I did buy some Whiting Petroleum yesterday. Partly because of the start of declining production in the USA and partly just FOMO. It did feel a bit like chasing. This is my second purchase of Whiting this year after I bought then sold it earlier.
Something that I have not heard discussed often is that the middle eastern countries are increasing their investment and rig counts to unprecedented levels.
There are a number of plausible scenarios for this.
1) They are replacing fields that are in terminal decline. The additional investment may be a signal that they are having more and more trouble keeping production levels flat.
2) They have changed their policy and started ramping up in 2011 for their market-share grab of late 2014.
3) They want to lower the price of oil and bring forward their production, because they are worried that they will get stuck with "stranded" oil if the world were to switch away from fossil fuels 30-50 years down the road.
It may be several of these and other factors. But to me, the idea that they are having trouble keeping up production doesn't ring true based on their other behavior. For one, the fact that the Saudis are now producing at record levels of 10.1 mmbd does not suggest difficulty with keeping up output. However the ramp up may be in anticipation of a decline at the Gawar Field, which produces over half of their oil. In fact, Gawar, has produced about 65 billion barrels of oil, or about 60% of total historic Saudi output. As of 2008 it was supposed to have had another 60 billion barrels of reserves. This is pure speculation though.
If I were the saudi's I would want to have a lot of spare capacity and inject a uncertainty into the future price of oil that would make it difficult to plan for large high cost projects in high cost areas like Brazil or the Gulf of Mexico.
Something that I have not heard discussed often is that the middle eastern countries are increasing their investment and rig counts to unprecedented levels.
There are a number of plausible scenarios for this.
1) They are replacing fields that are in terminal decline. The additional investment may be a signal that they are having more and more trouble keeping production levels flat.
2) They have changed their policy and started ramping up in 2011 for their market-share grab of late 2014.
3) They want to lower the price of oil and bring forward their production, because they are worried that they will get stuck with "stranded" oil if the world were to switch away from fossil fuels 30-50 years down the road.
It may be several of these and other factors. But to me, the idea that they are having trouble keeping up production doesn't ring true based on their other behavior. For one, the fact that the Saudis are now producing at record levels of 10.1 mmbd does not suggest difficulty with keeping up output. However the ramp up may be in anticipation of a decline at the Gawar Field, which produces over half of their oil. In fact, Gawar, has produced about 65 billion barrels of oil, or about 60% of total historic Saudi output. As of 2008 it was supposed to have had another 60 billion barrels of reserves. This is pure speculation though.
If I were the saudi's I would want to have a lot of spare capacity and inject a uncertainty into the future price of oil that would make it difficult to plan for large high cost projects in high cost areas like Brazil or the Gulf of Mexico.
No comments:
Post a Comment