Letter to readers

Dear readers,

The past two months I have been fighting a serious health condition. At this moment I am almost fully recovered and well off any sort of risk. However, a number of weeks away from work have complicated my calendar, compounding a backlog of things yet to achieve that now impend on the next few months.

As expected in the aftermath of this sort of events the general course of one's life is up for reconsideration. I fell I am now at a critical junction in my career and must carefully weight the next steps. There is a window of opportunity right ahead, that if fully missed might mean an early end to my time as a researcher.

Therefore I took the decision of entailing an extra effort to make the most of my present professional situation and maximise its possible outputs. While research is not all roses, this is definitely the sort of career I wish to follow.

An immediate consequence of this decision is the suspension sine dia of the press review. As can be guessed by the various gaps in recent times, it has become increasingly difficult to produce a weekly edition. In truth I can no longer guarantee the regularity maintained heretofore.

I myself know very well the disappointing feeling of seeing a regular content stream one got used to going off the air. And for that I present my apologies. However, I can assure this was a well pondered decision.

This is not the end of this blog, writing is to me a matter of necessity. Occasional commentary on the course of events will certainly continue to come, not only on energy but also on the other matters covered in this space.

Here I leave a short list of news sources that I used regularly to prepare the press review:

Press review 19-06-2016 - Decomissioning

The Brent index has been trading within a band around 50 $/b as increasing consumption trends meet increasing global economic and political uncertainties. Daesh spilt more blood in OECD countries with terror attacks in the US and again in France. But in the Middle East the caliphate is clearly loosing ground, especially in Iraq, where the US seems to have definitely chosen the Shiite site of the war.

However, markets are mostly concerned these days with the referendum in the UK regarding its membership of the European Union. The shocking murder of a Labour MP days ago underlines the dramatic moments lived in the country around this decisive moment. Even though the UK is not part of the Eurozone and not part of Schengen space, most foreign analysts and pundits are taking this referendum as an omen on the future of the European Union itself.

And next Sunday there is a new parliamentary election in Spain, which is shaping up to produce a left front government, not very different from the situation in Portugal. This coming week is the most important moment for the European Union since the Lisbon treaty was signed. For bad or for worse, the EU might well enter a completely different course just a few days from now.

Press review 04-06-2016 - Spike under the radar

The Brent index traded again above 50 $/b in various occasions throughout the week. However, the benchmark would close Friday pretty much were it started on Monday, perhaps showing that this fourth leg of the 2016 rally is running out of steam. Corporate news dominated the press pages, with another failed OPEC meeting largely relegated to the background.

There is now a good deal of discussion going around a coming petroleum price spike. The unfolding decline in world extraction is becoming pretty obvious with some analysts and pundits even risking to put dates on a return to high prices. While it is true that Brent has rallied for five consecutive months, there are still the above ground stocks to go through. Prior to this hypothetical spike another important event must take place: a shift of the futures curve into backwardation. That will be the first sign of a tightening market, flagging the need for stocks outflows.

Press review 28-05-2016 - Still in contraction

Compared to the last this was a quiet week. The mainstream media is still trying to explain how its "lower for longer" mantra failed so miserably, but to what pure facts is concerned the pace slowed down. Brent continued its rally, but with considerably less volatility. It traded above 50 $/b for a few hours on Thursday, producing some hastened headlines.

Nigeria remains the most visible and worrying story in the petroleum world. The government appears powerless at this moment to stop the rebels hitting the country's petroleum infrastructure. Events seem to be spiralling out of hand with a relevant impact on the international petroleum market.

In Venezuela petroleum extraction is holding above 2 Mb/d, however, the socio-economic situation is so deteriorated that some sort of political disruption seems now inevitable.

Press review 21-05-2016 - The decline

Alberta was again at the news forefront this week. Monday authorities ordered the immediate evacuation of various oil sands extraction sites north of Fort McMurray, as the wild fires turned again towards the West. While there are no precise news on damages to mining or processing facilities, a number of living quarters for industry workers are known to have been raised. Broad numbers, over 1 Mb/d have been offline for two weeks.

Day trading was hectic again in the petroleum market, the Brent index flirted with 50 $/b, then collapsed to the low 47s $/b, just recover back again. Still, this ended up being the highest weekly close price for Brent since last October.

Various price oracles have substantially changed their outlook this week, now totally dismissing the "lower for longer" mantra they were touting just a couple of months ago. What happens next largely depends on the faith of 900 Mb held in extra stocks by China or the OECD. In any case, a long term petroleum extraction decline is mostly guaranteed.

Press review 14-05-2016 - Nigeria's descent to hell

This was another hectic week in the petroleum market, with huge price movements reacting to the sightliest hinting news. If Brent opened Tuesday just over 43 $/b, by Thursday it was trading over 48 $/b - that is an 11% hike in less than three days. Friday Brent closed at what is the highest weekly price for more than six months. Nevertheless, these encouraging prices are still too far from comfort for the petroleum industry. Fundamentally, nothing has yet changed.

That is the reason why petroleum exporting economies are facing ever deeper economic difficulties. And for Nigeria in particular, this week looks to have been a turning point - downwards. The euphemistically called "social unrest" conveying the economic and environmental impacts of an at least partially unprofitable industry is overwhelming petroleum production. It is a descent to hell, from which it will be hard to return.

Press review 07-05-2016 - Tragedy in Alberta

Image from BBC, click it for more.

It has been a very long while since petroleum related news last made headlines. This week happened again, and for all the wrong reasons. A gargantuan wild fire has engulfed the city of Fort McMurray in the Canadian province of Alberta, what was until this week the heart of tar sands extraction in that country. The images and reports out of the region are overwhelming, 80 000 folk evacuated, 1 500 buildings destroyed (including shelters), numerous roads unusable. And the fire is now projected to double in size before abating. The only positive news is the lack of casualties so far.

Beyond the human drama pouring into our living rooms, this sad happening is a stark reminder of how fast the fossil fuel predicament can change. Rebuilding this city and reviving the industrial complex around it in the present petroleum price environment is not going to be easy. Canada's aim of rivalling the Persian Gulf petroleum exporters has been adjourned sine die.

Unmoved by such events, the Brent index erased almost all the gains it made the previous week, settling just over 45 $/b.

Press review 01-05-2016 - Not so hard to understand

Brent rallied significantly this week again, at some point trading over 48 $/b, amid renewed volatility. These are the highest prices since early November. The energy intelligentsia seems at a loss to explain this four week long rally and the petroleum related news suddenly became scarce. It will be at least four months before the first public data on petroleum extraction is published; only then can it be fully understood what is behind these price movements.

A regular reader of this review has probably noticed a certain animosity towards the mainstream press. By and large journalist seem unable, or unwilling, to report the relevance of the energy transition the world is going through. As always, there are exceptions. Daniel J. Graeber writes for the UPI and his articles figure frequently in this review. Starting with a report issued by Wood Mackenzie, Daniel J. Greaber just wrote an article proposing a peak in world petroleum extraction. Never using obvious terms, the picture laid down in this article is fairly clear nevertheless.

Press review 24-04-2016 - Where the press get it wrong

The Doha meeting last weekend was a major failure, with what appeared to be an easy agreement torpedoed by Saudi Arabia. From then on the media went on a frenzy, announcing the imminent collapse of market benchmarks. The Brent index went in the opposite way, and by Tuesday was trading at 46 $/b. The European benchmark h,as now erased the huge losses of early December, when it lost almost 20% of its value in a week on the face of all those well paid pundits out there. But what the media is reluctant in reporting is the formation of a backwardation structure in the futures market - at odds with the calls of price collapses.

Another point the media is not really getting right is the so called "sluggish demand" meme thrown around as the root of the present under-priced petroleum market. The data show otherwise - particularly in China. From the news bits bellow and other assorted data points, I now estimate petroleum consumption to have already surpassed 10.5 Mb/d in China. This means it could very well hit 11 Mb/d still this year.

None of this means a price recovery is around the corner, there are still at least the above ground stocks to go through. This supply destruction cycle still has some bad news in store. However, some fundamental changes are about.

Press review 16-04-2016 - White Petroleum

This was another sluggish week, with the press trying to create news where there is none. The Brent index rallied significantly Monday and Tuesday, loosing much of that ground in the remainder of the week. Still, it posted yet again the highest weekly close of 2016. The press is building huge expectations around the meeting taking place in Doha, where some of the largest petroleum exporting countries in the world are supposed to declare a "freeze" to their output. It is known beforehand that the few countries with real prospects to hike extraction will not be abridged. But the press loves the symbolism of it, that is how they make headlines.

There were also the usual news of bankruptcies among the American petroleum industry, but by and large money keeps flowing from the finance industry to bridge the gap between price and costs.

These past few days the press has also been busy producing free advertisements for the luxury electric car maker Tesla, that is now trying to reach the higher middle class in rich countries. The company is committing to increase its production ten fold to meet the hype created around its products. There might be a problem though, this promised production hike means Tesla will be soon consuming all the Lithium extracted in the world.

Can Tesla make the world flat?

Press review 09-04-2016 - Of markets and robots

Brent continued moving sideways this week but still with moments of high volatility. Nevertheless, the benchmark closed Friday at the highest level in 2016, even if marginally. The press lingers to the slightest bit of information to explain intra-day movements, invariably making little sense. The petroleum market remains mostly dead, with a flat futures curve and no real news to report.

This market reflects the enduring of world extraction around 80 Mb/d, that remains apparently unresponsive to price movements. In fact, the extraction decline many expected (me included) in the US has not materialised. And regarding recent news, it might never fully materialise. Even with a bankruptcy wave well under way, the US petroleum industry continues extracting as much as it can, with the support of both the finance industry and the judicial system. For the US it seems price no longer matters, and traditional petroleum exporting countries are being effectively pushed out of the market.

Press review 02-04-2016 - Markets in torpor

The "Friday afternoon smack-down" is a common feature to various commodities markets, sudden and deep drops in price during low volume hours that are not justifiable by any changes in fundamentals or unexpected news. It is a rare event with petroleum, but it happened this week, with the Brent index falling about 2 $/b throughout Friday. This kind of event points to a "dead" market, with prices moving sideways for weeks and relatively low volumes. Everyone seems to be keeping something on the side, waiting for the market to wake up.

This torpor was visible in the lack of relevant news throughout the week, the quietest in a very long time. The mainstream media continues running regular pieces on the bust of the "shale industry" in the US, without adding much to a worn story that endures without a proper epilogue. Little attention is given by the press to what these imply outside the US, which long term is far more relevant for our energy predicament. A number countries linger in this market, and even if they survive this period, their petroleum exporting capacity will be impacted for years to come.

Press review 26-03-2016 - It looks like it, it smells like it, but dare not to say it

Some might have taken the acknowledgement of war by François Holland after the attacks on Paris last November as a coup of drama by an unpopular President. Unfortunately, such is not the case, and it is not just France that is at war, the whole European Union is. Destroying the Union is effectively one of Daesh's goals, the motive behind its multiple attacks last Tuesday in Brussels. It is therefore capital to understand the rise of the Front National in France, the UKIP in Britain, the Alternatif fur Deutschland in Germany or the Golden Dawn in Greece as fulfilments of this goal. As Catholics mourn and celebrate the death and resurrection of Jesus Christ, it is perhaps time to remember the philosophical foundations laid 2&nbsp000 years ago that still support much of the European identity today. Bending to hate and fear is simply loosing this war.

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"Oil peaked in 2015" is becoming a recurrent claim. This time however, it was not issued by Ron Patterson or Euan Mearns, it is claimed by a major mainstream media outlet. Making reference to a report issued by Rystad Energy, Bloomberg lays down a clear picture: world petroleum extraction is to diminish slightly this year, decline over 1 Mb/d in 2017 and 2018 and this trend should accelerate afterwards. They just do not dare to say it, but it is all out there in the open for every one to see.

Is this it? I usually prefer a word of caution, considering the geo-political hurdles hanging on major petroleum exporting regions such as Lybia, Iraq and Iran. Peak Oil is a secular event, not exactly fitting the frenetic rhythm of the always on-line modern way of life. But after more than a decade studying this subject, this is indeed the first time I feel this civilisation changing moment could actually be behind us.

Press review 19-03-2016 - The next phase of the cycle

The Brent index continued its rally this week, albeit in slightly less volatile sessions. The past four weeks the price of petroleum crept up 30%, a movement unimaginable just a decade ago. The futures curve remains in contango, but it is visibly flattening in the short term.

The petroleum market endures the supply destruction phase. The focus remains naturally on producing countries and companies and their financial owes. However, as Economics text books teach, the kind of dramatic market movements lived the past 18 months tend to spur reactions from the demand side. Petroleum consumption is steadily swelling, particularly in Asia. The stage is being set for the next phase in the market cycle.

Press review 13-03-2016 - Farewell Ron

Brent returned back above 40 $/b after three straight months below the historical figure that market the end of "cheap oil" back in 2004. After two volatile sessions Monday and Tuesday, the index found some sort of normality in the reminder of the week. The cries for negative prices are no longer heard. A turning point? Perhaps, as the news of declining extracted volumes multiply.

Undisturbed by market idiosyncrasies, China presses on with its energy transition. The figures on alternative electricity capacity installations are staggering, with Wind, Solar, Nuclear and Hydro all well into GW territory. It is a dramatic transformation unfolding in front of our eyes, completely at odds with the stance of European governments and institutions like the IPCC.

Throughout the next decade I expect similar transformations to take place in other regions of Asia, Africa and South America, where energy cost and security resound louder than in Europe.

Press review 05-03-2016 - The death of an icon

Brent continued the rally it initiated last week to end this week at the highest price since last December. Commodities rallied accross the board, with metals such as zinc, copper and gold leading the charge. The big news of the week however, was the death of Chesapeake founder Aubrey McClendon. The iconic company that lead the rush to source rock fossil fuels is now headless, and just one day after McClendon was indicted in a case of land leasing manipulation.

Rumours have been around since the begining of February of an imminient bankruptcy of Chesapeake. The company has reassured investors that it can repay about 500 million dollars in bonds due throughout March, using available cash and further credit instruments. However, the company is also struggling to meet short term collateral requirements consequence of the recent downgrades imposed by the almighty rating agencies. Chesapeake was already forced to come up with 200 million dollars in cash the past few weeks, and could soon be asked for an additional 700 million dollars.

It is against this financial and judicial backdrop that McClendown dies, in what is increasingly perceived as a suicide act. This is perhaps a good example of what Ugo Bardi terms the Seneca Cliff.

Press review 27-02-2016 - Shale oil at the edge of time

Volatility marked again petroleum markets this week, with prices varying over 5% in every session. Friday the Brent index flirted with 37 $/b, the highest value since the very beginning of the year, but went on to close just over 35 $/b. This volatility was greatly fuelled by a constant stream of news regarding the US industry, that seems on the brink of a watershed of defaults and bankruptcies.

This was also the week when news finally broke of companies halting petroleum extraction from the Bakken formation in North Dakota. It took over one year of depressed prices for these low EROEI resources to be abandoned. And this is just the beginning, as many other low quality resources around the world meet a similar fate. 2016 is setting to stage what may be the deepest fall in worldwide petroleum extraction since the beginning of the Iran-Iraq war.

Press review 20-02-2016 - War prospects

This week was again market by a great deal of nervousness around petroleum prices, with the Brent index closing Friday pretty much where it opened on Monday. After much speculation, Saudi Arabia and Russia finally sat at the same table to discuss price support. There was an agreement of sorts, but on a freeze to January output levels, possibly the moment of Russia's all time high. These hollow promises did not crash the price as expected, but an initial cold reception to the agreement by Iran and Iraq produced more episodes of volatility.

And while the mainstream media reported Saudi and Russia at the same table over petroleum prices, the alternative media kept abuzz with rumours of imminent involvement by Saudi and Turkey in the war raging in Iraq and Syria. Spurious evidence of movements of troops, equipment and aircraft around Syria's border fuelled speculation of an impending start to the III World War. For a few days, it seemed like the mainstream and the alternative media were reporting on different worlds or perhaps on different time epochs.

By the end of the week the mainstream media conveyed direct messages from Turkish and Saudi diplomats confirming that an intervention is being considered. And remarkably, they clearly identify the Shiite coaliion - which includes Christians and Kurds and is backed by Russia - as their target. Hard to say where this will all end, but it is remarkable how the financial world appears completely dittached from these war prospects.

Press review 13-02-2016 - Volatility

This week pretty much started of with an outspoken warning by the Bank of International Settlements regarding the pile of debt accumulated by the energy industry in recent years. As asserted multiple times in this space, there is more than enough enough doubtful debt to prompt another worldwide financial crisis. Petrobras' outstanding debt alone is about the size of Lehman Brothers' in 2008.

With this motto, financial markets plunged to a liquidity run, again hitting European banks particularly hard. The financial crisis is far from solved in these parts and legislation intended to punish investors is adding fuel to the fire.

Both a cause and a consequence, petroleum weathered the high seas, posting variations of over 10% in two sessions: Tuesday and Friday. This high volatility is a most toxic input to an already ailing industry. As highlighted in previous reviews, it threatens not only many companies, but entire countries.

Press review 07-02-2016 - The hurt box

Throughout the past few days the economic media was swept by successive negative results from the largest petroleum companies in the world. Corporations that for years were regarded as safe investments, providing regular dividends, are now being downgraded by the almighty rating agencies. Beyond profits, the wave of job cuts seems set to continue, with the 300&nbsp000 figure of last year in risk of being surpassed.

And it is not only corporations, entire countries face the risk of default with present petroleum prices. Nigeria is the first to get financial aid from international institutions, and in all likelihood will not be the last.

Pundits and all sorts of important folk continue to maul the mantra that petroleum will be cheap forever or even become free. In the mid term, the volume of petroleum that can be economically brought on the market at 30 $/b is less that 40 Mb/d (and possibly closer to 30 Mb/d). There is only one way for this situation to last: a collapse of consumption.