Looks like oil's gonna last a little longer, folks

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SamLinder's picture
SamLinder
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Looks like oil's gonna last a little longer, folks

From too little oil to far too much

http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/12...

Energy - Tanks and supertankers fill up and wait for the
economy to turn around
Monday, March 09, 2009
CHRIS KAHN
The Associated Press

NEW YORK -- Supertankers that once raced around the world to
satisfy an unquenchable thirst for oil are now parked
offshore, fully loaded, their crews killing time. In the
United States, vast storage farms for oil are almost out of
room.

As demand for crude has plummeted, the world suddenly finds
itself awash in oil that has nowhere to go.

It's been less than a year since oil prices hit record
highs. But now producers and traders are struggling with the
new reality: The world wants less oil, not more. And turning
off the spigot is about as easy as turning around one of
those tankers.

So oil companies and investors are stashing crude, waiting
for demand to rise and the bear market to end so they can
turn a profit later.

Meanwhile, oil-producing countries such as Iran have pumped
millions of barrels of crude into idle tankers, effectively
taking crude off the market to halt declining prices that
are devastating their economies.

Traders have always played a game of store and sell,
bringing oil to market when it can fetch the best price.
They say this time is different because of how fast the
bottom fell out of the oil market.

"Nobody expected this," said Antoine Halff, an
analyst with Newedge. "The majority of people out there
thought the market would keep rising to $200, even $250, a
barrel. They were tripping over each other to pick a higher
forecast."

Now the strategy is storage. Anyone who can buy cheap oil
and store it might be able to sell it at a premium later,
when the global economy ramps up again.

The oil tanks that surround Cushing, Okla., in a sprawling
network that holds 10 percent of the nation's oil, have
been swelling for months. Exactly how close they are to full
is a closely guarded secret, but analysts who cover the
industry say Cushing is approaching capacity.

There are other storage tanks in the country with plenty of
extra room to take on oil, but Cushing is the delivery point
for the oil traded on the New York Mercantile Exchange. So
the closer Cushing gets to full, the lower the price of oil
goes.

Some oil is ending up in giant ships and staying there. On
these supertankers, rented by oil companies such as Royal
Dutch Shell, there is little for crews to do but paint and
repaint the decks to pass time.

More than 30 tankers, each with the ability to move 2
million barrels of oil from port to port, now serve as
little more than floating storage tanks. They are moored
around the globe, from the Texas coast to the calm waters
off Europe and Nigeria.

"It gets expensive to do this," said Phil Flynn,
an analyst at Alaron Trading Corp. "If you're
sitting on a bunch of oil and you're stuck paying
storage and insurance and you can't find a buyer, you
may have to sell it at a discount just to get rid of
it."

On the other hand, as storage units on land have filled up,
the companies that own the tankers have profited. Tanker
companies charge an average of $75,000 a day, three times as
much as last summer, to hold crude, said Douglas Mavrinac,
an analyst with Jefferies & Co.

Demand for oil began to increase steadily in the early
1980s, and it went into overdrive in recent years as the
Chinese economy surged and as producers pumped lakes of oil
out of the ground to take advantage of a spike in prices.
Then recession gripped the globe, frozen credit markets made
things worse, and inventories swelled.

Refineries in the U.S. have cut way back on the production
of gasoline as the economy weakens and millions of
Americans, many of them laid off, keep their cars in the
garage.

The latest government records show U.S. inventories are
bloated with a virtual sea of surplus crude, enough to fuel
15 million cars for a year. Inventories have grown by 26
million barrels since the beginning of the year alone. Oil
from Saudi Arabia, the United Arab Emirates and Nigeria is
finding few takers, even though much of it is used to make
gasoline in the United States.

There are so many players in the international oil market
that no one has enough control to sway prices. OPEC slashed
production by more than 4 million barrels a day, and still
the price of a barrel of crude languishes near $40. At its
peak, it traded at $147 a barrel.

Experts aren't sure what will happen when all that oil
finally comes ashore.

One fear is that with oil prices so low, companies will
slash drilling and production, setting the world up for an
energy crunch that would send prices soaring. The number of
oil and gas rigs operating in the United States has fallen a
staggering 39 percent since August.

Others say prices would plummet if companies forced millions
of barrels onto the market at once.

"If everyone's running for the exits at the same
time, they'll engineer a price collapse," Flynn
said.

Woodman's picture
Woodman
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Re: Looks like oil's gonna last a little longer, folks

Yes, it will last only a little longer, not a lot longer.

That article is short sited and lacks detail. I doubt what is in storage matters very much but I can't say for sure because the article doesn't add up all the volume stored relative to the demand rate.  But let's look at some numbers given:  30 tankers x 2 MB each = 60 MB; that's less than the 85 MB used every single day in the world.  Inventories have grown by 26 MB?  That's not much more than the 20 MB used each day in the US.  But the article doesn't say that does it? Learn to trust yourself.     A better analysis would be to compare long term production rate trends (declining 4% on average in existing fields per the 2008 IEA report) to long term consumption rate trends.  I strongly suspect and fear the former will fail to meet the latter at some point soon no matter what the price of oil, based on data available today. 

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Dogs_In_A_Pile
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Re: Looks like oil's gonna last a little longer, folks

Tom,

One thing that I think is missing from the article is consideration of the Strategic Petroleum Reserve.  Without having access to the data used to write the article, my guess is the author is only considering storage capacity for a couple of refineries.  26M bbls is a far more significant amount for a refinery tank farm than the SPR even though it is a sub set of the SPR.

In any event, it will be interesting to see this play out.

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plantguy90
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Posts: 271
Re: Looks like oil's gonna last a little longer, folks

Oil availability will probably outlive my lifetime, but what prices in today's dollars are we looking at 5-10-20 years from now?Depletion and the EIEO ratio aren't going to reverse themselves.  I dont believe my kids will have the privilege of driving around aimlessly in a gas automobile when they become bored teenagers. 

 

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mpelchat
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Re: Looks like oil's gonna last a little longer, folks

Hello Sam,

I believe that in my life time ((another 30 years)), that I will not see the end of oil.  My Children many not see the end either, but the availability will be the issue and humanities attitude toward oil ((gasoline)) will be very different.  I think that is the message of the site "the next 20 years will be very different than the last 20 years". 

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Damnthematrix
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Re: Looks like oil's gonna last a little longer, folks
> " U.S. inventories are bloated with a virtual sea of surplus crude, enough to fuel 15 million cars for a year. "
 
But the US has 130 million cars, so that lot is only 42 days' worth.
 
> "More
than 30 tankers, each with the ability to move 2 million barrels of oil
from port to port, now serve as little more than floating storage
tanks. They are moored around the globe, ...
"
 
60 million barrels stored around the world is less than a day's worth of world consumption.
This story is just a total beat-up.
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SamLinder
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Re: Looks like oil's gonna last a little longer, folks

While I'm not suggesting that we are suddenly awash in an unending sea of oil, I think this story opens a small window into what has become an interesting reality.

Even though the price of US gasoline has dropped dramatically from approximately $5.00/gallon back down to approximately $2.00/gallon, the driving habits of most Americans has undergone a significant sea change - one that is likely to last for some time to come. People are not only driving smaller/thriftier cars, they are also driving them less often.

Based on the fact that economies around the world are also in poor shape, I expect that gasoline consumption has also seen a significant drop world wide.

Add to this the fact that fewer planes are flying, fewer ships are traveling, fewer trains are moving, etc. Now include the number of factories world wide that are no longer consuming fuel because they slowed down or shut down. Also add in the millions of cars sitting in ports all around the world instead of being sold/driven.

Based on these factors, the unceasing quest for oil in all industrialized nations has, for now at any rate, dramatically declined. Ergo, the consumption rate has also dramatically declined. How long this will last is anyone's guess.

However, the reality cannot be denied.The world's oil will last a little longer than predicted just a few short years ago.

Don't ask me to define how much time "a little longer" is, though.  Wink

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Re: Looks like oil's gonna last a little longer, folks

"A little longer" is not something anyone can argue about, and is certainly not worth the effort by AP's Kahn. OPEC is cutting production pretty aggressively to chase down the decline curve. Oil stocks are one indication of the supply/demand balance, but it's pretty short-term. The real indicator is price. Just wait. When the price starts rising back to a free-market supply & demand equilibrium, we'll know they found it. At that point, it's a waiting game to see whether the world-wide economy keeps demand low enough to hold the price. If the price then starts to rise further, we'll know demand is returning and that's a good sign for the economy. Once demand returns to an early-2008 level, you'll see prices back well above $100.

The real oil story is the inexorable decline. According to the International Energy Agency, worldwide production decline is averaging somewhere between 5 and 6%. In the meantime, development projects are being put in mothballs quicker than you can say "oil is too cheap". At least $100B worth in the past six months. That guarantees we will see declining total world production - I.E. that we've reached peak oil. So when the economy begins to make a serious recovery, watch out!

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ckessel
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Re: Looks like oil's gonna last a little longer, folks
SamLinder wrote:

While I'm not suggesting that we are suddenly awash in an unending sea of oil, I think this story opens a small window into what has become an interesting reality.

Even though the price of US gasoline has dropped dramatically from approximately $5.00/gallon back down to approximately $2.00/gallon, the driving habits of most Americans has undergone a significant sea change - one that is likely to last for some time to come. People are not only driving smaller/thriftier cars, they are also driving them less often.

<snip>

Based on these factors, the unceasing quest for oil in all industrialized nations has, for now at any rate, dramatically declined. Ergo, the consumption rate has also dramatically declined. How long this will last is anyone's guess.

However, the reality cannot be denied.The world's oil will last a little longer than predicted just a few short years ago.

Don't ask me to define how much time "a little longer" is, though.  Wink

Sam,

Yes we are consuming less but be sure and run the numbers. The US consumes 20M +/- MBD and how much have we lowered that number. Say it was a million or two barrels/day. That is a good thing but it will not make an appreciable difference in the outcome.

The truth of the matter is that we need to cut consumption some 50 to 75% IMHO to effect a change that would make any long term difference. The last oil crises (1974) and resulting energy cutback is estimated to have extended the "peak" about 4 years ( from M. King Hubberts original calculations). All that did is allow another 280 million people to be born so they could grow up and buy a car. An increase of 70,000,000 persons/year means that globally we would have to come up with another country the size of the US (as far as food,shelter,transportation and resource consumption) every 5 years just to handle that increase in population.

I say the stadium is well over half full. Or is it half empty? Either way it is time to face the music. We were lulled into complaceny after the 70s wake up call. We did nothing. Now we pay the piper.

Some say it is too much doom and gloom. I say bulls&*#.  When the goin gets tough ..... the tough get goin!  What do we have to lose anyway.....only our life and that is guaranteed to happen anyway.  So there you go ......nothing to lose and everything to gain.....optimism at it's best!!!!   OK ..... my rant is over .....for the moment anyway!   Happy Day!

Coop

SamLinder's picture
SamLinder
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Re: Looks like oil's gonna last a little longer, folks
ckessel wrote:
SamLinder wrote:

While I'm not suggesting that we are suddenly awash in an unending sea of oil, I think this story opens a small window into what has become an interesting reality.

Even though the price of US gasoline has dropped dramatically from approximately $5.00/gallon back down to approximately $2.00/gallon, the driving habits of most Americans has undergone a significant sea change - one that is likely to last for some time to come. People are not only driving smaller/thriftier cars, they are also driving them less often.

<snip>

Based on these factors, the unceasing quest for oil in all industrialized nations has, for now at any rate, dramatically declined. Ergo, the consumption rate has also dramatically declined. How long this will last is anyone's guess.

However, the reality cannot be denied.The world's oil will last a little longer than predicted just a few short years ago.

Don't ask me to define how much time "a little longer" is, though.  Wink

Sam,

Yes we are consuming less but be sure and run the numbers. The US consumes 20M +/- MBD and how much have we lowered that number. Say it was a million or two barrels/day. That is a good thing but it will not make an appreciable difference in the outcome.

The truth of the matter is that we need to cut consumption some 50 to 75% IMHO to effect a change that would make any long term difference. The last oil crises (1974) and resulting energy cutback is estimated to have extended the "peak" about 4 years ( from M. King Hubberts original calculations). All that did is allow another 280 million people to be born so they could grow up and buy a car. An increase of 70,000,000 persons/year means that globally we would have to come up with another country the size of the US (as far as food,shelter,transportation and resource consumption) every 5 years just to handle that increase in population.

I say the stadium is well over half full. Or is it half empty? Either way it is time to face the music. We were lulled into complaceny after the 70s wake up call. We did nothing. Now we pay the piper.

Some say it is too much doom and gloom. I say bulls&*#.  When the goin gets tough ..... the tough get goin!  What do we have to lose anyway.....only our life and that is guaranteed to happen anyway.  So there you go ......nothing to lose and everything to gain.....optimism at it's best!!!!   OK ..... my rant is over .....for the moment anyway!   Happy Day!

Coop

Hey Coop -

You're preaching to the choir, my friend. Smile  I well remember the 70's and have been frustrated to a fare-thee-well that our government didn't seize the opportunity to search out and develop alternative resources at that time. That's over 30 years wasted!

I know we're running out of oil. I just find it somewhat intriguing that the whole system is overloaded in the short term due to the dramatically decreased demand. Will demand significantly increase again when all this mess is sorted out? Perhaps so. Then again, perhaps not. Perhaps we will all learn to get along with less fuel. I know my own family is much more conscientious then we were before.

The best outcome is that oil consumption stays at a reduced level for years to come giving us time to bring alternative resources on line. That's assuming our government doesn't put its blinders back on again!

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plantguy90
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Re: Looks like oil's gonna last a little longer, folks

Modern exploration sounds like wringing out the last bits out of a towel of water when you once had a whole well full of it.  It doesn't really address the issue of depletion.  The markets still have too much lazy money in it searching for a quick buck.

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