[Plantagenet]

As the oil glut goes into its second year and oil prices fall to lower and lower levels, mass layoffs by the oil majors are rocking the oil industry. Some of the smaller Oil companies specializing in fracking and production from tight oil shale and tar sands are going bankrupt and more are on the brink of bankruptcy. The huge debts taken on by oil companies in the "boom" times are now coming due.

For tens of thousands of people in the oil biz, this means job loss and downsizing and homelessness and depression. For some the only way out is suicide.

oil-production-crisis-suicide

Nobody saw this coming when the oil biz was booming just a couple of years ago.


The oil glut is going into its second year---and people in the oil biz are hurting

[KaiserJeep]

M. King Hubbard called these times the "jagged peaks", the ebb and flow of oil supply and demand, and the associated pricing for crude, following the actual oil peak. As unconventional sources of oil and new techniques of squeezing out the remaining oil in conventional wells become economically feasible, the peaks persist. The sheer ingenuity of humans and the variety of and output of unconventional sources is something he did not spend a lot of time on, and the basic economic malaise affecting the world is moderating demand and prolonging the jagged peaks.

If only humans would use this extra time to arrange our lives for a much more energy-constrained future.

[Plantagenet]

M. King Hubbard called these times the "jagged peaks", the ebb and flow of oil supply and demand, and the associated pricing for crude, following the actual oil peak.

No doubt there will be "jagged peaks" after the actual oil peak, but we haven't reach the actual oil production peak yet. Global oil production set yet another new record in 2015.

This is something different---this is an oil production surplus resulting from extremely slow global economic growth incapable of consuming all the oil thats being produced, i.e. a global oil glut.

[KaiserJeep]

I understand that perspective, but I don't agree. M. King Hubbert's world was one of conventional oil wells, he did not spend much time on unconventional sources of oil. The conventional oil wells peaked in 2nd quarter 2008, less the modern tech that squeezes out much of the remaining oil.

Brain fart - I said "M. King Hubbard" before. King Hubbard is well known to all of course:

....as the mascot of Burger King.

[PrestonSturges]

How many tar sands boom and busts have been in the last 80 years? A bunch, anyway. I guess nobody told them.

[Plantagenet]

The conventional oil wells peaked in 2nd quarter 2008, less the modern tech that squeezes out much of the remaining oil.

Yes the conventional wells peak in 2005 or 2008 or somewhere in there. But global oil production keeps going up and is now higher then in 2008 thanks to unconventional oil production.

Hubbert never thought unconventional oil would amount to much. He was wrong on that. We're 7-10 years past the peak in conventional oil production, and global oil production is higher than it was then. In fact, there is so much oil now we are entering the second year of a global oil glut, and oil prices are so low that petroleum engineers are going dumpster diving to feed their families.

[Hawkcreek]

I remember years ago when oil prices would drop. The production and exploration workers would be hurting, but jobs would ramp up in the petro-chemical industry because their feed stock would get cheaper. It isn't that way any more. The world wide depression is slowing the purchase of almost everything, and cheap feed stocks won't push plastic toys out the door any more.
Starting to get interesting.

[GregT]

Hubbert never thought unconventional oil would amount to much. He was wrong on that.

You and I have been down this road many times before planter, and I have provided links from Hubbert saying otherwise. Now, the onus is on you. Provide a link from Hubbert that supports your accusation, or shut it.

[35Kas]

Every time I see people equating [conventional] oil with natural gas, tar sands, or whatever, I cringe. It seems it's hard to remember that non-conventional oil has a different EROEI, which is much lower.

This of course means that the cost of production for these non conventional sources is much higher. It means that if these fuels get traded at the same price as conventional oil, all the businesses that produce it will go out of business, as they are doing right now, because of mainly three things.

The first is that these businesses are very vulnerable to price fluctuations not only because of their costs of production, but because incredible amounts of credit was taken out to expand this retarded bonanza to feed the market at US$80-100+. As the price went lower, they had to produce more and more to pay interest, and refinance their assets to buy time. Time has been running out, and these businesses have been getting wiped out, and the jobs with them, as they produce as much as they can (this happens globally) to sustain high revenues. This increases the supply.

The second, is that there is somewhat lower demand for oil lately. If you check the worldwide shipping costs you can see that the general global economy is still slowing down, and so you can expect prices to continue to plummet for the foreseeable future due to slowing demand. No money to buy gadgets, no orders to produce them, no need to transport them in trucks or ships, no jobs and no income. The feedback loop will continue until prices crash enough to restart the cycle, but much damage will happen along the way.

Third, and the most important, is that Saudi Arabia started to short sell (selling at severely bellow market prices) mega quantities of oil a few years ago in order to destroy the alternative producers in the USA that are highly leveraged. There are other reasons, including a way to damage the income for Russia, but that producer will not be taken out so easily. I'd say, since the oil revenue in SA itself has been going down, in addition to the export land model effect, that regime will be the one which will fall apart to unrest very soon, and this will be the Black Swan event we so much dread.

What will happen to price then? I'd bet on a swing back to high prices and the non-conventional sources will stage a Lazarus. But before that happens, I'd count on unprecedented carnage, at least, in the USA liquid energy field due to this unprecedented convergence of trends.

[AgentR11]

Nobody saw this coming when the oil biz was booming just a couple of years ago.

You're kidding right? Only idiot, newbie investors didn't see this coming. If only, because this always happens.

I love Pop's wedge chart, though I think the real result will look more like tangential curves to account for continued peak&crash effects, they shouldn't truly converge. The point is clear enough though, you can count on the price to crash, and you can count on the price to rise, you just can't count on knowing the best date to sell and the best date to buy.

Also, again, since the Russia/KSA thing got mentioned. My take on their meetings goes like this:

Agenda
0:00 - 2:50 - Syria Syria .. Syria Syria.. Iran Syria Syria, wahabi snackbars, Syria Syria You make me angry! No, you make me angry!
2:50 - 2:55 - growling at each other over tea
2:55 - 2:59 - oh yeah, oil. Market Share? Yep. Market Share! piss on shale and deep water!
2:59 - 3:00 - a toast, to the corpses of businesses that turn cheap fresh water into really really expensive oil.
CHEERS!

Meeting breaks.
Press arrive.
.. "I hate those guys."(Snarling at Putin) "Those guys are annoying."(Snarling at KSA Grand Pubah) Grrrrrrrrrrr!

Russia and KSA don't really like each other. But they both uniformly detest shale producers.
They're in cahoots; they can both do this for a VERY long time; and Western producers are only spinning themselves a fantasy by telling themselves one or the other will collapse because of the price.

They won't.
They will keep drilling.
They will keep producing.

They will never again surrender market share.

[ROCKMAN]

Agent - "You're kidding right? Only idiot, newbie investors didn't see this coming." I wonder how many believe me when I point out how everyone in the oil patch (except for some of our newbie staffers) knew this day was coming...just didn't know exactly when,

[Paulo1]

Good post...35Kas, You are right.

Just like frozen orange juice is supposed to be juice, such is oil these days.

[Plantagenet]

Nobody saw this coming when the oil biz was booming just a couple of years ago.

You're kidding right? Only idiot, newbie investors didn't see this coming.

Next you'll claim you saw the oil price collapsing in November 2014 and you went short on oil and made a fortune.

Yes? No?

If you didn't go short in November 2014 then you must be one of the newbie idiots who didn't see it coming, right along with the banks, the oil companies, and the states who depend on oil for revenue didn't see it coming, not to mention all the workers in the oil biz who didn't see it coming in November 2014.

Cheers!


Yes, buy some contracts to go short on oil futures starting in December 2014. I see an oil glut and price collapse coming.

[ROCKMAN]

Paulo - I might disagree somewhat. "It seems it's hard to remember that non-conventional oil has a different EROEI, which is much lower." I've seen many unconventional reservoir wells with a much better EROEI then some conventional reservoir wells. But once again EROEI is relevant to drilling decisions and has almost no impact on drilling economics. Prices OTOH do. IOW the EROEI of well in a shale reservoir that produces 300k bo isn't necessarily going to be different then that a well in a convention reservoir that makes 300k bo. In fact as the learning curve brought the drill time for a hz shale well down from 40+ days to less than 15 days the EROEI improved significantly: the amount of diesel used to drill a well is essentially proportional to the number of drilling days. Last year I spent 40 days drilling 17,000' of a conventional reservoir well while many 17,000' hz wells were drilled in the Eagle Ford Shale in less than half that time. And again: fuel use is proportional to days drilling. IOW I burned about 2X the amount of diesel to drill the same number of feet in my well. The rig count in the shales didn't drop because of a change in EROEI because in general it hasn't changed. The price of oil collapsed. However good or not good the EROEI of that shales may have been it hasn't changed in th4 last hear or two..

"It means that if these fuels get traded at the same price as conventional oil..." There is a lot of oil from conventional reservoirs that sell for a good bit less then much oil from unconventional oil reservoir. At one time I was selling a lot of oil from a convention reservoir for $11/bbl (really nasty sh*t. LOL) when oil from unconventional reservoirs was selling for 3X that price. Oil isn't now nor has ever been priced based upon the characteristic of the reservoir...always based upon the characteristic of the oil itself.

"The second, is that there is somewhat lower demand for oil lately." ???? According to the EIA the world consumed about 94.5 mm bopd in 4Q 2015 which is 1 mm bopd more then it did in 4Q 2014. Which is 2 mm bopd more then it did in 4Q 2013. Which is about 5 mm bopd more then it did in 4Q 2012. And jumping ahead is about 9 mm bopd more then it did in 4Q 2009. And the future: the EIA is currently projecting an increase in global oil consumption of 1 mm bopd in the next 12 months. Which might be a tad pessimistic given that oil is currently costing the global economies at least $16 BILLION LESS PER YEAR than it was a year ago,

[Outcast_Searcher]

I remember years ago when oil prices would drop. The production and exploration workers would be hurting, but jobs would ramp up in the petro-chemical industry because their feed stock would get cheaper. It isn't that way any more. The world wide depression is slowing the purchase of almost everything, and cheap feed stocks won't push plastic toys out the door any more.
Starting to get interesting.

(Red font above, mine).

Just because economic doomers are feeling depressed does NOT mean a global depression is underway.

1). Global growth has been relatively modest, but consistently growth since 2009.
2). Growth is and has been generally occurring in many broad areas, both geographic and by economic sector. (Examples: GDP, oil, and global air miles traveled).
3). As Ayn Rand said, words have precise meanings.
4). Growth rates of countries change as countries' economies evolve. For example, China is slowing down and India has been accelerating. Overall, global BAU growth has generally continued, and outside the world of zerohedge, is generally forecast to continue over time.

If you mean you'd like to see higher rates of growth, say that. But looking at the overall statistics by five year intervals, 2011-2015 wasn't that far off the typical average growth. The more doomers on this site say things like "we're in a global economic depression", the less credibility they have re economic data. It reminds me of Cid Yama complaining about the "massive starvation" in America, as though there were no food stamp program.

For example, on global economic growth (all these hits were easily found in the first page of a Google search on the topic, such as "global economic growth rate"):

global economic growth, generally:

http://www.worldeconomics.com/papers/Gl ... ef21.paper

global growth broken out by country:

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

World oil demand:

https://www.iea.org/oilmarketreport/omrpublic/

Global passenger air miles traveled:

http://www.statista.com/statistics/1935 ... er-demand/

I'm NOT saying global society isn't in trouble if things don't change, nor that BAU growth is sustainable over the long run. However, just making stuff up doesn't teach us anything.

[Outcast_Searcher]

It's a real shame that some basic economics isn't a standard (required) part of first world public education.

Teaching teenagers principles like basic saving, budgeting, and investing concepts would be good. Teaching that in many industries (such as oil production) there are booms and busts, which makes jobs in those industries less secure, would be wise as well. (It doesn't mean that such jobs are bad -- just inherently less stable than in, say, the food services industry).

If people had the tools and knowledge to plan and adapt for such things, along with the social safety nets like unemployment insurance, then much of this could be avoided. There are jobs out there in many countries such as the US for people willing to work hard and with some skills. They may not pay as much as oil workers' pay in boom times, but being layed off with some preparation and resources has to be better than without.

And following the 2008-2009 global recession, it's not like the possibility of being laid off should be a complete surprise to anyone who is competent and in their mid 20's or older.

[ROCKMAN]

Searcher - Good observations as usually. But still have to tease you: "I'm NOT saying global society isn't in trouble if things don't change." There is no "global society": there are different societies around the world. Some that are doing OK and others that are in the toilet. LOL.

[Outcast_Searcher]

Searcher - Good observations as usually. But still have to tease you: "I'm NOT saying global society isn't in trouble if things don't change." There is no "global society": there are different societies around the world. Some that are doing OK and others that are in the toilet. LOL.

Fair enough Rock. Thanks for the compliment on the observations. I'm talking about people as a whole -- the aggregate of societies, if you will. Using this thing called "Google" to check, it seems that "humanity" is the word I was looking for.

I've always been a math/science person, and my writing is thus rather slipshod (until you see internet posting in general, by comparison).

[Cog]

Granted, I only worked in the oil patch for a year and that was during a boom. But what I saw was roughnecks, drillers, superintendents, and consultants of all types, all leveraging their well-paying job and going deeply into debt. Big ass personal truck, boats, big houses, etc. As if no boom/bust cycle had ever occurred in the oil patch. If you are smart during a boom, regardless of your industry, you stay careful and live below your means, period.