<DrumBeat: June 23, 2006 The Oil Drum DrumBeat: June 24, 2006>

148 comments on Is Oil In a Price Bubble?

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smekhovo on June 23, 2006 - 4:27am Permalink | Subthread | Parent | Comments top
How about addressing the evidence presented in the piece that inventories are not high in relation to consumption?
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Oil CEO on June 23, 2006 - 4:38am Permalink | Subthread | Parent | Comments top
Sure.

And if we look at the number of days supply, there has been no significant trend of increasing stocks at all:

It seems to be inconclusive. It would have to be conclusively lower and trending that way to be viewed as evidence that there was a problem or that the current supply, demand, and price were proof of "Peak Oil Now."

As these inventories themselves are trending higher, then there is the distinct possibility that with stalled demand, number-of-days-inventories will rise. We will have to see.

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GreyZone on June 23, 2006 - 12:14pm Permalink | Subthread | Parent | Comments top
First you say it's inconclusive (with which I agree) but then you jump to a conclusion? I could just as easily assert that it needs to be conclusively higher to justify your conclusion so I am not sure how you can reach the conclusion that you just did. Now your second paragraph I can agree with but so far that is just speculation about what may happen, not what is happening right now.

Given my confusion at your conclusion, can you clarify then? Or did I read you correctly?

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Oil CEO on June 23, 2006 - 1:03pm Permalink | Subthread | Parent | Comments top
Yes. I can attempt to clarify.

If you look Stuart's original post here you will see that at the very top he references a TOD thread from about a week ago in which there is an alternate explanation of a plateau. Stuart quotes somebody, I'm not sure who, but also contained in that thread is a hypothetical devil's-advocate question that I posed. There was some lengthy discussion that followed and I believe you read it all since you posted towards the end of it.

There has also been much debate here between Westexas and Robert Rapier regarding related issues.

For me it all boils down to this: Does the current situation with supply, demand, and price point to or verify the existence of "Peak Oil Now?"

If you look at the graphs that Stuart and I have done, you will see that there were two plateaus previous to this one in the last decade. Much of the debate surrounds what is different in this plateau that makes this one the peak, where the other two were not.

My view is simple - I don't know. And I don't think I'll know until I'm looking back.

The opposite point of view(expressed in this debate/discussion) is that we can in fact see the differences and they clearly mean this plateau is the peak.

What may be true, but a position I choose not to defend is that what we see is proof of this current plateaunot being a peak. This may be part of the confusion.

Others are arguing that this is the peak, I am simply arguing that we can't be so sure. I see any inconclusiveness as conclusiveness that we can't be sure :)

One thing I do know, is that if oil ever falls to $55, Saudi  Arabia pumps so much as a single barrel more than they are now, Cantarell's production doesn't decline by more than 5% in the next year, or we hit 86 million barrels per day - then there are going to be a bunch of people here who are going to have to seriously re-think things.

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GreyZone on June 23, 2006 - 1:12pm Permalink | Subthread | Parent | Comments top
Thanks for the clarification!

I tend to agree with Stuart's position - we can't be sure but there is an interesting body of evidence suggesting that we are at or very near peak. And ultimately, you (and others who have said the same) are right on this issue - we'll really only know for sure in hindsight.

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Stuart Staniford on June 23, 2006 - 1:25pm Permalink | Subthread | Parent | Comments top
I just learned a new trick over at RealClimate. The IPCC has been trying to make more precise definitions of common words used to describe probability. They have decided "likely" should mean "having an approximately 2/3rds probability". I like that. So my position would be "It is likely that the current plateau is the start of the peaking of world oil supply, and it is likely that the peak month of production will occur within the next three years"
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westexas on June 23, 2006 - 1:28pm Permalink | Subthread | Parent | Comments top
"One thing I do know, is that if oil ever falls to $55, Saudi  Arabia pumps so much as a single barrel more than they are now, Cantarell's production doesn't decline by more than 5% in the next year, or we hit 86 million barrels per day - then there are going to be a bunch of people here who are going to have to seriously re-think things."

The Saudis have admitted to a 5% decline since December, so a mild increase in their reported production, especially given their large stockpiles, would not be totally unexpected; however, Ghawar, the largest producing oil field in the world (found 68 years ago), has produced more than 90% of its 1970's estimated URR.  

Cantarell, the second largest producing oil field in the world,  has a remaining oil column of about 825', which is thinning at the rate of about 300' per year.   The longer they keep production at relatively high levels (with horizontal wells), the sharper the final decline will be.   This is simple physics, which is the same problem that Ghawar has (we have seen what happens when water hits horizontal wells, in the Yibal Field).

Daqing and Burgan are also declining.  

What amazes me is that anyone has doubts about our proximity to Peak Oil given the fact that the four largest oil fields in the world are almost certainly declining.  

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Oil CEO on June 23, 2006 - 1:53pm Permalink | Subthread | Parent | Comments top
Yeah, you're right, but people do have doubts. The best way to assuage those doubts is to have a full and open debate on the topic. Get the information out there and let people make up their own minds. I have no idea who might be reading this website, but the best way to convince people is a bullet-proof argument.

I'll be the first to tell you if you're predictions turn out correct. But for me "almost certainly" doesn't cut it. It has to be "are declining" with numbers to prove it.

Robert has used the line recently,"What is it going to take to convince you..." Well, I will tell you what it will take to convince me. Year-to-year drops in global conventional crude production of greater than 2% for twelve consecutive months(or something roughly equivalent).

If Cantarrell has a catasrophic collapse, you take the cake.

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peakearl on June 23, 2006 - 3:16pm Permalink | Subthread | Parent | Comments top
What I like about your comment is defining what you mean when you talk about peaking. I think we have some apples and oranges confusing the dialog.

For myself, I don't see THE PEAK as a month, a day or even a year. I see it as more of a process as described by getting on a plateau which shows monthly and yearly fluctuations within certain limits until permanent decline sets in. This plateau could last 3 to 5 years - I don't know. If the current plateau is the "peak plateau" then we rounded the shoulder around the end of 2004. If we get bumps up to perhaps 86 mbpd but not consistently exceeding that before decline sets in, I will consider us to have been "within" the peak at this time. To consider us not at the peak, I would want to see sustained production for a year or more exceeding 86 mbpd.

If we are in the peak at present, it could go on another 2-3 years before the consistent drop you are referring to, so likely both of our criteria will remain unanswered for at least 3 more years even if we are peaking now - which is fine.  

I think we can't make too much of short-term fluctuations in either direction, but society needs to be preparing now either way.

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BrianT on June 23, 2006 - 4:40pm Permalink | Subthread | Parent | Comments top
Westexas: I admire your patience in stating the same simple,extremely important facts repeatedly without frustration.
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JCK on June 23, 2006 - 5:57pm Permalink | Subthread | Parent | Comments top
Ghawar, the largest producing oil field in the world (found 68 years ago), has produced more than 90% of its 1970's estimated URR.

I would suggest that this indicates that the 1970s estimates were too low.  What is the typical production of a field relative to its peak production when 90% exhausted and what is the production of Ghawar now relative to its peak production numbers from the 1980s?

While we cannot rule out the possibility of a sudden, severe collapse, I believe it cannot be taken as a given either.

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westexas on June 23, 2006 - 6:52pm Permalink | Subthread | Parent | Comments top
Matt Simmons' book is worth buying, just for the chapter on Ghawar.  He talked to a retired Aramco executive, who said, in his opinion, that there was no way the URR for Ghawar could be more than 70 Gb.  To give you an idea of how big 10 Gb (the difference between 60 & 70 Gb) is, it is almost the same as the entire recoverable reserves in the Prudhoe Bay Field, the largest oil field in North America.

The vertical wells in Ghawar started watering out long ago, so the Saudis responded by drilling high tech horizontal wells into a thinning oil column.  This has the effect of prolonging the period of high production, but it probably does not increase ultimate production.  

When the water does hit the horizontal wells, the resulting production collapse can be dramatic, e.g., the Yibal Field.

I can't think of any other producing region that has been quite so dependent on one field complex.  It is not "if," but "when" the oil production in this 68 year old oil field, accounting for about half of Saudi production, starts rapidly declining.  It may be happening right now.

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jkissing on June 23, 2006 - 10:38pm Permalink | Subthread | Parent | Comments top
Commercial inventories would be lower today if they repaid the 14mm barrels borrowed from the spr. So, days of coverage (with spr included) is lower this year than last while price is higher.
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148 comments on Is Oil In a Price Bubble?

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