Peak Oil 101

[RE]

Not many frackers making a profit at those prices.

https://www.investing.com/news/commodities-news/brent-to-average-65-wti-to-average-61-in-2025-bofa-3742319

Brent to average $65, WTI to average $61 in 2025: BofA

RE

[K-Dog]

Not many frackers making a profit at those prices.

https://www.investing.com/news/commodities-news/brent-to-average-65-wti-to-average-61-in-2025-bofa-3742319

Brent to average $65, WTI to average $61 in 2025: BofA

RE

I won't call the article interesting, that is too generous. To me it is a large mathematical equation put into words.  It this happens, that happens and so on.  No real info.

[TDoS]

Not many frackers making a profit at those prices.

https://www.investing.com/news/commodities-news/brent-to-average-65-wti-to-average-61-in-2025-bofa-3742319

Brent to average $65, WTI to average $61 in 2025: BofA

RE

+6 years, about to be +7 years past peak oil....and DAMN are low prices not part of the Happy McPeakster program!!

But those kinds of prices will likely bring about lower drilling activity, lower US production...and we'll all get to revel in another US peak oil!

Good thing all us geriatrics probably don't need to worry about it much, having lived through all the other peak oils it is just a bit difficult to get excited about yet another one. 

[RE]

Well, that's a good deal higher than the BoA estimate.  Who is closer to the mark?  $74.53 for Brent according to the Reuters pol of expert analysts or the BoA analyst's price of $65 for Brent?  That's nearly a $10 difference. WTI @ $70.69 or $61?  Since we have our own world class expert, finally here's something we can hear a worthwhile opinion from him about. 

A difference this big obviously has a huge impact on how many holes will get drilled and how much money the banksters will dish out.  If BoA thinks the price is gonna be $65, they're not gonna float loans to anyone who needs $75 to make money.  This indicates that the Reuters experts are the SUITS sitting on the driller's side of the loan officer's table and the BoA expert sits next to the loan officer on his side of the table. The expert the driller's hired has to convinmce the loan officer that the expert they hired is wrong. lol.

Or more likely, they don't even bother going to BoA for a loan, because BoA has telegraphed to everyone what price they will loan money for, so if you can't come in with oil at that price, don't bother coming in for a tet a tet.

In any event, at least we can leave the Peak Oil question behind at last, although I'm sure the term will still pop up from time to time.

https://oilprice.com/Latest-Energy-News/World-News/Analysts-Cut-2025-Oil-Price-Forecasts-Again.html

Analysts Cut 2025 Oil Price Forecasts Again

RE

[TDoS]

If BoA thinks the price is gonna be $65, they're not gonna float loans to anyone who needs $75 to make money.  This indicates that the Reuters experts are the SUITS sitting on the driller's side of the loan officer's table and the BoA expert sits next to the loan officer on his side of the table. The expert the driller's hired has to convinmce the loan officer that the expert they hired is wrong. lol.

Only lol to those who have never played the game perhaps. Both sides pay well, but obviously those with a widely known reputation and past performance to back it up tend to be taken more seriously than Joe Expert. Because not all suits are created equal.   

[RE]

So who's expert do you think is closer to the target?  You're supposed to be the best suit at the table according to you.  Inquiring minds want to know.   If you don't answer or equivocate, you get cooler time.  What good is having an expert here if we don't get expert opinions?

RE

[TDoS]

You're supposed to be the best suit at the table according to you.

I am not a suit. Money handlers, insurance salesmen, bankers and financiers, lawyers. Never done any of that in life.

Inquiring minds want to know.  If you don't answer or equivocate, you get cooler time.

But of course.

So..here we go.

The standard 6 variable model used to do this type of projecting involves 7 main components, requiring they are ranked in order from most important in terms of overall uncertainty for a given scenario to least. Each of the 7 are then assigned a weighting range, the sum of which on any iteration must equal 1.0. This means that in any given run, by the time the probabilities are calculated from most to least uncertain, if that number exceeds 1.0 on any given run, the remaining 1 or 2 might be entirely eliminated from the calculations.

Brent prices in US$ and all underlying variables examine data from both prior model runs and now historical results and project from them forward. One of the most important of the 7 inputs is the squared deviation from the past 12 model runs compared to what is now history...when running the current month and moving forward in time. High detail information like country level production is grouped into logical regions in order to improve overall run times of the simulation. Some parts of the model are data, some are derived more from a delphi approach, for example expectations of world oil balances in terms of production based on data and expectations of demand based on historical patterns which result in forward looking world storage balance changes. Changing storage balances act as a overall gauge of the supply/demand balance. Stated OPEC guidance is within the model, as are what is called "unstated" guidance which is designed to match actions as oposed to just words. Exogenous events can work their way into now and future casting as well using similar modifcations to the appropriate category among the 7. The weighting and order for the 7 can be adjusted as necessary. Expected forward year oil intensity of national economies is a relatively new addition with the growing offset of energy once hydrocarbon based now something else (renewables, substitution of non-hydrocabon based fuels, etc etc).

Prices are the changing variable to reach a required equilibrium point on each iteration. Iteration results in terms of price required to balance all weighting and other conditions results in a single output, 5000 iteration is usually reasonable for the resulting distribution to stabilize.

These are the monthly expectations of price and probability for 2025.



If you look carefully, of note is that the thin white line across the middle (or close to it) of the box part of the plot is a median, and the eye should be able to pick up naturally that more than 50% of the date tends to reside on the lower side of the medium Brent price for any month. Downside risk is more apparent over the coming year than upside. 5% of the data is above and below the visible data, but 90% of all prices lay between the maxima and minima vertical lines. Also of note is the tendency for late next summer after demand tends to slacken as it does seasonally, prices do not look to recover to the same levels as they are expected to enter 2025. Because all the fractiles of these probability constructs are known, they can be compared directly at each 1$ point, and the odds then calculated as to the over/under at any point in time between months if there was an interest.

The question you asked wasn't about sochastic model results for 12 months in 2025, but what is the average price for the entire year. To plenty of people this is a single number. A single number for those who can't handle sharp objects is pretty standard. I'm betting that folks don't show you what is being provided here because I know I am not the only one doing it. But we all dumb it down to single numbers for internet denizens, newspapers, 2nd grade readers and suits and whatnot.

In order to create a reasonable annual average from 12 distinct distributions of probability, you use all 12 monthly distributions to create a single annual average, and just run 5000 iterations to populate another distribution for the annual answer. And then you present that distribution as the answer for annual oil price....while keeping the proper uncertainty contained within all of the 12 months.

So my answer for the most likely price of oil (in this case a mean) in 2025 based on all the individual months and their accompanying uncertainty is $65.83, give or take. Using that as a reference point on the graph you can then eyeball for yourself the accompanying range and probability of 90% of most outcomes for 2025. Only a 3% chance of the price being more than $70, but it does exist.

[K-Dog]

What are the variables and how do they relate to each other.  Can you write the relationship as an equation?

[TDoS]

What are the variables and how do they relate to each other.  Can you write the relationship as an equation?

A) Indeed. The Word document of documentation has 127 pages. 42374 words. Pages 94 to 127 are a detail of the more important variables. The file management of outputs chapter is about 6 pages long. All variables are not contained in that document, but more the concepts of their use. 

B) To which relationship do you refer? Because when it comes to the producing nations of the world, grouped into regions with assumptions of correlation, across the required product streams, demand/price relationships in the sectors, forward looking assumptions in changing variables with different rates of change, using various statistic techniques to create the best fit probability density functions to most of these moving parts, and so on and so forth. So...which relationship do you have in mind? But generally, no, equations are not utilized for relationships....probability density functions are.

As there are often no analytic solutions to the multiplication/division/addition/subtraction of disparate probability functions, a simulator is the only way to put them together to form a master output distribution of price from all of these underlying uncertainties, relationships and correlations.

As just one simple example, if you take two distributions, 1) a shifted, truncated lognormal of oilfield occurrence probability of field sizes classes and 2) a trianglular distribution of potential number of fields remaining generated from another process, you can't analytically solve for 3) the mean expected field size distribution of the resulting multiplicative combination of the two. 

Probability work is just so cool, but once the engineers bump into the non analytic nature of some of these types of statistics issues, they just want to spit. You can't blame them, they are designed for precision. Amusingly, even though they themselves are tied up in the certainty, they can't avoid the uncertainty and are absolutely affected by it.

Have you ever heard of the asymmetrical stop-loss function?

True story. Being introduced around the office one day back when I started, the boss introduced me to the engineering group. The head cock of the walk was detailing how his refinery calculations had turned out to be within 0.2253546% of optimal, and the others were going around the room introducing what they did and doing the standard chest puffery of engineering precision and accomplishment, and then, me being the new guy, they offered the expected..."so...what do YOU do...?" and then 6 pairs of eyes are all just daring you to be a bigger stud then them.

I glanced around, couldn't resist the urge I display so often online and said..."well....I'm a DAMN good guesser". There were 3 snickers, fury from the eyes of Mr Cock of the walk, and the guy beside me burst out laughing. He then said...you guessed it...."well....isn't that why when we draw up the perfect bridge design  to hold the designed weight....WE DOUBLE EVERYTHING when we're done!"

The asymmetrical stop loss function.

True story.

[RE]

I am not a suit.

Do you wear a suit when you go to work?  If you do, you're a SUIT.  Since you advised me to wear a suit when I go lawyer shopping and you undoubtedly wear one yourself at any of the meetings where you do a power point with your stochastic models, I give it a high probability you meet all the criteria for being a suit.

Inquiring minds want to know.  If you don't answer or equivocate, you get cooler time.

But of course.

So..here we go.....

So my answer for the most likely price of oil (in this case a mean) in 2025 based on all the individual months and their accompanying uncertainty is $65.83, give or take.

Fortunately I have good scanning skills and was able to skip reading the verbal diarea for the number, which is in close agreement with the expert hired by BoA.

So now the question is, WTF are the experts being polled by Reuters and pumped by OilPrice.com?  Clearly they are people trying to jawbone the price higher, since it's $10 higher than the model says is likely.

RE

[TDoS]

I am not a suit.

Do you wear a suit when you go to work?  If you do, you're a SUIT. 

I love your definition. I accept it. The last time I wore a suit was about 2-1/2 years ago. One of those big presentation deals that I'm not allowed to talk about. For the same reason I recommended you wear one when you pitch your big idea. Will wearing a suit for that presentation make you a "suit"? Because if it doesn't make you a "suit" by your definition, it doesn't make me one either.

Since you advised me to wear a suit when I go lawyer shopping and you undoubtedly wear one yourself at any of the meetings where you do a power point with your stochastic models, I give it a high probability you meet all the criteria for being a suit.

Except for the one I just mentioned. Prior to wearing my last suit for a business meeting, I think the last time before that would have been...ummm....slightly pre-Covid. Call it January 2020. So, if someone wears a suit twice in 4 years, does that make them a suit?

Fortunately I have good scanning skills and was able to skip reading the verbal diarea for the number, which is in close agreement with the expert hired by BoA.

Who gives a shit. I don't do work to validate anyone else's work unless someone pays me to. Or asks nicely.  Oh yeah, and what was their estimate of uncertainty around the number they provided? 

So now the question is, WTF are the experts being polled by Reuters and pumped by OilPrice.com? Clearly they are people trying to jawbone the price higher, since it's $10 higher than the model says is likely.
RE

The results as provided from my system allow for a low probability above $70.  A whiff of chance close to $80/bbl for the year.

[RE]

Will wearing a suit for that presentation make you a "suit"? Because if it doesn't make you a "suit" by your definition, it doesn't make me one either.

Yup, it would make me a suit as soon as I drop on the uniform.  Just like you are a Cop as soon as you wear a cop uniform, even if you're just a security guard.  It means you take on the expected behavior and role of that type of uniform.  Which as I said was one of the reasons I quit the banking biz.  In that biz, you have to wear the suit every day, and it better not be a cheap one if you want to climb the corporate ladder.

Will I wear a suit when I go shopping for lawyers?  No, but I will go so far as to do "Business
Casual" with a collar shirt and tie and I'll wear real pants instead of my usual pajama bottoms, plus I'll wear the prosthetic leg under them and I'll put in my dentures too.  I clean up fairly well, and the "look" I will have would probably best be called Disabled Academic. lol.  I'll look like somebody's Calculus professor, which should work fairly well to convince the suit that I'm reasonably intelligent.

The results as provided from my system allow for a low probability above $70.  A whiff of chance close to $80/bbl for the year.

Yes, I know and I agree.  The question is, who are the "experts" polled by Reuters that are quoted in the OilPrice.com article?  Who would make a prediction nearly $10 north of what seems likely?

RE

[TDoS]

Will wearing a suit for that presentation make you a "suit"? Because if it doesn't make you a "suit" by your definition, it doesn't make me one either.

Yup, it would make me a suit as soon as I drop on the uniform.

Well if that is how you allow a simple clothing choice to make the man as it were, then we are both asshole pricks and all the rest of it on your bad people connotation list. Welcome to the club!

I'll look like somebody's Calculus professor, which should work fairly well to convince the suit that I'm reasonably intelligent.

Confusing ones appearance with character, intelligience, honesty etc etc sounds like it falls within the scope of a solid stereotyping plan for sure. Were you taught this perspective by someone, or did you learn it on your own?

Because from one suit to the other, I went in exactly the opposite direction myself.

The results as provided from my system allow for a low probability above $70.  A whiff of chance close to $80/bbl for the year.

Yes, I know and I agree.  The question is, who are the "experts" polled by Reuters that are quoted in the OilPrice.com article?  Who would make a prediction nearly $10 north of what seems likely?

Don't know. Don't care. Not my dog in their fight. Might know some of the BOA names...I've gone round with some of them before, folks in England, maybe a year or two back. Smart, knowledgeable, knew their way around analysis, seemed informed. 

But I'm not paid to match up against what newspapers print. They "know" as much stupid shit as the internet does with it comes to the intersection of science, analytic thought, analysis and econometric modeling. Throw in appropriate expression of outcomes and the playing field is relatively thin.

[RE]

Were you taught this perspective by someone, or did you learn it on your own?

Learned it over the years observing all the folks my dad hung out with, then the ones I met in HS, college and working world.  Each uniform accompanied a certain typical personality type.  Of course there are variations, and some people will change their behaviors depending on how they dress.  So they act one way when they dress to go to a party, another way when they dress for work.  Then what they become over the years tends to depend on how much time they spend dressed one way or the other.  Somebody who spends every day in a Suit and works 12 hour days that way becomes more like that uniform behaviorally than another who only does it periodically.  Same thing if it's a Cop uniform or a Nurse uniform or whatever.  Each uniform has a set of behaviors that accompany the uniform, and the people wearing it expect that.  It's why they wear uniforms, it telegraphs that information.  This is basic psychology.  The Fashion industry is built on this.

Don't know. Don't care. Not my dog in their fight. Might know some of the BOA names...I've gone round with some of them before, folks in England, maybe a year or two back. Smart, knowledgeable, knew their way around analysis, seemed informed. 

But I'm not paid to match up against what newspapers print. They "know" as much stupid shit as the internet does with it comes to the intersection of science, analytic thought, analysis and econometric modeling. Throw in appropriate expression of outcomes and the playing field is relatively thin.

It's an important detail because it's worthwhile to know who is pitching out clearly bad predictions.  Who are they and why does Reuters poll this particular set of experts, then publish the poll which a rag like OilPrice.com goes and reports?  They must be trying to influence investors, I can't think of another reason to do that.  So in effect somebody is perpetrating a fraud although you couldn't prove that legally.

RE

[TDoS]

Were you taught this perspective by someone, or did you learn it on
But I'm not paid to match up against what newspapers print. They "know" as much stupid shit as the internet does with it comes to the intersection of science, analytic thought, analysis and econometric modeling. Throw in appropriate expression of outcomes and the playing field is relatively thin.

It's an important detail because it's worthwhile to know who is pitching out clearly bad predictions.

"Bad" is a relative concept. $10 +/- in a given future year probably doesn't qualify.

Who are they and why does Reuters poll this particular set of experts, then publish the poll which a rag like OilPrice.com goes and reports?  They must be trying to influence investors, I can't think of another reason to do that.  So in effect somebody is perpetrating a fraud although you couldn't prove that legally.
RE

You presume intent where none may exist. If you aren't a big name (you seriously think Gail The Actuary is a name?) you might write for some of these rags because you get name recognition. The information they work with? Unlikely to be raw data. Scrape websites of companies and state web pages maybe? Might not have the skills to use it if they did. So they take free EIA/IEA/OPEC reports and data and weave a story as best they can. No rigging of market desires or anything else, just best efforts.

What do you think their information budget might even be? Next to nothing? Which is why they use all the free stuff, and oftentimes themselves read the writings of others, mix in some personal take or spin, call that "research" and write it up.
 
There are analysts out there who are just doing the best they can with what they've got. "Influence" investors? You don't think the investors who are good at what they do? I say those BCG folks are damn shitfire on top of things. And they know the difference between Gail telling them we are all doomed...because of high oil price...oops...no...because of low oil prices...oops...its about ALL energy....ad infinitum...and those worth top dollar for their work. And you don't find them handing that out for free.