Peak Oil Notes – Apr 9

It is shaping up to be another volatile week with oil prices rising sharply on Monday and Tuesday on hints that the worldwide oil glut would soon be easing. On Wednesday, however, prices tumbled 6.6 percent in New York to close at $50.42 and 6 percent in London to close at $55.55. The plunge came after the EIA’s weekly stocks report showed the US crude inventory increasing by 10.9 million barrels, the largest one-week increase since 2001. Much of the increase came from higher imports last week, which were up by 869,000 b/d over the previous week.  This suggests that much of the world’s surplus oil is ending up in the US where there are still buyers with sufficient storage capacity. The EIA also reported US production in the lower 48 was up by 8,000 b/d last week, but there is growing skepticism of the EIA’s weekly production numbers, which are mostly trend line projections not based on actual production numbers
 
Crude stocks at Cushing, Okla. rose above 60 million barrels for the first time last week and are getting closer to the depot’s theoretical limit of 73 million barrels.  Most analysts, however, doubt that a storage shortage will develop, as there is still considerable capacity at refineries around the country.  Gasoline supplies, which are also abnormally high, rose by 800,000 barrels last week. It is only about 6 weeks until the US summer driving season gets into full swing and some believe that the low gas prices will lead to a faster draw down of US gasoline and crude inventories this summer.
 
Most observers now expect US oil production will peak in April or May and that a definitive drop in production will be reported in June. Predicting future oil production has become more complicated as drillers are leaving more wells uncompleted while awaiting higher prices.  In its Short Term Energy Outlook, released this week, the EIA says that global stockpiles are expected to increase at an average pace of 1.7 million b/d for the rest of the first half.  Their new estimates show global oil consumption growing by 900,000 b/d in 2014, 1 million b/d in 2015, and 1.1 million b/d in 2016.
 
The EIA also says that non-OPEC production jumped by 2.2 million b/d in 2014, which is what led to the glut, but will only increase by 700,000 b/d in 2015, and 400,000 b/d in 2016. OPEC production will rise slightly this year, and then fall by 500,000 b/d in 2016. This of course does not account for the possibility that the economic sanctions on Iran will be removed this summer.  Should Tehran be free of the sanctions, most observers believe that it could immediately sell the 30 million+ barrels it has in storage and increase production by at least 700,000 b/d by the end of 2016. This would add an average of 500,000 b/d to the world’s oil supply next year and could drive prices down by some $5-15 a barrel according to the EIA.