Oil prices have plummeted since the previous report, signaling that markets have overshot to the downside.
Price graphs from oil-price.net
I'm lowering the alarm level again.
Oil Alarm Level — Green
Although we have clear sailing with respect to the price of oil, the global economy is unraveling. That's definitely a problem. Allow me to state the obvious—you can not have both a booming global economy and low oil prices at the same time.
As oil prices decline, the idiots have come out en masse to explain it. Here's an MSNBC story I found this morning, but there are many other similar stories. It seems that we're swimming in oil.
The world is now pumping 91.1 million barrels per day, the most ever. OPEC production, at more than 31.5 million barrels in May, is also higher than normal.
No, sorry. The world is pumping 73-74 million barrels-per-day of crude oil, just as it has since 2005. (Probably a little over 74 right now.) Moonshine (ethanol) is not crude oil. Natural gas liquids are not crude oil.
Are you ready? ... are you set? ... wait for it ... here it comes!
IHS CERA Chairman Daniel Yergin, speaking from the St. Petersburg International Economic Forum, said the high production level made sense just several months ago, when speculation around Iran reaction to sanctions sent prices higher.
“It was a quite remarkable period when you go back four months ago. Oil prices got as high as $128 and people were talking about $160, and now it’s at $90,” he said.
[My note: Yes, he really said this inane shit. That's how he talks.]
“It shows three things: the relentless increase in supply, particularly led by the Saudis, who have been producing very steadily at high volumes since last year and the beginning of this year. Secondly, it reflects the growth of oil from countries as diverse as Iraq and the United States,” said Yergin.
“The supply situation is very different than it was three months ago when Iran was threatening to close the Strait of Hormuz, and the other thing is the bad economic news and weak demand,” he added.
While supply is indeed up a bit because OPEC has chosen to pump more crude oil and thus reduce the world's effective spare capacity, the main driver behind lower oil prices is declining demand. But this sycophantic son-of-a-bitch Daniel Yergin always wants to tell us that we're drowning in oil, or soon will be, and MSNBC is naive enough to quote him. For fools and whores in the mainstream media, Danny-boy is always the expert of choice.
Normally I wouldn't bother with Yergin, but let's look briefly at Iraq. He cites them as a source of "the growth of oil" along with the United States. In short, we want to answer the question—
Was the Iraq War a success?
The New York Times (who else?) gives us some insights in Oil Output Soars as Iraq Retools, Easing Shaky Markets (June 2, 2012).
BAGHDAD — Despite sectarian bombings and political gridlock, Iraq's crude oil production is soaring, providing a singular bright spot for the nation’s future and relief for global oil markets as the West tightens sanctions on Iranian exports.
The increased flow and vital port improvements have produced a 20 percent jump in exports this year to nearly 2.5 million barrels of oil a day, making Iraq one of the premier producers in OPEC for the first time in decades.
The recovery of Iraq’s oil industry after decades of wars, sanctions and neglect began in 2009 and 2010 as security improved and Baghdad signed a series of technical service contracts with foreign companies like Exxon Mobil, BP, China National Petroleum Corporation and ENI of Italy. The companies brought in modern seismic equipment and modern well recovery techniques to resuscitate old fields.
The deals have been only modestly profitable for the foreign companies, but foreign executives express cautious optimism that Iraq can eventually produce oil in amounts that could put it in an elite group of exporters with Saudi Arabia and Russia sometime in the 2020s.
Iraq produces around three million barrels a day, and few analysts believe it can reach its goal of 10 million barrels a day by 2017, a target Baghdad recently reduced from a previous estimate of 12 million barrels a day by that year. But Hans Nijkamp, Royal Dutch Shell’s Iraq country chairman, estimates that Iraq could produce 6 million to 10 million barrels a day by early next decade, “which is really substantial.”
If oil production is about 3 million barrels-per-day, and exports stand at about two and a half, I wouldn't call that soaring. But production in Iraq is rising as new oil comes on-stream and infrastructure is refurbished, and most of that crude oil is available for export because the country lies in ruins after the American invasion and 8 years of war. So was the war a success?
I'm afraid you're going to have to wait another decade to find out. Hans Nijkamp of Royal Dutch Shell believes Iraq could be producing 6 million barrels-per-day by the early 2020s. (Forget the 10 million.) That could happen, but only if every single thing that can go right does go right. This is the opposite of Murphy's Law. Because of the turmoil in Iraq over the last 30 years, they have the world's only remaining easily exploitable reserves, and those reserves are substantial.
A reader asked me last week if I would raise the oil alarm level if prices fall sufficiently to threaten some sources of supply. Yes, I would. For example, each barrel of North Dakota Bakken Shale oil costs somewhere between 55 and 70 dollars to produce. If prices fall into that range, or even below that, that Bakken oil will be endangered. One virtue of Iraq's oil is its low producer price.
Where will oil prices be in two weeks? Perhaps they will fall further? Yes, that's possible. We shall see.