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21 May 2016

Press review 21-05-2016 - The decline

Alberta was again at the news forefront this week. Monday authorities ordered the immediate evacuation of various oil sands extraction sites north of Fort McMurray, as the wild fires turned again towards the West. While there are no precise news on damages to mining or processing facilities, a number of living quarters for industry workers are known to have been raised. Broad numbers, over 1 Mb/d have been offline for two weeks.

Day trading was hectic again in the petroleum market, the Brent index flirted with 50 $/b, then collapsed to the low 47s $/b, just recover back again. Still, this ended up being the highest weekly close price for Brent since last October.

Various price oracles have substantially changed their outlook this week, now totally dismissing the "lower for longer" mantra they were touting just a couple of months ago. What happens next largely depends on the faith of 900 Mb held in extra stocks by China or the OECD. In any case, a long term petroleum extraction decline is mostly guaranteed.

19 May 2016

This is Peak Oil

Titling the last press review of 2015 I asked if that had been the year petroleum peaked. The question mark was not just a precaution, the uncertainty was really there. Five months later the reported world petroleum extraction rate is pretty much still were it was then. This is not a surprise, but the impact of two years of depressed prices is over due.

Nevertheless, during these five months of lethargy the information I gathered brings me considerably closer to remove the question mark from the sentence and acknowledge that a long term decline is settling in. Understanding the present petroleum market as a feature of the supply destruction - demand destruction cycle makes this case clear.

15 May 2016

The Mystery of Petroleum Stocks

A number of days ago I started updating some datasets that had been left outdated for the lack of time. The jump in world petroleum extraction since early 2014 is obvious, but I wonder what happened to consumption in the meantime. The Energy Information Agency (EIA) in the US produces what I regard as the most reliable statistical dataset on petroleum available publicly. In times passed I used their worldwide stocks flow records to derive consumption from extraction figures. Unfortunately, the EIA stopped published this particular dataset.

This sent me on a quest for world petroleum stocks figures in order to estimate consumption. As it happens, there is at this stage no publicly available dataset on this matter, therefore any consumption estimates made presently have to rely on guesses. This post present the searching and guessing I did to arrive at my estimate.

14 May 2016

Press review 14-05-2016 - Nigeria's descent to hell

This was another hectic week in the petroleum market, with huge price movements reacting to the sightliest hinting news. If Brent opened Tuesday just over 43 $/b, by Thursday it was trading over 48 $/b - that is an 11% hike in less than three days. Friday Brent closed at what is the highest weekly price for more than six months. Nevertheless, these encouraging prices are still too far from comfort for the petroleum industry. Fundamentally, nothing has yet changed.

That is the reason why petroleum exporting economies are facing ever deeper economic difficulties. And for Nigeria in particular, this week looks to have been a turning point - downwards. The euphemistically called "social unrest" conveying the economic and environmental impacts of an at least partially unprofitable industry is overwhelming petroleum production. It is a descent to hell, from which it will be hard to return.



07 May 2016

Press review 07-05-2016 - Tragedy in Alberta

Image from BBC, click it for more.
It has been a very long while since petroleum related news last made headlines. This week happened again, and for all the wrong reasons. A gargantuan wild fire has engulfed the city of Fort McMurray in the Canadian province of Alberta, what was until this week the heart of tar sands extraction in that country. The images and reports out of the region are overwhelming, 80 000 folk evacuated, 1 500 buildings destroyed (including shelters), numerous roads unusable. And the fire is now projected to double in size before abating. The only positive news is the lack of casualties so far.

Beyond the human drama pouring into our living rooms, this sad happening is a stark reminder of how fast the fossil fuel predicament can change. Rebuilding this city and reviving the industrial complex around it in the present petroleum price environment is not going to be easy. Canada's aim of rivalling the Persian Gulf petroleum exporters has been adjourned sine die.

Unmoved by such events, the Brent index erased almost all the gains it made the previous week, settling just over 45 $/b.

01 May 2016

Press review 01-05-2016 - Not so hard to understand

Brent rallied significantly this week again, at some point trading over 48 $/b, amid renewed volatility. These are the highest prices since early November. The energy intelligentsia seems at a loss to explain this four week long rally and the petroleum related news suddenly became scarce. It will be at least four months before the first public data on petroleum extraction is published; only then can it be fully understood what is behind these price movements.

A regular reader of this review has probably noticed a certain animosity towards the mainstream press. By and large journalist seem unable, or unwilling, to report the relevance of the energy transition the world is going through. As always, there are exceptions. Daniel J. Graeber writes for the UPI and his articles figure frequently in this review. Starting with a report issued by Wood Mackenzie, Daniel J. Greaber just wrote an article proposing a peak in world petroleum extraction. Never using obvious terms, the picture laid down in this article is fairly clear nevertheless.

25 April 2016

Press review 24-04-2016 - Where the press get it wrong

The Doha meeting last weekend was a major failure, with what appeared to be an easy agreement torpedoed by Saudi Arabia. From then on the media went on a frenzy, announcing the imminent collapse of market benchmarks. The Brent index went in the opposite way, and by Tuesday was trading at 46 $/b. The European benchmark h,as now erased the huge losses of early December, when it lost almost 20% of its value in a week on the face of all those well paid pundits out there. But what the media is reluctant in reporting is the formation of a backwardation structure in the futures market - at odds with the calls of price collapses.

Another point the media is not really getting right is the so called "sluggish demand" meme thrown around as the root of the present under-priced petroleum market. The data show otherwise - particularly in China. From the news bits bellow and other assorted data points, I now estimate petroleum consumption to have already surpassed 10.5 Mb/d in China. This means it could very well hit 11 Mb/d still this year.

None of this means a price recovery is around the corner, there are still at least the above ground stocks to go through. This supply destruction cycle still has some bad news in store. However, some fundamental changes are about.