Helping America Navigate a New Energy Reality

Tom Whipple

About Tom

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.

Quote of the week: Han de Jong, chief economist at ABN Amro Bank NV

By on 8 Feb 2016 in quotes with 0 Comments

“I never thought I would wish, let alone pray, for higher oil prices, but I am. The world badly needs higher oil prices.”

Han de Jong, chief economist at ABN Amro Bank NV in Amsterdam

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Peak Oil Review – 8 Feb 2016

By on 8 Feb 2016 in Peak Oil Review with 0 Comments

It was a volatile week, with prices falling on Monday and Tuesday due to the oversupply situation and traders deciding that a grand agreement between Russia and OPEC to cut oil production was unlikely. However, prices climbed on Wednesday as talk of the Russia/OPEC deal revived, the US dollar underwent a sudden price drop, and a hedge fund that that held $600 million in short oil futures positions was liquidated. On Thursday and Friday, the markets were back to believing that the Saudis were not going to cut production as Riyadh lowered their prices for oil being sold to Europe and Asia as part of the new competition with Iran. A big jump in US crude and gasoline inventories announced on Wednesday helped with the downward pressure. At week’s end, New York futures closed at $30.89, down 8.1 percent for the week and London closed at $34.06, down 5.4 percent for the week.

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Quote of the week: Marco Dunand founder and CEO of trading house Mercuria

By on 1 Feb 2016 in quotes with 0 Comments

“The fact that some oil is being sold at $10 per barrel – like some Canadian and Venezuelan crude grades – shows that the strain on producers has rarely been so big. At this level, some producers are not covering capital and operating expenses. And costs are even higher to shut down production. These prices will serve as destabilizing factors in many producing countries and on many bank loans.”

Marco Dunand founder and CEO of trading house Mercuria

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Peak Oil Review – 1 Feb 2016

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Last week there was a surge in oil prices based on rumors and statements from Iraq’s oil minister and a Russian pipeline official that Russia and the Saudis might be considering a meeting to discuss “coordination” of their oil production. The merest hint of a supply cut was enough to send traders into a frenzy. Short positions were covered and prices rose from below $30 a barrel to nearly $36 in London. The story was quickly denied by numerous OPEC officials and even by Russia’s deputy prime minister, but oil prices stayed firm closing at $33.62 in New York and $34.74 in London.

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OECD review committee chairman’s perspective on the global economy

By on 25 Jan 2016 in quotes with 0 Comments

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

William White, chairman, OECD’s review committee; former chief economist, Bank for International Settlements

“So much of the frenzy in shale in the past few years was a result of the money pouring out of Wall Street. It was as much a Wall Street play as it was an oil-and-gas play. It was putting money to work. Companies took on all that risk and now we see the result [–bankruptcies].”

Terry Clark, White Marlin Oil & Gas Co.

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Peak Oil Review – 25 Jan 2016

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Oil prices touched 12 year lows of just above $27 a barrel on Wednesday and then rebounded sharply to close above $32 on Friday. Other than the major east coast snowstorm in the US and the expectation there would be more demand for heating oil, there was no significant news to touch off the rebound other than traders feeling there was not much downside for oil prices left and that it was time to take profits. The rapid rebound was helped by the record size of the short positions held by hedge funds. As these were liquidated, the rebound accelerated to gain some 21 percent from the Wednesday lows. Hints by the European Central Bank last week that there could be a further stimulus coming also supported the move.

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Goldman Sachs, in a note to oil industry investors

By on 18 Jan 2016 in quotes with 0 Comments

“At our conference, producers largely did not provide specifics on what capex/ production would look like at $35/bbl of oil. Instead, producers spoke largely of their agility to spend within cash flow and … ramp up when needed. Commentary suggested $50 per barrel WTI is now where producers would raise activity.”

Goldman Sachs, in a note to investors

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Peak Oil Review – 18 Jan 2016

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Crude futures settled below $30 a barrel on Friday with New York closing at $29.42, down 10.5 percent for the week, and London closing at $28.82, down 13.7 percent for the week. The global oil glut, a stronger dollar, and reports that the sanctions on Iran were about to be lifted contributed to the move. The now familiar factors of a circa 1.5 million b/d surplus in global oil production; a strong US dollar, up 20 percent since mid-2014; the Chinese economy continuing to slacken; and problems on the horizon for US growth were the main reasons behind the price slump. A couple of new concerns have arisen lately. Analysts are worried about the optimism being expressed by US shale oil producers over the likelihood of higher oil prices just ahead. Many US drillers are not trying to cut back on production but simply tying to hold things together until later this year. Another factor is reduction in demand for diesel used to drill and frack oil wells which is down by nearly 50 percent in the last 18 months. The drop in demand for diesel along with warm weather is leading to large surpluses of distillates.

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Interview with Saudi Arabia’s deputy crown prince Muhammad bin Salman in The Economist

By on 11 Jan 2016 in quotes with 0 Comments

Q: “Can you imagine selling shares in Saudi Aramco?

A: “This is something that is being reviewed, and we believe a decision will be made over the next few months. Personally, I’m enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around Aramco.”

Interview with Saudi Arabia’s deputy crown prince Muhammad bin Salman in The Economist

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Peak Oil Review – 11 Jan 2016

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Oil prices plunged again last week from a high above $38 a barrel on Monday to a new low of $32.10, touched by NY futures on Thursday. For the week New York futures were down $3.88 or 10.5 percent to close at $33.16. London’s Brent was down 10 percent for the week closing at $33.55, the lowest closing since June of 2004. The usual factors of too much oil and too little demand as the US and Chinese economies continue to weaken were behind the move. A number of the factors that usually move oil markets are beginning to change. For example, another large drop of 20 units in the US rig count failed to drive the market higher for more than a few minutes as traders have come to recognize that changes in the rig count do not translate into short-term supply changes. Likewise the increase in enmity between Iran and the Saudis is having very little impact on prices as the markets believe the harsh rhetoric is unlikely to lead to hostilities – at least in the short term. Even a US jobs report which showed the creation of 292,000 new jobs, 39 percent more than expected, did little to move prices higher. Usually traders see more people working as a sign that there will soon be more demand for gasoline, but not this time. Fundamentals are ruling the markets.

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Petroleum industry association’s perspective on the financing perdicament faced by the global oil industry

By on 4 Jan 2016 in quotes with 0 Comments

“By our calculations it will require additional debt formation of $39 trillion over the next decade to keep petroleum production operating. Where that funding will originate from, when it is very unlikely to ever be repaid, will be of tantamount importance. It will take very strong-willed societies to make such sacrifices. If those sacrifices are not made, the integrated global production system will have disappeared by 2026. 2016 will be witness to the beginning of this event with dramatically increasing closures and bankruptcies throughout the world’s petroleum industry.”

The Hill’s Group — “an association of consulting petroleum engineers and professional project managers”

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Peak Oil Review – 4 Jan 2016

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There were no surprises during the last week of trading for 2015. Prices moved sideways, with an occasional flurry of short-covering briefly offsetting the steady downwards trend of the markets. At the close Thursday, New York futures were at $37.04 a barrel, down 30 percent for the year, and London was at $37.28 down 35 percent during 2015. On Thursday, the EIA released US crude production data for the first nine months of 2015 showing production falling from a 44-year peak of 9.7 million b/d in April to 9.3 million in October. This drop in production was less than many had anticipated given the severe cutbacks that have taken place in drilling rigs and capital expenditures.

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Saudi Arabia’s vice minister of petroleum and mineral resources on the state of the global oil industry

By on 28 Dec 2015 in quotes with 0 Comments

“Around $200 billion of investments in energy have been canceled this year, with energy companies planning to cut another 3 to 8 percent from their investments next year. This is the first time since the mid-1980s that the oil and gas industry will have cut investment in two consecutive years.”

Prince Abdulaziz bin Salman al Saud, Saudi Arabia’s vice minister of petroleum and mineral resources

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Peak Oil Review – 28 Dec 2015

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Despite oil’s fundamentals pointing to lower prices, the oil markets rebounded in thin trading last week. New York futures which were trading below $36 on Tuesday closed Thursday at $38.10, nearly a 9 percent jump. In a similar fashion Brent, which on Monday touched its lowest point since 2004, climbed to close out the week at $37.89. We now have US oil selling above Brent, which makes it rather hard to sell on the international markets unless a refiner is looking for very light oil and is willing to pay a premium.

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Evercore Analyst: Nothing is Economic…

By on 21 Dec 2015 in quotes with 0 Comments

“Nothing is economic at today’s prices… We’re drilling the best of the best rock right now.  At some point we’ll have to move to lesser-quality rock, which will increase the break-even costs.”

James West, analyst at Evercore ISI

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Peak Oil Review – 21 Dec 2015

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Oil prices continued to fall with London closing on Friday at $36.88, down 3.8 percent for the week, and New York closing at $34.73, down 2.5 percent for the week. A surprise and unexplained jump of 17 units in the US rig count announced on Friday helped the decline. Prices are now approaching an 11-year low. New highs in US crude inventories, including a 1.4 million barrel jump in the stocks at Cushing, Okla., and unusually warm weather across the US and Europe, continue as major reasons for the decline. The outlook for oil prices remains gloomy. OPEC will keep its output at 32 million b/d for the time being and Iran is expected to be increasing its exports in the next few months. Talk of a bargain between OPEC and Russia to jointly lower crude production was quashed by Moscow late last week. Some are now saying that it will take two years to eliminate the excess crude stockpiles after supply and demand are brought back into balance.

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Reuters: “Zombies Appear in U.S. Oil Fields”

By on 14 Dec 2015 in quotes with 0 Comments

“Credit rating agency Fitch says defaults for oil and gas companies are already at the highest since 1999. Since the start of the third quarter, at least 12 oil and gas companies have defaulted on their debt. The ‘zombies’ bet that by shifting into survival mode they can hang on until oil prices recover, but the outlook is grim.”

Anna Driver and Tracy Rucinski, Reuters, “Zombies Appear in U.S. Oil Fields”

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Peak Oil Review – 14 Dec 2015

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Oil prices tumbled for six straight sessions following the OPEC decision to maintain production levels the week before last. At the close Friday prices were down 11 percent for the week with New York futures closing at $35.62 a barrel and London at $37.93. This is the lowest close for oil futures since the 2008-2009 recession. Adjusting for inflation, oil prices this low were last seen in 2002.

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Texas state representative’s reflection on the state of Texas oil & gas’s industry

By on 7 Dec 2015 in quotes with 0 Comments

“It’s very clear that the production of oil and gas has carried [Texas] through this boomlet. Once the golden goose leaves, there’s nothing left but them regular gooses.”

Texas state Representative Garnet Coleman

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Peak Oil Review – 7 Dec 2015

By on 7 Dec 2015 in Peak Oil Review with 1 Comment

The long-awaited OPEC decision came on Friday. With the Saudis and their close allies adamant that they would not cut production unless Russia and Iran and other OPEC members agreed to cut too, the meeting had no where to go but to continue existing policies. Indonesia was readmitted into the cartel and the output ceiling was adjusted to 31.5 million b/d reflecting the realities of the addition of Indonesia and of actual current production. While the cartel will reconsider the issue in June, the final decision led to considerable pessimism among traders. Global over-production is now running some 1.8 million to 2 million b/d and there is a good possibility that Iran will add at least another 500,000 b/d to the glut in the first six months of 2016. OPEC is hoping that stronger demand for oil will erase at least some of the over-production next year, but many see overproduction continuing into 2017.

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Canadian Prime Minister on Canada’s commitment to climate change

By on 30 Nov 2015 in quotes with 0 Comments

“We’ll demonstrate that we are serious about climate change. This means making decisions based on science; it means reducing carbon emissions, including through carbon pricing towards a climate resilient economy.”

Justin Trudeau, new prime minister of Canada

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Peak Oil Review – 30 Nov 2015

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Oil prices were little changed last week despite the the downing of the Russian warplane which temporarily sent prices higher on fears of a wider conflict affecting prices. At week’s end New York futures were down 19 cents for the week at $41.71 and London’s Brent was up 20 cents at $44.86. For November, oil prices will be down about 9 percent. There seems to be general agreement among observers that prices are headed still lower. Moscow announced that it will not be sending a high-level official to the OPEC meeting thereby foreclosing on the hints that Russia and OPEC were about to come up with a deal to cut production and raise prices.

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Ecstrat analyst on US shale oil production decline

By on 23 Nov 2015 in quotes with 0 Comments

“U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off…. The supply and demand mismatch will probably come in 2017.”

Emad Mostaque, analyst with London-based consultancy Ecstrat

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Peak Oil Review – 23 Nov 2015

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New York oil lost 35 cents last week closing at $40.39 a barrel after having dipped just before settlement to $38.99, the lowest price since August. In London Brent closed up 1.1 percent for the week at $44.66. Prices were weaker in the US as nationwide crude stocks climbed by 252,000 barrels, but stocks at Cushing, Ok storage depot rose by 1.8 million barrels. The US rig count was down by ten last week, after a two-rig increase the week before. Russia and the Saudis continue to pump at or near maximum capacity. Most brokers are expecting that Iran will be back into the markets in the first quarter of 2016 at about 500,000 b/d day to start.

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Bloomberg columnist on shale oil and prices

By on 16 Nov 2015 in quotes with 0 Comments

“The message from oil services firms is that shale drillers will not simply be able to turn the tap back on again once prices rise. Halliburton said on its earnings call last month that pressure pumping equipment currently sitting idle was being cannibalized for parts while the stuff still being used was being worked to its limits. And the falling backlog of uncompleted wells will also begin to make an impact.”

Liam Denning, Bloomberg View columnist

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