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An Issue of Abundance
Oil Supply Reaches High Water Mark

“Peak oil” concerns seem like something out of the distant past at this point, as today’s discussion of the global oil market centers on the seemingly ever-growing supply of crude. As the FT reports, global oil inventories have just hit record levels:

The [IEA] said inventories in industrial nations increased by 13.8m barrels to 2.98bn, according to the latest data for September. They surpassed seasonal trends, more than 257m barrels above average levels.

The overhang in oil production that developed in the US as shale output surged has spread across Europe and Asia and is not just restricted to crude but also includes refined fuels. Aside from the build-up across the world’s onshore storage tanks, 100m extra barrels are at sea.

In fact, the world has so much oil that abundance is actually becoming a logistical problem: We’re not sure where to stash all the crude sloshing around the global market. Most onshore storage sites are full-up at this point, so producers have taken to offloading their cargo onto tankers and anchoring the ships off the coasts of major oil ports. Houston, for example, had some 41 tankers idling outside its port last week. As Reuters reports, these bottlenecks are proving very costly for producers:

The lack of space to unload oil is tying up the tankers needed to keep oil moving, and wells running. The bottlenecks could force oil suppliers into quick, cut-priced sales just to free space, adding more pressure to oil prices already close to six-year lows. […]

“We’re alarmed,” said Eugene Lindell, senior crude market analyst with JBC Energy. “There are growing indicators that it’s getting harder to digest this crude.”

Brent crude is currently trading below $44 per barrel, and America’s West Texas Intermediate benchmark is barely above $40. When we look at the supply side of the market, it’s not hard to see why prices have fallen so dramatically, and, with demand unlikely to rise enough to offset this glut, prices seem set to stay a bargain for the foreseeable future. Producers like U.S. shale firms and OPEC’s petrostates will be discouraged by this news, but consumers, at least, ought to be delighted.

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  • Jim__L

    Why in the world wouldn’t demand rise? Any nation sensible enough to take advantage of abundant energy will prosper, as AGW-religion-stunted economies fall farther behind.

    • LarryD

      China is trying. But the AGW-religion-stunted economies include Japan, European Union, US, Australia. Pretty much what used to be called the First World, the lion’s share of the world’s economy.

  • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

    Only explosive global growth will change this state of affairs. Who thinks THAT is in the cards? Forward.

  • Mike Myers

    The idea of “peak oil” has been widely bruited for at least 60 years. You’ve got at least three forces working to insure that “peak oil” [a point at which the amount of oil produced will then go into an irreversible decline] is somewhere far off in the future.
    First as prices go up and the then discovered resources go down, technology will evolve to capture the scarce and expensive resource. See the advent of fracking. Resource extraction, whether it be of oil, copper, coal, gold, diamonds, iron ore or whatever is a capital intensive business. If a technology will “pay” it will be used. If it costs more to get it than you can sell it for, it won’t be produced.
    Second as energy consumption efficiency increases (see the miles per gallon average increase in the fleet of US automobiles) energy demand will drop. The rise in economic viability of solar energy is attributable in significant part to the reduction in energy requirements of the devices it drives. Photovoltaic energy makes imminent economic sense when it’s used to power electronic devices at remote locations off the power grid and infrastructure. It makes less sense feeding into a power grid already supplied by conventional electric generation.
    Increased energy efficiency is balanced against the overall increase in demand for energy as the world grows.
    Third is world economic growth itself. Much of the Third World was riding bicycles or animals, or walking 40 years ago. You put hundreds of millions of Chinese in automobiles, and demand for oil goes up. They cycle repeats itself. Add in increased industrialization and economic growth and demand for oil will grow up.
    The first factor–supply—is balanced against the second two factors which equate to demand.
    Anybody who will tell you that they know exactly how that equation will play out 20 years from now is a fool.

  • Jacksonian_Libertarian

    With the Deflationary “Great Depression 2.0” in its 7th year, and the horrible and useless Alcohol in Fuel Mandate driving up food and fuel prices across the board, falling crude prices is the only positive thing in the economy at the moment. I’ll just cry some big crocodile tears for OPEC and the other oil producers, who have been living high on our pain for decades.

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