Peak Oil Review: A Midweek Update – 24th Aug 2016

August 25, 2016

It has been a volatile three days for oil with prices falling on Monday, rebounding on Tuesday, and falling again on Wednesday.  The rebound on Tuesday was sparked by a Reuters report that Iran was interested in attending the Algiers meeting next month along with Moscow, the Saudis, and Iraq and doing something, unspecified, to push oil prices higher. By Wednesday morning it was clarified that Tehran had not yet decided to attend the meeting, and coupled with the API report that US oil crude stocks were again on the rise, oil prices began to fall. Later on Wednesday when the EIA stocks report confirmed US crude stocks were up by 2.5 million barrels and the total US crude and oil products inventory was up by 6.6 million barrels, prices continue to fall closing at $46.77 in New York and $49.05 in London.
 
Even as supply and demand appear to be coming back into balance, thanks to the Nigerian situation, declining production in Venezuela, and low prices, analysts continue to point to the growing amount of crude and products in inventory which will take many months of deficit supply to work off. The jump in the US rig count is also weighing on the market suggesting that US oil production could start rising again.
 
The continuing build in US crude stocks suggests that the conventional wisdom that oil prices will rebalance in the current quarter is wrong.  US gasoline stocks on the Gulf Coast hit seasonal highs not seen since 2013 last week. One trader was quoted as saying “Its ridiculous how much oil we’re swimming in.” The media are rushing to publish any headlines suggesting that there could be a freeze in the offing. One analyst says “There is currently a race to print any production-freeze headlines,” while another is calling talk of production curbs “OPEC prattle.”
 
The huge cuts in capital investment in oil production — which now is approaching $1 trillion spread over several years — foreordains with virtual certainty that oil production will be falling in the year ahead. Some major financial institutions are saying the great oil price rebound will happen in 2017; a few believe it will come later. A secondary question is whether prices will increase enough, and stay there for long enough, to revive oil production.  Although prices around $60-70 a barrel may be enough to convince Wall Street to pour more money into money-losing US shale oil projects, the big deepwater, Arctic, and tar sands projects are unlikely to start until oil is back in the vicinity of $100 a barrel.
 
The Turks, with help from coalition airpower, began a major offensive to drive ISIL back from their border. This may hasten ISIL’s demise as a state holding territory, but the aftermath of the Syrian insurrection is likely to haunt the region for decades to come and eventually slow or stop oil exports from more states in the region.
 
Tehran tossed the Russians out of an Iranian airbase they used for a few days to bomb in Syria. The Iranians said that Moscow was too public about the arrangement, claiming it was a sign of growing Russian influence in Iran and the region as a whole.
 

Nobody is sure what is happening in Nigeria. The Niger Delta Avengers say they are ready to negotiate with the government (read accept bribes), but there seem to be new groups blowing up pipelines these days who may not be on board. 

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