Thursday, October 16, 2014

The oil drama

Oil prices: data up to Oct 06 from EIA, updated to Oct 15 according to

Are we going to see a repeat of the 2008 oil price collapse? It is still too early to tell, but, clearly, something is moving in in the oil market: something big; as I discussed in a previous post.

If prices really collapse, the consequences could be devastating for the profits of marginal producers, especially for "non conventional" resources such as shale oil, tar sands, heavy oil, deepwater and the like. Unless the dip were to be very short lived (as it was in 2008), it would necessarily result in a fall in the production levels. That would be, of course, a disaster for the world's economy.

The oil drama is playing in front of us: we can only watch as it unfolds.


  1. Demand extinction. A phrase redolent of irony.

  2. Would anybody be interested in commenting on the NY Times article on the topic?

    "Even after a drop of as much as 25 percent in oil prices since early summer, several government and private reports say that it would take a drop of $10 to $20 a barrel more — to as low as $60 a barrel — to slow production even modestly."

    1. I would say that it is exactly the kind of press release I would produce if I were feeling the rug being pulled from under my feet.

      But, really, most businesses should be able to survive a 10%-20% loss in revenues by cutting corners. The problem is that the whole enterprise of shale oil is built on expectations of big gains. If that perception is loss, then it is game over.

  3. I agree that something big is afoot. But i am not sure whether it is the fall in the price of oil that will cause a disaster in the world economy, or whether it is an unfolding disaster in the world economy (and its financial and monetary system) that will cause (is causing) the fall in the price of oil. Naturally the two also give rise to a nice mutually reinforcing downward cycle. Let me see. What else might be missing that also could help ? How about a war without end against terror? Or a Ukraine in free fall? Or how about a worldwide pandemic? But best of all how about a nice U.S. Congressional election that will lock in policy paralysis (of course of the misguided kind) at least until Hillary can come to the rescue unless SOMEHOW Putin becomes a true magician and not only manages to save Russia from the ever growing litany of threats but maybe can even manage to save the U.S from itself several times in a row? But if all else fails there is always Mario who will do "whatever it takes". So nothing to worry about.

  4. And how could I forget? There is now also a big risk that Russia will invade and annex Sweden from the sea. This of course will require immediate effective countermeasures to maintain global and regional "stability" and who knows what this new requirement may or may not do to the price of oil once all the extra costs of proper "coverage" by the mainstream media are all duly taken into account?

  5. Thanks to Mat Mashlik for posting this (below) on Ron Patterson's peakoilbarrel.

    From the Deutsche Bank commodities quaterly

    “While we would expect an OPEC quota reduction to occur before any non-OPEC curtailments, it has been suggested that OPEC may refrain from immediate cutbacks in order to assess the price sensitivity of US tight oil production. In this unlikely event we would regard US production to be more price responsive than higher-priced (when measured on investment breakevens) Russian or Canadian supply because of shorter drilling contracts. Although the weighted average cost of US tight oil is US$ 72/bbl, close to 200 kb/d (or 9%) of 2015 expected production would not attract new investment below US$ 90/bbl, and a further 650 Kb/d would become unattractive between US$ 80-90/bbl”



Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)