Thursday, May 24, 2012

One Reason Why Oil Prices Will Remain Stable: U.S. Production Reached a 14-Year High in February

From today's WSJ editorial  "Why Oil Prices Will Keep Falling" by Nansen Saleri, CEO of Quantum Reservoir Impact in Houston:

"The invisible hand steadying global energy markets is the growing influence of modern technologies. So a case can be made for a relatively stable crude-price window—$80 to $120 a barrel for the next several years. 

The growing influence of modern technologies is evident everywhere. Net daily U.S. imports of petroleum have dropped by 50% to eight million barrels over the last five years. Imports are likely to shrink further in the coming decade due to an upsurge in domestic oil and gas supplies (see chart above).

Fracking and horizontal wells have given the U.S. an unmistakable geopolitical advantage while moderating the market swings. Both presidential candidates have a chance to accelerate U.S. energy independence. Ambiguity, policy vacillation and an overreach on uneconomical options (ethanol, wind) act as suppressants. But technology and market forces trump politics. The march is on."

MP: The chart above shows monthly U.S. oil production starting in January 1998, and going through February 2012, when production reached 6,144,000 barrels per day.  That was the highest monthly output of domestic crude oil in almost 14 years, going back to August 1998.  New energy and geophysical technologies like 3D-seismic imaging, fracking and horizontal drilling have opened up huge reserves of previously unrecoverable oil and gas in the United States, and that's the main reason that crude oil production is close to a 14-year high.  And it's one reason that "oil prices will keep falling," or will at least remain relatively stable.

Related from CBS News:  North Dakota could double its oil production by 2015 to more than 1 million barrels daily, putting it on par with Texas "if everything goes our way," according to the state's top oil regulator Lynn Helms. Billionaire Oklahoma oilman Harold Hamm said that Helms' prediction was probably accurate, if not a little low.

"We've been saying for two years that North Dakota could be at 1.2 million barrels a day by 2015," said Hamm, CEO of Continental Resources Inc.

24 Comments:

At 5/24/2012 1:57 PM, Blogger Rufus II said...

One li'l problemo. The EIA is showing (by sampling a few producers - also known as "the biggest wind-bags in the Universe) production in Texas as being 1,720,000 bpd.

The Texas Railroad Commission, however, to which all producers Must report every barrel of oil produced, shows

1,137,122 bpd in February

Anyone, absolutely "anyone," in the oil business will tell you that the chances that the EIA is right, and the TRRC is wrong is Zero.

We've increased our oil production a couple hundred thousand in the last couple of years, but that number is next to meaningless in the global scheme of things.

The effect, however, of more fuel efficient automobiles Is significant.

 
At 5/24/2012 2:01 PM, Blogger Ed R said...

Wow !! U. S. Oil production at a 14-year high; and (judging by the graph) this recent strong growth began in mid-2009.

Which administration should get credit for these enlightened oil production policies??

 
At 5/24/2012 2:03 PM, Blogger Larry G said...

What Administration...

lemme see....

hold on....

gee.. that's a TOUGH ONE...

I give up....

George Bush, right?

:-)

 
At 5/24/2012 2:10 PM, Blogger Unknown said...

Mark, your link to the WSJ article isn't working.

There's a lot of debate on the discrepancy between the EIA and TRRC data on Texas oil production. If you graph the two data sets over each other, they both show similar rises of late, just starting from different bases. They've also pretty much always been that way, for whatever reasons.

I don't think anyone's doubting the recent rise in US oil production. The EIA recently revised its methodology because everyone was saying they were underestimating recent production (BTW that accounts for much of the big jump the past several months - a change in the methodology, not a sudden jump in production). The only real debate is where it's coming from. They might be overestimating Texas, but they're likely underestimating from somewhere else.

 
At 5/24/2012 2:17 PM, Blogger bart said...

Which administration should get credit for these enlightened oil production policies?


Perhaps the same party that should get credit for WWII, Korea, Vietnam, etc?

And more seriously, crediting administrations for positive things that are much more based on the relative free market or supply &* demand is just politics - and has little basis in full facts.

 
At 5/24/2012 2:18 PM, Blogger bart said...

... that accounts for much of the big jump the past several months - a change in the methodology, not a sudden jump in production

Thank you.

 
At 5/24/2012 2:49 PM, Blogger Unknown said...

Let me re-state that ...

There *has* been an increase in production the past few years, and especially in the past year. It is extremely probable that current production is around 6.3 million barrels/day. However, the big "jump" shown on Mark's chart is more an artifact of the EIA's new methodology, rather than an actual big jump in production "on the ground." In other words, the EIA was almost certainly underestimating production for most of last year (and to a lesser extent in 2010), and has now finally done some "catch up." The actual, real production "on the ground" would show a more gradual increase over the past 1-2 years rather than that big, sudden and recent jump.

 
At 5/24/2012 2:52 PM, Blogger bart said...

However, the big "jump" shown on Mark's chart is more an artifact of the EIA's new methodology, rather than an actual big jump in production "on the ground."

Agreed

 
At 5/24/2012 3:00 PM, Blogger Unknown said...

I'm not sure you understood my point. Or maybe you're one of those people who don't want to?

The increase is real. The timing of the increase is off. Last year was better than shown. The current numbers are about right.

 
At 5/24/2012 3:06 PM, Blogger Unknown said...

In other words, the real production profile would look something like the red line I've scribbled on Mark's chart:
actual production

 
At 5/24/2012 3:07 PM, Blogger Mark J. Perry said...

Thanks, link is fixed now.

 
At 5/24/2012 3:15 PM, Blogger Rufus II said...

No, it is not even remotely possible that production is 6.3 million bbl/day.


It may be 6.143 mbpd minus the discrepancy in Tx production, or in the neighborhood of 5.5 million bbl/day.

 
At 5/24/2012 3:20 PM, Blogger bart said...

The increase is real. The timing of the increase is off. Last year was better than shown. The current numbers are about right.


Agreed.

How many times do I need to replay with a simple answer?

Is there some reason you're posting as Unknown that we should know?

 
At 5/24/2012 3:26 PM, Blogger Unknown said...

"No, it is not even remotely possible that production is 6.3 million bbl/day.

How do you know? Do you have some superior data collection technique nobody else knows about?

 
At 5/24/2012 5:20 PM, Blogger rjs said...

http://gregor.us/wp-content/uploads/2012/01/Global-Average-Annual-Crude-Oil-Production-2001-2011.png

 
At 5/24/2012 7:12 PM, Blogger bart said...

Other reasons why oil prices will *not* remain stable:

1. War

2. "It's not different this time". Oil has been going up about 8%/year since the 60s.

3. Higher inflation

 
At 5/24/2012 7:13 PM, Blogger bart said...

Unknown said...
How do you know? Do you have some superior data collection technique nobody else knows about?



Is there some reason you're posting as Unknown that we should know about?

 
At 5/24/2012 8:35 PM, Blogger VangelV said...

One Reason Why Oil Prices Will Remain Stable: U.S. Production Reached a 14-Year High in February

No. If they stay stable it will be because demand has fallen. There is no spare capacity any longer and there is no way for a supplier to drive the price down as SA could in previous times.

 
At 5/24/2012 8:40 PM, Blogger VangelV said...

There *has* been an increase in production the past few years, and especially in the past year. It is extremely probable that current production is around 6.3 million barrels/day. However, the big "jump" shown on Mark's chart is more an artifact of the EIA's new methodology, rather than an actual big jump in production "on the ground." In other words, the EIA was almost certainly underestimating production for most of last year (and to a lesser extent in 2010), and has now finally done some "catch up." The actual, real production "on the ground" would show a more gradual increase over the past 1-2 years rather than that big, sudden and recent jump.

The EIA has been pushing an agenda that put pressure on the IEA to underestimate depletion for years. Its data collection is not exactly pristine and we have no idea if biofuels, NGLs and other sources are not making their way into the crude category. Shale gas was clearly a scam and the chickens are coming home to roost. Expect a few of the producers to be taken out or liquidated and charges filed against some of the management teams. We have a global market in which the US is a tiny player with little influence on the supply side.

 
At 5/24/2012 8:46 PM, Blogger bart said...

The Ugly Economics Of Fracking Force Energy Companies To Keep Drilling To Show Big Profits


http://www.businessinsider.com/the-natural-gas-massacre-gets-bloodier-2012-5

 
At 5/24/2012 10:14 PM, Blogger Unknown said...

Is there some reason you're posting as Unknown that we should know about?

When I first posted here, I actually had an account name, but (I'm not sure what I did) for some reason after just 1 or 2 posts it started showing me as "Unknown." I quickly decided it looked cool that way, so I decided to leave it as-is. :-)

-Unknown-

 
At 5/25/2012 10:10 AM, Blogger Henry H said...

This comment has been removed by the author.

 
At 5/25/2012 10:12 AM, Blogger bart said...

http://www.businessinsider.com/the-natural-gas-massacre-gets-bloodier-2012-5


Peak cheap (shale) oil is still alive & well.

 
At 5/25/2012 10:15 AM, Blogger Henry H said...

Rufus,

The Texas Rail Road Commission may show a 16-17% y-o-y jump in production for February. It is much higher than prior growth rates from 2006-2010.

 

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