Wednesday, January 5, 2011

Latest Global Oil Price/Production Plot


The graph above shows a measure of global liquid fuel production (the average of EIA, IEA and OPEC estimates) against the real spot price of oil.  It shows a pattern that I first commented on in Nov 2009, that around about 2004/2005, we entered a shift in the price/production relationship.  Prior to that, it only required modest price increases to trigger production increases.  In the post 2004 interval, large price increases are required to produce more oil, as indicated by the shallow slope of the data in the pink oval above.  I christened this the "era of inelastic oil" (in search of a less loaded term than "peak oil", as well as one that is less empirically disputable).

Interestingly, the last couple of data points are raising their heads above the parapet: more production has been achieved at less price than in 2008.  I would suspect the reason is that the end stages of the 2005-2008 oil shock involved a certain amount of speculative overshoot, and that dragged the pink oval into an even flatter aspect than it would otherwise have had.  That speculative fervor is (so far) absent this time, so prices have not been pushed as high, and presumably more reflect the underlying fundamentals of supply and demand.

It will be interesting to see in what direction the data move in coming months.

17 comments:

Stuart Staniford said...

BTW - Euan and Nate at The Oil Drum asked me to reprise my recent posts here on the new high in liquid fuel production. The TOD post itself will be 100% old news to readers here, but the comment discussion may be of interest to some.

Geoff said...

It is worth bearing in mind that OPEC are still working to quotas that they brought in following the price slide in 2009. Saudia Arabia in particular is still significantly below its possible output.

It would be very interesting to know what is pushing the volume above the parapet, new non-opec production, or opec cheating.

Stuart Staniford said...

Geoff - it's pretty clear it's non-OPEC production. There's at most a small amount of OPEC drift upward. See here, and here.

Kobayashi said...

I may be late to this issue, but isn't there a problem with using the global liquid fuel production statistics as opposed to crude oil production statistics?

The inclusion of biofules or other non-crude fuels means that you double count the availability of oil, since you need oil (in the form of - significant amounts of - energy used) to produce both in the first place.

Stuart Staniford said...

I think the double counting issue is over-rated, since there's very little oil used in producing biofuels - though there is quite a lot of natural gas used in distilling the ethanol.

Benno said...

I'd love to see a similar plot for C&C minus oil sands.

Tracking all liquids is fine but it can conflate the problem (depletion of conventional crude oil) with our adaptation to it.

Benno said...

Food prices hit a record in December. So there's grist for your food vs. fuel theme.

Which is real when discussing all liquid fuels. But a purer measure like C&C keeps the two apart.

Stuart Staniford said...

Benno: on the C&C thing - well, we'll have to wait a couple of months for the EIA to catch up...

Mike Aucott said...

I concur that there's relatively little oil used in producing biofuels.

There's definately a double-counting problem though, not only with total liquids but with C&C as well, because oil used solely to get oil out of the ground and to market is still counted as oil produced.

As discussed elsewhere, the energy returned over energy input ratio (EROI)is useful. If (as?) EROI ratios deteriorate, this double-counting problem will get worse. Has anyone found anything close to solid data on EROI at a global level? I have not.

An issue with total liquids is that its non-crude components, i.e., NGLs, other liquids, and refinery processing gain, are less energy dense than crude. This means that the gross energy content of total liquids is somewhat less than the volumes suggest. Based on EIA's International Energy Statistics estimates and some calculations of mine, it looks like the volume of total liquids production was up about 1.5% in 2010 vs. 2005, but the gross energy content of total liquids was up only about 1%. There are some details on this analysis, and also a preliminary update of U.S. fossil fuel cost as percent of GDP, at http://michaelaucott.blogspot.com

buck smith said...

It seems like everyone is missing the key fact. After a long period of "low' oil prices (i.e 1986 to 2004) oil companies will have a long lead time in responding to price signals. The reason supply is becoming more elastic is - 5 years of increased drilling. New drilling rigs are still being produced and day rates for rigs are high. Expect more elasticity until sometime in the nexttwo or three years, OPEC's greed will turn to fear and we will have $50 oil.

Benno said...

Buck, the EIA is projecting a decline in non-OPEC production this year (even without weather related events -- never happened before). You are right about long lead times. i.e. they exist. But more and more, the production disappoints or doesn't overcome decline.

Iraq, of course, may be a huge and sorely needed exception to all of this.

Benno said...

"never happened before" should read ....not happened before (other than mainly weather related) except in the context of the soviet union collapse.

To quote the EIA:

The decline in non-OPEC supply in 2011 would be only the third time in the last 15 years that non-OPEC supplies fall year-over-year. Previous declines in 2005 and 2008 were primarily the result of supply disruptions in the Gulf of Mexico related to hurricanes.

buck smith said...

Benno,

So EIA reports an increase for 2010 of 1 M bpd for non-opec and projects a decline of 280K bpd in 2011. I wonder what they projected for 2010 in December 2009. I am looking at the BH rig count & i predict more supply.

Benno said...

In Dec 2009, they projected an increase of 200K barrels per day for 2010 production.

We'll see if they get the sign right this year.

buck smith said...

Was that a 200K bpd for non Opec in 2010? And the actual increase was 1M bpd.

Benno said...

yup, though they began to revise it up rapidly early in 2010.


http://www.eia.gov/emeu/steo/pub/outlook.html

Benno said...

And right on cue today, they raised their 2011 estimate for non-OPEC.

Now +160K.

http://www.eia.doe.gov/emeu/steo/pub/contents.html

So, that's an increase in estimate of 440k in a mere 30 days.