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Oops! Low oil prices are related to a debt bubble

Why is the price of oil so low now? In fact, why are all commodity prices so low? I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the sales prices of commodities up with the cost of extraction (Figure 1), even though wages have not been rising as fast as commodity prices since about the year 2000. Now many countries are cutting back on the rate of debt growth because debt/GDP ratios are becoming unreasonably high, and because the productivity of additional debt is falling. If wages are stagnating, and debt is not growing very rapidly, the price of commodities tends to fall back to what is affordable by consumers. This is the problem we are experiencing now (Figure 1). Figure 1. Author’s illustration of problem we are now encountering. I […]

Posted On : Published By : Tom Whipple
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Analysts Forecast 2.5 Million-Barrel Rise in Crude-Oil Stockpiles

NEW YORK–U.S. crude-oil stocks are expected to rise in data due Wednesday from the Department of Energy, according to a survey of analysts by The Wall Street Journal. Estimates from 11 analysts surveyed showed that U.S. oil inventories are projected to have risen by 2.5 million barrels, on average, in the week ended Oct. 30. All 11 analysts expect stockpiles to rise. Forecasts range from a rise of 1 million barrels to a gain of 4.5 million barrels. The closely watched survey from the Energy Information Administration is due at 10:30 a.m. EST Wednesday. Gasoline stockpiles are expected to fall by 1.1 million barrels, according to analysts. Ten analysts expect a decline, with one expecting a rise. Estimates range from a rise of 500,000 barrels to a drop of 2 million barrels. Stocks of distillates, which include heating oil and diesel, are expected to fall by 1.8 million barrels. […]

Posted On : Published By : Tom Whipple
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Despite gloom, four U.S. shale oil firms lift output views

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015. A handful of U.S. shale oil producers are pushing up their production forecasts, saying efficiency gains from drilling in prime rock are helping them eke out more crude in the middle of the worst price crash in six years. The slightly bolder outlooks this week from Oasis Petroleum Inc ( OAS.N ), Devon Energy Corp ( DVN.N ), Pioneer Natural Resources Co ( PXD.N ) and Diamondback Energy Inc ( FANG.O ) show that the confident swagger that typified the U.S. shale boom’s early days has yet to be fully tempered by the more than 50 percent drop in oil prices CLc1 since last year. Though the consensus view is that rig productivity in U.S. shale basins is stalling to portend a drop in national output as companies struggle […]

Posted On : Published By : Tom Whipple
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U.S. oil refiners look abroad for crude supplies as North Dakota boom fades

Gasoline-making unit at a PBF Energy Inc refinery in Delaware City, Delaware August 21, 2015. PBF Energy Inc, one of the largest independent oil refiners in the United States, spent heavily in recent years to build the rail terminals at its Delaware City complex that it needed to take delivery of large loads of crude coming from North Dakota’s Bakken oil fields. But now it is considering eliminating those deliveries altogether, and replacing them with foreign crude imports, according to two sources familiar with the situation. It has even closed its small Oklahoma City office that was only opened in 2013 and had served as a hub for the company’s trading in North Dakota’s oil, the sources said. The sudden lack of interest in Bakken crude by PBF, which is run by Thomas O’Malley, one of the biggest names in the U.S. oil refining industry, reflects a dramatic recent […]

Posted On : Published By : Tom Whipple
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Texas Railroad Commission says injection wells not to blame for series of quakes

The three-member Texas Railroad Commission on Tuesday accepted the findings of the commission staff that two oil and gas wastewater disposal wells were not the likely cause of a series of earthquakes that shook parts of North Texas in late 2013 and early 2014. The decision, which the commission made in an open conference meeting Tuesday morning, clears the two injection wells, owned by Houston-based Enervest and ExxonMobil subsidiary XTO Energy, respectively, of responsibility for the minor quakes felt by residents in the small cities of Azle and Reno. About three dozen earthquakes were reported in Azle and the surrounding area. Most were considered minor, registering about 3.3 magnitude or less. TRC hearings examiner Paul Dubois reported the results of hearings held last summer to determine if the wells contributed to the unusual seismic disturbances that had alarmed residents of the area, which lies in the heart of the […]

Posted On : Published By : Tom Whipple
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This Oil Bust Will Change The Energy Industry Forever

As an investor in start-up companies, I am always working to test my assumptions and update my understanding of where the energy sector is now, and the direction it is moving in towards the future. Some key questions for this dynamic year: Is the current oil crisis the marking of a step change towards a cleaner energy industry or merely history repeating itself? While today’s oil price at $45-50 per barrel is probably too low to be considered the new normal, what should we expect moving forward? One thing is for sure: change is coming. Although demand for oil and gas will continue for decades to come, it will gradually diminish as renewable energy sources rise. A lot could happen between then and now. The International Energy Agency (IEA) and many other credible parties continue to forecast that our growing world population from 7 billion people today to 9 […]

Posted On : Published By : Tom Whipple
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We Won’t Have $100 Oil For At Least A Decade

Summary People have been worrying about running out of commodities for thousands of years. History will once again prove Malthusian arguments wrong. OECD oil demand has peaked and China isn’t coming to the rescue. Short-term, the next global recession is at our doorsteps, and weak economies mean less oil consumption. Long-term, America has the best engineers in the world, and our leading methods will be adopted internationally. We won’t see $100 oil for a decade, maybe forever. Oil isn’t like other commodities. When talking about oil, all rational thought is thrown out the window. People that have never bought commodities, never looked at supply, never looked at demand irrationally have strong opinions about price. Maybe they also have opinions on the price of tea in China? Most of these opinions stem from a constant fear of running out that has been propagated by the media for 100 years. Past […]

Posted On : Published By : Tom Whipple
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Oil Guru Who Called 2014 Rout Sees OPEC Production on Hold

OPEC will probably hold production steady at its meeting next month as the gap between supply and demand for oil closes, according to the analyst who correctly predicted last year’s rout in prices. “I don’t think they have to do anything,” Gary Ross, founder and chairman of PIRA Energy Group, said in an interview in Singapore on Monday, referring to the Organization of Petroleum Exporting Countries. Global consumption of crude will continue to grow while output from non-OPEC countries will decline next year, helping to bring the market toward equilibrium, he said. Oil tumbled more than 48 percent last year as U.S. stockpiles and production expanded, creating a global oversupply that the International Energy Agency estimates will persist until at least the middle of 2016. OPEC’s strategy to defend market share has exacerbated the glut as the group, which kept its production target unchanged at 30 million barrels a […]

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Reality Setting In For The Oil Majors

Third quarter earnings capture some of the worst losses recorded since the downturn in oil prices began last year. Oil prices have displayed great volatility over the last twelve months, rallying to $60 per barrel in the second quarter before dropping back down to current levels in the mid-$40s. That has contributed to some large impairment charges and quarterly losses for the world’s biggest oil companies. Here is a quick snapshot of some of the quarterly figures: • Hess ( HES ) reported a net loss of $291 million, or a loss of $1.03 per share. Production jumped, however, from 318,000 boe/d in 3Q2014 to 380,000 boe/d in 3Q2015. • Marathon ( MRO ) became the first large U.S. shale producer to cut its dividend, slashing it from 21 cents to 5 cents per share, or a cut of 76 percent. “When you see major companies cutting dividends, that’s […]

Posted On : Published By : Tom Whipple
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OPEC’s big favor to the world of oil

OPEC’s spare production capacity is estimated by the US Energy Information Administration at 1.54 million b/d, a mere 180,000 b/d above the level reached in 2008 when oil prices hit their record high. But don’t panic! Oil inventories are at very high levels. The International Energy Agency puts global oil stocks at 147 million barrels, which it notes could notionally deliver 1.6 million b/d for just over 90 days in the event of a major supply disruption. Meanwhile, the North Dakota Department of Mineral Resources reports that the number of drilled but uncompleted wells in the state hit 993 in August. According to Platts unit Bentek Energy, these wells if brought on-stream would add 591,000 b/d to Bakken crude production (again, notionally). This represents a major change in the oil market. Spare capacity is no longer solely held by OPEC, but is split between the Middle East, principally Saudi […]

Posted On : Published By : Tom Whipple