The much touted Oil Boom in the U.S. may be heading for serious trouble. Even though the EIA – U.S. Energy Information Agency and the MSM have been putting out very optimistic forecasts for a growing domestic oil supply, present data and analysis show that domestic production may indeed be hitting an “Inflection Point.”
According to the work by Alliance Berstein’s Bob Brackett:
We continue to believe that the rate of year-on-year production growth will slow. We believe that slowing (or as we term it, the inflection point at which the market realizes that production growth rates will be lower than the previous year) is a 2013 event. Exhibit 5 shows our logic. It plots US oil production by week in green and then shows the year-on-year growth.
The red shaded area corresponds to the growth that would be required to avoid inflection. It implies that the remainder of the year would need nearly 800 KBOPD of growth (with the first 63% of the year achieving only ~500 KBOPD). Given flattish rig counts and modestly rising efficiencies, we don’t believe such back-loaded growth will be possible.
What Brackett is stating is that in order for U.S. oil production to continue increasing as it has in the past, we would need to add an additional 800,000 barrels a day of production in the remainder of the year. Again, the data suggests that from JAN to the middle of AUG, the U.S. has added about 500,000 barrels a day of new production.
If you look at the right side of the chart in red, the U.S. oil production has to add a total of 1.3 (mbd) million barrels a day for 2013 to stay on the same trend as it has for the past several years. Furthermore, if you look at the area of the chart on JAN. 2013, you will see that total production was 7.0 mbd.
As of the last EIA data entry, the U.S. hit 7.6 mbd on Aug 23rd. With the high decline rates of the shale oil fields (Bakken & Eagle Ford) as well as the flat number of drilling rigs, the growth rate of oil production in the United States will more than likely decrease and then plateau in the next several years.
World Oil Production May Indeed Hit the Seneca Cliff
Ugo Bardi, Professor of Chemistry, Analyst at University of Florence, Italy believes that the downside of the global peak oil graph may be much steeper than most are forecasting.
Bardi bases this assumption by the work of the ancient Roman philosopher, Lucius Anneaus Seneca:
“It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.” Lucius Anneaus Seneca, Letters to Lucilius, n. 91
….. As Seneca says, “the way to ruin is rapid.”
While the world’s governments are hastily investing great sums of money into producing unconventional sources of oil, this may only turn out to be a temporary solution in order to keep their fiat monetary system alive a little longer.
Advanced technology in removing more oil from old fields has kept the annual decline rates from rising, but it has increased the depletion rate of the field. Basically, we are sucking the oil out faster than we would have without the advanced technology.
However, this may indeed cause the implications for a rapid decline in the future shown by the SENECA CLIFF.
Lastly, I believe the world cannot afford a portion of the oil that it is presently consuming. Money printing and the huge increase in global debts have also masked the onset of peak oil.
ADDITIONAL NOTE: I will be releasing the break-even figure for silver from the top 12 primary miners in the next few days. I had forecasted that 4-5 of the companies would be showing net income gains and 7 would be stating losses. However, it looks like only 3 made money, while the rest recorded losses.