Peak Oil Notes – Nov 19

November 19, 2015

Oil futures fell as low as $39.91 a barrel in New York on Wednesday before rebounding to close at $40.75. The price drop on Wednesday came after the EIA reported that US crude stocks rose for the eighth straight week, but this time by only 252,000 barrels. Stocks at Cushing, Okla. were up by 1.5 million barrels, however, and gasoline stocks rose by 1 million barrels. The Administration also reported that crude imports were down by 409,000 b/d last week from the previous week. A strong US dollar also contributed to the lower prices. The price rebound late Wednesday came after the release of the Federal Reserve minutes suggesting that a December interest rate increase may not be as much of a sure thing as the markets are expecting.
 
Most observers continue to say the oil markets are over supplied and they expect prices to move below the psychologically important $40 a barrel in the near future.
 
Natural gas prices fell this week after the EIA revised its methodology to show inventories are now some 54 billion cubic feet higher than previously estimated at 3.985 trillion cubic feet. This suggests that a mild winter could push the number above 4 trillion and raises concerns that the the storage caverns can’t take much more.
 
Some traders are talking about an unexpected spike in oil prices next year with Brent rebounding to $130 a barrel. The idea is that prices are now so low that there will be a large jump in demand at the time when producers are slashing investment.  For now, the IEA does not hold to this theory, but brokers, OPEC members, and anyone else who would benefit from much higher prices do.
 
Many had expected that the US shale oil industry would face a major credit crunch this fall as declining oil prices and value of assets would sharply curtail Wall Street’s willingness to extend the industry more credit.  Reuters, however, reports that the biennual process known at “redetermination” shaved only 4 percent off loans to the oil and gas industry, leaving many marginal companies in business for at least another six months.
 
An OPEC working group failed to agree on a five-year plan that was to be presented to the members at the Dec. 4th meeting in Vienna. There is simply too much animosity in the organization over the Saudi’s failure to cut production enough to drive prices back up and make the other countries whole again.
 
China’s economic woes continue and have spread to Japan which has now lapsed into recession as Beijing cuts its imports from Japan. Chinese steel prices have hit record lows and are down 37 percent since the beginning of the year.  Apparent steel consumption in China fell 5.7 percent to 590 million tons in the first 10 months of this year.  Declines like this do not bode well for the near-term outlook for China’s economy.
 
In Syria, retaliation against ISIS by for the Paris attacks and the Russian air crash have resulted in intensified attacks on the Syrian oil industry which is largely controlled by ISIS these days. The US had been reluctant to launch full scale attacks on the industry’s infrastructure out of fear of causing excessive casualties, but the Russians and French seem to have no such qualms. Even the US is going after the 1,000 or so tanker trucks that move the oil to Turkey and western Syria for sale. 

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.  

Tags: geopolitics, oil price, oil production