Oil Prices

[Boon]

Why $50 Oil Won’t Last
By Robert Rapier
Posted on Sun, 25 January 2015
http://oilprice.com/Energy/Oil-Prices/Wh...-Last.html

How long will the plunge in oil prices go on for?
CNBC Videos by CNBC Videos
4:39 mins
http://finance.yahoo.com/video/long-plun...00399.html

Why Oil Prices May Not Recover Anytime Soon
By Adam Levine-Weinberg
January 25, 2015
http://www.fool.com/investing/general/20...-soon.aspx

[HitandRun]

http://www.indexmundi.com/energy.aspx

Look at the world oil consumption chart and table - what could better explain the increase in consumption other than the increase in world population, over the years?

Boon san

Bottom line is that economic growth drives oil consumption. However, definition of oil might be a fluffy one too, with condensate, natural gas liquids etc being counted too. I agree with Robert Rapier that the cure for low oil prices is low oil prices.

My immediate worry is that oil prices does not remain low for a sufficiently long enough time to kill off marginal players or at least delay their production significantly. If they remain sufficiently low, it would create another mega opportunity to make big bucks in the next boom.

[zerobeta]

To counter Robert Rapier's argument why low oil price isn't sustainable, here's an article from FT explaining why low oil prices do not ensure shale output cuts

http://www.ft.com/cms/s/0/fcddf800-5488-...z3PueomqR0

[HitandRun]

To counter Robert Rapier's argument why low oil price isn't sustainable, here's an article from FT explaining why low oil prices do not ensure shale output cuts

http://www.ft.com/cms/s/0/fcddf800-5488-...z3PueomqR0

Jonathan Kingsman is the founder of sugar consultancy Kingsman and currently a consultant to Platts.

My personal opinion is that he should have stuck to his area of expertise, i.e. sugar. Because his entire thesis is that the scenario in sugar can be equally applied to crude oil.

Zerobeta

May I pose you a question? => How much capex is required to maintain sugar production Vs how much capex is required to maintain crude oil production?

[yewkim]

Thanks all for the contribution and very good articles. You guy are wonderful. I think a long u-shape recovery should not be rule out, but hope stock soar on low oil price.

Future point to no panic for wall st on the outcome of Greece election. That is good.

[specuvestor]

To counter Robert Rapier's argument why low oil price isn't sustainable, here's an article from FT explaining why low oil prices do not ensure shale output cuts

http://www.ft.com/cms/s/0/fcddf800-5488-...z3PueomqR0

Jonathan Kingsman is the founder of sugar consultancy Kingsman and currently a consultant to Platts.

My personal opinion is that he should have stuck to his area of expertise, i.e. sugar. Because his entire thesis is that the scenario in sugar can be equally applied to crude oil.

WOW

talk about man with a hammer...

[specuvestor]

"There’s an oversupply of about 1.5 million barrels a day on the oil market and OPEC is open to a meeting with nations outside the 12-member group to tackle the glut, El-Badri said. The market will be brought back into balance by a reduction in supply, rather than an increase in demand, he said.

Investment in oil production will fall by $100 billion, or 15 percent, this year compared with 2014, Fatih Birol, chief economist at the IEA, said at the World Economic Forum in Davos, Switzerland on Jan. 21. This means oil at $45 a barrel will be a temporary phenomenon, he said."

http://www.bloomberg.com/news/2015-01-27...tment.html

[BlueKelah]

"There’s an oversupply of about 1.5 million barrels a day on the oil market and OPEC is open to a meeting with nations outside the 12-member group to tackle the glut, El-Badri said. The market will be brought back into balance by a reduction in supply, rather than an increase in demand, he said.

Investment in oil production will fall by $100 billion, or 15 percent, this year compared with 2014, Fatih Birol, chief economist at the IEA, said at the World Economic Forum in Davos, Switzerland on Jan. 21. This means oil at $45 a barrel will be a temporary phenomenon, he said."

http://www.bloomberg.com/news/2015-01-27...tment.html

this fellow is from Libya lah, not Saudi. Another hot air talking. Trend is very clearly down so long as arabs continue pumping. The new arab king already stated they are continue to happily pump more.

Oil at $45 will be temporary until shorts have covered their position and ready for next round of shorting.

[yewkim]

“If I reduce, what happens to my market share? The price will go up, and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

That quote is from Saudi Oil Minister Ali Al-Naimi. And it's the official justification for why Saudi Arabia won't cut its oil production to be more in line with current demand.

Heck, Saudi Arabia has been cutting deals with China and others to sell its oil at below market prices!

That will certainly help the country get market share. It will also keep the pressure on prices.

The Saudi decision to keep pumping even though the global market is oversupplied by as much as 2 million barrels a day will cost it around $39 billion. Bloomberg reports that's what the Saudi budget deficit will be this year.

Last year, the Saudi budget deficit was around $12 billion, even though oil prices were high.

Of course, when you have $732 billion in reserves like the Saudis do, a little deficit spending is no big deal — especially when the payout down the road will be so huge...

Market share isn't the only thing going on here. Companies routinely lower prices in order to take market share and crush weaker competitors. And once you have a controlling market share, you can run prices back up and make out like a bandit...

This is what the Saudis are doing right now: They have driven oil prices lower, they are taking market share, and there will be higher prices down the road.

Saudi Arabia won't even have to lift a finger to get oil prices higher — the market will take care of that for it. The Saudis will be able to sit back and rake in the cash.

Big changes in oil supply cannot happen quickly, especially in countries where oil supply is controlled by independent companies, like here in the United States.

Imagine the U.S. government issuing orders that U.S. oil production must be cut by 1 million barrels a day. That wouldn't happen because, for the most part, we let the market forces of supply and demand dictate how much oil companies produce.

But U.S. oil companies have a special problem: debt. They've taken on $550 billion in debt (bonds and loans) since 2010. They have to keep pumping in order to meet debt obligations. CreditSights says default rates on energy junk bonds will double this year.

Small U.S. oil companies (Goodrich Petroleum and Lightstream Resources, for instance) are starting to sell off assets in the Bakken, Eagle Ford, and other oil hot spots.

Companies will also spend less on new production. And that's where the problems will begin...

Now, here's the thing: It takes time to develop new oil fields. And in the meantime, existing oil fields are in decline.

In 15 years, half of current oil production will be completely depleted. That means over the next 15 years, the world has to develop around 50 million barrels of oil a day just to maintain current production numbers.

It's going to be hard to support that development if oil companies are cutting spending.

It took the U.S. six years to add 5 million barrels a day in oil production.

Global oil production, meanwhile, hasn't really grown much in 10 years. What growth there has been is easily attributable to U.S. shale production...

without the increase in U.S. production, global oil production would have gone into decline three years ago. And this is why I say the Saudis are devious bastards: By refusing to cut production and forcing a collapse in pricing, they are forcing oil companies to stop developing new oil fields.

In other words, they are setting up the conditions for a perpetually undersupplied oil market.

That, in turn, will cause a massive spike in prices, like what we saw in 2008.


the above is by Briton Ryle.


in another word, Saudi are smart, they seen to suffer upfront, but their profit are in the future, and they too got sole control over oil again. Eventually, the global economy will improve, and oil demand will increase. The Saudis know that when this happens, oil prices will launch.

I expect they are happy to run budget deficits as long as it takes — because the payoff for them will be huge.

[Boon]

http://www.indexmundi.com/energy.aspx

Look at the world oil consumption chart and table - what could better explain the increase in consumption other than the increase in world population, over the years?

Boon san

Bottom line is that economic growth drives oil consumption. However, definition of oil might be a fluffy one too, with condensate, natural gas liquids etc being counted too. I agree with Robert Rapier that the cure for low oil prices is low oil prices.

My immediate worry is that oil prices does not remain low for a sufficiently long enough time to kill off marginal players or at least delay their production significantly. If they remain sufficiently low, it would create another mega opportunity to make big bucks in the next boom.

Hi HitandRun,

Agreed - Economic growth drives oil consumption - but of all the drivers of economic growth – population growth is probably the most significant (not the only driver) - the correlation between world oil consumption and world population growth is strong.

Hence, IMO, it would certainly be hard to fault “sgd” for arguing that increase in world oil consumption over the years has been driven by population growth.
________________________________________________________________________________________________________________

Would oil prices remain sufficiently low for sufficiently long enough time to kill off marginal players and set the base for the next boom ?

Well, as long as volatility remains - there are always opportunities to make big bucks (and to lose big bucks).............ha-ha !

Here is a good article:

Oil prices: boom, bust and boom again
Paul Horsnell
December 9, 2014

.......................Volatility in oil prices is nothing new. However, the main danger for the global economy is that the oil industry will respond the way it always has done. If non-Opec investment is slashed once more, and the industry again sheds skilled labour at the first sign of trouble, then the next ride up in prices may prove just as wild as the previous ones.

http://www.ft.com/intl/cms/s/0/7cf27c68-...z3PwVR8c8N