Coming 'oil glut' may push global economy into deflation

[HitandRun]

I think folks should be careful about the terminology used so that we can understand their statements and arguments well.

First of all, oil is oil and gas is gas. Shale oil is of course different from shale gas. And due to lack of knowledge by certain journalists, shale oil is a misnomer as it has nothing to do with shale. The true shale is a kerogen mix in which companies, like Shell, has tried for many years without success to convert to oil. The so called shale oil now is the product of hydraulic fracturing, in which oil trapped in rocks with low permeability are being "accessed" or "released". A better term for it should be "tight oil".

[sgd]

Say we went nuclear and all the cars start using batteries - you have clean energy. But big oil corporations cannot sell anymore petrol or diesel have no more reason to stay in jurong island They will just pack up and go. We will lose our oil hub status one of our sacred cows.

There could be some activity in solar or wind in sg but not in a big way because geographically where we located a lot of middle east oil just goes thru our doorstep if we don't tap it others will grab it.

[HitandRun]

Say we went nuclear and all the cars start using batteries - you have clean energy. But big oil corporations cannot sell anymore petrol or diesel have no more reason to stay in jurong island They will just pack up and go.

What about planes and ships, all can go the battery way too? And what about plastics and other petroleum products?

[Belg]

Say we went nuclear and all the cars start using batteries - you have clean energy. But big oil corporations cannot sell anymore petrol or diesel have no more reason to stay in jurong island They will just pack up and go.

What about planes and ships, all can go the battery way too? And what about plastics and other petroleum products?

This is a very good question and should be ably answered by the major oil corp in time by the next 50 years. FYI, battery-powered cars has already been invented long time ago and has been kept shelved hush hush.

Alternative products should be available to compensate for the inevitable diminishing supply of oil.

[specuvestor]

Oil is strategically important shows big nations know they will not be replaced anytime soon, whether clean energy or biodiesel. To me the most glaring evidence that shale is having an impact is when US ports started exporting rather than importing oil for the past 30 years. That is the most hard evidence than economist or geologist can give. The other dynamics that it is not so easy to say oil is oil and gas is gas is because they are substitutes for heating, distillation and power generation when the price is right.

At $100 a barrel, even oil sand and oil shale starts to make sense. Thats means supply is coming due to the higher prices to make what was previously uncommercial now commercial. That's part of the dynamics of why peak oil is constantly delayed. Hence if oil production is really diminishing in the long run, the world won't shut down but we can expect a prolonged elevation of oil price to make the alternative viable. We should see the days of $10 if oil is really in adundance or glut, but I doubt I'll ever see it again.

And then the other part of the dynamics is technology. Shale gas and oil was not viable in the past due to econmics and environment pollution. And part of the economics is that it exist in relative large area but thin layers. If we look at the map of the shale resource around the world vs oil, we would be lured into a false sense of security. The stuff is almost everywhere, and rapidly finding new ones! But while you can pump oil from a deep well for decades, u are not going to get it from shale fields which are thin and spreads out

That's my understanding. Do correct me if I'm wrong.

[morten]

USA is the smartest of the lot. Control the oil fields in the middle east via wars on terror from the 80s onwards. Now they will be controlling the oil price from the foreseeable future as they are holding onto the majority of the world's oil - Shale gas.

Quite interestingly, the idea of renewable source of energy - wind, tidal powered application got attention at the same time when oil price initiative came back to the US.

This oil glut is basically a natural act of happenings to the greater economy - what's goes up must come down, literally.

Belg

China has abundance of shale gas too but ain't going full scale exploration with the excuse of the adverse effects of shale gas exploration. Perhaps China will one day go back into this when US runs low.... and how nice it will be when it coincides with China taking over the current US domination of the world.

[HitandRun]

The other dynamics that it is not so easy to say oil is oil and gas is gas is because they are substitutes for heating, distillation and power generation when the price is right.

Oil is oil and gas is gas. The substitution is only theoretical, i.e. under limited circumstances. E.g. can you pump natural gas ("NG") in your car? Power plants built to run combine cycles will always be running on natural gas because it is far more economic to do so unless there is a shortage of NG. On the other hand, power plants that can only run on Fuel Oil will remain stuck on Fuel Oil. In any case, most electricity generated in the US uses coal as fuel. Even on an individual level, unless a person is willing or able to fork out the expenses of getting rid of the heating oil tank and install NG, he does not really have a choice.

On a BTU level, 1 barrel of crude oil is equivalent to 6,000 cubic feet of NG. Each thousand cubic feet of NG is approx $4.50. Multiply by 6, it is $27 compared to a barrel of crude at $80-$100. This gap has been around for several years and it is a no brainer => IF and only IF one has the means to arbitrage....

[opmi]

Say we went nuclear and all the cars start using batteries - you have clean energy. But big oil corporations cannot sell anymore petrol or diesel have no more reason to stay in jurong island They will just pack up and go. We will lose our oil hub status one of our sacred cows.

There could be some activity in solar or wind in sg but not in a big way because geographically where we located a lot of middle east oil just goes thru our doorstep if we don't tap it others will grab it.

We need "Mr Fusion" to power our cars.

[Image: mr-fusion.jpg]

[freedom]

deflation? Unlikely.

Commodity price itself does not contribute much to the overall price level if breakdown. The biggest factor of price is human cost. Unless the workers are getting paid less and less, it is unlikely deflation can last long. Plus, the central banks have tools to inflate.

Most commodities becoming more expensive is also related to inflation in wages. for example, oil. The lease from the government is cheap. But the building of the production facilities is expensive. The equipments are expensive. These all partially depends on a lot of workers.

[specuvestor]

The other dynamics that it is not so easy to say oil is oil and gas is gas is because they are substitutes for heating, distillation and power generation when the price is right.

Oil is oil and gas is gas. The substitution is only theoretical, i.e. under limited circumstances. E.g. can you pump natural gas ("NG") in your car? Power plants built to run combine cycles will always be running on natural gas because it is far more economic to do so unless there is a shortage of NG. On the other hand, power plants that can only run on Fuel Oil will remain stuck on Fuel Oil. In any case, most electricity generated in the US uses coal as fuel. Even on an individual level, unless a person is willing or able to fork out the expenses of getting rid of the heating oil tank and install NG, he does not really have a choice.

On a BTU level, 1 barrel of crude oil is equivalent to 6,000 cubic feet of NG. Each thousand cubic feet of NG is approx $4.50. Multiply by 6, it is $27 compared to a barrel of crude at $80-$100. This gap has been around for several years and it is a no brainer => IF and only IF one has the means to arbitrage....

What you are saying is not new. I heard it more than 5 years ago when they were starting to do shale fracking in US and there were many naysayers. No doubt they are sound in details, but the subsequent market developments were not consistent with the insights

A year ago, a coal company in China say Newcastle prices has different dynamics from QinHuangdao prices as they serve different regions. His argument was equally sound in terms of freight cost and BTU calculations

I'm not an expert but there are reasons why far east power plants are coal fired while Middle East doing NG, or why Chinese import thermal coal from Australia. It is not just simple maths, there are other considerations including consistency, strategic, barriers, supply chain, etc. With the rise of LNG in Asia, the dynamics might change again.

Your car may not be able to take NG but reduced demand from oil in other industries as they switch to substitute means the petrol price eases as well. I do not totally understand the interactions but anecdotally US oil import demand has been dampened significantly by shale. Like I said, if the oil in the pipelines starts to flow in opposite direction, that to me is proof enough of the result.