After a quick drop of $3-4 a barrel the week before last, oil prices steadied last week as the markets contemplated just how effective the OPEC/NOPEC production freeze will be in the short term. Speculators had enthusiastically embraced the production freeze when it was announced late last year and drove open interest in futures to record highs. The cuts, however, did not come fast enough or be deep enough to offset increasing oil production from other countries and lower demand. As one important trader put it, “The OPEC cuts were good enough to prevent a repeat of the glut of last year, but it’s a different story if you want to have oil at $60 or $70.” For now, the physical oil market continues to indicate an oversupply situation.
(Forbes) One of the questions I am most frequently asked is “What factors led to the precipitous drop in oil prices?” Some have suggested that this is all OPEC’s fault, while others have blamed either surging U.S. shale oil production or falling demand.
I addressed the demand issue back in December in The Fallacy of Peak Oil Demand . To summarize, since 1983, annual global demand for crude oil has only fallen twice; a small decline in 1985 and another decline in 2009 in response to the financial crisis. The growth rate for crude oil has been remarkably consistent, adding an average of almost exactly a million barrels per day (bpd) for more than 30 years.
(peakoilbarrel.com) The Texas RRC Oil and Gas Production Data is out. There appeared to be no decline in December production and may have even been a slight increase.
The Texas RRC data is incomplete and only gives an indication as to whether Texas production increased or decreased. The data appears to droop because each month the the Texas Railroad Commission receives a little more data and the totals increase, little by little, month by month, until after many months the data is complete.
(Rigzone) Saudi officials insist the kingdom’s oil production strategy is not aimed at putting U.S. shale producers out of business, a message that has been repeated to visiting U.S. policymakers.
The United States remains the kingdom’s most important security partner, and Saudi officials do not want to be seen to be deliberately trying to halt the shale revolution.
(artberman.com) Fundamentals point toward market balance but pessimism is dragging oil prices down. IEA has apparently succumbed to this negativity but their data suggests that things are getting better, not worse.
In a business-as-usual world in which nothing unusual happens, the world will be close to market balance some time in 2016. If anything unusual happens, all bets are off and oil prices could rebound much faster than anyone imagines.
(The Fuse) Two years ago some oil market prognosticators were worried (or happy) that oil could go to $150 a barrel or more. The unexpected collapse in oil prices appears driven by the desire of some OPEC members to reduce competition by opening the spigots. The fall from $115 a barrel to as little as $30 a barrel has discouraged investment in drilling. Oil rig count in the United States is down by two-thirds from its peak. Middle East rig count has not fallen. In this paper we review the rise of U.S. oil production driven by the fracking revolution. Oil price volatility impacts many business sectors and affects federal macroeconomic policy as the Federal Reserve tries to encourage low unemployment and price stability. The history of 40 plus years of oil volatility continues to damage U.S. economic performance.
(peakoilbarrel.com) Rystad Energy , an independent oil and gas consulting services and business intelligence data firm in Oslo, Norway, has online, a wealth of information concerning upstream oil production projects and costs. Some of it is a bit dated but some of their charts date from late 2015.
The two below Rystad charts were published by CNN Money on November 23, 2015. Costs, Overall This is overall or average cost, not marginal cost. It cost Canada $41 to produce a barrel of oil but only cost Russia $17.20. I guess that is why Canada is cutting back but Russia is not. Costs, Breakdown Here is the breakdown between capital expenditures and operational expenditures. Why would the United Kingdom’s operational expenditures be two and one half times those of Norway? After all, they are both drilling basically the same oil field.
(Bloomberg) Texas has a message for $30 crude doomsayers: Bring it on.
A handful of shale patches in the state, which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In DeWitt County, which produced more than 100,000 barrels a day in November from the Eagle Ford formation, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year. Drive 200 miles southwest to Dimmit County, and drillers need $58 oil.
(CrudeOilPeak.info) The media is full with news that there is a global oil glut.
(The Economist) Along with bank runs and market crashes, oil shocks have rare power to set monsters loose. Starting with the Arab oil embargo of 1973, people have learnt that sudden surges in the price of oil cause economic havoc. Conversely, when the price slumps because of a glut, as in 1986, it has done the world a power of good. The rule of thumb is that a 10% fall in oil prices boosts growth by 0.1-0.5 percentage points.
(Peak Oil Barrel) The EIA’s Monthly Energy Review just came out. They have the U.S. production numbers through December along with World, OPEC C+C, Non-OPEC and selected Non-OPEC nations through October. All EIA data is in thousand barrels per day.
(Politico) For months, American drivers have been greeted at gas stations with a pleasant surprise: Gas prices have fallen by half, dropping an average of more than $2 a gallon since their most recent peak in 2011. President Barack Obama took a moment to bask in the credit last week in his State of the Union speech: “Gas under two bucks a gallon ain’t bad,” he said.(Politico) For months, American drivers have been greeted at gas stations with a pleasant surprise: Gas prices have fallen by half, dropping an average of more than $2 a gallon since their most recent peak in 2011. President Barack Obama took a moment to bask in the credit last week in his State of the Union speech: “Gas under two bucks a gallon ain’t bad,” he said.
Or maybe it is.
(The Economist) Oil traders are paying unusual attention to Kharg, a small island 25km (16 miles) off the coast of Iran. On its lee side, identifiable to orbiting satellites by the transponders on their decks, are half a dozen or so huge oil tankers that have been anchored there for months.
(NY Times) WASHINGTON — It has been a truism of the American economy for decades: When oil prices rise, the economy suffers; when they fall, growth improves.
But the decline of oil prices over the last two years has failed to deliver the usual economic benefits.
As oil prices have fallen to levels not seen since 2003 — sagging below $27 a barrel on Wednesday before rebounding to about $30 on Thursday — many experts now say they do not expect lower prices to bolster the domestic economy significantly in 2016.
(Time) Ali Bin Ibrahim al-Naimi, Saudi Arabia’s petroleum and mineral resources minister, at the 168th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna on Dec. 4, 2015. The country relies on oil for about 80% of budget revenue.
(Seeking Alpha) There is much hope in the financial markets, with individual investors and oil company employees that oil prices will rise in the months ahead. Many point to the 2008 commodity crash as THE example as to why the oil price decline is likely temporary. However, if we look back further in history we see another situation where the crash in commodity prices marked an extremely long period of oil price suppression.
(Guardian) There was a time when Blue Monday meant a song by New Order. These days it is the third Monday in January, allegedly the most depressing day of the year.
Whether there is any scientific basis for this claim is debatable, but for what it’s worth the argument is that people feel miserable because Christmas is over, the credit card bills are arriving, it’s dark when you go to work in the morning and it’s dark when you head home.
(The Guardian) Along the King Fahd highway in downtown Riyadh, signs of the country’s wealth glitter and dazzle. Monuments include the massive Kingdom Centre – instantly recognisable by the giant bottle-opener feature formed by its two wings – and the beautiful and futuristic Faisaliyah building. New ones are still rising, like the King Abdullah financial district, still under construction: a reminder of the fat years of high oil revenues under the previous monarch.
(Wall Street Journal) Oil prices have slumped to 12-year lows , shocking even the most bearish forecasters. But back in February 2004, the last time the U.S. benchmark settled below $33.50 a barrel, oil at these prices was considered pricey.
(Business Insider) A year ago, Saudi Oil Minister Ali Naimi made it plain that he didn’t care what happened to Russia if oil-producing countries failed to cooperate with Saudi-dominated OPEC on keeping prices high by restricting production.
(Seeking Alpha) I follow the JODI World Oil Database primarily because it is now four months ahead of the EIA international database. I make some adjustments however. I use the OPEC MOMR “secondary sources” for all OPEC data, where JODI also uses the MOMR but uses their “direct communication” data instead.
(Motley Fool) The U.S. Energy Information Administration routinely puts out a Short-Term Energy Outlook, and one component of that outlook is an oil price forecast. Last year at about this time, its STEO forecast that crude would average around $77.75 per barrel in 2015.
(Peak Oil Barrel) Guest post by Verwimp Bruno.
Peak Oil is the moment in time when, on a global scale, the maximum rate of oil production is reached. The moment after which oil production, by nature, must decline forever. Since Earth is a closed system, next to this production (supply) event, there must be an equal demand event: Peak Oil Consumption.