Oil Prices: Every Which Way But Loose

Update: Why Oil Prices are due to fall — again

Oil prices have had trouble breaking out of the $50 to $65 price range. Judging by production estimates, they are unlikely to do so in the near future. The seasonal and unpredictable fluctuations in global demandrather than supplyappear to be in the driver’s seat.

In addition to slow demand, a sharp rise in global oil production is keeping global oil prices from breaking away to higher levels. Prices continue to fluctuate in sync with the “white noise” of constantly changing economic reports and production figures, but the “big picture” has not yet shifted into a new price regime.

Here is an interesting report from a “peak oil” analyst, Euan Mearns:

Global oil production rose sharply in March by 1 Mbpd, and we have a new peak in global total liquids production of 95.24Mbpd. But with the oil price currently resilient, it seems likely that surge in production may have reversed.
The plunge in U.S. oil rig count has resumed. Oil plus gas rig count stood at 905 on May 1, just above the low point reached in the post financial crash period.
I anticipate that the price bottom may be in, but that price will bounce sideways along the bottom for several months until we see significant falls in OECD production. There is as yet little sign of a significant drop in U.S. production.
The current action appears to be demand-driven, the low price raising demand more than it is suppressing supplies. __ Euan Mearns in SeekingAlpha

In the Middle East, OPEC countries are in the middle of a big exploration drive, with rig counts continuing to ramp upward, despite “low prices.”

The ramping-up of Middle Eastern oil exploration suggests that OPEC is not about to slow down its current drive toward acquiring market share, “low prices be damned!”

The four principal Gulf States have been ramping up their rig count in search of new oil since 2011 and have actually accelerated their effort since oil prices started to collapse last year. The Saudis, Kuwait and the United Arab Emirates have all lifted their effort by about 100 percent over the past five years. Only Qatar has remained stagnant, probably because of the political turmoil in that country. Al this shows that the Gulf States are much more concerned with preserving market share than they are with stabilizing the price of oil or conserving resources. __ Real Clear Energy

In the US, total liquids production is being maintained at high levels, despite an overall drop in drilling rig counts. But there are large numbers of oil wells already drilled, just waiting to be fracked (the “fracklog”). US production can continue at present levels for quite some time without raising the drill rig count.

Here is the future oil price viewpoint from a more conventional analyst:

As of March, the model predicts that oil prices are currently fairly valued. Those banking on a quick recovery back to $100 oil are going to be left waiting for a long time. Oil production probably needs to be cut in half in order to get back to $100 per barrel oil. The other way that oil prices can come back up is if the Dollar Index comes back down, but even going back to previous levels would not restore oil back to $100 per barrel.

Until production is cut significantly (not just slowed, but cut), oil prices are going to stay around $50 per barrel. Invest accordingly. __ Anthony Fernandez in Seeking Alpha

Shale oil gets cheaper to pump

Shale producers ready to jump on any rise in oil price

Speculators, fund managers, and other semi-shady characters are pulling every trick out of their hats to initiate an oil price rally. Seasonal demand may push prices somewhat higher temporarily, but all the oil that has been put into storage and stored-in-place underground, waiting to be produced, should help constrain upward price movements.

Global production continues to rise, for many reasons. But how much higher would global liquids production be if prices were closer to $100 bbl? Difficult to say, since if prices jump up too much, too quickly, demand is likely to fall — and oil production would certainly shoot quickly upward in response to an upward price move.

These numbers and graphs are a far cry from the peak oil doomers’ predictions near the year 2005, when the imminent collapse of Saudi oil production was being triumphantly proclaimed by doomers around the world.

The US EIA expects US oil production to continue at high levels for decades more. The Middle East OPEC countries are obviously pushing production higher. Russia is caught in the oil resource curse trap, and must pump as much oil as it can to keep from sinking more quickly than at present. Mexico is being forced to open to private drillers, and it is likely that Venezuela will find itself unwillingly pushed back into the hands of international oil service companies, and the big oilcos.

Al Fin has been explaining for at least the past 8 years why global demand is not likely to shoot upward in the manner predicted by peak oilers and oil price bulls. The matter can be summed up in two words: “global dysgenics,” but most people will need to actually go back and read the articles in Al Fin and Al Fin Energy to understand Al Fin’s reasoning.

Many things could happen that might disrupt current trends: Russia could detonate a nuclear bomb in Eastern Europe or the Middle East, using a cat’s paw group from the Caucases or Central Asia. A series of powerful hurricanes might knock out offshore oil production in several producing regions. An asteroid might crash into the Ghawar oilfield, disrupting production, transport, and global climate for decades — if not centuries, and so on. Black Swans are being laid and hatched as you read these comments. They are waiting for the most unpredictable times to take wing.

In the meantime, energy technologies are not standing still. More economical ways to explore, drill, produce, and refine oil & gas are being developed and perfected all the time. Better ways to cleanly convert cheap gas, coal, and bitumens into high value fuels, polymers, lubricants, fertilisers, and more are being invented and innovated. Safer, cheaper, cleaner, and more versatile types of nuclear power reactors are being developed.

Cheap oil is still being pumped out of the Middle East, and developers are constantly converting “expensive” ways of producing oil into more economical ways of producing oil. It is not the “easy oil” that is all gone. It is the “easy predictions” that doomers once considered “no-brainers.”

More: Big Shale Keeps Getting Better

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4 Responses to Oil Prices: Every Which Way But Loose

  1. guest says:

    Off topic, but i got one for you “Optimism” section:

    “Enlightenment Through Understanding”
    http://greyenlightenment.com/

  2. jccarlton says:

    Reblogged this on The Arts Mechanical and commented:
    For most of my life, the clowns in the Middle East have been calling the tune on oil. I think that that’s starting to change. The big question is high cost producers, those producers that HAVE to have high oil prices due to political and economic reasons continue in a low price regime that probably never going to go away for a long time.

  3. Pingback: Outside in - Involvements with reality » Blog Archive » Chaos Patch (#61)

  4. Pingback: Shale 2.0 | Urban Future (2.1)

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