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Tuesday, August 14, 2018

For "Peak Oil" Folks, The Beat Goes On; Commentaries On Global Oil Production And Pricing, Looking Forward To 2019 -- August 14, 2018

Three great commentaries out there today:
The first one -- Saudi cuts oil output:
OPEC on Monday forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.
In a monthly report, the Organization of the Petroleum Exporting Countries said the world will need 32.05 million barrels per day (bpd) of crude from its 15 members in 2019, down 130,000 bpd from last month's forecast.
The drop in demand for OPEC crude means there will be less strain on other producers in making up for supply losses in Venezuela and Libya, and potentially in Iran as renewed U.S. sanctions kick in.
For newbies:
  • among global oil producers, Venezuela, Libya, Iran, and Canada no longer matter
  • the only global oil producers that matter: Russia, Saudi Arabia, and Texas -- as swing producers -- and probably in that order
The second article:
Most of the time, the overall inventory numbers at Cushing don’t move up or down long enough to attract a lot of attention. When production upstream of the hub swells, we can start to see builds. And when Gulf Coast demand rises or Midwest refiners are running at top utilization, we’ll typically see draws. But when inventories are hovering around a manageable average (like mid-2016), we tend to view stockpiles at the “Pipeline Crossroads of the World” as an indicator for the WTI supply/demand balance and thus prices — but not as a source of market consternation.   
Where things really start to get interesting — and what’s currently keeping Midcontinent traders up at night — is the current scenario of crude inventories inching towards the bottom of their tanks. Recent footage of Cushing, in the video at the lnk, gives you a sense for just how low we’ve gotten. 
Crude inventories have moved low enough in recent weeks that much of the market is beginning to question how low we can go.
The reason this question can be a bit murky is tank bottoms, the minimum amount of crude oil that is always left in storage tanks. Tank bottoms are kind of like a minimum balance in your checking account — to keep the account running, you need to leave, say, $1,000 in it.
You can add a bunch of money above that threshold, but you really, really don’t want to dip below that lowest limit. Tank bottoms provide a sort of liquid foundation for the tank, or a minimum operating balance, where volume can easily flow in and out of the tank as long as it stays above that bottom level.
Because the vast majority of tanks at Cushing have floating roofs, tank bottoms also ensure those roofs don’t hit the physical bottom of the tank. Crude cannot flow unless the proper tank bottoms are in place, and the owner or operator of a tank will leave those bottoms in place until that tank is taken out of service.
Comment: some weeks ago, John Kemp was one of the first to shout loudly and clearly on twitter that we had ended a period of severe backwardation.
Comment: this will turn out to a non-problem.
The third article is a great read -- some interesting analysis that fits much of my world myth, although I disagree with some of his "facts." However, at the end of the day, "the beat goes on," this is the writer's thesis:
In spite of the oil prices nearly tripling from the 2016 lows, the big players just haven't invested money in the mega-project arena as of yet. The oil mix needs these long-cycle barrels as these wells tend to flow at many time the rate of the unconventional shale plays that are now soaking up the lion’s share of new capex dollars.
Intuitively we know long-cycle production must return.
But, as the EIA supply graphs show, it is way past due if we are to have any hope of replacing barrels lost to the decline of fields currently on stream.
So, the good news is it will happen. But no one is calling for a meaningful return to higher capex levels for a year or two. And that is exactly why I believe there is a price super-spike in the offing. My guess is it’s a couple of years out, but I could be wrong both on the short and the long side.
We are living on borrowed time in the area of oil supply. The glut of mega-projects completed in the run up to 2014 is aging rapidly, and declines will start to be felt. There is a gap in the pipeline to replace these supplies that cannot be filled in the short run.
We seem to keep re-learning the same lessons. I may sit my young grandson down soon. He will be driving age in a couple of years. Perhaps by then I will have figured out a way to tell him about gas lines.
Comment: haven't the "peak oil" folks been talking about a "super-price-spike" for the past ten years? If so, we're now moving into the second decade of "peak oil" folks talking about the coming "super-price-spike."At some point, they will be correct. Goldman Sachs probably knows the precise date when we will see that "super-spike." By the way, we've been to $140 in the recent past, so the "super-spike" has to be well above $140 to qualify for "super-price."
 One of my least favorite songs, but there's no other choice, as the beat goes on:

The Beat Goes On, Sonny and Cher

1 comment:

  1. I may or may not agree with all the opinions expressed in the various articles, but like you, I found them quite interesting.

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