Oil Price Volatility and US EIA Data

A number of news media pieces have recently suggested that oil prices may fall due to soaring output in the US.  Output from US light tight oil (LTO) may not rise as quickly as some EIA reports may suggest. One source of confusion is that the EIA creates many reports and some are more reliable than others. The two charts below cover US LTO and US crude plus condensate (C+C) output.

US LTO Output from the EIA Drilling Productivity Report (DPR) and EIA Tight Oil (LTO) estimates in kb/d.

chart/

US EIA monthly C+C output and centered 4 week average output in kb/d.

chart/

The data for the DPR and for tight oil output are found at the links provided at the US EIA website. The data for US monthly C+C output and the 4 week average US C+C output is also from the EIA.  The 4 week average data is a trailing 4 week average, I centered it by moving it back in time by 2 weeks.

The reason the DPR has higher output is that it covers all output from the various LTO regions which includes conventional C+C output from those regions. The EIA Tight oil estimate reports primarily LTO output from these regions, in Nov 2016 the difference was about 575 kb/d and this is similar to the average difference from August 2016 to November 2016. If we assume conventional output remained close to 575 kb/d in the LTO regions from December 2016 to February 2017 and that the EIA estimate may be more accurate than the DPR model, then the DPR data is too high by 50 kb/d in Dec and Jan and about 100 kb/d too high in February 2017.  The EIA expects oil prices to remain at $55/b or less until the end of 2017, if this guess is correct (based on futures contracts), I give my projection of LTO output from March to May 2017 (an increase of 35 kb/d each month). The DPR estimate from Dec 2016 to May 2017 is about 3 times higher and not consistent with oil prices of $55/b or less in my view.

The second chart above is another reason that many analysts seem to think that US oil output will rise very rapidly, especially if one fails to realize that the weekly output data is often wrong by 200 to 300 kb/d for any given four week average. The monthly data is far more accurate and is revised when incorrect (the weekly data is never revised). In my opinion the weekly data is so inaccurate that it would be better not to report it at all as it simply increases oil price volatility by giving false signals to the market.

A sample of some recent stories at the Peak Oil News website.

Oil prices dip on bloated U.S. market, mixed Saudi signals

U.S. Shale Surging, But Oil Holds Steady

Oil prices fall on expected surge in U.S. shale output

Citi Sees $65 Oil By Christmas

The market would be a little less confused if it paid less attention to the Drilling Productivity Report and the Weekly Supply estimates from the US EIA.  The monthly US crude plus condensate estimates and the monthly tight oil estimates are not perfect, but are far better estimates of reality.

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160 Responses to Oil Price Volatility and US EIA Data

  1. Dennis Coyne says:

    Hi all,

    Richard K sent me a link to this piece on Mike.

    Very interesting, thanks Richard, and Mike for trying to educate us.

    http://oilpro.com/post/30923/mike-shellman-awarded-top-contributor

    I started wrenching rods when I was six years old. By the time I was twelve I was throwing a spinning chain on a drilling rig and working alongside men that were three times older than I was. I moved up to derricks and by 19 became a driller…

    Mike goes on to give the condensed version of his life story.

    • Mike says:

      Thank you, Dennis. I hope I am not the reason your post has not taken off. As you know I don’t like to make guesses about something so volatile as the oil business and as you correctly point out, the EIA often makes a mess of it on a weekly basis.

      • clueless says:

        I am 75, and everytime I think that I know the simplest things, I find out that I do not. So, I have to ask. Your mother “has a 24 in her hand.” What is a 24? I did live in Texas from 1965 thru 1989 [and I worked in the business side of the oil and gas industry from 1971 until 2005], but I do not recal the term.

        • Mike says:

          Thanks for asking, Clueless, though I am now thoroughly embarrassed by this whole matter.

          Pipe wrenches in the oilfield come in 14, 24, 36 and 48 inch handle length, and we simply shorten the terminology up by calling them a 24’s or 36’s, etc. That makes it easier when you are getting yelled at by the toolpusher on a rig, as in “bring me the damn 24, ya worm!” A 24 is not very heavy, a 48 is really heavy and has big jaws that can open up to take a bite on say 5 1/2 inch OD pipe.

  2. Reno Hightower says:

    Great read Mike. Never met you but just as I imagined. Your story was common at one time. Louisiana, Arkansas, Texas, Oklahoma, the rockies, all over the oil patch, but I am afraid not so much anymore. I don’t think people outside of the business understand what we are losing in the business with all the crazy that is going on in the resource plays. The experience that is retiring and slowly going away. A shame.

    • Mike says:

      And thank you, Reno. I think men like you and I have seen our best days in the oilfield. Gone is creating an idea that we were willing to bet most of what we own on, and be willing to live or die by the sword for. Now its little more than assembly line well manufacturing and the hope of making 3% annual rate of return on an $9M investment. The guys running these shale oil and shale gas companies are not oilmen; they are Wall Street financiers, little else. Their level of “creativity” manifests itself in how much sand that can cram in a perforation window. There is no romance in that and not now, but soon, it will be time to leave the oil business behind.

      Thank you again.

      • Dennis Coyne says:

        Hi Mike,

        There may come a time when knowledgeable people like you will be needed to consult for the LTO sector (to optimize operations and operate based on cash flow and in general to do it correctly).

        I imagine as the majors get more involved there will be more fiscal discipline (though undoubtedly less than for a small independent oil company.)

        I would also think that oil prices will rise before long and there may be a number of projects that can be done profitably at $80 to $90/b. My guess is that we will see those price levels (or even up to $120/b eventually) from 2018 to 2028 as World C+C output reaches a plateau of 82 to 84 Mb/d from 2018 to 2025 and then begins a slow (1%/year) decline. When GFC 2 hits around 2030, oil prices will take a hit, retire in 2028 (a bit young at 76 🙂 because it sounds like you are in great shape) before it hits the fan.

  3. Guym says:

    Spot on, Dennis. Eia is creating major confusion.

  4. Schinzy says:

    @Mike,

    Noticed you were playing the ITF senior clay court circuit this summer. I don’t play the tournaments, but if you come to South West France and want some hit, I can put you up and give you a game. I spent the best years of my life as an international tennis bum. I work in Toulouse, but I live in the countryside 70 Km East of Bordeaux.

    • Mike says:

      Hey, Schinzy, wouldn’t that be something !! I am in Periqueux in mid August !

      • Schinzy says:

        That’s my territory. Intense memories at that club.

        I can’t promise yet because I’m planning a trip to the States around that time but if I’m still in France I would love to have you and as much of your family as can make it for a few days in the French countryside. Tennis by the Dordogne river. Send me your schedule (email address on my web page) and we’ll try and swing it.

  5. texas tea says:

    interesting to get the back ground on a poster here. put the ideas and views one proffers into better perspective. I am not sure our business is any more “romantic” than farming but I understand why people hold on to the past. The more successful folks I know are open to change, growth and are always looking for new and better ways. The oil and gas business in no different. But that is what make horse races…

    with regard to Dennis’s post. Dennis you may be right but the “traders” like the system and the volatility, applies to all markets not just oil.

    • Ves says:

      TT,
      If you trust your intellect too much you will miss your intelligence. These two words, intellect & intelligence, come out of the same root but their meaning is different. Intellect is a false substitute for intelligence. Intellect is borrowed, intelligence is yours. Intellect is when you post a link from Bloomberg or Forbes or whatever here and write: “Look here, shale is making money, otherwise Exxon would not purchase”.
      That is intellect, that is borrowed knowledge, it is a pseudo coin, a counterfeit.

      So you go and collect information from everywhere so you become very knowledgeable. So all your knowledge collected from internet oil analyst that never drilled a well in their life is like a dust on the mirror. It is very difficult to see things when you have a dust.

      So yes if someone has just intellect they could drill 7 or 8 or 9m well but if someone has intelligence they would never drill 9m well with their own money today.
      The real oil producer is actually Fed via Wall Street at this point. There is no private or public company that can finance this type of production at this price.

    • Dennis Coyne says:

      Hi texas tea,

      What is good for the traders is not necessarily good for the oil industry. Price stability is better for the industry which is why the Texas Railroad commission controlled US output and prices from 1935 to 1970 and then OPEC attempted to fill that role from 1986 to the present.

      The EIA could help by dropping the weekly data which only serves to confuse the market and the DPR also needs to be improved or dropped because it has a similar effect (bad predictions which people think are correct).

  6. SRSrocco says:

    Mike,

    You sound a lot like a gentlemen in the oil industry in Texas that I have spoken to several times. He is one of the few that still looks for “Conventional” oil in Texas and Oklahoma. He has been doing so for nearly 40 years. Says, a lot of old physical geological data is no longer available as the Computer Wiz’s focus on 3-D resource models.

    Furthermore, he told me very few of the original “Wild Catters” are going after shale. They say that is more a “Public Company” Ponzi Scheme that really doesn’t provide much financial incentive, either for the independent investor-geologist or for the local and state governments. Basically, the once-great U.S. “Creative” oil industry is now nothing more than the Wal-Mart business model… making fractions of profits on $billions in revenue.

    Regardless…. Dennis, I disagree with you that the price of oil will head back up to $120 over the next several years, into the 2020’s. For some odd reason, we tend to forget about all the massive amount of debt and leverage in the system.

    I would also kindly like to remind you all that the top 18 U.S. oil and gas companies lost a combined $19 billion in operating income last year. Why is this significant? Because these top 18 energy companies had to pay a $6.7 billion interest payment. Which means, they didn’t have the income to at least pay their interest payment… forget about paying down debt.

    Thus, these U.S. oil and gas companies had to use CREATIVE FINANCE to continue business as usual. Whether that was issue more stock, increase their debt, sell and asset or whatever, this is not sustainable.

    If we look at ALL THE DATA OBJECTIVELY, it looks like the U.S. and Global Oil Industry will be in serious trouble within the next 5-10 years. My opinion is… within the next decade, the oil industry will likely have disintegrated to a much lower level than it is currently.

    steve

    • Mike says:

      Steve, thank you. There are still small nuggets of opportunity for conventional oil finders in America, though much of it is now in the form of field step outs, or missed reservoirs in old, existing fields, that sort of thing. 3D seismic data is a great tool but finding conventional oil can still be done by slipping well logs and making sub-surface structure maps, the old fashion way. All of which requires a great deal of imagination, and creativity (and guts), in spite of some stupid comments to the contrary.

      All of my mentors and operating buddies have stayed way clear of shale oil, and shale gas, except to try and find acreage to trade away to bigger companies. The people that make money in the unconventional shale business are mostly mineral owners, whose granddaddies and daddies bought and worked the land, then left their kids with minerals to play with. And as you correctly point out, Wall Street and other lenders; they make lots of money in closing and brokerage fees, and of course interest. By the way, you have done your 10K work well as those loss and interest paid numbers are pretty much the same as mine. Its a debtor industry, the US LTO industry; it cannot stand on it’s own feet without low interest federal stimulus to borrow.

      When the debt bubble busts, so goes hydrocarbon demand. We’ll never see oil prices over $100 dollars again, not sustained; the world cannot afford that anymore. By the time the US LTO industry gets through pissing away all of our remaining resources its going to take more that what we can afford to pay for oil, to get it out of the ground.

      Thanks again.

      • shallow sand says:

        There are very few private companies that drill LTO or shale oil wells.

        I think it is telling that both the Yates and Bass families decided to sell their vast Permian LTO acreages rather than develop said acreages themselves.

        Tremendous amounts of capital are required to develop shale. In terms of $$ it is much more similar to offshore than conventional onshore.

        If some of the acreage in the Permain does have 8 productive zones, easy to see hundreds of millions being sunk into one two section (1280 acre) drilling unit, especially at 330′ spacing. That amount of money requires Wall Street.

        • coffeeguyzz says:

          Encana just drilled 33 wells on a pad, the RAB Davidson, in the Permian, with plans to increase it to 64.
          They had 4 rigs, side by side, drilling the wells simultaneously and then 4 frac spreads came in to do the fracturing at the same time.

          Big, big bucks.

          • shallow sand says:

            Did they give the cost of that?

          • coffeeguyzz says:

            Shallow

            I’d have to track down that info, but I don’t know offhand.
            A lot has been written about this project for several months now, with the emphasis on both the logistics and the enormous amount of material (casing, cement, proppant, etc.) involved.
            What I do recall is they are targeting three different formations and claim the wells cost about $5 million each.

            • shallow sand says:

              Coffee. I see in power point $5 million per well.

              I looked up on IHS and see 24 wells with production in January, 2017. So, assume 9 did not have first production until 2/17 or after.

              In those 24 wells, figure minimum of $120 million. In 1/17, gross production from those 24 wells was 5,463.23 BOPD. All but three of the wells are less than one year old in 1/17. Have to wonder if production hampered by ongoing completions.

              Would be interesting to see payout statement on this project at end of 2017.

              • shallow sand says:

                One thing very interesting to note on the Davidson lease that coffee refers to.

                I find 186 vertical wells on this lease, which is located in Upton County, TX. 63 of those wells have been inactive for over one year. Almost all of the 123 active vertical wells are producing under 15 bopd. These are Spraberry and Clearfork wells, with TD’s of 9,700′ -11,500′.

                Another interesting fact to note. Of the 63 inactive wells (for over one year) 55 have first production from 1995-1998. The remaining 8 are 2010 wells. The 123 active wells are almost all 2010-2014 wells. Most of those have cumulative production under 30,000 BO and are at 15 BOPD or less. A large number produced under 100 BO in 1/17. I suspect 1-3 BOPD 10,000′ wells struggle to be economic at sub $50 WTI.

                Mike, what do you estimate the cost would be to plug a 10,000′ vertical well?

                Do the Hz wells on these legacy leases drain all the oil from the older vertical wells in the same formation? When they pump millions of gallons of water down the new Hz wells, what effects does all that water have on the vertical wells nearby?

                • shallow sand says:

                  I took a look at one of Pioneer Natural Resources most prolific leases, the Donald Hutt Fee in Midland County. 355 total wells, 261 vertical, 71 of the vertical wells have been inactive for over one year. Almost all of the active vertical wells under 15 bopd, many in the 5-10 BOPD range.

                  Someday, the Permian will be well pluggers paradise. Just have to wonder if there will be money left for all that cement?

                  • Mike says:

                    Shallow, the EnCana/Davidson mass manufacturing “project” in Upton County is very cool to see, but a perfect example of buying a car based on chrome and paint, not how it runs. If EnCana says those wells cost $5M each you can bet your steel toed boots they are every bit of $6.5M. The production data I see on shaleprofile.com is about what you observe on IHS. This is Spraberry country, partially depleted from thousands of vertical wells; I absolutely do not get it.

                    What I do “get” is that according to fracfocus.com each one of these EnCana wells will require over 10M gallons of water to frac and at least another 1M gallons to drill. At 80 gallons of water per day per human being, in arid W. Texas of all places, it is an atrocity. If they are not recycling flowback water from other wells(even if they say they are, are they?) they should go to jail for that.

                    To P&A, decommission these massive pads and production facilities to put the land back to its original state: $150K per well.

                    I think the majority of people in America, including, even oily folks, unfortunately, believe that all this money flowing into the Permian would not be happening unless everybody was making money hand over fist. 1 + 1 = 2. At $2.50 per gallon of gasoline they don’t care, or, in the case of people with any amount of cranial capacity, they are too mentally lazy to do the arithmetic. Permian wells are not going to be much better than any other shale play in the US and we must not forget that for every stacked horizon in each Permian basin, to plug back and start working your way out of the hole is going to require kick-offs, re-drilling new laterals, and new frac’s, almost the cost of the original well. That stacked horizon BS about the Permian does not improve economics very much, I assure you.

                  • Dennis Coyne says:

                    Hi Mike,

                    Only higher oil prices will improve the economics. Perhaps in the sweet spots they can make some money at $55/b, but the average Permian well will need $65/b point forward and maybe $75/b full cycle.

                    It will be interesting to see the 10Qs as oil prices rise.

              • Dennis Coyne says:

                Hey whats the cumulative output on that project so far?

                • shallow sand says:

                  For the 24 wells showing first production on or prior to 1/1/2017:

                  Cumulative oil: 3,252,707
                  Cumulative gas: 7,309,231
                  Cumulative water: 2,963,908

                  I was also in error on well age, only 8 of 24 had first production within 1 year of 1/17. The rest are older. Here is a summary of the wells by first production month, number of wells, and production for each monthly vintage during the month of 1/17:

                  12/13 1 well 315 BO
                  7/14 1 well 4,467 BO
                  1/15 2 wells 6,274 BO
                  3/15 1 well 4,224 BO
                  5/15 2 wells 7,868 BO
                  7/15 6 wells 33,159 BO
                  8/15 1 well 2,533 BO
                  9/15 2 wells 7,021 BO
                  2/16 3 wells 20,991 BO
                  12/16 5 wells 82,508 BO

                  These wells are almost all 10,000 TVD, 18,000+ TD. $5 million for drilling, completion, surface and downhole equipment, land, seismic, etc., seems like a really low number. Would think the frac for each would be north of $4 million alone.

                  NRI on a project like this makes a big difference. Really do not understand why royalty burden is never mentioned. It is a critical number.

          • I have worked with 32 well pads, and I think that’s the reasonable limit. But I don’t think it’s a good idea to have four rigs operating so close to each other. A better solution is to batch them so that a group can be produced while a single rig is still drilling out the pad. This allows the pad facilities to handle a steadier production rate. The simultaneous operations do require this be given a really tight choreography.

      • Dennis Coyne says:

        Hi Mike,

        I expect that when supply is tight prices will go up, do you expect there will not be demand for oil at $100/b? I think the debt issue is overblown. Yes the poorly run companies will go bankrupt, as has always been true. The assets will be picked up on the cheap (those that are worth it) by the better run companies and as oil prices rise they will be able to pay down debt and operate on cash flow.

        I think when the peak (or plateau) arrives increased demand will require higher oil prices to match demand with supply. Hard to guess what the price will be, perhaps $99/b or less or perhaps more. We did have a 3 year period with oil prices over $100/b, I see no good reason why that could not occur in the future.

        IMF sees 3.5% real GDP growth in 2017 and 3.6% in 2018.

        What do you guys expect?

        • Jeff says:

          Dennis,
          The 3 year period you keep referring to was a period with historically low interest rates and QE. Would the oil price have been the same if CBs hadn’t stimulated the economy? My guess is no, but I don’t think it’s possible to know how big difference it made.
          It’s a big guess what politicians and CBs will do in the future. I have no clue but I think it will require a lot more debt creation to get the oil price back above $100/brl for any length of time. Perhaps the debt will be created, perhaps not..?
          My gut feeling continues to be that we face demand destruction that will mask the problems with stagnating (or declining) production for a couple of years. However, depletion doesn’t sleep and insufficient findings, investments etc. will bite back. Welcome to the 2020 roller-coaster.

          • Dennis Coyne says:

            Hi Jeff,

            The key to oil demand is the level of GDP, as I pointed out the IMF expects about 3.5% real GDP growth in 2017 and 2018. If the IMF is correct, oil demand will continue to increase at 1 to 2% per year.

            My guess is that oil supply will struggle to keep up with demand by 2018 or 2019 at the latest. If OPEC and non-OPEC (Russia et al) continue the cut through Dec 2017, US LTO will not make up the difference.

            Note that I am not claiming we will see $100/b (2016$) in the near term, I expect a gradual rise in oil prices from $50/b to $100/b by 2020 and possibly to $120/b by 2023 when oil output peaks.

            • Jeff says:

              Perhaps IMF will be right this time. Their track record is not that good. IMF use trend extrapolation and will _never_ forecast a trend break. From the IMF world economic outlook in 2007 (October): “The global economy is projected to grow by 5.2 percent in 2007 and 4.8 percent in 2008” – we all know what happened.

              • Dennis Coyne says:

                Hi Jeff,

                Correct the only people who accurately forecast an economic downturn are those who always say an economic downturn is right around the corner.

                At the World level economic growth has been the norm from 1960 to 2015 with only one year with negative growth (2009). The average rate of growth of real GDP (2010$) from 1975 to 2015 was 2.93% with 19 years where growth was lower than average and 22 years with growth higher than average.

                Data for population from

                https://esa.un.org/unpd/wpp/Download/Standard/Population/

                and for real GDP per capita for World from

                https://fred.stlouisfed.org/series/NYGDPPCAPKDWLD

  7. Boomer II says:

    Oil and gas majors press Trump on Paris climate pact | Fuel Fix: “Ahead of a high-level meeting at the White House today on the Paris climate accord, some of the world’s largest oil and gas companies are pressing President Donald Trump to stay in the agreement.

    On Monday Cheniere Energy Executive Vice President Anatol Feygin sent a letter to the White House saying, ‘domestic energy companies are better positioned to compete globally if the United States remains a party to the Paris Agreement.’”

    Why Big Oil wants Trump to stay in Paris climate agreement – Apr. 18, 2017: “… these traditional energy companies have a vested financial interest in the Paris deal. That’s because COP21’s crack down on carbon emissions favors natural gas, which emits much less pollution than coal.

    While Exxon, BP and Shell are primarily identified as oil companies, they are actually diversified energy firms that rely heavily on natural gas to make money.”

  8. Boomer II says:

    Oil Drillers' Vanishing Safety Net – Bloomberg Gadfly: “… in an odd twist, banks may be more willing to allow smaller, less-important energy companies to fail now than they were a year ago. That’s because the largest banks have already cut their exposure to the asset class and are less at risk of losses should these borrowers go belly up.”

  9. shallow sand says:

    Some other interesting facts about Spraberry wells.

    Looks like there have been 47,315 vertical Spraberry wells, 28,656 are active, of those 24,990 produced under 465 BO in 1/17.

    Looks like there have been 3,279 Hz Spraberry wells, 3,065 are active, 205 produced under 465 BO in 1/17. 785 produced from 465-1,549 BO in 1/17 and 624 produced from 1,550-3,100 BO in 1/17.

    So, 56% of the Hz Spraberry wells are either inactive for over one year or produced under 100 BOPD in 1/17.

    • Dennis Coyne says:

      Hi Shallow sand,

      at least 900 horizontal Spraberry wells started producing in 2014 or earlier, most of the 2015 wells are also down to 100 b/d (or certainly the average 2015 well). Using Enno Peter’s data at shaleprofile.com
      through Nov 2016 he only has 2500 Spraberry horizontal wells in that update, about 581 of the 2015 wells had been producing for 17 months in Nov 2016 (started producing before July 2016) and the average output of those 581 wells was about 100 b/d after 17 months (average cumulative was 112 kb).
      I get roughly 59% of the producing horizontal Spraberry wells with an average output less than 100 b/d (for wells that started producing from Jan 2011 to June 2015) based on Enno Peter’s data though Nov 2016.

  10. George Kaplan says:

    Colombia production dropped to 804 kbpd – 7% down m-o-m and 12% down y-o-y.

    “The decrease is mainly due to deferred production in the Caricare, Caño Rondon, Rex, Terecay, Caño Limón, Caño Yarumal, Chipirón and Bayonero fields caused by the closure of operations in the Caño Limón Coveñas pipeline.”

    • Colombia’s real problem is low oil prices, which make it really hard to justify drilling in the Rubiales trend (that’s a huge, weird, heavy oil field with a very thin oil column on top of water).

  11. George Kaplan says:

    China, on the other hand, slightly up and holding a plateau so far this year.

  12. George Kaplan says:

    For those who follow Art Berman – (I think what he writes is mostly aimed at speculators looking for a short term advantage):

    “OPEC Production Cuts and The Long Road To Market Balance”

    http://www.artberman.com/opec-production-cuts-long-road-market-balance/

    “The OPEC cuts are accelerating the reduction of global inventories but continued progress toward the 5-year average will push oil prices higher. Higher prices may collide with weak demand growth in a stagnant economy that simply needs less oil. The long road to market balance may be slower and bumpier than bullish analysts predict.”

    Next week, or even later today, someone might say the exact opposite.

    p.s. he doesn’t include Azerbaijan in ‘NOPEC’ numbers but I think they agreed to participate, based on natural decline, and have probably exceeded what was expected in decline.

    • Dennis Coyne says:

      Hi George,

      https://www.bloomberg.com/news/articles/2017-04-21/goldman-says-ignore-the-technical-savor-the-fundamental-on-oil

      Goldman Sachs Group Inc. says there’s no fundamental evidence in the oil market to justify this week’s selloff in prices.
      The bank finds the pace of declines in U.S. crude inventories encouraging, with an acceleration in draw downs expected through the second quarter as OPEC cuts output and demand grows, according to a report dated April 20.

      • George Kaplan says:

        Because of my background I tend to look at the oil supply and demand balance from the perspective of system dynamics and control theory. From that perspective the world storage levels, and particularly those in the USA as they receive the most attention, act as a hysteresis element – i.e. when they are high and prices are low the storage has to fall significantly before the price starts to fall, and then it goes quickly; conversely when the storage is low and prices high then the storage has to build significantly and then the price suddenly rises fast. ‘Low’ and ‘high’ are subjective terms really, although they can be compared against medium term averages, but it means dealers perspective is important. It doesn’t matter so much if, and by how much, the storage falls, it matters whether all the other dealers thinks it’s significant.

        Add that hysteresis to big time delays from large project developments, inelastic (maybe asymmetric) oil demand, and almost random noise from outside influences on demand and it’s little wonder oil price forecasting is a mugs game (although the forecasters actually can’t be mugs – they repeatedly do worse than random chance and yet still get paid). Also I think it’s called a level 1 chaotic system – i.e. the act of forecasting can influence the outcome, which tends to increase the inherent instability.

        • dclonghorn says:

          George, thanks for the above and other comments you make. While I have generally held a similar view regarding oil balance and price for some time, the way you have framed the issue clarifies this for me.

          • Dennis Coyne says:

            Hi George

            I think you mean when storage falls prices rise at least eventually.

            I agree with your analysis.

            My main point is that bad data makes matters worse.
            Get the data right and report it monthly.

          • shallow sand says:

            Great comment George.

            Would you agree that lack of volitility and investor loss of interest in the oil market also sets up the next big price move?

            I am noticing a big decrease in Internet chatter regarding oil. Don’t know if that is relevant to anything.

            • George Kaplan says:

              All I understand about speculating in the oil market is enough to tell myself to stay away. So I’d say I don’t know, which means you and others can probably skip even skimming through the following.

              From a system dynamics point of view, in a chaotic system, loss of volatility very often precedes a tipping point equally, however, if there are several interacting but smooth cyclic systems they can cancel out for a time – there can then also be a sudden big change but it’s somewhat predictable (e.g. imagine a simple Fourier series curve fit to a square wave), or it can just go back to more apparent volatility. Even stochastic systems can have periods of quiet as the noise goes away, in fact a sign of a lack of true randomness is if there are no such periods in a long enough series.

              Another view might be that OPEC is back in control, or dealers think they are back in control, or maybe they only think the chap next to them thinks they are in control. Almost every commentator had a piece saying OPEC was finished in 2015 and 2016, of course if they turned out to be wrong you’d expect them to say o now … no wait, actually you’d expect them to shut up completely. There also seems to be a growing thought, at least here in the UK, that the economy has run out of steam (or will do over the next year or so – one reason given for why the government here has called and election now). Some GDP predictions for USA and Europe (China?) also look to be low and declining, but other places (e.g. BRICs, if that term is still used) are picking up, albeit from a low point. US news dominates the internet, even out of proportion to how it still just about dominates the world economy and politics.

              There’s also a lot of other news every day (if nothing else Trump generates headlines) most of it worrying short term and on a level above an oil price spike (or whatever) next year, so it just gets pushed off the page. (All my metaphors come from the print era I’m afraid – there may be equivalents for the internet age, maybe something to do with trending and likes and probably some neologisms I can never understand.)

              I can kind of follow the supply side and there things for conventional oil just seem to be heading for trouble. Oil and gas discoveries must be the lowest ever over the last two months, new FIDs, even for smaller, short cycle projects, aren’t happening as predicted with the price rise, more countries are starting steeper declines, more of the OPEC/NOPEC cuts seem due to natural decline and won’t come back. If there are coming economic problems that knock down demand none of that will be noticed for some years though.

              • Boomer II says:

                I don’t think cheap energy and economic growth are as tied together now as they once were. Relatively speaking, oil, natural gas, coal, and renewable energy are relatively inexpensive and yet the economies of developed countries and the world as a whole are not booming.

                I don’t think people are going to consume more energy if there is no particular benefit to them and I think that is where we are at with many industries. And policy makers seem more determined to save old industries than to support new ones.

                As I have said before, the only growth industry I can see which might boost economic growth in the near, intermediate, and perhaps long term future is to convert energy production and usage from what we have now to more renewables and EVs. Doing that will require people doing the work, and would likely be a productive use of investment because it would involved significant infrastructure changes.

                Whether renewables and electrification of power will save the world, I can’t say. But I think it will at least provide more of a boost than continuing to maintain a system based on fossil fuels.

                • Boomer II says:

                  I’ll go a bit further. Wealth creation these days has relatively little to do with energy consumption. Wealth is now significantly related to the digital world, either wealth from financial dealings or wealth based on digital stocks.

                  “Stuff” and the energy to make it is less important than it once was. The masses may end up with less food and with fewer goods, but that isn’t really a problem for the very wealthy.

                  If people are waiting for the masses to turn on the wealthy, then it certainly hasn’t happened yet in places like the US.

                  • George Kaplan says:

                    I don’t know about ‘stuff’ being unimportant. 30% of UK economy and a bit more for the USA is advertising or PR – a lot of which is people trying to sell each other real ‘stuff’ and real services. I think that is only possible in a world with lots of excess capacity – and that is possible only with cheap energy, though other things contribute as well. The internet in it’s current form and many of the bigger firms that have come from it rely almost exclusively on advertising revenue. There’s also all the high profile / high growth firms that promise to get you cheaper flights, insurance, hotels etc. – trouble is once everybody gets’s the cheapest the supply companies have to put the price of the ‘stuff’ up, otherwise they go out of business, and you’re back where you started. That is what’s happening in the UK with car insurance at the moment.

                  • Hickory says:

                    Boomer II- most of the growth in energy use will be coming from places over the horizon from where you look. Places like Nigeria, Ethiopia and India. Take a look at population projections out to 2050. In these places population growth and economic growth is highly correlated with energy demand. It is not all digital and automated.

                  • Boomer II says:

                    I am assuming that global recession will reduce consumption, and therefore slow energy demand. I see nothing on the horizon other than massive investment in renewables and EVs to increase jobs and income.

                    Where do you guys think money is going to come from so that these developing countries can allow their citizens to buy lots of stuff?

                  • Nick G says:

                    30% of UK economy and a bit more for the USA is advertising or PR

                    That sounds a bit high. Do you have a source for that?

                  • George Kaplan says:

                    Probably from Digital Vertigo or The Shallows, may be Stupidity PAradox or another book in the same vein that I can’t remember exactly (had a yellow cover). Ther was also a Raconteur Supplement in the Times and an article (might have been in Wired). I only read any of these as paper copies so don’t have links. I remember looking up a couple of the references in the book as I was surprised by the number, but can’t remember if I found them.

                    To B-II – I don’t expect things to continue like they are, I expect if/when cheap energy goes, then excess capacity will go and the persuasion industries (advertising, PR and things that run on their money like the internet, media a lot of sports) will get smashed.

                  • Lloyd says:

                    Years ago, the Mayor of Toronto claimed he was going to use ad revenues (Station naming, signage, etc.) to fund subway expansion. I did some research to figure out if it was possible; turns out it was not. The general figure for ad spend as part of GDP is between 1 and 3%, and has been since the mass media was introduced. (IIRC, it would have taken more than the entire Toronto population ad spend to balance subway spending.)

                    Here’s a more current reference:
                    https://www.bloomberg.com/news/articles/2014-03-03/advertisings-century-of-flat-line-growth
                    But in one sense, the advertising business is about as static and boring as they come. The industry has never grown in scale. Looking at data since the 1920s, the U.S. advertising industry has always been about 1 percent of U.S. GDP. It’s surprisingly consistent, mostly tracking between 1 percent and 1.4 percent—and averaging 1.29 percent. This is according to DB5, a media and marketing research firm that specializes in bridging traditional and new media.Emphasis added.

                    Even if we doubled that 1.4% to allow for PR (which would be generous), it’s massively below your estimate.

                    As for the question of ad-supported web media, this is not new spending: the ad dollars stay the same, but are distributed to different places. The losers here are typically traditional media like newspapers and magazines.

                    -Lloyd

                  • George Kaplan says:

                    That’s just the ‘advertising’ industry. The 30% includes all work which involves promoting what you sell – e.g. UK teachers on average spend (from memory) 8% of their time trying to sell their school to parents, also any advertising revenue that supports another industry would count proportionally, PR industry would count as well (e.g. lobbying, some legal fees etc.) I think all real estae fees would count as ‘persuasion’, anybody who creates a web page intended to promote a company (whether employed by the company or an outside agency). etc.

                  • Boomer II says:

                    Money spent on marketing and advertising don’t necessarily mean increased goods consumption. Services can be promoted. Expensive brand names which have involve very little in manufacturing can be sold.

                    Think about the health care industry. A lot of money spent, but relatively little energy consumption involved to generate that income.

                    The amount of energy needed for survival is considerably less than the amount of energy we use to give us a middle class lifestyle.

                    Eliminating that middle class lifestyle would considerably change the economic systems of developed countries, but people can eliminate a lot of energy consumption before it becomes impossible for them to survive day-to-day. We don’t need nearly the number of products in grocery stores that we currently have. Most families do not need big vehicles. Most families do not need houses as big as they have. Etc.

                  • George Kaplan says:

                    Fro PR and advertising spend I think the point is that you don’t need to promote anything when there are shortages or you only just have enough: people will buy it anyway. You only need, and can only support, ‘persuasion’ when there is excess – e.g. lots of brands of jeans, but any one would be pretty much as good (and avoid any stress from buyer’s remorse) – really they are status displays. The bigger the proportion spent on persuasion the more excess there must be – and excess only happens with cheap and ready energy. It’s not my theory and all points in the logic might be moot (in the original sense of arguable) and I do not have any quantitative data for any of it (or any of the books above now, as all have been passed on to others or were from the library), but it sounds reasonable to me.

                    I’m sure there are lots of savings, as you say, and ways to keep functioning on lower energy use, but I think the original discussion was whether there are signs we are going that way at the moment – i.e. relying on less stuff – I don’t really see it here, probably in Greece, Venezuela etc. but not a great way to make it happen. I think millennials are supposed to favour experience over items – I think they like both, they take way more exotic holidays than any group I’ve known, and all catered rather than just backpacking on Interrail.

                  • Boomer II says:

                    “The bigger the proportion spent on persuasion the more excess there must be – and excess only happens with cheap and ready energy.”

                    That’s my point, though.

                    If cheap energy fuels excess, then more expensive energy won’t hurt the system. It will just eliminate the excess. We’ll have a leaner system that uses energy more conservatively. I don’t think that is necessarily a negative outcome.

                  • Nick G says:

                    I think the point is that you don’t need to promote anything when there are shortages

                    Which points out the difference between “sales” and “promotion”. Realtors, for example, provide a variety of services, including a great deal of time staging and showing properties, analyzing client needs and desires, helping with financing, etc. The need for their function doesn’t change whether real estate is in surplus or not.

                  • George Kaplan says:

                    NG – you’d have to go to the original studies to find how they proportioned each persons time in a given field. I doubt if there are as many estate agents working in Greece or Syria at the moment as there used to be.

                    B-II I was responding to your comment that ‘stuff’ was less important now and providing some evidence that maybe that’s not true. It’s only one item, maybe anecdotal, maybe a strawman – but that’s pretty much all you are ever going to get from any comment on a blog. This one is better than most but let’s not pretend it is anything like an academic study. Things will change in the future I don’t doubt, I have very little idea how.

                  • Nick G says:

                    I doubt if there are as many estate agents working in Greece or Syria at the moment as there used to be.

                    Sure. That’s true of just about every line of work in those countries.

                • Boomer II says:

                  A good comparison might be water. When it is cheap and plentiful, people can support bluegrass lawns in dry locations. When it becomes scarce and expensive, people give up their lawns. They aren’t actually worse off by doing so. Lawn care companies will feel the economic impact, but for homeowners giving up lawns that need lots of water, it’s not going to have a significant impact on quality of life. Yes, it will be different to have plants that do well without water, or to have no plants at all, but having different expectations of what one’s property should look like isn’t an economic or productivity issue for society.

                  I see the same with energy. Low energy costs buy excess consumption. Higher energy costs should lower consumption, but not necessarily quality of life or productivity.

                  • Nick G says:

                    Here’s another way to phrase it.

                    When prices go from “affordable” to “cheap”, the incremental consumption that this causes is of low value. So, if things go in reverse, from cheap to affordable, the lost consumption is of little value.

                    Another good example is going from an SUV to a sedan.

                  • twocats says:

                    marginal growth of renewables vs fossil fuel dependency. embedded infrastructure. anarchy of production in “capitalist” economies. debt financing in a world of marginal / reverse growth. the 10’s of millions of people who loose their job because of trimming of excess. the mass migration into livable cities with job growth based on “the excess” consumption (amazon, google, facebook). global competition based on access to market share of “the excess”. the semi-deindustrialization of china – (everything will be local right?!) the semi-reindustrialization of the US – (ditto?!). brexit, trump, le pen.

                    yeah, nothing complicated about it all.

        • Very good. I always had trouble explaining to management why the dynamics model fail unless we take into account the fact that many market players don’t behave rationally, and it’s really hard to model such insanity.

          • Caelan MacIntyre says:

            And yet here we are, wherever ‘here’ is, with many who’ve spent much of their lives in things we call ‘careers’ helping to damage the planet.

            • Mike says:

              Mr. MacIntyre, you must be referring to me because I have spent my entire life in the oil business? Actually it is not me, or men and women like me that spent their working careers in the oil business that have damaged the planet, its hypocrites like yourself and all of your “gentlemen” friends on the non-petroleum thread of this very petroleum blog, that USE oil that have damaged the planet. By the way, my compliments for the way y’all handled Ms. Hahn over there across the tracks, for the language used and the lewd remarks made in her direction. Very gentlemanly, all. Was that because she did not agree with y’all, or believes in God, or was curious why you folks are always so angry at everything and everybody over there? That tirade borders on verbal abuse. And my compliments to the moderator as well, very courageous.

              • Lloyd says:

                Keep in mind: She started it.

                She accused us of not having, or not caring, about our families.

                As for your comments about our manners, how do we know that “Peggy Hahn” is really a woman? To quote the New Yorker cartoon, “On the internet, no one knows you’re a dog.” Or what sex you really are. This is not Gamergate. The comments were not about her gender: they were about her ignorance, and her tone-deafness to the nature of our discussions. A man making the same comments would have got the same treatment. And if my wife heard you suggest she needed special treatment taking care of herself in this kind of a situation, she’d be insulted, or at the very least, bemused. I suspect yours would be, too.

                Ms. Hahn has been around here for a while. Her purpose seems to be to spread Christian dogma to a group of commentators who are largely atheist. Why is the question. I don’t go on Christian boards and ask why they’re all involved in a ridiculous superstition. (If I really wanted to know, I’d ask my relatives.)

                As for Dennis’s moderation, I have (very) occasionally posted on right-wing sites about oil, usually stating facts I picked up here…and had the posts taken down (and yes, my purpose was to find out if they would be taken down.) I would have been happier to have Javier gone sooner, but Dennis was right in his actions: Javier eventually moved on of his own accord. In my opinion, the level of moderation around here is just fine. The place is what it is: Ms. Hahn doesn’t have to come here, and if she makes provocative statements designed to piss us off, well, you reap what you sow (to use an idiom she may be familiar with.)

                -Lloyd

                • Mike says:

                  Yes, that is a nice little “gang” you guys have over there, very tight, very adverse to outside opinions, very opposed to healthy debate or anybody that does not agree with your radical anti-oil, pro-climate change agenda. Its fun to observe sometimes, all that anger, until you start trying to verbally disembowel everybody, a woman in this case, with F-bombs, belittlement and name calling, simply because she does not agree with you.

                  But, as you say, y’all were “provoked,” all of you fine gentlemen, a threat she was, and she got what she deserved. Liberal idealism is, after all, based on tolerance and acceptance, I seem to recall, so please, carry on. Without me. I need to get back to damaging the planet.

                  • Caelan MacIntyre says:

                    Mike,
                    We’ve sold much of ourselves out, while abusing our Mother Earth– and the women on it in the process– but the men, the in-between sexes, and fellow creatures too.
                    This is not exclusive to the petroleum industry or petrocareer, but they do predominantly feed the abuse.

                    ‘Drill, baby, drill.’

                    So maybe we would do well for some of us to consider taking a little more ownership and responsibility in that and related regards.

                    This is the petroleum thread, the industry sucks some serious shit, my comment was related to the petroleum industry, and I, along with my comment-in-question, have practically nothing to do with ‘Peggy’ or even personal oil use the way you frame it, using ‘Peggy’ as a kind of ‘leverage’.

                    Some men and women might not appreciate your using a supposed woman like that or insinuating inegalitarian treatment per ostensible sex, but maybe Tiffany Neal, President of Oilpro, has different ideas, and would appreciate more your particular brand of dated sexist melodramatics.

                  • Lloyd says:

                    Yes, that is a nice little “gang” you guys have over there, very tight, very adverse to outside opinions,
                    I have said it before, but it bears repeating: this is a club. You get in by having the people here engage with you. It’s not a democracy, and it’s not equal opportunity. And it’s not sexist, which your position most certainly is. To suggest that women cannot protect themselves here, and that we should tone it down, is to deny them agency, and to suggest that they are by nature intellectually inferior.

                    Ms. Hahn’s treatment was exactly what anyone with a position someone here disagrees with gets. I would point you to the comment on the current non-oil thread that starts with Nicholas Schroeder says: 04/20/2017 at 10:15 pm. He gets eight, count’ em, eight- sarcastic put-downs.

                    radical anti-oil, pro-climate change agenda.
                    This is not my position. To clarify: I am a hard-core doomer. I believe we are past the tipping point, and that there is nothing we can do. My position is at odds with techno-utopians like Nick and OFM, and of course with the current denier brigade of Charles Van Vleet, Leo Halstead, Troy Slavski, Nicholas Schroeder, and Jeffrey Bromberg . Even the quant faction whose views I most identify with are not a solid wall: Dennis, Ron, Doug and George, Gone Fishing, and Survivalist all disagree on points (apologies to those I’ve missed.) We are not a monolithic block.

                    I continue to drive, use electricity, and all that other stuff, because it is the organism that I am. I don’t want to die yet, and I cannot effectively exist outside the techno-fossil fuel bubble. We are essentially in agreement here: it is not you specifically who are destroying the planet: I fully accept responsibility for my, oh, one-billionth part in this calamity (as always, someone else can figure out the exact math…I’m pretty sure I’m responsible for a greater share of our problems than, say, an African subsistence farmer.) And I don’t think your part is any greater than mine.

                    As for my being willing to “verbally disembowel everybody”, this is the kettle calling the pot black. You’ve got a pretty sharp tongue (pen? word processor?) yourself. You can slime the word “gentleman” with just enough sarcasm to make it seem like a slight. And I admire it, it’s a clever skill. It doesn’t change the fact that you don’t answer any of my points, and continue to suggest, through your tone, and the repetition of your unsupported position, that I am wrong.

                    But, as you say, y’all were “provoked,” all of you fine gentlemen
                    And you looked for a pretext to discuss this, by building a straw-man argument that Caelan was talking to you specifically when he mentioned “‘careers’ helping to damage the planet.” And you moved it away from the Non-petrol thread where it belongs, because this is your turf. And I admire that, too, in a way, though it is a little dainty.

                    You got a problem with what we write on the other side? Fine.

                    But take it up there, where it belongs.

              • Nick G says:

                it is not me…that spent their working careers in the oil business that have damaged the planet, its hypocrites like yourself…that USE oil that have damaged the planet.

                Actually, it’s neither. You’re just making a living. Oil consumers have pretty much been buying the only thing that was available.

                It’s people like the Koch brothers, who have ensured that alternatives (NG vehicles, high mileage vehicles, trains, hybrids, EVs etc., etc) were not available. The people who shaped public policy in a way that ignored oil wars, ignored pollution, ignored oil recessions (like the major depression that Dennis is predicting in about 10 years, that could be prevented or mitigated by better planning and alternatives), and all the other reasons to have alternatives to oil fueled vehicles.

                They did it. Not you, and not “us”.

                Although, to the extent that people vote for politicians who are advocates for oil…then it’s their fault.

              • Caelan MacIntyre says:

                “And yet here we are, wherever ‘here’ is, with many who’ve spent much of their lives in things we call ‘careers’ helping to damage the planet.” ~ Caelan MacIntyre

                “Mr. MacIntyre, you must be referring to me because I have spent my entire life in the oil business?” ~ Mike (Shellman?)

                I am referring to a lot more than just you, Mike.

        • Boomer II says:

          I’ve been curious about the PR messages about oil. On the one hand you have those who keep saying there is an abundance of oil, no scarcity in sight, which of course, encourages lower oil prices.

          Then you have others warning that without more investment, we’ll have an oil shortage. But they haven’t said just who is supposed to put up that investment money. Should companies, that are already losing money, spend more money? Should countries use public funds to invest in oil exploration and production? Should investors throw money at oil projects, and for whatever reason, favor them over investments in other companies and industries?

          Seems like all of this talk is either to manipulate oil prices or to influence policy makers.

          • I try to influence you to influence the people who influence policy makers, but I’m afraid nobody listens to me.

            I warned about a pending humanitarian crisis in Venezuela, and the regime links to the Castro dictatorship for years, which was encouraged to pursue a very hard line policy by Obama’s rather cynical attitude…and so…here we are…

    • Lightsout says:

      Hi George.

      As you mentioned Azerbaijan it is worth noting that a company called Zenith energy has just started an extensive workover program on the Muradkhanli, Jafarli and Zardab fields. The first workover well M195 has got off to a slow start with soviet era metal debris found in the open hole section below the screen. They started sidetrack drilling last week.

      • George Kaplan says:

        Interesting. I think it’s fair to say SOCAR has the worst safety record of any recognised oil company, and probably some of the oldest infrastructure. Azerbaijan might be more reliant on oil to maintain social order than some OPEC countries, and they’ve had bread riots in the recent past.

  13. Caelan MacIntyre says:

    Sabotage Against Train Tracks in Olympia
    (Puget Sound Anarchists)

    “Early in the morning of April 20th we poured concrete on the train tracks that lead out of the Port of Olympia to block any trains from using the tracks. We took precautions to notify BNSF (the train company) – we called them and we used wires to send a signal that the tracks were blocked. We did this not to avoid damaging a train, nothing would bring bigger grins to our faces, but to avoid the risk of injuring railway workers.

    This action was done to disrupt the movement of trains carrying proppants used in natural gas fracturing. These train tracks are part of a system of pipelines, fracking wells, mines, clearcuts, control centers, fiberoptics, dams, highways and factories that cover the planet and are physical manifestations of a process that is destroying the ecosystems, cultures, and inhabitants everywhere. Behind this network of infrastructure there are politicians, CEOs and bureaucrats who have private security, cops, prison guards, non-profit directors, PR consultants and the legacy of 500 years of colonization to back them up. We oppose all of these manifestations, infrastructural, personal and ideological. We blocked the train tracks because we want to blockade the entire web of domination that is slowly killing us…

    This action and actions like it are quite easy to do yourself.”

  14. Watcher says:

    It appears to require 1.8 barrels of oil to make an acre of corn. Includes harvest.

    • Lloyd says:

      That indicates about 250 Oil calories to produce 1 Corn calorie (assuming the Corn per acre values I found are for unshucked Corn). Of course, someone with better math skills than me should check this.

      -Lloyd

      • Watcher says:

        Corn apparently comes in stages, but the most important parameter seems to be dry vs wet. The water affects weight and that corrupts lots of calculations. Probably including yours.

        But that’s the way it goes. 1.8 to get an acre of corn. That calculation of months ago indicating more required to produce food than transport it looks legit.

  15. Energy News says:

    2017-04-25 Reuters – OPEC heads for failure as crude shipments overwhelm cut rhetoric: Clyde Russell

    Global oil shipments by tanker are at a record high in April, according to vessel-tracking data compiled by Thomson Reuters Supply Chain and Commodity forecasts. As of Tuesday, the data shows that an average 50.3 million barrels per day (bpd) of crude is being shipped in April, up from the previous record 46.1 million bpd in January. The data excludes crude moved by pipelines, but it’s extremely unlikely that pipeline supplies have been cut by more than seaborne cargoes have increased.
    http://in.reuters.com/article/column-russell-crude-opec-idINL4N1HX1V4

    2017-04-22 Clipper Data
    OPEC crude exports so far this month are down compared to March, led by a drop from Saudi Arabia and Iran. Nonetheless, total global crude loadings continue to tick higher, holding above 50 million barrels per day.
    http://blog.clipperdata.com/global-crude-loadings-tick-higher

    • Jeff says:

      Where do the additional crude shipments originate from?

      Is it mainly: A) US exporting more light oil, OPEC (SA) stock drawdown, floating storage drawdown OR, mainly B) increased production that results in more oil reaching the market?

      “To be sure, barrels stored in less visible places, such as in developing nations and in floating storage, do appear to be drawing down, but there is a question mark over whether this is happening fast enough to provide a basis for higher oil prices in future months.”

      • Energy News says:

        It seems that Iran and UAE have been exporting from floating storage

        Apr 6, 2017 ClipperData
        Iranian barrels drop to 5 million barrels, while barrels offshore of United Arab Emirates have halved in the last week, dropping to just under 10 million barrels.
        (chart on this page) http://blog.clipperdata.com/floating-storage-holding-up-despite-iran-drop

        And I’m guessing that the big increase in Brazil’s crude oil exports is from inventory.
        chart direct link: https://s13.postimg.org/a43f4pyh3/2017-04-25_Brazil_Crude_Oil_Exports_JODI_ANP.png

        Russia’s crude oil exports are holding up while complying with the cut agreement. Seasonal peak is in April

        • Jeff says:

          So, alternative A then. Well, stocks outside OECD is drawing down and boosting international trade volumes in the short term. When this runs out of juice the draw down will have to come from OECD stocks – mainly US.

          IMHO. The market is in deficit and the size of the gap is masked by stock drawdowns outside OECD. The narrative of the article “crude shipments overwhelm cut rhetoric” is just wrong.

        • Energy News says:

          I keep wondering if the 50 mb/day export figure is a mistake, seems very high, big increase from prior record of 46 mb/day. But both Reuters and ClipperData are giving the same number and so who knows. I don’t subscribe to any data providers and so just I’m just guessing.

          • George Kaplan says:

            Could it have anything to do with change over to summer blend in USA?
            Brazil stocks are given in JODI and have been declining, but not too dramatically. They have some issues with FPSOs off line for unplanned maintenance, but additionally late delivery of a couple of deep water rigs (I think drill ships) which is delaying ramp up on some new installations.

        • AlexS says:

          Iran’s crude oil and condensate exports in March fell slightly from the previous month as refinery runs picked up but the OPEC producer has managed to clear almost all of its oil in floating storage.

          Barrels held in floating storage again accounted for a proportion of Iran’s exports in March and the country has now reduced the volume held on the water from over 40 million barrels early last year to around 5 million barrels, according to Platts estimates.

          http://www.platts.com/latest-news/oil/london/analysis-iranian-oil-exports-dip-in-march-floating-26708803
          —————————————-

          OPEC’s war on oil overhang starts to bear fruit

          Tue Apr 11, 2017
          http://www.reuters.com/article/us-oil-opec-storage-idUSKBN17D1LY

          OPEC appears to be slowly winning the battle against a global overhang of crude and oil products as inventories in onshore and floating storage decline.

          … there is no doubt that stocks are falling around the world, from Saldanha Bay in South Africa, to the Caribbean. A persistent glut of Nigerian oil is easing and even Iran has liquidated the amount of crude held in floating storage.

          “Across the first quarter of the year, crude stocks built by much less than they did in the first quarter of last year even though refinery maintenance globally was much heavier,” Energy Aspects analyst Richard Mallinson said.
          Iran has sold all the oil it had stored for years at sea and Tehran is now struggling to keep exports growing as it grapples with production constraints.
          Trading giant Vitol has sold millions of barrels of Nigerian crude oil from storage in South Africa’s Saldanha Bay, according to oil traders, with cargoes sailing for Taiwan, India, the United States and Europe.
          France’s Total has offered a further 2 million barrels of Nigerian Escravos oil from its own Saldanha Bay storage tanks, while sources said trader Mercuria had also been offering oil from storage.
          At the same time, Nigeria’s new loading programmes are finding buyers at a reasonable pace – in stark contrast to the past two years, when any sales from storage put immense downward pressure on prices for newly loaded cargoes.
          Nordic bank SEB said global oil inventories in weekly data have dropped by 42 million barrels in the last four weeks.
          “Rising U.S. crude oil stocks have created some confusion so far this year, but they are a function of reduced U.S. refining activity on the one hand and U.S. crude oil imports on the other,” SEB said.

          PRODUCT DRAW

          Stocks of oil products are also steadily drawing down.
          According to consultants FGE, total main product stocks levels in the United States, Amsterdam-Rotterdam-Antwerp independent storage and Singapore and Japan have declined by 6.5 million barrels, in the week to March 13 (latest full data available) to 631 million barrels.
          The weekly data hit an all-time high of just over 679 million barrels in February 2016, FGE said. If the declines continue, FGE said global product stocks could hit the top of the 10-year range, or 611 million barrels, in just three weeks.
          Still, they cautioned that much of the product strength was seasonal, and related to maintenance shutdowns that also diminished consumption of crude oil.

  16. Energy News says:

    OPEC crude oil stocks. Not much data available for OPEC inventories, just 6 members in JODI Data. I guess this does not include floating storage. The total is 340 million barrels for February, down 55mb from the peak.

  17. Enno Peters says:

    I have a new post on tight gas production in Pennsylvania, available here.

    • clueless says:

      Great Info! For those that are interested in general decline rates, your information indicates that in Jan 2017, on a per well average basis: 2015 wells are flowing at a rate of 48.5% of the 2016 wells; 2014 wells are flowing at a rate of 42.2% of the 2016 wells; 2013 wells are flowing at a rate of 27.8% of the 2016 wells; and 2012 wells are flowing at a rate of 18% of the 2016 wells.

      Now using that info, maybe there is a math genius on this site that, using that decline profile, can compute how many wells need to be drilled in 2017 to maintain level production. I think that they probably have to make an assumption, such as: assume that 1000 wells were drilled, ratably, in each of the years 2012 thru 2016. Obviously, I am interested in discovering the point at which, based upon the decline profile, that you have to start drilling more than 1000 wells, just to maintain level production.

    • Watcher says:

      Sub reqd:

      Here’s the google from fuelfix . . . the key quote:

      “You’ve had some deals struck where the company goes bankrupt and the executives do very well, and that’s wrong,” said Dennis McCuistion, executive director of the Institute for Excellence in Corporate Governance at the University of Texas at Dallas. “That doesn’t pass the smell test at all.”

  18. Energy News says:

    This free tanker tracking website has Saudi Arabia’s exports so far in April estimated at over 8 mb/day same as the estimate from Reuters.
    In the section = GOV STATS, April Middle East Crude Oil Exports: http://tankertrackers.com
    JODI Data OPEC exports chart on Twitter https://pbs.twimg.com/media/C9uvMoqXYAQUQNT.jpg
    https://pbs.twimg.com/media/C9uvJiEXkAAZOVd.jpg

  19. shallow sand says:

    Shale earnings season begins today, with HESS posting a loss of over $300 million in the first 90 days of 2017.

    There will be shale companies that show positive EPS in Q1, 2017. Most will then imply a forward P/E ratio of between 100-200. I’m am told by investors, however, that P/E ratios are irrelevant to shale because they are “growth companies”.

    • AlexS says:

      “P/E ratios are irrelevant to shale because they are “growth companies”.

      The same was said in early 2000s about internet/tech stocks

      • shallow sand says:

        Yep.

        • Watcher says:

          Have a look at Tesla’s P/E.

        • AlexS says:

          shallow sand,

          Like several other E&Ps, Hess reports crude oil and NGL production separately.
          I noticed that NGLs account for more than 26-28% of Hess’ total liquids production in the Bakken.
          Meanwhile, NDIC does not report any NGLs volumes for ND Bakken.
          The questions is if NGLs are included in NDIC’s crude oil numbers.

          • coffeeguyzz says:

            Shallow

            I don’t know if any state lists NGLs distinct from the Gas category.
            The processing takes place downstream and would be cumbersome to be accurate and timely.
            The ‘Gas’ category us the gross volume measured at the pad/wellhead and includes the liquids which are all in gaseous form at that point

            • AlexS says:

              coffeeguyzz,

              So you think NDIC classifies NGLs as “natural gas”?

              • coffeeguyzz says:

                Alex

                Yes. The monthly reporting from the DMR – like the other states’ that I follow – report only oil and gas values.
                The precise amount and components in the gaseous stream – ethane, propane, the butanes and pentane – vary significantly and are processed and tabulated in plants.
                One of the ND DMR presentations has an excellent, concise description of this aspect, I’ll track it down and steer you to it later tonight.

                • AlexS says:

                  thanks

                  • coffeeguyzz says:

                    Alex
                    Page #32, “Cookfest 2016” Presentation.

                    Found by … ND DMR site, Information, Recent Presentations, Cookfest.

                    A lot of info has been put forth in these Presentations over the years.

                  • coffeeguyzz says:

                    Alex

                    You got me curious as to how much NGL was coming out of the Bakken so I checked on the EIA site (NGL Production/PADD 2/WI-MN-ND-SD. This is 100% Bakken sourced).

                    It was running over 200 thousand barrels a day for awhile, January about 180k. That’s a lot.

  20. shallow sand says:

    AlexS. I have no idea in response to your question.

    I see shale more like E Trade than Tesla. Viable business, just wildly overvalued.

    Tesla, not sure if viable. If it is, could be a home run.

    Look at a 20 year chart of E Trade. Thinking shale more like that.

    Full disclosure, I do not think comparing commodity producers to financial, tech, biotech, etc is a good idea. But many think there are comparisons that are notable, so if you can’t beat them, join them.

    We were discussing EPM, a CO2 oil producer with no debt, paying a 3.5% dividend witha P/E of 11-12. My suggestion, if management wants to raise the stock price, which has traded from $6-12, is to trade the 2000 BOPD of low decline oil production with total cost of $12 per BO, for 10,000 acres of Undeveloped Permian. Then issue $2 billion of new stock, and drill 300 shale wells in the next three years. A growth story made for Wall Street.

    • Ves says:

      Shallow,
      There are no fundamental difference between Etrade or Tesla or Shale. In debt based financial system the only thing that grows with certainty is debt.

  21. Jeff says:

    I remember back in ~2010 that “everyone” talked about (deep) offshore. Several new large discoveries were made and this was supposed to push the date of PO into a distant future. Fracking/LTO was also expanding but it hadn’t turned into hype just yet. I found these two pieces of news from EIA and IEA interesting. They are mainly confirming what has been written here before by George and others. Offshore doesn’t look too healthy and now it is all about a few counties in Permian.

    EIA: Permian Basin oil production and resource assessments continue to increase https://www.eia.gov/todayinenergy/detail.php?id=30952

    I found this to be the most interesting part:

    ”The land area over the Permian Basin covers more than 75,000 square miles in 43 counties of western Texas and southeastern New Mexico. However, more than half of the rigs that have been added in the Permian are concentrated in just five counties: Reeves, Loving, Midland, and Martin counties in Texas and Lea County in New Mexico. Oil production from these five counties averaged 882,000 b/d as of November 2016 and accounted for approximately 42% of total Permian Basin oil production (2.1 million b/d) in that month. As more rigs continue to be moved to these counties, production from these areas is expected to continue to increase, which will drive the increases in total Permian production.”

    Bakken Déjà vu. The basin is huge but only a fraction of the geology is “profitable” at today´s oil price and technology.

    IEA: Global oil discoveries and new projects fell to historic lows in 2016
    http://www.iea.org/newsroom/news/2017/april/global-oil-discoveries-and-new-projects-fell-to-historic-lows-in-2016.html

    Permian will (?) save the day! I think this is the first time that IEA states that they expect low exploration spending in 2017.

    “The slump in the conventional oil sector contrasts with the resilience of the US shale industry. There, investment rebounded sharply and output rose, on the back of production costs being reduced by 50% since 2014. This growth in US shale production has become a fundamental factor in balancing low activity in the conventional oil industry…

    …With global demand expected to grow by 1.2 mb/d a year in the next five years, the IEA has repeatedly warned that an extended period of sharply lower oil investment could lead to a tightening in supplies. Exploration spending is expected to fall again in 2017 for the third year in a row to less than half 2014 levels, resulting in another year of low discoveries. The level of new sanctioned projects so far in 2017 remains depressed.”

    • George Kaplan says:

      I’m waiting for the “there’s nowhere left worth looking” bombshell from one of the majors, one of the consultancies or OPEC/IEA/EIA.

      I think there must soon be some kind of shake up in all the blogs that sprang up over the past few years – Fuelfix, Hart EP, OilPro, Oil360, OilVoice, Energy Voice, Offshore Engineer, Subsea, Upstream, OGI, Oil and Gas People – they are all running out of things to write about and engineering contractor jobs to advertise. There might also be one or two too many consultancies between IHS, WoodMac, Rystad, Platts, Poten, Zift (spelling?), Richmond, Douglas Westwood (those last twoo might already have been taken over – not sure?)

      • It depends on price. I think we could try drilling much more offshore West Africa, the Arctic, even in places like Gulf of Mexico, etc. But I would prefer a firm price above $100 per barrel, and a hint they may go above $120. That would allow taking on more risk. But I don’t think we will ever replace production. From now on we need to focus on using tooth brushes and soap to recover more oil.

      • Watcher says:

        There’s Nowhere Else Worth Looking

        Just imagine the rebuttals and sneers. And also imagine how it plays when the “major” is noted as one of the group of non National Oil Companies that hold about 10% of global reserves. That will be part of the sneers — at how they’ve lost their significance.

        No way in hell such a quote will be allowed to imply scarcity, at least beyond NYMEX.

    • George Kaplan says:

      Also why is the chap from Aramco getting so involved in all this?

      http://www.argusmedia.com/news/article/?id=1449742

      (I’m going to have a go at the italics thing sometime, but not today):

      Speaking in Paris, Aramco chief executive Amin Nasser said: “The supplies required for the years ahead are falling behind substantially because the vast, long-term investments in proven and reliable energy sources are not being made. This presents a grave and growing threat to world energy security”, Nasser said, adding that 30mn b/d of oil production capacity needs to be developed over the next five years. The IEA last month warned that crude output growth “all but stalls” after 2020, and today said exploration spend and project approval are likely to be low again this year.
      “When we talk about normal decline today… [it is] a decline of 5pc/yr,” Nasser said. A significant proportion of work happening now is infill drilling, which he said will actually increase rates of decline.
      “What we need in the industry is… megaprojects that would mitigate the decline over the long-term. Otherwise the decline will accelerate… closer to 10pc, which would be difficult to compensate for over the long term.”

      It’s like the boss of Wendy’s saying what we need is lots more Burger Kings, to replace the McDonalds that are closing. Wouldn’t he be happy with higher prices and/or if they have 200 Gb and more, why not just develop some of it? To carry the metaphor a bit too far maybe the worry is everybody stops eating hamburgers and gets a taste for pizza instead.

      I’m still lost as to where they get the growth coming from in 2019 – I think it must be Iraq and Iran. No real big mega projects are going to impact in 2020 now it’s too close, and ramping up to be able to support 30 mmbpd of projects delivered over five years will take at least 3 years. 30 mmbpd would typically need about 600 conventional projects, given the current the inventory of possible projects is with fairly small discoveries compared with the past, and 170 Gb of discovered, undeveloped reserve. I don’t think that exists without including a large proportion from oil sands and Venezuela.

      • George Kaplan says:

        On reflection – maybe Amin Nasser was really talking to OPEC/NOPEC leaders in order to try and get them to follow an extension of the cuts, or possibly a pre-emptive excuse so that if or when there is is shortage and the world comes to Saudi to ask them to cover it it with their spare capacity, which won’t be there, he can just point back to these warnings.

      • Jeff says:

        The “call on OPEC” will increase over the next five years, according to IEA. However, I don’t think that they have published any bottom-up data of which OPEC-countries that that have project startups to fill the gap. Either they know of projects that may come online in e.g. Iran and Iraq but they choose not to disclose this in public or the call on OPEC is just a balancing post.

        Nasser is interesting. It sure will be difficult to compensate close to 10pc annual decline rates…

        • George Kaplan says:

          Another subtler issue, which would be difficult to convey in a public speech like that, is ramp up times. Typically any new production in a year has a significant portion coming from projects started the previous year, or even two before. No matter what is done that will now be significantly lacking in 2020 to 2023, and maybe through to 2025 in some portion.

  22. Enno Peters says:

    I have a new post on tight oil/gas production in Colorado & Wyoming, available here.

    • Boomer II says:

      As I have said for awhile now, there continues to be drilling in Northern Colorado, but the discussions have been much different now that the prices of gas and oil are so low.

      There was political and environmental opposition to fracking, but it has been the economics of the industry which have dampened enthusiasm. And since gas and oil no longer promise to be boom times for Colorado (the state already has the lowest unemployment rate in the country and doesn’t need whatever economic stimulation gas and oil were supposed to bring), I think there will be more focus on the land and water needs of real estate development, agriculture, and tourism rather than gas and oil.

      From yesterday:

      After fatal house explosion, Anadarko Petroleum to shut down 3,000 wells in northeastern Colorado – The Denver Post

  23. clueless says:

    Yesterday, Boomer asked?
    “Where do you guys think money is going to come from so that these developing countries can allow their citizens to buy lots of stuff?”

    Well, I think that they have a complete blueprint, and in many ways, are in a better position to implement it. I would ask Boomer to address that question to the Americans living in the United States, in the days after the Civil War, after much of the US had been ravaged by war. Somehow, they, and their decendants made it work, such that 52 years later they were saving Europe. And, developing countries today do not have to worry about defense spending. Any strong power today that could easily conquer them would acquire negative value.

    To the extent of my knowledge, the US used our currency, the US dollar, that we produced, to acquire about everything that we have. But, of course, the people actually worked to better themselves. We depended upon ourselves.

    Sorry – If my answer is off topic, so was the question.

    • Boomer II says:

      There wasn’t much consumer credit after the Civil War. Going back to an economy where most consumer goods are purchased only when people can afford them with cash might be the brake that slows down domestic and global consumption. I think it might be a good thing.

      I’ve been reading about underground economies where many transactions are done in cash. I think in developing countries that system plays a big role. The extent to which that can expand in those countries, I don’t know.

      • Hickory says:

        India is in the midst of an explosive growth phase, and very soon will be the biggest country in the world. They’ve got huge problems, but also room for huge improvement and growth.

  24. Nick G says:

    Going back to an economy where most consumer goods are purchased only when people can afford them with cash might be the brake that slows down domestic and global consumption.

    That would be a very, very hard thing to persuade people to adopt. And, it would cause a lot of pain and desperation.

    It would be infinitely easier to sell a transition away from fossil fuels, and such a transition would actually make people’s lives better!

    If we can’t sell people on something as benign as moving away from FF, we’re certainly not going to succeed in selling people on deliberate austerity.

    • Boomer II says:

      But other than housing and cars, people probably don’t need to purchase on credit. Some things, like appliances and solar rooftops, could be paid for via monthly fees, but many consumer goods could be foregone if they require credit to be purchased.

      • Nick G says:

        but many consumer goods could be foregone

        Sure, but why?

        Are you concerned about fossil fuels? Unnecessary mining? Lack of spiritual focus/consumerism? Something else?

        Why not address those things directly, with alternatives to FF, recycling, etc? What’s good about forcing people to forego consumer goods?

        • Boomer II says:

          Fossil fuels, for sure.

          But I think there may be other resources which are limited enough not to support everyone in the world having a lifestyle comparable to the US middle class.

          • Nick G says:

            Ah. Well, wouldn’t it make better sense to identify those things and do something about them? Although, I can’t think of anything that is both essential and rare. Not copper, for instance (it’s very recyclable, and it’s essential uses are a very small percentage of it’s current uses).

            Or, perhaps it would make more sense to work towards recycling, perhaps the cradle-to-grave kind of thing where companies have to take recycle their own products at end-of-life?

            I suspect that what we now call land-fills, our descendants will call valuable resource mines.

            • OFM says:

              To the best of my knowledge, there simply isn’t any such thing as a GOOD substitute for copper, which is the key element in just about every sort of electrical machine or appliance, so far as the use of electricity is concerned, excepting only electronics, which require only very small amounts of ANY kind of metal, per single appliance or machine.

              Aluminum is a far distant second choice as an electrical conductor, so far distant that I have never seen even ONE electric motor built with aluminum, other than the frame that holds the electrical components.

              Copper is easily recycled, and there seems to be plenty left to last several more decades at least, assuming the world will be able to pay the high prices associated with mining and processing ever lower quantity ores as time passes.

              Could we get by without copper ? I guess we could, but most people who know very much about technology and minerals consider copper an ESSENTIAL commodity. It’s the best AFFORDABLE conductor by a mile, it’s an essential alloying element in special steels, ta primary ingredient in bronze and brass which are still widely used industrially, and an essential ingredient in some specialty paints, etc.

              Anything that can be substituted won’t work nearly as well, or else it costs a LOT more, to the best of my knowledge as a jack of all trades.

  25. George Kaplan says:

    GoM production for January was revised up to 1756 kbpd, which is a new monthly record, but fell (before revisions) to 1734 for February. Up 10.2% on the year. The STEO gets the prediction for one or two months out quite close. By Baker Hughes the rigs are down three to 17 for the week, which is lowest since four weeks in July 2010 (equal with a few other weeks this year), but the trailing yearly average, at 20.2, is the lowest this century.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfp3fm2&f=m

    • SouthLaGeo says:

      The attached is GOM oil production going back to early 2014, with an EIA projection out to the end of 2017 (not sure if it is the latest EIA projection). A ramp-up from about 1.4 to 1.45 occurred in mid 2015 where production then hovered around 1.6 mmbopd. Another ramp up recently occurred, starting in late 2016, bringing production levels up to the current 1.7+. New projects that contributed to a lot of this production include Jack-St. Malo, Lucius, and LLOGs Delta House, which includes a number of tie-backs. JSM is currently producing over 100 kbopd, Lucius is over 60, and Delta House is probably at least over 50.
      But it is not only new fields contributing. A number of older fields are seeing recent increases in production including Mad Dog and Caesar Tonga (both up from ~40 kbopd in late 2015 to over 50-60+), Tahiti (up from 50-60 to over 80). Don’t have the specifics on Mars B/Olympus, but I think that one also is contributing. Also, not sure how much Thunderhorse/THN is contributing but I think there is an uplift there as well.

  26. Energy News says:

    The IEA’s free report was released yesterday
    Download full report from link on this web page:
    https://www.iea.org/oilmarketreport/omrpublic/currentreport/

    US crude oil production – comparison weekly & monthly
    chart direct link:
    https://s23.postimg.org/l5103qem3/2017-04-28_EIA_Weekly_and_Monthly_Crude_Producti.png

    Texas RRC oil well completions and EIA Texas & GoM monthly production
    chart direct link:
    https://s7.postimg.org/h6solhn63/2017-04-28_Texas_RRC_completions_permits.png

  27. OFM says:

    http://www.latimes.com/nation/nationnow/la-na-colorado-wells-20170428-story.html

    This one particular incident probably won’t have any noticeable effect on the price of oil and gas, but suppose does turn out that this house explosion resulted due to leaky wells or gas and oil pipelines?

    It’s the sort of thing that can result in the passage of new laws, especially if there are repeat occurrences, or if such an accident happens at a school or other public place.

    • Boomer II says:

      It will have ramifications in Colorado. Already another company has shut down its wells. And other counties are getting involved. The issue in Colorado is competing interests. While gas and oil might have gotten its way out in the middle of nowhere, when it has activities right next to housing developments, getting their way is no longer a sure thing.

      Great Western shuts down 61 wells feeding pipelines within 250 feet of homes – The Denver Post

      Firestone explosion: Nearby oil well may not have had pressure tests to determine leaks: “County officials along the Front Range have responded by urging greater caution by the oil and gas industry. …

      On Thursday, Boulder County commissioners urged companies to shut down 300 vertical wells in the county and inspect them to make sure people aren’t threatened. Anadarko owns about 10 of those wells.”

      • Boomer II says:

        What has happened over Colorado’s history is that there is a boom in some extraction industry, then there is a bust, then the old sites are abandoned, and then decades later those sites cause problems. I used to live in a residential neighborhood where the streets were collapsing because there were old mines underneath and no one had prevented developers from building over them or warning residents of the potential problems.

        Therefore, whenever there is a new anticipated boom, I fear a similar cycle. Economics slowed down the fracking boom talk, which has been a good thing. And now because of this accident, there is a new look at older wells.

        Also a few years ago, a massive flood caused damage to some storage tanks and had them floating away. Again, at least now there is an awareness that such situations can happen.

        Because other aspects of the Colorado economy are booming, and gas and oil is running right up against housing developments, there will be political pressure to move with caution, and less economic need to give the gas and oil industry whatever they want.

      • Boomer II says:

        Boulder County Oil and Gas Inspector finds leaks at 40 percent of inspections | FOX31 Denver: “Of the 300 active wells in Boulder County, more than half are of the same vintage and type as the one near the home in Firestone.

        ‘This is equipment that is out in the elements so things can happen where you know, pieces of equipment can corrode and leaks can occur,’ said Patrick Murphy, Boulder County’s local inspector and lead of the oil and gas team.

        Murphy said leaks are occurring on more than 40 percent of inspections.

        Boulder is one of few communities with their own inspector. The program began three years ago.”

  28. Boomer II says:

    I found this when I went looking for articles on scarce resources. It doesn’t mention gas and oil, but I think it is relevant anyway.

    Mineral resources: Geological scarcity, market price trends, and future generations: “The extractable ores of the world’s geologically scarcest mineral resources (e.g. antimony, molybdenum and zinc) may be exhausted within several decades to a century, if their extraction continues to increase. This paper explores the likelihood that these scarce mineral resources can be conserved in time for future generations without intervening but instead simply relying on the price mechanism of the free market system. First we discuss the role of geological scarcity in the long-term price development of mineral resources. Then, to see whether geological scarcity affects the price of minerals we compare the historical trends in the prices of geologically scarce mineral resources with those of geologically more abundant mineral resources. The results show that in the period 1900–2013 the price mechanism did not result in high prices that provide advance warning of exhaustion of minerals. We therefore argue that if conservation is left to market forces, it is not certain that geologically scarce minerals will be timely, automatically, and sufficiently conserved for future generations. We recommend preparing international policy measures targeted at a price increase of the scarcest mineral resources, in order to accelerate substitution and recycling of these materials and help save the geologically scarcest mineral resources for future generations.”

    • Nick G says:

      It’s a very complex question.

      On the one hand, free markets are very good at finding optimal solutions (if all the costs are internalized properly!). It can happen, for instance, that the optimal solution is to discontinue use of a particular rare mineral, and substitute something else entirely.

      On the other hand, it’s easy to find market failures, like minerals which are co-produced with other minerals, and suddenly become scarce when the other mineral’s production is reduced.

      The futures markets are supposed to help with providing signals about future scarcity – they don’t seem to do that well…

  29. George Kaplan says:

    Here’s a good slide from a recent Schlumberger presentation. For exponential decline, the depletion rate equals natural production decline. Decline can be slowed by infill drilling, but then depletion rate increases. As Mexico decline just about equals their depletion it would follow that they are not doing much brownfield work or in-fill drilling.

    Some of these curves are probably influenced in 2015 and 2016 by reserve write downs due to price, but more so by the rush of new projects since 2012 – most of which, in these mature basins, are small fields and tie backs with short plateaux and high declines. Nevertheless these numbers are really high, especially for the GoM and Norway. There is no way EIA predictions for GoM are going to happen with that sort of depletion in existing fields.

    • SouthLaGeo says:

      George,
      Those are interesting charts above. Looking at the fine print, they define depletion as “annual production divided by proved-developed reserves at end of same year”. That is a measure of reserve-replacement ratio (RRR), or, to be more precise “1-RRR”. The goal for a company is to have a RRR of 1, meaning that you replace your production with reserve adds. In their charts a RRR = 1 would equate to Depletion = 1 -1 = 0.
      When I look at it that way, then you can understand how increasing GOM production results in the trend they are showing. Companies are producing at a faster rate then they are replenishing the reserves.
      If infill drilling is only accelerating production, and not adding new reserves, it only increases the depletion %, as you say.

      • SouthLaGeo says:

        A clarification – the relationship between RRR and depletion is not quite as simple as I stated above. It is not Depletion = 1 – RRR, as I said above. It is a bit more complex.
        Depletion is “annual production / reserves at the end of the year.”
        RRR is ” annual production / reserve adds.”
        RRR should = 1 or greater. If it is consistently below 1, year after year, an oil company is going out of business.
        Sorry for the confusion.

        • Watcher says:

          Mentioned above, change to SEC defined quoted reserves would have occurred recently from price, but maybe not so much in GoM where development is so far advanced.

          Know any specifics on field write downs from price there?

          • George Kaplan says:

            And not so much on developed fields either – there may be some change because of a higher abandonment flows and a bit of a change for reduced development or in-fill drilling but not much compared to changes on undeveloped reserves. EIA publishes reserve data, I haven’t really checked.

            • SouthLaGeo says:

              I’m not aware of any significant reserve write downs because of price in the GOM. Most of the times, reserve write downs are performance based.
              In the deepwater, reserves can be booked at project sanction. Before that, they are resources. And, as far as I am aware, all of the projects that had been sanctioned prior to the oil price collapse are still going forward.
              Now there have been resource write downs. This is a normal part of doing business in the deepwater. A discovery is made that is thought to be commercial, resources are booked, then appraisal drilling shrinks the project such that it is no longer economic, the project is cancelled and the resources are written off. I suspect this has been more frequent an occurrence these last few years.
              This may have happened at BP’s Kaskida and Chevron’s Moccasin.

              • George Kaplan says:

                I know the lease for Moccasin has been given up, but has it for Kaskida yet? I read that it is very HTHP but also had major sand production problems.

                • SouthLaGeo says:

                  Don’t know the specifics on Kaskida. I’m basing my comment on the fact that there has been no recent drilling activity or “industry buzz” – no press releases or anything.
                  Repsol’s Leon is another discovery that falls into this category.

      • George Kaplan says:

        Or if you just look at GoM production from the fields they have on line: to maintain the same production assuming 25% depletion initially and no reserve additions then next year depletion is 33%, then 50%, and then it’s all gone. That can’t possibly happen. Alternatively 25% depletion might be maintained – but then you have to have continuous 25% decline in rates, until the last year – and then depletion and decline will, as always, be 100%. Not a very pretty picture.

    • Energy News says:

      There are a number of news articles saying that oil companies are cutting costs. But the articles don’t say how much of those cuts are really just delaying essential development capex. It seems looking at this that oil companies are saving money by producing from previously proven reserves.

      Schlumberger presentations
      This is from the March 27th one: http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-presentations

      Major oil company Capex in 2016 was down by almost half from the level in 2014. Chart on Twitter from Morgan Stanley Research
      https://pbs.twimg.com/media/C-OhYuKW0AAltnp.jpg

      • Energy News says:

        Canadian Capex

        • George Kaplan says:

          By IEA Canada production isn’t going to increase much, if at all ,this year. Another fire season like last year would knock it down a lot. I think they have Hebron and Fort Hills starting late this year and two other small fields. Once those are finished I don’t think there is any development project on-going – all the design teams that grew up in 2005 to 2014 will have gone. Even if there is a fresh boom it will take a long time get going. I’ve lost contact with the few younger engineers I knew there who got taken on in the last expansion – often with high salaries and signing on bonuses – I wonder how many are left, and how many who stayed wish they’d never started.

  30. shallow sand says:

    XOM lost $18 million on its US upstream business in Q1 2017. Chevron earned $80 million on its US upstream business in Q1 2017. Neither grew US upstream production from the previous quarter in a significant way, with XOM slightly increasing and Chevron slightly decreasing.

    For perspective, the XOM loss on US upstream was .4 cents per share and the Chevron US upstream earnings contributed 4.5 cents per share to overall company earnings for Q1 2017.

    Of course, US upstream includes significant onshore conventional production and GOM production. Would be interesting to know how US unconventional performed, earnings wise in Q1.

    Both companies claim a huge amount of US unconventional locations that are profitable at $40 WTI, however.

    The problem, of course, is the never ending capital requirements of unconventional US. By the time D,D, A is fully taken for a well, it is producing almost nothing. Cutting unconventional CAPEX results in decreasing production.

    I would be interested in knowing the years for both depreciation of tangible equipment and the years for cost depletion of a US unconventional well.

    We write off leasehold equipment over 7 years and take cost depletion over ten years. Look at shaleprofile.com at how much these wells are making past years 7-10.

    • Dennis Coyne says:

      Hi Shallow sand,

      Interesting. Are those claims in the 10Q? Usually less bold claims are made in the SEC filings than investor presentations (which are sales pitches which are best ignored). There are not many places where LTO is profitable at $40/b, maybe 5% of all LTO wells drilled so far.

      Maybe they are saving the best wells for last? 🙂

  31. shallow sand says:

    Dennis. In March, 2017 presentation XOM says 7,000 locations with attractive returns at $40 oil and $2 gas. That is across all basins where they have operations. Easy to find on XOM investor page.

    • Dennis Coyne says:

      Hi shallow sand,

      Based on their 10Q, I guess they are saving those locations for later. 🙂

      I doubt their claim. Maybe it was a typo, they meant to say 700 locations.

      They didn’t define attractive it seems, so maybe attractive is a -1% ROI instead of -10%?

      • coffeeguyzz says:

        ” … doubt their claim”.

        Dennis, you put a lot of time and effort into this blog.
        You courageously (IMHO), forthrightly, acknowledge unawareness in many aspects of this hydrocarbon world and regularly reach out for info from contributors.

        Good stuff, all that.

        But, to express skepticism about the world’s biggest O&G company’s projections does not cast your views in a favorable light.

        Re 7,000 locations?
        In tiny Susquehannah county ALONE, Cabot claims 3,000 profitable locations at strip pricing.

        For all those following the financial aspects in these matters, Cabot’s CEO spent considerable time on the recent conference call discussing options for the anticipated quarter billion dollar free cash flow starting this year.

        ‘Shale’ is back and starting to expand into more conventional reservoirs such as the Austin Chalk.

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