The Global Oil Glut Gets Uglier

Forget the Recovery and “Rebalancing” Hype.

Deal makers in the oil patch of the US and Canada are smelling the fees, and they’re firing up the machinery. In the first half of the year, there were 52 pending and completed acquisitions of oil & gas exploration & production companies valued at $100 million or more, for a total of $30 billion, Fitch Ratings reported today:

The rise in transaction volume seems to be largely due to the improvement in hydrocarbon prices, including the tightening of bid/ask spreads, and access to capital markets.

The global oil market is “rebalancing” with production falling and demand rising, the meme goes. In anticipation, prices have bounced off the lows in February, with WTI soaring from $26.19 a barrel to $51.23 by June 8. So this would be the great oil price recovery.

At the moment, WTI trades at $45.33 a barrel. Just taking a breath?

On June 1, we wrote, “We have not been true believers in the recent oil rally. And we still aren’t.” That’s our story, and we’re sticking to it. Why? Because the world has crude oil and gasoline coming out of its ears.

The International Energy Agency reported on Wednesday that crude oil stored on tankers at sea “continued to build” and reached 95 million barrels at the end of June, “the highest level since 2009.”

In 2009, traders held oil for later delivery as prices at the time made this profitable. Not this time: “Today it is driven by logistical and marketing issues,” the IEA said. In other words, not enough demand and no place to go.

For example, according to Bloomberg:

Nine tankers holding about 9 million barrels of the major North Sea crude grades are floating off the U.K.’s coast, up from 7 million in May, according to a survey of oil traders and ship-tracking data compiled by Bloomberg.

Most of the cargoes floating idle in the North Sea have yet to find buyers and will probably remain where they are for some time because of subdued demand in Europe, according to three traders who asked not to be identified. The cargo in place longest, carried in a supertanker anchored off the east coast of England named Maran Thetis, has been on the water since April 23.

And this isn’t a profitable trade:

Ian Taylor, the chief executive officer of Vitol Group, the biggest independent oil trader, said in a Bloomberg television interview last week that the contango – the premium paid on future oil deliveries over current supplies – isn’t wide enough to make stockpiling at sea profitable. Any use of ships for storage now is probably out of necessity amid unloading delays at some ports, he said.

Global crude oil stocks on land are also soaring. The IEA reported that inventories in OECD countries rose by 13.5 million barrels in May to “a record 3,074 mb.”

In the US, crude oil stocks, refuse to come back in line, now even during driving season. For the week ending July 8, according to the US EIA, stocks were 60.4 million barrels above the already sky-high levels of last year. On this chart, note the normal five year range to the left (grey area) and how stocks soared above that in 2015, and how this year (right half of the blue line), the glut is even worse:


Gasoline stocks are also rising and forming their own glut. Down the road, so to speak, refiners will cut their inputs of crude oil – already happening in some cases – putting further pressure on the crude oil glut:


These stunningly high stocks of gasoline aren’t just a US problem. The IEA pointed out that global stocks of refined products, such as gasoline and diesel, are “at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.”

Turns out, global refinery runs in the first quarter were 60% above demand for refined products. Hence the buildup of refined product inventories. This shifted excess inventory from crude oil to refined products. The IEA expects refinery runs to fall in the second quarter, but surge again in the third quarter.

And according to the IEA, “there is a risk that, unless demand turns out to be stronger than we currently anticipate, products stocks could rise still further and threaten the whole price structure.”

And that would include crude oil prices.

OPEC crude oil production hit an eight-year high in June of 33.21 million barrels per day, as Gabon rejoined OPEC, Nigeria “partially recovered from rebel attacks,” and “Middle East producers sustained record levels, building market share,” with Saudi Arabia ramping up to “a near-record rate of 10.45 mb/d.”

The increase in production by OPEC was only “partially offset” by a decrease in production by non-OPEC producers. And thus, global oil supplies in June rose by 0.6 mb/d to 96 mb/d.

To add another wrinkle, now there are signs that shale oil producers in the US are once again ramping up production, as prices have moved into the $50-range. Even funding in form of junk bonds and loans is starting to flow again, if tentatively.

Junk bonds, trading like stocks since February – including energy junk bonds – have skyrocketed and yields have plunged. But that doesn’t mean the bloodletting is over. Read…  Great American Oil Bust Rages on; Defaults, Bankruptcies Soar

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  73 comments for “The Global Oil Glut Gets Uglier

  1. Ron says:

    If daily global oil consumption is ~85-95 million barrels per day, is the 95 million bbl of crude stored at sea a big deal if it’s only 1 day’s supply? Also, if the US consumption is ~20 million bbl, is their stockpiling of an additional 60 million above last year such a huge amount? I have no idea; just asking. I must be missing something as I don’t see why.
    Re on-land stock; even I can see that that’s a lot.

    • Wolf Richter says:

      It’s a big deal. Yes, 1 day supply if no one produces any oil at all for that entire day. That’ll never happen. Oil is priced at the margin. As long as this excess supply is out there (sea and land), and is growing (!), it will pressure the price.

    • chris hauser says:

      oil is big bidness, and it’s competitive.

      why do you suppose credit cards give the biggest rebates on gas?

  2. Mr Reality says:

    Starting to sound like we have demand destruction creeping around in the shadows……..

    Mr R

  3. Paulo says:

    regarding lower oil prices and increasing production:

    Today, on a trip to town I asked my wife what she would do if her wages were cut in half. She replied, “I would cut as many expenses as possible”.

    I then asked what she would do if she had made all the cuts she could make, but was still falling behind on her loan and mortgage payments, grocery bill, etc? She thought about it for awhile and said, “I would work more hours and try and make as much money as possible. I would take on one or two more jobs if I had to”.

    And that is the same story for lower oil prices and rising production. Companies are earning 1/2 of what they did a few years ago. They have cut all the expenses they can. Many have gone bankrupt, refied, or have added to their debt in other ways. There have been M&As. Countries, like Saudi Arabia are falling behind and are planning for a life without oil production. Meanwhile, they produce flat out….filling the world with supply….until the wells are depleted, hoping to pay the bills and hoping to keep everything from falling apart.

    Meanwhile, there is little money and/or incentive for discovering new sources of oil. The easy stuff has been found, (burned), and the only supplies left require prices 2X of what oil is presently fetching. Add to that fact current consumption rates are now 10X the rate of new discovery.

    This is the undulating Plateau of Peak. Until it isn’t. The looming decline will not simply be a re-balancing of supply and demand. It will be a painful crunch of reality. This world cannot function with energy constraints. The economy either grows, or begins to falter into collapse. There is real debate if a steady state economy is even possible. Certainly, with the current monstrous growth in debt levels we had better see an improvement PDQ.

    I think of a baseball tossed into the air. Pick the top of the arc as we burn through 10X the rate of new petroleum discoveries. Exploration does not get ramped up overnight. A new field takes 10 years to bring on line, if one is even found. And if this field is in 20,000 feet of water and under an 8,000 foot salt dome in the south Atlantic we’re talking Brazil and Petrobas. We know how healthy those entities are. Right?

    Current oil industry disruption is based on a 1.5% surplus. Imagine a 4-5% decline.

    • Gerald Stehura says:

      With the current oil consumption and all the unseen feedback loops coming into play, Climate Change is going to compelling us to change our lifestyle – if we care about our children. I am a scare monger – if you’re not scared then you are living in illusion. It’s just the laws of physics!!

      • interesting says:

        “Climate Change is going to compelling us to change our lifestyle”

        LOL, thanks i needed that after the last article i read. You forget the /sarc though.

        i will say that i like this version better then the 70’s “we’re all going to freeze to death in the coming ice age” version, i hate the cold……also……’compelling us’??

    • chris hauser says:

      yes, it is a troubling thought.

  4. nick kelly says:

    New field takes 10 years to bring on line?

    If it’s in the Arctic or something, and work went all out, maybe 5 years.
    If it’s a traditional type discovery on land (which of course are rare) you could be pumping in a year. Once the first hole is proven new rigs will start right away.
    I’m talking about what has happened in the past- when oil was $100+
    They didn’t f*ck around.

    If there are all kinds of legal hurdles, then all bets are off, especially if you are in Canada. But that is not an industry shortcoming.

    There are no wells under 20, 000 feet of water.

    • night-train says:

      New fields take a long time from a prospect being identified until oil starts flowing. Many variables are at play, so it is hard to come up with a useful average. I have a drawer full of on-shore conventional prospects that I came up with 20 years ago. They are still viable depending on price and what they are competing with. With these “factory” plays like shale, investors are told they don’t drill dry holes. They all, more than likely, will find some oil, although they may never pay out. That is what we call a geological success and an economic failure. In such an environment, you can’t give away a decent conventional prospect because all the investors have drunk the shale Kool-Aid.

      I saw that in natural gas when coalbed methane was all the rage in the 90’s. Once again with the “shale miracle”. The only miracle with shale is how much good money people will throw after the bad.

    • d says:

      We know where there is shi* load’s of oil under water, we see it floating on the surface, after every earthquake in that area. Problem’s being cold big water, and big storm’s, lots of both.

      Deep water technology is improving.

      chinese want to steal the Philippine maritime EEZ for a reason, and that reason is not fish.

      • night-train says:

        d: You are correct that there is a lot of oil in the deep water offshore. And technology will continue to improve. But, that technology is expensive, so the price of oil will have to justify its use. As in $80+.

        • d says:

          Wont be $80.00 plus.

          wont get pulled up, until its needed.

          1400 plus meters of water and 3000 meters of rock, there is talk of a submarine extraction platform once the product position is confirmed.

          deep inner-space and outer-space Technology’s are very similar. A discovery in either improves the other.

          Most of the methodology in space station came from the US boomer program’s.

          Deep water technology and extraction costs get cheaper, everyday.

    • Gerald Stehura says:

      In ten years Climate Change will be raging across the planet. It’s not going to stop. Every year will be worse than the year before. I’m truly sorry for interrupting the illusion of happy motoring forever.
      PS: I’m retired and happy so this is not what I want to see happening on Planet Earth – our only home. I don’t want to see dead acidic oceans or burning forests or the destruction of the world’s rainforests. I think we might be insane.

      • interesting says:

        “In ten years Climate Change will be raging across the planet”

        ten years ago Al Gore told us that “snow will be a thing of the past”. Guess what really happened? This global global warming….cough, cough….climate change…alarm-ism is getting really old.

        you keep posting this crap and i’m going to keep calling you out on it.

        p.s. i will never be able to retire nor will most people i know but that’s a different topic.

        • d says:

          ““In ten years Climate Change will be raging across the planet”

          ten years ago Al Gore told us that “snow will be a thing of the past”. Guess what really happened? This global global warming….cough, cough….climate change…alarm-ism is getting really old.

          you keep posting this crap and i’m going to keep calling you out on it.”

          Misunderstanding of what global warming would bring, caused people to thing extreme temperatures.

          EVIDENCE is, extremes of weather, all types due to global warming bigger and more huge, storms, droughts, freezes, and heat waves.

          As ther is more GLOBAL WARMING heat inn the oceans.

          Any foll can look a t a sea surface temperature map, and see that the oceans, particularly the pacific are over 3 degrees warmer than normal in many places than they were 15 years ago.

          the center of the 10 Degree zone is over 1500 kilometers south of where it has been historically and was 15 years ago.

      • Lee says:

        Yeah sure, and the idiotic greenies here in Australia were saying that it would never rain again. Weather forecasters can not even get the weekly forecast right and the nutters are running around like chicken little every time they a chance.

        So the numb nuts in the labor State government in Victoria went out and built a desal plant at the cost of billions of dollars and then signed a contract that is costing hundreds of millions of dollars a year to just sit there.

        It has never been turned on and all the people see is the huge cost in their water bills.

        And to add to the pain the current state Labor government placed an order for water just to show that it works………..

        Guess what happened after they placed the order. Yep, it started to rain.

        Another $12 from every water use in Victoria just to ‘prove’ that the desal plant was ‘needed’. Oh, by the way, the labor union that worked on the plant was able to get their workers some A$180,000 a year for manual labor workers there.

        Water cost A$1.00 per thousand liters in 2009. It now costs A$2.58 for the same water as a result of that stupidity.

        And to add even more to the pot, guess what?

        Yep, the desal plant will be the biggest user of COAL FIRED electricity in the state when it gets turned on.

        A total con game.

        • JerryBear says:

          the prophets of doom are always crying that the end of the world is nigh. But that doesn’t mean we should ignore reality. Yet again, this year is the hottest year on record and this has been going on for many years. Something is definitely happening.
          Global warming will not mean the end of the world, nor the end of mankind nor even the end of civilization. We will adapt.

          Global warming is temporary in the long run anyway. Once we actually do run out of fossil fuels, the oceans will absorb all that excess carbon dioxide. They can absorb thousands of times any conceivable amount that the atmosphere can hold. The surface warming of the ocean will cease. Global warming will be followed by prolonged global cooling. The long delayed end of our current interglacial period will happen and within a century we will begin a new glacial period. The real Ice Age has many more millions of years to go. But by being clever we can probably stall this from happening, at least for a good while.

        • JerryBear says:

          I worked out a cheap reliable way to pump fresh water directly from the ocean provided that there was conveniently deep water (500 meters or more) located not too far off shore. It had no moving parts and required no energy to operate other than the energy to operate the pumps to bring up the water.
          I tried peddling my concept on the chat boards in California that at the time were passionately discussing the drought. I was completely ignored. Everybody at the time was gaga over “Captain Kirk’s” utterly silly concept of building a giant pipeline to pump Washington State’s water down the coast to L.A. The people in Washing ton said “over our dead bodies Shatner!” They were in a drought of their own.

          People pay no attention to good ideas, they only pay attention to celebrities.

        • Thomas Malthus says:

          The ocean is salt water – not fresh water.

          “It can be used, depending on the reservoir chemistry. Sometimes there are minerals in the reservoir rock that don’t play nice with the minerals dissolved in seawater. For example the project I was recently working on in the Gulf of Mexico had a large amount of dissolved barium in the rocks, so we had to keep the sulfate levels in our fluids down around zero or barium sulfate scale would precipitate and clog up the well. We had to keep seawater out of all our fluids, which can be difficult on an offshore well.”

          read more:

    • Paulo says:

      My apologies. The 20,000 foot comment meant water depth + substrate, some of which add up to 20,000 feet for production. Wrote it out after a long day and a tooth infection to boot, (talking about drilling!!).

      Regardless, these are not cheap or easy. And yes, major fields, in the real world, do take up to 10 years to bring on line. There are no little ‘hidden’ or forgotten plays that someone simply did not yet start pumping. The only stuff left is in inhospitable (at best) areas. We are still consuming at 10X the rate of discovery. A few years ago it was a 8X. There is no way to reconcile that, especially if there is little left to discover.

      • nick kelly says:

        Ya I kind of knew you meant that cuz the rest of your bit was literate.
        Back in the 80’s the nat gas bust that took out Penn (West or Central ?) largest failure up til then, was funding drilling for ‘deep gas’ up to and over ten thousand feet.
        Nat gas now in Alberta is essentially a waste product. Like propane it is free at the well head, but like most free stuff you have to ‘pick up’
        Amazingly though, electric generation is still mostly coal fired.
        How it persists in the face of these nat gas prices and its higher pollution is a puzzle in which I suspect politics plays a role, as in its persistence in the US

    • Chicken says:

      I’m not sure what he’s saying exactly. I do believe those really who know and understand will mislead for their own gain and this is leading to environmental pressure on a global scale.

  5. Vooks says:

    Does it make sense for developing countries to even venture into oil? I know Kenya has been prospecting is preparing a billion dollar project called LAPSETT for this

  6. GSX says:

    Oil demand is going down every so slowly in a structural sense. There is hype and reality about non carbon sources affecting the market. A China shift to renewable is the writing on the wall for carbon. Sorry but on strict data terms alone, oil is over priced and will never hit 100 again unless we all decide to stop solar, wind and others. Speculation will drive prices to a certain degree but again how effective is OPEC now LOL???

    Sorry but its not about Peak or plateau. Shale can come back online quickly but make no mistake the energy market and production in the world is shifting. Oil is now what we used to worry about. Its now another source that adds to the menu. The largest yes, but no longer the King it was. Just ask the Saudi’s LOL.

    • Paulo says:

      Shale goes broke at prices under $80.00/bbl. Economies go broke at prices over $60.00 bbl.

      That, is the problem. It is the reality of being on the Plateau.

  7. Yoshua says:

    Half of the global oil demand comes from oil and commodity producing emerging markets. The crash in oil and commodity prices has led to a recession in emerging markets, which in turn has led to oil demand destruction in emerging markets…

    • Chicken says:

      I think you are correct, slower growth should please those who are convinced about climate change b/c that is THE ONLY real solution. Only man can voluntarily restrain human population growth.

      I don’t expect he will admit this truth from leadership level, reserving themselves the opportunity to make the most of a crisis.

      “The crash in oil and commodity prices has led to a recession in emerging markets, which in turn has led to oil demand destruction in emerging markets…”

  8. eric says:

    Sounds like more manipulation to benefit the wealthy investment banks and their cronies.

  9. Meme Imfurst says:

    As I wrote yesterday on ” Stock will crash”, the flooding of oil, gasoline, and LNG starting to come from Russia and Iran via China will pull the rug out from under the industry as well as old enemies. China has preferred trade status, and that is a Royal Flush. Russia now has the largest icebreaker ever built crushing 13 feet of ice like it was surface scum, which opens the waters for Chinese refined oil products to European and American shores.

    Look at the number oil tankers sitting in the Malaysian Strait with nowhere to go…it is not just Tankers sitting in the North Sea, tankers and Baltic dry ships are everywhere including Panama. The indexes are at 32 year lows. The economies of the world are at a standstill and no place to go thanks to the CB’s.

    Everything is related to everything else, nothing exists in a vacuum even though the daily dose of ‘information’ claims otherwise. The glut will be a windfall for some and a death blow to others, but the economic, political, and military fall out in the grand scheme will be hard to imagine and not for a good reason.

  10. Ucle Frank says:

    Goldman Sachs: Good news laid-off oil workers: U.S. energy companies could soon face a serious worker shortage.

    “Goldman Sachs believes the American oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply. As more oil fields come on line and America’s oil boom gets back on track, there simply won’t be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy.”

    • Chicken says:

      Goldman probably is looking to increase their shorts at better prices.

    • night-train says:

      Uncle Frank: I have to call BS on the predators at GS. It isn’t just how many jobs are lost, you also have to look at which jobs are being cut. When they are laying off geologists and engineers, management is in essence capitulating. They obviously think prices will be down for an extended period of time. Cutting the people who find the oil and those who design, drill, and produce the wells is akin to eating your seed corn.

      • d says:

        They drop those grade 2 Geologist and engineers now they save big on Pension liability’s and can hire younger when the need arises.

        Grade 1’s will stay.

        I know an work experienced PHD Geologist, She cleans tables at McDonald’s for an existence. Oil dosent want her or her experience any more TOO OLD. Ageism in the oil industry is massive.

        • night-train says:

          As a retired petroleum geologist, I can tell you from personal experience, the petroleum industry has, for years preferred to hire geology newbies with MS degrees. PhDs are usually hired for research, one of the first things cut in bad times.

          About the only thing a freshly minted geologist is good for is data entry. It takes several years of practical experience to become useful as an oil finder.

      • nick kelly says:

        GS is not in the energy business- it is predicting future prices, not creating them.

    • robt says:

      Hey GS also predicted 200 dollar oil and 900 dollar gold.

  11. robt says:

    Fortunately producing oil and gasoline is one of the most perfectly competitive businesses in the world, despite all the propaganda directed against it since the early 1900s, when the attack on Rockefeller by the ‘progressives’ and the media began, forcing him to split up his company and make more money than ever, the unintended consequence of envy-based attacks.
    Gasoline prices change daily in response to demand and supply. The only time supply was seriously disrupted in the US was when the government attempted to control distribution resulting in lineups around the block.
    OPEC was never really a factor in pricing; they always just priced their benchmark to spot and hoarders either elevated the spot or dumped their surpluses. Members of OPEC have usually dumped their production under the table at less than the benchmark if BM was too high, or more than the BM if it was too low.
    According to newsmagazines (based on experts’ analysis) in the late ’70s we were going to run out of oil by 1986 … but by the ’90s the price was down to 10 bucks a barrel (equiv to maybe 30 dollars today) and the world was awash with oil.
    The business is cyclical, the cure for low prices is low prices, marginal producers and their reserves are acquired by majors; high prices draw the smaller guys who help develop more reserves and production. Apparently, as they affect the world economy, high prices are a disaster when they are ‘too’ high and low prices are a catastrophe when they are ‘too’ low.
    Can’t we just live with it, recognizing that there is such a thing as a business cycle? It’s tough sometimes for people who must commute, and they can spend less on other things; other times it’s relatively cheap and they spend more on other things. But allowing for inflation, the price of oil/gasoline is roughly the same as it was over a hundred years ago even though the burden of taxes in the prices was nowhere near where it is now.

    • Chicken says:

      Thank you Uncle Goldman and Government Sachs.

    • interesting says:

      “forcing him to split up his company and make more money than ever, the unintended consequence of envy-based attacks”

      you really need to do more research on the Rockefeller’s…obviously. Envy based attacks…..come on!!!

      as an side, and i don’t know why this isn’t front page news, but it sure seems to me that the whole world is being monopolized. I know the news sure is. And i have one choice for internet where my office is……one f’ing choice.

      • robt says:

        Rockefeller definitely was not a sweetheart, but in 39 years of work (he retired at 60 to devote his time to giving money away), he brought down the price of oil by 90%, using the method of ruthlessly buying up smaller competitors. This aggomeration of productive capacity did not result in higher prices, but lower, through efficiency, providing all the product consumers required at lower cost while still maintaining profitable margins and enabling research and exploration. This philosophy exists in the industry today – the only time we’ve had to line up for gas (other than natural disasters), is when the government has got involved in distribution.
        And, actually, I’ve done a lot of research on Rockefeller’s history, and all the so-called Robber Barons who built America. Comparing them to the financial engineers that hold great wealth today but make it by a process of destruction, leaving an empty shell, instead of the creation of tangible things, is an interesting study.

  12. Paulo says:

    Arthur Berman, petroleum geologist, has a slightly different take on the matter.

    • chris Hauser says:

      focus is on texas. look to canada. look to coal.

      yes, i know, politically incorrect, the both.

    • night-train says:

      Back a few years ago when most of my colleagues quickly drank the shale oil Kool-Aid, I was left scratching my head because I couldn’t see the “miracle”. Arthur Berman began sounding an alarm no one wanted to hear. No one wants to be the only guy at the party who sees the turd floating in the punch bowl. So at least I was in good company.

      • JerryBear says:

        Heh! If I shake hands with a man and he starts telling me about “the miracle”, I am going to count my fingers afterwards…..

    • Sam says:

      Art Berman’s latest article: Oil Prices Lower Forever? Hard Times In A Failing Global Economy

  13. OutLookingIn says:

    As the industrial revolution gathered steam (pardon the pun – intended) the population of those countries that industrialized, moved from an agrarian base to city based manufacturing production.

    Simultaneously, there was a revolution in farming. Fewer could grow more and support many times more, who were now city dwellers. As more efficient farming methods (internal combustion engine) became available, even fewer food producers could support even larger numbers of city dwellers.

    The world pre-industrial revolution human population was approx. 2.5 billion and remained at this stable level for thousands of years. With just a very small annual increase, as more bio-mass became available for human population support.

    This radically changed with the utilization of oil for the main source of energy. The human world population shot up from its long term stable base of 2.5 billion, to now over 8.0 billion and still climbing quickly.

    The end of the oil energy era will spell the end of 5.5 to 6.5 billion people, because the bio-mass of spaceship earth can only support between 2 to 3 billion humans. Unless – A new, cheap, easily produced and freely available energy source can be found, that is non-polluting.

    • interesting says:

      Demographics, are in decline in most western nations…..why do you think Germany is allowing the importation of all those “refugees” (which is going to back fire) …because they need the workers. Which will be a surprise for them when they realize that those immigrants have a vastly different idea.

      Even China is heading for a demographic cliff.

      and apparently some of your research appears to be flawed, back in the 60’s there was doom and gloom talk of “The Population Bomb,”

      p.s. what they heck is going on in the comments today? peak oil, climate change, and now the population time bomb??? WTF!!!

      p.p.s. the population is not over 8 billion….sheesh!!

    • JerryBear says:

      That energy source basically already exists and would meet our needs at current rates of consumption for the next 2000 years but I rather doubt the fossil fuel industry will permit it to be developed. It would largely put them out of business.

      • Thomas Malthus says:

        If there were a replacement for oil — would not the oil majors grab hold of it for themselves and instead of losing billions each quarter as they are now — return to immense profitability?

        As you may be aware the oil business is not a profitable one at president – even the Saudis are in trouble…

      • John Doyle says:

        JB, please read the blog I posted above;

        There is NO technological fix and that includes finding any new source of cheap energy. You cannot make the maths work.

        • d says:

          Cant cant cant cant cant.

          Best you go and find a high bridge, and jump of it, now.

          You remind me of the US Patent office official. Who closed the Office Permanently, and went home. As everything had already been invented (in the late 19 Th century I believe, may have been earlier).

          Where you should be, is that TODAY, we dont know how to make the maths work.

          Anything that will replace the oil industry, is suppressed by the oil industry.

          They are reality’s you refuse to admit.

        • John Doyle says:

          Sorry. That oil theory is nonsense. They are so up the creek they would be clutching at straws to make some dough.
          Anyway what I am writing about is not some fanciful dreamy future.
          The real picture is that all dynasties close down. There has never been an exception. We are part of an industrial dynasty which stared in the 1700’s and is coming to the end of its life. Just read Wolf’s posts here! What’s not to feel gloomy about? We are in the end game, deflation, recession depression all lining up. We disguise it with borrowing, a temporary fix.
          There is NO solution. For starters you have no idea of any practical solution, Admit it. The best we can do is to manage the situation, But in our finite world, Growth cannot continue forever, which is your fancy. And steady state is not a workable option, even if we could get there.

          Enjoy the ride! It’s downhill from now and will speed up as we go.

        • d says:

          I have plenty of ideas., 0f what is happening.

          Yes debt fueled expansion is running over itself and will implode.

          Yes the More than tripling of the global population since 1945 is untenable as was the global population in 1945 long term untenable.

          The issue is do humans manage the population reduction, or allow chaos to do it for them.

          Citys are simply consumer Jails run by and for. Globalised Vampire Corporates.

          For city and urban dwellers this coming system implosion is a huge problem especially if the implosion becomes rapid for rural dwellers not so they will still have, food, their land, and the weapons to protect it.

          Do you know how you will get on when power ceases to come out of the mains supply socket.??

          Unlike you I dont need, a mains supply power source, Money, or oil, to live very well, for a long time.

          Interesting that you pick 1700’s as the start point, that period also saw the expansion of Republicanism and republican ‘democracy along with all the global problems it has caused.

          It can be fairly determined as the point where it all, started to go very very wrong.

          Bring us today a thuing called democracy that is either controlled by A Globalised vampire corporate oligarchy in America or brought by the left with untenable promises the the masses in Europe and many other nation’s. republican Democracy is a huge failure. And at the root of most of the world problems.

          Then you come to England where Parliament was brought to stop the king starting wars on his whim.

          Then Tony Blair turned the whole thing to custard by illegal staring a war on his whim, as the king could not stop him.

          Yes the world is in a very big mess. It will come wright in the end.

          It always does.

          The planet would be better off without pesky humans any way.

        • John Doyle says:

          So we agree then. It will come all right in the end. But there is a large locust species clogging up the place at present. Once they are gone the planet will recover.

        • Thomas Malthus says:

          Why would the oil industry suppress?

          Why wouldn’t the industry complete for the rights to the new technology and be the biggest most powerful company in the world overnight?

          I suggest you read This won a pulitzer…

          Around the time oil peaked in the US in the 70’s Exxon invested tens of millions of dollars into alternative energy — Lee Raymond the future CEO was in charge of that….

          They determined that there was no way to replace oil with alternative energy ….

          Your logic is bad.

        • Wolf Richter says:

          You’re still citing stuff from the 1970s? Dude, this is the 21st century!! Look at some data from 2016 instead.

          BTW, renewables are for electricity production. Oil for transportation and chemicals. So don’t conflate the two. One isn’t going to replace the other for a while; different markets. Renewables are replacing coal, whether you like it or not. Utility-scale solar… check it out!

          Once electric cars become a bigger part of the fleet, renewables will begin to replace oil as transportation fuel as well. But that’s a long ways off because it will take a long time to put 100 million electrical cars into the US fleet.

          Will renewables ever be the sole energy source? Not in my lifetime. And no one in his right mind is saying that. There will always be a mix of energy sources, but the components of the mix are changing (in the US: coal down, natgas and renewables up).

        • d says:

          My Logic is good.

          You are a shill for what feed’s you the oil industry.

          The Oil industry suppresses for the same reason GM and Chrysler suppressed every Development in safety innovation after WW II and GM still does.

          They are making money, and more importantly, fat Salary’s and Bonuses. the way they. Are any change upsets that and teh cost reduce their bonuses.

          Look at what Happened to Tucker Post WW II. and Americans had to wait over 20 years to get Safety belts, Safety glass and Disc brakes As standard Equipment. Before you get into the arguments over deliberately weak A pillars in American cars.

          Various other have come up with Innovations such as long life tires “brought out and silenced”.

          Water injection in turbocharged vehicles to boost horsepower and mileage Buried by oil company’s.

          Electric cars (The first Porsche was electric) Trialed proven and made “Uneconomic” By oil and Auto company’s Propaganda, and Subsidy’s particularly the free “pollution” and “health hazard”, “subsidy’s”…

          Extremely Economic and powerful car engines, turned uneconomic after oil company Pressure (RX 1).

          All these things “coincidentally” went against the interests of the Executives of, oil, coal, and autos. They were all suppressed and buried.

          Judges, deference lawyers, prosecutors and policemen agree on nothing. Except.

          There is no such thing as “coincidence”.

          You confuse the long term interests of, the Entity’s, their Shareholders, and Humanity (probably deliberately)

          With the immediate interests of the people running the entity’s, which always come first

        • Thomas Malthus says:

          All advances in oil exploration in recent years have resulted in higher production costs.

          Shale, Deep Sea, Tar Sands — expensive.

          Gone are the days of oil bubbling to the ground.

          Even Ghawar – the biggest field on the planet – is depleting — and high tech extraction methods are being deployed to get what is left out.

          More complexity = higher costs.

          The global economy runs on the difference between the nett energy we realize from a barrel of oil.

          Used to be 100:1 ….. now we are looking at somewhere in the region of 10:1

          We use that difference to operate our governments — to manufacture stuff – to plough roads — to heat and cool homes…

          That difference is what makes civilization possible. Period.

          And it is getting very very thin.

          The cost of production of a barrel of oil is NOT dropping – it is increasing — day after day minute after minute. That ratio is being diminished.

          To state the obvious — we pick the low hanging fruit on a tree first — and we extract the easiest to extract oil first.

          The fact that we are fracking and digging up tarry sand and drilling deep beneath the sea — well surely even a 7 year old could understand that we are near the end of the age of oil.

          If there were so much of the cheap stuff left then why would we be doing these things?

          For those who still cannot grasp this rather simple explanation … try this…

          The Curiosity explorer tonight beams back photos of an ocean of oil on the planet of Mars — the size of the ocean is equivalent to the Pacific an Atlantic oceans …. thousands of times more oil than all the oil on earth.

          Do you think that oil will ever make it to earth?

          Of course not — because the cost (amount of energy) to transport it to earth would outweigh the nett benefit realized from transporting it to earth.

          That is the extreme — but surely this conveys my point.

          That oil will remain on Mars – just as oil on earth that is too expensive to extract will remain in the ground – we are fast approaching that point

          Scream and rant … call me a doomer … call me crazy … but the facts are the facts.

          This is a problem without a solution

        • d says:

          The problem is with out a solution, as people like you obstruct and nay say any suggestion, or alternative to the cartel you make your living out off.

          You are part of the problem, deliberately obstructing the path to the solution.

        • Thomas Malthus says:

          We seem to agree on the problem — I am all for a solution — unfortunately the only solution is more cheap to extract oil — but there is no more of that

          Pray tell – what is the solution?

          Please please please do not say solar power….

  14. interesting says:

    posted without comment as i didn’t read it but have read similar articles. Look up Harry Dent for more research……i’m not saying he’s right just trying to balance out the discussion.

  15. Yancey Ward says:

    The steep, and anomalous, contango from the first part of this year is nearly gone, now. I seriously doubt storage can pay for itself much longer, if at all.

    • sidelined producer says:

      Saudi seems to be producing flat out and also shipped out their storage. Iran had big accumulation that just recently went looking for market. The punishment phase for high price producers is still ongoing, but there will be better times ahead, but this time those providing the money might do some “due diligence.

  16. DV says:

    Oil was trading at over $100 for a while and to support those trades additional dollars were needed; now that oil trades at 2.5 times less, where all those dollars go? Negatives rates?

  17. Thomas Malthus says:

    Why Oil Prices Might Never Recover

    “Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps, ever. That is because the global economy is exhausted. The current oil-price rally is over as I predicted several months ago and prices are heading toward $40 per barrel.”


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