Enlarge GraphPosted on 08/21/2014 4:09:40 PM PDT by ckilmer
First, here’s a quick look at my expectations for oil supply and demand. Currently, oil prices remain elevated because global demand has continued to climb, despite slower growth in China (FXI), and supply overall has been unexpectedly constrained by both geology and geopolitical unrest. Looking forward, oil supply is likely to remain constrained and oil demand is likely to continue to grow.
Oil supply: There’s a good chance that future oil supply may be tighter than expected. Currently, oil prices remain in a somewhat precarious balance, supported by a long-term rise in North American production, but at the mercy of falling production and exports in much of the Middle East and Africa.
However, U.S. production growth is likely to decelerate in the coming years, placing more of a burden on OPEC, where rising geopolitical risks put supply increases in jeopardy. In other words, at a time when stable North American production will be decelerating, there will be an increasing call on production from the most unstable parts of the world, particularly Iraq. This in no way suggests that the world is somehow “running out of oil,” but it does mean that given the low likelihood of a clear resolution in the Middle East, supply is likely to disappoint.
Market Realist – The graph above shows the forecasted estimates of U.S. crude oil production (XOP). The estimates are provided by the U.S. Energy Information Administration (or EIA). According to the EIA, the total crude oil (XLE) production in the U.S. is expected to increase from 7.4 million barrels per day (or bpd) to 8.4 million bpd in 2014. It’s expected to increase to 9.3 million bpd in 2015. The rate of increase is expected to fall after 2015.
According to Russ, the fall in production of U.S. oil (USO) can be attributed to the increasing amount of supplies. This requires a higher breakeven price, increased concentration of cash flow instead of acquisition of new acreage, and decreased resource estimates on undeveloped shale plays.
The constraints on supply could strengthen energy prices. This would make the energy sector a good investment opportunity compared to other U.S. equities (SPY).
For fuel from petroleum, the demand will decrease, however products that can only be made from petroleum feed stock will be needed.
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Well, yeah where demand will decline in 10-15 years will be just gasoline because of conversion to natural gas houses, trains trucks and buses. But also, and here I’ve been converted to believing this in the last year—But also, electric cars will cut into demand for gasoline. I don’t don’t think that this is just about Tesla though Tesla RIGHT NOW is a major part of it — rather its about what Tesla is forcing the major automakers to do. That is...the major auto makers are being forced to invest a whole lot more into electric cars.
Sort of how back in 1973
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You’ve about got it right for the dating. History does not repeat but it does rhyme. We are currently imho, in a time reminiscent of the early 70’s. In 1970 US oil production peaked, not because there was no more oil in the ground but rather because the saudis had so much oil they could get it out of the ground for .25-.50@ barrel and ship it anywhere in the world for 1.25. That killed US oil production. When the saudis had cornered the market then they jacked up oil prices in 1973. Today, the demand for oil is so high and while OPEC’s share of world oil production is shrinking that US oil producers can bring more oil to market. But its expensive oil. In some places it costs 90@ barrel for each new barrel of oil. Even the best producers have costs in the 60-70 dollar range.
The big build out of US oil production will continue as long as oil prices remain above +-$90@ barrel. At $80@ barrel oil production stops rising.
I’m actually hoping that oil prices will remain high until about 2020. Because after that it will be a decline in US demand for oil that start to whittle down the price of oil.
Anything to tweek the price of oil so it will help grow the US industry but won’t let the Arabs and Russa become wealthy.
Anything to tweek the price of oil so it will help grow the US industry but won’t let the Arabs and Russa become wealthy.
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The payoff there won’t be for another 10 years when when the bleed off of demand caused by the uptake of natural gas buildings, trains trucks and buses plus electric cars—...kills the price of oil.
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