Here's a good listener's summary of oil expert Charlie Maxwell's appearance on the radio this past weekend "Bob Brinker's Moneytalk Program" heard Sundays 4pm-7pm Eastern Time bobbrinker.com
"FRANKJ'S CHARLIE MAXWELL ON MONEYTALK SUMMARY
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Energy expert Charlie Maxwell (Remember him from the "Wall Street Week with Louis Ruckyser TV program) was Bob’s third hour guest on the June 12, 2016 edition of MoneyTalk. This honored guest’s last appearance was in June of 2015.
(Editorial note: He is one of my favorite guests, not only for his insights but because he speaks slowly, which makes note-taking easy.)
Oil prices are still hampered by the slow recovery from the 2008 recession. Conservation measures have held down demand for oil too. But there are two big factors holding prices down now. One is the rivalry between the Saudi’s and the Iranians. The Iranians want to regain their world market share that existed before the sanctions were lifted so they are pumping to beat the band.
The Saudi’s are not about to allow their market to slip away so they’ve opened the spigots too. Their religious differences (Sunni vs Shia) are a contributing factor.
Charlie cited the success of fracking and horizontal drilling in the US and elsewhere as another major factor contributing to supply and helping to keep prices down.
There is a world surplus of oil today. Charlie led us through some numbers to illustrate his point.
World production is 94 to 95 million barrels per day.We need about 2 million barrels to “run the system.”We are overproducing by about 800,000 to 900,000 barrels per day.The big drop in rig count (producing rigs) is over and US production should stabilize at about 8 – 9 million barrels per day in the US.We’ll see rising prices and Charlie sees $48/barrel at the end of the year.Before the break, Bob and Charlie spent a little time on natural gas. Charlie pointed out that natural gas is stored in the ground until needed, then you open tap and send it into the pipeline. The fact that it is ready to go at the push of a button will slow the price recovery but he sees it going up from about $2.40 to 3.25 to 3.30 in couple years. He was quoting the price per one million Btu’s. (British thermal units, equal approximately to 1000 cubic feet of gas).
When we came back after the break the show was in progress and Bob was priming the pump (so to speak) with his oft-repeated speech about how little pushback there is against fracking and how much pushback we see against pipelines. Charlie does not envision great problems ahead for frackers. As he has said before, the states have passed some decent regulations on fracking and for the moment, the feds are holding off rushing out a bunch of rules. (I believe New York state is an exception to the rule. Cuomo the Younger simply banned fracking.)
Glen from Iowa asked about “Hubbert’s Peak.” (This was the theory advanced by famous oil geologist M. King Hubbert who predicted that oil production would peak in the 1970’s and then begin to decline. ) Glen said “We blew through it.” Charlie explained that we delayed the peak, but it did not go away. Mankind will bring on the decline more so than nature because oil prices below $50 per barrel have caused cuts in exploration budgets. We’ll feel a tightening around 2020. He said it will be a “sad outcome,” but prices will come back strong.
The next caller was almost like a follow up question. Ed from Nevada said he thought there was 100 year’s worth of oil left. What happens then to all the products we make from oil? Charlie said we don’t have that long. We’re getting 40-50% of the oil out of the ground in a given field before the pressure lowers to the point where it cannot be extracted. In Russia they only get 26-28% out. We’ll need higher prices to extract more.
Charlie was sanguine about manufacturing products in the future that are now made from oil. Coal can be used and so can natural gas.
Casey from Illinois wanted to know when the price of oil drops, why doesn’t the price of a quart of oil drop? Charlie explained that the retail world of lubricants doesn’t operate with the same costs as the world market for those who buy oil for refining purposes.
Bill from Vancouver got a short geology lesson from Charlie when he asked whether the earth is still producing oil. The answer was no. 98% of oil comes from plant material and conditions to produce this were ideal eons ago when we had shallow seas, high temperatures, lots of rainfall and lots of sunshine. This led to abundant plant growth on land and in the seas which ultimately were deposited on the ocean floor and covered with sediment. We don’t have those conditions today.
Bob and Charlie closed it out with a review of hybrid and electric cars and other energy sources. Electric cars need longer range to gain more acceptance. Geo, wind and solar are coming on but it will take a long time (40-50 years) before they make significant contributions to the grid.
Solar will eclipse wind. (Sorry).
Nuclear has a good future, but we better not build any plants where a tsunami can take them out. The advantage of nuclear is no toxic emissions." |
