Price is one clue. Oil majors walking away from potential projects another. But the biggest clue of all that the tide is turning comes from the man who once dominated the oil patch.
Lee Raymond, the no-nonsense former chief executive of ExxonMobil, is in no doubt that the trend from now is down.
In a rare interview, published yesterday in US magazine, BusinessWeek, Raymond argues that oil supplies are rising faster than most people realise, and that the end result is a price decline.
“The International Energy Agency has said that by the end of the decade there will be sufficient (oil) capacity again,” Raymond said. “People don’t understand the time dimension in our industry. Things don’t happen overnight.”
Slugcatcher agrees, and hinted as much on January 24 when talking about rising stockpiles and their impact on the oil price.
It is worth probing a bit deeper into the growing evidence that oil is at, or close to, a peak, and that talk of $US100 a barrel is starting to look somewhat fanciful.
Raymond’s argument is based on very deep understanding of how the industry works. He comments that “History suggests that supplies will begin to grow faster than they have been” and, “Yes, that would mean lower prices.”
At around the same time Raymond was given this wise advice two other events caught The Slug’s eye. First, that Chevron was thinking about withdrawing from the Brass LNG project in Nigeria. Second, that gasoline prices in some parts of the US have fallen below $US2 a gallon for the first time in months.
Perhaps too much should not be read into Chevron’s withdrawal. Nigeria is a difficult and dangerous destination for development capital and foreign workers. Chevron is also a minority partner in the proposed 10 million tonne a year project, and it has plenty of other LNG possibilities on its books.
But, if there was a firmly held belief in the boardroom of Chevron that the world was facing a permanent state of reduced liquid fuel supply, and that all resources, no matter how difficult, must be retained, it is highly unlikely that management would be thinking about selling out.
The second event, gas below $US2 a gallon, is a classic straw in the wind, and as much psychological as an event of genuine significance. But when matched against the West Texas Intermediate price dipping below $US60 a barrel, the $US2 price is a sign of the direction in which we are heading.
What does this mean for the wider oil patch?
For starters, it means that a lot of high-risk, low-return projects will slip back into the too-hard basket. Oil shale will be first to make a return.
It also means that if speculators playing the oil game start to think deeply about their investment positions the stage could be set for a much sharper price fall than we’ve seen over the past month.
Earlier this month, the metals markets provided an indication of what can happen when speculative “long” positions are suddenly unwound. Prices plummet. It happened in gold, copper, zinc and lead where overnight falls of 10% and more were posted.
The Slug is not suggesting that oil is headed for a similar correction. But, given the views of Raymond, the possible Chevron decision to quit an LNG project, and the changing mood at the pump in US gas stations, there are enough signs to say that such a move should not surprise.
