Peak Oil Notes – Apr 23

In volatile trading, oil prices, which have risen as much as $10 a barrel in the past month, have generally drifted lower this week and are now trading around $55 a barrel in New York and $62 in London. The Saudi announcement that it was suspending bombing of Yemen, which does not appear to be happening, and an unexpected 5.3 million barrel increase in the US crude inventory contributed to the weakness on Wednesday. This was the 15^th consecutive weekly increase in US crude stocks, showing that production cuts still have not kept up with demand. The Saudis continue to produce over 10 million b/d. The EIA, however, reported its third consecutive weekly decline in US production last week, a harbinger of things to come. US crude imports of 7.8 million b/d last week were slightly above normal, showing that much of the global oil surplus still is ending up in US storage tanks.
 
This is “CERAWeek”, the annual oil industry gathering in Houston, where the industry’s leaders exchange ideas on prospects for the industry accompanied by much griping about government regulation. This week a theme emerged that shale oil drilling and fracking costs are dropping so fast that producers can now keep producing from oil fields that just months ago were uneconomical. Undoubtedly a lot of people, who want to keep their jobs, are being paid a lot less than they were at the top of the shale oil boom last year.  The over-production of natural gas from the Marcellus shale in Pennsylvania was rightly noted as the reason for low prices, but here again industry officials claim that costs of production are falling so rapidly that all will be well.
 
Industry leaders are warning that the $114 billion cut in capital expenditures for producing new oil is likely to end up in lower production and much higher prices in the years ahead as the  demand for oil continues to grow. Industry executives say that as soon as prices get back to $80-90 a barrel, investment will begin to increase capital expenditures again.
 
The Middle East continues to deteriorate with heavy fighting continuing in Yemen and this possibility of a confrontation with Iran , who just can’t keep out of these Sunni/Shiite wars,  is growing. The nuclear deal is still up in the air as discussions resume. Tehran continues to ask its fellow OPEC members to cut production so that it can resume its rightful share of the world oil market as soon as the agreement is signed.  ISIL continues to make some progress in Anbar province and around Damascus. Yet another major humanitarian crisis is brewing as refugees bail out of the province for Damascus.  ISIL is developing a reputation for shooting captives if it does not like them, or dragooning people under their control into their army.
 
The EU has filed a major antitrust case against Russia’s Gazprom alleging that it’s been using its monopolistic position as natural gas supplier to Europe to overcharge and help political friends with its pricing. So far Moscow is reacting mildly saying it hopes a compromise can be worked out.