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WTI Crude Tumbles Under $80 Following Goldman Downgrade
While large shifts in positioning precipitated a sell-off in oil prices that far exceeded the actual weakening in fundamentals, Goldman Sachs' confidence in a 2015 oversupplied global oil market has increased. As a result, they have brought forward their medium-term bearish oil outlook (WTI crude oil forecast is $75/bbl for 1Q15 and 2H15 (from $90/bbl previously)). WTI just broke below $80 back to June 2012 levels once again as Goldman also downgraded the entire oil service space (happily buying up muppets' positions as they sell).
As Goldman Sachs notes,
While oil inventories had remained stable since mid-2012 on the offsetting forces of: (1) strong US shale oil production growth, (2) rising OPEC supply disruptions, and (3) modest demand growth, 2014 has seen this precarious equilibrium unravel with: (1) continued strong US production growth against expectations for a slowdown, (2) OPEC disruptions easing with Libya, Iran and Nigeria increasing production, (3) a slowdown in global economic growth and oil demand in 2Q14. These shifts led to a large year-to-date build in OECD petroleum, the largest since 2006. While this sequential build in OECD total petroleum inventories has helped offset the deficit observed in 2H13, inventory levels remain below their 5-year averages, even when factoring in the IEA’s preliminary counterseasonal September build in inventories. Importantly though, we now believe that the dynamics behind this rise in inventories are sustainable and will lead to a significant further build in inventories in 2015.
On the supply side, we believe that: (1) non-OPEC production growth outside of North America is set to accelerate on continued growth in offshore production, (2) prior to recent declines in prices, US Lower 48 oil and NGL production was on track to sustain production growth near 1.0 mb/d in 2015, and (3) core-OPEC will not cut production significantly in coming months. On the demand side, while we believe that one-off factors have exacerbated the weakness in 2014 oil demand growth, the acceleration in demand that we expect in 2015, even under lower prices, is not sufficient to offset the strength in supply.
As a result, prior to assuming our lower price forecast (and its impact on US shale production), we estimate that the global market oil imbalance would have reached 1.0 mb/d in 2015 in the absence of additional disruptions. Consequently, we lower our oil price forecast to a level that we believe will achieve a slowdown in US shale oil production. Once a slowdown in US shale oil production growth is apparent, we expect that a lagged reduction in OPEC production will limit the global oil market surplus to 1H15 with inventories stabilizing in 2H15 and 2016.
Oil prices will need to decline to slow US shale
We are lowering our oil price forecast to reflect the required slowdown in US production growth: our WTI crude oil forecast is $75/bbl for 1Q15 and 2H15 (from $90/bbl previously). Given our unchanged WTI-Brent spread forecast of $10/bbl, our Brent forecast is now $85/bbl ($100/bbl previously). Our forecast path reflects our expectation that timespreads will be weakest in 2Q15 when the global oversupply will be largest with Brent prices reaching $80/bbl and WTI prices $70/bbl. In 2016 we expect stabilizing fundamentals with moderate cuts to OPEC production once a slowdown in US production growth is apparent. Our 2016 and long-term forecasts are now $80/bbl WTI, $90/bbl Brent. Uncertainty around the required price to slow down US shale production growth is a key risk to our price forecast.
OPEC loses pricing power, shale shifts to the margin
A tight global oil market had until now required strong OPEC production and US shale production growth. While getting to a point where the market shifted back into surplus was only a matter of time, as US shale oil production grows by Libya’s capacity every year, we now have higher confidence that a structural transition has been reached and that US production growth needs to slow. Accordingly, our forecast also reflects the realization of a loss of pricing power by core-OPEC. Consistent with the economics of the “dominant firm/competitive fringe” market structure and shale production exceeding OPEC spare capacity, pricing dynamics in the oil market have moved away from the dominant firm’s production decision and towards the marginal cost of US shale oil production.
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This is large mountain of elephant excrement.
Rehypothetication of crude oil (like chinese do with copper) is about to be unwound, same as in 2008.
Oil goes as low as $20
Who will be the sacrificial lambs to be slaughtered on Goldman's and JPM's altars?
Oil goes as low as $20 - this a joke - i bet 60$ is a bottom level
WTI per barrel was $20 just a decade ago. Funny how time and memory flies by.
It won't stay at $20. it will clear the extreme rehypothetication, oil to be dumped from storage, then goes back up to $50-60
See! This is what happens when all the electric cars drive fossil fuels out of existence and we all live clean wholesome lives. What? No, I've never heard of the guy Tesla. I thought Elon Musk made Tesla cars?
I'm going outside for a smoke. Have you tried these new American Spirits? All natural, good for ya!
- Stupid fucking Progressive from CA
over 100,000 jobs in shale oil alone, shut wells and no drilling will help UE but then business never creates jobs either...fucked every which way and I don't mean hillary.
fucked every which way and I don't mean hillary.
We all know Slick Willie did not even touch that nappy snatch!
"(happily buying up muppets' positions as they sell)"
speaks volumes...
Willie saw what happened to Vince Foster. She's a black widow - preying mantis cross.
And what will happen to those 100k jobs if oil hits $20, lol. In fact what will happen even if it goes beyond $50...
Same thing that happened in the late 80's.
Oil guys leave the industry and we see a bear-market in energy for 10 years. This leads the fed (last time was Greenspan) to juice the market so tech/biotech can offset sudden collapse in demand in non-OECD exports plus restart the inflation effect. If FED fails to do this, then watch everyone from SHLD to Kate Spade burn when the 10-month rolling discretionary spending blows through vendor prepaids and inventories do not clear at Boxing day. Apex predators do not die, they just move and take over the next rung of the ecosystem with an extreme and often violent disruptive effect given their large mass and evolutionary adaptations (passthrough & commodity product sale acumen ) vs. incumbents.
American Spirit nonfilters are the finest cigarettes available in all the land and one of the few things the US is doing right. That and cannabis.
They'd rather pay the storage fees and wait for it to go back up.
Not if you get a margin call
Liquidate the paper hedges/trades?
Price comes down then the premium can go up on the physical trade and most refiners have long term contracts with physical suppliers.
The only time the refiners rescind the contracts is when there is no physical demand for a longer period.
That oil was in those tankers headed to China. I don't think oil goes too much lower but I guess we will see. I hope it doesn't anyway because my well is now producing full tilt and I will get the most revenue from it over the next few months, hate for that to be in bad prices.
China is a huge oil producer. They could become an exporter soon.
Sure and monkeys will grow wings and fly..............
Why are they buying up all the oil from the tankers if they are on track to becoming an exporter?
ever heard of stopping production for price incr, complex problem,, well no.
"now producing full tilt and I will get the most revenue from it over the next few months, hate for that to be in bad prices."
No, our lease doesn't allow the operator to do that and he wouldn't want to, he has debts to pay. The national oil companies can do that and of course that is what OPEC does.
This has happened in the past. Oil prices have collapsed to basically zero.
Big part of industrial growth in the USA in the late 1800's actually. This also created what is easily the best transportation infrastructure and build out in human history.
"Takes a lot of energy to make energy." Putting a lower band on prices of the goo is a mistake.
Oil can go to basically zero actually.
Ekm1
I get what you are saying,, and mostly agree that if this really unwinds oil is going to drop a lot, and GS is going to really slay some muppets, but I just don't see 20$. I really don't see it going below 50/ barrel unless there is complete economic collapse.
for a few weeks only
you just pulled that 20 USD/barrel number from your ass ? Or is there some calculation and educated guessing ?
out of my ass
d'ass be good 'nuf fo' me...
I forecast $60 Oil in our near future.
BTW...I also forecast a total World Economic Collapse. caused by the failure of the Petrodollar, as the result
Saudi Arabia, as a result of their dependence upon Oil Revenue to maintain their Government's Budget, will no longer be able to purchase US Debt according to the agreement made back in 1973.
In turn they will dump their US Treasuries to keep their Government afloat. This will cause a panic in the US Bond Market and destroy whatever value is left in the US Dollar.
But the cheap energy prices will feel so good in the short term...like a high that is obtained from doing that line of Cocaine.
But that high will not last. The dealer will run out of Cocaine. That is the problem with addiction...to any substance...like Oil...or Cocaine.
There is not ever enough product as the addict uses it all.
A Drug Addict never has drugs. As soon as they get the drug they use it. There is always more but never enough.
And at $60 Oil the USA is just being set up for a fatal overdose.
Cheers.
the cost of production is dropping with the cheap labor from africa,,, oh wait.
I remember when it was $135 in 2008.
I remember when it was $16/brl.
yed, d'late '80's, 'n d'urly '90's was ad low ad $14...wassup wid dat...d'oil compuny I woiked fo' was biden' dey time fo' dey ca' sell out, what dey did...UNOCAL...but den d'companees what bought made d'killin'...Tosco,Phillips, 'n den d'Chevron...gon' suck up on d'Chevron...
It peaked at $147 and fell to around 30.
Americans had to choose between buying petrol to drive to get food, or pay their mortgages and credit card bills.
Who? let me guess... muppets is, I believe, the technical banking term
Muppets are dead, long time ago.
I'm talking about 'fellow sharks', 2008 style
When you burn oil, it's gone.
At least copper can be recycled.
Not exactly, but the carbon cycle is very lengthy.
You can get oil out of biomass using pyrolysis.
It's basically just solar power though with a maybe 5% conversion efficiency.
Must mean the planes have stopped flying and there are no cars on the road. Oh, that's right. Silly me. There is such thing as supply and demand pricing in oil. Carry on!
Unit economics matter EKM. There simply isn't enough marginal oil supply at 20 a barrel. Long before that happens, you'll see gold go parabolic and the USD lose reserve status. The Chinese are in control, but DOD is not going to allow our energy supply to get decimated.
Not so, if the Fed drains dollars from the system.
My view is that DoD has ordered the Fed to drain dollars
Is the pickle we are in not the fact that, in order to repay debt, you have to issue new debt ?
So you can only add more dollars to the system in the longer term.
( Unless you default on ( part of ) the debt )
So why would the DoD order to drain dollars from the system ? It is not even possible. You can buy up T-bills, but these people need to be repaid later.
( with interest )
Or am I completely wrong ?
You're correct. The biggest set-up in the history of the world - 'cept for the tulip bulb thingy.
should be SELL T-bills above of course
Ultimately, DOD understands that our security depends upon our productive capacity. We won the cold war as a dual use industrial proposition. DOD and the nation are best off taking gold parabolic, weakening the dollar and forcing all countries to try to be self sufficient --between the US and Canada, we can be easily. No one else can.
"weakening the dollar and forcing all countries to try to be self sufficient --between the US and Canada, we can be easily. "
look up the US-EU trade balance and think again.
We'll elect Trudeau and then you can freeze in the dark.
The rise in the oil price was used to recapitalize banks and allow MENA producers to fund various "projects". The rise in price had nothing to do with supply or demand or long term energy supply issues as there has never been a real market in oil.. Like QE artificially high oil prices must now be abandoned because it no longer serves its original purpose and coincidentally has killed the real economy.
ekm1, $60 per bbl is the magic number... that's where the tide recedes to the point where you can tell who's wearing swim trunks and who's naked
I think margin calls will launch an attack at below $80.
If it stays at below $80 for 2-3 days then margin calls will push it down fast.
My view, just my view
Goldman shorted oil.
I'll take it.
Either that or the world economy is collapsing.
You spend too much time on tinfoil hat-wearing fringe blogs. The economy is doing just fine. You'll see.
We need to hear from the Exxon apologists who will whine about needing oil to be above $90 to eke out a livable wage for the CEO. Cunts!
This is expected, the real question is who is being sacrifised
So GS is getting long by selling puts? That's what it did with gold/GLD. They need people to believe deflation because they ate trapped. Liquidate all float scams to raise physical cash outside the banking system (so GS and JPM cannot abuse it) and buy physical gold.
Either that or GS has gone the big short on the shale industry... these ST games simply undermine the medium and long term energy, economic and military security of this country.
Couldn't agree more.
I wonder what would happen if a law was passed that banned short selling and required buyers to take delivery on futures?
if you do that, then Cameron's UK gov will hate you for it.
see http://www.bloomberg.com/news/2014-01-22/u-k-loses-top-court-fight-over-...
Jan 22nd, 2014: "The U.K. lost its fight against European Union powers to ban short-selling, as the bloc’s top court delivered a blow to Britain’s bid to rein in EU control over financial rules."
"The U.K. has repeatedly found itself on the defensive in EU financial-regulation negotiations. The nation last year opposed a deal to cap banker bonuses at twice annual salary and filed a similar challenge at the EU court on the issue. Britain has also fought plans by some nations to set up a common tax on financial transactions."
"Prime Minister David Cameron has promised to seek a new settlement with the EU, amid rising opposition that has seen the U.K. Independence Party, which advocates a divorce from the bloc, gain in opinion polls. Cameron’s promise to hold a referendum on EU membership by the end of 2017 has failed to quell calls from members of his Conservative Party for Britain’s European destiny to be put to the people sooner."
BEHOLD THE EVIL EUROPEAN UNION BANNING SHORT SELLING AND CAPPING BANKER BONUSES. If you see such evil in action, you don't wonder why the big fight between UKIP and Torys is about when to have that referendum on the UK leaving this evil, evil club of sovereigns ( /s necessary?)
You mean like a market?
Never happen
People with no oil also want to buy and sell oil.
Its only fair.
My guess is political contributions would sink like the Titanic.
Consequently, we lower our oil price forecast to a level that we believe will achieve a slowdown in US shale oil production. Once a slowdown in US shale oil production growth is apparent, we expect that a lagged reduction in OPEC production will limit the global oil market surplus to 1H15 with inventories stabilizing in 2H15 and 2016.
What they are saying is that OPEC wants the US shale producers out of the market. This is what happened in 1985/6 except that it took Saudi Arabia raising production from 4mbbl/day to 9mbbl/day in order to fully destoy the oil patch in Texas. This time around they are already above 9mbbl/day and are selling bad oil at high prices and they need $90 oil also. I don't think it will work, OPEC will blink. For all you people that don't think much of shale, better check this well. It's not atypical of what is being done now in the Wolfcamp. This is on a 640 acre section which can take another 4-6 wells easily. In the 80s, IP rates like this were not achievable with those shallow wells. The oil produced by this well is 53 API as you can see on the sheet, it's almost nothing but gasoline and naptha.
http://webapps.rrc.state.tx.us/CMPL/viewPdfReportFormAction.do?method=cm...
this is the stuff that gets blended with the Alberta heavy crudes at Valero to make desirable feedstock... it's also the stuff that gets physically "refined" for shipping and as such is currently being lobbied as eligible for export... food for thought
I am all for the export ban to be lifted. That is my well and I hate to see it producing it's best output into bad prices. However, the Cactus pipeline is giong to add another 200kbbl/day capacity to CC and Houston from the Permian which should make it possible for our oil to start getting a premium instead of dinged below WTI.
agree, the US export ban benefits US refiners, not producers... it will be interesting to see how this plays out
The headline should read "The Squid Wants to Buy Your Oil". The muppet slayers are at it again going to a sell after the move has already happened.
Goddam Suckers saying oil going lower?
OH NO, that means higher petrol prices coming VERY soon : (
I love it how when oil rises, gasoline rises tick for tick. But when it goes down, it drops whenever they feel like it should. The free market died a LONG time ago.
x2 BINGO
shits going to 55
$60/barrel is a price at which the the international oil industry can sustain itself.
The oil majors will be more selective as far as cap ex, exploration and production goes. The same goes for the major refiners. It would take years of economic slowdown before the smaller drilling and oil well services companies give up on their ambilitions for turning their current operations into cash cows.
The alternative energy industries will be hit and hurt the hardest. Solar energy needs oil priced consistemtly over $100 per barrel for their heavily-subsidezed products to be competitive. They will be spending as much of their government handouts on lobbying for more handouts as they will be spending on R&D.
anytime Goldman says something is going down, it is time to buy.
The arrogant idiots in charge of this show were clearly thinking that they could teach Monsieur Putin a lesson. Unfortunately, they had a short lapse in memory that 85% of the crude oil produced in the world is produced by nations aligned with the official policies of the USA, in fact several of the most important oil producing nations are located ion the continents of North and South America. We are going to attack ourselves until Putin surrenders? Sure thing ....
October 15th outlook showed move to 75
http://bullandbearmash.com/chart/wti-oil-daily-continues-slide-channel-s...
A stronger USD should continue downward pressure on oil.
Not so good for tough guy St. Putin. His budget is based on $100 oil, Western sanctions being lifted in 2015 and accelerating economic growth in Russia.
D'oh!
No so good for shale oil and gas...
Did Russian oil dry up? I thought there was alot of oil in Russia. Maybe they'll survive?
Excuse me if I am wrong, but Russian crude is brent, mot wti, and brent is $86, up from $83 a while ago.
That said, whomever is saying it is at $100/bbl, is lying to you. Theirs set at higgh budget with surplus at $90. At most time, it is around $70. Now that import substitution industries are increasing (either new enterptises or old ones starting another production line), imports have dropped considerably, so it ballances out in the end. Even after drop, there was a trade surplus.
But it isnt my job to convince anyone, or care really. Just pointing out the fallacy.
It sounds like $75 is the level Western financial interests set as "punishment" for Russia annexing Crimea and freezing entities like Goldman out of the hoped-for lucrative gas deals offshore in the Black Sea.
Given Goldman's track record, should we all be long oil futures?
When did it fall below 80? I see 81.01 here:
http://www.oil-price.net/
I remember when it was $11/bbl. Seriously.
If shale's got to get 80 to profit then atleast they'll have to keep it at 80 until the shale ind. has to sell there equipment and go do something else for a living.
if stays down or lower
sell some, bankers get some, if they can find it all,
some scrapped,
some parked till next boom.
the shale is much more support services than ever before.
will see how low price go and shakeout progresses
What is the real end-game here?
Are there too many small producers who are growing and nibbling away at the big fish, in the shale oil side of things? Temporary oil price suppression (assuming that is what it is), means they wash out the weak hands and consolidate; then when the price recovers, the big guys are once more in charge.
I thought that the Saudis had the lowest extraction costs and their oil was easy to refine, making it worth more? So they don't "need" $90/bbl oil - but some other producers have much much higher break-even points, so any reduction in oil price means their margins are put under much higher pressure.
The GoldmanIsraeliKurdishISIL & Associated ConGlom refuse to allow their recently acquired windfall asset to sell for under $28.75 a brrrrrrrl.
Whatever the bottom ($75 or $60 or even $20), market seems to assume that it will be shortlived on the premise that demand will catch up, capitalizing on low energy prices. Not sure, how far this assumption will hold.
So many things are happening in the global markets now--oil price fall, QE tapering, Fragile Five, unrest in MENA, Ebola, US shale boom, etc. It will be interesting to see how many books are written linking these haphazard events.
Hmmm
It totally depends on how many 'Hail Marys' the market says.
x
This is the stuff that $200/barrel oil is made of.
If any producers shut down then oil is going to be tighter on the upside. Bigger swings.
As a consumer I certainly am not crying to see deflation in energy costs. Its about the only real relief consumers have had for several years.
Question is, how many Goldman employees are personally short WTI?
If oil goes to $60 it might as well go to $20 as far as Canada is concerned. At least we get rid of Harper so it's not all bad.
Vlad needs to Judo flip a docile, compliant man in front of an adoring audience on state-controlled television to show he's still in charge, despite Russia losing billions of dollars in lost oil revenues.
Isn't USA also losing billions? Maybe Eboma can fellate Reggie Love in front of you and your buddies to show he still a bitch...
The US has other exports besides energy, Bob, so the impact is much more muted. With Russia, energy IS the economy.
Now, exactly where is Russia's Caterpillar, Boeing or Ford...? :-)
What you really mean is the US is printing it faster than it's losing it.
An honest jingoistic mistake.
The world will know Vlad is still in charge when Gazprom hammers out the gas deal with Ukraine on Wednesday.
The UK is going to have to fork over 1 billion 700 million pounds so the EU can pay Ukraine's debt to Russia.
Meanwhile the Cookie Lady was seen on a beach in Tel Aviv tanning her cellulite thighs.