OPEC is still in a jam and a few of the reasons why.
The scheduled production cuts from OPEC are nearing the expiration date as oil prices drop further. Why are they in such a difficult position? Photo above illustrates 12 specific things contributing to their discomfort.
Some articles describing their troubles and why the troubles won’t be going away anytime soon:
5/3/17 – Wall Street Journal – Oil Forecast to Fall Sharply if OPEC Doesn’t Extend Production Cuts – Article says the oil market has priced in an extension of the OPEC production cut. If correct, that means oil prices will fall if the production cut is not extended during meetings this month.
Article has a graph showing forecasts from 14 banks of their guesses on oil prices through the end of the year. For 4th quarter, the estimates range from mid-$40s to almost $70, with most of the estimates in the high $50s or very low $60s.
Article speculates that without an extension, price could drop into $40s.
5/5/17 – Bloomberg – OPEC Runs Out of Options as Bid to Boost Oil Price Fizzles – Article says the OPEC producers have kept to their agreed upon production cuts. That pushed prices up for a while but now prices are back to where they were when the cuts were announced.
In the meantime, production quickly increased in the U.S. shale patch, increasing world supplies, and pulling prices down.
Article speculates OPEC has no choice but to continue the current cuts in production. If they open up production, supplies will increase and prices drop further. If they make additional cuts to push prices up, that will encourage more production from shale drillers.
So, article concludes OPEC will have to continue the current production cuts, even knowing it will have no impact on prices or supplies.
Soooo many billion barrel finds….
4/17/17 – The Million Dollar Way – Haynesville – USGS released a new assessment of the Bossier and Haynesville formations in the Gulf coast. The assessments are in a range with a mean to provide a point estimate. Here are the means:
- 109 tcf natural gas
- 3 billion barrels oil
- 1B barrels NGL
- 196 tcf natural gas
- 1B barrels oil
- 1B barrels NGL
Consider the change from the 2010 assessment for natural gas
- 2010 – 2017 – field
- 9 tcf – 109 tcf – Bossier
- 61 tcf – 196 tcf – Haynesville
That would be 4 billion more barrels of oil that wasn’t touchable 1 decade ago.
That would be 305 tcf of natural gas, 4B barrels of oil, and 2 B barrels of NGL that the long discredited Dr King knew did not exist.
I sure do like asking this next question. It never gets old:
What Peak Oil?
More background on our incredibly bright future
5/2/17 – The American Interest – American Oil and Gas Surge to New Highs – US oil production has increased 0.8M bopd in six months, soaring from 8.5M bopd in October to 9.3M bopd today. Staggering.
Article points to USGS estimates that the Permian Basin could have 20 billion with a “b” barrels of oil and 16 trillion cubic feet of natural gas.
4/28/17 – The American Interest – Oil Faces a Looming Supply Problem – The world is really complex. If you hadn’t pondered that lately, consider this article.
The revolution in horizontal drilling and hydraulic fracturing has generated a large increase in supply of oil and gas in the US. So much so that there is an oversupply on the world markets, all because of fracking. That has caused prices to drop.
That is great if you are a consumer. Tougher if you are a producer.
That is good for long-term oil supply. But this is where life gets complicated.
Those low prices have caused the majors to cut back on their huge projects that would otherwise produce large new sources. The volume of oil discoveries was 2.4B barrels during 2016, which is in contrast to an average of 9B barrels a year during the previous 15 years, according to data from EIA.
(What’s that you say? An average of 9 billion barrels of new oil discovered every year? But isn’t it impossible for that to happen because of Peak Oil?)
That means there will be lower supply from conventional sources down the road. The complexities: Can shale make up the difference? Can conventional sources get geared up?
My little brain can barely understand the questions, let alone have any clue to any answers.