- September 14, 2016
- Posted by: Art Berman
- Category: The Petroleum Truth Report
IEA and EIA dropped an oil-glut bomb this month. Their September monthly reports indicate that the world continues to have a glut of oil with little hope of a balanced market in the near future.
IEA’s Oil Market Report focused on weakening demand growth for oil.Their quarterly data shows that year-over-year demand growth has decreased consistently from 2.3 mmb/day in the third quarter of 2015 to 1.4 mmb/day for the second quarter of 2016 (Figure 1). The forecast for the third quarter is only 1.2 mmb/day.
IEA downgraded its forecast for 2016 to an average of 1.3 mmb/day annual demand growth and only 1.2 mmb/day for 2017.
EIA monthly data from the September STEO (Short Term Energy Outlook) shows that world oil-consumption growth has declined from more than 4% in late 2015 and early 2016 to 2.1% in August 2016 (Figure 2).
EIA data indicates that maximum consumption growth as a percentage occurred when oil prices were falling into the low-$30 range and that it has weakened as prices increased into the mid- to upper-$40 range. This suggests the global economy is too weak to support oil prices in the current range.
The world production surplus increased in August because production increased and consumption decreased. The over-supply rose to +0.97 million barrels of liquids per day from near-market balance (+0.12 million barrels per day) in June (Figure 3).
Both agencies stressed that high OPEC production levels are a major cause of continued world over-supply. Iraq, Iran and Saudi Arabia have increased crude oil production by 2.74 million barrels per day since January 2014 (Figure 4).
This is why a production freeze by OPEC would not be particularly helpful.
The is IEA reports is a fabrication meant to be used a tool to manipulate oil prices. The IEA has a footnote at the bottom of their web site that says:
“1. Information or material of the IEA Technology Collaboration Programmes, or IEA TCPs (formally organised under the auspices of an Implementing Agreement), including information or material published on this website, does not necessarily represent the views or policies of the IEA Secretariat or of the IEA’s individual Member countries. The IEA does not make any representation or warranty (express or implied) in respect of such information (including as to its completeness, accuracy or non-infringement) and shall not be held liable for any use of, or reliance on, such information.”
Any one that can not stand behind what they say is a liar going in…. just another manipulation scheme.
Short oil, run prices down with lies, clear your short and go long, and then announce an OPEC meeting in which a deal is likely. This runs oil prices back up and you make billions of dollars. Jesus, such an easy plan for the manipulators!
Nat gas prices are rising. Oil looks to stagger along for a while longer. With exports and a ready price market in Europe, are we going to see oil and gas resume a more typical (pre-2006) price ratio closer to the BTU ratio? When NG was $4, oil should be ~$50 or less. But the past 10 years, the ratio has been closer to 25:1 and even near 50:1 at times.
It seems oil demand is faltering but natural gas is replacing coal because it is cheap and Obama has kept his promise to kill the coal industry. So “cheap” gas is going to last how long? Seems it should rebound well before oil prices despite all the associated gas produced with oil.
I just read an article that said that decommissioning deep water oil wells in the GOM will require 40B, and companies have not set aside anywhere near that amount. What would be the potential impact on oil production, bankruptcies and the oil balance? It would seem to me in this environment that this would cause a lot of shutdowns which could reduce US oil production. GOM also produces natural gas, but I’m not sure how its production compares to overall US.
Thanks a lot Art. I`m one of the peolpe who learns with your comments.
Off the subjet
Do you know someone who knows about elecric cars?
For example I read abot the accidents with the batteries of new phone Samsung, some with injuries. Then I askwhatt happens electric cars batteries if they will are in great amount.
Excuse my bad english
Your comment about debt being the cause of the weak economy is spot on. Debt was incurred to compensate for higher oil prices which started in 2005. This pact with the devil culminated in QE1-QE3. And that problem cannot be solved quickly by lower oil prices. Before all that debt could theoretically be paid back in a growing economy (as a result of low oil prices) International Oil Companies would be bankrupt because they don’t have the low cost oil anymore to match those low oil prices.
What happened is a permanent damage to the system. The supply gap after 2005 came from OPEC which did not deliver.
The original peak oil idea was that oil prices would go sky high (i.e. $200 a barrel), followed by physical shortages. But on the way to that peak oil prices of just $100 played havoc with the financial system and the economy, bringing oil demand down from expected levels.
Art, I can understand how predicting oil and gas supply requires weekly data from all producers. But I don’t believe the supply bounces up and down in real life as fast and as often as reported by IEA, EIA, and API.
The way I see things, the semi-monthly volatility in the oil and gas prices is the direct results of manipulation by world traders, hedges fund, and similar groups coupled together with the fabricated reports by the above three agencies.
All three have secrecy clauses with their data providers. All three also have hold-harmless denials relieving them of responsibility. They are telling their audience to use the data at your own risk. The whole operations smells like one big circle jerk.
I have great respect for you and believe reading your articles can teach me a lot that I don’t know.
I would like to read more of your thoughts on how to get a handle on supply and demand without having to rely on agency reports that to me are obviously tainted.
You say you have nothing else to work with but these reports. There must be some other formula like rig counts or drilling permits for example. Can you tell us how the old oil and gas executives sorted out supply and demand before the current data providers emerged?
Can you also tell us how long it really takes for a US producer to get product to market once the decision is made to drill a 10,000-foot lateral? How many tier #1 pad optimized rigs are setting on the sidelines waiting to go to work? Is there a crew shortage? Can the current bunch of DUCs really produce much product? Why is drilling dying in the Gulf of Mexico? Do you think we will ever drill offshore along the Atlantic Coast?
In my opinion, there are lots of investors that hungry for more basics.
In my comment above I said that OPEC did not deliver in 2005. That caused the US recession and all the problems that followed.
Have a look at Fig 1 in my latest post:
Incremental crude production update August 2016
I find it dificult to contribute to world oil isues going on right now. I think It is because I learn more of energy than petroleum now. I believe your work can be very relevant to me as I move on with my studies. Thank you Art Berman
I agree that electric car for personal use will be a tiny part of the car market and will not make a bit of difference in gas usage. Self driving car combined with electric cars maybe a game changer. Imagine getting out of your house and with a press of a few buttons in your cell phone, a car will come to pick you up to work, along with a few others at that moment that are going to the same direction. When you get off, the car goes to pick up someone else by itself. When the battery is down, it goes to the nearest charging station to charge up and go back on the road. This would reduce the overall driving since people are more willing to share a ride this way. Also electric cars can be employed on a much grander scale for going to/from work or other local trips since the cost is lower and the constraints of range and long charge time is not an impediment for this type of usage model
Even as electricity needed to be generated using other fossil fuel, this would at least broaden the availability of types of fuels that could be used for transport (currently it is limited to oil).
We have a rudimentary self driving car today, but this types of deployment maybe a decade or more away.
I read this article in Yahoo finance , I share a little bit,
WYALUSING, Pa. (AP) — Jan Brown pores over his royalty statement and wonders where all the money went.
A few months ago, the nation’s second-largest natural gas producer siphoned $2,201 worth of gas from his 240-acre property — but paid him only $359 after taking deductions for transportation and processing.
Brown, 59, who relies on the royalties as his sole source of income, says the deductions are outrageous and claims his lease forbids them. He feels cheated and duped.
In Pennsylvania and other leading gas-producing states, a battle royal has developed over royalties, with landowners bitterly disputing the sums that some drillers have been taking from royalty checks already severely diminished by a collapse in prices.
Chesapeake Energy Corp. alone is facing royalty lawsuits in Texas, Ohio, Louisiana, Oklahoma, Arkansas and Pennsylvania — including one filed by the Pennsylvania attorney general — and says it has received subpoenas from the U.S. Department of Justice, the U.S. Postal Service and states over its royalty practices.
The deductions’ impact is especially acute in Pennsylvania, where gas extracted from the Marcellus Shale, the nation’s largest natural gas field, has been selling at a steeper discount than anywhere else in the country. Some landowners have seen their royalty checks dwindle to nothing at all, despite a 1979 state law that mandates a landowner royalty of at least 12.5 percent of the value of the gas. In rare cases, landowners have even gotten statements with negative balances.
do you have an estimate of how much new oil production needs to be brought on line each year to offset the decline from mature fields? I have tried to find the necessary numbers but they are all based on a 2007 CERA study. It stated that around 59% of world oil fields were then in decline, and that average decline rates were around 6.1%. Applying those numbers to current world production of 95.65m (OPEC estimate for world oil supply in August) then it would seem that the annual loss from oil field depletion is around 3.44m barrels per annum. This estimate seems high. Is this calculation valid? Do you have a better estimate?
Art the article is from AP, Your observations are true, and I show how difficult it is well informed. Most of the news we read are not innocent, besides most of the time they are written by people who know the issues superficially.
I think there is too much the same. Power and ignorance, a dangerous duo.
Thanks for reply, best regards
Sorry to bother you again.
I see this note on the MEGA fracking, is it credible or other marketing trial balloon?
Long months with oil prices at rock bottom and high investments and aware wells unprofitable fracking at those prices have made producers fracking sharpen the wits to turn their competitive at lower prices wells and seems to have done I pulling sleeve-called Mega Fracking.
The so-called hydraulic fracturing is a technique to extract oil that involves injecting water at high pressure to crack the rock to later inject sand with which to keep open the cracks and extract oil.
Industry fracking has responded to lower oil prices with Mega Fracking, with the goal of creating fractures in rocks so you can extract more oil and faster by injecting amounts of sand that until a few years ago were difficult to imagine. In some cases this technique to create new is allowing 700% of fractures in the rock which were made in 2010.
The result is you have in the following graph. The black line represents the number of oil wells in the Bakken region brown production per well. The result is that we now have much less active wells in 2014 in that area but those who are active are taking more than twice barrels of oil a day a couple of years. Consolidated the trend of Mega Fracking, the current rebound in oil prices could have very short legs.
The graphics i are in the web