Wednesday, January 20, 2016

SAR #16020

Skim milk masquerades as cream...Gilbert & Sullivan
Definition, Glut: The impression that we are “drowning in a sea of oil” is not exactly right. We have a bit too much capacity, true. The IEA says that the world is producing about 99.5 million barrels a day (mbd) and using about 97.5 mbd. Makes doing the math pretty easy – we've got about 1.5% too much oil right now. The gap is expected to grow a bit, with demand growing about 1.2 mbd this year and production remaining about 1.5 mbd above demand, which will “put storage infrastructure under pressure.” The glut will disappear, along with cheap gas at the pump, once those in the worst financial shape (most likely those with the most expensive to produce oil) drop out. Closing 2 mbd in production would do the job. Don't expect volunteers.
Full Disclosure: The real question about the Saudi “plan” to sell part of Saudi Aramco is not why they might want to do that – they've already burned through 15% of their foreign reserves – but how much it would be worth. A public offering would require complete and detailed disclosure of their reserves – something they have strongly resisted for decades. And most of the world suspects that a fair percentage of the claimed 260 billion barrels are mythical.
Yes, and No: Yes, there is a grade of crude oil in North Dakota that is pretty much worthless – it is “North Dakota Sour” and it is full of sulfur, a thick and acidic sludge. But it is also not worth talking about, unless you own part of the 15,000 barrel a day production. Exxon spills more than that every day. Even if you include the production of South Texas Sour ($13.25 a barrel) and Oklahoma Sour ($13.5o) all you've got is an ignorable footnote.
Porn O'Graph: Guns not roses. More leads to most.
The Parting Shot


McMike said...

re glut. Interesting perspective. Of course oil prices do not necessarily correlate with supply & demand, and oil companies don't necessarily make money simply by selling oil above their cost.

So, the cynic in me looks at this and considers explanation among:

- This is the canary in the coalmine. The one percent gap in supply/demand is magnified by the 100x leverage in the shadow market. aka subprime 2007.

- This is the insiders stampeding everyone else off a cliff, so they can whipsaw us and make a buck on the rebound.

- This is the insiders creating havoc so they can sweep up assets on the cheap and consolidate power.

d. all of the above.

George Anderson said...

D looks like a winner to me but that's just a guess. Not much behind the threat to outlaw internal combustion engines, just more hand-waving by the political crowd trying to appease we peasants.

Then there's the other side of that equation...if they do dump fossil fuels, what are those electric cars going to run off of? Daylight?

There might be SOME batteries that good but are there enough inputs kicking around to cheaply mass produce a couple or three billion of 'em?

Hydro will have all it can handle keeping millions of homes heated and lit...but again we are assurred that technology will save the overlord's bacon.

You? just keep on doin' nothin'...that's their 'best possible' outcome.