In an earlier article - Why OPEC’s Announced Cuts Are A Really Big Deal - I addressed some of the skepticism around the recent production cuts enacted by OPEC. Today I want to consider in more depth the notion that U.S. oil producers might swiftly negate the impact of these production cuts.
To review, in November OPEC announced that it would enact 1.2 million barrels per day (bpd) of production cuts on January 1st. OPEC also announced that certain major non-OPEC members – most notably Russia – would cooperate with the production cuts, pushing the total amount of targeted cuts to 1.8 million bpd.
Some analysts cite two factors that could render OPEC’s cuts ineffective. The first is simply that OPEC members will cheat, as they have historically done. Certainly some members may overproduce their quotas, but OPEC is going to monitor global crude inventories. Those inventories had already begun to come down from record highs prior to the OPEC announcement, partly in response to declining U.S. shale oil production. CONTINUE»
I read an article this morning where one analyst predicted that we are in a 10-15 year bear market for oil. The analyst stated that the market is oversupplied by about a million barrels per day (it isn’t — see the charts in today’s article), that shale oil production will surge this year (it won’t), and that the OPEC agreement to cut production would fall apart (it won’t). His projection was that we will spend 2017 below $50 per barrel (bbl) and in 2018 prices will be back below $40/bbl.
I disagree with this assessment. I believe we will look back in a few years at 2016 as the year the energy sector recovery got underway in earnest. I believe 2017 continues the recovery. Today, I explain how I see the energy markets shaping up this year, in the context of my 2017 predictions.
1. Crude oil will flow through the Dakota Access Pipeline (DAPL) in 2017. CONTINUE»
When I hear a claim that doesn’t sound quite right to me, I usually check in at Snopes to get the facts. They usually do a good job of debunking fake news, and they provide lots of references to back them up.
However, I think they did a huge disservice to readers recently with their fact check on a viral story about Las Vegas.
The story going around was that Las Vegas is now completely powered by renewable energy. The story contains a kernel of truth, but then that kernel got distorted into something that went viral, but was clearly untrue. CONTINUE»
Almost a year ago I made my 2016 energy predictions (see “My 2016 Energy Predictions.”) I have been making annual predictions for nearly a decade now, primarily as a framework for sharing my views on energy markets in the coming year. I try to make predictions that are specific, measurable and actionable. I prefer not to leave anything open to interpretation or spin. With few exceptions, at the end of the year a prediction is right or it is wrong.
I try not to make “no-brainer” predictions. When I make these calls, there is a fair level of uncertainty around them.
Although I had one high-profile miss this year, the others were mostly correct. Here they are, along with commentary on each. CONTINUE»
A lot happened in the energy sector in 2016, with two major stories leading the way. Both the surprising election of Donald Trump to the presidency, and OPEC’s November announcement to curtail production vied for the top spot on my list, as they will both likely impact the energy markets for years to come.
But in 2016 there were also huge wildfires that curtailed oil sands production in Canada, a major new pipeline protest that erupted in North Dakota, high profile bankruptcies in the coal sector, and several important stories on hydraulic fracturing in the U.S.
Here is a list of what I believe were the year’s major energy stories. First the Top 5: CONTINUE»
By now you have undoubtedly heard that late last month at OPEC’s 171st Ordinary Meeting in Vienna, the group announced that it would reduce output by about 1.2 million barrels per day (bpd) by January. This is the first announced output cut by the group in eight years. Saudi Arabia will bear ~40% of the cuts, with Iraq reducing output by nearly 20%. Nigeria and Libya were exempted from the cuts.
OPEC also secured agreements from non-OPEC members. Russia led this group of non-OPEC producers by agreeing in principle to cut production by about 300,000 bpd. Most of these non-OPEC cuts are symbolic, as many are in line with the natural production declines expected to be experienced by these countries.
The market response to the OPEC cuts was swift. Global prices for crude quickly jumped >10% to above $50/bbl. Shale oil producers surged across the board, with Continental Resources and Whiting Petroleum jumping 23% and 30% respectively. CONTINUE»
Some readers may have noticed that I haven’t been posting as many articles here as I have in the past, but it’s simply because I am busy keeping up with deadlines elsewhere. I have an article due once a week for Forbes, and two weekly articles and one longer biweekly article for Investing Daily. Add to that occasional articles I do for other sites, and I am writing around 200 articles a year with firm deadlines. On top of that, I have a regular day job as an engineer, and this year has been exceptionally busy.
This column doesn’t have a firm deadline. It’s a place I can write when everything else is caught up. But lately those other commitments have been taking up most of my spare time, and I have been lucky to get one column posted a month here. So, that’s the reason my posting frequency here has declined.
I have had some people tell me that they don’t like dealing with the ads on the Forbes site, and they have asked if I could repost some of my Forbes articles here. I am allowed to do that after they have appeared exclusively at Forbes for a few days. So today, I want to reproduce a modified version of one that got pretty good traffic at Forbes, and has gotten a lot of attention in the press. CONTINUE»
If I told you that I had created a process to extract pure gold from seawater, you might deem it an amazing accomplishment. If I issued a press release stating these facts, it very well could go viral.
In fact, the oceans do contain an estimated 20 million tons of dissolved gold, worth close to a quadrillion dollars at the current spot market price. But you may have noticed that I have omitted a very important fact.
I haven’t mentioned how much it costs to produce a troy ounce of gold using the process I have designed. That seems like an important detail, so I explain that the production cost is only $50,000 or so per ounce (which today is worth about $1,265), but I am sure that with enough investment dollars — and maybe a few government subsidies — I can get that cost down to something more reasonable. (This is how we subsidize some advanced biofuels where production costs are an order of magnitude above what could be considered economical). CONTINUE»
If you happen to be interested in the topic of “peak oil”, you almost certainly know the name M. King Hubbert. While you may know that Hubbert is widely credited with accurately predicting the peak of U.S. oil production, you may not know the full context of his predictions — which are legendary in peak oil circles.
The history of the scientific study of peak oil dates to the 1950s, when Hubbert, a Shell geophysicist, reported on studies he had undertaken regarding the production rates of oil and gas fields. In a 1956 paper, Nuclear Energy and the Fossil Fuels, Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.
A peak in oil production, that is the maximum rate of production after which a field, country, or the world as a whole begins to decline is at the core of the peak oil issue. A country is said to have peaked, or reached peak oil after it becomes apparent that oil production in the region is steadily declining year after year. CONTINUE»
In last month’s Short Term Energy Outlook (STEO), the Energy Information Administration (EIA) projected that it now expects record U.S. gasoline consumption this year:
Motor gasoline consumption is forecast to increase by 130,000 b/d (1.5%) to 9.29 million b/d in 2016, which would make it the highest annual average gasoline consumption on record, beating the previous record set in 2007 by 0.1%. The increase in gasoline consumption reflects a forecast 2.5% increase in highway travel (because of employment growth and lower retail gasoline prices) that is partially offset by increases in vehicle fleet fuel economy.
This projected increase follows several years of lower gasoline demand that resulted from persistently rising gasoline prices over the past decade. From 2002 to 2012 the average retail price of gasoline rose nearly every year, from an annual average of $1.39/gal in 2002 to $3.68/gal in 2012. Consumers responded to these higher prices in multiple ways, which cumulatively led to falling gasoline demand. Some even suggested that U.S. gasoline demand had permanently peaked, as a result of more fuel efficient vehicles and increasing adoption of electric vehicles (EVs). We can now say those predictions were premature. CONTINUE»