Oil Price Scenarios for 2016

Every year I have a bet with a good friend on where the Brent oil price will be in December the following year. Last year I estimated $56.50, my friend $99, so this year I am a clear winner, even though I’m out by about 49%. Brent is trading at $38 as I write. I can extract little satisfaction from this since I got “close” for the wrong reasons.

Let’s cut to the quick. My forecast for Brent at around this time next year in my BAU (business as usual) scenario is $37. This is grim reading for all those involved in and around the oil industry. Worse still, I think there is high probability that we see sub-$20 oil before the first quarter is out. But this is great news for consumers. The reason is gross over-supply sustained throughout 2016, helped by Iran coming back to full market with an additional 800,000 bpd.

In addition to BAU I present two other scenarios. Capitulation where OPEC throws in the towel and cuts 5 million bpd that sends the price back to $100. And Event where terrorist activities in Saudi Arabia (or elsewhere) sends the price towards $100. The world has 3 billion barrels in storage and this may hang over the market for years to come.

This article first appeared on the Energy Matters blog. Third parties are welcome to cross post but must leave this sentence and link in place.

BAU Demand Model

IEA quarterly supply and demand data are used as a basis for the forecasts. Here, production less oil sent to storage = demand, i.e. consumption. Demand goes through an annual cycle where Q3&4 are typically higher than Q1&2. The quarterly data typically define a linear trend rising at about 1.5% per annum. These linear regressions (Figures 1 and 2) are used to predict quarterly demand in 2016 (Figure 3). This assumes no major upset to the global economy and that economic malaise in many quarters is offset by low oil price stimulating demand in others.

Figure 1 IEA Q1 demand data 2010 to 2015.

Figure 2 IEA Q2 demand data 2010 to 2015.

Figure 3 Demand summary. 4Q 2015 is estimated. The forecast for 2016 is based on the quarterly regressions shown in Figures 1 and 2. 3Q and 4Q regressions not shown.

BAU Supply Model

Forecasting supply is more tricky. Throughout 2015, supply has been amazingly robust in the face of collapsing price. The global oil market has tremendous momentum built on the back of several years of $100 oil. This momentum is not easily switched off since new conventional oil projects may have a 5 to 10 year lead time. There will be dozens of new fields around the world at various stages of development that will continue to come on stream in the years ahead.

One consequence of this is that most of the major producers are maintaining production plateaus where new supply is sufficient to cancel natural declines. See for example Saudi Arabia, OPEC, Russia, Asia and the North Sea in the November edition of Vital Statistics. None of these areas are showing any sign of retreat and I anticipate this will continue through 2016.

The one region that is more responsive to price collapse is LTO (light tight oil) drilling in North America where the US rig count has collapsed from 1609 (10 October 2014) to 524 (11 December 2015). But even here production has been robust with only modest declines posted thus far. One reason for this is that there are still 524 rigs drilling. These are drilling better wells targeting sweet spots and for example LTO production in The Permian has continued to rise offsetting some of the declines elsewhere.

Figure 4 The supply forecast perhaps looks a bit simple but is based on N American LTO production going down 600,000 bpd offset by Iran going up 800,000 bpd while the rest of the world trends sideways.

The US oil rig count has resumed its plunge and this must leave its mark in 2016 although this will be partly offset by an enormous back log of drilled but uncompleted wells. I am guestimating that LTO production falls 600,000 bpd in 2016.

But the joker in the pack is Iran, widely expected to rejoin with full exports in early 2016 and I anticipate that production may rise by 800,000 by year end, a bit higher than IEA estimates. Hence my summary forecast sees a net rise of 200,000 bpd, to produce what is effectively a production plateau (Figure 4).

The resulting stock additions are shown in Figure 5. This picture is similar to that provided by the IEA. The forecast sees another 547 million barrels going to storage.

Figure 5 Deducting the demand model from the supply model produces this picture of stock change for 2016. The World is still awash in surplus oil by the end of the year. 

The IEA in December’s OMR says:

New and spare storage capacity should be able to accommodate the projected extra 300 mb of stocks.

So I, and the IEA, see a situation where gross over-supply is maintained throughout 2016. It is difficult to see a price recovery with that backdrop. But how to convert these numbers into a price forecast? Past relationships between supply, demand and price is all I have to go on and I therefore use the same empirical model as used last year (Figure 6). This has many limitations, amongst other things it is grounded in the trends defined in the period Jan 2002 to May 2011. The relationship may since have changed. But this is all I have to go on. Setting the supply curve to 97 M bpd and demand to 96.1 M bpd provides an indicative price for Brent of $37 in December 2016, very close to today’s price.

Figure 6 Based on an original idea by Phil Hart. I’m not sure I fully understand the dynamic here any more, but an explanation is given here. Large time lags between price signal and market response cloud the picture. Oil supply was inelastic to price up to May 2011, but then supply responded and has been responding ever since.

However, in the interim, it is possible the oil price goes much lower since these things have a habit of being overdone. The last time we saw a crash like this was in 1999 and the price then went sub $20 in today’s money (sub $10 in money of the day). If history repeats, that’s where the market is heading. Demand will after all soften 1Q 2016.

I am not even going to attempt a forecast for 2017. Figure 5 suggests the market will return to balance in 2017 but already has a record 3 billion barrels in storage, equal to about 32 days of consumption. This stock volume will hang over the market for a long while after the fulcrum is crossed. And it is difficult at this point to predict how the US LTO industry will respond to the prospect of rising price. Will the industry be killed stone dead by the events of 2015 and 2016. Or will drillers return when the price begins to inch up?

With the World in turmoil there is of course no guarantee of BAU and two other scenarios are briefly outlined below.


The countries hardest hit by the ongoing price rout are in OPEC closely followed by Russia. The possibility remains that OPEC decides to abandon the market share policy and revert to protecting price. I estimate that to regain $100, about 5 M bpd would need to be withheld from the market. Remember that stocks will last 1000 days with stock draws of 3 M bpd.

I just don’t see either Saudi Arabia, Iraq, Iran or Russia agreeing to such massive production cuts and therefore give this option a very low probability.


With conflict raging across the Middle East, it is somewhat miraculous that oil production has not been disrupted, apart from in Syria and Libya. Impoverished Saudi Arabia, Iraq and Algeria look increasingly vulnerable to insurgency. Destabilisation of  Saudi Arabia in particular, leading to a Libyan style of civil war, could of course have a profound impact on oil markets.

Onshore fields, processing and export facilities in Saudi Arabia are particularly vulnerable, although well guarded. The Abqaiq processing facility, that processes around 5 M bpd was attacked by 4 al-Qaeda terrorists in February 2006. And a terrorist was shot in Abqaiq as recently as September 2015.

While an event such as this looks increasingly possible it is at the same time impossible to assign a probability. But even if 5 M bpd production was lost, that 3 billion barrel cushion of oil in storage would cover 600 days. The price may bounce to $100, sending the shale drillers back to work.

Concluding Comment

It has always been impossible to predict the oil price. The supply, demand and security dynamic today is as high as it can be. Anything can happen in the next 48 hours. But my estimate for December 2016 is that oil prices will be around where they are today having gone much lower in the intervening months. $37 causing much pain to ‘The Industry’ today will be seen as a relief in a year’s time.

This entry was posted in Energy and tagged , , , , , , , . Bookmark the permalink.

55 Responses to Oil Price Scenarios for 2016

  1. K Periasamy says:

    Seems believable unless something else crops up to change the dynamics !

  2. Aslangeo says:

    an interesting point of view from nawar alsaadi – http://m.authorstream.com/presentation/nawar295779-2683608-2014-2015-oil-crash/

    I do not know who he is but he feels that prices are likely to increase in the longer term as production form existing fields declines and is not adequately replaced due to Capex cuts

    Slide 26 “mature fields would decline at 9% naturally without infield capex, mitigated decline, (such as infill wells, sidetracks, recompletions, acid wash, debottlenecking, new compressors etc) would slow the decline to 6.4%, Current decline including newer fields is about 3.1 % – lowered capex would increase decline rate”

    • Euan Mearns says:

      Its a very good presentation, hits all the right points, but I think it is tinged with optimistic bias. For example, he looks at OECD stocks and not global stocks. And I think the Iranians know how to produce oil. But it all comes down to timing. The cuts to investment today take time to feed through the system. For example, its possible that production in the North Sea rises this 2016 and 2017. Off the top of my head I know of a handful of big projects that will come on. If this crisis kills shale stone dead, then we may have a new high price crisis in 3 to 5 years as the pipeline of new projects dries up.

      Its kind of hard to interpret Iran. What caused the slide in capacity from 2010? Peak oil? Sanctions? OPEC production withheld? The IEA see 720,000 bbls spare. I’ve assumed 800,000 on basis that I think they will be all geared up and raring to go.

      • Thank you for your post, Euan. In your reply you mentioned high price crisis in case that shale projects completely stop. What is your opinion about reviving of shale projects in matter of time, for the high price scenario? How fast do you think shale oil exploitation could rise again? What about shale oil exploitation outside US, in oil importing countries? (just in case of high price crisis)
        Another question : do you think that OPEC and Russia will stay at current levels of production (in case of price increasing), or they will activate their spare capacities?

        • Euan Mearns says:

          One reason we are where we are is that the rout of the shale drillers that many expected in Oct – Nov did not happen. So all I can say is that the shale industry is unpredictable. If hundreds of companies goes bust this year and billions are lost, I don’t think the shale industry will come back any time soon. But if they simply stop drilling / spending for a while and enjoy the production then I don’t know. It is a real wild card.

          And I don’t think other countries should be in a hurry to emulate the USA. Flooding the market with expensive oil is not a smart thing to do. This has all to do with the troubles on the back side of Hubert’s peak.

          I don’t think OPEC or Russia have any spare capacity outside of Iran and Libya. That 2 M bpd that Saudi claims, if it exists, is heavy sour crude that at present does not have a refining market.

          Market retrenchment now will result in fresh scarcity in a few years time. But I don’t have data to hand to make meaningful prediction years ahead since you need to know what new volumes are on their way to market regardless of price and what underlying declines are. And its difficult to understand what impact 3.5 B bbls in storage will have. It is a right mess! I would be confident that the price in 2017 is higher than 2016.

      • We can’t be really sure about the nuclear issue

        The IAEA did not draw full conclusions about what occurred at the Parchin site given Iran’s limited cooperation and continued denials and obfuscation. Its evidence relating to past nuclear weapons related high explosives testing, help from a foreign expert, and sanitization of those efforts was not addressed by Iran.

        The IAEA was only able to determine that the evidence does not support Iran’s claim that the building of interest was used as storage for chemical explosives. Although the results of the limited environmental samples taken by Iran under the IAEA’s direction identified two particles that appear to be “chemically man-made particles of natural uranium” the IAEA did not make a definitive conclusion about the use of nuclear material at the site.

        But these samples could be evidence supporting the allegation that Iran conducted high explosive work on a uranium deuteride neutron initiator at Parchin. Iran’s extensive sanitization activities since 2012 have seriously interfered in the IAEA’s ability to draw conclusions, particularly without a more rigorous investigation about what occurred there.

        Since Iran did not seriously cooperate with the investigation, including detailing what actually occurred at the site, and the IAEA’s discovery of uranium particles, the IAEA requires a continuation of its Parchin investigation. It should be granted a mandate from the Board of Governors in its upcoming resolution stating its authority to conduct additional visits to Parchin, take additional, in-person samples, and interview persons of interest it identifies as having worked on past efforts.

        The Parchin file can in no way be considered closed. It should remain open and the IAEA should continue its investigation into the activities that took place at the site. It is time that Iran starts to admit what really happened at Parchin.


        Iran tests another mid-range ballistic missile in breach of UN resolutions

        Lifting of sanctions on Iran is definitely not good news for the US shale oil industry

  3. dereklouden says:

    Thanks for the detailed analysis Euan. Hedging has to a significant extent shielded both E&P Companies and NOC’s from the full effect of the oil price fall. As the hedges expire things become a lot more tricky for companies and nations. The Saudi approach will wreck the economies of other OPEC members & E&P firms and will drive up borrowing costs and drive down the availability of finance for the whole industry. It has also clearly ended the klondyke for Service Companies and driven down CAPEX and OPEX costs for OPEC members and all E&P firms. Are you right with your price prediction? In the words of the Scottish Philosopher Kenny Dalglish “mibbes aye, mibbes naw”.
    Merry Christmas

  4. Syndroma says:

    A compelling analysis indeed. But sub-40 oil creates so much stress globally, that I find it improbable that the stress won’t find a way out. Another couple of months of $37 oil and something somewhere blows out. Either Venezuela, or shale finances, or Mid-East rebellion. It’s a question of who’s gonna lose control first.

  5. Javier says:


    BAU demand requires that the global economy does not fall into recession, and right now things don’t look too bright on that front.

    BAU supply is almost guarantee not to happen. Since spring US shale seems to be turning and the decline is likely to accelerate in the first half of 2016. Lukoil has said that expects Russia to produce less in 2016 than in 2015. Canada seems to be also moving to a lower production.

    Giving for a fact that oil production will be lower in 2016, there are two distinct scenarios depending on the demand increasing or not. One is conductive to higher prices while the other is not, but neither can be considered BAU.

    BAU has in fact very little chance in my opinion. Both the debt and the bond market in the US have been spooked and that is not a good sign. See this figure:

    • Euan Mearns says:

      Javier, for as long as I can recall the global economy has been teetering on the brink and so that for me is BAU. There are few signs of decline anywhere apart from USA. And international rig count has stabilised. Of course there is a new down leg in activity and that will make a mark. But I do, for example, believe N sea will rise. Derek Louden has a nice graph, I’ll see if I can find it.

    • Euan Mearns says:

      Here’s Derek’s forecast for UK which I think is sound. It perhaps needs to be shaved for low price, but production will rise. There’s similar big projects in the pipe in Norway. Svedrup for one. Got to assume that same may be happening in Angola, Brazil, China. And the Permian is still going up in USA – best LTO play.

      • Javier says:


        You know better than anybody that world crude increase since 2010 has come from the shale revolution. But the shale revolution ended the day prices crashed. Investor gullibility, hedges, and inertia sustained production for a year. Investors don’t want to know anything with shale oil anymore (bond interests spiking, companies stocks cratering), hedges have expired, and inertia is over and now works against a recovery.

        Now the rest of the world has to increase production to compensate for the sinking shale that could easily lose 1 mbpd in 2016, plus to increase world production. And it is just not happening. Since August world production is going down, and it is likely to accelerate its decline in the first months of 2016.

        What happens next is anybody’s guess, but it would be a pity that after so long you would go to miss Peak Oil just when it is taking place.

        After all Peak Oil has to take place with maximal production and moderate to low oil prices, since high prices are conductive to increase production.

        Stay well.

        • Euan Mearns says:

          According to the IEA, October was a new high of 97.09 Mbpd. One thing that everyone should have learned in the last decade is that high price leads to more rigs, more innovation and more production. And so you seem to be saying that you don’t think price will go up again.

          I deliberately avoided speculating beyond 2016 because I’m quite unsure how the industry will react. I imagine that the days of scarcity and higher price will return.

          What happens next is anybody’s guess, but it would be a pity that after so long you would go to miss Peak Oil just when it is taking place.

          Here you seem to contradict yourself.

        • K Periasamy says:

          It looks to be making sense as well !

  6. Euan Mearns says:

    1,000,000 up 🙂 We just crossed 1 million views. More on this on Friday.

  7. Pingback: Oil Price Scenarios for 2016 | Enjeux énergies et environnement

  8. garethbeer says:

    Well done Euan, great achievement!
    As a side, 4 of our Edf nukes went offline & tripped – 2+GW gone…


  9. Pretty funny stuff. You should do stand up.

    5 Million cut??????
    Over the last year inventories have built at less than 1 million barrels per day. And you espouse 5 Million barrels cut for $100 oil????

    And then your 3 Billion barrel 1000 day draw down.
    Wow just wow. You expect people to draw down this stuff to zero? We have had 300 Million barrel build. If we were 300 Million below the 5 year average we would be at $150.
    Don’t take the IEA for gospel. 250% increase in SUV sales in China year on year will not result in 200,000 barrel increase in demand unless you blow your hot air in them.

    • Euan Mearns says:

      To support high price, OPEC cut production by 4.4 M bpd between Jul 08 and Mar 2009. And that was in an environment of weakened demand post-crash. The market was not oversupplied to the same extent as today. I try to base my comments on data. Interested to know what your’s are based on?

      And nowhere do I imply that stocks get run to zero. Its a simple way to express the magnitude of over-supply and inventories that have been built.

      And using this model (that I explain in the text I am unsure of) I found that relative to the same demand curve, I had to reduce supply by 5 Mbpd to attain $100. It was a surprise to me, but there you go.

      I imagine this is the data that Saudi is looking at, and knowing that if they cut 5 Mbpd to support $100 then the shale party would continue and they, as swing producer would eventually be left with nothing.

      • Ok. You kinda implied the 1000 day drawdown.
        Now, When you say considering the inventories built, nowhere in your model do you put that into context.
        For example if we have a 3 day extra in inventory versus 3 day less surely the price is different, but where do you get that in the model?
        Like I said, this excess supply is a myth. We have a 1 million oversupply currently.
        We built inventories by 1 million barrels a day in 2015.

        Time will tell.

        • Euan Mearns says:

          Huckleberry, via email I’ve also been pulled up on not placing inventories in context and that is valid criticism. On the size of surplus going to storage. I’m simply taking the IEA numbers. I stopped following the EIA when they fell 150 years behind 😉

          The trouble with the IEA is that all the data needs to be transcribed by hand from the OMRs. Its about time this was all available on XL, bang up to date. What are the IEA thinking about, an OECD institution, no doubt funded by us, trying to give competitive advantage to the rich by drip feeding data into public domain.

          The supply demand price model is all I have to go on to try and convert market dynamic to price. Phil Hart, who I think founded the concept, based this on volume produced not volume consumed. So there is no doubt room for refinement, but it means transcribing years of data by hand from OMRs – a task I’m going to hand over to Luis who has made a habit of telling me what I should be doing.

      • Patrick Ny says:

        Interesting article…I am not an economist nor an oil expert. It appears to me that world, particularly Saudi and Russia, are maximizing its production to a point that it implodes the economic model. This is not a sustaining business model over a long run. Secondly, the current scenario is partly due to geo-political. The condition may not remain true for a long time. The third point is not all production can be sold. People buy the inventory and stored it are expecting the price to rise of the long run. If they have the belief that price will keep going down, the chance is that they will defer the purchase of those that they do not use. Saudi Arabia can produce 20mb/d, but no one will buy the extra oil from them. The market may balance out sooner.

  10. Jimmy says:

    What is the source for 3 billion barrels in global storage? I’m trying to find a reference to global crude storage inventories but can’t locate one easily.

    • Euan Mearns says:


      OECD commercial stocks drew for the first time in seven months in October to stand at 2 971 mb at end-month. Global inventories are set to keep building at least until late 2016, but at a much slower pace than observed this year. New and spare storage capacity should be able to accommodate the projected extra 300 mb of stocks.

      And that’s just OECD inventories.

      • That 3 Gb comercial inventory number is from the IEA November OMR report

        Have a look at the graph on page 4. The 5 year OECD inventory average is between 2,600 – 2,800 mb. So can we consider this as a “normal operating condition”?

        Therefore, 3,000 mb has to be compared with, say, 2,700 mb which is around 10% more. Not really much. 300 mb would be gone within one year at the rate of 1 mb/d for OECD countries.

        If inventories were to go below the lower bound, say 2,500 mb, the IEA would certainly issue a warning

        • Euan Mearns says:

          I concede that I got the emphasis wrong on stock levels. But here’s the IEA chart you refer to:

          You just need to look at what happened 2014 and 2015. And the IEA see another 300 Mbbls in 2016. And its worth reading the whole of that section in the report.

  11. Luís says:

    Hi there Euan, some quick reactions:

    1. You insist in throwing demand around, at times referring to it as a completely vertical line, at others allowing for some elasticity. You can do both in the same paragraph, it is therefore impossible to understand what is the exact basis of your predictions.

    2. Again you imply that prices of agricultural products and NGPLs are the same as those set by Brent, as if they were part of a same market. That is obviously not the case.

    3. With Brent at 37 $/b, I would expect any forecast to allow some degree of demand response. But if I understand correctly your post this is not the case (again you proposal for demand is not clear).

    4. According to the EIA, extra petroleum extraction capacity was at 1.5 Mb/d in 2015, rather different from the fat numbers you get accounting for agricultural products and NGPLs. But the EIA expects this gap to widen to 2 Mb/d throughout 2016.

    5. A terror attack in Saudi Arabia is not very likely. Shiite organisations have not resorted to terrorism in many years and they seem now focused on fighting Daesh. However, a serious attack on Russian infrastructure is a real perspective. And of the members of the Russo-Shiite coalition, only Iran is yet to suffer an attack.

    And good luck with that cross post note. You might wish to reinforce it with a proper licence.


  12. Euan Mearns says:

    Jean Laherrere sent me these charts and link to lengthy report in French. What does the link between oil price and currency mean?


  13. ristvan says:

    Euan, there are some background factors that could be added to your overall analysis.
    1. Roughly 40% of Saudi output is from Ghawar. In 2010, after reworking the sourthern Haradh section for secondary water flood, they said Ghawar could produce for another 38 years (watercut is already 55%) iff production was continually cut back from the then 5.1mbpd. So their price war is to some extent hurting their own production future. Plus, their social spend drew down foreign currency reserves by about $100 billion in 12 months, in addition to withdrawing $70 billion from asset managers. iMF says the deficit is about 20% of GDP. At that rate, they run out of surplus cash in (650/[100+70]) three and a half years. Even the Saudis cannot afford to keep this going for long.
    2. The 2008 IEA survey of ~800 major fields (including all giants and supergiants) which produced over 60% of that years crude showed an average annual decline rate of 5.1%. it would be more by now. That means the world has to add (0.051*0.6) about three percent additional capacity each year just to stay even. If demand growth is 1.5% as you estimate, that net new capacity has to be about 4.5% annually just to remain in balance. You estimate demand at 96mbpd 2h2016 in fig. 3. That means about 4.3mbpd of new capacity by YE 2016. Iran says it can increase exports 0.5mbpd in 2016 after sanctions are lifted. That leaves 4mbpd to be made up by the undeferred portion of the new capacity pipeline next year. That is quite a lot.
    I think that the Saudis figured all this out, and that the price war will be over before YE2016. Even the Saudis cannot afford it to go on longer, and it does not take much to bring demand and supply back into balance. Just cutting back Ghawar to prevent field damage would almost do the trick; in 2012 Ghawar alone was 6.1% of total world crude production excluding NGL.
    FWIW, my own outsider’s ‘guess’ for YE 2016 is around $75-80/bbl. That puts most US shale back in business, but does not enable new deepwater (BP and Chevron estimate a minimum $85/bbl, and Brazil is in turmoil) or the discovered Yamal giants in Russia lacking infrastructure (estimate $100/bbl needed.) Then within 2 more years, back over $100 because Brazil’s subsalts and the Yamal fields will be needed to replace the annual decline in other conventional oil (defined as API>10, reservoir porosity >5%, reservoir permeability > 10 darcies).

    • Euan Mearns says:

      I think if we see a recovery to $80 by end 2016 and the shale drillers going back to work, everyone will be asking what this was all about. You just have to look at the North Sea. After 12 years of decline, decline was arrested and I believe it will reverse. The North Sea is an area where we have a good handle on new developments in the pipeline. Part of my assumption is that this momentum will be replicated in many provinces. The main activities to be curtailed will be well work overs and infill drilling and the like and that will impact production. But the flow of new projects will not be affected in 2016. The economics dictates that they are brought on as fast as possible and ramp to plateau as fast as possible.

      The crux of the problem is that world needs more oil, but the remaining oil is high cost, and bringing too much on dumps the price. This is not a problem that the market can easily solve. A system of regulation is required and has existed for much of the life of the oil industry – the Texas RRC and then OPEC. Without it we are destined I believe to wild swings between glut and scarcity. And the industry and global economy needs stability.

      Saudi is caught between a rock and a hard place. I don’t think there is any fundamental difference between our views, simply a difference on timing. I could be wrong, was wrong footed a year ago through underestimating momentum, perhaps gone too far the other way this year. But there is no major difference between my view and that of the IEA and GS – perhaps I am now keeping bad company. But wind the clock back 10 years when many were screaming peak oil and had contempt for authorities like the IEA and CERA and then ask who was right?

    • Bernard Durand says:

      Ristvan, about Ghawar, where a production history can be found ?

  14. Stuart says:


    I think perhaps you overestimate the role of stocks.

    Oil in storage is owned by somebody, usually oil traders, and their #1 priority is to get the maximum price when they sell. Balancing the market is of no concern to them at all. If prices are rising, they will buy more.

    The oil stocks do NOT serve to balance the market, outside the SPR they are largely owned by speculators.

    • Euan Mearns says:

      If prices are rising, they will buy more.

      Does that mean they are selling now?

      The oil stocks do NOT serve to balance the market, outside the SPR they are largely owned by speculators.

      I’m not sure about that – does anyone know? I think you’ll find that much of it is owned by producers awaiting a buyer and refiners awaiting a refining run. Stocks may not serve to balance the market but they are a symptom of gross over-supply.

      • puddi says:

        Oil stocks are not mostly owned by speculators. Storage is just a logistical necessity to buffer the difference between producers’ and refiners’ schedules. The majority of oil (85% to 95%, nobody knows for sure because there’s no central clearinghouse) is pre-sold under contract even before it enters storage. This includes contango arbitrage traders. The balance is spot market oil put into storage in anticipation of finding a buyer soon. The current 1.5% oversupply shows up as a accumulation of spot oil. It’s rather like available airplane seats that remain unsold at departure.

  15. Pingback: Oil Price Scenarios for 2016 | Enjeux énergies et environnement

  16. gweberbv says:

    What I would like to know: How much of the costs for oil production are (directly) related to workers wages? How much goes into interests for the initial investments?

    When I read that some wells can produce for maybe 10 $ per barrel but others need 100 $ per barrel, I am wondering where this huge difference is coming from. I can imagine that it is more costly to operate an offshore platform than an onshore installation. But a factor 10?

    • Euan Mearns says:

      Depth to reservoir, water depth off shore, flow rates and ultimate flow volumes give huge scope for variance in costs. On shore in lightly regulated environment, 8000 ft to reservoir, 1 billion bbls reserves that flows at 50,000 bpd per well, light sweet crude , near shore so you can pipe the stuff easily to export terminal – then you’re on to a winner (Arabian Gulf). Offshore, 5000 ft of water, 18,000 ft to reservoir, 500 million in reserves, flow rate of 10,000 bbls per day per well, intermediate waxy crude, fined by regulator for pollution if a rigger farts, occasional risk of ice bergs and costs go way, way up.

  17. Pingback: Oil Production Vital Statistics December 2015 | Energy Matters

  18. Back in 1978 I was the Chief Petroleum Engineer for Aramco there was considerable frustration in the World as the Saudi’s decided to cut back their planned capacity buildup from 16 to only 10 million Bbls / day. The world did not listen, the EIA and the USA continued to plan in their annual reports that the Saudi’s would be producing 15 to 20 million Bbls/day in future years. These projections are shown on Figure 9-4 in my book “The World Energy Dilemma” published by PennWell in 2012 That was over 37 years ago when the Oil minister for Saudi Arabia Sheik Yamani said someday our Grand Children will need this oil too. Today Saudi Aramco is producing just over 10 million Bbls, some 37 years later

    At about the time these discussions were going on in Saudi Arabia my wife brought home a small book from the Aramco library entitled “Small is Beautiful” by E F Schumacher. It had a great Chapter on forecasting the future. I remember two real important statements: 1. “The world will appreciate most who say Stop, Look and Listen rather than those who say Look it up in the Forecast.” and 2. “Remember you can not forecast the future because you do not know what is the minds of those that control it”, but you should explore it. How true today when it comes to oil price forecasting

    • Euan Mearns says:

      The world will one day appreciate that they owe the Gulf States a debt of gratitude for not pumping flat out and opting for a long production plateau instead. This has resulted in more expensive petroleum but availability lasting longer. Passing the baton of swing producer back to the USA is not going to suit the OECD oil companies or their economies and they should be understanding such today and planning to tackle what is going to become a very difficult problem in the decades ahead. But alas we now live in a world where understanding cause and effect counts for naught. Those who rule us now believe that if the oil, gas and coal companies perish, that is a good thing.

      Prediction is indeed tricky, especially about the future – variably attributed to Yogi Berra or Nils Bohr.

      • puddi says:

        US LTO is not and never will be a swing producer in the proper meaning of the word. A true swing producer is one that has the production capability, spare capacity, financial resources, and political power and will to actively and significantly modulate world oil supply. LTO has none of the above. LTO is just conventional oil operating on a shorter timescale. It can therefore respond to price signals within a year rather that five, but it’s still a reactive response, with a timelag, and of limited size.

        • Euan Mearns says:

          Thanks for clarifications.

          A true swing producer is one that has the production capability, spare capacity, financial resources, and political power and will to actively and significantly modulate world oil supply.

          I agree with this. I guess what I wrote was in response to what someone else wrote. US with Texas RRC did act as swing producer once. And I do believe a new system of production controls will be required to restore order to the market to the benefit of all producers. No producers are benefiting today. But of course consumers are, hence in the USA there will be massive resistance to supporting a higher price, even if the survival of a large chunk of their oil industry may depend upon it.

          But I don’t know where the solution lies. How do you run a system where the cost of large volumes of marginal barrels are way over what you get paid?

  19. Pingback: Oil Price Crash: How low will the oil price go? | Energy Matters

  20. Pingback: Oil Price Crash: How low will the oil price go? | Energy Traders

Comments are closed.