It's the demand, Stupid

[BillKidd + 139]

On 9/13/2019 at 12:14 AM, J.mo said:

It doesnt need to be any of that. It needs to be that electrification of vehicles becomes the dominant mode of transport in a few of the dominant world economies that consume the bulk of the world's production for fuels. 

There is not a large enough market in emerging countries to absorb and begin to build out infrastructure to adopt the technology by the time its coefficient will be building out grid and infrastructure for other electrification. 

Oil will not go away. However, demand will fall indefinitely. Leaving cashflow and lack of interest to continue to develop. Which I am sure the big boys already have their reserves procured for some time to come, but are tight lipped as they are smart and should be. But this will leave to the most efficient producer, which in itself is a sticky subject so we will leave that off the table. But demand will fall. And I'd say within 10-15 years it will be noteworthy. I sure hope I'm wrong however at this moment I am not investing in any more future locations unless they are blockbuster deals. 

Exactly my take on it. I'm not investing in anything but blockbuster, as well, and I hope to sell out soon. The risk is too high that we wake up one day and a dramatic announcement is made that changes everything for oil/gas demand. Oil/gas isn't going away anytime, soon, correct, but it is entirely conceivable that the price trend from here out is down. And they're not even making money today! What if prices drop in half from here? Plus, we have a clueless, criminal POTUS. A total joke of a man running things. Absolutely laughable. And I'm someone who has voted Republican more often than not. Another huge factor is the likelihood of a horrific depression, and it could make the Great Depression look mild. After decades of the Great Credit Experiment, it all implodes. It could get very, very ugly.

[Gerry Maddoux + 3,627]

I have read through this thread with great interest. Like a lot of you, I make my living from oil and gas. Since I have been reading the comments on this site, I have learned a lot, much of it from wildly divergent opinions. This topic is different: almost all the heads are nodding the same direction, up and down. And that worries me. 

Saying that there is a 1% increase in global demand for hydrocarbons each year has been historically correct for a very long time. Assuming that while vehicular use of fossil fuels will diminish but applying roughly that same amount as feedstock at the petrochemical plants is quite logical. The ease with which the lot of us can dismiss giant storage batteries takes merely a shrug. But all of these head-nodding comments assume that change is occurring in some sort of linear progression, pretty much the way history has taught us. 

Maybe I'm the only one paranoid here. The large number of international bankers that signed the oxymoronic contract entitled "Bankers for Responsible Investment" or some such rot, coming on the heels of the little Swedish girl making the rounds for a Nobel Peach Prize and all the new state mandates that are being pushed, really bothers me. Those bankers agreed, loosely, to sequester $47 TRILLION away from oil and gas people. Basically, their intention is to starve them out. This fits right into the progressive playbook as recited, shrilly and angrily, by Elizabeth Warren and another child named AOC. "A child shall lead them" has suddenly become a much-touted Bible verse. 

I am first and foremost a scientist. Scientific happenings have a way of looking linear for a long while, then suddenly showing up on a Tuesday acting like a logarithm: imagine bacteria replicating on a petri dish. I am becoming concerned that we've reaching an inflection point in society . . . especially when profit-driven, hard-hearted, mean-spirited bankers become cowed into following the mandates of junk science as interpreted by a thirteen-year-old girl who is smart but has few life experiences in smash-mouth reality. 

My nightmare scenario? 1) The Saudis lied about their facility at Abqaiq; it's going to take several months to get up to speed; they have 130M barrels of oil stored, which will probably allow them to bluff their way through November. 2) During that uninterrupted period of pretense, complacency and fear of over-supply and a price crash will cause roughly 100 rigs to be laid down in the US, maybe 10 in Canada. Because of DUC's, oil production from tight oil will remain flat or even move up a bit. 3) Exploration was near zero for several years, until Guyama and Vaca Meurto--it's now catch-up time but in a half-hearted way. 4) More and better batteries are going to be manufactured, including storage units like the one in the Permian--more assurance to Millenial masses that the transfer from fossil fuel to renewables is moving smoothly. 5) Then the hidden truths of above points 1, 2, 3 hit simultaneously. Suddenly, no matter how much the progressives and Elon Musk want us to go all renewable, all the time, we splat upon a substantial supply-demand imbalance. Panic ensues. Oil flies to $100 and beyond. Civil unrest becomes a reality; after all, it's getting cold outside and all at once global warming seems a forgotten worry. Just like that we hit another boom phase of the endless boom-bust cycles in oil and gas. Coal is going to make a temporary, emergency comeback. Natural gas will (probably) be sufficient to prevent people from freezing. All the renewables people--especially the EV folks--will say, see, we told you that fossil fuels are unreliable and dangerous. Those idiotic bankers will see that withholding $47 TRILLION at their Global Warming Conference wasn't such a great idea. They try to reverse thrust. The Saudis are so happy they're singing Christmas songs (no slur intended, Tom and Jan, just humor). And then, finally having broken the five-year drought in oil and gas prices, we'll all--Saudis, US, Canada, Big Oil (even Mr. Dudley of BP, who has been bad-mouthing his own industry in order to appear PC)--engage in renewed attack mode, which will lead us from the politically and socially engineered boom to another bust. This is what is in my mind. Since 1950 I have lived through these busts and booms regarding our own minerals. I've sold transmission rights for wind farms. mused at increased flaring, watched the old rigs methodically built and the new ones moved on tracks to the next spot on the drilling pad. I've seen horses get bogged down in sludge pits, desperate men in Stetsons throwing ropes over their heads to pull them out. I've watched this industry for a long time, shaken my head at the booms and busts, marveled at men like T. Boone Pickens and Aubrey McClendon and Mark Papas and Tom Ward. But never have I seen a coalition of international bankers say they were going to turn off the spigot because it was "morally irresponsible" to lend to oil and gas.

No, gentlemen, I am not a doomsday theorist, just a realist. We're not on the long, sleepy curve of history here, not anymore. We're in a place with zero interest rates, bankers no longer making 5% on loans and 10% on junk bonds but rather depending on trades and hedges that used to be banned under the Glass-Steagall Act. Hard times are coming, not because they had to because of the natural flow of money but because of central bankers becoming alphabet soup engineers, regular bankers masquerading as choir boys. This is my take. I wholeheartedly admit to having become paranoid in my dotage. My head is no longer moving just up and down, but sideways, then up and down, sideways again. We are in uncharted territory. I no more believe in man-made global warming than in Santa Claus and the check is in the mail, but I'm not thirteen years old and cute, speaking in a sure, contralto voice before vast bodies of fathers and mothers who wish their own children were so incisive. I've taken too long to say this and I apologize, but this is my strong scenario. Worse of all, I'm pretty sure it's going to play out according to the paranoid tune that's playing inside my bone-head.

[William Edwards + 708]

On 9/12/2019 at 3:48 PM, Ward Smith said:

James Carville famously coined the phrase, "It's the economy, Stupid" to cut into George Bush's (the first) almost insurmountable lead. What millennials don't realize is that Bush had an 89% approval rating when James crafted that slogan, and adding in "Read my lips, no new taxes", well the rest as they say, is history. 

Today there are those claiming the economy is in the doldrums, but with markets at or near all time highs, what else would traders say? They're in the business of buying cheap and selling high, and they'll happily trash every stock to give themselves a cheap buying opportunity. Right now they're selling, holding the cash and claiming the stock they just sold is worthless so they can buy it all over again. 

Nick Cunningham penned this missive  about the lack of demand growth. I'm not convinced it's the end of the world, demand growth for petroleum has grown nominally 1% per year as far back as I can find data. IEA likewise is looking at global numbers, not US and given that current consumption is 100 million bbls per day, it seems reasonable that next year will demand another million bbls, at 1% growth. Nick's breathless article calls out a SWAG from EIA of 0.9 million bbls for a YUUUGE drop off of 100k bbls, assuming their scientific wild-assed guess remains accurate through the end of the year. 

I've got an old World Oil magazine on my desk from October 2010. Page 27 shows domestic oil production almost exactly 9 years ago today of 5,393,000 bbls total US production. Worldwide demand then appears to have been around 90 million total. 2010 the Bakken was just coming up to speed, and the Permian wasn't quite a gleam in daddy's eye yet. Today we're on track to produce 13 million and between crude and finished goods, exports are 9 million bbls per day. Therefore, by itself the US has picked up the entirety of Worldwide oil demand. 

Remember too that there are roughly 194 countries in the world, but only about 80 that have the fiscal resources to pay up for oil with petrodollars. The rest have plenty of unsatisfied demand but don't really count since they effectively can't afford oil even at these currently depressed prices. Counting the rich countries, whose populations are growing at less then 1% per year, average, we can clearly see that the majority of demand increase comes A) from wealthy countries and B) is due almost exclusively to population growth. 

There's an analogue here. A friend of mine used to be an economist for a power utility. He did all kinds of fancy math with lots of statistics, but at the end of the day the utility's demand growth quite coincidentally matched oil, at 1% per year, or roughly how much the utility's population base was increasing every year. The new CEO looked at years of this guy's reports and said, "Why are we paying this guy so much?". Like a weatherman in Hawaii, he could submit the exact same predictions year after year and generally be spot on. 

Ultimately, if you're trying to predict the price of oil, predict the population growth of wealthy countries and how much more the US is likely to keep increasing productivity. If the US keeps increasing production by more than the global demand increase, oil will fall and vice versa. 

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

[William Edwards + 708]

On 9/24/2019 at 10:51 AM, Gerry Maddoux said:

I have read through this thread with great interest. Like a lot of you, I make my living from oil and gas. Since I have been reading the comments on this site, I have learned a lot, much of it from wildly divergent opinions. This topic is different: almost all the heads are nodding the same direction, up and down. And that worries me. 

Saying that there is a 1% increase in global demand for hydrocarbons each year has been historically correct for a very long time. Assuming that while vehicular use of fossil fuels will diminish but applying roughly that same amount as feedstock at the petrochemical plants is quite logical. The ease with which the lot of us can dismiss giant storage batteries takes merely a shrug. But all of these head-nodding comments assume that change is occurring in some sort of linear progression, pretty much the way history has taught us. 

Maybe I'm the only one paranoid here. The large number of international bankers that signed the oxymoronic contract entitled "Bankers for Responsible Investment" or some such rot, coming on the heels of the little Swedish girl making the rounds for a Nobel Peach Prize and all the new state mandates that are being pushed, really bothers me. Those bankers agreed, loosely, to sequester $47 TRILLION away from oil and gas people. Basically, their intention is to starve them out. This fits right into the progressive playbook as recited, shrilly and angrily, by Elizabeth Warren and another child named AOC. "A child shall lead them" has suddenly become a much-touted Bible verse. 

I am first and foremost a scientist. Scientific happenings have a way of looking linear for a long while, then suddenly showing up on a Tuesday acting like a logarithm: imagine bacteria replicating on a petri dish. I am becoming concerned that we've reaching an inflection point in society . . . especially when profit-driven, hard-hearted, mean-spirited bankers become cowed into following the mandates of junk science as interpreted by a thirteen-year-old girl who is smart but has few life experiences in smash-mouth reality. 

My nightmare scenario? 1) The Saudis lied about their facility at Abqaiq; it's going to take several months to get up to speed; they have 130M barrels of oil stored, which will probably allow them to bluff their way through November. 2) During that uninterrupted period of pretense, complacency and fear of over-supply and a price crash will cause roughly 100 rigs to be laid down in the US, maybe 10 in Canada. Because of DUC's, oil production from tight oil will remain flat or even move up a bit. 3) Exploration was near zero for several years, until Guyama and Vaca Meurto--it's now catch-up time but in a half-hearted way. 4) More and better batteries are going to be manufactured, including storage units like the one in the Permian--more assurance to Millenial masses that the transfer from fossil fuel to renewables is moving smoothly. 5) Then the hidden truths of above points 1, 2, 3 hit simultaneously. Suddenly, no matter how much the progressives and Elon Musk want us to go all renewable, all the time, we splat upon a substantial supply-demand imbalance. Panic ensues. Oil flies to $100 and beyond. Civil unrest becomes a reality; after all, it's getting cold outside and all at once global warming seems a forgotten worry. Just like that we hit another boom phase of the endless boom-bust cycles in oil and gas. Coal is going to make a temporary, emergency comeback. Natural gas will (probably) be sufficient to prevent people from freezing. All the renewables people--especially the EV folks--will say, see, we told you that fossil fuels are unreliable and dangerous. Those idiotic bankers will see that withholding $47 TRILLION at their Global Warming Conference wasn't such a great idea. They try to reverse thrust. The Saudis are so happy they're singing Christmas songs (no slur intended, Tom and Jan, just humor). And then, finally having broken the five-year drought in oil and gas prices, we'll all--Saudis, US, Canada, Big Oil (even Mr. Dudley of BP, who has been bad-mouthing his own industry in order to appear PC)--engage in renewed attack mode, which will lead us from the politically and socially engineered boom to another bust. This is what is in my mind. Since 1950 I have lived through these busts and booms regarding our own minerals. I've sold transmission rights for wind farms. mused at increased flaring, watched the old rigs methodically built and the new ones moved on tracks to the next spot on the drilling pad. I've seen horses get bogged down in sludge pits, desperate men in Stetsons throwing ropes over their heads to pull them out. I've watched this industry for a long time, shaken my head at the booms and busts, marveled at men like T. Boone Pickens and Aubrey McClendon and Mark Papas and Tom Ward. But never have I seen a coalition of international bankers say they were going to turn off the spigot because it was "morally irresponsible" to lend to oil and gas.

No, gentlemen, I am not a doomsday theorist, just a realist. We're not on the long, sleepy curve of history here, not anymore. We're in a place with zero interest rates, bankers no longer making 5% on loans and 10% on junk bonds but rather depending on trades and hedges that used to be banned under the Glass-Steagall Act. Hard times are coming, not because they had to because of the natural flow of money but because of central bankers becoming alphabet soup engineers, regular bankers masquerading as choir boys. This is my take. I wholeheartedly admit to having become paranoid in my dotage. My head is no longer moving just up and down, but sideways, then up and down, sideways again. We are in uncharted territory. I no more believe in man-made global warming than in Santa Claus and the check is in the mail, but I'm not thirteen years old and cute, speaking in a sure, contralto voice before vast bodies of fathers and mothers who wish their own children were so incisive. I've taken too long to say this and I apologize, but this is my strong scenario. Worse of all, I'm pretty sure it's going to play out according to the paranoid tune that's playing inside my bone-head.

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.

[William Edwards + 708]

On 9/24/2019 at 10:51 AM, Gerry Maddoux said:

I have read through this thread with great interest. Like a lot of you, I make my living from oil and gas. Since I have been reading the comments on this site, I have learned a lot, much of it from wildly divergent opinions. This topic is different: almost all the heads are nodding the same direction, up and down. And that worries me. 

Saying that there is a 1% increase in global demand for hydrocarbons each year has been historically correct for a very long time. Assuming that while vehicular use of fossil fuels will diminish but applying roughly that same amount as feedstock at the petrochemical plants is quite logical. The ease with which the lot of us can dismiss giant storage batteries takes merely a shrug. But all of these head-nodding comments assume that change is occurring in some sort of linear progression, pretty much the way history has taught us. 

Maybe I'm the only one paranoid here. The large number of international bankers that signed the oxymoronic contract entitled "Bankers for Responsible Investment" or some such rot, coming on the heels of the little Swedish girl making the rounds for a Nobel Peach Prize and all the new state mandates that are being pushed, really bothers me. Those bankers agreed, loosely, to sequester $47 TRILLION away from oil and gas people. Basically, their intention is to starve them out. This fits right into the progressive playbook as recited, shrilly and angrily, by Elizabeth Warren and another child named AOC. "A child shall lead them" has suddenly become a much-touted Bible verse. 

I am first and foremost a scientist. Scientific happenings have a way of looking linear for a long while, then suddenly showing up on a Tuesday acting like a logarithm: imagine bacteria replicating on a petri dish. I am becoming concerned that we've reaching an inflection point in society . . . especially when profit-driven, hard-hearted, mean-spirited bankers become cowed into following the mandates of junk science as interpreted by a thirteen-year-old girl who is smart but has few life experiences in smash-mouth reality. 

My nightmare scenario? 1) The Saudis lied about their facility at Abqaiq; it's going to take several months to get up to speed; they have 130M barrels of oil stored, which will probably allow them to bluff their way through November. 2) During that uninterrupted period of pretense, complacency and fear of over-supply and a price crash will cause roughly 100 rigs to be laid down in the US, maybe 10 in Canada. Because of DUC's, oil production from tight oil will remain flat or even move up a bit. 3) Exploration was near zero for several years, until Guyama and Vaca Meurto--it's now catch-up time but in a half-hearted way. 4) More and better batteries are going to be manufactured, including storage units like the one in the Permian--more assurance to Millenial masses that the transfer from fossil fuel to renewables is moving smoothly. 5) Then the hidden truths of above points 1, 2, 3 hit simultaneously. Suddenly, no matter how much the progressives and Elon Musk want us to go all renewable, all the time, we splat upon a substantial supply-demand imbalance. Panic ensues. Oil flies to $100 and beyond. Civil unrest becomes a reality; after all, it's getting cold outside and all at once global warming seems a forgotten worry. Just like that we hit another boom phase of the endless boom-bust cycles in oil and gas. Coal is going to make a temporary, emergency comeback. Natural gas will (probably) be sufficient to prevent people from freezing. All the renewables people--especially the EV folks--will say, see, we told you that fossil fuels are unreliable and dangerous. Those idiotic bankers will see that withholding $47 TRILLION at their Global Warming Conference wasn't such a great idea. They try to reverse thrust. The Saudis are so happy they're singing Christmas songs (no slur intended, Tom and Jan, just humor). And then, finally having broken the five-year drought in oil and gas prices, we'll all--Saudis, US, Canada, Big Oil (even Mr. Dudley of BP, who has been bad-mouthing his own industry in order to appear PC)--engage in renewed attack mode, which will lead us from the politically and socially engineered boom to another bust. This is what is in my mind. Since 1950 I have lived through these busts and booms regarding our own minerals. I've sold transmission rights for wind farms. mused at increased flaring, watched the old rigs methodically built and the new ones moved on tracks to the next spot on the drilling pad. I've seen horses get bogged down in sludge pits, desperate men in Stetsons throwing ropes over their heads to pull them out. I've watched this industry for a long time, shaken my head at the booms and busts, marveled at men like T. Boone Pickens and Aubrey McClendon and Mark Papas and Tom Ward. But never have I seen a coalition of international bankers say they were going to turn off the spigot because it was "morally irresponsible" to lend to oil and gas.

No, gentlemen, I am not a doomsday theorist, just a realist. We're not on the long, sleepy curve of history here, not anymore. We're in a place with zero interest rates, bankers no longer making 5% on loans and 10% on junk bonds but rather depending on trades and hedges that used to be banned under the Glass-Steagall Act. Hard times are coming, not because they had to because of the natural flow of money but because of central bankers becoming alphabet soup engineers, regular bankers masquerading as choir boys. This is my take. I wholeheartedly admit to having become paranoid in my dotage. My head is no longer moving just up and down, but sideways, then up and down, sideways again. We are in uncharted territory. I no more believe in man-made global warming than in Santa Claus and the check is in the mail, but I'm not thirteen years old and cute, speaking in a sure, contralto voice before vast bodies of fathers and mothers who wish their own children were so incisive. I've taken too long to say this and I apologize, but this is my strong scenario. Worse of all, I'm pretty sure it's going to play out according to the paranoid tune that's playing inside my bone-head.

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.

[Ward Smith + 6,615]

1 hour ago, William Edwards said:

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

So, you're saying, "It's the price, stupid"? 

Price sets supply and oil magically appears? No wonder there's so many unemployed petroleum engineers. Clearly they're not needed, that oil just Jumps out of the ground, once the price is right. Or you're all wet. 

[William Edwards + 708]

2 hours ago, Ward Smith said:

So, you're saying, "It's the price, stupid"? 

Price sets supply and oil magically appears? No wonder there's so many unemployed petroleum engineers. Clearly they're not needed, that oil just Jumps out of the ground, once the price is right. Or you're all wet. 

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!!!

[PE Scott + 563]

On 9/13/2019 at 11:05 AM, Ward Smith said:

Clearly fossil fuels are already renewable, just over a longer time scale than mere humans can comprehend. Our oceans are busy cooking up the next batch, but it's going to be awhile…

I like this. By this logic, I'm basically a vegetarian because I only eat beef! 😄