Peak Oil Today - March 28, 2016

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Peak Oil Review – 28 March 2016 

By Tom Whipple

Quote of the Week

Going into summer, producers know it’s going to be a massacre.”

Sami Yahya, Platts Bentek - Analyst. 

Natural Gas

Contents

1.  Oil and the Global Economy

2.  The Middle East & North Africa

3.  China

4.  Russia/Ukraine

5. The Briefs

1.  Oil and the Global Economy

Oil prices finished a holiday-shortened trading week on Thursday relatively unchanged. Oil had been a bit higher on Monday and Tuesday but then underwent a $2 a barrel decline on Wednesday after the weekly stocks report showed a 9.4-million-barrel increase in the US crude inventory. Prices recovered by a dollar or so on Thursday to close at $39 in New York and $40 in London, partly in response to a 15-unit drop in the US oil rig count. The 50 percent price increase since January still seems to be based mostly on unrealistic expectations that the large oil exporters will cut production enough to bring supply and demand back into balance. So far, however, crude stocks have continued to rise, and production cuts have been minimal. 

 
The theory prevalent in recent weeks that the so-called “missing 800,000 b/d” of world oil production was behind the recent price rise was discounted by the IEA and a second major bank last week as wishful thinking.  There has always been a gap in following the world’s oil flows as many countries do not accurately report their production, consumption, and storage numbers. The IEA says that missing barrels is nothing unusual and has been present in the Agency’s accounting since it was formed.

The exporters meeting, which is to include Russia and much of OPEC, is still scheduled for April 17^th in Doha. Given that the countries attending have little expectation of substantial production increases shortly, any decision about a production freeze reached at the meeting is unlikely to have an impact on the 1-2 million b/d of excess capacity that is still estimated to be flooding the market.

  

Unless there is major geopolitical upheaval such as a governmental collapse in Venezuela, Brazil, Nigeria, or Iraq, there is unlikely to be a major curtailment of the oil supply in the next six months.  While there has been a strong demand for gasoline in the US due to the low prices, this may fade as retail prices rise again. While China’s demand for crude oil has been strong recently, much of the increase in imports has been refined and exported as oil products to Asia thereby cutting demand by refineries elsewhere in Asia.

 
There clearly are bad times ahead for the future of the oil industry as it becomes apparent just how much capital spending has been cut on projects that were supposed to come into production later this decade. Last week saw a spate of stories outlining the woes of the industry. Consulting firm Wood Mackenzie says that some $500 billion worth oil and gas projects have been deferred due to low oil revenues -- up from $400 billion in the firm’s previous estimate. OPEC supply is expected to grow by some 300,000 b/d this year, mostly from Iran and Iraq. However, global demand for oil is expected to grow by a million b/d this year, gradually clearing away the excess supply and inventories so that by 2017 prices will be rising again.

  

The IEA is becoming concerned that unless there is a major increase in oil industry investments in 2017 and 2018, there will be a large increase in oil prices towards the end of the decade as supply can no longer meet demand. The Agency also expects that oil prices will average between $35 and $40 a barrel this year which is not enough to encourage a surge in investment in the short run.   In the meantime, the fiscal condition of much of the US shale oil industry continues to deteriorate as more loans become due and more companies declare bankruptcy. Many banks are reducing their exposure to the oil industry and the flow of capital that built and sustained US shale oil production is starting to dry up.
 
The US oil industry is expressing concern that recent actions by the Obama administration, such as the air quality regulations, blocking the XL pipeline, and stopping the sale of oil leases off the Atlantic coast signifies that the government is more concerned about the environment than the economic well-being of the industry.  The industry sees several technical regulations that are well below the radar of most observers as pointing to an effort to slow oil production. As is normal, there is little concern about the ever-increasing environmental problems the world is facing.

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