The retreat of ‘peak oil’

nat review ^ | 6/14/15 | Robert J. Samuelson

[bestintxas]

The recent OPEC meeting provides an opportunity to understand the mysteries of the global oil market. As expected, OPEC decided not to cut its oil production. Barring unanticipated developments, prices will drop, says oil analyst Larry Goldstein. Potential oil supply, including drawdowns from bloated inventories, exceeds demand. Goldstein rightly cautions, however, that no one knows where prices will settle.

Oil’s dramatic price changes seem baffling. In mid-2014, crude prices averaged around $100 a barrel; now, they’re gyrating between $50 and $60. Over the same period, U.S. gasoline prices have dipped from more than $3.50 a gallon to around $2.50. With the world economy slowly recovering, why have prices collapsed?

The standard explanation comes in two parts.

First, oil demand is what economists call price inelastic. Slight changes in supply and demand can produce large price swings. People and businesses need fuel. If oil is scarce, they still need fuel and will pay dearly to get it. If oil is plentiful, they don’t need much more fuel and, therefore, require huge price discounts before buying more.

This is what’s happened. Supply and demand have unexpectedly expanded the global surplus, reducing prices.

[mountainlion]

Then we won’t get that last barrel...

That’s why I said it would cost a Billion dollars if they could find a buyer.

[Paladin2]

I was thinking more of Saudi Arabia’s reservoirs of yet unpumped crude that are supposed able to easily pump oil at a higher rate than they are currently plumbed for.

[thackney]

There are a number of old oil fields which serve in some capacity as storage for the US Strategic Petroleum Reserve.

All of the US Strategic Petroleum Reserve are salt dome caverns. They are man-made caverns in salt domes. There are multiple caverns at each of the four sites.

The connections to each cavern are made above ground at a wellhead. The facilities are then connected to multiple pipelines and loading docks.

http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-storage-sites

[Durus]

I didn't predict a crash, what I said was they increased storage to prevent a crash. Now that reserves are being diminished at slightly greater than replacement levels it indicates that companies feel that they have it under control. Oil is a completely controlled market so we aren't ever likely to see a crash until some sort of viable replacement is found. At least the myth of "peak oil" is slowly eroding.

I don't see a "recovery" to $140bbl. We simply have too much oil to justify the increase and market manipulation can only do so much. It is the nature of commodities to slowly decrease in price. Only because oil is treated like a nonrenewable resource and is highly regulated has allowed it to buck this trend.

Idiotic television aside I'm a strong advocate for cold beer and air conditioning.

[thackney]

Saudi Arabia’s reservoirs of yet unpumped crude that are supposed able to easily pump oil at a higher rate than they are currently plumbed for.

I think that is often overestimated. Hard to believe when oil was back up above $100 they wouldn't pump more then if it was easy to turn on like a storage tank.

[bestintxas]

Yep, and those salt domes has oil somewhere on their flanks.

The areas used for SPR were leached out with fresh water to create cavities