Posts tagged “oil production”
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»
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»
In January of this year, as I do every year, I made several energy predictions for the upcoming year. (See My 2016 Energy Predictions). Now that half the year is in the books, I thought it might be a good idea to check in and see how these predictions are tracking.
As a reminder, I strive to make predictions that are specific, measurable, and preferably actionable. If forecasts are broad and vague, one can almost always declare victory. I would also remind readers that my predictions are based on what I believe will happen, which isn’t the same thing as predicting what I want to happen. My desire for a particular outcome has absolutely no bearing on a prediction. I am simply trying to accurately gauge the most likely outcome.
Here are the predictions, along with an update through the first half of the year. CONTINUE»
Each year in June two very important reports are released that provide a comprehensive view of the global energy markets. The highlight of the recently-released Renewables 2016 Global Status Report (GSR) was that the world’s renewable energy production has never been higher. But the biggest takeaway from this year’s newly-released BP Statistical Review may be that the world’s fossil fuel consumption has also never been higher.
Demand for crude oil set a new all time-high in 2015. Despite all the hype about electric vehicles and peak oil demand, the world’s oil demand continues to grow unabated — growing a robust 1.9 million barrels per day (bpd) from 2014 (+1.9% year-over-year).
A few days after Christmas I appeared on CNBC Asia’s Squawk Box to discuss the volatility in the oil market. Bernie Lo asked a question about OPEC’s strategy, and I characterized their decision to defend market share as “a big, costly mistake” that had already cost the group over $500 billion in 2015 and would likely cost them that much again in 2016.
I followed that appearance up with an article for Forbes called OPEC’s Trillion-Dollar Miscalculation (which went viral and received more than 100 times the traffic of their typical energy article). In that article I detailed the numbers behind my assertion.
Two weeks later, Continental Resources CEO and shale drilling pioneer Harold Hamm went on CNBC and reiterated my argument. He called OPEC’s strategy “a monumental mistake for them, I might add, a trillion-dollar mistake.” While there were a number of responses to Hamm’s comments that displayed varying degrees of schadenfreude over the huge decline in his net worth, I didn’t see much acknowledgement that the point is correct. So let’s review. CONTINUE»
When I made my annual energy predictions a year ago, I noted that I foresaw a “lot of uncertainty in the energy markets” and indicated that “the direction on several fronts is unclear.” That certainly proved to be the case as numerous pundits – including me – missed on oil price predictions.
Unfortunately, the market uncertainty is carrying over into 2016. This has implications for several predictions so, as I cautioned last year, it will be a challenge to repeat 2014′s record. But as always, the context is more important than the prediction itself, because context allows one to adjust one’s own views as events play out during the year. I may predict an oil price, but I also try to provide context as to what could go wrong with a prediction, so that readers can adjust their own expectations as the year unfolds.
As a reminder, I strive to make predictions that are specific, measurable, and preferably actionable. If forecasts are broad and vague, one can almost always declare victory. CONTINUE»
Last December the Energy Information Administration (EIA) released its latest estimate of U.S. Crude Oil and Natural Gas Proved Reserves. Although natural gas reserves rose, the real story was crude oil reserves. The EIA reported that U.S. proved reserves of crude oil and lease condensate had increased for the fifth year in a row, and had exceeded 36 billion barrels for the first time since 1975:
There are two reasons for this increase in proved reserves. The first is that despite >150 years of oil production in the U.S., new fields are still being discovered. In March 2015 the EIA released its update to the Top 100 U.S. Oil and Gas Fields as a supplement to the December report. This was the EIA’s first update on the Top 100 fields since 2009. The most significant addition to the list was the Eagleville field (in the Eagle Ford Shale), which was only discovered in 2009 but is now the top producing oil field in the U.S. In addition to the Eagleville, there were 4 other fields in the Top 100 that were only discovered in 2009. Several others in the Top 100 were discovered in 2007 and 2008.
But the largest additions to reserves weren’t via new discoveries at all. The largest reserves additions have been a result of rising oil prices, and this is a source of frequent misunderstanding on the topic on reserves. CONTINUE»
According to the recently-released BP (NYSE: BP) Statistical Review of World Energy 2014, the U.S. was the world’s largest and most diverse energy producer in 2014. The Statistical Review ranked the U.S.:
- #1 in oil production
- #1 in natural gas production
- #1 in nuclear power
- #1 in wind power
- #1 in geothermal power
- #1 in biofuels
- #2 in coal production
- #4 in hydropower
- #5 in solar power
The U.S. is clearly an energy production superpower, but we are an even greater energy consumer. Thus, despite the large amount of energy production, the U.S. is not energy independent. Our position as the #2 coal producer behind China (not coincidentally) mirrors our #2 position behind China in carbon dioxide emissions. And despite the rapid growth of renewable energy in both countries, carbon dioxide emissions in both countries rose in 2014 (to a new all-time record for China). CONTINUE»
When I made my energy predictions for 2015, I made some very aggressive predictions. Perhaps the most aggressive was that the closing price of West Texas Intermediate would not fall below $40/barrel (bbl) in 2015. Why do I consider this a particularly aggressive prediction? Because on the day I made it, the price of WTI closed at $48.80, but in each of the previous three months the price of WTI had dropped at least $10/bbl over the course of the month. So if WTI had maintained the same downward trajectory, it could have easily ended January below $40/bbl. My prediction could have been proven wrong before we even got out of January, so I really stuck my neck out on that one.
It’s not that there is anything special about $40, and I acknowledge that it’s possible that we could overshoot. But I made the prediction to highlight my conviction that $40 oil simply isn’t a sustainable price in today’s world.
A number of respected pundits are projecting that we will go below $40/bbl, with some suggesting that crude could even crash all the way to $30/bbl. Last week on CNBC, respected oil analyst Stephen Schork said “I do think this is a dead cat bounce”, elaborating that at least over the next 2 to 3 months that there is too much oil supply relative to current demand. My point is that it has been a widely held belief that oil is going to fall below $40/bbl, so I am definitely on the wrong side of conventional wisdom on this prediction. That’s not a safe place to be, because when you are wrong in that case people think “Everyone read this correctly except for you.”
But I think conventional wisdom is wrong in this case. CONTINUE»
In the past few weeks I have received numerous questions about the role of a “drop in demand” in the oil price decline. These questions are driven by many stories in the media that have referenced a drop in demand.
There are two primary reasons given for this so-called demand drop. One is that years of high oil prices have resulted in reductions in consumption through conservation and improvements in vehicle fleet efficiency. The second reason is due to the strengthening dollar, oil has become more expensive for many countries since oil is generally traded in dollars.
There are elements of truth behind both reasons. There has indeed been reduced oil consumption in recent years in most developed regions of the world. It is also true that the dollar has strengthened against many currencies. But despite the rationale that explains this drop in oil consumption, ultimately the data must support the narrative. CONTINUE»