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96 comments on Could $30/bbl Oil Happen Before New Year’s Eve?
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96 comments on Could $30/bbl Oil Happen Before New Year’s Eve?
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Oil inventory may have dropped just because oil prices were high, not because of of a lack of supply. This is the reason why you don't see a whole lot full of Ferraris at dealerships, they are just too expensive to keep in inventory!!!
My supply demand spreadsheet (calibrated from the previous year) estimated that the price of oil last year should have averaged around $90 per barrel, much lower than the peak of $147/bbl. When I dummied down supply such that the elasticity of demand would have been correlated with $147/bbl, 2.5 million barrles per day of crude oil would have to have disappeared from the crude oil supply, this is separate from the 3.5 million barrel per day of assumed depletion and new oil fields estimated to come on line from the Megaproject data base, and it ignores the additional crude oil which would have come on line from the old depleted oil fields that were then economic to start up again. I did not find any evidence of a large increase in depletion like that, did you? Also, others who conducted similar analyses (Skrebowski, Erickson) showed similar price behavior.
The real smoking gun for me is that was trying to figure out why the price of crude oil was going up and down during the beginning half of 2008, and it seemed always correlated to the value of the dollar. Most all commodities increase in value as well lockstep with the declining dollar. On the other hand, when Nigeria's oil supply decreased because of a rebel attack, the price of oil did not respond to such incidents, and in some cases, the price of oil went down if the dollar strengthened in value.
All this strongly suggests (greater then 90% certaintly in my mind) that the run up in crude oil prices in 2008 was almost all due to speculators investing in oil as a hedge against the falling dollar. We are seeing similar behavior again this year.
Now, I do admit that there was an oil supply issue in the background which is why my spreadsheet was estimating that the price of oil should have been $90 per barrel. It is just that I am convinced that the very fast run up in oil prices last year was not a supply shortfall driven artifact.
Retsel
How does your supply demand spreadsheet factor in the lack of OPEC spare capacity when such a state had never occurred until 2005-2008?
My spreadsheet works by using 2006 crude oil supply as the base year. It assumes that we were at maximum crude oil production capacity with respect to the existing oil fields. I then subtract the crude oil production loss due to depletion for each year thereafter (for 2008, the number I used 4 million bbl/day), and add new crude oil production from the Megaprojects data base. Thus, my spreadsheet assumes what you asked about, that OPEC (as well any anyone else) does not have spare capacity from their existing oil fields (thus, the spreadsheet is conservative because of this).
Retsel
I'd not use the MegaProjects as the basis for real oil flows.
You can try and read up on the project and see if its actual flow gets published in any given year.
Unless you do the work to verify the capacity projections in the Megaprojects with real flows I'd suspect your spreadsheet is erroneous.
I disagree that its conservative I suspect you will find its wildly optimistic using projected nameplate capacity.
You may be right that my analysis may be optimistic with respect to the Megaproject Database (both startup dates and prodution levels). To shed more light on my analysis, I also assume that larger oil fields (>200 kbbl/day) come up to full production over three years, middle sized oil fields (100 to 200 kbbl/day) come up to full production over 2 years, and smaller oil fields (<100 kbbl/day) come up to full production in the year of startup). For deepwater oil fields, I assume that they only produce at peak oil production for 5 years and then decline at 18% yer year. What do you think about these assumptions and do you have a recommendation on how to adjust the numbers lower? What do you do? I vaguely recall that someone assessed the crude oil production levels of Megaproject Database crude oil production after the fact (Skrebowski maybe?), so if I am remembering that right, I could look back at that analysis.
Also, I would need to account for the new smaller crude oil production projects which don't make it on the megaproject list, as well as a price elasticity of supply for the remaining crude oil in depleted oil fields. Right now (by default) my analysis essentially assumes that the shortfall in the Megaproject Database crude oil production is offset by the smaller fields and increased production from older fields with higher crude oil price.
I wonder if Erickson and Skrebowski go this extra step and account for all that (if so, then my inherent assumption is not far off as my analysis seems to mirror theirs)?
Retsel
Thats sound about right the problem is the start dates. And peak flows are really capacity.
So you can be off by 1-2 years on a start date and even as high as 50% on the flow rate.
Some of the claims are highly suspect KSA, Russia and even Brazil.
If you want to use that data you have to check its performance its existed long enough that we can
see if any of the early prediction even came close to meeting reality.
I did look into this a bit but once a project come online getting actual data seems impossible.
We seem to be able to fairly consistently add about 4mbd every year of new production how long
this lasts is unknown. This is probably fairly consistent with our underlying decline rate which
is probably higher thant the 3% often used.
Put it this way production has remained fairly flat therefore new production and decline have been fairly well matched. That does not give you much more than what I just posted i.e about 4mbd of new production a decline rate of around 5% or so.
My experience has been that attempting to use published new capacity never works. To many unknowns. You can do a fair job of figuring out real new production by figuring out the underlying decline rate.
As a scientist the first thing I'd say you need to do is verify that the data your proposing to use in your model actually means what you think it means. Even a cursory look at past production history and new production claims indicates the two are not in sync.
And of course the decline rate is probably accelerating and if I'm right rapidly without a good handle on decline rate your approach is doomed :)
Obviously barring bringing online massive new fields its the decline rate that matters since historical production indicates new additions have at best managed to halt overall decline at least to date.
Obviously I just treat new annual real production capacity as a constant of about 4mbd, works quite well.