Peak Oil Notes – Jan 15

January 15, 2015

Oil prices fell on Monday and Tuesday of this week, but then rebounded sharplyWednesday afternoon to close at $47.48 in New York and $48.69 in London. There was no particular news responsible for the jump, but simply enough traders deciding that prices have fallen too far coupled with technical signals.  A number of traders expressed skepticism that a major rebound is underway, saying that prices still have further to fall. They note that there have been brief rebounds before during the six month long price slide and that they only lasted a few days. Prior to Wednesday’s rebound NY oil had traded below $45 a barrel and the general market sentiment was that the price bottom would be around $40.  Most observers still are not expecting a sustained rebound until the second half of the year.
 
This week started with a new forecast from Goldman Saches saying that oil prices need to fall further in order to slow producton and eliminate the oil surplus. Goldmans said that prices may have to drop below $40 a barrel and that the surplus will likely continue to grow in the first half of 2015. This pessimistic outlook was quickly joined by Societe Generale SA and the Bank of America as the prevailing view of the oil price outlook on Wall Street.
 
The markets ignored the weekly stocks’ report which showed a 5.4 million barrel gain in the US crude inventory; US crude production climbing by 60,000 b/d last week to 9.19 million; crude imports increasing by 636,000 b/d; and inventories of gasoline and distillates up by a combined 6 million barrels.
 
On Tuesday the EIA came out with their Short-Term Energy Outlook for 2015 and 2016. The administration sees US crude production peaking at 9.47 million b/d in May 2015 and then dropping by 330,000 b/d by September.  They then see US production growing again so that by July of  2016 it surpasses the May of 2015 peak.
 
North Dakota’s November production statistics, released on Wednesday, underscore the thinking behind the EIA’s forecast. The state’s sweet crude is now selling at $29.25 a barrel; the rig count has fallen from 191 in October to 156 in January; and the number of new well completions fell from 145 in October to 39 in November. There are several major inconsistencies in the report but the bottom line is that production in North Dakota seems set to decline rapidly. This is consistent with a continuing string of drilling company announcements that capital expenditures are being cut back significantly this year.
 
Russia is having a bad week with another drop in the ruble to 65 to the dollar, down about 10 rubles in the last week. The government says it is slashing the budget for this year.
 
The Iranian nuclear talks are about to resume with much disagreement in the press over whether falling oil prices will make Tehran more or less willing to negotiate an agreement at this time.
 

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: global oil production, oil prices