Peak Oil Review: A Midweek Update – May 12

The global oil industry has been plagued by unexpected interruptions in production during the past ten days.  Some 1 million b/d of Alberta tar sands remains shut-in due to last week’s forest fire; however, production facilities received little damage, and production is expected to begin increasing in a week or so. In the meantime, Alberta exports to the US remained normal drawing from stockpiles outside of the fire zone.
 
Insurgent attacks on oil facilities in Nigeria have reduced the country’s production to about 1.5 million b/d from the 2.2 million it has been producing of late and squabbling between the two governments in Libya has slowed exports and reduced production to about 210,000 b/d. If this dispute is not settled soon, Libya’s oil exports could completely halt. The situation in Venezuela continues to deteriorate and many are predicting a societal collapse shortly. Oil production continues to decline there as the national oil company has been not paying its bills so foreign contractors are reducing their support. Together the various outages amount to somewhere between 2 and 3 million b/d which is enough to offset the overproduction of the last two years.
 
An unexpected drop in US crude stockpiles last week of 3.4 million barrels sent prices 2-3 percent higher on Wednesday closing at highs for the year of $45.69 in New York and $46.83 in London.  In addition to the decline in crude stocks, the gasoline inventory was down by 1.2 million barrels and distillates were down by 1.6 million barrels. There are some inconsistencies in the numbers this week as total commercial petroleum inventories were reported to be down by only 1.4 million barrels. The API’s survey released on Tuesday showed that the crude inventory had increased by 3.5 million barrels. The 7-million-barrel difference between the two is unusually large so there may be some data problems this week. Despite the nationwide drop in crude stocks, oil in storage at the Cushing, Okla. depot rose by 1.5 million barrels to a record 67.8 million barrels last week.
 
While the Alberta outage is likely to be short-lived, the situations in Nigeria, Libya, and Venezuela are more serious and could result in longer-term outages. Elsewhere, Iran seems to be increasing its exports at an unexpectedly rapid rate; the Saudis are talking about an increase in oil production to cope with the summer cooling season while holding on to their market share. The EIA reduced its estimate of how fast US shale oil production will be falling this year by 100,000 b/d and now expects the US to produce 8.6 million b/d in 2016 and 8.2 million b/d in 2017 as compared to 9.4 million in 2015. Given that the US has been the world’s swing producer of late, the EIA is now talking about $76 a barrel oil sometime next year as crude supplies tighten.
 
Bankruptcies in the oil industry continue putting pressure on the banks that have been lending money to the industry. Provisions for loan losses by the banks jumped by 61 percent year over year in the first quarter. Given the size of their losses in loaning to oil producers, the banking industry is expected to be reducing borrowing limits for oil industry customers by 20 to 25 percent for the next quarter making it harder to finance a rebound in production. At the Platts Oil Summit in London this week there was much disagreement as to whether US shale oil production has peaked and how much it can rebound if prices increase next year.
 
In 2015 global exploration for oil discovered only 2.8 billion barrels, the lowest in 60 years. Given the massive decline in capital expenditures, some are now talking about a supply shortage developing in the mid-2020s.