“Lower for Longer” was right and yet so wrong… Finding the real cost of the marginal barrel.

The Marginal Barrel and why does it matter?

The price of the “marginal barrel” in the world of oil is critical, as it dictates the price of all oil. The marginal barrel is the one (or at least a small number of barrels) that represents the gap between supply and demand. In a market that uses c. 100 million barrels of oil per day, the delta between supply and demand is typically only about 1% or 1mmbbls/day. In normal times the price bounces around within manageable ranges as this ebbs and flows. Price has no correlation to absolute supply (see image in title).

Price shocks occur when the deficit or surplus becomes larger. For example, in 2014 the oil price crashed from over $100/bbl to about $50/bbl before continuing south through 2015 because the US shale patch was adding about 1 mmbbls/d each year from 2012 onwards. Disruptions in conventional supply (Nigeria, Venezuela and Libya) left a gap in supply that was almost perfectly matched. However, when Libya brought back on-stream 1.4 mmbbls/day the market flipped into clear over-supply and the price tanked.

Obviously the 30% collapse in daily demand seen in 1Q 2020 due to Covid is and extreme example of this but is such an outlier it is better to focus on normal dynamics.

Continue reading ““Lower for Longer” was right and yet so wrong… Finding the real cost of the marginal barrel.”

One black swan is unfortunate, two may be careless.

Summary: “Unprecedented” supply increase in the face of demand destruction. Fueling the fire.

About the publisher: Richard Norris is a leading business developer and advisor to energy investors, developers, bankers and the public sector.

Continue reading “One black swan is unfortunate, two may be careless.”

Time to “woke”​ up, oil still matters

Oil production companies are about as far from being part of the self-proclaimed “woke” set as you could imagine. A dinosaur industry with its head so far in the sand (to mix my metaphors) that it can’t even see that most of its assets will stay in the ground and be worthless. Woke people know that we will be 100% renewable by the middle of next month.

This week may not change public perception, but its a pretty big wake up call to all wokeists everywhere, if they bothered looking.

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