Oil price discussion and analysis

[Smurf1976]

Re: OIL AGAIN!

Well for now that seems to be the case,.... with another 500,000 Barrels a day coming out of saudi feilds it should ease some upward pressure on prices,

That the timing of this extra production corresponds with them bringing a new field online is as close as we'll get to proof that their existing fields are running flat out.

It's like someone saying they've got plenty of cash. But for some strange reason they don't want to pay you the $100 they owe until their next pay day. It makes it look awfully like they're close to being broke no matter what claims of wealth they make. Actions speak louder than words and what the Saudi's are doing is awfully similar.

What ought to ring some really big alarm bells though is this. Saudi is brining on new fields to raise production to a level that is still below their peak. That very strongly suggests their other fields have lost production capacity (that is, peaked). If that's true then we're seeing close to the worst case scenario for oil production actually playing out.

 

[Aussiejeff]

Re: OIL AGAIN!

That the timing of this extra production corresponds with them bringing a new field online is as close as we'll get to proof that their existing fields are running flat out.

It's like someone saying they've got plenty of cash. But for some strange reason they don't want to pay you the $100 they owe until their next pay day. It makes it look awfully like they're close to being broke no matter what claims of wealth they make. Actions speak louder than words and what the Saudi's are doing is awfully similar.

What ought to ring some really big alarm bells though is this. Saudi is brining on new fields to raise production to a level that is still below their peak. That very strongly suggests their other fields have lost production capacity (that is, peaked). If that's true then we're seeing close to the worst case scenario for oil production actually playing out.

Agreed. Major oil producers all over the world are losing production capacity at an ever increasing rate. The Saudis are one of the few who have any capacity to "put a finger in the dyke" - for now - as it were. But the rate of worldwide production decrease at the same time as a rocketing world demand must surely over-run whatever capacity the Saudis have left in the short term....

AJ

 

[Smurf1976]

Re: OIL AGAIN!

Agreed. Major oil producers all over the world are losing production capacity at an ever increasing rate. The Saudis are one of the few who have any capacity to "put a finger in the dyke" - for now - as it were. But the rate of worldwide production decrease at the same time as a rocketing world demand must surely over-run whatever capacity the Saudis have left in the short term....

AJ

I think we have pretty much reached that point now where it's all too hard. That is, to keep the game going is going to require such incredible effort (GTL, CTL, bitumen, shale, tar sands etc) that in practice it just won't happen. In theory it might be possible, but not in practice.

I'd compare it to the gas situation in WA right now. In theory it is technically possible to work around that and keep just about everything up and running. But it's nowhere close to happening in practice, hence the unfolding economic disaster with job losses etc.

Unrelated to that, I just re-read my previous post in reply to ithatheekret. Should have been a in there somewhere otherwise it reads a bit harsh I think.

 

[nioka]

Re: OIL AGAIN!

I'd compare it to the gas situation in WA right now. In theory it is technically possible to work around that and keep just about everything up and running. But it's nowhere close to happening in practice, hence the unfolding economic disaster with job losses etc.

Now there's a thought. If that did happen at one of the major production oil production facilities we would have proportional results. The chances that it will happen are high. A small war in the wrong place is probable and a big one possible. Even a rebellion or sabotage is likely in some of the producing states.

Damn!!! I've just sold a 1000ltr fuel tank I thought I had finished with. Maybe I should have filled it up and had a buffer supply.

 

[ithatheekret]

Re: OIL AGAIN!

You applaud the depletion of Indonesia's oil fields? They've only left OPEC because they're now a net oil importer with declining production. They've peaked...

What you don't think the major OPEC producers have a vested interest in keeping prices high .........

Indonesia at least produces light sweet , but on the depletion side , every nation that drills for black gold is facing depletion problems . The move was a protest on the inflation caused by OPEC refusing to drop prices . Not all of OPEC are buddies with Uncle Sam , there are those that would rather see it pay $500 a barrel if it could .

Let's get past the spin here at least . Iraq was a 13% swoop , just across the border in Iran is Basra Light . The Saudis already have US military protection , so they're not that much of a hurdle . And the Turks want the northern fields in Iraq to use the pipeline and tap into that Basra light and the massive gas reserves in Iran , pump it all into Europe and make a quid out of it . The US does not like this option , it hampers their subsidy from the rest of the world whilst it attempts to attain CHEAP oil once again .

 

[Smurf1976]

Re: OIL AGAIN!

What you don't think the major OPEC producers have a vested interest in keeping prices high .........

Indonesia at least produces light sweet , but on the depletion side , every nation that drills for black gold is facing depletion problems . The move was a protest on the inflation caused by OPEC refusing to drop prices.

I think there's a point being missed here...

OPEC - Organization of Petroleum Exporting Countries.

Due to production having peaked and declined, Indonesia is now an oil importer.

10 years ago Indonesia gained from OPEC achieving higher prices. Now Indonesia is involuntarily on the other side - the same side as the US and every other oil importing country.

One by one, we'll see the others go the same way eventually. There's no point being in an exporters' cartel once you're no longer an exporter. That fact, that an exporter is now an importer, is what ought to be ringing the alarm bells far and wide.

The USA, UK etc have gone the same way, both no longer being oil exporters. Mexico looks to be next. Many don't realise that the US did in fact have its own version of OPEC (the TRC), which limited production to hold up prices, until their production peaked and it became a pointless entity.

In short, a key exporter becoming an importer is yet another sign of overall oil depletion.

 

[rederob]

Re: OIL AGAIN!

The US is facing an interesting dilemma in relation to crude oil and petroleum stocks.
Although demand is declining, stocks are not building.
One reason is because global output is constrained.
The other reason is straightforward price: Commercial stocks are priced too high. Commercial buyers are reluctant to keep taking delivery at present high prices while there remains an inventory buffer (about 20 days worth excluding the SPR).
However, as the buffer shrinks, speculators take positions and know they are safe in the short term.
They are very safe because inventories remain near or below 5-year average ranges for this time of year: And we are soon to enter into the "driving season".
Elsewhere people are finding excuses for "high prices", and many are saying there is no rational reason for them to be anywhere near where they are.
Well, it's a carefully calculated gamble on short term fundamental grounds specifically focussed on the US market.
Given the nature of the present trend, which is not at all flash in the pan, there remains a strong likelihood that 2 things will occur.
First, it is improbable that oil will dip below $120 in the short term (as commercial buyers must bid it up on price weakness).
Secondly, a new peak near the $150 mark should be reached.

I regard these probabilities as enduring for the next 2 weeks, and up to 2 months.

 

[ithatheekret]

Re: OIL AGAIN!

Unrelated to that, I just re-read my previous post in reply to ithatheekret. Should have been a in there somewhere otherwise it reads a bit harsh I think.

I wouldn't be too worried Smurf , this is only a debate , you put forward some valid points and we must remember that typing an answer in a post does not bring out the emphasis of a discussion as it would over a few drinks with friends .

Your points on depletion are well accepted , we'd be fools to think otherwise , it's just a shame that the top echelon ranks have limitless fools running around with outdated policies that they stick to like glue .

I'd prefer someone to argue their point , rather than have someone who follows the mantra of the top brass .

I could argue a point that I feel is closer to the truth on Iraq than the oil swoop ( Iraq ended up importing oil too ) , but the fact that it's head honcho chose to attempt to remove a President with extreme prejudice I believe the term goes , was an idiotic move on Sadmatts part. He thought he was a swinger , and that's exactly what he ended up doing . But the fact that a small group of top shelf families are in control of a global asset whilst the rest of their populus are sidelined and live in sub human conditions is a nasty truth . Which in one way or another , we are all complicit to the act at some level . All for the sake of driving around in guzzling cars and the simplicity of which technological advances have taken our nations too .
I take for granted the fact that I can simply turn a switch to attain light and warmth etc. , etc.

I look at Indonesia and note the land that is being taken up for palm oil , sure it's used for dishwashing liquids etc., but the fact that it makes a fantastic alternative fuel does not escape me . The cost of the venture may be well measured in dollars , but ...... the real cost is hidden in living standards .

I don't see too many OPEC nations following the lead , instead they're building airports and hotels etc., chucking in the odd desalination plant here and there . Great lot of good it will do them when they finally have nothing to sell us except dates .

Strewth even the Kiwis have come up with an alternative for avgas and bloody good one 'em too , shame they can't play cricket or rugby yet ( tongue in cheek )

If we look at the OPEC nations , pick any one of them and I'll show you a western nation that exports more oil to the US burn off than that member does . That nation is Canada . So how long until the depletion factor comes home to roost there ?

No , you keep the posts coming mate , I'm thick skinned and if I'm wrong will be the first to admit it , after all it's no use following a flawed theory and I will change my views once proven wrong . It's just a shame we can't get administrations to do so also .

I listen to that Obama chap and like some of the things he has to say , but I feel that a country that is built around military supremacy should have a military minded leader at the helm . The US hasn't had one of those for eons .

If we look at the nofly zone that was in place after the Kuwait invasion , the costs there would have been outrageous , but they had to do something to contain the situation . If it was me who had the say so , I would have simply got Congress to change a simple ruling and allowed a covert force to extract the problem .

The way one great leader of Iraq was disposed of was nothing but barbaric , since that day in 1963 there has been constant turmoil , which had been in the making since the British occupations in the middle east .

A quote that I have always remembered " you can always rent an Arab , but you can never buy one " , seems to have been lost an many an administration .

To see how backwards the middle east has gone over the centuries is amazing , streets of main cities there were lined with gas lamps , whilst Londoners were still walking around with candles . But technological advancement helped to quell the forward thinking , it was a military one , which was seized upon and turned on each of the squabbling tribes one by one , until those who wanted control finally got it .

There have been many advancements made throughout history , but each one that was pushed to the side was done by one group intent on their own train of thought ( profits ) , one that predates most governments and theories . The result as usual was higher costs and lower living standards .

So perhaps and just perhaps , the day they finally run out of oil , we will see peace in the middle east , but don't hold your breath waiting for it . If it does happen the western world will probably be paying a sun tax on solar systems by then .

Could you imagine what would happen if certain middle eastern countries got caught in a land rights situation as many of the western world nations have ?

 

[Smurf1976]

Re: OIL AGAIN!

If we look at the OPEC nations , pick any one of them and I'll show you a western nation that exports more oil to the US burn off than that member does . That nation is Canada . So how long until the depletion factor comes home to roost there ?

If you exclude the tar sands then Canada is pretty much depleted. Production peak was, I think (from memory), 1973 or thereabouts. The only thing keeping their total production up is tar sands and a bit of conventional heavy oil.

But there's a problem too, the tar sands operations use massive amounts of natural gas. And yep, you guessed it, Canada's production of gas seems to have peaked too. Hence the calls for nuclear power to run the tar sands operations.

 

[ithatheekret]

Re: OIL AGAIN!

If you exclude the tar sands then Canada is pretty much depleted. Production peak was, I think (from memory), 1973 or thereabouts. The only thing keeping their total production up is tar sands and a bit of conventional heavy oil.

But there's a problem too, the tar sands operations use massive amounts of natural gas. And yep, you guessed it , Canada's production of gas seems to have peaked too. Hence the calls for nuclear power to run the tar sands operations.

yep yep yeppers

 

[rederob]

Re: OIL AGAIN!

The Saudi's oil conference on Sunday failed to put a damper on prices.
The market's immediate response was to move oil over $136, where it seems to be very comfortable.
Given that every industry heavyweight was in attendance, the immediate outcome should have resulted in a quantum shift lower, to a less speculative price outcome: This never happened.
Apart from some spare Saudi capacity - to produce more sour crude which is not what industry needs now - the consensus is that there is no quick fix. Worse, there was no long fix either!
The Saudis reckon they can crank out 12.5 million barrels a day in a few years, and the Iraqis hope to double output within 5 years. Although both are possible, the likelihood of success in the nominated time frames is very, very, very low.
Luckily the western world is in a recessionary phase, else the oil price would be significantly higher.
In a few years time the western world will have worked through it woes and be humming along - if the oil price doesn't slow down the recovery phase.
I think $200 oil by 2010 is likely.

 

[JeSSica WaBBit]

Re: OIL AGAIN!

Good news, seems the world is finally seeing through the sleek sheiks of tweek and their rubbery production and oil forecasts. Bring on $150.00.

You can fool some of the people some of the time but you cant fool all of the people all of the time, should have been the moto from that oil conference. Not sure who they think they are fooling, its pretty obvious we have a big problem.

I'm edging closer to the free beer from Wavepicker with each passing week. Don't think $150.00 can be too far away now, just need one substantial event or piece of news to send the markets into panic.

Just hoping he is still solvent and hasn't waged all his funds on shorting the oil markets, i dont want to have to haggle with the liquidators.

JW

 

[Uncle Festivus]

Re: OIL AGAIN!

There appears to be a fait accompli by some posters regarding the future of the oil price & an ignorance of the data showing that consumption is falling in established western economies and that the rate of consumption is also falling in the so called 'expanding' countries.

Why would you fill your inventories at these prices when demand is falling as well?

 

[ithatheekret]

Re: OIL AGAIN!

There appears to be a fait accompli by some posters regarding the future of the oil price & an ignorance of the data showing that consumption is falling in established western economies and that the rate of consumption is also falling in the so called 'expanding' countries.

Why would you fill your inventories at these prices when demand is falling as well?

Consumption is waning in some areas , but I would have attributed that to the higher costs involved for the average consumer cutting back , but only due to the fact that their dollars can only be stretched so far .

Is this another conundrum ?

Hmmm ... could be , but that oil price is measured against a declining USD , one which is under assault from higher and higher inflation tapping on the worlds front door each day with it's dues being asked for .

Or is it that the market sets the price ?

There's always the fact that a price paid is one that the buyer is willing to pay and if the buyer is willing to pay a higher price .
The speculators side story I've been hearing since oil jumped out of its $22 comfort zone and rolled around $40 .

The same line has been put forward by the respective spinners ever since then , all the way through to the current price , where now they have turned up the rhetoric volume , just prior to the US elections ( of course ) . But are they willing to really do something about it or is this just more blah blah blah from those who want to be endorsed and have their party rolled into the White House Oval Office ?

We could form many opinions on this matter and it is viable to say that each point could be right , each being ingredients to what is really happening in the world today .
How much of the latest price could we say is built into Israels stick waving at Iran ?
How much is due to the Nigerian problem ?
Cut those portions out and then we'd have to find out how much is built into inflation and the declining USD .

The latest rocket attacks to add to the many , it has me wondering how long until Israel finally says " Enoughs enough " .

Well it's enough to have people banging their heads on the wall of worry ........

Whilst they go into headbanger mode , we have to keep paying the rises in price or life starts grinding to a halt . To stop this we are getting more conservative in our thoughts on what we are spending our money on .

Why ? Well to get that money in the first place we have to fill up the petrol tank to go and earn it . So we now have the weekly juggling act to perform with ones budget , firstly we have to be able to afford to get to that place of work , then we have to afford to keep ourselves fit enough to work , as inflation eats its way into our lifestyles .

Imagine how those that have been accustomed to subsidized fuel prices and budgeted on the formula , are now having to reshuffle that into something sustainable for them to survive the onslaught of higher costs across the board .
Now they also have to deal with the fact that those jobs they have are threatened as companies slash jobs .

Just one big nasty circuit , just like the 70's but with more colours in the spectrum this time round .

 

[Uncle Festivus]

Re: OIL AGAIN!

..........we have to keep paying the rises in price or life starts grinding to a halt.

Just one big nasty circuit , just like the 70's but with more colours in the spectrum this time round .

I think that this is were we are now, it is working, grinding through the global system - $140 is enough/sufficient to do this? Pivot....to negative circuit? Throw in a global credit crunch, housing bust, credit card defaults, CDS's - the monetary expansion/debasement end game?

 

[ithatheekret]

Re: OIL AGAIN!

I think that this is were we are now, it is working, grinding through the global system - $140 is enough/sufficient to do this? Pivot....to negative circuit? Throw in a global credit crunch, housing bust, credit card defaults, CDS's - the monetary expansion/debasement end game?

Polynomial .......... with a constant being multiplied by a swag of variables ?

 

[Tysonboss1]

Re: OIL AGAIN!

What ought to ring some really big alarm bells though is this. Saudi is brining on new fields to raise production to a level that is still below their peak. That very strongly suggests their other fields have lost production capacity (that is, peaked). If that's true then we're seeing close to the worst case scenario for oil production actually playing out.

There are also concerns from leading geologists that the saudis have done longterm damage to the gawfer field by pumping salt water into the field in a way that has separted the pockets of oil which will slow production... its a bit concerning considering how much we rely on this mamoth of an oil field.

 

[rederob]

Re: OIL AGAIN!

There appears to be a fait accompli by some posters regarding the future of the oil price & an ignorance of the data showing that consumption is falling in established western economies and that the rate of consumption is also falling in the so called 'expanding' countries.

Why would you fill your inventories at these prices when demand is falling as well?

If there is ignorance of the data it relates to people who do not understand that where demand exceeds consumption, the price of goods typically rise.

It is fallacious to infer that declining rates of demand actually means less demand than before. The reality is that crude oil demand from BRIC's in particular means that total global demand year on year is still increasing.

Even with higher fuel prices the expanding economies are going to keep expanding at rates significantly greater than western economies. In fact the capacity of emerging economies to slow down will only be marginally affected by higher fuel costs as their infrastructure is intrinsically less dependent on fuel.

The other factor to consider is that the BRICs are not debt laden to the extent that western economies are, while some of the emerging economies are bristling with cash (the Middle East in particular).

Finally, inventories provide a buffer, and maintaining buffers in uncertain times is a commercial imperative. In a previous post I indicated that price weakness (short term) will be well bought into, because oil reserves need to be filled with "actual" oil - not futures contracts. While futures themselves will also be well bought into on price weakness, because in the commercial sector it is increasingly important to hedge costs: Put another way, the likes of QANTAS need to know they can afford to fly their planes in 2009 because they have some certainty over how much they will pay for aviation gas.

 

[Smurf1976]

Re: OIL AGAIN!

There appears to be a fait accompli by some posters regarding the future of the oil price & an ignorance of the data showing that consumption is falling in established western economies and that the rate of consumption is also falling in the so called 'expanding' countries.

Why would you fill your inventories at these prices when demand is falling as well?

Agreed in a technical sense but anecdotally there's rather a lot of priced out demand out there. Drop the price back to $50, and it's not long ago that oil was selling for $50, and watch consumption soar.

You can't do ANYTHING without energy. And there's not much you can do without transport. In my opinion the slowdown in consumption is indicative of a slowing economy. It's not as if we're actually mass producing electric cars or running around ripping out oil heaters and building coal / nuclear plants early 1980's style.

So I think what we're seeing is the economy adjust. We get less economy since we don't have enough oil to keep growing the economy.

That the mainstream view is still very much "this is a temporary shock caused by a few speculators" leads me towards the notion that it's the real, long term situation many have long feared. I'd be less convinced of this if everyone was running around talking about peak oil - the masses usually get it wrong.

 

[Smurf1976]

Re: OIL AGAIN!

There are also concerns from leading geologists that the saudis have done longterm damage to the gawfer field by pumping salt water into the field in a way that has separted the pockets of oil which will slow production... its a bit concerning considering how much we rely on this mamoth of an oil field.

I'm quite familiar with this one. The concern relates to water break throughs which effectively kill the wells. Water flows more easily than oil, so once it breaks through it's much like water going through a rock tunnel - the water flows through but the rock wears very slowly.

I have some computer generated images from 2004 which show the oil/water saturation in a cross section of Ghawar (at the northern end). Also the comparable image (produced 2004 from historic data) for circa 1980 and also for when the field was originally discovered.

I'd better not post them for legal etc reasons (I think someone may hold copyright on the computer work as well as issues about leaked data etc) but let's just say that it was something of a defining moment when I first saw them. Denial was no longer possible in the face of this...

Pre-extraction the bulk of the field is shown as having a water saturation in the order of 5 - 15% apart from the lowest points which are 90% plus (that is, no useful oil there to start with).

Ignoring the lower parts, in 1980 about half shows water saturation in the order of 50%, rest not much different from original.

2004 the vast majority is 50 to 75% (effectively depleted for practical purposes) with only a very small area below 25% at the higher points.

This is only for the northern end. It's generally accepted that the southern parts are a lot less depleted, largely due to the far greater difficulty in getting the oil to flow in the first place. The southern parts thus represent a long term source of low volume production compared to the rapidly flowing wells in the north.

I can't confirm the accuracy of this but I'm roughly three quarters confident it's based on legitimate data.