William Edwards

Until price and production coordination are implemented (currently 50 years waiting in the wings), each producer is a threat to oil markets and global economics. The coronovirus is simply one of the many trading triggers -- short term and meaningless. If you neither understand what I say nor do not accept its validity, that is OK. Don't sweat it. Just enjoy $30 oil.

If you are unable to grasp the concept that the price tells the engineers what to produce, and also tells the consumer how much he can buy, then you need to get more up to speed before I can converse intelligently with you. Actually, I think you are smarter than your comments. Just relax!!!

My suggestion is that you save yourself the trouble of trying to understand random oil pricing. Until a different system is adopted, futures traders will keep things fluctuating.

I am glad that I do not live in the world that you see. The numbers that I examine look quite sound in content and seem to be consistent with the pricing and supply/demand relationships that I utilize. As long as the system's activities are consistent with my model, I will stick to my model rather than imagining a different one. Low prices are on the horizon for the next 10-15 years.

I (and historical data) disagree. The price sets both supply and consumption -- simultaneously.

The key question is "Does the world need the full output that the Saudis can provide?" A complete global balance is required to answer this question, but a rough approximation of such through incremental analysis suggests that the Saudi (and global producers') problem in the next few years will be TOO MUCH PRODUCING CAPACITY. So the answer to the question remains "No!"

I am not an insider, at all, Gerry, although I may have a much better grasp of the business of oil than the insiders have. My assessment did simple arithmetic with published facts, that anyone could do if they were careful in word and concept definitions. It all starts with the principle that consumption cannot exceed production, nor can production exceed consumption. A simple fact, but mostly ignored by the elite consultants and advisors of the petroleum world, including OPEC. If production capability exceeds consumption, then removing excess production capability has NO impact on production. I simply reflected that fact in my analysis.

Is it at all possible that the "spin" is not intentional, but is a result of the ignorance of the commentators? Most superficial analysts still confuse production and production capacity. Rather fundamental shortcoming, I would say.

Tom, I am going to do you a favor. I am going to enlighten you with facts. Not only is the full Saudi production real, it was also predictable if one kept his head on straight. Of course, that is what I try to do. Here is a note that I sent out the night of the attack. "This may be a different take from that you get from your professional cohorts, but I thought I would let you know what is actually going to happen as a result of the attack on the Saudi production facilities. The Saudis have so much spare capacity that they will not lose any production. No customers will be turned away. They may even get a little bit of additional outlet if the speculators put oil in storage in order to capitalize on a hoped-for price boost. But the Saudi‘s will reap higher prices for their own oil as long as the turmoil keeps prices boosted. So the attackers have probably done the opposite of what they want. They have actually helped the Saudis get more income for their production." Is that clear? No production loss. The loss of capacity was less than the spare capacity that was not being used. My further comment sent on September 20 elaborates further. "Saudi Arabia should send a big “Thank you” note to Iran. The ill-advised attack on the Aramco production facilities was both a financial and a strategic gift to the Saudis. While the news media and the renowned consultants of the world proclaimed a “5.7 MMB/D loss of production", actual Aramco production figures will show almost no loss of production in September as a result of the bombing. The only real impact was a 5-10% increase in the price that Aramco received for its sales after the event. This is the financial gift from Iran. The strategic gift is the possibility that Aramco will now realize that their historical policy of maintaining 20% spare capacity “for the good of the global supply community” is no longer an appropriate stance. Oil traders and futures speculators now set the price of oil. Accordingly, abrupt price changes are now almost always in the upward direction as a knee-jerk reaction to news, which is usually in the sensational category of “loss of supply”, and is a price spike, not a price drop. The availability of spare producing capacity works against the price benefit of these sensational reports, so Aramco would be better served to benefit from the higher price jump that “no spare” would create. And in reality, Saudi Arabia receives no benefit from their “good citizen” stance, since the talk usually centers around production cuts by the Saudis, not supply assurance. Aramco has maintained about 20% spare capacity for at least fifty years. During that time only a minuscule quantity of that spare has ever been utilized. Thus that policy has definitely been a cost item, not a profit generator. And there is little evidence that any “good will” has been generated by that Saudi largesse. Now is the time for a reconsideration of that policy. Aramco can then operate with the opportunistic thrust that the rest of the industry currently enjoys. In the meantime, the rest of the global producing industry can benefit, as well, from the Iranian action." After actual September production figures were published yesterday, I added this comment. "You are probably already all over this, Anna. But in case a reminder is appropriate, it seems that someone should call the industry on all of the sensationalized and inaccurate reporting on the Saudi production loss from the Iranian attack. Are you the one to fulfill this need? A loss of 5.7 MMB/D is the common wisdom for the production loss, and the number erroneously reported by most publications. We now have the actual number for September, as you reported in yesterday’s Daily Wrap. The actual loss is 9.8 (August production by Saudi Arabia) minus September’s 9.1 MMB/D, or 0.7 MMB/D, not 5.7 MMB/D. The industry commentators should be ashamed of a 5 MMB/D overstatement. Now let us see if any of the big boys admit their mistake." You should be up to speed now, Tom. Real numbers are quite illuminating, both before and after the fact.

I disagree, Ruff. The culture of the Middle Eastern producers has everything to do with the pricing of oil. Since that area sits on an overwhelming supply of petroleum that can be produced for less than $10/B, their decisions on how much to produce and the price they are willing to accept sets the global market. And past history strongly suggests that those decisions are whimsical. Therefore the better "feel" one has for the culture, the greater the chance that their whims can be accommodated.

In a world where oil supply capability almost always exceeds consumption, we have the perpetual problem resulting from the fact that it is impossible to put ten gallons of oil in a five gallon bucket. Therefore ALL producers adopt the strategy "You cut!". It has been said that ignorance is bliss; likewise, failure to understand the simple arithmetic of supply and demand is also bliss, I suppose. One unintended result of these facts is a perpetual discussion of how the producers can circumvent the restrictions resulting from simple arithmetic. Only a well disciplined, effective cartel with enforcement powers can set both price and production simultaneously. Is the producing world ready for that?

Your statement "Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically." is contradicted by the fact that Oil Sands is being produced at $30-50/B while Saudi oil at $3-10/B is being shut in. Please reconcile the facts with your dreamworld state before you advise us.

Spin it however makes you feel good, Dennis. I am just applying the best historical data PLUS comprehensive logic to my assessment. If your "logic" differs, then you will get a different result. I will stick with mine. You are off base with the paragraph. "As the resource becomes more depleted it is likely to become more expensive to produce on average. At under $40/b there is not enough oil that can be produced profitably to meet World demand for C+C at that oil price, so a 15 year time period with the average price of oil below $40/b is not likely to occur until perhaps 2050 to 2065 when the rise of electrified land transportation and more efficient water and air transport might reduce demand for C+C to relatively low levels." You are forgetting the huge impact on demand of the almost certain worldwide depression during the next 15 years. Further, the numbers that I put confidence in say that there is plenty of reserves that can be produced at $40/B. So forget any shortage of supply. Keep dreaming!

You identified the root of the problem with your statement "pricing started to rise for no real good reason". Price eventually determines both consumption and production levels. If the price signal is distorted, by whatever means, the industry responds accordingly. And prices that are too high can cause ridiculous investments.

Better management by the industry is the key hope, Mike, but maybe not so likely. First, the industry leaders would have to understand your message and, then, abandon short-term gain visions and replace them with soundly based strategies. Probably won't happen. More boom and bust!