Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19
Central Banks’ Gold Buying and Repatriation Spree - 28th Nov 19
Another Precious Metals’ Reversal Coming Right Up! - 28th Nov 19
Stock Market 100% Measured Moves May Signal A Top - 28th Nov 19
Don’t Look for Investing Advice in the Media - 28th Nov 19
Why You Should Buy Trailer Park Stocks - 28th Nov 19
Will YouGov General Election Forecast 2019 be as Wrong as their REAL Forecast was for 2017? - 28th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Global Crude Oil Supply More Fragile Than You Think

Commodities / Crude Oil Aug 07, 2015 - 02:22 PM GMT

By: OilPrice_Com

Commodities Many oil companies had trimmed their budgets heading into 2015 to deal with lower oil prices. But the rebound in April and May to $60 per barrel from the mid-$40s suggested that the severe drop was merely temporary.

But the collapse of prices in July – owing to the Iran nuclear deal, an ongoing production surplus, and economic and financial concerns in Greece and China – have darkened the mood. Now a prevailing sense that oil prices may stay lower for longer has hit the markets.



Oil futures for delivery in December 2020 are currently trading $8 lower than they were at the beginning of this year even while immediate spot prices are $4 higher today. In other words, oil traders are now feeling much gloomier about oil prices several years out than they were at the beginning of 2015.

The growing acceptance that oil prices could stay lower for longer will kick off a fresh round of cuts in spending and workforces for the oil industry.

"It's a monumental challenge to offset the impact of a 50% drop in oil price," Fadel Gheit, an analyst with Oppenheimer & Co., told the WSJ. "The priorities have shifted completely. The priority now is to discontinue budget spending. The priority is to live within your means. Forget about growth. They are now in survival mode."

And many companies are also recalculating the oil price needed for new drilling projects to make financial sense. For example, according to the Wall Street Journal, BP is assuming an oil price of $60 per barrel moving forward. Royal Dutch Shell is a little more pessimistic, using $50 per barrel as their projection. For now, projects that need $100+ per barrel will be put on ice indefinitely. The oil majors have cancelled or delayed a combined $200 billion in new projects as they seek to rein in costs, according to Wood Mackenzie.

But the delay of 46 major oil and gas projects that have 20 billion barrels of oil equivalent in reserves mean that global production several years from now could be much lower than anticipated. Due to long lead times, decisions made today will impact the world's production profile towards the end of this decade and into the 2020s. It makes sense for companies to cut today, but collectively that could lead to much lower supplies in the future.

That is a problem because the oil majors were struggling to boost oil production even when oil prices were high. 2014 was one of the worst in over six decades for major new oil discoveries, even though oil prices were high for most of the year. Despite high levels of spending, exploration companies are simply finding fewer and fewer reserves of oil.

Shale production has surged in recent years, but it could be a fleeting phenomenon. Precipitous decline rates from shale wells mean that much of a well's lifetime production occurs within the first year or two. Moreover, after the best spots are drilled, the shale revolution could start to come to a close. The IEA predicts that U.S. shale will plateau and begin to decline in the 2020s. That means it would not be able to keep up with rising demand. Add in the fact that oil wells around the world suffer from natural decline rates on the order of 5 percent per year (with very wide variation), and it becomes clear that major new sources of oil will need to come online.

One other factor that could tighten oil markets over the long-term is the fact that Saudi Arabia has churned through much of its spare capacity. As one of the only countries that can ramp up latent oil capacity within just a few weeks, Saudi Arabia's spare capacity is crucial to world oil market stability.

Many energy analysts like to compare the current oil bust to the one that occurred in the 1980s. But one of the major differences between the two events is that, in addition to the glut of oil supplies in the 1980s, was the fact that Saudi Arabia dramatically reduced its output from 10 million barrels per day (mb/d) down to less than 4 mb/d in response. As a result, on top of the fact that the world was awash in oil throughout the 1980s and 1990s, there were also several million barrels per day of spare capacity sitting on the sidelines, meaning there was virtually no chance of a price spike for more than a decade.

That is no longer the case. Today OPEC has only 1.6 mb/d of spare capacity, the lowest level since before the 2008 financial crisis. So while Saudi Arabia is currently flooding the market with crude, it has exhausted its spare capacity, leaving few tools to come to the rescue in a pinch.

That brings us back to the large spending cuts the oil majors are undertaking. With spare capacity shot and major new sources of oil not coming online in a few years, the world may end up struggling to meet rising oil demand. That could cause oil prices to spike.

Source: http://oilprice.com/Energy/Oil-Prices/Global-Oil-Supply-More-Fragile-Than-You-Think.html

By Nick Cunningham of Oilprice.com

© 2015 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules