Oil Prices

[Boon]

Oil price could spike to US$200 a barrel as investment slump incubates future crunch, experts warn

Ambrose Evans-Pritchard, The Telegraph | January 22, 2015 |

http://business.financialpost.com/2015/0...=46d5-8288
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When Oil Prices Plummet, Common Sense Tends To Follow

1/22/2015

By Anna Mikulska and Jim Krane

http://www.forbes.com/sites/thebakersins...to-follow/
________________________________________________________________________________________________________________
January 22, 2015 5:47 pm

Impact of oil price rout starkly evident in North America

Ed Crooks in New York

http://www.ft.com/intl/cms/s/0/6459f5a4-...tml#slide0

[BlueKelah]

Saudi people have spoken, no change to plan, oil could have prolonged slump, not far from 30 dolla now ...

via Galaxy Tab S with Tapatalk

[Boon]

Oil Price Fallout: Now What?

1/23/2015

BY CHRISTIAN CAMEROTA

The last six years have proved just how fluid the international oil market is. And if recent support of the Keystone Pipeline by the U.S. House of Representatives and the Nebraska Supreme Court (which approved the pipeline’s path through that state) are any indication, change will be the constant in the near future as well.

Gasoline and oil are at their lowest prices since 2008, a year that saw oil peak at record highs of $140 a barrel before plummeting to just below $50 by year’s end, roughly where it stands again today. Those prices are largely dictated by the Organization of the Petroleum Exporting Countries’ so-called spare production capacity—that is, the amount of production OPEC (which accounts for 60 percent of petroleum traded internationally) can bring online within 30 days and sustain for at least 90. Spare capacity is robust at present thanks to factors like a slow-paced world economy, curtailed oil demand due to conservation efforts and concern about greenhouse gas emissions, and the fact that many countries have upped their domestic production and thus reduced their imports. One of the most notable new producers is the United States, which has seen a boom in oil and natural gas production thanks to hydraulic fracturing (fracking) applied to abundant supplies of shale.

Harvard Business School Professor Richard H.K. Vietor, the School’s Paul Whiton Cherington Professor of Business Administration, teaches courses on the international political economy and has published dozens of cases on energy policy. Of late, he’s taken a keen interest in how the shifting energy market is influencing geopolitics, particularly as the shale revolution turns the US into a hotbed of domestic and foreign energy investment and reshapes the global energy picture. In this new world, OPEC members have openly refused to reduce their production levels to stabilize and bolster oil prices, largely because most of their governmental budgets rely heavily or entirely on oil revenues.

“Many OPEC members, like Iran, Iraq, and Venezuela, are running budget deficits, even with oil revenues,” Vietor said in a recent interview in his Morgan Hall office. “If their revenues drop, whether from limited production or falling oil prices, they’re going to have big problems with their governments. In some cases, it could even cause a revolution. And we’re reaching that point right now, where there’s simply too much oil and not enough demand.”

Saudi Arabia is the anomaly among OPEC producers. It accounts for about 70 percent of spare production capacity, according to the International Energy Administration, and therefore has much more budgetary freedom with which to manipulate the world oil market. Vietor believes that after having been rebuffed by other OPEC producers recently in pushing for production limits, Saudi Arabia is now content to stand pat and let the market fix itself.

“Oil is a large part of the Saudis’ budget as well, but they’re also running a huge surplus,” he said. “So I think they’ve decided they can take the lower prices better than anyone else. Their costs are perhaps between $10 and $15 a barrel. They can let prices fall and although they may go into deficit, everyone else [other OPEC members] will just about go out of business. Then prices will probably stabilize at $80 or $90 a barrel in a few years. Looking at the big picture in the current energy environment, I think OPEC’s role as manager of the world’s oil supply has just about run its course.”

One reason OPEC’s hold on the world oil market has loosened is that the U.S. has quadrupled its oil production over the last six years thanks to fracking, a complex technique that combines both vertical and horizontal drilling and uses highly-pressurized water jets to force fossil fuels like oil and natural gas up from otherwise-unreachable rock beds. This new technology has enabled U.S. companies to access some of the estimated 36 billion barrels of “proved oil reserves” in this country, a number that has increased five years in a row.

“What we found out during the last six years is that if the price of oil is high enough, someone will solve the complexities of horizontal drilling and fracking,” Vietor said. “But with those solutions, and now the ensuing falling prices for oil, come some major concerns. Environmentalists, for instance, are not happy, since just as they’re beginning to see a decline in demand and have the support of a president who’s determined to stop climate change, if oil prices are down, everybody will start buying gigantic vehicles again, and carbon emissions will go right back up.”

The precipitous decline of oil prices also threatens the long-term viability of some of the country’s shale oil projects. Shale oil is expensive to harvest and becomes prohibitively so as oil prices fall. And this is to say nothing of emerging concerns about both the relatively short lifespan of shale wells (production, for example, has declined in wells in the Bakken fields in North Dakota by 85 percent in just three years, compared to 20-year terms in more traditional wells) and the environmental dangers inherent in the process: related earthquakes, exorbitant water needs, and the release of methane gas, to name a few.

The Keystone Pipeline could further bolster U.S. oil production, moving a million barrels of tar sands oil each day from western Canada to the refineries along the Gulf coast. The project has been stalled in legal and political battles for eight years and still faces the likelihood of a presidential veto if approved by the Republican-dominated U.S. Senate. But, domestic politics aside, according to Vietor, the administration may not be able to ignore the project’s potential for job creation and positive influence on U.S.-Canada relations.

“Every Republican and most Democrats in the Midwest want to approve Keystone,” Vietor said. “It will create 7,000 temporary jobs, 400 permanent jobs, and 2,000 related jobs as well as provide a million barrels of oil every day to refiners that need it. With all the economic issues on the one hand and environmental worries on the other, I must confess I don’t know what President Obama is going to do.”

Meanwhile, consumers will continue to enjoy paying much less at the gas pump. Unfortunately, Vietor added, low oil prices won’t lower the costs of other goods or services significantly. “Oil prices mostly affect transportation,” he said, “so low prices don’t work their way through the system as much.”

So what would it take to drive up the price of oil again?

“The quickest thing would be an OPEC agreement to cut production by 3 or 4 million barrels,” Vietor concluded. “Beyond that, any political unrest in OPEC countries or even conflicts between them could cause prices to spike. Despite a lot of new production methods, the reality is that the world consumes more than 80 million barrels of oil per day. So if that spare capacity gets low suddenly, prices could go right back up. It doesn’t take much.”

About the author: Christian Camerota is assistant director of communications at Harvard Business School.

http://www.forbes.com/sites/hbsworkingkn...-now-what/

[brattzz]

but oil is a commodities, it's supposed to be available at a price as cheap as possible.
why is everyone pricing oil at US$80 when it can be produce by OPEC at US$20??

Greed at play here,

For the very same reason, countries that plan their budget based on US$80, without stress testing, will now behave like the oil companies,
push back all development projects till a later stage...

I think this is a good time for "opportunity funds" deployment.

[Boon]

Dueling Oil Benchmarks Converge in Their Price, but Diverge in Their Stories

Crude Measures Reflect Different Market Forces Playing Out in U.S. (as Told by WTI) and Globally (by Brent)

By Jo Craven McGinty
Jan. 23, 2015

The economic ripples caused by the free-falling price of oil in recent months have drawn wider public attention to the daily cost of a barrel of crude.

But the figures traditionally used to convey global oil prices—the West Texas Intermediate and Brent crude benchmarks—measure different things and don’t always line up. Today, for example, a barrel of oil costs $45 and change by WTI and a few dollars more by Brent. At times, the difference between the two has topped $20.

Traders and economists are familiar with the reasons why WTI and Brent differ. For those newly curious about what falling oil prices mean, it’s worth learning what the benchmarks reveal, and how they’ve changed over time.

The basic reason why the numbers diverge is because they are snapshots of oil prices in different places: WTI reflects the U.S. and Brent the North Sea in Europe. At one time, they were equally good benchmarks of global crude. But as domestic production surged, WTI began to reflect the surprising domestic oil glut, which turned out to be more than the existing pipelines could handle.

Crude oil is classified as light, medium or heavy, referring to the density of the liquid, and as sweet or sour based on its sulfur content. Light, sweet oil—which floats on water and is low in sulfur—is prized because it requires less processing to convert it into usable products. WTI and Brent are both light, sweet crude oils.

“If somebody wanted to buy heavier or more sour crude, they could say what’s Brent? OK, I’ll give you Brent minus $2.50,” said James Preciado, who analyzes futures markets and energy prices for the U.S. Energy Information Administration.

Traditionally, prices for the two have tracked closely and they’ve been quoted interchangeably as benchmarks. But the U.S. shale oil boom upended the relationship, throwing the WTI’s usefulness as a global barometer into question.

Before the boom, the U.S. produced about five million barrels of crude oil a day and imported about 18 million barrels. Much of the imported oil moved from the Gulf Coast to Cushing, Okla., a major crude oil hub in North America and the delivery point for WTI.

When the boom hit, domestic production rapidly increased by 4 million barrels a day, flooding Cushing and overwhelming the pipelines, which were not equipped to move large volumes of crude to Texas.

“They could push it upstream but not to the Gulf Coast,” Eric Lee, an energy analyst with Citigroup said. “The storage tanks filled up, and prices dropped significantly.”

Meanwhile, several factors increased demand for Brent crude, keeping its prices high relative to WTI and cementing Brent as the more accurate global benchmark.

“The biggest was the Libyan situation,” said John Felmy, the chief economist for the American Petroleum Institute, referring to the militias that have thrown the country into turmoil and paralyzed its oil industry, as well as losses in other areas like South Sudan. “We lost 3% of the world supply. You might look at it and say 3% is not very much. It can mean a 30% change in prices.”

To address the bottleneck, the 500-mile Seaway pipeline reversed the direction of its flow to carry crude from the Cushing site to Texas. A twin pipeline was constructed, doubling the pipeline’s capacity to about 850,000 barrels a day. And a segment of the Keystone pipeline was built with the potential to transport about 830,000 barrels a day to Gulf Coast refineries.

With WTI crude moving through the pipes, the spread between the benchmarks began to narrow, and displaced imports contributed to the lessening gap.

Countries in “West Africa, Latin America and the Middle East lost market share in the U.S.,” Mr Lee said. “Oil they had exported to the U.S. has to go somewhere else in the world.”

The U.S. still has an oversupply of crude, he added, but for now the rest of the Atlantic Basin—which includes the North Sea—is even more oversupplied, and that is pushing Brent prices down to meet WTI. “It becomes a buyers’ market. There is downward pressure on the price,” Mr. Lee said.

After about six months of steep decline, the two benchmarks are once again more closely aligned, although the U.S. product has lost its status as a global benchmark.

“Nowadays, the WTI is much more associated with U.S. domestic production and U.S. domestic prices,” Mr. Preciado said. “Brent is seen as an international benchmark.”

That doesn’t mean one is more important than the other. But the benchmarks now tell different stories.

http://www.wsj.com/articles/dueling-oil-...1422039795

[Boon]

Thank you OPEC! China saves $100 billion

By Ivana Kottasova

January 23, 2015

DAVOS, Switzerland (CNNMoney)

China will save $100 billion on its oil import bill in just six months thanks to the collapse in crude prices.

That assumes prices remain at current levels, said Boqiang Lin, a leading China energy economist........................................

http://money.cnn.com/2015/01/23/news/eco...mic-forum/

[yewkim]

Can anyone here share what preparation you all have, to take advantage of this low oil price. Any stock to share that can ride oil back up later. Or any counter that we can profit from this downturn in oil, instead of debating no end to this low oil price, and pasting article here which I see are quite perilous.

I think in US, consumer stock will benefit from low oil price. I like DENN. DAL, FL, K, COH

For local OnG, I like Ezion, MTQ, Mermaid, for their FA. But I believe this low oil price may stay quite a while. In fact, you read, even OPEC chief is not sure, neither is Saudi Energy Minister. If they been expert are not sure, we should not try to guess. I believe, if one got deep pocket and holding power, at this level he should start buy using dollar averaging, should be fine. Those who bought Ezion at close to a dollar is laughing now. Unfortunately, not me.

[brattzz]

focus on our 2 blue chips? KepCorp & SembMarine.

[BlackCat]

For when oil starts to rise:

• One of the oil majors, or the ETFs that hold them: XLE or VDE
  
• Speculative E&Ps with good balance sheets that produce cheaply. Genel Energy (LSE:GENL) can produce at under $20/bbl, all-in.
  
• EOG seems the best of the US frackers
  

Haven't finished my homework yet.

I'll buy slowly over the next 6 months, faster if WTI < $40. Expect to hold for a year till oil hits $70-80, barring any recession. These aren't buy-and-hold-forever stocks. Just something to keep me occupied

I'd also like to hear anyone's picks from the local/regional markets. Looking for cos with low debt (pref. net cash), that could withstand $40 oil for a few years if need be, preferably no deepwater exposure.

[Boon]

Can anyone here share what preparation you all have, to take advantage of this low oil price. Any stock to share that can ride oil back up later. Or any counter that we can profit from this downturn in oil, instead of debating no end to this low oil price, and pasting article here which I see are quite perilous.

I think in US, consumer stock will benefit from low oil price. I like DENN. DAL, FL, K, COH

For local OnG, I like Ezion, MTQ, Mermaid, for their FA. But I believe this low oil price may stay quite a while. In fact, you read, even OPEC chief is not sure, neither is Saudi Energy Minister. If they been expert are not sure, we should not try to guess. I believe, if one got deep pocket and holding power, at this level he should start buy using dollar averaging, should be fine. Those who bought Ezion at close to a dollar is laughing now. Unfortunately, not me.

Interesting observations "yewkim" but I have the following questions:

1) You believe that: “this low oil price may stay quite a while” - how "low" is your "low" and how "long" is your "quite a while"?
2) You also claimed that : “OPEC chief is not sure，neither is Saudi Energy Minister. If they been expert are not sure, we should not try to guess”
3) So, what is your basis for believing that “this low oil price may stay quite a while”? - Is it merely pure guess work or you are more sure than the OPEC chief or Saudi Energy Minister - whom you considered to be experts?
4) What is your basis for arguing that there should be an end to the “debate”? - Because no one is sure or because you are more sure that“this low oil price may stay quite a while”?
5) What is so perilous about pasting and posting oil related articles here?