gregor- oil production forecast to 2015 [with implicit economic impacts]

[jk]

Crude Oil Production Forecast to 2015
With fresh data out from EIA Washington just this afternoon, and, on the heels yesterday of IEA Paris’ long-overdue admission of Peak Oil, I thought I would release a crude oil forecast. This is a production chart that I’ve been working on over the past few weeks. I use rough estimates of future world GDP, the recent mix of primary energy use with special attention paid to coal vs oil use, and then finally decline rates in global oil production. Despite these efforts, any forecast of this nature is at best general in nature. That said, the trajectory here is worth paying attention to.



The chart shows the most recent data through October of 2010, as current year average production now stands at 73.434 mbpd (million barrels per day). The problems in future production come through a combination of the factors I listed above, plus, the inability of the OECD to pay the significantly higher prices now required to increase global supply. These problems exist right now. Oil’s current advance once again into the 80 dollar range in part reflects the fact that the supply increase enjoyed in the latter part of 2009, is now over. That supply increase was largely funded through the supply crash of late 2008 into early 2009.

Unfortunately, beyond the amplification effects of the US Federal Reserve’s quantitative easing policy, the seemingly gentle supply decline you see forecasted into 2011 and 2012 will be accompanied by a fairly large price spike. That price spike will not only kill more demand, but, will also bring on a small amount of supply that shows up later in 2013. In other words, both price and the global economy will be more volatile than average annual supply into 2013. Afterwards, the aggregate effect of all factors–including what’s due to take place in the global economy–triggers the sharper decline in production into 2014 and 2015.

http://gregor.us/oil/crude-oil-produ...ecast-to-2015/
[emphases added]

jk comment- looks like this fits with ej's 2013 recession prediction.

[GRG55]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

Crude Oil Production Forecast to 2015
With fresh data out from EIA Washington just this afternoon, and, on the heels yesterday of IEA Paris’ long-overdue admission of Peak Oil, I thought I would release a crude oil forecast. This is a production chart that I’ve been working on over the past few weeks. I use rough estimates of future world GDP, the recent mix of primary energy use with special attention paid to coal vs oil use, and then finally decline rates in global oil production. Despite these efforts, any forecast of this nature is at best general in nature. That said, the trajectory here is worth paying attention to.



The chart shows the most recent data through October of 2010, as current year average production now stands at 73.434 mbpd (million barrels per day). The problems in future production come through a combination of the factors I listed above, plus, the inability of the OECD to pay the significantly higher prices now required to increase global supply. These problems exist right now. Oil’s current advance once again into the 80 dollar range in part reflects the fact that the supply increase enjoyed in the latter part of 2009, is now over. That supply increase was largely funded through the supply crash of late 2008 into early 2009.

Unfortunately, beyond the amplification effects of the US Federal Reserve’s quantitative easing policy, the seemingly gentle supply decline you see forecasted into 2011 and 2012 will be accompanied by a fairly large price spike. That price spike will not only kill more demand, but, will also bring on a small amount of supply that shows up later in 2013. In other words, both price and the global economy will be more volatile than average annual supply into 2013. Afterwards, the aggregate effect of all factors–including what’s due to take place in the global economy–triggers the sharper decline in production into 2014 and 2015.

http://gregor.us/oil/crude-oil-produ...ecast-to-2015/
[emphases added]

jk comment- looks like this fits with ej's 2013 recession prediction.

"...the aggregate effect of all factors–including what’s due to take place in the global economy–triggers the sharper decline in production into 2014 and 2015..."

It's not clear to me if his forecast of declining production post 2013 is governed by recession induced demand destruction, or supply limitations.

I have had difficulty believing that the world could "afford" nominal $80 oil for much of these past couple of years...and perhaps that is one of the factors impairing the ability to increase global growth rates. But assuming the world has adjusted to $80, at some price above that [$100? $120?? $150???] the global economy will surely roll over once again, regardless of how much the Central Banks collectively print.

[Mega]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

I go "X-Files" but:-
http://kingworldnews.com/kingworldne...heckmated.html

China wants to KILL the $ now to limt US purchases of oil?
Mike

[GRG55]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

...China wants to KILL the $ now to limt US purchases of oil?
Mike

The Fed and US Treasury would probably love it if the Chinese would just get on with it and "kill" the US$. They've been trying to do it themselves for some time now with only limited success... ;-)

[jk]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

"...the aggregate effect of all factors–including what’s due to take place in the global economy–triggers the sharper decline in production into 2014 and 2015..."

It's not clear to me if his forecast of declining production post 2013 is governed by recession induced demand destruction, or supply limitations.

I have had difficulty believing that the world could "afford" nominal $80 oil for much of these past couple of years...and perhaps that is one of the factors impairing the ability to increase global growth rates. But assuming the world has adjusted to $80, at some price above that [$100? $120?? $150???] the global economy will surely roll over once again, regardless of how much the Central Banks collectively print.

i interpret gregor's meaning to be that even a tepid global recovery produces the price spike to come in '11-'12, since supply can't rise to meet increased demand. the price spike in turn will cause a recession, dampening demand in '13-'15. this will be the SECOND peak cheap oil price-spike induced recession. i believe that this is also consistent with what ej has been predicting.

an earlier post of mine of a piece by gregor showed oil production bouncing up and down as production ceilings are hit, leading to price spikes, leading to recessions, leading to both reduced demand and supply destruction [as you yourself have documented] [as recession-induced falling prices leads to cancellation of exploration and development projects], leading to a still lower ceiling for the next bounce. ugh.


here's the older post of gregor's, from june '09
http://gregor.us/oil/overhead-crush/

[doom&gloom]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

i interpret gregor's meaning to be that even a tepid global recovery produces the price spike to come in '11-'12, since supply can't rise to meet increased demand. the price spike in turn will cause a recession, dampening demand in '13-'15. this will be the SECOND peak cheap oil price-spike induced recession. i believe that this is also consistent with what ej has been predicting.

an earlier post of mine of a piece by gregor showed oil production bouncing up and down as production ceilings are hit, leading to price spikes, leading to recessions, leading to both reduced demand and supply destruction [as you yourself have documented] [as recession-induced falling prices leads to cancellation of exploration and development projects], leading to a still lower ceiling for the next bounce. ugh.


here's the older post of gregor's, from june '09
http://gregor.us/oil/overhead-crush/

I have long believed such a "roller coaster" would occur. In the mean time, I also believe "pricing out" will occur, where (just like the unemployed in the US) residents of various other nations will become priced out of purchasing oil, also becoming a part of the undulating curve.

And while we are on this idea, the only person I have seen endorse the order of rationing in the same way I believe it will happen is Robert Hirsch on his FSN interview. he calls for future rationing as: military, agriculture, necessary services (police/fire/ambulance), necessary transport (rail/truck/etc) with the consumer on the short end of the pump nozzle. My only difference is I believe the prletariat will make sure they are on the top of the heap, though there aren't that many of them in reality).

[jk]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

i think we're a long, long way from organized rationing. price will do the rationing for the foreseeable future.

[Starving Steve]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

Please note that in recent days, the sales of new trucks in the US has turned upward: more Tahoes, more Blazers, more 4X4s, etc. So Bernanke's print-a-thon called, quantitative-easing ( in Greenspanese ) is going to drive-up the U.S. trade-deficit and increase America's dependence upon OPEC oil. So, oil is heading upward in price, not rapidly, but sloooooooooooooowly, just the way Starving Steve would like it to do.

Oil is the winning bet, but don't tell anyone about it because we need the shorts in the market.

[flintlock]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

Yes, I noticed Ford is doing well with Truck sales as well. But I can see why after looking at car prices recently. A full size F-150 with 4 doors and the ability to haul a lot of crap is thousands less than a minivan. With cheap gas many people are still electing to use the pickup as a the family truckster instead of the traditional car or minivan.

[jk]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

u.s average retail gas price as of 10/25 was 2.817, up .199 - about 7%- from a year ago. we'll see what happens when the recent rise in crude washes through to raise that average over $3. any other guesses on the threshold for pain?

[GRG55]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

Yes, I noticed Ford is doing well with Truck sales as well. But I can see why after looking at car prices recently. A full size F-150 with 4 doors and the ability to haul a lot of crap is thousands less than a minivan. With cheap gas many people are still electing to use the pickup as a the family truckster instead of the traditional car or minivan.

Up here, where I live, about one third of the vehicles on the road are pick-ups. Properly maintained they will outlast a unit-body car on our salt-laden winter roads.

Three of my friends, all of whom married late and still have teenagers at home, bought 4-door pick-ups as the primary family vehicle during this past year. Interestingly in all three cases they purchased Toyota Tundras [in one case, he traded in a Prius]. Compared to my crude workhorse F350 diesel, and my wife's hay-hauling GM half-ton, those things aren't pick-up trucks...they're bloody limousines. The back seat leg room easily rivals a long wheelbase Merc or Jag XJ, and they are packed with many of the same failure-prone gadgets including front and rear star-wars flat screens and proximity sensors for parking on all four corners [I'd be worried about someone hitting one of those in a parking lot as the cost of replacing one of those bumpers is probably more than I paid for the Ford]. I dared one of my friends to "christen" his Tundra by hauling a load or two of building materials out to my bunker site...nothing like 50 sheets of [non-Chinese!!!] drywall to test the load capability...but he declined. Besides the box on those things is too short to haul a 4x8 sheet of anything without hanging it past the tailgate. All that aside, there's no denying they [and their domestic equivalents] look to be an excellent vehicle if you have a growing and active family.

u.s average retail gas price as of 10/25 was 2.817, up .199 - about 7%- from a year ago. we'll see what happens when the recent rise in crude washes through to raise that average over $3. any other guesses on the threshold for pain?

Up here regular gasoline is now roughly $4.00 a gallon, and it hasn't made any apparent difference in the number of large pick-ups and SUVs on the road over the past few years. Two years ago, just after oil prices peaked, I was in England and petrol prices there were almost exactly the equivalent of US $10.00 per gallon. In the UK there's a social stigma associated with driving a full size North American vehicle so you don't see many of them. And although most of the vehicles were small displacement compact cars [lots of diesels], there was no shortage of Range Rovers, Land Rovers, Porche Cayennes, and full size European sedans on the motorways.

Edit added: Just for grins I thought I would mention that in the Persian Gulf Kingdom where I used to live I still pay the exact same price to fill the two tanks on my Toyota Land Cruiser as I did when I first moved there ten years ago...twenty-six US cents per litre...and that is quite a bit more than what it costs next door in Saudi.

[doom&gloom]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

I like my Chevy Duramax Diesel myself with the crew cab no less!

[jk]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

oil certainly didn't "spike" yesterday. more like a spike was driven into it. this, supposedly, was in reaction to anxieties about china tightening. ej's predicted chinese implosion would certainly take prices down, temporarily, and appears inconsistent with gregor's predictions of the production numbers [since a chinese implosion would produce another global leg down economically, and presumably sharply drop oil demand for a while].

[GRG55]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

oil certainly didn't "spike" yesterday. more like a spike was driven into it. this, supposedly, was in reaction to anxieties about china tightening. ej's predicted chinese implosion would certainly take prices down, temporarily, and appears inconsistent with gregor's predictions of the production numbers [since a chinese implosion would produce another global leg down economically, and presumably sharply drop oil demand for a while].

I am firmly in the camp that all the ZIRP-priced liquidity gushing forth from global Central Bankers [aided by the now explicit "Bernanke Put"] is the primary reason the commodity complex is so inflated [credit Finster]. I have never believed that the world could really "afford" $80 oil post-GFC, nor $4.00 copper, near-record cotton & sugar prices, and chronically elevated grains [no pun intended]. Only broad based speculation by non-industry players [e.g. purely financial entities such as the hedge funds and the trading desks of Morgan and Merrill] can explain this imo. And that means there's undoubtedly a huge amount of leverage being used to support those holding long positions, which in turn means that even the hint of something that might turn sentiment [such as the Chinese interest rate increase] will contribute to volatility, and eventually and inevitably to a violent sell-off.

Oil is interesting because although much fuss and noise is made about global inventories rising and falling as price fluctuates, the fact is that global crude inventories are completely irrelevant as any change in same is but a tiny, tiny fraction of annual consumption. And that means that as demand falls so does production...because the logical and cheapest place to "build inventory" in times of falling demand is to just leave it in the ground. This is why I was having difficulty with gregor's chart. It is still not clear to me if he thinks that the production decline in 2013-15 is due to a fall in demand from the next global recession, or due to some inherent supply restriction in spite of that recession?

[jk]

Re: gregor- oil production forecast to 2015 [with implicit economic impacts]

I am firmly in the camp that all the ZIRP-priced liquidity gushing forth from global Central Bankers [aided by the now explicit "Bernanke Put"] is the primary reason the commodity complex is so inflated [credit Finster]. I have never believed that the world could really "afford" $80 oil post-GFC, nor $4.00 copper, near-record cotton & sugar prices, and chronically elevated grains [no pun intended]. Only broad based speculation by non-industry players [e.g. purely financial entities such as the hedge funds and the trading desks of Morgan and Merrill] can explain this imo. And that means there's undoubtedly a huge amount of leverage being used to support those holding long positions, which in turn means that even the hint of something that might turn sentiment [such as the Chinese interest rate increase] will contribute to volatility, and eventually and inevitably to a violent sell-off.

Oil is interesting because although much fuss and noise is made about global inventories rising and falling as price fluctuates, the fact is that global crude inventories are completely irrelevant as any change in same is but a tiny, tiny fraction of annual consumption. And that means that as demand falls so does production...because the logical and cheapest place to "build inventory" in times of falling demand is to just leave it in the ground. This is why I was having difficulty with gregor's chart. It is still not clear to me if he thinks that the production decline in 2013-15 is due to a fall in demand from the next global recession, or due to some inherent supply restriction in spite of that recession?

re gregor's meaning- my own interpretation is in post #5, above.

re: commodity prices and zirp - i'm sure there are speculative momentum players in the commodities markets [isn't that what cta's DO? plus add the prop desks], HOWEVER i also think that commodities are taking on one role of money- they are functioning more and more as STORES OF VALUE. [i have been saying that about oil for years now, but i think it also is beginning to apply to other commodities besides, of course, pm's.] so the presence of the momo players will certainly drive price swings, but i think the big, secular, move is still UP as long as the fed [and now it increasingly appears, the ecb] continues to print money.

as to whether the world can AFFORD these commodity prices, i say that the world will damn well have to. thus, more and more of income will go to necessities, less and less will be left for discretionary spending.