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

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.

Comments

[francis_sawyer]

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

[economics9698]

$150 oil = crack-up boom.  September 2013.  1923 Germany.

[trav777]

export land model a'comin

[economics9698]

"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)."

[Kitler]

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.

[Flakmeister]

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...

[ParkAveFlasher]

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

[Comay Mierda]

GS says oil will rally?  time to short it

[ACP]

And then the crash in 2014?

[NooooB]

Best avitar ever.

[francis_sawyer]

Worst spelling of 'avatar' ever!

[Spastica Rex]

Avetteahr.

edit: Call me "Topper."

[CrashisOptimistic]

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...

[hedgeless_horseman]

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."

[trav777]

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

[ParkAveFlasher]

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

[francis_sawyer]

Tell him to tell them to ask Scotty...

[unrulian]

Scotty's dead

[Flakmeister]

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.”

[hedgeless_horseman]

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!

[francis_sawyer]

Because moving the tubular steel from the unproducing wells to ones which might produce would be completely out of the question, right?

[CrashisOptimistic]

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.

[francis_sawyer]

Heavy dude...

[SelfGov]

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

[Flakmeister]

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

[Spastica Rex]

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?"

[Flakmeister]

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....

[Spastica Rex]

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.

[EscapeKey]

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...

[Flakmeister]

What was that you said about seasonal adjustments a while back??

[EscapeKey]

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.

[CrashisOptimistic]

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. 

[EscapeKey]

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

[moonman]

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?

[Flakmeister]

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

[quasimodo]

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

[Flakmeister]

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?

[WarHorse]

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

[AgAu_man]

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.

[CrashisOptimistic]

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.

[WarHorse]

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.

[steve from virginia]

Never mind ...

[Peter Pan]

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

[A. Magnus]

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...

[CPL]

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.

[Not Too Important]

"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.

[unununium]

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.

[fonzannoon]

$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)

[Just Ice]

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.

[fonzannoon]

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.