Oil Prices are Starting to Rise Too High

16 hours ago, Rodent said:

Hmm... I think what you're saying is that oil price doesn't determine US oil production. And I think you have something there. No matter the whys or the hows, US oil production absolutely correlates to WTI. But from the study below, it looks like oil production determines price, not price determining oil production, but this is a particularly tricky web to untangle--why it works the way it works, and why it shifted in 2009 to be correlated different is unknown, because I don't want to pay for the full study :) 

"Using wavelet methodologies, we observe a shift to higher frequencies of the wavelet coherency for the time period 2003–2009 and lower frequencies for the period 2009–2014. The results also indicate that during the period 2003–2009 the U.S. oil production and WTI oil prices time series are in phase; they move together, with total United States oil production leading. During the period 2009–2014 oil production and WTI oil prices time series are out of phase (negatively correlated), suggesting that oil production increases precede a decrease in WTI oil prices."

from here (paid study): https://www.sciencedirect.com/science/article/pii/S0360544217315803#abs0015

This was the case for most of the history of oil production. The oil is a political resource. It was always used as a political tool like giving aid to friends, sanctioning hostile countries etc. USA kept many of its oil reserves unexploited for use during tough times. The political tools used were - restrictions on leasing federal lands, environmental restrictions, tax hike or reduction for oil industries, payment of subsidy etc.

It is impossible to simply consider market forces. Oil is a non renewable natural resource and hence can't be 'valued' in human money. Money is just a measure of human efforts and the utility of the effort. Since no human effort can make natural resource, it is wrong to consider natural resources in terms of market price.

39 minutes ago, EVANAN ROMERO said:

in reference to this statement by B. Pachawry: "USA always had the shale oil and it was even attempted to be drilled in 1980s but stopped by political decisions. USA wanted to hide its oil reserves so as to keep them reserved for difficult times. When USA realised that the energy dependency has become critical, the oil fields were released to be drilled"

We need to keep in mind that shale oil and gas huge deposits were always known; however  they were not economically drillable. Fracking was known since 1948, but horizontal wells were not yet a commercial reality until the early 90s

 

USA shale oil was profitable in 1970s. But, USA did not drill the oil to a bigger extent to conserve its resources. In 1980s, the oil production of Arabs was deliberately raised to take advantage of USSR vulnerability and not due to economic viability. Even the Arabs suffered some losses in the process. But taking down USSR was the priority. USA could have used the shale oil production but instead chose to outsource the job to Arabs to take out the "atheist" soviets who were deislamising central asia.

The shale oil again became profitable in 2003 but here again USA chose to invade Iraq and thus control iraqi oil. it was only when the economy tanked badly due to unending oil demand that USA started to ease restrctions on oil production

7 hours ago, Tom Kirkman said:

If i recall correctly, the U.S. Shale Oil "revolution" started once horizontal drilling was combined with hydraulic fracturing + propants.  Not because shale oil was "kept hidden".

I find it hard to believe that U.S. independent oil companies are controlled by much of anything besides oil prices. Indie oil producers in general are very much a fiercely independent herd of cats.  Try herding them, get scratched.

USA oil companies are not controlled by USA government but the oil production is controlled by increasing or decreasing restrictions and taxes. This is a very common way of controlling something for one's political convenience. Government doesn't dictate which company should produce how much oil but dictate the costs of the production and hence limit the production levels. It is similar to imposing import duties to help domestic industry.

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Bhimsen, you seem to have a fairly unusual view of the U.S. Shale Oil industry.  May I enquire which country you live in?

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Ya know with OPEC trying to control basic crude it has (with Trump) created the US as the next major, major EXPORTER!!  The Permiam & Marcellus basins are huge and the pipeline company's ETP  & EPD have formed a joint venture to access and connect this region with the Gulf ports. If you think the price might be getting high, guess again! With the US becoming a competing oil giant the price of crude will probably be coming (down)! We shall see.............

Cpt. Dowsett

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There seems to be some good information here tangled with some misrepresented feelings, (Bhimsem) and off center opinions, (Tom).

lets stick to facts and avoid the pitfalls of speculation shall we ?

Oil is a necessary resource for our modern society, with out it we would still be a herding and somewhat nomadic species. While political forces are tied to oil as they are tied to society, the main controlling factor of oil price is the demand / supply relationship. 

The house of Saud controls the taps for opec and the tight markets regulate the remaining supply. 

Calling tight producers unregulated cats is a short sighted, small field of vision statement. The supply they offer to the petrochemical market is very substantial and cannot be discounted. China is highly dependent on this resource as is most of Asia especially on the lng side. 

As the Asian Industrial revolution picks up momentum, the supply side will be stressed to keep pace making for very volatile commodity markets in the future.

renewables are only 1% of current global energy supply and when the majority of production of renewable components are petroleum derived it drops below .3%

We as a species are hopelessly tied to liquid sunshine and once it is depleted our society will cease to exist in its current form. 

Feeding 10 billion humans will be impossible without petro derived fertilizers so abundant in no till farming. 

With facts as these, the, “argument” for higher priced oil is one sided. 

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Why didn't high oil prices from 2011-2014 (average price around $110/b for Brent crude) cause an economic crash of the World economy?

It is probably correct that we will not see prices rise much above $80/b in 2018, but by 2019 the increase in LTO output will not be able to satisfy the increase in World demand for C+C (long term trend from 1982-2017 about 800 kb/d increase each year).  Perhaps OPEC will be able to supply enough, but with the fall in Venezuelan output, OPEC may struggle to maintain 2017 levels of output.

Increased output from Canada and Brazil are likely to be offset by decreased output in Mexico and China, leaving US LTO to meet the continued increase in World demand.  This will be possible in 2018, but by 2020 at Brent oil price levels under $85/b, US LTO output will not increase enough to satisfy World demand.  Oil prices are likely to rise at a rate of $5/year from 2020 to 2030, and if the price rise is gradual the World will be able to adapt to higher oil prices and the scarce commodity will be allocated to its most efficient uses.

I expect World C+C output will peak between 2020 and 2030, with my best guess 2025 and probably 83 +/-2 Mb/d.  If I am correct, this is likely to lead to oil prices of $150 b/d (2017$) by 2037 and $125/b by 2030 for Brent crude in 2017$.

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17 hours ago, Tom Kirkman said:

Bhimsen, you seem to have a fairly unusual view of the U.S. Shale Oil industry.  May I enquire which country you live in?

I live in India.

11 hours ago, Capt. Lauren Dowsett said:

Ya know with OPEC trying to control basic crude it has (with Trump) created the US as the next major, major EXPORTER!!  The Permiam & Marcellus basins are huge and the pipeline company's ETP  & EPD have formed a joint venture to access and connect this region with the Gulf ports. If you think the price might be getting high, guess again! With the US becoming a competing oil giant the price of crude will probably be coming (down)! We shall see.............

Cpt. Dowsett

USA uses 20mbpd oil whereas produces less than 11mbpd oil. How can it be a net exporter? USA exports oil due to logistical reasons. For example, it is cheaper to export oil from California to Japan and in turn get oil from Nigeria thus USA acting as an intermediary in the oil supply chain.

This however, does not ake USA a net exporter

11 hours ago, Repsol said:

There seems to be some good information here tangled with some misrepresented feelings, (Bhimsem) and off center opinions, (Tom).

lets stick to facts and avoid the pitfalls of speculation shall we ?

Oil is a necessary resource for our modern society, with out it we would still be a herding and somewhat nomadic species. While political forces are tied to oil as they are tied to society, the main controlling factor of oil price is the demand / supply relationship. 

The house of Saud controls the taps for opec and the tight markets regulate the remaining supply. 

Calling tight producers unregulated cats is a short sighted, small field of vision statement. The supply they offer to the petrochemical market is very substantial and cannot be discounted. China is highly dependent on this resource as is most of Asia especially on the lng side. 

As the Asian Industrial revolution picks up momentum, the supply side will be stressed to keep pace making for very volatile commodity markets in the future.

renewables are only 1% of current global energy supply and when the majority of production of renewable components are petroleum derived it drops below .3%

We as a species are hopelessly tied to liquid sunshine and once it is depleted our society will cease to exist in its current form. 

Feeding 10 billion humans will be impossible without petro derived fertilizers so abundant in no till farming. 

With facts as these, the, “argument” for higher priced oil is one sided. 

No, my words are not feelings. It is the bitter truth that oil is a political resource and is used for political purposes rather than mere economic. The reason oil got such prominence is because of WW2 and the utility in defence preparedness. But then it went into commercial and economic aspects by the marshall plan to help allies rebuild economy and subsequenctly turned into a tool of economic wellbeing.

The three important aspect for being super power are - Human resource (Quality & Quantity), food production (Water & Land) and Natural resources (most important being petroleum). USSR and USA became superpower mainly because of this. Arabs remained backwards because their culture hinders technology and also because they depend on food imports.

The food import dependence of USSR resulted in USA and Arabs tag teaming to take USSR down by down-valuing the exports of USSR - mainly oil - by overproducing. The motivation for Arabs mainly came out of religious antagonism against atheist USSR. USA also took advantage of that and established Petrodollars by means of deception and threats.

However, with the rise of Chinese production, the relevance of USA decreased. Arabs nowadays have no incentive to buy dollars for oil. Arabs get nothing from USA and dollars is nothing but printed paper. So, Arabs have now started threatening USA about withdrawing from dollars.

 

About oil being indispensable, you are forgetting coal liquefaction. Coal liqufeaction can provide energy (diesel and kerosene) and required petrochemicals for fertilisers and other essential commodity. However, many other petrochemical industry like paints etc will definitely collapse. coal liquefaction give limited quantity of petrochemicals unlike petroleum. That will not be enough to sustain today's economy. Nevertheless, it can indeed provide the lifeline for agriculture. The mass production seen today, however can't be sustained with coal liquefaction.

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On ‎5‎/‎5‎/‎2018 at 4:27 AM, Bhimsen Pachawry said:

I have attached charts of crude oil prices and USA oil productions

On Jul 11, 2008 WTI reached $147.27 and Brent $147.50/bbl. On your chart it is touching $160 - where are you getting this numbers?

Things like this tend to stick to memory, especially when followed by traumatic experience of GFC.

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On ‎5‎/‎5‎/‎2018 at 11:00 PM, Tom Kirkman said:

Bhimsen, you seem to have a fairly unusual view of the U.S. Shale Oil industry.  May I enquire which country you live in?

dare I say - planet? :) 

Let's just stick to (conspiracy) facts here, not just theories.

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18 minutes ago, DanilKa said:

dare I say - planet? :) 

Let's just stick to (conspiracy) facts here, not just theories.

This is the heading of the discussion:

Oil Prices are Starting to Rise Too High

Is this a fact? The problem with your so called facts is that they don't give a bigger picture or context. Context is what makes any facts or actions meaningful.

I speak of the "most rational" way of dealing with things in the long term perspective with given constraints of time and mistakes of the past. I will not encourage notions of 'what is mine is mine, what is yours is negotiable' or insistence of status quo. The status quo may be based on mistakes or wrong calculations of the past and can be corrected if needed.

28 minutes ago, DanilKa said:

On Jul 11, 2008 WTI reached $147.27 and Brent $147.50/bbl. On your chart it is touching $160 - where are you getting this numbers?

Things like this tend to stick to memory, especially when followed by traumatic experience of GFC.

The chart was obtained from a site and I just took a screenshot for comparing with USA oil production. It is inflation adjusted and in log scale. The value of dollar of 2007-8 was not same as value of it today. USA has ended up printing so much dollar that not just value of dolalr has decreased but the credibility of dollar is in threat.

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It is interesting. Most of oil producing countries are insecure. They have lots of gangsters and terrorists to feed on. it is like hyenas or wolves. oli price is lower -> they can not afford to give money to them. -> their budget is getting less.-> hyenas' complaint is bigger.->hyenas begin to attack pipelines and refineries likely with missiles and cannons.-> oil trading cost is getting higher.(ex; insurance fee,  cost to maintain battleship, aircraft carriers) -> oli importers like China, Japan and Korea try to find other options(Shale-gas, sand-oil).-> Usa and Canadian oil price is getting higher. -> at last, all oil prices is up.

 

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If $3 per gallon is the psychological barrier for "sustainability", that corresponds to about $84/bbl. ($1 for refining, transportation and taxes + $2 x 42 gal/bbl). I think consumers including SUV owners are ok with anything under that. Above $3 they may reconsider. What do you think is special about $80?

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9 hours ago, Bhimsen Pachawry said:

It is inflation adjusted

noted, thanks.

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On 5/5/2018 at 8:11 AM, Bhimsen Pachawry said:

This was the case for most of the history of oil production. The oil is a political resource. It was always used as a political tool like giving aid to friends, sanctioning hostile countries etc. USA kept many of its oil reserves unexploited for use during tough times. The political tools used were - restrictions on leasing federal lands, environmental restrictions, tax hike or reduction for oil industries, payment of subsidy etc.

It is impossible to simply consider market forces. Oil is a non renewable natural resource and hence can't be 'valued' in human money. Money is just a measure of human efforts and the utility of the effort. Since no human effort can make natural resource, it is wrong to consider natural resources in terms of market price.

USA shale oil was profitable in 1970s. But, USA did not drill the oil to a bigger extent to conserve its resources. In 1980s, the oil production of Arabs was deliberately raised to take advantage of USSR vulnerability and not due to economic viability. Even the Arabs suffered some losses in the process. But taking down USSR was the priority. USA could have used the shale oil production but instead chose to outsource the job to Arabs to take out the "atheist" soviets who were deislamising central asia.

The shale oil again became profitable in 2003 but here again USA chose to invade Iraq and thus control iraqi oil. it was only when the economy tanked badly due to unending oil demand that USA started to ease restrctions on oil production

USA oil companies are not controlled by USA government but the oil production is controlled by increasing or decreasing restrictions and taxes. This is a very common way of controlling something for one's political convenience. Government doesn't dictate which company should produce how much oil but dictate the costs of the production and hence limit the production levels. It is similar to imposing import duties to help domestic industry.

I concur that politics, and often geopolitics, have determined US oil production. I think maybe you're giving the US government a bit too much credit, though, when you cite a blanket conspiracy to control oil production or oil prices (and I'm a conspiracy nutter, so that's saying something). Although some are intentional (and even publicly intentional), others are not. Mostly it's about behaving in a manner that is thought best for the US.

The US government has long had its hands in determining the fate, albeit sometimes unwittingly, of US oil production, starting way back when when the supreme court ended Standard Oil's monopoly. We move on to 1915ish or so when the geological survey determined that the US would run out of oil within 17 years. This fear ushered in an era of oil conservation, and fierce competition with Britain over Mexican oil. Just a couple of years later, the FTC recommended that foreign oil companies be given diplomatic support in developing oil overseas (in the wake of the looming "oil shortage".) 

Eisenhower (Mandatory Oil Import Program), Nixon (Project Independence), Carter (Energy Security Act), and Reagan (deregulated price) all rationed/unrationed gasoline, encouraged sweater-wearing and bike-riding, set or abolished import quotas, issued embargos on naughty nations, and so on. 

All of these, while not necessarily a direct manipulation of US oil production, certainly influenced it.

And these are just a handful of examples. I guess I could also throw in there the Clinton/Gore era of sky-is-falling inconvenient truth.

But that doesn't account for the times when US oil companies influenced their own production--the oil crash in 2014ish absolutely held US oil companies' feet to the fire. The emerged slimmer, and were able to do more with less. The technological breakthroughs of the past decade have made more oil viable than it was back in the early 1900s.

subsidizing solar/wind may also have an affect on US oil production, so I guess one could throw that in there too. 

The list is likely endless. That said, I don't see it as a willful "leave it in the ground" effort. 

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7 hours ago, Craig W said:

If $3 per gallon is the psychological barrier for "sustainability", that corresponds to about $84/bbl. ($1 for refining, transportation and taxes + $2 x 42 gal/bbl). I think consumers including SUV owners are ok with anything under that. Above $3 they may reconsider. What do you think is special about $80?

For 2015 and 2016, and early 2017, the "psychological barrier" was around $50.

It's my general opinion that currently, the "pschological barrier" has moved up to $60 to $70.  I prefer $65.

What is special about $80 is that KSA recently started agitating for $80 to $100 oil to support their Aramco IPO valuation.  But I can't currently see any actual justification for $80 oil.  KSA is just trying to artificially shift the psychological barrier higher.

My view is that agitating for unreasonably high oil prices will simply result in a harder and longer oil price crash.

Have people forgotten what happened after the last oil price bull run stampede crashed a few years ago?

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7 hours ago, Rodent said:

I concur that politics, and often geopolitics, have determined US oil production. I think maybe you're giving the US government a bit too much credit, though, when you cite a blanket conspiracy to control oil production or oil prices (and I'm a conspiracy nutter, so that's saying something). Although some are intentional (and even publicly intentional), others are not. Mostly it's about behaving in a manner that is thought best for the US.

The US government has long had its hands in determining the fate, albeit sometimes unwittingly, of US oil production, starting way back when when the supreme court ended Standard Oil's monopoly. We move on to 1915ish or so when the geological survey determined that the US would run out of oil within 17 years. This fear ushered in an era of oil conservation, and fierce competition with Britain over Mexican oil. Just a couple of years later, the FTC recommended that foreign oil companies be given diplomatic support in developing oil overseas (in the wake of the looming "oil shortage".) 

Eisenhower (Mandatory Oil Import Program), Nixon (Project Independence), Carter (Energy Security Act), and Reagan (deregulated price) all rationed/unrationed gasoline, encouraged sweater-wearing and bike-riding, set or abolished import quotas, issued embargos on naughty nations, and so on. 

All of these, while not necessarily a direct manipulation of US oil production, certainly influenced it.

And these are just a handful of examples. I guess I could also throw in there the Clinton/Gore era of sky-is-falling inconvenient truth.

But that doesn't account for the times when US oil companies influenced their own production--the oil crash in 2014ish absolutely held US oil companies' feet to the fire. The emerged slimmer, and were able to do more with less. The technological breakthroughs of the past decade have made more oil viable than it was back in the early 1900s.

subsidizing solar/wind may also have an affect on US oil production, so I guess one could throw that in there too. 

The list is likely endless. That said, I don't see it as a willful "leave it in the ground" effort. 

 

The market forces don't consider the fact that oil may deplete/exhaust and simply consider the current production and demand. The consideration of the future comes into politics. I will give a few examples of the conspiracies and propagandas waged by the government for the sustainability efforts:

1) Climate change linked to carbon dioxide. The reality is that CO2 rose only by 0.01% which is insignificant by all means. Saying that the temperature rose by 1 celsius due to this increase is absurd. The more appropriate reason would be - deforestation and concretisation. It has been proven that cities and deforested lands are hotter than rural areas and lands with green cover. Considering the scale of deforestation and concretisation that has happened

2) Women empowerment and feminism with a goal of curbing fertility rate.

3) Secularism to avoid antagonising oil producers who are muslims

4) Pitting muslims against atheist USSR to get petrodollars established

The concept that natural resources can be ever used solely on the basis of demand and supply simply ignores the other factors like future thinking, margin for error, emotions, lifestyle inertia etc. The idea of unlimited growth or supply is simply a mathematical construct and not practical

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3 hours ago, Bhimsen Pachawry said:

 

The market forces don't consider the fact that oil may deplete/exhaust and simply consider the current production and demand. The consideration of the future comes into politics. I will give a few examples of the conspiracies and propagandas waged by the government for the sustainability efforts:

1) Climate change linked to carbon dioxide. The reality is that CO2 rose only by 0.01% which is insignificant by all means. Saying that the temperature rose by 1 celsius due to this increase is absurd. The more appropriate reason would be - deforestation and concretisation. It has been proven that cities and deforested lands are hotter than rural areas and lands with green cover. Considering the scale of deforestation and concretisation that has happened

2) Women empowerment and feminism with a goal of curbing fertility rate.

3) Secularism to avoid antagonising oil producers who are muslims

4) Pitting muslims against atheist USSR to get petrodollars established

The concept that natural resources can be ever used solely on the basis of demand and supply simply ignores the other factors like future thinking, margin for error, emotions, lifestyle inertia etc. The idea of unlimited growth or supply is simply a mathematical construct and not practical

Wowzers! I don't even know what to say... are you suggesting that the feminism movement was a plot to control oil production in the US? Or are you saying that the feminism movement was a plot to conserve fossil fuels? You definitely have some interesting views on the subject.

But there have been lifestyle shifts---or prods to shift lifestyle, such as Carter telling people to ride bikes and wear sweaters, rules to drive 35 or under, then 55 or under, and so on. But these were all advertised as such.

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