Oil Prices

[greengiraffe]

Oil prices slump to five-year lows
DOW JONES DECEMBER 16, 2014 7:41AM

OIL prices fell to fresh multi-year lows overnight as concerns about a global glut of oil outweighed news of reduced Libyan exports.

The price of crude has plunged more than 45 per cent in the last six months as output has increased while demand has remained moderate. On Friday, the International Energy Agency slashed its forecast for demand growth in 2015 for the fifth time in six months.

Falling oil prices have hurt the currencies of oil-producing nations, including Russia and Nigeria, and weighed on energy stocks and junk bond prices. Relatively cheap oil is also expected to boost global economic growth next year, as consumers will save money on petroleum products and be able to spend more elsewhere.

“The sellers are still in charge, and it seems like the market really hasn’t bottomed,” Gene McGillian, senior analyst at Tradition Energy, said.

Light, sweet oil for January delivery settled down $US1.90, or 3.3 per cent, to $US55.91 a barrel on the New York Mercantile Exchange, the lowest level since May 5, 2009.

Brent, the global benchmark, fell US79c, or 1.3 per cent, to $US61.06 a barrel on ICE Futures Europe, the lowest settlement since July 2009.

[specuvestor]

Why oil prices are so unstable:

John Kemp

Sun Dec 14, 2014

http://www.reuters.com/article/2014/12/1...W620141215

Agree with the article. The conundrum for the commodities market is that prices are not just dictated by the big oligopolictic players but also marginal players coming in and out. The rapid and wild price swings do not conform to the simplistic DD/SS theory. And oil has an additional geopolitical layer to it which makes it even more unpredictable.

I'm beginning to think that OPEC wants to mark oil at lowest for year end so that P1 reserves will be slashed drastically and hence credit for the marginal players. But longer term oil will no longer go above US$75 or so unless Ukraine issue is resolved.

[Boon]

12/15/2014

Predicting The Oil Price: Smart Vs Lucky

Michael Lynch Contributor

Paul Krugman made the point recently that the only stock market forecasters who correctly predicted a market drop were those who always predicted falling markets. This is known as the ‘stopped watch’ approach to forecasting: constantly make one prediction and eventually the market will move in that direction. Especially for oil prices, which are highly variable, this works wonders to the point where the great Adam Sieminski often joked that you should predict the price or the date, but not both.

This is reminiscent of Napoleon’s adage, that it’s better to have lucky generals than smart ones. He didn’t note that you can only identify lucky after the fact. Asking forecasters to flip coins and then believing the one that always gets heads is not an effective strategy.

In Houston a couple of years ago, I was tweaked by my host for the prediction on an earlier trip that prices would revert to $30 a barrel within a year or so, and I responded with a slide from that trip and noted that almost everything I predicted was wrong, except that Iraqi political stability seemed unlikely. Pure genius, that last one.

For the past several years, I have been suggesting that, without major improvements in the geopolitical situation, long-term oil prices should be about $60 a barrel. For this, I was derided by a number of observers, including the late Christophe de Margeri, CEO of Total, and I have been persistent the lowest of the ‘major’ forecasters, as seen in the DOE survey published earlier this year.

So am I a stopped watch? Or clever?

Well, since I haven’t argued for constantly-falling prices but a near-term plateau around $70 (whoops), it doesn’t seem that I am constantly bearish. Contrast that with those who, in 2008 when oil prices soared, insisted they would keep rising to $200 and beyond.

But also, the reasons for prices moving as predicted (or not) are crucial. Bullish oil price forecasts have been driven by: a) the belief that finite resources must always increase in price; b) booming demand in countries like China will pressure supplies; c) costs must inexorably rise; and d) because the ‘easy’ oil is gone. None of these is actually correct...................................................................

http://www.forbes.com/sites/michaellynch...-vs-lucky/

[brattzz]

Brent oil below US$60!

OPEC wants it to go down to US$40!!

Down down down!!

[yewkim]

Wow, bernasib baik malam ini.. sold all SCO, take half at 77, then see it falling take all at 75.. if not now too late, looking to get back soon. I think it should be able to get back above 60$ soon. But after a fall so steep, it may take a while. Hope all are doing well too. If you got short position, do please be alert. I guess oil n gas counters play could start soon. Today, I bought into 2 oil counters. I do have strict stop loss enshrine. But this does not means oil have found a bottom. Oil is just having a bounce here. Good luck to all.

[Boon]

Oil prices are now unsustainably low: So where do we go from here?

John Kemp, Reuters | December 16, 2014

LONDON — Oil prices have now fallen to an unsustainable low level. Futures contracts for Brent and WTI have fallen below US$60 and US$55 per barrel respectively but many crude producers are receiving much lower prices.

Plains Marketing, for example, is now offering just US$39.69 per barrel for Williston Basin Sweet crude and less than US$50 for a wide range of other U.S. crude oils, according to its latest pricing bulletin, published on December 15.

Billions of dollars of capital expenditure projects have been or will be postponed by the major international oil companies, independents and shale producers, which, if they all remained canceled, would generate an enormous shortfall in oil supplies by the end of the decade.

At these prices, shale production on most leases across the United States cannot breakeven. Only a few of the most favorable areas with the best geology and low transport costs remain profitable. Even in these cases profit margins are razor thin.

If posted prices remain at current depressed levels, almost all shale drilling activity will eventually cease, and U.S. oil production would start to fall rapidly towards the end of 2015 and into 2016 as output from existing wells starts to decline.

Just as prices were unsustainably high when Brent was trading above US$100 throughout most of 2011-2014, encouraging too much drilling and conservation, oil prices have now plunged to an unsustainably low level.

The market has over-reacted to signs of an impending surplus in production in 2015 by cutting prices to a level that will cancel not just marginal projects but almost all new drilling given enough time.

It is a classic bubble – the mirror image of the frenzied rise in prices towards their peak at US$147 per barrel in July 2008 (“Oil market is trapped in a negative bubble” Nov 14).

Like any bubble, it is impossible to predict how long it will continue to inflate or how far prices might eventually be distended before the bubble bursts.

In a bubble, prices tend to become far more distorted than rational observers thought possible before correcting, so there is no reason why oil prices cannot fall further in the short term.

http://business.financialpost.com/2014/1...=43f8-4c78

[BlueKelah]

Wow negative bubble, really?? first time heard of this. Offering 39.69 just means they are desperate for business or their oil grade is lousy. Prices will stabilize when supply goes down, which is not happen ing yet

-- via Xperia Z1 with tapatalk

[orangetea]

the more as news unfold, it seems to point that the oil price game is aimed at Russia by the US and Gulf coalition.

[Boon]

But will U.S. oil radically transform global energy markets over the next decade or two? The answer is no. Middle East oil, Russian oil and African oil will still be in high demand over the next two decades, according to forecasts by the International Energy Agency. Indeed, most forecasts suggest that by the 2020s, U.S. shale will decline and OPEC oil will be needed to pick up the slack.

So, new U.S. oil will put downward pressure on the price, but will not be a game changer in and of itself. The real question is: Will the U.S. fracking revolution expand globally? If it does, that could have a truly transformational effect on global energy. That would be the game changer.

________________________________________________________________________________________________________________

Declining oil prices: OPEC vs. (future) Shale?

Tuesday, 16 December 2014

Afshin Molavi

When the late John D. Rockefeller, one of America’s earliest global business barons, was asked the secret of success, he quipped: “Get up early, work late and strike oil.” Of course, as founder of Standard Oil in the year 1870, he certainly got up early, and worked late as he built an empire of oil that made him the richest man in the world by the early 20th century.

Since then, oil has come to rival water as one of the most essential commodities necessary for modern human life and, thus, the countries and companies that produce, extract, refine, and sell it are among the richest on earth. Rockefeller’s advice still holds.

Norway’s sovereign wealth fund is not far off a trillion dollars and Saudi cash reserves clock in at nearly $800 billion. The world’s leading energy companies report earnings in the billions every quarter.

Thus, it’s no surprise that the current near 50 percent drop in oil prices since June of this year has captured global headlines and spawned numerous narratives: OPEC and/or Saudi Arabia vs U.S. shale oil, one of the more popular ones, and Saudi Arabia/UAE vs Iran/Russia a secondary one. But as with most popular narratives, there is a deeper issue at play here.

Bristling theories

First, let us dispense with the Russia/Iran squeeze play story. Theories are rife about a Saudi squeeze play on Iran, a country with far less cash reserves than the UAE, Kuwait, or Saudi Arabia. Iran, the theory goes, will face far more difficulty with the declining oil price than Arab members of OPEC. That’s why Saudi Arabia chose not to “defend” the price through cuts in production, the theory goes.

With a break-even budget price of oil ranging in the $130-$140 range, according to the IMF, a sanctioned Iran with little access to capital markets can hardly handle a sustained oil price decline. Russia, too, faces a tide of rising sanctions and they, too, are hurt by the global decline in prices. By squeezing Russia, the argument goes, Riyadh would be “punishing” Moscow for its support of President Bashar al-Assad.

There may be some truth to this, but to truly do significant damage to Iran or Russia, the price decline would need to be larger and over a longer period of time. With large, fiscal expansionary budgets in Saudi Arabia and the UAE, such a move would risk cutting off the nose to spite the face.

Larger play

No, there is a larger play here than Iran or Russia. So, is it U.S. shale oil? Is the play to let the price drop squeeze out U.S. shale oil producers who need a higher global price to make their projects sustainable?

Today, the U.S. is producing more oil than it has done in three decades. Over the summer, the U.S. surpassed Russia and Saudi Arabia as the world’s largest oil producer. The U.S. shale boom has added significantly to global inventories of oil and posed a direct challenge to OPEC.

Partly as a result of the U.S. energy boom, oil prices have hit a five-and-a-half-year low, falling by almost 50 percent since June. Brent crude hovers in the $60 range, and U.S West Texas Intermediate has fallen to $57 per barrel. In some parts of the United States, shale oil is being sold for under $40 per barrel.

The key question at play here is this: Is the decline in oil price a cyclical or structural phenomenon? Have the tectonic plates of energy shifted?

To answer that, let us begin with a group of engineers and geologists who, in the early 1980s, began using a technology known as hydraulic fracturing to try to coax gas from tight rock formations in the United States by injecting chemicals and water into the wells. Nothing worked, until a uniquely driven businessman by the name of George Mitchell, laid down the gauntlet for his team of engineers in the early 1980s: get me some shale gas in a decade, or the company collapses.

Mitchell and his team got up early, worked late, and eventually, after seventeen years of trying, they “cracked the code,” as industry observers often say. They became the first company to discover the right combination of water and chemicals to extract so-called tight gas. Those gas fields eventually began producing oil, and today, the shale oil and gas revolution has fueled U.S. economic growth, changed global energy dynamics and transformed global geopolitics.

Radically transforming global energy markets

But will U.S. oil radically transform global energy markets over the next decade or two? The answer is no. Middle East oil, Russian oil and African oil will still be in high demand over the next two decades, according to forecasts by the International Energy Agency. Indeed, most forecasts suggest that by the 2020s, U.S. shale will decline and OPEC oil will be needed to pick up the slack.

So, new U.S. oil will put downward pressure on the price, but will not be a game changer in and of itself. The real question is: Will the U.S. fracking revolution expand globally? If it does, that could have a truly transformational effect on global energy. That would be the game changer.

Imagine a China that fracks. Or an India. Or some of the other large emerging markets that are driving future demand. Or fracking in Europe? In that scenario, we could see both the cost of fracking fall and the world come awash in new supplies of oil, putting tremendous downward pressure on the price, and reordering world energy markets and world power.

Some have suggested that we are still in the early stages of shale oil and gas, something akin to the first clunky computers that hit the shelves in U.S. stores, and were being purchased for office use for the first time. In that pre-Internet, pre-high speed computing era, few could have imagined the growth of the information revolution and how it would transform the world.

The problem with that analogy, however, is that the costs of fracking are so high that only a high oil price environment will allow for companies to take the necessary capital expenditure risks to develop new projects. The declining oil price will not squeeze U.S. shale entirely, but it will make new projects far less feasible. These are not projects that can be hatched in a garage with a couple of engineers and a bit of angel investing money. These are projects that carry massive debt.

In this context, the OPEC decision to let the market find its own price makes sense. After all, a world of Chinese and Indian fracking would pose tremendous challenges to OPEC producers.

So, this is not a fight between OPEC and U.S. shale oil. It’s a battle between OPEC and future shale. Because what is most dangerous to the future of OPEC is not U.S. production, but a world in which China, India and Europe all begin their own fracking revolution.

http://english.alarabiya.net/en/views/bu...hale-.html

[HitandRun]

Offering 39.69 just means they are desperate for business or their oil grade is lousy.

Aiyoh! Williston Basin is in North Dakota mah. The MAIN difference between North Dakota and Texas is that the infrastructure in Texas has been well developed (due to its legacy conventional oil production) and hence transportation of crude via pipeline is both cheap and feasible. On the other hand, a lot of North Dakota production has to be shipped via rail and trucking which pushes up the costs tremendously. According to some sources, it might cost between USD10-15 per barrel to ship via rail.

Why doesn't someone invest and build the pipelines in North Dakota? Because the production depletes so quickly, the pipeline company might not be able to recover its investment lah....