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Is The Oil Glut Real?
Submitted by Leonard Brecken via OilPrice.com,
As it appears GDP will be seasonally adjusted again, I find myself wondering just one thing: why?
Earlier GDP figures showed the US economy on the brink of recession for the first two quarters of this year. Now, with more fudging going on, who knows what it will show. The government appears to be following the Hollywood mantra: if you can bend perception enough, it will become reality. Look no further than the Federal Reserve, which continues to raise expectations of higher interest rates in the second half of this year, in hopes of inducing faster growth.
Of course, the age of propaganda is now upon us; where perception trumps the truth, until that is, the house of cards burns and falls, which it always does. The US consumer responded to lower gas prices not by spending but by saving, despite predictions from investment banks and the Fed. They saw through the ruse and continue to feel the effects of 6 years of Keynesian money printing where the standard of living is falling. Inflation, while abated short term, won’t stay low forever. Nor will gas prices.
Goldman Sachs (GS) continued its streak of bearish calls on oil right at a time when the dollar took off (just by coincidence), based on the notion that $60 oil was good enough to increase drilling activity. That too will prove to be dead wrong just like every other piece of propaganda spewed from that bank. After hearing most of the major E&P earnings calls, I did not come away with any impression that the magic price to increase capital expenditures was $60 per barrel, or even $70 for that matter.
I could be wrong, and may have missed something, but what I heard was merely that one or two firms, when asked at what price they would start adding rigs, responded by saying roughly around $70 per barrel. But they did not say that the spigot would be turned on by a huge amount. The market appears to buy into the perception that supply greatly exceeds demand. But I disagree with that analysis completely.
Capital spending was, lo and behold, also dramatically revised higher in previous months, fully consistent with the pending “revised” quarterly GDP data for the first half of this year. With such blatant data manipulation going on, why shouldn’t we question the extent of stated “glut” in oil? After all, as stated here before almost every cry for this “glut,” – from Cushing overflowing to production increasing by 900,000 barrels per day in the US – turned out to be wrong.
This is why prices have recovered from lows, as the end of the world for oil never came. Production has flattened, and is now poised to fall, while inventories are declining. This is the opposite of what was perceived months ago.
The longer perception is distorted to create a false reality, the worse things will get in the end. We saw this before in 1999/2000 with the internet bubble and in 2008/2009 with the housing bubble, and it will not end well. In equity bubbles, false realities can last for longer, which we are seeing now in other assets. In commodities it’s harder because they are physical, are consumed and, eventually, will be measured correctly. I have maintained that the supply/demand imbalance won’t be nearly as great as portrayed as numbers get revised.
Even the US consumer sees through this. According to Goldman Sachs’ own retail sales statistics for the week ending on May 23 sales growth remained subdued at 1.8% pace. The rig count has not increased even with oil at the $60 level. It won’t increase for some time and when that reality sets in, the numbers will no longer be fudged as the supply of oil here in the US will dry up as existing wells deplete. What will result is a snap back to prices above the normalized price of $70 and that won’t be pretty for the US consumer.
If producers are dumb enough to get roped in to turning the spigot on when oil does rise then, once again, prices won’t hold. By 2016, I fully expect that low cost oil will be depleted and prices will need to rise to spur more activity as costs rise. In the short term, expect producers to consolidate assets through M&A activity, which will accelerate as we move through 2015.
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Yes the oil glut is real caused by over investment due to misallocated resources. To understand where oil prices are going you must understand the root cause of the drop.
I didn't see any mention of unemployed American's NOT driving to WalMart to buy products MADE from oil (plastics to name one) that where SHIPPED from China using oil ... etc.
As the global economy slows down, demand goes with it.
Regards,
Cooter
Thats too easy an answer as it makes too much sense!..
Yes, there is a short term oil glut in the market. This has been true for years and prices should never have risen above $75 per barrel except for Wall St.'s manipulation. This glut might last longer than a year as producers are desperate to keep the doors open.
That demand you speak of can easily be "revised".
No problem, things are awesome.
Nailed it, Cooter..!!
That's the part of the equation that doesn't get enough attention. We are in the midst of a massive global growth slowdown. This year is going to get very interesting.
The price of oil fell
Why?
The Saudis opened the flood gates.
Why?
To crush Russia and Iran and put the fork in Venezuela.
Why?
Because that is what Dollar, Inc. wanted done.
The Saudis did NOT "open the flood gates", they meerly decided not to curtail production (and lose market share). The U.S. has been responsible for virtually all production growth over the past few years. Please check your facts.
maybe you need to check again...the USA is now the WORLD'S LARGEST PRODUCER. Production has increased 100% while demand has dropped in the USA. Canadian production has increased 400% in the last 20 years. Maybe that is why the prices is fallig.
'
No glut, no shortage.
No price spike, no crash. All illusions...
Gold, Oil, Dollah...GOD....
https://aadivaahan.wordpress.com/2011/02/14/oil-crisis-in-a-thousand-words/
And add to what i said this.....and thank you zerohedge for providing both sides.....but please this data rigging needs to be looked into by someone.
The Department of Energy reported yesterday that weekly US oil production rose to an all-time high.
Mike has been explaining to our clients the weekly US oil figures in the DOE report are generated by an econometric model vs survey readings from oil companies/producers. Mike believes crude production in the weekly DOE estimate is being overstated and ‘missing oil’ has largely increased from an already high number over the last 6 weeks.
Cornerstone Analytics
You need to get together with Bitterman and brainstorm. Maybe you might come up with a new product that we all will buy.
Exciting.
US tIght oil is almost certainly peaking this year, and with it US production forever.
This explains your all time high in a rather parsimonious way.
Coincidentally, Russia is also peaking this year or next, by their own non-governmental admission.
As for the "glut", it's bullshit.
Find the gluts in any of these charts:
BP total liquids: http://i1095.photobucket.com/albums/i475/westexas/BP-world-production_02...
EIA total liquids http://s1095.photobucket.com/user/westexas/media/EIA_total-liquids_02-11...
Various sources, compiled by Euan Mearns (you may get out your ruler and fit the trend lines for yourself) http://www.euanmearns.com/wp-content/uploads/2014/10/global_C-C_jun14.png
It's a "glut" relative to affordability. That's all.
One more to tie it up, again from Euan Mearns (note Brent in $): http://www.euanmearns.com/wp-content/uploads/2015/03/prodprice-feb-15.pn...
What does the oil supply have to do with paper oil derivative prices? If people think these things are related, they should re-examine the issue. You might as well be betting on next years fashion trends. The people selling commodities are not setting the prices.
The oil glut is real and Peak Oil is not real.
Who knows what is real and WTF is not anymore?
We've been fed so much BS about every number in print that I no longer have the ability to discern fact from fiction.
I have simply recused myself from the entire market for lack of ability to calculate risk.
Why not both?
Goes like this: production overtakes weakening demand on ZIRP money. Demand continues to weaken, production investment tapers off, and production begins to decline so as to bring supply and demand in balance.
Fast forward a few years, if demand recovers, but only at lower prices, new production can't come online due to the lack of ZIRP and inability of the market to feast on 100/bbl oil (which is needed to bring on new supply).
See, you can have both peak oil and an oil glut at the same time.
Regards,
Cooter
that's correct
oil glut AND "age of propaganda" = Neptune in Pisces until 2026
hehe, rh, you oughta be ashamed of yerself; tyin' leads and yankin' chains like that.
Dear Leonard, "the age of propaganda" was always with us. I'm a hobby archeologist, I can tell you most of what we dig out is either boring business records or exciting... ancient propaganda
Babylonian banking accounts are both. boring lists of who owed who, with reminders that interest is to be paid to the Sun God Marduk
oil? I know two things about oil. on one side, Iran, Saudi Arabia and the Gulf States all want to go nuclear
on the other, the US Secretary of Agriculture pushes Europe to have it's food production... modernized. or "Americanized", as some say. which, if I squint my eyes, looks a bit like the old Soviet-style industry with a stock exchange instead of a polit bureau, but anyway, according to some calculations it would mean we would have to double the european oil consumption... or being called by Washington "those who starve the world"
may I offer a very cynic comment that might be completely wrong? the new oil producers are small or middling ones, aren't they. what about a theory of Wall Street first pushing them up, and then... harvesting them? that's the beauty of leverage and stock exchanges: last year you were a nice little business proposition, this year... sorry, guys, we take possession
or, in kinder words:
"In the short term, expect producers to consolidate assets through M&A activity, which will accelerate as we move through 2015. "
bubbles are so... handy, if you are in the know. make money on the upward leg, make money on the downward leg, screw the rest
as a reminder, the whole purpose of open and free markets would be the "price signal". and it looks like a "price war", something most free market fundamentalists studiously avoid ever to mention, since it spoils their dogmas
the Sun God- Marduk Bankerbaum.
as a reminder, the whole purpose of open and free markets would be the "price signal". and it looks like a "price war", something most free market fundamentalists studiously avoid ever to mention, since it spoils their dogmas
Not at all. It's just that free-market fundamentalists realise that when the cost of money is essentially free for a small, protected subsection of players, there is no 'free' market.
If oil production is doing so well in the U.S. how is it that over 100,000 oil workers were reported (by Zerohedge) to have been laid off. That number (as claimed by Zerohedge) was not included in the BLS figures for unemployment.
Productivity in the oil fields has increased. This means that a fewer number of rigs are needed to maintain (and actually increase) production. Fewer rigs working equals workers being laid off. What is confusing about that?
The Saudis miscalculated. They thought they could starve out US oil shale production and it hasn't happened.
There is no glut. A glut is defines as excess production brought on by government enforced price floors. Every bit of that oil can be sold at the right price. That price happens to be lower than most OPEC members can pump at, so they have to get out of the oil business. Too bad that their social welfare expenditures require higher oil prices. Times are tough all over. Even governments have to adjust to reality.
In your entire post, you opt for the language "fewer" and "more", yet fail to put any kind of number on it ... 50% fewer, 50% more?
To be pedantic and reinforce the point, I have more than the average number of legs, which sounds crazy until you realize I only have 2 legs.
The whole efficiency narrative going around since oil collapsed is rarely done with hard numbers.
FACT: Frack wells lose 90% of their initial flow rates in 2 to 3 years.
Does a 10% or 20% improvement in rig operation offset that?
You can define glut however you want, but the fact of the mater is demand is declining/collapsing/crashing because the global economy is slowing down and needs less energy. There is too much supply and not enough demand ... which means prices are going lower, not higher. And the marginal producers who need high prices are going under the bus (unless they get Uncle Warren status and become heavily subsidized).
Regards,
Cooter
BONUS QUESTION: Does frack company debt repayment schedules match the production profile of their typical well? Someone might be buying that shit, but it ain't me!
Producing tight oil from shale is a two-stage process; first you use rigs to drill the well and cap it. Some time in the future (a month or more) the fracking equipment comes in, does its thing, and the well start producing (and depleting rapidily). Drilling rigs have been laid down (~ 50%) but there was/is a backlog of drilled wells. That backlog is being fracked and accounts for continued and increasing production. The wells available to frack will be greatly diminished by late this fall and that is when we will see production trailing off. Buckle up.
The were not included in the BLS figures because they were not 'laid off', they were 'seasonally adjusted'.
You see now?
Gold is being found everywhere now that satellites can find it 5 miles down. Even small amounts. Tons upon tons of fresh gold.
And that is why the price will go up.
Yeah, it's all stashed and hidden in the mines they collapsed on purpose and in the seed bank up north. It's why they aren't actually shipping any of the gold they keep talking about. There isn't any. Although looking at the pole drift 'north' is a relative term, it moves location.
http://hpiers.obspm.fr/eop-pc/images/pole.png
What's interesting to note is the poles usually only move around 3-9 meters a year and I've seen that graph change three times since 2012. Either means the earth is spinning incredibly fast (unlikely, you'd all be dead and this post wouldn't be happening). Or around 20000 - 60000 years have passed if adding up the pole movement from the chart being reset three times since 2012 as I've got in my archives.
http://astro.uchicago.edu/cara/outreach/resources/other/poles.html
Now if it is actually the year people say it is, it is doubtful that the surface is accessible due to the glacial period happening right about now. If it's 20000 years it's about to get very shitty on the surface of earth with the atmosphere collapsing and the blanket of air that surounds the earth releasing all of the protection from extreme cold and heat. If it's 60000 years, best anyone could offer is a snow cone because the earth tends to reset over a 144000 year period with a slim time band to offer the surface of the earth to live on.
http://en.wikipedia.org/wiki/Glacial_period
Hands up to anyone know where they are yet? lol....The quick way to tell. Is a children's book series spelled Berenstain Bears, or Berenstein Bears? Now go look at google once you've got your answer.
That Bernstain, Bernstein thing is a TRIP. I saw that last year and I think it pushed something to the max in my brain.
A pop, not weasly, so to speak...
Wild world CPL...
1985 Saturday morning at 7:00am, TV listings clearly spell the cartoon series Bernstein, not Bernstain.
http://ptl.stparchive.com/Archive/PTL/PTL09121985P06.php
Gold finding satellites?
THAT is the most ridiculous thing I have heard all morning... And I have already been on Drudge Report.
If one could collecct density information at various depths and visualize it, I could see where this might have legs. If a deposit of some density, gold/uranium/whatever, was large enough, it would stand out fairly well if its surrounding material lacked that density.
Most likely this tech would stay under wraps as it would be just as useful to spy on underground installations.
Absent a company selling services, this is pure conjecture.
Regards,
Cooter
With such technology they could also fin new Oil Wells and what not, it would be too useful not to use it commercially for it to be exploited I am sure!
Thank You!!
In April we also heard how in just one month Saudi Arabia added to the oil market the production equivalent to half the best U.S. shale basin, the Bakken. This was reported in a 16th April Bloomberg article by Grant Smith – a curious write-up. Smith tells how “Saudi Arabia boosted crude production to the highest in three decades in March,” adding 658,800 barrels per day to an average of 10,294 million barrels per day. Those are some very precise figures from a very non-transparent oil producing nation. The article goes on to cite more amazingly detailed figures, rounded to the nearest 100 barrels. The curious thing is that it cited four such figures and all four end with 800 [658,800; 346,800; 811,800; 318,800]. Paint me excessively suspicious, but I do find this curious because the article also presents a significant contradiction. See if you can spot it: first, Smith says: “The kingdom boosted daily crude output by 658,800 barrels in March to an average of 10.294 million…” A few paragraphs on, he states: “Saudi output rose by 346,800 barrels a day in March to 10.01 million a day…”
LOL
Why are the Saudis fracking their fields? Perhaps they are in worse shape then they are letting on.
http://www.cnbc.com/id/102691084
Maybe.... here is a break down of the numbers published by OPEC.... Ron does a pretty good job of explaining and comparing them to EIA...
Ron mentions the number's come from OPEC's secondary sources.... need to email him and find out what that is..
http://peakoilbarrel.com/
the first number, daily crude output, is a fixed number describing the rate of production. the second number explains the ramp up in production by saying the increase in the rate of production increased actual output by a number. so you have the rate of production and the actual production.
math should have been fun in high school and college. too bad it wasn't.
OIL has a long way to go before it bottoms...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
Suppliers and consumers should hedge their future plans. Oil is not real estate. It can be stored and is actively traded on commodities and futures markets. Sophisticated parties can manage their risks.
"Get it out, get it all out.
Yeah, stretch that thing.
Make it last, make it last
At least 'til the supper bell rings...
Sometimes the faster it gets
The less you need to know
But you gotta remember the smarter it gets
The further it's gonna go..." G Downie
Gord Downie of The Tragically Hip - hard to believe 'Up To Here' is 25 years old ! And Happy 40th RUSH : )
Juggalo, how can I hedge the next few fillings for my car? Not quite sure how consumers can "protect" themselves.
Well, you see, if oil was traded at a price that accurately reflected not only demand but also the cost of getting it out of the ground:
Russia would not only be rich but be the mistress of Europe, as she should be, with the Fourth Reich replaced by a free and prosperous Eurasian Union.
There would still be jobs in flyover north America offering white people with families to feed and without six degrees and/or connections to the rich and powerful good jobs for good pay allowing them to raise their families and stay out of debt.
Can't have either of those.
There's nothing the banksters fear more than a fair price for oil, drilled by people earning a fair day's wage.
Revised revisions of previous revisions of preliminary (v.3) "data".
Maybe we simply need to revise the meanings of words like "data", "fact", "accurate", and of course "truth". Isn't that the best supported historical method to quell all this (unwanted) discomfort?
While we are at it, let's revise the meaning of "comfort". Goodness me, I feel better already. Oh please, tell me again what makes me comfortable! Tell me again what makes me afraid, and let me repeat, repeat, repeat so all can hear the new truth.
One day the word "propaganda" will actually mean "fact".
How many times does it need to be repeated that oil production does NOT stop on a dime in response to price changes? If oil went to $10/bbl tomorrow, it would be months before it showed in production levels. If you notice: the price has fallen but has not exactly cratered. Maybe the greedy-ass Saudis are not interested in a total price collapse, eh? There is a glut as what we see now is the production momentum leftover from the higher price. It will adjust but by then everyone and his brother will be in the oil game: PEMEX, Iran, and now the US when it begins FRACKING off the CONTINENTAL SHELF where there is plenty of water 'nearby' to be used for injection.
Fuck Peak Oil!
someone gets it.
the last time the market was screaming about an oil shortage back in 2007 the prediction was peak oil was here. the market now produces 9 mil barrels more/day.
the problem with the oil market is the incredibly slow production response compared to market response. the ones that can hang on keep pumping(thanks to the derivative market) and the weak producers slowly stop production. the idea is to last until the market catches up with production because the market keeps growing so it will catch up to production. once it catches up there is a period of time between market demand and production ramp to meet the demand and the price spikes accordingly.
the bottom line is the oil market is still growing and oil will be above 100 bucks within a year as the supply demand curve shifts from a supply disequilibrium to a demand diseqilibrium.
Agree, except for the $100/bbl price prediction. Just like the price has not dropped as much as everyone thought, it will not go up by as much as well - for reasons previosly stated. The range of the price swing has been narrowed. We're looking at $50 to $70/bbl for a long time. The unknown, as always, is events/stability in the ME.
Unless I've missed an article explaining the disparity between production and available storage, something is way off in the figures. A couple of months ago, the expectation was for prices to crater in May as available physical storage became full and the producers would have no choice but to sell the surplus at any price. What became of this analysis?
Um, the analysis was wrong.