of the $57-62 trading range that has obtained since early May.
Crude oil prices were little changed last week, with New York futures trading around $60 a barrel and in London around $63. As has been the case for several weeks, the global oversupply of crude, the Greek debt crisis, and China’s weak economy have kept downward pressure on the markets. Trader hopes that the summer driving season will soon push up the demand for gasoline and expectations of an economic rebound continue to support oil prices. The uncertainties of the Iranian nuclear negotiations cut both ways with an agreement likely leading to a large increase in available crude, while failure of the talks would lead to increased tensions or worse in the Middle East.
“I am now more convinced than ever that 2015 will see the peak in world crude oil production. I have very closely studied the charts of every producing nation and my prognosis is based on that study. I see many nations in steep decline and most every other nation peaking now, or in the last couple of years, or very near their peak today. These include the world’s three largest producers, Russia, Saudi Arabia and the USA.”
–Ron Patterson, peakoilbarrel.com