2007 Deja Vu As Goldman Sees $150 Oil By The Summer

Tyler Durden's picture




 

While Brent closed 2012 at around its average closing price for the year, suggesting some stability, rolling a front-month contract garnered returns over 10% underscoring Jeff Currie's (Goldman's chief commodity strategist) note that money can still be made in a low volatility environment. However, he does note the incredible divergence between near-record-high geopolitical risks and near record-low Brent crude volatility relative to stocks. The key is that while Currie expects the global oil to remain cyclically tight (inventories low in 2013-14), with a $105.50 average for WTI; in an interview earlier today in Frankfurt, he said he wouldn't be surprised "if we woke up in summer and [Brent] oil cost $150" per barrel.

 

 

Dow Jones notes that:

Mr. Currie pointed out that despite the boom in U.S. shale gas, the oil price remains high, which he attributed primarily to sanction-related supply disruptions in Iran. Trying to compensate for this, Saudi Arabia has already increased its oil production to a 30-year high this year. At the same time, Mr. Currie added that while global oil demand has increased at a slower pace, it is still higher than the production increases in non-OPEC countries.

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Thu, 01/17/2013 - 14:40 | 3163184 francis_sawyer
francis_sawyer's picture

Cushing must be overflowing... What's the crack spread on Brent & WTI?

Thu, 01/17/2013 - 14:41 | 3163201 economics9698
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$150 oil = crack-up boom.  September 2013.  1923 Germany.

Thu, 01/17/2013 - 14:42 | 3163219 trav777
trav777's picture

export land model a'comin

Thu, 01/17/2013 - 14:54 | 3163270 economics9698
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"If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse)."

 

Thu, 01/17/2013 - 15:43 | 3163485 Kitler
Kitler's picture

Mr. Currie pointed out that despite the boom in U.S. shale gas, the oil price remains high, which he attributed primarily to sanction-related supply disruption in Iran.

Any fool can see that the Iranians are to blame here. Perhaps a return to a new Shah with privatisation of the nation's oil is in order.

Thu, 01/17/2013 - 15:59 | 3163544 Flakmeister
Flakmeister's picture

Not sure how the "boom in US shale gas" has much to do with "the oil price remains high" but I never really learned to speak out of both sides of my mouth simultaneously...

Thu, 01/17/2013 - 16:11 | 3163573 ParkAveFlasher
ParkAveFlasher's picture

Let's see, got my pencil handy ... $150/bbl, 16 bbls/oz of .9999, that makes $2400 per .... GOLD, BITCHEZ

Thu, 01/17/2013 - 16:13 | 3163581 Comay Mierda
Comay Mierda's picture

GS says oil will rally?  time to short it

Thu, 01/17/2013 - 16:41 | 3163728 ACP
ACP's picture

And then the crash in 2014?

Thu, 01/17/2013 - 16:09 | 3163570 NooooB
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Best avitar ever.

Thu, 01/17/2013 - 16:16 | 3163590 francis_sawyer
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Worst spelling of 'avatar' ever!

Thu, 01/17/2013 - 16:19 | 3163599 Spastica Rex
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Avetteahr.

edit: Call me "Topper."

Thu, 01/17/2013 - 14:59 | 3163284 CrashisOptimistic
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Items from the post:

1) Brent closing about its average for the year is not important.  What it important was it closed at its all time closing year high, which it has done for about 3 straight years.

2) Saudi Arabia oil production is DOWN recently, not up.  From 9.7 mbpd in Oct, they pumped 9.2 mbpd in Dec.  per

http://www.opec.org/opec_web/static_files_project/media/downloads/public...

 

 

Thu, 01/17/2013 - 14:42 | 3163202 hedgeless_horseman
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A friend of mine told me last night that he has been in North Dakota for two weeks (miserably cold) and that, "Our wells are not producing like they should be and the government wants to know why."

Thu, 01/17/2013 - 14:42 | 3163216 trav777
trav777's picture

Xerxes showed the Hellespont not to eff with him, Bama needs to nut up

Thu, 01/17/2013 - 16:13 | 3163579 ParkAveFlasher
ParkAveFlasher's picture

What the government needs to understand is that you can't print oil.

Thu, 01/17/2013 - 14:43 | 3163218 francis_sawyer
francis_sawyer's picture

Tell him to tell them to ask Scotty...

Thu, 01/17/2013 - 18:10 | 3164073 unrulian
unrulian's picture

Scotty's dead

Thu, 01/17/2013 - 14:47 | 3163235 Flakmeister
Flakmeister's picture

Not to doubt this anecdote....

But it is very clear that D.C. was given the hard sell  on the Bakken by Hamm et al... and they may have put too many eggs in that basket...

From my buddies over at TOD

sept. 2012 662996 bpd        4634 wells producing
oct    2012 684165 bpd        4795 wells producing
nov   2012 669091 bpd        4910 wells producing

that's 2% more wells producing 2% less oil.

And from Bloomberg a few days ago

Bakken Oil Output Fell in November for First Time in 18 Months

Production declined 2.2 percent from October to 669,000 barrels a day, according to the North Dakota Industrial Commission. It was the first month-to-month drop since April 2011. The decline closely followed a decline in rig counts in the state, from 210 on Oct. 19 to 181 on Nov. 30, according to data compiled by Smith Bits, a drilling products and services provider owned by Houston- and Paris-based Schlumberger Ltd. (SLB)

Bakken wells tend to have steep decline rates because they’re created with directional drilling and hydraulic fracturing, James Williams, president of WTRG Economics in London, Arkansas, said by telephone.
“The question is, are you drilling enough new wells to make up for the decline?” he said. “With a little decline in the rig count, and the very fast depletion rate of the wells, it’s not terribly surprising that the Bakken production leveled off.”

Thu, 01/17/2013 - 14:51 | 3163248 hedgeless_horseman
hedgeless_horseman's picture

 

 

The question is, are you drilling enough new wells to make up for the decline?

I am so happy to hear more confirmation of this news.  Bullish for tubular steel!

Thu, 01/17/2013 - 14:58 | 3163287 francis_sawyer
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Because moving the tubular steel from the unproducing wells to ones which might produce would be completely out of the question, right?

Thu, 01/17/2013 - 15:04 | 3163313 CrashisOptimistic
CrashisOptimistic's picture

 

Doesn't matter if you do.

Understand what the down escalator does.  If you slow your sprint upwards, the down escalator takes you downward.  To make up that ground you have to sprint harder, but that's only half the problem.

The other half is every single day that passes, more wells that are producing now are declining.  The day you put a well into service is the highest flow rate that well will ever see.  Every additional well you drill adds to the DECLINE. 

In other words, the other half of the problem is the down escalator is speeding its downward motion.  You have to sprint much MUCH faster.

And if you do, you just add to the wells declining their output and speed the downward escalator even more.

Thu, 01/17/2013 - 15:06 | 3163326 francis_sawyer
francis_sawyer's picture

Heavy dude...

Thu, 01/17/2013 - 15:40 | 3163480 SelfGov
SelfGov's picture

Every well drilled helps draw a steeper slope on the way down.

Thu, 01/17/2013 - 15:04 | 3163315 Flakmeister
Flakmeister's picture

Why do you always insist on putting your ignorance on parade?

Thu, 01/17/2013 - 16:23 | 3163623 Spastica Rex
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If there are hard limits to growth, everyone's religio-economic dogmas are shit.

Few believers can look God in the face and ask "Are you real?"

Thu, 01/17/2013 - 16:42 | 3163737 Flakmeister
Flakmeister's picture

Actually the Buddhists don't seem to be hung up on the growth paradigm, but they have a different set of issues. It may well be that overcoming their issues will be a lot easier than overcoming ours....

Thu, 01/17/2013 - 16:55 | 3163773 Spastica Rex
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It all remains to be seen. I think we'll know within a few decades at most if the future is going to look something like the past in reverse.

Infinite growth at this point looks pretty unlikely to me, and I see zero evidence that humanity will ever willingly choose a slow or no growth paradigm.

It's interesting that you mention Buddhists - while not being one, I have tremendous interest in and respect for them. I've also been thinking a lot about American Indians. Their world view is thousands of years long - in the end, they might get the last laugh.

edit: when I said "religio-economic" I really meant "economic." Economic dogma is just a secular version of religious dogma.

Thu, 01/17/2013 - 14:56 | 3163281 EscapeKey
EscapeKey's picture

Thanks for the heads up. I tracked it down to the source, and there is one thing:

http://www.grandforksherald.com/event/article/id/253693/

Winter weather contributed to a 2 percent decline in North Dakota’s oil production in November

It's almost as if the change of seasons always comes as a huge surprise...

Thu, 01/17/2013 - 15:07 | 3163331 Flakmeister
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What was that you said about seasonal adjustments a while back??

Thu, 01/17/2013 - 15:15 | 3163373 EscapeKey
EscapeKey's picture

Well, in short, that unless information with regards to weights is accessible, it's to be considered no less than a propaganda tool.

Not sure I'd want "seasonally adjusted" Saudi output information.

Thu, 01/17/2013 - 15:15 | 3163368 CrashisOptimistic
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Except I went back to previous years' Novembers.

Since the shale play started there have been no significant November declines.  There was one in 2009, and it was tiny and likely demand related. 

 

Thu, 01/17/2013 - 15:18 | 3163383 EscapeKey
EscapeKey's picture

I wasn't having a dig at you, just making a remark about seasons always being a convenient scapegoat for ANY negative impact.

Thu, 01/17/2013 - 15:55 | 3163530 moonman
moonman's picture

Just like when the refinaries have to "switch over" to produce heating oil and gas goes up. Its like ohh shit its gonna be winter in the northeast again?

Thu, 01/17/2013 - 16:02 | 3163546 Flakmeister
Flakmeister's picture

Why don;t you learn something about refining, i.e. winter and summer fuel mixtures, and get back to us...

Thu, 01/17/2013 - 21:43 | 3164828 quasimodo
quasimodo's picture

Sure thing, as soon as you learn where you can and can;t insert proper punctuation dipshit

Thu, 01/17/2013 - 22:57 | 3165054 Flakmeister
Flakmeister's picture

Umm... maybe some of us type with more than our thumbs?

And if picking on my typos is the best that fucks like you have to offer then we are more screwed than I ever could have imagined... More evidence that this site has truly slid into the crapper...

More to the point, do you know *anything* about oil refining or do just assume that the tanks at gas station fill by themselves?

Thu, 01/17/2013 - 15:59 | 3163543 WarHorse
WarHorse's picture

The decline rate in shale wells is much greater than traditional wells. 

Thu, 01/17/2013 - 23:27 | 3165112 AgAu_man
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Porter Stansbury will be 'pissed'.  He was all in the tank for this biz model some months ago, and ridiculed Peak-Anthing people.  Were they front-running their clients?  I wonder if they got that trick from that GS guy they picked up.

Thu, 01/17/2013 - 15:28 | 3163416 CrashisOptimistic
CrashisOptimistic's picture

 

The news of rollover has been out only 3-4 days and the folks in the know are loud about it. 

A lot of pressure will be brought to bear to drill-at-a-loss to make that decline go away.  That sentence generally translates into "government subsidy".

That will work for a month or three.

Remember what porous rock looks like.  A "reservoir" is not a lake of oil.  It's rock.  It's rock with pores that have oil in them.  The interconnectedness of the pores determines how far from the well bore oil can flow.  As the "bubbles" of porous rock get smaller and smaller, it costs more (in joules and dollars both) to keep drilling when all you're going to get is the smaller bubble.

But if it's government money driving the news report desired, you'll drill for smaller bubbles.  At Bakken drill rates, though, that will only hide reality a few months.

 

Thu, 01/17/2013 - 15:47 | 3163503 WarHorse
WarHorse's picture

Crack spread refers to something entirely different (eg, Heating oil vs WTI).  The spread between WTI and Brent is approx $15.80 which is down from $25.53 back in November.

Thu, 01/17/2013 - 16:09 | 3163569 steve from virginia
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Never mind ...

Thu, 01/17/2013 - 14:37 | 3163190 Peter Pan
Peter Pan's picture

Is that what Goldman sees or what they would like their clients to see?

Thu, 01/17/2013 - 14:42 | 3163213 A. Magnus
A. Magnus's picture

However Goldman bets it's usually AGAINST their clients...might be a good idea to see which side of that trade they're ACTUALLY getting on for the scoop on this...

Thu, 01/17/2013 - 14:43 | 3163221 CPL
CPL's picture

Since you can't make money with the present reality, even though things are bad, you use the prescribed fantasy of the stock holder of the entire market.

 

Usually the simplest action.

Thu, 01/17/2013 - 14:55 | 3163268 Not Too Important
Not Too Important's picture

"A predator is intelligent by nature, and knows not to overhunt its feeding ground. A virus will just continue to spread, infect and consume, no matter what happens. It's the mindlessness behind it." - Max Brooks

We are not governed by predators. We are governed by a virus.

Thu, 01/17/2013 - 15:59 | 3163541 unununium
unununium's picture

Whether or not interest rates ever rise again will tell us. My money is that they will, like they did in the 80's, and we are indeed governed by a predator.

Thu, 01/17/2013 - 14:43 | 3163210 fonzannoon
fonzannoon's picture

$150 crude is an effect of the great reflation that has taken place. It is a sign that the american consumer has successfully deleveraged and is ready to start spending again. Throw in more fuel effecient cars and you start to really grasp the beauty of the dawning of a new day in this country

(fonzanoon cnbs tryout, take 7)

Thu, 01/17/2013 - 15:05 | 3163318 Just Ice
Just Ice's picture

Yeah, great reflation of Ben's commodity bubble to further drain already dwindling purchasing power of the general populace in favor of bankster and speculating cronies ...but where DID all those retail investors go?

At top of housing boom, 2006, oil was ~ $68/bbl, coffee $106... but, but his loose money policies are doing the economy good -- a good economy being the supposed trade-off for screwing over savers (again in favor of these same cronies) -- as if food and energy inflation are not devastating to mid-class families.

Thu, 01/17/2013 - 15:11 | 3163351 fonzannoon
fonzannoon's picture

general populace? retail investors? middle class families? I thought they got the TPS report. they got let go a while ago. they are like the guy in the basement with the stapler.

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