OPEC tosses a riddle

There will be some geological anomalies, but the overall truth---over all the oil fields on average---is that they get used up and production declines. If oil renewed itself on a timescale relevant for human civilizations or even a few generations----then Texas would be producing oil like crazy once again. It isn't. This is fact that can't be argued around.

Oil price can be "manipulated" only so far because of physical reality. As I said before, oil futures (which indicate the global price of crude) settle with physical delivery, meaning that somebody who is long an oil contract will, in principle, end up with many barrels of oil to take and pay money to store. You can't hide this and the oil inventories are measured and well known.

Such physical-settled commodities are thus disinctly different from say a stock market, where people trade money for shares (paper) in a speculative enterprice where there can be in fact a very speculative boom and crash. I'll make an analogy: suppose that in the stock market bubble if somebody bought shares in, oh say, pets.com, that then if they held on to it at the end of each quarter they were *obligated* to spend cash and open a franchise in their own neighborhood. Obviously that would stop any preposterous speculative bubble.

Before settlement, paper traders roll over their contracts to the next month/quarter, but the commercials (who actually deal in real oil and the commodities) do settle up and take delivery or storage. If there were some kind of huge speculative bubble with the paper instrument much higher than the supply and demand then the commercials could make gazillions, and then arbitrageurs would (and do) bring the futures price to match up with the physical.

In truth, the actual physical price (depending on shipment and grade) has not made any immense deviation from the futures. There's been more volatility, of course, but the underlying facts remain.

Therefore Steve Forbes's recent argument that the oil price has shot up only because of "speculators" is fallacious. He's been a perpetual candidate for upper-class twit of the year for 2 decades.


Oil price now depends on immediate supply and demand considerations---flow of oil out from production and flow of oil into consumption. Nothing else.

If there's a supply shortage compared to demand, we'll get whacked.

"You need to go research how reserves ( and certainly Saudi reserves) really work. According to conventional logic Saudi Arabia should have depleted many fields they have by now but most of their oil still come from the same fields it came from 30 years ago. The fields is not 'depleting' as they should it would seem and many fields all over the world does much the same."

Says who? According to conventional logic, back then it was recognized that the Saudi fields were immense compared to anybody else's, and that theirs would be the only ones which weren't significantly depleted by now.

According to conventional logic, the UK and Norweigian and Alaskan fields were alot smaller than them and they would start depleting sooner. And they did. Just like in Texas. And everywhere else except the mideast. Even in OPEC, now all countries except for Saudi Arabia and Iraq are pumping at their full production capacity.

Extraction technology---getting oil out of the ground---is getting significantly better. But that may mean that you are sucking up the oil in the ground at a faster and faster rate, not making more.

I know the geological and physical facters governing the behaviour of oil fields, thank-you - I'm a graduate geologist. We were taught the Hubbert model at university (along with others), I've written complex simulations using the model etc... and studies seem to suggest that the model is correct and as far as I'm concerned, I'm not arguing with that until it is proved 100% incorrect -- which incidentally has not happened.

I have heard some great jokes when it comes to geologist mind you.... I hope you went to the trouble of reading the document i provided? If this is just a question of the authors credibility what follows below might help you.

"Michael C. Lynch has over twenty years of experience analyzing international energy, particularly oil and gas markets. He has numerous publications in four languages and speaks regularly at international conferences. He is the primary author of Global Petroleum SEER and Global Petroleum Outlook, which provide short- and long-term oil market analyses.

Mr. Lynch's previous work has included computer modeling of the world oil market and estimation of the economics of supply for both world oil and natural gas, including LNG supply, and market behavior under normal and disrupted conditions. He has also given testimony and advice to committees of the U.S. Congress and the United Nations, the World Bank and the International Energy Agency.

Before coming to Strategic Energy & Economic Consulting , Inc., Mr. Lynch was Vice President of Oil Services at WEFA, Inc. Prior to coming to WEFA he was Director, Asian Energy and Security, at the Center for International Studies, M.I.T., as well as a Lecturer in the Diplomatic Training Program at the Fletcher School of Law and Diplomacy, Tufts University. Prior to that, he held a number of research positions at M.I.T., as well as serving as a senior associate for the Washington International Energy Group. His work consisted primarily of advising corporations, governments and industry associations on world oil and gas markets and energy security policy."

If you did not read please do so www.energyseer.com...]now.

Agreed, there are exceptions to the model but most oil fields follow the Hubbert model which makes intuitive sense.

They simply do not as is pointed out by world oil reserves growing each year far in excess of usage. This all despite intense effort to keep oil exploration investment capped despite growing profits.

quote: There simply is no evidence that the world is in fact running out of oil. There is plenty of evidence of oil price manipulation.

I never claimed we were running out of oil, that's not the nature of Hubbert's peak which claims we have used half of the oil and besides we only run into problems when demand outstrips supply. Incidentally, Hubbert was correct regarding America's oil peak in the 70's.

By 'running out' i do mean that we are nowhere near a peak and thus not near the half-way mark as the peakers have been predicting for decades running. The hubbert peaks suggestions comes and goes without much fanfare these days but mabye we should go back and point out how it's been dead wrong for so long? US oil EXTRACTION peaked in the 1970's but mainly because it became cheaper to import it from other sources wich had it in cheap abundance. The US government was allready spending huge ammounts in that region for 'security' reasons and it made a good deal of economic sense to exploit the cheap oil while you were heaping cash on dictators to keep them in power. The USD was also taken of the gold standard with all the economic implications of that. The changes in Us production numbers did not reflect lack of oil but only the relative cost of extraction in different parts of the world; why make only 500% profit when you can make 2000%?

I'll admit I'm not too hot on the politics and economics of the oil markets but I don't trust any economist that reckons the mysterious market forces will solve everything regardless of any physical, chamical or geological factors! It's totally absurd. They know exactly bugger-all about the geology and physics of the situation and pick and chose statistics to suit the point they wish to convey.

Fact is he is more qualified to judge oil availability than any of the prominent peak oil spokesmen and if that was not enough he shows them to be bad scientist at best, liars at worse. You can name the peak oil spokesmen one by one and i can shame them in like fashion working from my previous posts on other threads. Will not take much time as their fearmongering is really based on no science at all.

From the wall street journal article.....

"Doomsayers to the contrary, the world contains far more recoverable oil than was believed even 20 years ago. Between 1976 and 1996, estimated global oil reserves grew 72%, to 1.04 trillion barrels. Much of that growth came in the past 10 years, with the introduction of computers to the oil patch, which made drilling for oil more predictable."

... oh and abiotic oil is a load of bollocks -- there is simpily no hard facts to suggest anything otherwise.

It does not really matter where these oil fields refill themselves from. Fact is so many of them do and their reserves are too frequently adjusted upwards. World reserves are growing fast despite the best efforts of oil companies to avoid finding any more oil.

Now, my orginal query was regarding why the Saudi's do not let anyone audit their reserves. Do you have any idea why this is?

Greenspan was present when the prominent Saudi officials made that claim ( they invited him) and just 4 months later ( in the article i provided) he says that the world is not running out of oil. I am sure you are familiar with the name and thus unsure why want to question his motives when he is making comments that will REDUCE profits for oil companies. Mabye you want to clarify your point of view here.

One other thing... You source all our info from news sites, do you not think for one moment that the articles could be incorrect / people could be lying?

I think about that ALL the time and you must have noted what forum am i posting this on! I try stick to official news sites and try spot the inconsistencies in claims made hoping that that can lead us to some truth. We have to work from somewhere and i am comfortable working from such sites when creating reference frameworks for others. No one will however benifit( as you rightly claim) from trying to use these sources as ultimate proof of anything in themselves. It's all about the big picture.......

Bush, Balir and other leading politicians have lied about much worse.

No argument here....

I don't believe in crazy conspiracy theories like many people on these forums do but I certainly don't trust any figures given out by Saudi oil officials, simply due to the fact that they won't let anyone audit their reserves.

Well this then seems to have come down to who you will trust and not where the evidence leads. I'm here to show you evidence that was enough to convince me that the Saudi's are being conservative in their reserve claims. All i can do is add more evidence and see if leads you where it has me.

These guys can say whatever the hell they want, and I'm well aware of the political pressure on people to produce the 'correct' results.

That we all are i hope.

Stellar

[edit on 16-9-2005 by StellarX]

there are a lot of wells that have been capped b/c they were to expensive to extract the oil from when it was even 25$ a bbl

the north slope in alaska was predicted back when it was discovered to only have around 7 billion bbls and to date has pumped more than 14 billion and counting. anwr is said to have 10-12 billion but may in fact have more than twice that amount. lets not forget the nearly trillion bbls that are just in tar sands alone. then we get to the vast quantities of shale here in the usa which has more oil than all of opec combined. what about the rest of the arctic coast in canada how many billion bbls of oil are there?

then we get to coal. when heated to 600-800 deg will produce nearly 1 bbl of oil and several cubic feet of gas for each ton. the coke that is left over makes a better fuel for coal fired plants than just plain coal or converted to even more liquid fuels. and it would be a cleaner source of fuel for power plants as the sulfer and other harmfull material is now in the oil where it is removed much easier.


right now every coal fired power plant should be distiling their coal before using it to produce power and selling the oil. a simple web search will give you information on the fischer-tropsch process for converting coal to gas. the usa could be more energy sufficient if we did just this little bit.

but i dont want to get off on a rant here

Originally posted by bigx01
there are a lot of wells that have been capped b/c they were to expensive to extract the oil from when it was even 25$ a bbl

the north slope in alaska was predicted back when it was discovered to only have around 7 billion bbls and to date has pumped more than 14 billion and counting. anwr is said to have 10-12 billion but may in fact have more than twice that amount. lets not forget the nearly trillion bbls that are just in tar sands alone. then we get to the vast quantities of shale here in the usa which has more oil than all of opec combined. what about the rest of the arctic coast in canada how many billion bbls of oil are there?

then we get to coal. when heated to 600-800 deg will produce nearly 1 bbl of oil and several cubic feet of gas for each ton. the coke that is left over makes a better fuel for coal fired plants than just plain coal or converted to even more liquid fuels. and it would be a cleaner source of fuel for power plants as the sulfer and other harmfull material is now in the oil where it is removed much easier.


right now every coal fired power plant should be distiling their coal before using it to produce power and selling the oil. a simple web search will give you information on the fischer-tropsch process for converting coal to gas. the usa could be more energy sufficient if we did just this little bit.

but i dont want to get off on a rant here

Summed it up better than i normally do; thanks.

Stellar

Good posts. I've read that article Stellar but haven't had time to comment -- I'll be back later with some feedback.

I hear what you are saying but I find it difficult to completely alter my perspective on this considering what I've been taught in the past!

Originally posted by InTuneToDoom
Good posts. I've read that article Stellar but haven't had time to comment -- I'll be back later with some feedback.

I hear what you are saying but I find it difficult to completely alter my perspective on this considering what I've been taught in the past!

"If a man is in too big a hurry to give up an error he is liable to give up some truth with it."

— Wilbur Wright, 1902

I love this page and i wish every scientist and student could have read it before they ever opened a text book.

Stellar




[edit on 19-9-2005 by StellarX]

It is certainly true that recovery has improved---that means the fraction of total oil in the ground which can be extracted.

Recovery improvement has accounted for most of the increase in reserves---i.e. upping the percentage on known oil fields. Other part is just plain lying by OPEC members to up their share of the quota.

NOT new discovery. The fact is now that in all major areas other than Iraq, the assumed recovery percentage is now quite high because they have been attacked with modern technology. You can't recover more than 100%, no matter what technology you use.

Discoveries of actual new oil in new places never exploited have NOT been keeping pace at all. This is the other geological and economic factor. We now have technology to map the planet geologically quite well, and science has improved.

Are people discovering new continents on Earth any more? No? Why not?

Currently in the process of moving house and i will only be able to respond to all your posts in a week or so. With some luck all the new lines and connections will be installed by then. This issue is very much covered by what Lynch says and what some of my links shows is happening to world oil reserves with even the minimum current level of exploration. Will respond with even more specific information when i get back.

Stellar

mbkennel

The price of oil is highly leveraged to the profit margins. The price of oil is going up because demand is going up and supply isn't. Why isn't supply going up despite high prices?

Demand is not going up and there is plenty of oil on the market. They actually provide enough daily so that there is no shortage on the market. The fact that very many countries can not afford nearly as much oil as they would like is not even mentioned.... .

Oil companies spend money in prospecting and drilling, they make money by pumping.

Oil companies cap their expenditure on such enterprises to X ammount and have not increased that expenditure despite the oil prices doubling. If there is such a shortage why not spend more money finding the oil ( or just uncapping all the wells they have now) and bringing it on the market?

What's happening is that despite very high prices they aren't in fact prospecting rapidly because they don't know where to go or be sure that they could make money at it. So they sell the oil that they have already at high prices. Marginal cost of production from *existing* wells is low.

There is plenty of places to find oil and at current oil prices there are so many formerly expensive drilling locations that it would be difficult not making a profit.

Note that reserves (as in having a well and capping it) do have to be reported.

To who? Who is in charge of the books? Do we still trust large audititing firms? Do you want to speak in defense of companies auditing companies? How do you suppose a big multinational picks who will audit it's books? And you do not trust the Saudi's you say? Lets be fair and agree it's better not to trust either of the groups?

I have a relative who is a very high executive in BP who told me (a few years ago)---that he goes to many of the industry petroleum conferences. Then, he said that nobody has been discovering much of significance they way they used to for a while now.

Every year, for the last 25 years, five barrels of oil have been discovered for every three used. The world's oil reserves is rapidly growing despite much effort by oil companies to use the massive new profits to spend more on exploration. Fact is there is so much they do not need to.

In reality the only oil fields of any significance which have not been highly prospected and exploited with modern technology are, guess where? Iraq.

The Iraq invasion happened for a few reasons but non of them was to bring more oil on to the international markets. If that were the case the oil facilities and pipelines would have been far better protected and force levels would have reflected it. Bringing more oil on to the market would not really matter either as there is not even nearly enough refining capacity to fill the daily petrol and gas needs of the world.

Stellar

mbkennel

Oil spikes in the 70's were a result of OPEC intervention due to political problems, but price quickly declined because there wasn't actually a physical shortage of oil supply, and most prominently, non-OPEC and friendly NATO countries U.K. and Norway, found and rapidly delivered oil to the market. Both their oil fields are significantly declining, and they aren't finding more, despite extensive effort with modern technology.

Please state your sources so i can refute them. I have posted mine in other responses and it serves no purpose for me to just differ from you when you do not make your sources public. Here is two more to add to the long list.

BP: World oil and gas reserves still growing at healthy pace.
How Much Oil and Gas is Left?

Oil increase now---note, a sustained increase, not a spike---is due to more demand outstripping fundamental supply. OPEC has lost control of the price because it's pumping all out.

OPEC has never been in control of the oil price. The oil prices are decided at the NYmex and the IPE ( USA, NY and Britain, London).
They are not pumping all out...... They are investing as much as they have to to keep up with current demand. Many more nations now have spare capacity and we do not need Saudi Arabia to have such a massive capacity anymore.

For fifty years or so, the OPEC cartel didn't control the price of oil. The Texas Railroad Commission (www.rrc.state.tx.us...) did. For some historical quirk it's called railroad but it regulated oil. And then, were Texas oil production went, so did the world price. In March 1971 sometime, Texas oil production peaked as Hubbert said it would, and the TRC set a "100% allocation" (pump all you can) to its members. That was the day the TRC lost its major power, forever. Oil production in the continental 48 states went into terminal decline.

Hubbert never intended for his model to be used world wide. Some do but it is rather easy to show the error in that. As i pointed out in earlier responses there were many other and far more critical reasons for oil price fluctuation in world in the 70's.

If the same thing is happening with OPEC, then likely the same reason is to blame: not enough oil left. Oil comes out slower the less there is of it and the longer it's been produced.

You are making four assumptions in just three lines. Non of them are based on fact

1: Same thing is happening in OPEC -The same thing is not happening OPEC since there is plenty of oil to go around as can be shown by growing world reserves
2: Not enough oil left -Why should they pump more than the market wants on a daily basis? They have been doing that for all of the last three years and the prices just kept going up. Clearly oil availability is not related to oil price anymore.
3: Oil comes out slower the less there is- Oil comes out slower and slower depending on how fast you pump it out. If pump too fast you lower the pressure with predictable results. You have to give time for oil to filter trough to where you can extract and that happens at predictable rates.
4: Longer it's been produced- This depends entirely on how fast you extract and at what rate the field is refilling from deeper source rock.

In 1971 there were still other parts outside the US which weren't yet on the declining part of the curve. I worry that now, all of the planet---except Iraq---is on the declining part of the production curve, or will be soon.

There is no need to worry if you look at the data.

The price of oil, certainly spot price, has virtually no relation to reserves. Because oil futures are settled with physical delivery and there is a significant cost for oil storage, this price must reflect only immediate supply and demand characteristics.

If has not done that for a very long time. Oil prices are not dependant on market supply and demand as it should be.

Western oil companies do have to report reserves semi-honestly. When there's a scandal it is in the direction of exaggeration, not underestimation. Witness the recent debacle at Shell.

www.energyseer.com...]The Shell reserve downgrading: Year of monkey business?

If can understand that you may not want to trust the Saudi's ( their Arabs after all) but why on gods earth semi-trust Shell?

This is because CEOs etc make money from their stock options and reporting declining reserves is bad for the stock price.

OPEC? Who knows.

Assuming they are just there to make a massive profit for themselves, yes. Long term the stock might decline but short term people will buy in as world oil prices might go up. You can always adjust the oil inventories upwards later...

Stellar