Why oil prices could go a lot higher in 2023
Posted: Mon Jan 02, 2023 12:32 pm
My 2023 forecasts are based on WTI averaging $85/bbl this year, but (unless we do have a Major Recession) I believe the actual oil price could be much higher. Below is an article that explains why. < I've added a few comments in blue.
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Can Global Oil Production Climb If the U.S. Shale Boom Is Over?
By Kurt Cobb - Jan 01, 2023, 4:00 PM CST
Kurt's Conclusions:
> Global monthly oil production peaked on a monthly basis in November 2018, and there are now real questions as to whether oil output will ever hit those heights again.
> A combination of spending discipline and regulatory hurdles appears to have ended the shale boom, but shale production growth may well have slowed anyway.
> There have been plenty of ‘peak oil’ predictions in the past, but with growing regulatory resistance, the death of U.S. shale, and less tier-one acreage, this really could be it.
Prior to the pandemic-induced downturn in world oil production, U.S. oil production growth was responsible for 98 percent of the increase in world production in 2018 (as reported in 2019). Almost all of that growth resulted from rapid increases in shale oil production which accounted for 64 percent of U.S. production (as of 2021).
Fast forward to today when Oilprice.com has declared that "The U.S. Shale Boom Is Officially Over." The reasons cited mostly have to do with management "discipline" regarding capital expenditure in favor of shareholder payouts and complaints about "anti-oil rhetoric" and "regulatory uncertainty."
But there might just be another reason for the slowdown in shale oil production in the United States: There isn't as much accessible and economical shale oil underground as advertised. Earth scientist David Hughes laid out his case for this view in his "Shale Reality Check 2021." < There is still a lot of highly economic shale drilling locations in the Permian Basin, but outside of West Texas the Tier One inventory is low.
There may be other sources of oil worldwide that will somehow make up for the significantly lower growth in U.S. shale oil production. But no other source seems set to provide the kind of growth U.S. shale oil provided, that is, 73.2 percent of the global increase in oil production from 2008 through 2018. < IMO there is no near-term oil supply growth upside outside of the U.S. that can meet demand growth.
The world has actually been getting along with less oil for some time now. World oil production proper (crude oil including lease condensate) peaked on a monthly basis in November 2018 at 84.58 million barrels per day (mbpd). In August 2022 production was 81.44 mbpd. That's after a pandemic-induced shock that saw production fall to 70.28 mbpd in June 2020. < Draining of the Strategic Petroleum Reserves has made up the difference. Draining the SPR cannot go on forever, so "rationing oil-based fuels by price" is the only solution.
Neither the U.S. shale oil companies nor OPEC seem ready to increase production significantly (assuming that they can). Russia, among the world's top three producers, is under heavy sanction and may not be able to produce more oil for export anytime soon. (Again, it is not certain that Russia can significantly increase production. Except for the pandemic-induced drop Russia has long been on a production plateau of between 10 and 11 mbpd.)
No doubt some new oil savior will be announced soon whether credible or not. In the meantime, the world economy will be faced with limited oil supplies that do not simply grow to meet our fantasies of what we want. The result will be high prices, that is, higher than has been historically the case. A recession won't change this dynamic and, in fact, may reinforce it as oil companies are likely to reduce drilling activity when demand for oil slumps. That will make it doubly difficult for those companies to supply growing demand coming out of the next recession.
This is the way things might very well be for a long time if not indefinitely. Many of us who foresaw this day said that we would only see peak world oil production in the rearview mirror. It may take a few more years to determine if November 2018 marked the all-time peak.
By Kurt Cobb via Resource Insights
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IEA and OPEC are forecasting year-over-year demand growth for oil-based products in 2023 (1.7 to 2.3 million barrels per day), but the U.S. cannot fill that demand growth on its own. Outside of the U.S. there is MAYBE 0.5 million bpd of supply growth this year. So, higher oil prices and an end to Biden's "War on Fossil Fuels" will be necessary.
-----------------------------------------------
Can Global Oil Production Climb If the U.S. Shale Boom Is Over?
By Kurt Cobb - Jan 01, 2023, 4:00 PM CST
Kurt's Conclusions:
> Global monthly oil production peaked on a monthly basis in November 2018, and there are now real questions as to whether oil output will ever hit those heights again.
> A combination of spending discipline and regulatory hurdles appears to have ended the shale boom, but shale production growth may well have slowed anyway.
> There have been plenty of ‘peak oil’ predictions in the past, but with growing regulatory resistance, the death of U.S. shale, and less tier-one acreage, this really could be it.
Prior to the pandemic-induced downturn in world oil production, U.S. oil production growth was responsible for 98 percent of the increase in world production in 2018 (as reported in 2019). Almost all of that growth resulted from rapid increases in shale oil production which accounted for 64 percent of U.S. production (as of 2021).
Fast forward to today when Oilprice.com has declared that "The U.S. Shale Boom Is Officially Over." The reasons cited mostly have to do with management "discipline" regarding capital expenditure in favor of shareholder payouts and complaints about "anti-oil rhetoric" and "regulatory uncertainty."
But there might just be another reason for the slowdown in shale oil production in the United States: There isn't as much accessible and economical shale oil underground as advertised. Earth scientist David Hughes laid out his case for this view in his "Shale Reality Check 2021." < There is still a lot of highly economic shale drilling locations in the Permian Basin, but outside of West Texas the Tier One inventory is low.
There may be other sources of oil worldwide that will somehow make up for the significantly lower growth in U.S. shale oil production. But no other source seems set to provide the kind of growth U.S. shale oil provided, that is, 73.2 percent of the global increase in oil production from 2008 through 2018. < IMO there is no near-term oil supply growth upside outside of the U.S. that can meet demand growth.
The world has actually been getting along with less oil for some time now. World oil production proper (crude oil including lease condensate) peaked on a monthly basis in November 2018 at 84.58 million barrels per day (mbpd). In August 2022 production was 81.44 mbpd. That's after a pandemic-induced shock that saw production fall to 70.28 mbpd in June 2020. < Draining of the Strategic Petroleum Reserves has made up the difference. Draining the SPR cannot go on forever, so "rationing oil-based fuels by price" is the only solution.
Neither the U.S. shale oil companies nor OPEC seem ready to increase production significantly (assuming that they can). Russia, among the world's top three producers, is under heavy sanction and may not be able to produce more oil for export anytime soon. (Again, it is not certain that Russia can significantly increase production. Except for the pandemic-induced drop Russia has long been on a production plateau of between 10 and 11 mbpd.)
No doubt some new oil savior will be announced soon whether credible or not. In the meantime, the world economy will be faced with limited oil supplies that do not simply grow to meet our fantasies of what we want. The result will be high prices, that is, higher than has been historically the case. A recession won't change this dynamic and, in fact, may reinforce it as oil companies are likely to reduce drilling activity when demand for oil slumps. That will make it doubly difficult for those companies to supply growing demand coming out of the next recession.
This is the way things might very well be for a long time if not indefinitely. Many of us who foresaw this day said that we would only see peak world oil production in the rearview mirror. It may take a few more years to determine if November 2018 marked the all-time peak.
By Kurt Cobb via Resource Insights
----------------------------------------
IEA and OPEC are forecasting year-over-year demand growth for oil-based products in 2023 (1.7 to 2.3 million barrels per day), but the U.S. cannot fill that demand growth on its own. Outside of the U.S. there is MAYBE 0.5 million bpd of supply growth this year. So, higher oil prices and an end to Biden's "War on Fossil Fuels" will be necessary.