Why We Could See an Oil Price Shock in 2016

The depletion of old oil wells is expected to surpass new sources of supply in 2016, as the ongoing oil price slump puts a long list of oil projects on the shelf.

Bloomberg flagged new data from the Norwegian consultancy firm Rystad Energy, which predicts that legacy production will tip the supply balance into the negative in 2016 for the first time in years.

The production from an average conventional oil field typically ramps up in the early years, plateaus and then enters a period of decline. Depletion rates vary wildly from field to field, but a rule of thumb for conventional oil fields – which make up the bulk of total global supply – is that they decline something like 6 percent per year on average. Again, those depletion rates can differ depending on location, levels of investment, etc., but one thing that is clear is that the oil industry needs to bring new oil fields online every year in order to merely keep production flat.

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Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year.

But the 3 mb/d of new supply in 2016 will mostly come from large offshore projects that were planned years ago, investments that were made before oil prices started crashing. The EIA sees four offshore projects starting up in 2016 – projects from Shell, Noble Energy, Anadarko, and Freeport McMoran – plus two more in 2017. The industry completed eight projects in the Gulf in 2015. U.S. Gulf of Mexico production will climb from 1.63 mb/d in 2016 to 1.91 mb/d by the end of 2017.

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However, outside of these large-scale multiyear offshore projects, the queue of new oil fields is starting to be cleared out. By 2017, the supply/depletion balance will go deeper into negative territory. Depletion will exceed new sources of production by around 1.2 mb/d before widening even further in 2018 and 2019.

A few months ago, Wood Mackenzie estimated that around $380 billion in planned oil projects had been put on ice due to the crash in oil prices. Wood Mackenzie says that between 2007 and 2013, the oil industry greenlighted about 40 large oil projects on average each year. That figure plunged to fewer than 10 in 2015.

The coming supply crunch stands in sharp contrast to the short-term picture. The EIA reported on March 23 that crude oil storage levels once again increased, surging by 9.4 million barrels last week to break yet another record. Total inventories in the U.S. now stand at 532.5 million barrels. Record high storage levels, which continue to climb, are signs of short-term oversupply. The IEA expects supply to continue to outstrip demand by about 1.5 mb/d until later this year. Oil storage levels will have to fall to more normal levels before oil prices can rise substantially.

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But the Rystad Energy figures show that the supply-demand balance could quickly swing back in the other direction as upstream investment has screeched to a halt. As soon as later this year, or perhaps in 2017, demand could catch up to supply. Inventories will begin falling quickly and prices will start to rise. However, since supply is inelastic in the short run, the industry may struggle to satisfy demand at stable prices. The oil markets have always suffered from booms and busts, and this is just more of the same. The current bust is sowing the seeds of the next boom.

Of course, U.S. shale has demonstrated its ability to ramp up quickly, and those short lead times could allow new supply to come online as prices rise. But it remains to be seen if U.S. shale, more or less on its own in the short run, can meet rising demand in 2017 and 2018 as conventional oil drilling remains on the sidelines.

This article originally appeared on Oilprice.com

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‘Historic’ spending cuts putting future oil supply at risk, threatening future spike in prices

An oil shock may be lurking around the corner as the price bust has hammered investment in future supply, according to the International Energy Agency.

“Historic” investment cuts taking place now increase the possibility of oil-security surprises in the “not-too-distant” future, Neil Atkinson, head of the IEA’s Oil Industry and Markets Division, said in Singapore on Wednesday. About US$300 billion is needed to sustain the current level of production, and nations including the U.S., Canada, Brazil, and Mexico are facing difficulty in keeping up investments, he said.

“We need a lot of investments just to stand still,” Atkinson said at the launch event of SIEW 2016. “There’s danger as we are reaching a point where we are barely investing upstream. If investment doesn’t resume in 2017 and 2018, we can see a spike in oil prices as oil supply can’t meet demand.”

Companies from ConocoPhillips to Chevron Corp. and BP Plc have cancelled more than US$100 billion in investments, laid off tens of thousands of workers, slashed dividends and sold assets as oil sank below US$30 a barrel to a 12-year low. With crude rebounding since mid-February to near US$41, Atkinson said the worst may be over for prices as they have a floor “for the time being.” The Organization of Petroleum Exporting Countries and other producers including Russia plan to meet in Doha next month to discuss limiting output to reduce a global oversupply.

No Impact

“The meeting may or may not take place,” said Atkinson. It’s seen as a gesture to show that there is stability and the impact it will have on actual supply structure will be “none whatsoever,” said Atkinson, who expects oil prices to average US$35 to US$40 a barrel this year.

West Texas Intermediate oil for May delivery lost as much as 58 cents US to US$40.87 a barrel on the New York Mercantile Exchange and was at US$41.01 at 6:36 p.m. Singapore time. Prices, which have declined for two years, may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the IEA said in its monthly market report on March 11.

“You need to invest large sums of money just to maintain existing production and if you want to grow production to meet the demand growth that we’re expecting, that money has to come from somewhere and we’re seeing big cuts,” Atkinson said in a separate interview at the event. The IEA was founded after the oil crisis of 1973-1974, initially to help countries co-ordinate a collective response to major disruptions in the supply of crude, according to its website.

Market Balance

U.S. crude stockpiles are at 523.2 million barrels, the highest level since 1930, according to data from the Energy Information Administration. Supply and demand will move closer to balance in the second half of this year, according to Atkinson.

The oil market will be balanced in 2017 and stockpiles will fall from 2018 to 2021, Atkinson said. Global demand will grow 1.2 per cent a year in the five years to 2021, compared with 1.7 per cent annual growth in 2009 to 2015, he said.

There will be “barely any supply to meet demand” if investments don’t resume in the next one or two years, said Atkinson. Apart from Saudi Arabia and one or two other Gulf state nations, there is little spare capacity around the world, he said.

The risk of supply outages such as those in Nigeria and Iraq are “episodic” events due to political instability, something that may also affect other countries around the world as a result of low oil prices, according to Atkinson. Further ahead, Venezuela’s economic problems may lead to social and political unrest and the potential for supply disruptions in Libya remains a risk, he said.

Bloomberg News

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These Are the Jobs With the Biggest Gender Pay Gaps

Considering the push to get more women into tech, you might think companies would be throwing bushels of money at female computer programmers. But as it turns out, you’d be wrong.

According to a study released Wednesday by Glassdoor, computer programmers have the largest wage gap of any profession examined by the career site, with female programmers making an average of 72 cents for every dollar earned by their male counterparts.

 

Glassdoor looked at 505,000 salary report from 25 industries, controlling for factors like type of company and workers’ level of experience. Here’s a look at the top 10 jobs with the biggest adjusted pay gaps.

https://datawrapper.dwcdn.net/7WyHH/1/?iframe_id=fortune-iframe-embed-2b9fbd60b3fce976b8bbcf7200435a2a5e754941There’s a clear pattern here: The largest differentials are found in traditionally male-dominated roles like computer programmer, chef, and c-level executive. Conversely, Glassdoor found that jobs historically held by women have smaller, or even reversed, gaps.

https://datawrapper.dwcdn.net/puw4M/1/?iframe_id=fortune-iframe-embed-a0ea842128b928c5f548e9c18eb270bbff630129These stats also tell us something important about the larger pay gap. Census datatells us that the top jobs for women are low-paid careers like cashier and secretary. If men outnumber women in lucrative fields like programming and the top ranks of medicine–and those women who do make it into those jobs are paid substantially less than their male colleagues,–is it any wonder that recent estimates suggest that it will take us another 117 years to close the global pay gap?

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Why Retirement Gets Tricky When the Stock Market is Down

As your retirement date approaches, after 40 years of saving, planning and working, the word “volatility” can become a euphemism for danger. After all, who wants to retire just when falling markets are eroding their nest egg?

Unfortunately, for those contemplating retirement in the next year or two, that “V” word has popped up in just about every market prognostication, with many commentators fearing a potential bear market. With the S&P 500 down 1% for the year and more than 5% from its 2015 peak – after seven years of gains – is it time to rethink your retirement timing?

Not so fast. There are ways to traverse retiring in a downturn. Looking at the past, Vanguard found that those who retired at market peaks with $100,000 (adjusted for inflation) in 1928 and 1972 would still have had money in their portfolio at age 100, assuming a 50-50 stock-to-bond mix and a 4% withdrawal rate. But if the market sinks quite a bit between now and your retirement date, things could get trickier.

Of course, the easiest solution to ensure that you’ll have enough funds in retirement is to simply work longer than you planned. It’s not the most appetizing option, but for every year you delay, you gain about 7% in annual retirement income, assuming you save 15% of your salary, according to the American Association of Individual Investors. The size of your Social Security benefit also gets larger, by about 8%, for every year that you delay retirement between age 62 and age 70. Even part-time jobs within retirement can help hold off the need to withdraw savings or start Social Security, saving it for clearer days.

But if working longer is out of the question, you can ease your transition by building at least a year’s worth of living expenses in an emergency retirement savings fund, ideally in cash, says Celandra Deane-Bess, a wealth strategy director for PNC Financial Services Group. It gives you “a resource to tap” in worst case scenarios, which will ensure you don’t panic if the market drops 500 points in a day, she adds. And having that cash on hand will keep you from having to sell stocks or other assets when their value is depressed.

The next thing you will need to keep an eye on is your withdrawal rate. The conventional wisdom is to withdraw 4% of the value of your retirement portfolio every year, no matter the market situation. Assuming you had a strong savings plan based on a thoughtful estimate of your expenses, then that income will ensure that your savings last your lifetime. However, Vanguard found that in 48% of the years, a saver using this strategy doesn’t reach his target income level. This strategy “ignores overspending” during upturns when a 4% withdrawal can mean a significant amount of money beyond your needs, says Vanguard’s senior retirement strategist in its Investing group Colleen Jaconetti. During downturns, the 4% number may not cover most of your expenses.

Instead, Jaconetti suggests considering a floor and a ceiling that you might withdraw at. During downturns, you would withdraw the lowest amount you would need in order to pay your expenses throughout the year. During upturns, you would put a limit on what you withdraw, to prevent spending too much. It builds “some sort of flexibility to your annual spending plan,” says Jaconetti.

This strategy has a 92% chance of making sure your money lasts 35 years. While people using this strategy need to be more disciplined about their spending, cutting back when times are tight and not going quite as wild during up years, the idea ensures you’ve planned for worst-case scenarios with your floor scenario. It’ll more likely ensure you don’t have rough years where even normal expenses become difficult to cover.

The idea of reducing your withdrawal amounts based on the market performance of the previous year also assumes that you can take (sometimes significantly) less in certain years and still cover your expenses.

If you have money left over, then maybe it’s time to reinvest in the market. After all, buying into the downturn could give you a nice upside when it turns again. Or, you know, go on that dream vacation; whichever eases your mind.

Prinzo and Associates LLC
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Aston Martin and Red Bull Are Teaming Up to Build a New ‘Hypercar’

Aston Martin and Red Bull are to build a new “hypercar” fast enough to make James Bond feel like a grand prix driver while bringing the British firm’s brand back to Formula One for the first time since 1960.

Both parties announced the partnership on Thursday at the championship-opening Australian Grand Prix where Aston Martin’s logo will appear on the team’s RB12 cars as part of a season-long deal.

Red Bull’s Adrian Newey, the sport’s most acclaimed and successful designer, is to work with Aston Martin’s design boss Marek Reichman on the superfast road car, dubbed Project AM-RB-001.

“Formula One offers the ultimate global stage to build wider awareness of the Aston Martin brand,” said the company’s chief executive Andy Palmer in a statement.

“However, this partnership will deliver even more than that when the hypercar that Aston Martin and Adrian Newey are in the process of developing hits the road.

“We are going to create a car that will excite and stir the imaginations of the car designers of the future and a global audience of sports car enthusiasts,” added Palmer.

Red Bull principal Christian Horner said Red Bull Advanced Technologies, led by Newey, would be using Formula One technology to produce “the ultimate of all road cars.”

 

Renault Engines

Aston Martin, whose cars are closely associated with fictional British secret agent Bond, were linked to Red Bull last season when the Formula One team were seeking Mercedes power units to replace their Renault engines.

Mercedes has a 5% stake in Aston Martin.

There were also talks with Force India about that team becoming an Aston Martin-branded outfit in partnership with Diageo-owned Scotch whisky brand Johnnie Walker.

Those discussions also came to nothing, with Johnnie Walker recently renewing their partnership with McLaren.

“We are kind of a cool brand. We attract a lot of attention from a lot of people and a lot of people talk to us,” Palmer told motorsport.com on Thursday when asked about those negotiations.

“But we are all about authenticity. So you get in an Aston, what looks like leather is leather, what looks like wood is wood. What looks like carbon is carbon. What sounds like a V12 engine is a V12 engine and it doesn’t have any hype on it.

“So authenticity was our number one concern here and simply putting a sticker on the side of an F1 car was never going to cut it for us.”

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Sepp Blatter Made $3.8 Million in 2015 Per FIFA

FIFA revealed its salaries paid for 2015. Former president Sepp Blatter earned his base salary of $3.76 million. Suspended and later banned by the organization, he did not earn a performance bonus.

While without question comfortable, the sum seems a bit modest by American standards. NFL commissioner Roger Goodell earned $34.1 million in 2014. Blatter is more in the college conference commissioner range.

Personal salary, of course, is only part of the equation. Blatter was doubtless living it up like E. Gordon Gee on FIFA’s dime. Private jets, five-star resorts, and lavish luncheons add up.

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GM’s Mary Barra Continues to Surprise, and Impress

I continue to be impressed by Mary Barra’s leadership of General Motors gm . Time and again she causes me to smite my forehead, at least figuratively, and ask, “This is GM?”

The latest example is GM executive Michael Ableson’s testimony Tuesday to a Senate committee, when he announced that GM will introduce self-driving cars for use by the Lyft ride-hailing service within a couple of years. A couple of years? Weren’t supposed experts telling us in 2014 that it would be more like a couple of decades before autonomous vehicles were road-ready? And I’m pretty sure that the unofficial target for introduction of a Google googl autonomous car has been reported as 2020, and for an Apple aapl car (even more unofficially) as 2019. As I was saying: This is GM?

We should remember that GM has been working quietly on vehicle autonomy for quite a while. In January it invested $500 million in Lyft and put an executive on the ride sharing company’s board. Last week it announced it was buying a 40-person software startup called Cruise Automation for a reported $1 billion; exactly what Cruise software does has not been disclosed, but GM apparently wants it badly and wants to keep it away from competitors. Barra has even said that she intends for GM to be first in introducing fully autonomous technology. That’s a squishy target, since autonomy is already arriving in increments, but it’s still an ambitious goal. Barra has also said she’s determined to make GM disrupt itself before outside disrupters do it. Lots of CEOs of big, old, incumbent companies say the same thing. Unlike most of them, she seems to be making a credible go of it.

I have no idea how well Barra will succeed. The auto industry is going through a historic transformation, and the stakes are as high as they can get. But I’m optimistic for two reasons. First, she understands that she won’t get anywhere unless she changes GM’s culture, a challenge that has defeated all of her predecessors of the past 30 years. She doesn’t talk about it much. “If we want to change this elusive culture, the way I look at it, it’s changing behaviors,” she told me 18 months ago, early in her tenure. Instead of talking about culture change, she focuses on everyone behaving differently every day, starting with herself.

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The second reason I’m optimistic is that Barra is entirely clear on what success means. “The ultimate proof point will be when we deliver exceptional financial results,” she told me. It’s not clear that investors are sold. The stock has jumped all over since she became CEO two years ago; right now it’s below where she started. A billion-dollar acquisition of a software startup might alarm some shareholders. That’s a lot of capital on which to earn a decent return. But the very thought of GM trying to be a leader in auto-related IT is one of those moves that makes me ask, This is GM?

For now, after the company’s decades of slow, then rapid, decline, and now its apparent comeback, things are probably going in the right direction so long as I’m asking that question.

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