Peak Oil Notes – Nov 27

November 27, 2015

There has been a lot of news to move the oil markets in the last few days. The week started with a strong dollar and the usual worries about the ever-building crude surpluses. On Monday, the Saudi cabinet announced that it is ready to cooperate with OPEC and non-OPEC in achieving “market stability.” Preliminary indications emanating from the atmospherics surrounding next week’s OPEC meeting, however, suggest that there will be no change in the Saudi policy of pumping all-out to maintain market share and bankrupt the US shale oil producers. Nevertheless, the announcement was enough to move the oil markets higher on hopes that OPEC might restrict output.
 
Tuesday brought the Turkish shoot down of a Russian war plane that may or may not have penetrated Turkish airspace. This naturally resulted in an oil price jump due to fear that the incident could lead to some sort of hostilities involving Russia and NATO. The details of the shoot down and the consequences have yet to be sorted out. By Tuesday night fears were subsiding that the Turkish-Russian incident would interfere with the oil markets and prices turned lower again. The decline was supported by the weekly American Petroleum Institute survey which showed that the US crude inventory had climbed by 2.6 million barrels last week.
 
When the EIA’s weekly stocks report came out Wednesday morning, however, showing that US crude stocks grew by only 1 million barrels last week, the markets moved higher despite an increase in gasoline and distillate stocks which left total commercial inventories up by 2.1 million barrels. There are still reports of some 30 oil tankers waiting off Houston to unload millions of barrels of oil. When trading was over Wednesday, New York futures were at $43.04 and London was at $46.17.
 
Most observers are pessimistic about the immediate prospects for the oil markets. Short positions held by hedge funds are at the highest levels seen this year. Goldman Sachs repeated its long-held view this week that oil prices could go as low as $20 a barrel this winter due to mild weather and the lack of storage capacity to hold the growing oil glut. Even Venezuela agrees with Goldmans an is predicting that oil will fall in the $20s unless “OPEC,” read the Saudis and other Gulf Arabs that are keeping prices low, cuts production.
 
In the meantime, the global oil industry continues to contract. Graves & Co., who watches these things, says that the industry has cut 250,000 jobs and $100 billion in capital spending this year. Baker Hughes says that the US rig count fell by another nine units and is now down to 555, some 54 percent lower than in October 2014.
 
In the run-up to the Paris climate change conference, there has been much discussion of the $2.2 trillion worth of stranded assets that the oil industry will be stuck with, should the world decide that we would all be better off if a substantial portion of the oil, gas, and coal reserves are left in the ground.
 
In the Middle East, Iran has gotten the go-ahead to ship its enriched uranium to Russia. The Syrian Observatory for Human Rights says that over 400 civilians have been killed by the Russian airstrikes in the last two months. Moscow is clearly not as concerned about civilian casualties as the US has been. 

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