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Monday, 14 March 2016

"Peak Oil Today" - March 14, 2016

Financial Markets 

"Market watchers are announcing the demise of the oil majors. Not for the first time. According to Jilles van den Beukel, former geoscientist with Shell, the oil companies are indeed seeing their world shrinking. But they are not dead yet: their reason for being – the world’s demand for oil and gas – is still there. Financial analysts are worried about high costs, future oil demand and low reserve replacement ratios. "  - Peak Oil


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Peak Oil Review – 14 March 2016 

By Tom Whipple

Association for the Study of Peak Oil USA

Quotes of the Week
“I’ve covered this industry since the late 70s and I would have to say I haven’t seen a situation like this, of this magnitude. We’ve concluded that this is not a normal cyclical downturn.”
Carol Cowan, a Moody’s Senior Analyst
“Shale was a hot growth area and companies made the mistake of borrowing too much. It’s amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse.”
George Schultze, Founder and Chief Investment Officer of Schultze Asset Management in New York

Contents
1.  Oil and the Global Economy
2.  The Middle East & North Africa
3.  China
4.  Russia/Ukraine
5. The Briefs


1.  Oil and the Global Economy

Image result for oil iran
Oil prices continued to move higher last week closing at $38.50 in New York and $40.39 in London, up 7.2 and 4.3 percent respectively for the week.  The two-month surge which has taken oil prices up some 45 percent started with reports in January that Russia and the Saudis were trying to bring major oil producers together to agree on a production freeze. This idea is now fading as Iran adamantly refuses to freeze production and no other exporters seem willing to cede current customers to Tehran. The impetus for the price increase now is focusing on forecasts that low prices could lead to a decline of some 750,000 b/d in non-OPEC oil production this year – mostly in the US. Some of this could, of course, be offset by increased Iranian exports. Tehran had hoped to increase production and exports by 1 million b/d this year but is having difficulty finding customers and increasing production. A weaker US dollar also contributed to the oil price increase last week.
Image result for shale oil rigs countMost major forecasters do not predict a sustained drop in global oil stockpiles until next year. Last week we had mixed views of what the rest of the year will bring. The EIA in Washington sees US shale production continuing to fall this year with output now forecast to be 8.67 million b/d, down slightly from last month’s estimate. The Wall Street Journal reported that the bonuses earned by the CEO’s of the major shale oil producers were tied to the level of production, not profits — which have never been that great in the industry. Even though the US drill rig count is now at its lowest since 1940, so long as oil companies can borrow enough money from Wall Street to keep solvent, they can continue to avoid a precipitous drop in oil production by finishing the hundreds of previously drilled, but uncompleted wells in their inventories.
Last week the IEA, in Paris, turned slightly more bullish on oil prices by declaring that they may have bottomed out. The Agency believes that global stocks may be down a bit in February. The optimism for prices, however, is based on projected drops in production later this year.  Although the Agency expects overproduction to continue until 2017, it now sees non-OPEC production falling by 750,000 b/d this year as compared to 600,000 b/d in its February estimate.
Goldman Sachs continues to warn that the price rally may be premature but is less worried about a shortage of storage space for crude developing in the next few months. The firm says that if oil prices go much higher, it will simply pull more US shale oil back into production and drive prices lower again.
The demand for oil and products is still an issue in determining where prices will go. Last week the EIA reported that US demand for gasoline and diesel was much higher than expected, offsetting a 3.9-million-barrel increase in crude stocks. Stocks at Cushing, Okla., where a storage of shortage capacity could strike first, was up by 690,000 barrels the week before last.
Chinese demand for oil this year is still an open issue. While Beijing’s imports were up in February, this could be a hangover from the extremely low oil prices that obtained in January. The economic news out of China continues to report industrial contraction and smaller imports and exports suggesting that the demand for oil will be lower than forecast this year.
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