supply

Podcast

Jeffrey J. Brown: Hurricanes & US Oil Production

Estimating the impact of Harvey (and Irma, and...)
Tuesday, September 5, 2017, 11:13 AM

Hurricane Harvey took offline over 50% of Texas' refining capacity and shut down large percentage of the wells in the major Eagle Ford shale play.

This week, Hurricane Irma threatens to deliver a similar massive punch to the oil patch in the Gulf.

To discuss the ramifications from these storms on the oil markets, geoscientist and oil explorer Jeffrey Brown returns to the podcast. He calculates that Harvey alone will have long-lasting effects such as lingering supply shortages, but his greater focus is attuned to the growing validation of his Export Land Model, which calculates the rate at which oil-producing nations cease to become net exporters as their domestic consumption increases. Since it's formulation in 2005, more and more countries have switched from being net-exporters to net-importers, and the data in aggregates is strongly suggestive of a flat-lining in world oil production -- the consequences of which are immense. » Read more

Blog

Get Ready for Rising Commodity Prices

Driven by hot money seeking a low-risk haven
Tuesday, July 16, 2013, 9:27 PM

The human mind seeks a narrative explanation of events, a story that makes sense of the swirl of life’s interactions.

The simpler the story, the easier it is to understand. Thus the simple stories are the most attractive to us.

But conspiracies and power groups do not always provide comprehensive explanations for what we observe. » Read more

Insider

The March to $200+ Oil

Expected over the next 2-4 years
Thursday, September 6, 2012, 7:03 PM

Executive Summary

  • Why pressures to the downside have less impact when the global economy is weak
  • Why oil's new floor is $80
  • The 'upside risk' story for oil prices
  • Why prices will march up to the $150-175 range over the next 2-4 years (with increasing sensitivity to spikes of over $200+ per barrel)

If you have not yet read Part I: The Repricing of Oil, available free to all readers, please click here to read it first.

I encourage others to read the entire recent paper on Nominal GDP (NGDP) Targeting by Michael Woodford (recently delivered at Jackson Hole) or to simply read its coverage, either by Joe Weisenthal at Business Insider or Paul Krugman at the New York Times. In short, I take the appearance of the Woodford paper (link opens to PDF) as the inevitable next-step solution to the problem of unpayable debt and scarce resources. By loudly and flagrantly voicing a policy pursuit of inflation, Nominal GDP Targeting (which has been discussed for some time in economic circles) would be the next iteration of behavioral prodding in Western economies.

More importantly, the growing acceptance of NGDP targeting in policy circles simplifies the battle that began a decade ago: the struggle to counter emerging scarcity of natural resources with the provision of greater and greater amounts of cheap credit. Within the contours of this battle lies the answer as to whether oil’s next major move is downward, in a deflationary collapse, as global demand vanishes in a new economic crisis; or whether oil’s next major move is higher, as the five billion people in the developing world pull the OECD along in a new expansion.

Modeling the next move in oil prices is, of course, a very different task than it was ten years ago... » Read more

Insider

The Cruel Math of the Marginal Barrel

Lower prices lead to lower supply, ultimately pushing prices
Tuesday, May 22, 2012, 11:59 AM

Executive Summary

  • Why oil price vulnerability is growing 
  • Why the marginal cost of oil is rising higher at an accelerating rate
  • Why the marginal cost of oil for non-OPEC regions is now above $90
  • The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
  • The new rules that will govern the price of oil from here
  • The alarming growing risk of large-scale war for oil

Part I: OPEC Has Lost the Power to Lower the Price of Oil

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Cruel Math of the Marginal Barrel

An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.

This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.

Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.