US 2015 Oil Production and Future Oil Prices

Oil production can be confusing because there are various “pieces” that may or may not be included. In this analysis, I look at oil production of the United States broadly (including crude oil, natural gas plant liquids, and biofuels), because this is the way oil consumption is defined. I also provide some thoughts regarding the direction of future world oil prices.

Figure 1. US Liquid Fuels production by month based on EIA March 2016 Monthly Energy Review Reports.

Figure 1. US Liquid Fuels production by month based on EIA March 2016 Monthly Energy Review Reports.

US oil production clearly flattened out in 2015. If we look at changes relative to the same month, one-year prior, we see that as of December 2014, growth was very high, increasing by 18.0% relative to the prior year.

Figure 2. US Liquids Growth Over 12 Months Prior based on EIA's March 2016 Monthly Energy Review.

Figure 2. US Liquids Growth Over 12 Months Prior based on EIA’s March 2016 Monthly Energy Review.

By December 2015, growth over the prior year finally turned slightly negative, with production for the month down 0.2% relative to one year prior. It should be noted that in the above charts, amounts are on an “energy produced” or “British Thermal Units” (Btu) basis. Using this approach, ethanol and natural gas liquids get less credit than they would using a barrels-per-day approach. This reflects the fact that these products are less energy-dense.

Figure 3 shows the trend in month-by-month production.

Figure 3. US total liquids production since January 2013, based on EIA's March 2016 Monthly Energy Review.

Figure 3. US total liquids production since January 2013, based on EIA’s March 2016 Monthly Energy Review.

The high month for production was April 2015, and production has been down since then. The production of natural gas liquids and biofuels has tended to continue to rise, partially offsetting the fall in crude oil production. Production amounts for recent months include estimates, and actual amounts may differ from these estimates. As a result, updated EIA data may eventually show a somewhat different pattern.

Taking a longer view of US liquids production, this is what we see for the three categories separately:

Figure 4. US Liquid Fuel Production since 1949, based on EIA's March 2016 Monthly Energy Review.

Figure 4. US Liquid Fuel Production since 1949, based on EIA’s March 2016 Monthly Energy Review.

Growth in US liquid fuel production slowed in 2015. The increase in liquid fuels production in 2015 amounted to 1.96 quadrillion Btus (“quads”), or about 59% as much as the increase in production in 2014 of 3.34 quads. On a barrels-per-day (bpd) basis, this would equate to roughly a 1.0 million bpd increase in 2015, compared to a 1.68 million bpd increase in 2014.

The data in Figure 4 indicates that with all categories included, 2015 liquids exceeded the 1970 peak by 16%. Considering crude oil alone, 2015 production amounted to 98% of the 1970 peak.

Figure 5 shows an approximate breakdown of crude oil production since 1945 on a bpd basis. The big spike in production is from tight oil, which is another name for oil from shale.

Figure 5. Oil crude oil production separated into tight oil (from shale), oil from Alaska, and all other, based on EIA oil production data by state.

Figure 5. Oil crude oil production separated into tight oil (from shale), oil from Alaska, and all other, based on EIA oil production data by state.

Here again, US crude oil production in 2015 appears to amount to 98% of the 1970 crude oil peak. Thus, on a crude oil basis alone, we have not yet hit the 1970 peak.

Prospects for an Oil Price Rise

Most recent analyses of oil prices have focused on the amount of mismatch between supply and demand, and the need to craft a temporary agreement to reduce oil production. The thing that is missing in this discussion is an analysis of buying power of consumers. Is the problem a temporary problem, or a permanent one?

In order for oil product demand to keep rising, the buying power of consumers needs to keep rising. In other words, some combination of consumer wages and debt levels of consumers needs to keep rising. (Rising debt is helpful because, with more debt, it is often possible to buy goods that would not otherwise be affordable.)

We know that in many countries, wages for lower-level workers have stagnated for a number of reasons, including competition with wages in lower-wage countries, computerization, and the use of automation (Figure 6). Thus, we know that low wages for a large share of consumers may be a problem.

Figure 6. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

Figure 6. Chart comparing US income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

Figure 7 shows that world debt has been falling since June 30, 2014. This is precisely the time when world oil prices started falling.

Figure 6. Total non-financial world debt based on Bank for International Settlements data and average Brent oil price for the quarter, based on EIA data.

Figure 7. Total non-financial world debt based on Bank for International Settlements data and average Brent oil price for the quarter, based on EIA data.

One reason for the fall in world debt, measured in US dollars, is the fact that the US dollar started rising relative to other currencies about this time. Oil is priced in dollars; if the US dollar rises relative to other currencies, it makes oil less affordable to those whose currencies have lower values. The big rise in the level of the dollar came when the US discontinued quantitative easing in 2014. World debt, as measured in US dollars, began to fall as the US dollar rose.

Figure 7. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 8. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

As long as the US dollar is high relative to other currencies, oil products remain less affordable, and demand tends to stay low.

Dollar Indix vs Crude Oil Price Logan Mohtashami

Figure 9. Index of US dollar, relative to other currencies, compared to crude oil price.

Another issue that struck me in looking at world debt data is the way the growth in debt is distributed (Figure 10). Debt growth for households has been much lower than for businesses and governments.

Figure 8. World non-financial debt divided among debt of households, businesses, and governments, based on Bank for International Settlements data.

Figure 10. World non-financial debt divided among debt of households, businesses, and governments, based on Bank for International Settlements data.

Since March 31, 2008, non-financial debt of households has been close to flat. In fact, between June 30, 2014 and September 30, 2015,  it shrank by 6.3%. In contrast, non-financial debt of both businesses and governments has risen since March 31, 2008. Government debt has shrunk by 5.6% since June 30, 2014–almost as large a percentage drop as for household debt.

The issue that we need to be aware of is that consumers are the foundation of the economy. If their wages are not rising rapidly, and if their buying power (considering both debt and wages) is not rising by very much, they are not going to be buying very many new houses and cars–the big products that require oil consumption. Businesses may think that they can continue to grow without taking the consumer along, but very soon this growth proves to be a myth. Governments cannot grow without rising wages either, because the majority of their tax revenue comes from individuals, rather than corporations.

Today, there is a great deal of faith that oil prices will rise, if someone, somewhere, will reduce oil production. In fact, in order to bring oil demand back up to a level that commands a price over $100 per barrel, we need consumers who can afford to buy a growing quantity of goods made with oil products. To do this, we need to fix three related problems:

  • Low wages of many consumers
  • World debt that is no longer rising (especially for consumers)
  • A high dollar relative to other currencies

These problems are likely to be difficult to fix, so we should expect low oil prices, more or less indefinitely. Lack of oil supply may bring a temporary spike in oil prices, but it cannot fix a permanent problem with consumer spending around the world.

 

 

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

1,015 thoughts on “US 2015 Oil Production and Future Oil Prices

    • Looking back now, funny as it seems, I was aspiring, along with many others, to make it in the world of hand crafted Windsor Chairs…..that is sort of manufacturing…competition is fierce and many enter and exit quickly. Now with the web, I bet it is almost impossible…site like Alibaba connect a client to a 3rd world craftsman, who will produce the desired chair at a fraction of the asking price of a domestic artisan
      Here is a website of Drew Langser’s Country Workshops
      http://countryworkshops.org

      One still in business!

      • employment is the name we give to producing something that someone else wants/needs, which they have neither the time, inclination or skill to make/do themselves.
        The tokens exchanged for such work enable the maker to buy things which he has neither the time, inclination or skill to do or make for himself for himself.
        Only in this way can the butcher, baker and candlestick maker keep themselves in balanced business. Pre industrial revolution, no other production methods existed, hence the smallest villages supported an number of small shops dedicated to particular trades/needs. Transport and energy input didnt come into the equation. Balance found itself over time.
        Unfortunately an “artisan loaf” or a steak from a hand reared animal, or a crafted candlestick from a metalworking artist cost far more than those from a walmart or wherever, because distanced-sourced goods carry that hidden hydrocarbon input in their making. Also the foriegn artisan costs less to feed and house.

        We indulge in handcrafted goods because they give us pleasure, and—more importantly—we can afford to do so.

        My local exclusively “hand reared” butcher has just gone out of business. His ideals cost too much . He had four competing supermarkets within 1/4 mile, and sky high rents for his prime position. His business was fundamentally unbalanced. As finances get tighter, customers are driven to the cheapest option, no matter how good the product is.
        That is inevitable whatever you produce.

        We still have an Italian baker who is a genius with pizzas and bread, and folks buy everything he makes on a daily basis…. we hope he survives.

  1. Don Steward and the NYT claim we have options.  Sorry, friends, but we don’t.  We are at the end of the road.  The facts are these:  any fool can make money;  it takes a smart one to save it.

    But the U.S., instead, is squandering our seed grain as if there were no tomorrow.  We are importing countless millions (Ann Coulter estimates 60 million so far) of ThirdWorlders with the pretext of “charity” or some such heartwarming blather, but actually because our politicoes are getting massive bribes from various sources under the table in one form or another.

    If we stopped, then reduced, the vast hordes of useless eaters and leeches, the problem would cease to exist.  But that will not happen because our socio-political system is one of profound corruption masked by many layers of hypocrisy.

    So the Demonic Party’s traditional “solution” (already hinted at by the banshee) will be the option used to eliminate the dilemma:  war.

      • In a society designed for high energy use and desiring high affluence there must be high capital investment. In both physical plant, infrastructure and human capital. If an immigrant comes with a Ph.D. in physics and ten million dollars of capital that they are willing to give to the common good then fine. If an immigrate comes with zero education, zero knowledge of basic hygiene, zero shared cultural norms, zero capital then yes they draw more out of society than they put in.

      • Immigration steals the smart and motivated people, leaving their country of origin worse off. As long as their country of origin is unable to stabilize, they keep increasing population and creating more immigrants.

        • MK
          That’s quite a video. It really puts the population issue into context.
          Tipping points are being crossed on so many levels.

  2. You say that oil can’t go up….but what if the almighty dollar goes down and I mean way down or loses almost all of its value…then oil will cost much more…..the FED is trying hard to look like the best horse in the Glue factory….as nicole foss says….but I don’t know how much longer they can keep it up….

    • Once the US dollar comes unglued from its place at the top of the pecking order, oil will have no value at all. We need a working system for oil to have value. Once we have too many pieces missing–for example, bank accounts that no longer provide money, there will be no one who can afford to buy gasoline, even if the gasoline station has it. It is hard to barter for gasoline. The system will stop working.

      • Gail, do you think the ideas of “depeging” from current global reserve currency are impossible at this stage? China, Russia and Iran are clearly preparing for that day. Once the oil is not exclusively traded (beyond % threshold) in USD, it’s over.. That’s why postponing the game by a day, year, decade is in vogue, hence this TTIP US-EU alliance, it’s basically pursued for two reasons, can kicking the transition and about circling the wagons if it proceeds anyway and likely in disorderly fashion.

        Mind you, we have had global empires before (UK, France, Holland, Spain, ..), it wasn’t smooth transition, but it didn’t last for ever, eventually the world kept spinning around.

  3. Nothing Is Real: “It’s All Being Played To Keep People Believing The System Is Working”

    We exist, beyond any shadow of any doubt, in an environment of absolute fakery where nothing is real… from the prices of assets to what’s occurring here with regard to the big Wall Street banks, the Federal Reserve, interest rates and everything in between.

    …All of this is being played in a way to keep people believing, once again, that the system is working and will continue to work.

    Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise.

    Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary.

    We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

    Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted.

    The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.

    It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible.

    So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty.

    Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if…

    When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves.

    There’s no way out of it.

    I’m going to tell you what I think is going on.

    I don’t think domestic insurrection. Law enforcement and national security agencies, they play out multiple scenarios. They simulate multiple scenarios.

    I’ll tell you what I think they’re simulating.

    The collapse of our financial system, the collapse of our society and the potential for widespread violence, looting, killing in the streets, because that’s what happens when an economy collapses.

    I’m not talking about a recession. I’m talking about a collapse, when people are desperate, when they can’t get food or clothing, when they have no way of going from place to place, when they can’t protect themselves.

    There aren’t enough police officers on the face of the earth to adequately handle a situation like that.

    I suspect, that just in case our fiscal situation collapses, our monetary situation collapses, and following it the civil society collapses – that is the rule of law – that they want to be prepared.

    There is no other explanation for this.

      • Not at all.

        Ayn Rand — ‘We can ignore reality, but we cannot ignore the consequences of ignoring reality.’

    • Fast Eddy, this is a post I was also wondering about in the last days.
      Check this out :
      http://www.bloomberg.com/news/articles/2016-04-27/china-trades-enough-cotton-in-one-day-to-make-jeans-for-everyone
      I mean who in ther world can buy more cotton than the world has or nedds for what purpose? It is a complete joke! The money printers have so much money, they can bet every market in any direction (up) wor no real value. You also see it in the oil futures market that soared in advance of the latest oil price rise.
      It simply does not make any sense. If the Central banks decide that a price should go up, they bet on it with a future and buy the same future just when it’s due. That costs a lot of money, but the price movement shows one single thing: confidence is positive on a strong market. So everybody continues to bet against the debt.This can not fall down, except when the energy to repay the debt disappears. And even then, the debt is only hoit air, created by the central banks. No one will default on it. There is an indefinite up trend. As long as you bet against the central banks to issue even more hot air, you will win.

  4. The Age of Petroleum

    The first period – led to industrialization and globalization.
    The second period – led to two industrialized global wars.
    The third period – led to a divided world with freedom on one side and gulags on the other.
    The forth period – led to unity and globalization.
    The fifth period – globalization started to collapse when we started to run out of cheap oil.
    The seventh period – will lead to a nuclear holocaust ?

    • There are only three nations that can blowup the world, China, Russia, U.S.. I have a fair amount of hope that M.A.D. will stop them from doing so.

      As to the small nuclear powers France, India, Israel, Pakistan, North Korea I expect the three majors jointly will severely punish and stop them if they start throwing nuclear weapons.

      • I think the nuclear deployment capacity of China, Russia and the USA is lead by psychopathic individuals who don’t want to see those weapons go to waste. When all the cards are played the nuclear one will the the last one do be played. Just like a crazed mad man who kills his family then himself.

  5. Clashes between Fascists and Communists are taking place in Europe. All we need now is an economic collapse…

    • I object to the laziness of news reporting that tars and feathers all groups outside the elite sanctioned norm with emotionally hot labels that end any thoughtful understanding or discussion.

      • Ed

        My favourite term of abuse for the non-mainstream in Europe – much used by Brussels – is ‘populist.’ How shocking: the people expressing an opinion……

        • Yes Xabier,
          It’s one of those spinned-words aiming to have the sheeple admit that we’d better let the technocrats pull us out if this mess (where they actually put us!).
          Part of the un-democratization process, which is already well advanced; or is it already acheived? (cf. Syriza)

          • That said… most people are pretty stupid and ignorant…. they allow themselves to be mesmerized by the MSM….

            I’d estimate that well under 1% of the people on the planet have anything worthwhile to say….

            • Homo Sapiens spends the first 3 years of his life in learning how to speak,
              and then all the rest to learn how to shut it up.

  6. http://www.thesun.co.uk/sol/homepage/features/7119831/Experts-claim-the-universe-is-littered-with-dead-alien-civilisations.html

    Here’s some pasted material from the article:

    ALIEN life was once plentiful across the universe but we will never make contact with any because they’ve all died out – a new theory suggests.

    They reach the conclusion that, over the 13-billion-year lifespan of the universe, it’s likely that any other civilisations out there have already gone extinct.

    One of the paper’s authors, Adam Frank, said: “Our results imply that our evolution has not been unique and has probably happened many times before.

    In particular I thought the following was apropos for this website:

    “The other cases are likely to include many energy-intensive civilizations dealing with their feedback onto their planets as their civilizations grow.”

    Yes, feedbacks – that’s what we’re dealing with like global warming, resource depletion, over population, toxifying waterways and oceans, species extinction, etc.

    • Not very smart aliens. I can think of several solutions to this problem. That millions of intelligent species have never found even one of these is unlikely.

      • Agreed, but what I read into their analysis is they are infusing our own current predicament with a doomer perspective and then projecting it to the rest of the universe like this is just a process and just like here, the others must have reached this same point of aimless, endless growth until collapse then extinction via some manner against a backdrop of finite resources. It’s sort of funny because of course like you point out, a few planets would get it right, come up with net energy producing fusion early enough to continue growing at least until hitting some other limit. But obviously extinction would not occur universe wide. Now, can we make contact with one of them?

    • Stilgar,
      Our lethal problem is that we’re unable to evacuate the entropy we have generated by burning (at least: dissipating) energy that was in excess with respect to basic metabolism of the system.

      Could very well have happened before somewhere else in the Universe (which one?), and happen again in the future. But we’ll never know for sure about it, so, who cares?

  7. ECB Policy Is Working, ‘but We Must Be Patient,’ Draghi Tells German Paper

    http://www.wsj.com/articles/ecb-policy-is-working-but-we-must-be-patient-draghi-tells-german-paper-1461777192

    What happened to fractional reserve banking ? The ECB has already printed close to 1 trillion euros in one year and placed negative penalty interest rates on banks for parking the money at the ECB… but nothing happens.

    After the ECB managed to suppress the government bond yields close to zero in European nations close to the brink of default, the ECB has decided to give corporate bond yields a massage.

    • So all Draghi has to offer for all those added euros is, “Must be patient”? Like waiting for something to happen while listening to the wind rustling leaves or the sound of crickets.

      • Well… the European economy has gone on pension… what else to do than listening to crickets ?

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