A Crude Awakening/The Oil Crash

numbercruncher · 29 November 2007

Smurf1976 said:
That's barrels not litres.

About 159 litres per barrel so about 111 billion litres. Trouble is, that's enough to run the US for just over a month. Or run the world for about 8 days.

Doh lol, thats what happens when I post things late at night lol ....

Im thinking that strategic reserve would be solely for Military and emergency services use in the worst case scenario ? everyone else gets to walk or pedal in the worst case scenario

kitehigh · 29 November 2007

Great Post Smurf,

Most people are living their lives totally oblivious to the problems we are facing.
Its only when the lights do go out they will realize things aren't as rosy as they thought.

dj_420 · 11 December 2007

My eyes were opened to say the least from this film. Very very important topic that deserves a lot of thought as to how can we fix an impending energy problem.

glads262 · 24 April 2009

This is a fantastic thread!! Please everyone, have a read.

Furthermore,
We all know the US housing market was going to crash anyway, but does anyone think that $140 oil was the catalyst that pushed it over the edge?? (it would have happened evenually anyway...)

$140 oil showed us a few things.

1. Demand is VERY in-elastic. When the price goes up, use only drops a few %.

2. I think that the world oil production peaked in 2005. Despite record prices, no-one could produce more oil. Not even Saudi Arabia.

3. $140 oil happened when demand outstripped supply by only a few hundred thousand barrels. the resultant small reduction in demand was enough for the price to collapse again.

But what is happening now??

Well, supply peaked at about 89 million barrels a day. Demand was then, we assume around 89 million barrels a day.

Demand has now fallen to around 83 million barrels a day. This is during a period when world trade basically stopped for 3 months. Now we have a buildup of supplies (380 million barrels in the US, normally this is around 350 million. So a buildup of 30 million barrels so far as a buffer)

Supply - well, OPEC has reduced by around 4 million. You could guesstimate the rest of the world has slowed by maybe 1million. That leaves supply today at 84 million barrels a day.

No worries.

Problem?? NOBODY IS LOOKING FOR MORE OIL AT THE MOMENT!! To keep that supply of 84 million barrels a day constant, we need to have new fields coming online to produce around 4-5 million barrels a day. This is due to the decline of the fields already in production.
I would say this decline will begin to hit right about...........NOW. No-body has financed a new oil project for a fair while now.

SO... If supply is at 84 million barrels a day, this can drop by maybe 4 million in the next 12 months. but then add in the OPEC spare capacity. Supply still equals demand in 12 months time.

BUT... Demand will be higher than 83 Million barrels in 12 months time. It will probably be more like, 85 million barrels.

CONCLUSION.... In 12 months time, supply will probably be equal to or higher than demand. This will cause a draw on the surplus stock built up in the past 12 months or so. Price will rise quickly, and people will scramble to look for more oil. But this takes at least 2-3 years to find and bring on stream....

3-4 years from now...... Supply down to more like 80 million barrels a day. Demand?? At least 83 Million barrels. More if the economy has recovered. Result?? Very high oil price, a second GFC, western governments are out of cash... Who is going to pay to convert our addiction from oil to something else??

Aussiest · 24 April 2009

glads262 said:
This is a fantastic thread!! Please everyone, have a read.

Furthermore,
We all know the US housing market was going to crash anyway, but does anyone think that $140 oil was the catalyst that pushed it over the edge?? (it would have happened evenually anyway...)

$140 oil showed us a few things.

1. Demand is VERY in-elastic. When the price goes up, use only drops a few %.

2. I think that the world oil production peaked in 2005. Despite record prices, no-one could produce more oil. Not even Saudi Arabia.

3. $140 oil happened when demand outstripped supply by only a few hundred thousand barrels. the resultant small reduction in demand was enough for the price to collapse again.

But what is happening now??

Well, supply peaked at about 89 million barrels a day. Demand was then, we assume around 89 million barrels a day.

Demand has now fallen to around 83 million barrels a day. This is during a period when world trade basically stopped for 3 months. Now we have a buildup of supplies (380 million barrels in the US, normally this is around 350 million. So a buildup of 30 million barrels so far as a buffer)

Supply - well, OPEC has reduced by around 4 million. You could guesstimate the rest of the world has slowed by maybe 1million. That leaves supply today at 84 million barrels a day.

No worries.

Problem?? NOBODY IS LOOKING FOR MORE OIL AT THE MOMENT!! To keep that supply of 84 million barrels a day constant, we need to have new fields coming online to produce around 4-5 million barrels a day. This is due to the decline of the fields already in production.
I would say this decline will begin to hit right about...........NOW. No-body has financed a new oil project for a fair while now.

SO... If supply is at 84 million barrels a day, this can drop by maybe 4 million in the next 12 months. but then add in the OPEC spare capacity. Supply still equals demand in 12 months time.

BUT... Demand will be higher than 83 Million barrels in 12 months time. It will probably be more like, 85 million barrels.

CONCLUSION.... In 12 months time, supply will probably be equal to or higher than demand. This will cause a draw on the surplus stock built up in the past 12 months or so. Price will rise quickly, and people will scramble to look for more oil. But this takes at least 2-3 years to find and bring on stream....

3-4 years from now...... Supply down to more like 80 million barrels a day. Demand?? At least 83 Million barrels. More if the economy has recovered. Result?? Very high oil price, a second GFC, western governments are out of cash... Who is going to pay to convert our addiction from oil to something else??

Haha, very good post!

A friend posted me this by email:

(She got it from a link on news.com.au).

It is a different opinion to yours :

"When the global recession ends in 2009, all of the factors that drove oil prices to record highs last summer will again be exposed… and oil prices will again hit triple digits.

Here's why oil prices will rebound and the six oil plays the best investors are making now while oil prices are at historic lows…

Enjoy oil prices now while they're cheap, because a cadre of analysts is calling for oil to rise as much as 113% in 2009.

Among the many reasons oil producers, importers and exporters are bracing for a serious oil price hike:

The "easy" oil has already been found.
The world's largest fields are declining - from the Persian Gulf, to the North Sea, to the Gulf of Mexico, to Alaska.
Two major oil exporters - Indonesia and China - have begun importing oil.
New growth in Asia is demanding nearly 10 billion barrels every year while…
There's hasn't been an "elephant oil field" discovery (one that yields at least 1 billion barrels) in 40 years."

You could also look at this:

http://www.moneymorning.com/2008/12/29/oil-2009/

glads262 · 24 April 2009

Aussiest said:
(She got it from a link on news.com.au).

It is a different opinion to yours :

"When the global recession ends in 2009, ]

Line 1 & 3 - This just sums up news.com.au. recession ending in 2009?? Thats a bit outdated...

Not sure how else you would think this opinion differs from my above post though??

Basically, the idea being that once demand recovers, even by a little, we are stuffed.

Smurf1976 · 25 April 2009

glads262 said:
Line 1 & 3 - This just sums up news.com.au. recession ending in 2009?? Thats a bit outdated...

Not sure how else you would think this opinion differs from my above post though??

Basically, the idea being that once demand recovers, even by a little, we are stuffed.

It seems reasonable to assume that the financial crisis and oil price plunge will have significantly cut exploration and development budgets across the industry. Either companies can't get the cash, are hoarding it due to generally tough times, or the projects themselves are uneconomic at lower prices.

Trouble is, even with the boom in investment we had essentially flat production over the past few years. Since fields constantly decline and new ones need to be brought online to offset that, it seems reasonable to assume that the reduction in spending will translate to falling production capacity.

In short, I'd say there's a pretty strong chance we've just seen peak oil or at least a significant interim peak that will remain for years. Old fields will inevitably decline and we just aren't investing enough to offset that.

So it would seem reasonable to expect oil prices to remain low only whilst demand trends down. If demand flattens out, declining capacity will in due course meet that and then we're flat out with nothing to spare once again. Then the price goes up, likely in dramatic fashion if there's an economic recovery going on at the same time (a plausible scenario, there will be a recovery at some point...).

In this context I've been buying oil stocks recently. I'm viewing that as a long term hold, perhaps for a decade or so, so I wasn't fussed about trying to pick an absolute bottom. They're a lot cheaper now than 12 months ago but industry fundamentals, over the long term, haven't improved in terms of being able to meet demand unless you're expecting a permanent recession.

Wysiwyg · 25 April 2009

glads262 said:
$140 oil showed us a few things.

2. I think that the world oil production peaked in 2005. Despite record prices, no-one could produce more oil. Not even Saudi Arabia.

I remember an OPEC meeting when the USA pleaded for greater output from OPEC but the plea was denied. The excuse was that oil supply is sufficient and there is no abnormal demand.

3. $140 oil happened when demand outstripped supply by only a few hundred thousand barrels. the resultant small reduction in demand was enough for the price to collapse again.

I have never seen any evidence of multiple excessive demand from Jan. 2007 to July 2008. China were building and filling underground oil storage facilities but I don`t think that would have multiplied demand. The US economy had started slipping before the peak yet the oil prices kept rising.

Here are some opinions why oil spikes ....

"The fresh record prices coincides with the flow of investor money into commodities, due to the weak US dollar and the increasing threats of inflation in the US," said Victor Shum, senior principal at Purvin and Gertz energy consultants in Singapore.

But the succession of terrorist attacks from the 11 September 2001 strikes on the World Trade Centre in New York to the atrocities in London on 7 July and the failed attacks two weeks later have created uncertainty that has undermined confidence in the supply of oil. Add to that the war in Iraq, and the bloody aftermath, and there has been only one way for oil prices to go in recent years.

updated 3:30 p.m. ET April 24, 2009
NEW YORK - Oil prices appeared again to buck traditional market fundamentals, rising for the third straight day Friday despite a huge surplus and weak global demand.
Concerns that the U.S. bank bailout will spark a wave of inflation sent money flowing into hard assets like oil.

I think "part" of the large oil price variation is to do with investors/traders bidding the price up and the oil cartel OPEC playing with the valves.

I also believe as most do about the energy source being finite.

A Crude Awakening/The Oil Crash

numbercruncher

Beware of Dropbears

kitehigh

dj_420

glads262

Aussiest

glads262

Smurf1976

Wysiwyg

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