One of my go-to analysts on oil production is former Italian oilman Leonardo Maugeri who now works at the Belfer Center at Harvard University. In my book, The End of Doom, I cited his 2012 analysis Oil: The Next Revolution published when oil prices hovered around $100 per barrel in which he correctly predicted that they would drop steeply in the middle of current decade. Why? “Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak-oil’ in sight,” he argued. Maugeri was right: WTI oil fell below $30 per barrel in early 2016.
Last fall, the Organization of Petroleum Exporting Countries (OPEC) and Russia agreed to restrain their production (create a shortage) in order to boost prices. The Saudi Arabians had let their own production rip for the last couple of years in the hope of pushing down oil prices so low that they would bankrupt U.S. shale oil producers. Many rigs did stop drilling, but U.S. producers became much more efficient and many successfully competed with OPEC oil even at the lower prices. The recently higher prices over $50 per barrel spurred by OPEC’s supposed production restraint has been a gift to U.S. oil producers who have ramped production back up to over 9 million barrels per day.
In his latest analysis, Maugeri suggests that OPEC’s production numbers are fishy and notes that global oil demand is less than anticipated. As if right on cue, the price of WTI crude fell $50 per barrel on the day Maugeri released his new report. From Maugeri:
… we still need more data and elements in order to make a sound assessment of what will actually happen on global oil markets in 2017. But it’s not too early to raise a red flag: there is something wrong in the numbers that circulate globally about oil supplies. And one thing is for sure: OPEC and non-OPEC cuts are not enough to re-absorb the world’s excess supply. So, unless oil demand growth rebounds to record levels in 2017, oil prices could head for another substantial fall.
Peak oil indeed.
In any case, Maugeri does believe that era of cheap oil – sustained prices below $30 per barrel – is over, but thinks that prices will bounce between $50 and $70 until the end of this decade at least.