Where did all the crude oil go? Long time passing! A 7.06 million-barrel drop, the seventh drop in a row in a crude adding oil supply drawdown of historic proportions. Record refinery runs were operating at 96.7% of their operable capacity last week, running 17.6 million barrels of crude oil per day. This comes against a backdrop of a report by Rystad Energy that shows the lowest ever volumes of oil discoveries in 2017 and another report by Energy Consultancy Wood Mackenzie that said investment will fall 7% this year to $37 billion versus 2016 and will be down 60% from a peak in 2014. The Investor’s Business Daily reported that spending by oil majors is expected to fall 4% and will be focused on deepwater basins in Mexico, Brazil and Guyana, but drilling is expected to rise slightly.
As I told Gillian Rich at Investor’s Business Daily, “When you get a glut of supply and prices are low, companies pull back because they are starting to lose money." But they tend to cut back and be too conservative because the perception is that the glut will last forever. This happened in 1999 and the early 2000s. Shale's kingmaker status might be overdone. Everyone was saying once they get to $60 per barrel everyone is going to start investing again but that's not the case; we are still seeing a pullback in spending. I think that we overestimated shale's ability to be a global swing producer, being able to raise and lower production at the drop of a hat. Traditional projects take longer to come online but can produce for longer than shale wells.
Rystad Energy reported that the low level of discoveries is not an immediate threat to global oil supply; it could become such 10 years down the road. In 10 years’ time, U.S. shale production may have peaked, at least according to OPEC that sees shale peaking after 2025, although the cartel has conceded that U.S. tight oil has defied previous forecasts and has increased production more than initially expected and will continue to do so in the short term.
In the meantime, with strong global demand and not replacing reserves we are sowing the seeds of future oil shortages and oil price spikes. Shale oil’s steep decline rate and the fact you must drill and keep drilling to keep production levels steady makes it harder for shale to replace traditional projects.
The EIA also reported a whopping 8.889-million-barrel increase in distillate, which was welcome as the Northeast is getting hit with the “Winter bomb cyclone.” We will see strong demand as this blast tests the limits of supply. Transportation of heating fuels, like heating oil and propane, may also be a problem as the combination of snow and cold may make it impossible to deliver. Gasoline supply also rose by 4.813 million barrels as cars were parked during the cold holiday weekend. U.S. crude production did bounce back rising by 28.000 barrels after a couple of weeks of declining production.
Coin Desk is reporting that Bitcoin is gaining altitude today, amid a sharp drop in prices of alternative currencies. Prices on CoinDesk's Bitcoin Price Index jumped 7% to an intraday high of $15,906.51 (09:29 UTC) in the last two hours. The cryptocurrency has appreciated by 10% in the last 24 hours, according to data source CoinMarketCap. Meanwhile, Ripple's XRP token has depreciated by 9 percent in the last 24 hours, having soared to new heights on Jan. 3. Other alternative currencies like NEM (XEM), Cardano (ADA) and Stellar (STR) are down at least 12% each. More importantly, the RP/BTC (ripple-bitcoin) pair has taken a beating in the last couple of hours. While XEM/BTC, ADA/BTC, ETH/BTC (ethereum-bitcoin) and LTC/BTC (litecoin-bitcoin) are also losing altitude.
Another technology says that it is going to be better than the Blockchain that Bitcoin has made famous. CloudCoin.Global says “bye-bye blockchain.”