A Graph Is Worth A Thousand Bbls -- April 27, 2017

Updates

Later 7:47 p.m. Central Time: after weeks of not much being said about the price of oil, there were a flurry of stories today on this subject. I find it fascinating. There are experts on both sides of the coin. I find it fascinating that despite an "OPEC cut in production," the price of oil is trending lower, although tonight futures have WTI back to just over $49 after flirting with $48. It's a fool's errand to predict the price of oil, but I will say again, that once the price of oil starts to move, it can move quickly.

Later, 7:43 p.m. Central Time: Saudi Aramco CEO says peak oil demand is a misleading theory -- Bloomberg. Data points:

• Saudi says those who think crude oil demand will peak by 2030 are wrong
• Saudi says crude oil demand will continue to grow well into the middle of the century
• this is what Saudi is worried about:

Rather than being concerned about peak demand, the world should focus on the “grave threat” to oil supplies resulting from the cancellation or deferral of about $1 trillion of energy projects amid the slump in crude prices, he said.

It would be interesting to know what Saudi's timeline is: when will the cancellation or deferral of about $1 trillion in energy projects begin to affect the actual daily supply of oil and the actual price of oil? This year? Next year? Ten years from now. I still say it's going to take a long time to burn off the discoveries made in 2009, 2012, and 2014.

Later, 7:31 p.m. Central Time: CNBC has the same story and says "it will get worse."

While conventional oil activity is in freefall, U.S. shale drilling is on an upswing, thanks to American companies halving the cost of production, IEA notes. U.S. crude production has recovered to more than 9.2 million barrels a day, the highest level since late 2015.

Producers in the U.S. shale patch rely on an expensive method called hydraulic fraction in which they inject water, minerals and chemicals at high pressure into wellbores to break up shale rock and release oil and gas. More efficient "fracking" will help these producers grow output by 2.3 million barrels a day by 2022, IEA projects.

But shale cannot make up the shortfall in conventional oil development: Conventional sources account for 69 million barrels a day of the current global output of 85 million barrels a day.

I think this is a fascinating story. There are so many permutations. One must remember, crude oil reserves are a function of the price of oil. Recoverable reserves change considerably when oil moves from $40/bbl to $100/bbl.

The real question is how much shale could be produced in the US with WTI at $80/bbl? or $100/bbl? At the sidebar at the right is a long, long list of shale plays in the US. For all practical purposes there are only three crude oil shale plays that matter right now: the Permian, the Bakken, and the Eagle Ford, and some might argue only two really matter.

Original Post

This story has been told several times in several places over the past few days. I have not posted the story nor linked the story until now. There were several reasons why I did not post/link it.

But now, with this graph, perfect for posting:

I think the graph would have been even more "effective" had they drawn the x-axis to 75 billion bbls to accurately capture the 60-billion-bar for 2009. Folks are concerned that low discovery rate in past two years will mean severe supply/demand imbalance sooner (2018) than later (?).

Maybe, maybe not. But when I see the graph above, and note the 2009 bar, as well as the 2012 and 2014 bars, my hunch is it will take a few years to work that off, as well as the three billion bbls of crude oil now being stored globally.