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Oil's Collapse Is a Geopolitical Reset in Disguise

237 points by jseliger 7y ago

pmoriarty 7y ago
It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil. Now they're suddenly quiet. They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now?
- djsumdog 7y ago
  Hubbert peak oil theory seems to not really hold water in retrospect. People try to say the peak is just delayed as we're finding more oil reserves or because there's been a big switch to renewables. I think his models assumed a very different metrics for oil supply and distribution that don't seem to apply today. This podcast from a few years back goes into a lot of it: https://youtu.be/0wlNey9t7hQ https://youtu.be/0wlNey9t7hQ
  - ethbro 7y ago
    Not an expert, but the doomsday peak scenario seemed predicated on no fundamentally different oil sources becoming available (e.g. shale). As it played out, fracking technology matured, and a lot of additional supply was "added" once the price crossed a threshold.
  - Nasrudith 7y ago
    Yeah the situation shifting on you does that for models without a proper metamodel that includes shifts over time for extraction capabilities a discovey which are both challenges in themselves lacking future knowledge. Sadly we aren't up to Terrahertz processors for instance.
  - roenxi 7y ago
    The theory has two parts - first the specific curve. Production left the curve, so that was probably wrong. The other part is the too-obvious-to-argue observation that we are using a substantial fraction of a non-renewable resource and it is going to run out. It doesn't tell a comprehensive story but discoveries vs consumption [0] of crude says we are going to run out shortly. That part is still hard to challenge. We'll see if the shale gas boom is sustainable. The oil prices required to make it profitable are not comfortable. It isn't obvious to me what the 'new technology' here was beyond prices being very high in 2010. We'll be using a lot less oil at those prices. [0] https://en.wikipedia.org/wiki/File:World_crude_discovery_production_U-2200Gb_LaherrereMar2015.jpg https://en.wikipedia.org/wiki/File:World_crude_discovery_pro...
- dntbnmpls 7y ago
  > It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil They are still around. Now they just rebranded themselves as "green energy advocates". > They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now? Check out yesterday's thread. A few of them there. Now, instead of saying high oil prices is good for green energy, now they are saying low oil prices are good for green energy. Don't bother pointing out the flaw in their logic or you'll get flagged. https://news.ycombinator.com/item?id=23041286 https://news.ycombinator.com/item?id=23041286
- corporateslave5 7y ago
  Take this example and realize how many other beliefs it could apply to
- christophilus 7y ago
  When you have a complex system, simplistic projections should be held suspect. The more confident the presenter, the higher the degree of skepticism. This framework has served me well. Peak oil is inevitable, given the fact that it’s a finite resource. But what its advocates failed to consider was how quickly free markets innovate when the price incentive is high enough.
voz_ 7y ago
Additional detail: The author was one of the architects for major pieces of the Iraq war, including the surge. https://en.wikipedia.org/wiki/Meghan_O%27Sullivan https://en.wikipedia.org/wiki/Meghan_O%27Sullivan
- JackFr 7y ago
  What is your point?
  - matthewaveryusa 7y ago
    You know the expression let the chips fall where they may? Well this is just stating "here are the chips." i.e the author is knowledgeable in the field and either is offering expert opinion or expert manipulation.
    - deleted 7y ago
      [deleted]
    - ImaCake 7y ago
      Not sure why you are being modded. A third option, which I consider most likely, is that this piece is doing both. The author most likely believes in what they are saying and are trying to manipulate things in a certain direction. There is noting wrong with this, and I think understanding the bias is merely a more effective way to gain more from reading this.
      - matthewaveryusa 7y ago
        no idea what modded means. That's a fair point. so you're saying that maybe the author doesn't know they are being manipulated despite being an expert -- that's also possible!
        ImaCake 7y ago
        > the author doesn't know they are being manipulated despite being an expert Actually I meant the author was aware of his view and is being both manipulative while fairly forwarding his agenda. Your option would be a fourth possibility? Which would make sense since any two binary outcomes will give a 2x2 sample space for a total of 4 outcomes.
irjustin 7y ago
I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?
- birdyrooster 7y ago
  I think they see this is their last chance to shake off the light crude people in the US.
  - AnthonyMouse 7y ago
    The light crude people in the US are the main reason the US doesn't have a revenue-neutral carbon tax or similar. I kind of doubt they want the implications of them going away -- though everybody else might.
  - jsnider3 7y ago
    As an American, I welcome foreign countries to destroy our oil industry. They always support the worst politicians.
- fspeech 7y ago
  Because individually it does not work. If you cut and oil price does not go up as much as your cut percentage wise you actually lose revenue. And your competitors who don't cut benefit from any price rise. It is not easy to maintain a price cartel.
  - 0xddd 7y ago
    Sounds like a great real-world example of a prisoner's dilemma
- arthurcolle 7y ago
  From my understanding, over the last decade, shale has become a force to be reckoned with in North America (US, Canada). This is seen as a competitive threat to other global energy producers. Saudi Arabia and Russia both have sufficient cash reserves to be able to just dump a glut of crude oil on the market at "fair market value" and exist with the depressed prices and are ok with making no money to basically completely dominate the market once tons of highly levered US upstream and downstream oil producers die off with this ongoing period of non-existent demand.
deleted 7y ago
[deleted]
msla 7y ago
There's a current idea that the USSR collapsed due to oil shock: https://thetyee.ca/News/2013/03/13/Soviet-Union-Oil/ https://thetyee.ca/News/2013/03/13/Soviet-Union-Oil/ The actual scientists say it's more complicated. As you should expect: https://carnegieendowment.org/2017/03/29/formation-and-evolution-of-soviet-union-s-oil-and-gas-dependence-pub-68443 https://carnegieendowment.org/2017/03/29/formation-and-evolu...
xiaolingxiao 7y ago
I found this part really interesting: "For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20." It's fascinating the cost of extracting oil is so high in Iran in particular, a country that is under constant sanction by the US. I wonder how much of the cost is due to the sanctions and disturbance in trade (ie Iran cannot import key technologies), and how much of it is because Iran's oil deposits is just "harder" to drill.
- mbreese 7y ago
  > the cost of extracting oil is so high in Iran I think you might be reading that wrong. It isn’t that the cost of extracting the oil is so high, but that the budgets of these countries depends on the price of oil being high. When the price drops, they can no longer cover their entire budget and will need to borrow or reduce their spending. These numbers aren’t related to the cost of extraction (which is a different issue but is also variable between different regions).
  - xiaolingxiao 7y ago
    Ah, so does this mean Iran is particularly dependent on oil to finance itself?
    - rckoepke 7y ago
      Indeed: https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_Iran_Exports_Treemap_2017.svg https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_... (edited to 2017) 79% of their exports is unrefined crude oil. While exports are not always the whole story, in this case it is extremely relevant. If Iran's economy was 99% domestic and 1% trade, (essentially autarkic) then it wouldn't really matter at all what the price of oil is, as Iran makes everything it needs for itself, whether that be automobiles, medical equipment, financial services, concrete, etc. However, Iran is not autarkic and trade is about 50% of its GDP. In order to complete international trade it requires foreign currency. At the start of the year, Iran had $85B in foreign reserves, according to FRED anyways. It was expected to lose $15B this year, but that was supposed to be while exporting $30B of crude oil. If that $30B is now only $10B, then Iran could lose $35B of foreign reserves this year. They can reduce domestic spending (potentially lowering quality of life for citizens), or they can spin up domestic industry to replace imports, or they can figure out how to increase the $$ value of their exports (potentially by refining the crude oil into higher value products, for example). If they don't do anything, and the trend continues in a straight line, they'd run out of foreign reserves within 3 years. At that point, it would be very difficult for them to buy any of the imports they need and they'd face a venezuela-style situation where citizens would find it impossible to get whatever goods used to be imported. For Iran, this is food, cars, durable goods & machinery, electronics, and textiles: https://atlas.cid.harvard.edu/explore?country=107&product=undefined&year=2017&tradeDirection=import&productClass=HS&target=Product&partner=undefined&startYear=undefined https://atlas.cid.harvard.edu/explore?country=107&product=un...
teslaberry 7y ago
the dollar is too strong, it means you get less for your production ( barrel of oil) than you used to. so little, that you might not be able to feed the people in your country that pump the oil. a strong dollar creates problems for the entire rest of the world. this is how the king of the throne applies coercive force to the 'developing world'. because their own currencies are even that much shittier, so they CHOOSE to rely on the dollar. because...it's far more useful than trying bilateral trade ( oil for food) , which isn't so easy, using a currency is far better, and if you think it's not, try bilateral trade, see what happens. in the rare cases that it may work, you'll have the u.s. navy knocking at your door too!
FpUser 7y ago
given President Putin’s need to demonize the United States I am curious how exactly Putin/Russia are demonizing the US?
- moltar 7y ago
  I was going to post the same thing. If anything, it’s more the reverse.
- golergka 7y ago
  Recently, one of the most famous russian movie directors, who's also very close to the government (and also heads a "copyright protection" agency that gets 1% tax on all writeable media - because they could be used, to, you know, pirate movies) said in his own TV show, on state television, that Bill Gates wants to implant chips into people to earn crypto. In general, state media is full of conspiracy theory level of propaganda - with aliens, lizard people and secret world government.
  - FpUser 7y ago
    Is this the best you can come up with? This is not Russia demonizing the US. This is conspiracy theory coming out of tinfoil hat public from everywhere including US.
worik 7y ago
How is it possible to talk of the future of oil and ignore the elephant in the room?
- briffle 7y ago
  Like you just did?
  - worik 7y ago
    Can't you see it?
- tasty_freeze 7y ago
  Please don't be coy; just make the point you want to make. I am not clever enough to know which elephant you are fixated on.
ggm 7y ago
The shift from coal catapulted.. it took years. First, technology had to shift to oil as a commodity beyond oil bunkers for battleships. Second, the nation states had to get out from ruinously bad national oil deals which also led to the Pahlavi regime, hatred of the British in Iran, the CIA and other bodies. This was not a catapult. It was a long slow dangerous and corrupt slide.
- pas 7y ago
  This sounds very important, but somehow very scarcely known. Could you point to some sources about this?
  - dredmorbius 7y ago
    Despite being very much an apologist for and champion of the oil industry, Daniel Yergin's The Prize is outstanding. Vaclav Smil's Energy and Civilization and books on energy transitions gives a mostly energy-physics and technological bacground on the coal-oil transition (and ag-coal previously). Manfred Weissenbacher's Sources of Power adds in some of the political dimension.
alextheparrot 7y ago
What happened to Iran between 2018 and 2019? The author links to data [1], which states that Iran needs $319 / barrel oil to balance its budget. Between 2018 and 2019, this number jumped from $67 (In line with the rest of the region) to $244. I feel like this statistic was trotted out and means something different from what I'd casually read it as. Iranian exports fell significantly between 2018 and 2019 [2], it seems because of the fallout of the Iran nuclear deal and resumed sanctions [3]. There was a 69% decrease (1800 units to 570 units), which, means the calculated number would be ~3x higher, or about $211 a barrel. Which means the "statistic" doesn't really tell us what we think - that Iran can only profitably produce oil at >$200 a barrel - but that US sanctions have crippled Iran's ability to use oil as a primary source of national income. To be fair, I'd love to see the author do the math on US oil. Actually, I'll take a stab at it. If the US tried to balance its physical budget (Let's say $984B in 2019 [3]) based entirely on increasing the price of current US oil exports (770,000 barrels a day [4]), how much would the price of oil need to rise? 770,000 barrels a day * 365 = 280M barrels of oil $984B/280M barrels of oil = $3,514 The US would need to make an additional $3514 per barrel of oil to balance its physical budget, which is an increase from $63 a barrel to $3,577 a barrel. Can you imagine a journalist writing this as a supporting figure? "US, implied to be a failing state as it is the largest number here, requires $10,000 a barrel oil to balance budget". Yes, that statement is a bit biased, but I'm willing to defend that this is how the US media most often interfaces with Iran. One critique I would expect is along the lines of "Iran is more dependent on oil for its economy". Iran's GDP is 23% oil [6], whereas the US is around 8% [7]. I think the story still stands out as a bit insane, even if we adjust for "Expected contribution by GDP %", which would still put us well-north of $1,000 a barrel oil. I don't mean to state that this is my fully-formed opinion, yet, but I think it is worth discussing these either (A) misleading (B) uninterpretable without far greater work "data facts" actually add little value to the story, and instead (seem to) further a narrative. This is in opposition of the traditional scientific approach, where we state our expectation and validate or invalidate that conclusion, with the author being expected to prove instead of just say something with "QED" implicitly attached. This critique, now, seeks to be a more general one: Data-driven media seems be misunderstood as a narrative where the data is in the driver's seat -- in reality it has let anyone ride shotgun as long as they get along with the driver. [1] https://data.imf.org/regular.aspx?key=60214246 https://data.imf.org/regular.aspx?key=60214246 [2] https://fred.stlouisfed.org/series/IRNNXGOCMBD https://fred.stlouisfed.org/series/IRNNXGOCMBD [3] https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget [4] https://www.eia.gov/todayinenergy/detail.php?id=42735 https://www.eia.gov/todayinenergy/detail.php?id=42735 [5] https://countryeconomy.com/raw-materials/brent?dr=2019-11 https://countryeconomy.com/raw-materials/brent?dr=2019-11 [6] https://tradingeconomics.com/iran/gdp https://tradingeconomics.com/iran/gdp [7] https://www.api.org/news-policy-and-issues/taxes/oil-and-natural-gas-contribution-to-us-economy-fact-sheet https://www.api.org/news-policy-and-issues/taxes/oil-and-nat... Edit: Formatting
spicyramen 7y ago
Mexico is planning to build a new refinery, while oil is key it is also important to mention which countries have the technology to process this extra oil into products. Mexico depends on US technology to do this for their gas. Once they built the new refinery this no longer going to happen. Something important to consider for our balance sheet and American workers
- pas 7y ago
  One refinery won't change the world overnight. There are already multiple refineries in Mexico: https://argus-public-assets-us.s3.amazonaws.com/2018/07/17/20180717wheremexico%E2%80%99spresident-electwantstobuildrefineries17072018054506.jpg https://argus-public-assets-us.s3.amazonaws.com/2018/07/17/2... https://en.wikipedia.org/wiki/List_of_oil_refineries#Mexico https://en.wikipedia.org/wiki/List_of_oil_refineries#Mexico
8bitsrule 7y ago
I found the word 'climate' appears once in the article. Which is more times than it appears in the comments so far. So, perhaps, not that much of a reset in terms of keeping fossil fuels in the ground. And it's such a fine time to address that question.
aantix 7y ago
Time to buy oil stock. Tesla is the only real electric hope, and they have many many years before they supplant combustion based vehicles.
- core-questions 7y ago
  Pretty much. As soon as we all get moving again, the demand is going to ramp back up to previous levels; higher in some cases as industries work harder to fill backlogs. It's not like all the oil-consuming things have disappeared in two months.
  - glenvdb 7y ago
    I think the ramp will be much longer and gradual than people expect though.
    - chillacy 7y ago
      Case in point: all the pour souls who kept buying USO a few weeks ago without understanding the details of oil futures.
    - tonyedgecombe 7y ago
      News I've read in the UK over the last week includes BA laying off a quarter of its staff and stopping flights from Gatwick, Rolls Royce laying off 3,500 staff, Airbus contemplating layoffs. These people put their money where their mouth is and they don't see a quick recovery.
  - buboard 7y ago
    we aren't going to 'get moving again' nowhere near the levels we were before
    - core-questions 7y ago
      You're basing that on doom and gloom that you've read, not on what people actually want and intend to do.
baybal2 7y ago
A fresh look the news we heard on May 1st Why do you think Trump phoned Saudis with such a strong threat when: 1. He previously showed no regard for how US oil industry fares, beside taking credit for it doing well 2. US oil industry is screwed below $40 except for the most productive wells in Texas. US shale is screwed below $60. If his actions can't do a thing to really positively affect US oil industry, why he even tries? Answer: https://www.dailymail.co.uk/news/article-8232865/amp/Donald-Trump-Vladimir-Putin-four-phone-calls-past-two-weeks.html https://www.dailymail.co.uk/news/article-8232865/amp/Donald-... So, Trump does 4 phone calls with Putin, then a single one with a right away direct threat to Saudis. You don't need to think for long what it means.
jsnider3 7y ago
How many resets have we had already?
twomoretime 7y ago
People are really optimistic in the industry. I am active in petroleum circles and many are convinced that this is another temporary downturn and we'll always need oil. All I see is public sentiment turning against fossil fuels and an inevitable death for 90% of the industry as we move away from petroleum. We only use something like >20% of raw petroleum for plastic and medicine and such. And the price curve is not linear, so the oil necessary to satisfy the first 20% of today's demand is probably priced some absurdly low number, my gut says less than $20. It feels like our entire geopolitical system is crumbling. A vulnerable state had been brewing for a long time. Coronavirus was the trigger. Perhaps the american hegemony was not sustainable, or recently became such. For those unaware, petroleum really does factor into a lot of worldbuilding that we do in the middle east. Major shifts in oil markets typically mean major shifts in geopolitics. Interesting times ahead.
- jariel 7y ago
  5 billion people on planet earth living in poor countries do not care about the negative effects of oil. They are making quite a lot more money and want to buy cars. If the last 30 years was about the rise of China, the rest of the century is going to be about the rise of 'the rest of the world'. Pre 2000 it was as if these places didn't exist - they had no money. Just people in huts. But now they want Hondas and iPhones and there are a lot of them. The US was 1/3 of the world economy, but less than 10% of it's population. Not it's like 22% of world economy. This is the 'macro macro' thing that will be the biggest driver of everything.
  - twomoretime 7y ago
    The entire global economy is grinding to a halt and we may be sitting on top of a global depression for years to come. Those 5 billion are going to have to wait. Also, it may be harsh but if history is any indication, these people are unlikely to gain access to oil themselves - which means they're dependent on probably their neighbors (developing countries probably are sensitive to shipping/deliver charges) which means that their demand is subject to international sanctions if, say, G20 decides to wean the globe from petroleum. So if the west decides no more fossil fuels, these people will likely stay in huts until they stumble upon reserves in their country (unlikely) or find another civilization-sustaining energy source. You think oil dependence will last forever? Also with the rise of the internet, you don't think people in developing countries are likely to give preference to renewables if the price is within reach? Everything's getting cheaper.
unclebucknasty 7y ago
>How might the United States and its partners prepare for more turmoil in these countries... Serious question: who, exactly, are the United States' partners these days?
- hasseio 7y ago
  The 5 Eyes? NATO?
  - ilstormcloud 7y ago
    5 eyes are more of client states than partners at this point. That's not to say they have no utility, far from it, I think they are very potent. It's just that 'partner' is not the right word to describe them. I say this mainly because they don't seem to have opinions about foreign policy other than the one set by the USA. A better example of a partner in my opinion would be Germany, or France. As for NATO, The only countries that need it are the USA, UK and the Eastern European countries. For western and southern Europe, NATO seems like a gym membership they haven't gotten to canceling. That's not to say member states are not partners or friends of USA, just that they know they can create something better for the current reality. Change was always inevitable, but GWB and Trump might have accelerated it to reckless speeds.
    - teruakohatu 7y ago
      My country, New Zealand, is in the 5 eyes. Other than intelligence, we have very little military interaction with the USA. Apparently they won't even allow us to buy high tech gear because we ban US Navy nuke ships from visiting. We are a long way off from being a client state.
      - prawn 7y ago
        But probably not big enough to be a partner? (I'm from Australia and would consider the "client state" assessment for us to be fair.)
blackrock 7y ago
This sounds like an opportunity for someone to kickstart a whole new post-petroleum industry. How? Use the sun, wind, tide, nuclear, geothermal, space-solar, anything, to produce electricity, in order to crack hydrogen from water, and jumpstart the hydrogen economy. And will also need to begin mass production of fuel cells to get it cheaper. This proves that the world does not need oil, if an alternative energy source can be harvested. And along the way, it can possibly topple the biggest superpower on the planet. As well as effectively neutering the major countries with massive petroleum reserves. I can only think of one player that can achieve such a monumental task. And even then, I doubt that they are that bold.
- blargmaster33 7y ago
  Where do you think fertilizer comes from?
purplezooey 7y ago
The premise of this article is a bit dicey. Sure nobody can sustain oil below $40, but it will be back there within a year.
mFixman 7y ago
There's a thing I don't understand and could use some explanation. Didn't this same thing happen at a lower level in 2014, when Saudi Arabia pumped a lot of oil to international markets to bankrupts American shale oil producers? And didn't the price go back up after some time when the Saudi government couldn't afford breaking up OPEC? Why can't the same thing happen now? The price and supply of world oil is almost completely controlled by Saudi Aramco, and there's nothing preventing them from increasing the price in the future.
- Macha 7y ago
  1. It takes time to adjust to demand changes and they're hoping covid19 restrictions ease in a reasonable time frame and demand goes at least partially back. 2. Russia started flooding the market prior to this to disrupt the saudis and US oil producers. Cutting production would need their collaboration or they've ceded market share and influence to Russia.
  - mFixman 7y ago
    Like that very article says, Russia needs a much higher oil price than most countries in the Middle East to keep a positive balance. Demand will come back after the pandemic is over, and the Russian government can't flood the market for very long.
    - afjl 7y ago
      They can flood the market for as long as they have foreign reserves. Over the last several years, Russia has steadily reduced its budget's dependence on oil revenues, and bolstered foreign reserves/gold. They probably do have enough foreign reserves/gold to outpump the Saudis and drive the price so low that the Saudis start burning through their own reserves. And I believe Putin has a stronger grip over his own people than MBS, so in a race to the bottom I think Russia could definitely come out "on top". I really dislike the article's mention of "balanced budget" oil prices, it distracts from more salient arguments when presented alone. For proper analysis, the author should have provided more numerical data, like foreign/gold reserves, budget comparisons (historically, and across countries), etc. >> Demand will come back after the pandemic is over. Man, I go back and forth with myself/other people over this all the time. I think there's a significant risk that energy consumption will be lower in the temporary short- and mid-term futures, and slight risk that energy consumption will also be lower in long-term future. Take a look at US consumption: https://en.wikipedia.org/wiki/Energy_in_the_United_States#Primary_energy_consumption https://en.wikipedia.org/wiki/Energy_in_the_United_States#Pr... https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf We still haven't reached 07/08 levels of energy consumption, of which 67% is nat gas/oil. I also read a while back that US households have steadily decreased their individual usage of energy post-2008, despite economic gains. I forget where, I think it was in an article about nuclear power plants. With that said, I think global outlook (for oil consumption) over the next 5 years is not good for developing economies. Their economies will suffer until developed economies recover and stimulate their under-developed economies. However, long-term population growth in SE Asia and Africa will demand greater energy consumption and I believe economic growth in these regions will be the primary drivers of greater oil consumption. That's because renewable energies will be much, much more expensive than non-renewables (until we tax the hell out of them) and developing economies must pursue the most cost-effective alternative. Sorry, for the long response, I just love this shit.
janee 7y ago
I haven't been able to find a nice breakdown of the reasons behind the price decrease that wasn't driven by reduced demand. So my understanding is that SA increased production because it couldn't get Russia to limit its output? So they crashed the market with the hopes to bend them to their will. If so are they basically signalling that they can survive such conditions but Russia can't? Or what's going on here

237 points by jseliger 7y ago

It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil. Now they're suddenly quiet. They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now?

djsumdog 7y ago
Hubbert peak oil theory seems to not really hold water in retrospect. People try to say the peak is just delayed as we're finding more oil reserves or because there's been a big switch to renewables. I think his models assumed a very different metrics for oil supply and distribution that don't seem to apply today. This podcast from a few years back goes into a lot of it: https://youtu.be/0wlNey9t7hQ https://youtu.be/0wlNey9t7hQ
- ethbro 7y ago
  Not an expert, but the doomsday peak scenario seemed predicated on no fundamentally different oil sources becoming available (e.g. shale). As it played out, fracking technology matured, and a lot of additional supply was "added" once the price crossed a threshold.
- Nasrudith 7y ago
  Yeah the situation shifting on you does that for models without a proper metamodel that includes shifts over time for extraction capabilities a discovey which are both challenges in themselves lacking future knowledge. Sadly we aren't up to Terrahertz processors for instance.
- roenxi 7y ago
  The theory has two parts - first the specific curve. Production left the curve, so that was probably wrong. The other part is the too-obvious-to-argue observation that we are using a substantial fraction of a non-renewable resource and it is going to run out. It doesn't tell a comprehensive story but discoveries vs consumption [0] of crude says we are going to run out shortly. That part is still hard to challenge. We'll see if the shale gas boom is sustainable. The oil prices required to make it profitable are not comfortable. It isn't obvious to me what the 'new technology' here was beyond prices being very high in 2010. We'll be using a lot less oil at those prices. [0] https://en.wikipedia.org/wiki/File:World_crude_discovery_production_U-2200Gb_LaherrereMar2015.jpg https://en.wikipedia.org/wiki/File:World_crude_discovery_pro...
dntbnmpls 7y ago
> It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil They are still around. Now they just rebranded themselves as "green energy advocates". > They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now? Check out yesterday's thread. A few of them there. Now, instead of saying high oil prices is good for green energy, now they are saying low oil prices are good for green energy. Don't bother pointing out the flaw in their logic or you'll get flagged. https://news.ycombinator.com/item?id=23041286 https://news.ycombinator.com/item?id=23041286
corporateslave5 7y ago
Take this example and realize how many other beliefs it could apply to
christophilus 7y ago
When you have a complex system, simplistic projections should be held suspect. The more confident the presenter, the higher the degree of skepticism. This framework has served me well. Peak oil is inevitable, given the fact that it’s a finite resource. But what its advocates failed to consider was how quickly free markets innovate when the price incentive is high enough.

voz_ 7y ago

Additional detail: The author was one of the architects for major pieces of the Iraq war, including the surge. https://en.wikipedia.org/wiki/Meghan_O%27Sullivan https://en.wikipedia.org/wiki/Meghan_O%27Sullivan

JackFr 7y ago
What is your point?
- matthewaveryusa 7y ago
  You know the expression let the chips fall where they may? Well this is just stating "here are the chips." i.e the author is knowledgeable in the field and either is offering expert opinion or expert manipulation.
  - deleted 7y ago
    [deleted]
  - ImaCake 7y ago
    Not sure why you are being modded. A third option, which I consider most likely, is that this piece is doing both. The author most likely believes in what they are saying and are trying to manipulate things in a certain direction. There is noting wrong with this, and I think understanding the bias is merely a more effective way to gain more from reading this.
    - matthewaveryusa 7y ago
      no idea what modded means. That's a fair point. so you're saying that maybe the author doesn't know they are being manipulated despite being an expert -- that's also possible!
      - ImaCake 7y ago
        > the author doesn't know they are being manipulated despite being an expert Actually I meant the author was aware of his view and is being both manipulative while fairly forwarding his agenda. Your option would be a fourth possibility? Which would make sense since any two binary outcomes will give a 2x2 sample space for a total of 4 outcomes.

irjustin 7y ago

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

birdyrooster 7y ago
I think they see this is their last chance to shake off the light crude people in the US.
- AnthonyMouse 7y ago
  The light crude people in the US are the main reason the US doesn't have a revenue-neutral carbon tax or similar. I kind of doubt they want the implications of them going away -- though everybody else might.
- jsnider3 7y ago
  As an American, I welcome foreign countries to destroy our oil industry. They always support the worst politicians.
fspeech 7y ago
Because individually it does not work. If you cut and oil price does not go up as much as your cut percentage wise you actually lose revenue. And your competitors who don't cut benefit from any price rise. It is not easy to maintain a price cartel.
- 0xddd 7y ago
  Sounds like a great real-world example of a prisoner's dilemma
arthurcolle 7y ago
From my understanding, over the last decade, shale has become a force to be reckoned with in North America (US, Canada). This is seen as a competitive threat to other global energy producers. Saudi Arabia and Russia both have sufficient cash reserves to be able to just dump a glut of crude oil on the market at "fair market value" and exist with the depressed prices and are ok with making no money to basically completely dominate the market once tons of highly levered US upstream and downstream oil producers die off with this ongoing period of non-existent demand.

deleted 7y ago

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msla 7y ago

There's a current idea that the USSR collapsed due to oil shock: https://thetyee.ca/News/2013/03/13/Soviet-Union-Oil/ https://thetyee.ca/News/2013/03/13/Soviet-Union-Oil/ The actual scientists say it's more complicated. As you should expect: https://carnegieendowment.org/2017/03/29/formation-and-evolution-of-soviet-union-s-oil-and-gas-dependence-pub-68443 https://carnegieendowment.org/2017/03/29/formation-and-evolu...

xiaolingxiao 7y ago

I found this part really interesting: "For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20." It's fascinating the cost of extracting oil is so high in Iran in particular, a country that is under constant sanction by the US. I wonder how much of the cost is due to the sanctions and disturbance in trade (ie Iran cannot import key technologies), and how much of it is because Iran's oil deposits is just "harder" to drill.

mbreese 7y ago
> the cost of extracting oil is so high in Iran I think you might be reading that wrong. It isn’t that the cost of extracting the oil is so high, but that the budgets of these countries depends on the price of oil being high. When the price drops, they can no longer cover their entire budget and will need to borrow or reduce their spending. These numbers aren’t related to the cost of extraction (which is a different issue but is also variable between different regions).
- xiaolingxiao 7y ago
  Ah, so does this mean Iran is particularly dependent on oil to finance itself?
  - rckoepke 7y ago
    Indeed: https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_Iran_Exports_Treemap_2017.svg https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_... (edited to 2017) 79% of their exports is unrefined crude oil. While exports are not always the whole story, in this case it is extremely relevant. If Iran's economy was 99% domestic and 1% trade, (essentially autarkic) then it wouldn't really matter at all what the price of oil is, as Iran makes everything it needs for itself, whether that be automobiles, medical equipment, financial services, concrete, etc. However, Iran is not autarkic and trade is about 50% of its GDP. In order to complete international trade it requires foreign currency. At the start of the year, Iran had $85B in foreign reserves, according to FRED anyways. It was expected to lose $15B this year, but that was supposed to be while exporting $30B of crude oil. If that $30B is now only $10B, then Iran could lose $35B of foreign reserves this year. They can reduce domestic spending (potentially lowering quality of life for citizens), or they can spin up domestic industry to replace imports, or they can figure out how to increase the $$ value of their exports (potentially by refining the crude oil into higher value products, for example). If they don't do anything, and the trend continues in a straight line, they'd run out of foreign reserves within 3 years. At that point, it would be very difficult for them to buy any of the imports they need and they'd face a venezuela-style situation where citizens would find it impossible to get whatever goods used to be imported. For Iran, this is food, cars, durable goods & machinery, electronics, and textiles: https://atlas.cid.harvard.edu/explore?country=107&product=undefined&year=2017&tradeDirection=import&productClass=HS&target=Product&partner=undefined&startYear=undefined https://atlas.cid.harvard.edu/explore?country=107&product=un...

teslaberry 7y ago

the dollar is too strong, it means you get less for your production ( barrel of oil) than you used to. so little, that you might not be able to feed the people in your country that pump the oil. a strong dollar creates problems for the entire rest of the world. this is how the king of the throne applies coercive force to the 'developing world'. because their own currencies are even that much shittier, so they CHOOSE to rely on the dollar. because...it's far more useful than trying bilateral trade ( oil for food) , which isn't so easy, using a currency is far better, and if you think it's not, try bilateral trade, see what happens. in the rare cases that it may work, you'll have the u.s. navy knocking at your door too!

FpUser 7y ago

given President Putin’s need to demonize the United States I am curious how exactly Putin/Russia are demonizing the US?

moltar 7y ago
I was going to post the same thing. If anything, it’s more the reverse.
golergka 7y ago
Recently, one of the most famous russian movie directors, who's also very close to the government (and also heads a "copyright protection" agency that gets 1% tax on all writeable media - because they could be used, to, you know, pirate movies) said in his own TV show, on state television, that Bill Gates wants to implant chips into people to earn crypto. In general, state media is full of conspiracy theory level of propaganda - with aliens, lizard people and secret world government.
- FpUser 7y ago
  Is this the best you can come up with? This is not Russia demonizing the US. This is conspiracy theory coming out of tinfoil hat public from everywhere including US.

worik 7y ago

How is it possible to talk of the future of oil and ignore the elephant in the room?

briffle 7y ago
Like you just did?
- worik 7y ago
  Can't you see it?
tasty_freeze 7y ago
Please don't be coy; just make the point you want to make. I am not clever enough to know which elephant you are fixated on.

ggm 7y ago

The shift from coal catapulted.. it took years. First, technology had to shift to oil as a commodity beyond oil bunkers for battleships. Second, the nation states had to get out from ruinously bad national oil deals which also led to the Pahlavi regime, hatred of the British in Iran, the CIA and other bodies. This was not a catapult. It was a long slow dangerous and corrupt slide.

pas 7y ago
This sounds very important, but somehow very scarcely known. Could you point to some sources about this?
- dredmorbius 7y ago
  Despite being very much an apologist for and champion of the oil industry, Daniel Yergin's The Prize is outstanding. Vaclav Smil's Energy and Civilization and books on energy transitions gives a mostly energy-physics and technological bacground on the coal-oil transition (and ag-coal previously). Manfred Weissenbacher's Sources of Power adds in some of the political dimension.

alextheparrot 7y ago

What happened to Iran between 2018 and 2019? The author links to data [1], which states that Iran needs $319 / barrel oil to balance its budget. Between 2018 and 2019, this number jumped from $67 (In line with the rest of the region) to $244. I feel like this statistic was trotted out and means something different from what I'd casually read it as. Iranian exports fell significantly between 2018 and 2019 [2], it seems because of the fallout of the Iran nuclear deal and resumed sanctions [3]. There was a 69% decrease (1800 units to 570 units), which, means the calculated number would be ~3x higher, or about $211 a barrel. Which means the "statistic" doesn't really tell us what we think - that Iran can only profitably produce oil at >$200 a barrel - but that US sanctions have crippled Iran's ability to use oil as a primary source of national income. To be fair, I'd love to see the author do the math on US oil. Actually, I'll take a stab at it. If the US tried to balance its physical budget (Let's say $984B in 2019 [3]) based entirely on increasing the price of current US oil exports (770,000 barrels a day [4]), how much would the price of oil need to rise? 770,000 barrels a day * 365 = 280M barrels of oil $984B/280M barrels of oil = $3,514 The US would need to make an additional $3514 per barrel of oil to balance its physical budget, which is an increase from $63 a barrel to $3,577 a barrel. Can you imagine a journalist writing this as a supporting figure? "US, implied to be a failing state as it is the largest number here, requires $10,000 a barrel oil to balance budget". Yes, that statement is a bit biased, but I'm willing to defend that this is how the US media most often interfaces with Iran. One critique I would expect is along the lines of "Iran is more dependent on oil for its economy". Iran's GDP is 23% oil [6], whereas the US is around 8% [7]. I think the story still stands out as a bit insane, even if we adjust for "Expected contribution by GDP %", which would still put us well-north of $1,000 a barrel oil. I don't mean to state that this is my fully-formed opinion, yet, but I think it is worth discussing these either (A) misleading (B) uninterpretable without far greater work "data facts" actually add little value to the story, and instead (seem to) further a narrative. This is in opposition of the traditional scientific approach, where we state our expectation and validate or invalidate that conclusion, with the author being expected to prove instead of just say something with "QED" implicitly attached. This critique, now, seeks to be a more general one: Data-driven media seems be misunderstood as a narrative where the data is in the driver's seat -- in reality it has let anyone ride shotgun as long as they get along with the driver. [1] https://data.imf.org/regular.aspx?key=60214246 https://data.imf.org/regular.aspx?key=60214246 [2] https://fred.stlouisfed.org/series/IRNNXGOCMBD https://fred.stlouisfed.org/series/IRNNXGOCMBD [3] https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget [4] https://www.eia.gov/todayinenergy/detail.php?id=42735 https://www.eia.gov/todayinenergy/detail.php?id=42735 [5] https://countryeconomy.com/raw-materials/brent?dr=2019-11 https://countryeconomy.com/raw-materials/brent?dr=2019-11 [6] https://tradingeconomics.com/iran/gdp https://tradingeconomics.com/iran/gdp [7] https://www.api.org/news-policy-and-issues/taxes/oil-and-natural-gas-contribution-to-us-economy-fact-sheet https://www.api.org/news-policy-and-issues/taxes/oil-and-nat... Edit: Formatting

spicyramen 7y ago

Mexico is planning to build a new refinery, while oil is key it is also important to mention which countries have the technology to process this extra oil into products. Mexico depends on US technology to do this for their gas. Once they built the new refinery this no longer going to happen. Something important to consider for our balance sheet and American workers

pas 7y ago
One refinery won't change the world overnight. There are already multiple refineries in Mexico: https://argus-public-assets-us.s3.amazonaws.com/2018/07/17/20180717wheremexico%E2%80%99spresident-electwantstobuildrefineries17072018054506.jpg https://argus-public-assets-us.s3.amazonaws.com/2018/07/17/2... https://en.wikipedia.org/wiki/List_of_oil_refineries#Mexico https://en.wikipedia.org/wiki/List_of_oil_refineries#Mexico

8bitsrule 7y ago

I found the word 'climate' appears once in the article. Which is more times than it appears in the comments so far. So, perhaps, not that much of a reset in terms of keeping fossil fuels in the ground. And it's such a fine time to address that question.

aantix 7y ago

Time to buy oil stock. Tesla is the only real electric hope, and they have many many years before they supplant combustion based vehicles.

core-questions 7y ago
Pretty much. As soon as we all get moving again, the demand is going to ramp back up to previous levels; higher in some cases as industries work harder to fill backlogs. It's not like all the oil-consuming things have disappeared in two months.
- glenvdb 7y ago
  I think the ramp will be much longer and gradual than people expect though.
  - chillacy 7y ago
    Case in point: all the pour souls who kept buying USO a few weeks ago without understanding the details of oil futures.
  - tonyedgecombe 7y ago
    News I've read in the UK over the last week includes BA laying off a quarter of its staff and stopping flights from Gatwick, Rolls Royce laying off 3,500 staff, Airbus contemplating layoffs. These people put their money where their mouth is and they don't see a quick recovery.
- buboard 7y ago
  we aren't going to 'get moving again' nowhere near the levels we were before
  - core-questions 7y ago
    You're basing that on doom and gloom that you've read, not on what people actually want and intend to do.

baybal2 7y ago

A fresh look the news we heard on May 1st Why do you think Trump phoned Saudis with such a strong threat when: 1. He previously showed no regard for how US oil industry fares, beside taking credit for it doing well 2. US oil industry is screwed below $40 except for the most productive wells in Texas. US shale is screwed below $60. If his actions can't do a thing to really positively affect US oil industry, why he even tries? Answer: https://www.dailymail.co.uk/news/article-8232865/amp/Donald-Trump-Vladimir-Putin-four-phone-calls-past-two-weeks.html https://www.dailymail.co.uk/news/article-8232865/amp/Donald-... So, Trump does 4 phone calls with Putin, then a single one with a right away direct threat to Saudis. You don't need to think for long what it means.

jsnider3 7y ago

How many resets have we had already?

twomoretime 7y ago

People are really optimistic in the industry. I am active in petroleum circles and many are convinced that this is another temporary downturn and we'll always need oil. All I see is public sentiment turning against fossil fuels and an inevitable death for 90% of the industry as we move away from petroleum. We only use something like >20% of raw petroleum for plastic and medicine and such. And the price curve is not linear, so the oil necessary to satisfy the first 20% of today's demand is probably priced some absurdly low number, my gut says less than $20. It feels like our entire geopolitical system is crumbling. A vulnerable state had been brewing for a long time. Coronavirus was the trigger. Perhaps the american hegemony was not sustainable, or recently became such. For those unaware, petroleum really does factor into a lot of worldbuilding that we do in the middle east. Major shifts in oil markets typically mean major shifts in geopolitics. Interesting times ahead.

jariel 7y ago
5 billion people on planet earth living in poor countries do not care about the negative effects of oil. They are making quite a lot more money and want to buy cars. If the last 30 years was about the rise of China, the rest of the century is going to be about the rise of 'the rest of the world'. Pre 2000 it was as if these places didn't exist - they had no money. Just people in huts. But now they want Hondas and iPhones and there are a lot of them. The US was 1/3 of the world economy, but less than 10% of it's population. Not it's like 22% of world economy. This is the 'macro macro' thing that will be the biggest driver of everything.
- twomoretime 7y ago
  The entire global economy is grinding to a halt and we may be sitting on top of a global depression for years to come. Those 5 billion are going to have to wait. Also, it may be harsh but if history is any indication, these people are unlikely to gain access to oil themselves - which means they're dependent on probably their neighbors (developing countries probably are sensitive to shipping/deliver charges) which means that their demand is subject to international sanctions if, say, G20 decides to wean the globe from petroleum. So if the west decides no more fossil fuels, these people will likely stay in huts until they stumble upon reserves in their country (unlikely) or find another civilization-sustaining energy source. You think oil dependence will last forever? Also with the rise of the internet, you don't think people in developing countries are likely to give preference to renewables if the price is within reach? Everything's getting cheaper.

unclebucknasty 7y ago

>How might the United States and its partners prepare for more turmoil in these countries... Serious question: who, exactly, are the United States' partners these days?

hasseio 7y ago
The 5 Eyes? NATO?
- ilstormcloud 7y ago
  5 eyes are more of client states than partners at this point. That's not to say they have no utility, far from it, I think they are very potent. It's just that 'partner' is not the right word to describe them. I say this mainly because they don't seem to have opinions about foreign policy other than the one set by the USA. A better example of a partner in my opinion would be Germany, or France. As for NATO, The only countries that need it are the USA, UK and the Eastern European countries. For western and southern Europe, NATO seems like a gym membership they haven't gotten to canceling. That's not to say member states are not partners or friends of USA, just that they know they can create something better for the current reality. Change was always inevitable, but GWB and Trump might have accelerated it to reckless speeds.
  - teruakohatu 7y ago
    My country, New Zealand, is in the 5 eyes. Other than intelligence, we have very little military interaction with the USA. Apparently they won't even allow us to buy high tech gear because we ban US Navy nuke ships from visiting. We are a long way off from being a client state.
    - prawn 7y ago
      But probably not big enough to be a partner? (I'm from Australia and would consider the "client state" assessment for us to be fair.)

blackrock 7y ago

This sounds like an opportunity for someone to kickstart a whole new post-petroleum industry. How? Use the sun, wind, tide, nuclear, geothermal, space-solar, anything, to produce electricity, in order to crack hydrogen from water, and jumpstart the hydrogen economy. And will also need to begin mass production of fuel cells to get it cheaper. This proves that the world does not need oil, if an alternative energy source can be harvested. And along the way, it can possibly topple the biggest superpower on the planet. As well as effectively neutering the major countries with massive petroleum reserves. I can only think of one player that can achieve such a monumental task. And even then, I doubt that they are that bold.

blargmaster33 7y ago
Where do you think fertilizer comes from?

purplezooey 7y ago

The premise of this article is a bit dicey. Sure nobody can sustain oil below $40, but it will be back there within a year.

mFixman 7y ago

There's a thing I don't understand and could use some explanation. Didn't this same thing happen at a lower level in 2014, when Saudi Arabia pumped a lot of oil to international markets to bankrupts American shale oil producers? And didn't the price go back up after some time when the Saudi government couldn't afford breaking up OPEC? Why can't the same thing happen now? The price and supply of world oil is almost completely controlled by Saudi Aramco, and there's nothing preventing them from increasing the price in the future.

Macha 7y ago
1. It takes time to adjust to demand changes and they're hoping covid19 restrictions ease in a reasonable time frame and demand goes at least partially back. 2. Russia started flooding the market prior to this to disrupt the saudis and US oil producers. Cutting production would need their collaboration or they've ceded market share and influence to Russia.
- mFixman 7y ago
  Like that very article says, Russia needs a much higher oil price than most countries in the Middle East to keep a positive balance. Demand will come back after the pandemic is over, and the Russian government can't flood the market for very long.
  - afjl 7y ago
    They can flood the market for as long as they have foreign reserves. Over the last several years, Russia has steadily reduced its budget's dependence on oil revenues, and bolstered foreign reserves/gold. They probably do have enough foreign reserves/gold to outpump the Saudis and drive the price so low that the Saudis start burning through their own reserves. And I believe Putin has a stronger grip over his own people than MBS, so in a race to the bottom I think Russia could definitely come out "on top". I really dislike the article's mention of "balanced budget" oil prices, it distracts from more salient arguments when presented alone. For proper analysis, the author should have provided more numerical data, like foreign/gold reserves, budget comparisons (historically, and across countries), etc. >> Demand will come back after the pandemic is over. Man, I go back and forth with myself/other people over this all the time. I think there's a significant risk that energy consumption will be lower in the temporary short- and mid-term futures, and slight risk that energy consumption will also be lower in long-term future. Take a look at US consumption: https://en.wikipedia.org/wiki/Energy_in_the_United_States#Primary_energy_consumption https://en.wikipedia.org/wiki/Energy_in_the_United_States#Pr... https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf We still haven't reached 07/08 levels of energy consumption, of which 67% is nat gas/oil. I also read a while back that US households have steadily decreased their individual usage of energy post-2008, despite economic gains. I forget where, I think it was in an article about nuclear power plants. With that said, I think global outlook (for oil consumption) over the next 5 years is not good for developing economies. Their economies will suffer until developed economies recover and stimulate their under-developed economies. However, long-term population growth in SE Asia and Africa will demand greater energy consumption and I believe economic growth in these regions will be the primary drivers of greater oil consumption. That's because renewable energies will be much, much more expensive than non-renewables (until we tax the hell out of them) and developing economies must pursue the most cost-effective alternative. Sorry, for the long response, I just love this shit.

janee 7y ago

I haven't been able to find a nice breakdown of the reasons behind the price decrease that wasn't driven by reduced demand. So my understanding is that SA increased production because it couldn't get Russia to limit its output? So they crashed the market with the hopes to bend them to their will. If so are they basically signalling that they can survive such conditions but Russia can't? Or what's going on here