fatpitch2

Has Crude Turned the Corner?

Don't forget the "supply" side....
Depletion rates are even by conservative estimates 5% or better ...
(Cantarel is dropping by double-digit rates) that's good for cutting production by at least 4M bbl/day off every year...

and it doesn't take a rocket scientist to figure out that with current low prices that capex spending is way down so new sources are not being found and new wells are not getting drilled. Stripper wells are shutting down. All of this activity takes a while to circle around to impact supply due to long lag times ... if may be interesting when we figure it out....

Don't forget that a lot of the oil stored in super tankers and other places is by design - taking advantage of the strong contango pricing of oil... buy now for $35/bbl hold it for 6-month sell it for $65/bbl even after carrying costs... what's not to like?

When Will the Oil Price Pop?

Jim:

Thanks for this review!

I have a couple of random comments:

1) My personal suspicion is that a 4.5% depletion rate is optimistically low. I suspect the current rate is perhaps 5% - 6% and that it will rise in the coming years. Cantarell is, for example, depleting at double-digit rates.

2) Nuclear energy could do a lot for us; but we gotta get moving. I attended a presentation last night by Duke power, Areva, and several other US players in the nuclear field and the time line for building a nuclear plant is as follows: 6 YEARS of paperwork (environmental impact, public comment, NRC, ....) then 6 years to actually build the plant.

3) Nuclear and most alternative energy sources, as we all know do not produce liquid fuels, a real bummer in our current world of liquid fueled transportation.

4) Even if wind and solar COULD become major contributors, and I am skeptical .... we will need additional technology behind these producers to "smooth" out fluctuations in supply -- the winds stops blowing, it is a cloudy rainy day, .....

It's a huge mess ... and I am long energy

Oil: Despite Decline, A 'Must-Have' Profit Play

Demand is one thing... don't forget SUPPLY issues

Demand may be off slightly as a result of the current economic crisis but the emerging world does not all have to buy cars to boost demand ... just imaging say 5% of India and China's population buying an extra gallon of gasoline per week to put in their Moped? In the USA there is 1 car PER PERSON, in China there are roughly 3 cars per 100 people... lots of room to grow.

Now... how about SUPPLY?
I do not believe you will find any reputable source that will tell you that the depletion rate from current oil fields is less than 5%. Many geologists believe it is closer to 9%. Mexico's Canterell field is depleting at double-digit rates. So we have to add say 5M bbl/day just to keep even? With prices < $40/bbl do you think this is happening? I do NOT....

deep water projects are cancelled, oil sands CapEx is being slashed, stripper wells are being capped.... etc.................

When it turns around and as Keith says ... the date is not clear... but when it does... it will get FUGLY fast...

Just my humble opionion.

Will the Price of Oil Sink Much Lower?

Patient:

Can you post source(s) of the 5MBPD cuts rumors?

$25 Oil Could Happen Before a Return to $100

I keep trying to figure out how much of the demand is discretionary and will be extinguished by consumers turning down thermostats and etc...
Offset somewhat by the fact that it now costs only half as much to fill up gas tanks.

Industrial demand for energy is clearly down and will stay down ...

I'm too stupid to figure out the details on that stuff

BUT as Alan points out...

As the price of oil slides the marginal (highest cost) producers have to shut down in the longer term ... yes???

If the cost to produce a barrel of oil from the tar sands is $70 why would I go to the trouble to produce and sell only to loose $20/bbl. Indeed I have some fixed overhead I would like to support etc.. but do I not continue to do what is already being done... stop CapEx for expansion and hunker down

How much SUPPLY gets extinguished incrementally as the price of oil drops and producers throw in the towel and go home?

Further... since it is much easier to take production OFF-line than it is to put it back ON-line ... will we not wake up some day after a cold snap wishing for more oil only to find that it will take producers 3 months to bring some extra production back on line?

My head hurts as bad as my commodity-over-weight portfolio....

Reality Hits Oil Market, Dollar Could Benefit

The IEA has released its latest report --- It says peak oil won't get here until 2030 ... That's the headline anyway.......

When you read the rest of the article it says we only need to spend $1T+ per year and (unless you're a bank in trouble I don't see anybody getting ready to spend $1T a year on recovering more oil in a declining market...)

Oh yeah, and IEA says we need to go find 64 million barrels of oil equivalent a day of additional gross capacity between now and 2030 --- the equivalent of six times the amount Saudi Arabia produces today!

Piece of cake???? mmmmmmmmm I think not ....
Why invest in rigs and exploration ....

I think we will see declining supply soon -- production coming OFF-line shortly as the marginal cost is above market price this coupled continued yr-over-yr increases in world-wide demand for oil will (yes WW demand is still increasing even in this crappy envronment) ...

This will NOT be pretty ...