Iran Doesn't Want Higher Oil Prices

[William Edwards + 708]

Thanks, Tom. You are too kind. But I appreciate your support.

[Bhimsen Pachawry + 72]

7 hours ago, HILLARY said:

I agree with your assertion. The global economy is gradually but 'speedily' getting by on the wings of growth rebound and naturally  the oil demand worldwide will naturally go on the increase.If the supply does not one for one respond to these demand structure then we expect oil prices to increase though not a sharp increase at least in the short run.why is no one talking about the impact of Electric cars on cooling off oil demand globally ?

That is because electric cars are extremely defective and difficult to use. The cars can't be used for long distance travel as it won't have charge. It can't be used by heavy users as it needs 12 hours to recharge and the power production required to supply charges for the car will boom resulting in other demands. The heavy vehicles, commercial vehicles can never use battery due to low endurance. Also, the lithium is not abundant in supply and the recycling of the metals in the lithium battery is a very difficult thing.

Electric cars will never be the revolutionary substitute. Coal liquefaction is the only alternative that even comes close.

3 hours ago, William Edwards said:

Both Hillary and Bhimsen might find it instructive, in fact, eye-opening, to test their ideas against the past fifty years of oil industry growth and pricing. Demand grows at 1-1.5% every year, except for the sporadic dampening effect of huge price spikes. Supply growth has always  kept pace. The industry has not suffered a true supply tightness for almost fifty years. 

I suspect that you both are in for a big surprise from the upcoming drop in the speculatively-determined price.

The oil era is relatively new and started during WW2 when the real potential of oil was discovered - military dominance. So, in the initial era, the oil fields were not fully discovered and hence lot of new fields were continually discovered. The discovery, however, reduced drastically since 1990.

In 1980-90 USA and OPEC increased oil production drastically with a single aim of bankrupting USSR which started to depend upon imported agriculture goods to feed the increasing population. USSR supplied oil for agri-products. So, by increasing oil production, the USA group ensured that USSR is collapsed. Once that happened, the client states of USSR were brought into the fold of USA by providing them aids and oil supply. So, the oil supply remained high. In mid 1990s, Russia restarted its oil production and once again there was oil glut. But that ended since 2000 whereby there was no new producers.

In 2000s, USA realised that the oil supply is in threat and thereby the petrodollar. So, Iraq was invaded. Then Arab spring was planned but was foiled by response of Arabs who started ISIS. This failure prompted USA to increase its oil production which it was hiding.

So, today's scenario is way different from the past. The history of oil era itself is 80 years. And in the last 15 years we have been seeing wars, ISIS, terrorism to control oil supply. The situation has deteriorated. It is incorrect to say that oil supply is not being tightened. There have been explicit calls by muslims to make USA collapse. Many muslims are stating that USA control will end in 10 years. Saudi Arabia tightening oil supply should be seen in this context.

The situation of oil supply today is no longer about economy but about dominance and war. 

[William Edwards + 708]

Thanks for the insight into your thinking. Based upon your ideas, I suspect that my ideas will forever be quite different from yours. You see, I am firmly grounded in the basic law of conservation of matter.  Thus, the reality of quantitative supply and demand, which are forever equal, cannot be ignored. The further fundamental difference in our ideas lies in your belief that the producer determines the supply level. In actual fact, it is the consumer that determines production levels. Prices are a separate subject.

[Bhimsen Pachawry + 72]

1 hour ago, William Edwards said:

Thanks for the insight into your thinking. Based upon your ideas, I suspect that my ideas will forever be quite different from yours. You see, I am firmly grounded in the basic law of conservation of matter.  Thus, the reality of quantitative supply and demand, which are forever equal, cannot be ignored. The further fundamental difference in our ideas lies in your belief that the producer determines the supply level. In actual fact, it is the consumer that determines production levels. Prices are a separate subject.

Who determines production depends upon context and is not absolute. In critical goods with monopoly, the producer can hold others hostage. Oil is very critical for food production and economic activity. In current scenario, at least 15-20MBPD is needed for agriculture, processing and transportation alone.

If it was buyers who determined production, then the oil production would be 150 million barrels a day instead of current 100MBPD. Arabs, Russia, China etc can produce much more oil than what they are producing. We see how USA is producing 10MBPD with less than 40GBL reserves whereas KSA with 110-115GBL reserves is also producing same levels. Shah's Iran produced oil at 6MBPD from normal 3MBPD to help USA tide over oil price hike in 1970s. These all show that the producer is the one in charge in case of oil production. The only constraining factor is that Arabs don't have water and hence must compulsorily produce enough oil to buy food.

[William Edwards + 708]

I had great difficulty trying to follow your thread of logic. I must be losing my ability to comprehend the written word. Alternatively it may be that, rather than presenting a thread of logic, you presented a series of unconnected threads with no logic to tie them together.  We shall let the other readers judge which it is.

[DanilKa + 443]

8 hours ago, William Edwards said:

Both Hillary and Bhimsen might find it instructive, in fact, eye-opening, to test their ideas against the past fifty years of oil industry growth and pricing. Demand grows at 1-1.5% every year, except for the sporadic dampening effect of huge price spikes. Supply growth has always  kept pace. The industry has not suffered a true supply tightness for almost fifty years. 

I suspect that you both are in for a big surprise from the upcoming drop in the speculatively-determined price.

William,

In my view, 2008 price jump to $147/bbl was caused by supply concerns. At a time I though that, finally, we've become supply-limited and this will put an end to a boom-bust cycles of the oil patch. How naïve...

I'm with Art Berman on idea that subsequent growth of the shale oil industry is caused by distorted (by Feds of the world) capital market. Would disagree with you on direction of the "big surprise" - I think we are up for a moonshot caused by rapidly disappearing crude reserves caused by underinvestment during downturn. Shale is ramping up fast with US oil production at 10.54 and adding up to a million bopd by YE but this may be short-lived: decline from shale is ~50% during first year and ~85% in three years, meaning that ever-increasing number of drilling/completions is required to compensate for stacking up rapidly declining vintages. Good illustration here: https://shaleprofile.com/index.php/2018/04/23/projecting-us-shale-oil-production-after-july-2017-2/ 

As US increased own crude production and become less reliant on imports (still, consuming ~17M bbl petroleum products per day), importance of spare production capacity greatly diminished (Cushing as pricing point?). But we don't have a lot of it, even with OPEC/Russia "cuts". Fig 15 here: http://euanmearns.com/oil-production-vital-statistics-april-2018/

My concern is what will happen to demand side as we may be topping 2nd longest growth cycle and whether US (or China) recession and multi-T debt deflation triggers global crisis - "greater depression" name already suggested.  

[Mahyar + 16]

The Venezuelan situation has affected the oil market in recent years. It's, therefore, expected the discussions of the OPEC in June will revolve mainly around questions of production as questions of price. The connection between price and supply is obvious to OPEC and non-OPEC. We have to wait to see whether OPEC ends the cuts deal in June or not. If they decide to stick to their commitments in order to raise prices to say $100, it is very likely OPEC and non-OPEC will be tempted to cheat. This could lead to price weaknesses once again  due to high production levels.

[William Edwards + 708]

On 5/8/2018 at 4:27 PM, Bhimsen Pachawry said:

Who determines production depends upon context and is not absolute. In critical goods with monopoly, the producer can hold others hostage. Oil is very critical for food production and economic activity. In current scenario, at least 15-20MBPD is needed for agriculture, processing and transportation alone.

If it was buyers who determined production, then the oil production would be 150 million barrels a day instead of current 100MBPD. Arabs, Russia, China etc can produce much more oil than what they are producing. We see how USA is producing 10MBPD with less than 40GBL reserves whereas KSA with 110-115GBL reserves is also producing same levels. Shah's Iran produced oil at 6MBPD from normal 3MBPD to help USA tide over oil price hike in 1970s. These all show that the producer is the one in charge in case of oil production. The only constraining factor is that Arabs don't have water and hence must compulsorily produce enough oil to buy food.

You begin with the inaccurate statement "Who determines production depends upon context and is not absolute." A helpful thought exercise is to imagine that you have a tank of oil at the export dock and you decide to pump that oil to accomplish your production target or wish. If an obliging customer has not placed an empty tanker at your dock, where do you pump the oil? The customer makes the necessary decision regarding your production. Right? The decision to "not produce" lies with the seller, but the decision to produce lies with the buyer.

[Tom Kirkman + 8,860]

4 hours ago, Mahyar said:

The Venezuelan situation has affected the oil market in recent years. It's, therefore, expected the discussions of the OPEC in June will revolve mainly around questions of production as questions of price. The connection between price and supply is obvious to OPEC and non-OPEC. We have to wait to see whether OPEC ends the cuts deal in June or not. If they decide to stick to their commitments in order to raise prices to say $100, it is very likely OPEC and non-OPEC will be tempted to cheat. This could lead to price weaknesses once again  due to high production levels.

Hi Mahyar, great to see you over here on the Oil Price Community forum.  Hope you are doing well.

[Mahyar + 16]

Hi Tom, Thank you. It's my pleasure .Best of luck.

Mahyar

[Bhimsen Pachawry + 72]

17 hours ago, William Edwards said:

You begin with the inaccurate statement "Who determines production depends upon context and is not absolute." A helpful thought exercise is to imagine that you have a tank of oil at the export dock and you decide to pump that oil to accomplish your production target or wish. If an obliging customer has not placed an empty tanker at your dock, where do you pump the oil? The customer makes the necessary decision regarding your production. Right? The decision to "not produce" lies with the seller, but the decision to produce lies with the buyer.

You are absolutely right in saying that decision in producing is with buyer while that of not producing is with seller.

[Antonino 0]

I feel this current price might affect some company’s and the sanctions on Iran might lead to what we don’t expect in the oil market . 

[William Edwards + 708]

4 minutes ago, Antonino said:

I feel this current price might affect some company’s and the sanctions on Iran might lead to what we don’t expect in the oil market . 

I agree.

[Antonino 0]

What do you think is the way forward for top multinational company’s ?

[Valerie Williams + 129]

6 hours ago, Antonino said:

I feel this current price might affect some company’s ...

I work on tools for offshore application, and yes, this current price is definitely affecting the company I work for and those of our customers. In offshore, we are just seeing a glimmer of the return of a small bit of possible business just there on the horizon. Maybe, just maybe, things are turning around after 3-1/2 years of layoffs, reduced pay and no new orders while offshore producers (the ones that didn't go out of business) cannibalize non-working vessels and limp along without daring to buy new equipment. The current price is making some offshore producers think it might be safe to invest a bit of money in equipment, but they are wary that the bottom might fall out again, so it's slow going.

6 hours ago, Antonino said:

... and the sanctions on Iran might lead to what we don’t expect in the oil market . 

And this is just what I'm afraid of. Volatile geopolitical situations make customers afraid to commit to building contracts. This is why I don't buy into the war for oil theory. I think the U.S,'s transition out of the Great Depression during WWII was due to a combination of other factors along with a shift from mainly agricultural to more industrial production. It is not clear from other wars that war is good for anyone's economy. And now with most corporations (especially those in oil & energy) being multinational, they have no real stake in either side of a war between nations. Unstable political climates have a suppressive effect on those who have money being willing to spend it. They would rather wait and see how conflicts turn out before they risk building something or engaging in an arduous endeavor that could be laid to ruin by war or just by political and economic volatility.

Edited May 10, 2018 by Valerie Williams