Peak Oil Review: A Midweek Update – 11th Aug 2016

August 11, 2016

The price rally last week that was based on short covering and revived hopes that oil exporters would get together and freeze production came to an end this week amid a flurry of reports pointing to lower oil prices ahead.  The EIA’s stocks report showed total commercial inventories climbing by 2.5 million barrels last week despite a larger-than-expected drawdown of 2.8 million barrels in gasoline stocks. US crude stocks are now at an all-time high of 1.39 billion, up by 200 million barrels in the last 17 months. This bearish news was helped when the EIA raised its projection for US crude production for 2016 and 2017. This change is based on the failure of US production to fall as fast as projected and the reactivation of drilling rigs in the last few weeks.
 
On Wednesday, OPEC announced that its July crude production was up by 46,000 b/d to 33.11 million, the most since 2008. This increase came despite falling Nigerian production due to insurgent activities. Saudi production hit an all-time high of 10.67 million b/d last month, up by 120,000 b/d over June, and Iranian production was up to 3.85 million b/d, the most since 2008.
 
It is now clear that the Saudis intend to keep pumping out crude as fast as they can and are willing to lower prices to maintain market share. The Saudis and Kuwait have both cut prices for crude going to Asia in the last week.  Despite talk emanating from the smaller OPEC members about a meeting to discuss prices freezes, the consensus of observers seems to discount this possibility in the near future. Some see talk by OPEC as a cheap way to try stabilizing prices which is only leading to a lack of confidence in OPEC.
 
Shell has declared force majeure on supplies of natural gas to the Bonny Island LNG plant due to a “leak” (read insurgent attack).  The Nigerian National Petroleum Corp which owns 49 percent of the Bonny plant says that it has alternative sources of supply and can remain in operation. The government says it has resumed payments to former insurgents not to attack oil facilities and is still attempting to establish talks with the new insurgents’ groups that have brought down its oil production by roughly 1 million b/d in the past year.  
 

Government forces in Libya, backed by frequent US air strikes, say they have taken over the Islamic State’s headquarters in Sirte breaking a month’s long stalemate. The Islamic State has held the city since 2015 and has been successful in rallying a large number of foreign Jihadists and Libyans still loyal to the memory of the Gadhafi regime to their cause.  Whether this victory is a turning point in the struggle against the Islamic State in Libya remains to be seen.  There seems to be optimism in Libya that the years of squabbling over control of oil production and revenues may be coming to an end and that we may be seeing increases in crude production which has been running at about 25 percent of pre-uprising numbers. 

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