Oil Price Outlook: July 2016

Where Things Stand

According to the EIA, crude oil prices actually peaked in March of 2012 with Brent Light Sweet Crude (Brent) topping out at more than $125 per barrel and West Texas Intermediate (WTI) reaching nearly $110. They have not seen those price levels since. In late 2014, crude prices collapsed. They have recovered considerably, but to this day Brent is still down about 60% from its 2012 peak and WTI remains some 50% lower. At present, both trade in the neighborhood of about $50.00 per barrel. ___ http://www.forbes.com/sites/katestalter/2016/07/18/oil-prices-lower-for-longer-and-then-what/print/

Elevated oil price levels between 2010 and early 2014 emboldened Vladimir Putin to forcefully annex Crimea and directly support civil war in Ukraine. But then oil supplies began to consistently outpace demand, oil prices began to drop, and geopolitics hasn’t been the same since.

Where Oil Prices are Most Likely to Go

Barring a severe global upheaval, and until Saudi Arabia and Russia begin to significantly slow production, oil prices are likely to stay inside the $40 bbl to $60 bbl price range for the next several years. North American producers are sitting on thousands of drilled, unfracked wells that can be fracked and put into production on short notice. Producers from Latin America to Africa to MENA to Central Asia to Southeast Asia are waiting for prices to rise and general conditions to stabilise and improve, before ramping up idled production.

There are no economic bright spots to drive global oil demand — and prices — higher at this time.

Near term:
Short term price downturn likely . . . more . . .

Unless the northern hemisphere sees a very cold winter, demand for oil & gas are not likely to surpass available supplies for at least a year.

“We have a lot of oil in the system and it will take us considerable time to work that off,” Ian Taylor, chief executive officer of Vitol Group, the biggest independent oil trader, told Bloomberg Television in an interview. “I cannot see the market really roaring ahead.” __ Oil Contango

Floating oil storage is at a six year high, despite higher tanker rental costs. There do not seem to be enough buyers for oil at today’s price levels.

But as most wise traders and analysts understand, oil markets are never in a state of balance. The trick is to catch the swings from imbalance to imbalance before most other traders.

Short to middle term:

But according to energy consultants Douglas-Westwood, prices will remain where they are now until about 2019, when offshore oil production will finally peak. The company’s analysts list 15 large-scale offshore projects that are to blame, including Iran’s South Pars field, Brazil’s Lula in the pre-salt layer of the Santos Basin, and Mexico’s Tsimin-Xux. These three alone are projected to yield a combined 1.617 million barrels per day in 2017. __
http://oilprice.com/Energy/Oil-Prices/Why-Oil-Prices-Might-Not-Rebound-Until-2019.html

The author of the above piece suggests that offshore producers are being forced to overproduce existing wells to recover costs, but that fewer offshore replacement wells will take their place after 2019. In other words, the current price regime should stay in place for 2 to 3 more years before reduced offshore production moves supply below demand.

Shale Oil Plentiful Worldwide

Tight oil production in North America has helped shift the global oil price calculus from where it was in 2012 to where it is today. And there is much more shale oil where that came from. In fact, most of the world’s oil remains trapped in source rock, waiting for clever innovators and bold investor/entrepreneurs to set them free.

The EIA maintains a periodically updated assessment of [countries] that have “Technically Recoverable Shale Oil and Shale Gas Resources”. In its most recent iteration, that assessment included 41 countries, excluding the United States, with combined estimated resources of nearly 345 billion barrels of crude oil. To put that into context, the world currently consumes about 95 million barrels of oil every day. __ Oil Prices to Stay Low Longer Term

It is not the “technically recoverable resources” that are as important as the increasing ease and low cost of recovering them. These resources can only grow in size over time, while the technical feasibility and affordability of recovering them comes into easier reach.

Petrostate woes

Venezuela is in trouble. But Venezuela is far from alone in its petrostate woes. Corrupt petrostates from Mexico to Saudi Arabia to Iran to Russia grew spoiled by inflated energy prices, and must now scramble to devise alternative plans for regime survival.

Petrostates Lose; Others Gain

In a June 2015 study authored by Adrian Cooper of Oxford Economics and released by the EIA, it is estimated that lower oil prices give U.S. households an extra $1,000 of disposable income. That rings positively for American consumers and the U.S. economy in the aggregate. __ Forbes

Net oil importers such as “Japan, China, South Korea, India, Germany, France, Singapore, Italy, and Spain” are also likely to benefit from longer term low oil prices.

When Energy Analysts Contradict Themselves

Energy Analyst Bipolar Disorder:

Art Berman on 20 June 2016 predicts cripplingly higher oil prices in the near future.

Art Berman on 15 July 2016 declares that oil prices may never rise.

Why would a generally respected oil price analyst so rapidly cycle from one extreme to another in less than one month? Take all predictions with a grain of salt and buckle up for a bumpy ride.

Doomers and Petrostates Denied the Shale Explosion Until They Couldn’t Any Longer

Whenever a “peak oil” enthusiast predicts the imminent collapse of shale oil production, you should first ask whether that person predicted the shale explosion and oil price shakeup to begin with. If not, there is not reason to take them seriously now. Most peak oilers were in lock-step with Vladimir Putin when he said that North American shale oil would never be a significant force in global oil markets. But who’s laughing now, Vlad?

Doomers also predicted the collapse of Saudi Arabian and Russian oil production between 2005 and 2010, but both petrostates have been breaking production records over the past two years.

Back in 2006 when Al Fin began predicting “a coming oil glut” on Al Fin Energy blog, peak oil doomers were just beginning to reach their stride in predicting imminent global collapse from a sudden loss in oil production.

Is it peak oil yet?

More:

Conflicting oil price trends from China and Russia —

China’s economy is under severe stress, which suggests future reductions in global oil demand when the excrement contacts the rotating blades.

Russia is slowly sinking into the mire, which points to a now irreversible future of demographic and national decline. This will be accompanied by a drop in Russian oil production, as Russians can no longer field the manpower to sustain vital systems across all sectors of the economy and government.

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2 Responses to Oil Price Outlook: July 2016

  1. Abelard Lindsey says:

    Although most “peak oil” people are liberal-left, some are social conservatives who essentially want to push people into living some kind of small town existence that most people shun. They have specific notions about how people should interact with each other and look forward to geopolitics to forcing people into those arrangements.

    If you think about it, politics and ideology (religion being a specific version of ideology) is really about limiting freedom of association. Apparently many people feel threatened by the option of complete freedom of association. Further analysis of this fear and its origin may be useful.

    • alfin2101 says:

      Yes. The phrase “echo chambre” comes to mind on multiple levels when considering the doomer mindset — individually and collectively.

      Many of them are driven by fear, as you suggest. Others are opportunists who cash in on the fears of the masses. And others still just want to watch it all come crashing down.

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