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Is Oil Returning To $100 Or Dropping To $10?
Submitted by Martin Tillier via OilPrice.com,
If you have been following the price of oil over the last few months, the chances are you’re a little confused. On the one hand you have the likes of A. Gary Shilling who, in this Bloomberg article, loudly trumpets the prospect of oil at $10/Barrel, and on the other there is T. Boone Pickens, who, at the end of last year was predicting a return to $100 within 12-18 months. Pickens prediction has moderated somewhat as WTI and Brent crude have continued to fall, but in January he was still saying that oil would return to $70 or $80/barrel in the near future. So, who is correct?
The answer is neither one. As with most things in life it is unlikely that the truth lies at either extreme. Pickens, and Shilling and other commentators suggesting that oil will fall to levels not seen since 1998, purport to have sound reasons for saying what they do, but the real reasons for such comments are most likely the two oldest human motivations in the book, greed and hubris. “Talking your book” is nothing new in financial markets and, while Pickens has an insider’s knowledge of the oil business, he also has a massive stake in driving oil higher however he can. Shilling is in the business of garnering eyeballs and clicks, hence the competition for the most outrageous prediction among the bears.
I know it isn’t sexy and it probably breaks some unwritten rule of internet hackery to say it, but the most likely scenario is that WTI futures will bounce around current levels for a while before gradually recovering to the $60-$70/Barrel level. It could even reach Pickens’ revised $70 or $80 level before too long, but we are unlikely to see $100 in the near future without some major external influences.
Now that the dust has settled somewhat, the reasons for the big drop are becoming clearer, and it is clear that supply was not the only factor. It was obvious for a while that as fracking unlocked oil deposits in shale and sand that had previously been thought unreachable, supply, particularly in the U.S. would grow considerably. That wasn’t seen as too much of a problem by the market, though, until questions about slowing global economic growth and a rapidly appreciating Dollar were added to the mix in the middle of last year. Once that happened and OPEC made it clear that they would not immediately cut supply and hand power to the upstart U.S. shale producers, the collapse began.
The drop halted at a logical level. In 2008 and 2009 when a complete global economic collapse looked on the cards oil was trading in the mid $40s and that is where support was eventually found. According to EIA data, global oil production in 2008 was an average 74.016 million barrels per day and in the first 10 months of 2014 averaged 77.427 million barrels, an increase of around 5%. Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%.
Put simply, supply has increased faster than demand, so a rapid return to oil over $100/Barrel looks extremely unlikely. That said though, in order to believe that the price will fall much further you have to believe that the economic outlook today is worse than it was at the beginning of the deepest recession since 1929. That too seems like a bit of a stretch.
The only logical conclusion then is that in the near term oil will trade in an approximate range of $50-$70. Incidentally, the bottom end of that range represents the inflation adjusted 100 year average price, according to one Morgan Stanley analyst quoted in another Bloomberg article. We shouldn’t, therefore, be shocked that oil is here any more than we should be shocked that publicity hungry columnists and heavily invested oilmen are predicting further wild swings.
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Yeah, so I wanna sell calls at $100 and puts at $1?
Are we talking about actual oil or paper oil traded by those who never take delivery?
One group sets the price, the other just has to live with the consequences of that price. I'll leave it up to you to decide which is which.
Are we talking about gold?
Black gold.
Texas tea.
Maybe the scam is to drive all extractives below the price of production as the fiat becomes worthless and for a few oligarchs to scoop up the world’s resource base for next to nothing.
Then revalue everything.
There is no such thing as "support."
Technical analysis looks stupid, because it is.
Dizzy has it right. The rich bid it up to the moon. Peak Oil, Peak Oil, Peak Oil...... LOL. Now the sell it off to the fools.
They will buy it back after the have dragged it to the floor just as they have with the economy.
Look at Precious and Basic Metal Stocks and Physical Materials. Scrapping the bottom every day. Who do you think is buying them now ? Hmmmm.
False dilemma argument. Oil must either go way up or way down. Why?
I can remember when natural gas crashed to the $3 level. There was the same sort of reasoning. Drilling would collapse (it didn't ), the price would go so low that gas would be flared off ( it wasn't ), gas prices would have to go way up or there would be mass bankruptcies (no again ). I think oil will work out the same as nat gas. The current price of $50 per barrel is the new norm. Deal with it.
Visions of Buddy Ebsen & crew
Set a spell!
Back in the day I was a DJ & DJ'ed a Halloween party at Max Baer [JETHRO]'s place in, LOL, Beverly Hills... U can't make this shit up! Lot's of hot chicks at that party [& Max was a cool dude, well, at least he treated me well. I charged him only $200 for the music service & he tipped me $1000. I'm not sure if it was because I was really that good, or that he was just coked out at the time & was trying to impress the 'hanger on' coke chicks still hanging around ~ that was '85 or thereabouts. All I can remember was playing Gloria Estefan 'Conga' that night, plus a lot of old school Rap like RUN DMC].
Quote: Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%.
Put simply, supply has increased faster than demand, so a rapid return to oil over $100/Barrel looks extremely unlikely.
Do math much???
An increase from 86 Mbpd to 92.13 Mbpd = ~7% increase, not 1.2%
Therefore your statement that "suppy has increased faster than demand" should actually be "DEMAND has increased faster than SUPPLY" which kind of make the OPPOSITE point of your whole article.
Math is our friend. Maybe you can rewrite the article to come to the opposite conclusion?
Chemistry is a better friend.
...........better living through chemistry..........
It looks like an increase of 1.2% per year, compounded.
I thought it must have been something like that at first, too, but then compared the stat to the one in the prior line, "global oil production in 2008 was an average 74.016 million barrels per day and in the first 10 months of 2014 averaged 77.427 million barrels, an increase of around 5%. " and conclude that if the second is annual compounded, then author is comparing two differently calculated statistics, so he is not just mistaken, but is intentionally misleading readers. I find that conclusion to be less likely, so I'm going with my first thought, which is that he simply made a very bad math error.
In any case, with 7+ billion people competing for and using any and all consumable calories required for a higher standard of living, there is still plenty of real demand.
There's real demand for oil just like there's real demand for corn, wheat, rice, pork, beef, and chicken. The question is at what price?
Common core math?
Barry is readying to veto Keystone in a couple hours.
Not one word will be reported on it by MSM.
Why would he do that?
<= Because He Has No Clue
<= Because He Loves America
Because Warren Buffet is making bank transporting oil via rail.
winner winner. Even though pipelines are genrally safer than rail transport, what buffet wants, he gets. I don't even know how much sense it makes with oil at this level, I think its more politics than anything else at this point. And while I generally support building it if it makes sense, if it results in EVEN ONE imminent domain abuse with someone having their private property forcefully taken from them, I oppose it.
<= Because he hates America
<= Because he loves America
FIXED!
Wasn't bribed enough to OK it.
He was bribed enough to veto it. Uncle Warren bet $50 billion on the railroad companies to bring Canadian oil to the US
Because we need to save Ukraine.
No, wait.
Because of our DIPLOMACY with Ukraine!
Because that oil is not for American consumption but only for Big Oil to make money on as it goes out the Gulf to other countries. They get the profit and we get the spills. Progress Hooo !
They're going to ship that oil to South America, one of the biggest oil exporting regions in the world? The Canadian oil is already coming here, but by rail. Which is safer and cleaner, pipelines or diesel trains?
....ummmmmmm... pipe train......
Buffet went to washington and discussed barry's future.
Train engineer!
The MSM will be all over it, despite low oil prices making the whole idea moot.
~"Barry is readying to veto Keystone in a couple hours.
Not one word will be reported on it by MSM."~
"Well, suck me Soetoro!"
neither
exactly
Staying low enough to achieve the desired results. But they may have miscalculated on what those results will be.
my neighbor's mother makes $86 /hr on the computer . She has been laid off for 10 months but last month her pay was $21128 just working on the computer for a few hours. go to the website... www.globe-report.com
Why cheap oil (WTI Crude below $70 a barrel) is here for for some time to come - probably several years http://ian56.blogspot.com/2015/02/why-cheap-oil-wti-crude-below-70-barre...
Oil will stay cheap ... until it doesn't.
What is cheap? After decades of oil below $30, it certainly doesn't seem cheap at $50.
The only logical conclusion then is that in the near term oil will trade in an approximate range of $50-$70. ......... until it doesn't, and for that reason,.....probably won't.
The drop halted at a logical level. In 2008 and 2009 when a complete global economic collapse looked on the cards oil was trading in the mid $40s and that is where support was eventually found. According to EIA data, global oil production in 2008 was an average 74.016 million barrels per day and in the first 10 months of 2014 averaged 77.427 million barrels, an increase of around 5%. Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%.
WTF???
Common Core math
economist told me 1 +1 = whatever I want it to be.
ok i see author hasnt figured out difference between crude+condensate and all liquids, aside from his dipshit math
You are assuming that the marginal revenue is greater than the marginal cost on every new barrel produced/extracted. It's not.
God bless leverage.
I honestly can't wait for it to drop to 30 just to sweeze those camel-fckers in the middle east and meth-heads in north dakota.
Dude, how do you think they drilled so many wells so fucking fast? Meth. Yeah, eventually your teeth fall out of your head and you go batshit crazy, but MAN, THEY CAN ROCK A 24 HOUR SHIFT A ON THE RIG.
YEAHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!
<---- 100
<----- 10
It all depends when war breaks out in the middle east in earnest.
Forgive me for flatulating the air with my ignorance, but.....is not ONE reason oil prices went so high due to all that money printing / accomodative easing? I mean, there are those who pointed out that all that money printing lifted markets artificially (Marc Faber is the leading voice on this) and caused a big commodity bubble as well (Marc Faber is a lead voice on this). So, if you start to give signals that the money printing presses are going to be put away, would not the market react many, many months in advance and start to pull money out of the bubbles that they profited so greatly by? Is this not a possible reason why all of a sudden, and I mean, all of a sudden, the world is awash in too much oil and not enough buyers? Sounds like a Goldman Sachs plan to do what they do best: create manipulative hydras that destroy wealth. They have become Agent Smith from the Matrix.
And where is Neo when you need him?
Oil is lower in USD but not as much other currencies. The USD is the best smelling turd for now.
People on Wall Street talking their book? Say it isn't so. I thought they were all doing God's work.
Are you saying God is short oil?
Geraldine Jones: "The devil made me do it."
Lloyd Blankfein: 'God made me do it."
"Is Oil Returning To $100 Or Dropping To $10?"
Wherever Zion needs it in their war against Russia in their quest for Israeli Lebensraum, and pipeline routes, in Syria.
The banksters need to repay us.
"Scotty! We need more price drop! I'm giving it all she's got Captain!"
But Captian, we've not got enuf oil
The author has this to say:
Put simply, supply has increased faster than demand, so a rapid return to oil over $100/Barrel looks extremely unlikely. That said though, in order to believe that the price will fall much further you have to believe that the economic outlook today is worse than it was at the beginning of the deepest recession since 1929. That too seems like a bit of a stretch.
Saints51 has this to say : May I have some Kool-Aid?
To QE or not to QE. Tis all that matters.
Don't know. But eventually the revenue from the most expensive marginal barrel will be at least as much as its cost. And I think that will happen within a couple of years.
If you are into drones check out this site http://pickyourdrone.com/
Sorry Martin, but crude inventories are at an 80+ year high for this time of year. They are building, because nobody can afford to stop pumping. If prices go up, they'll continue to pump to make up for these months of low prices, yet consumers will be even less able to purchase their oil. If prices go down, they'll have to slash costs as much as possible (jobs) while trying to pump to make up in volume what they're not getting in price. They'll figure some income is better than no income. Eventually prices will be low enough to knock a bunch of producers out of business, but the consumer will be able to afford oil based products at these reduced prices. Too bad the quantity of those products will be going down.
So, what happens when storage gets full? Volatility. We have reached the point where consumers can no longer afford to consume at current rates, but the status quo dictates that they must. Something will break, it's just a matter of when and how bad. Oil is a keystone commodity, and there is only so far that papering over issues with debt will hide any problems arising because the status quo and the physical world are at odds. What happens when leveraged frackers cannot afford to pay the bondholders? Volatility.
Supply/demand at its best. Monopoly structure at its finest. All the rich bastards are so greedy they can't get off the sinking ship. It is all they know. They are going to die trying to make money dead at the bottom of the ocean.
It is staying where it is and stocks are going to correct 50% in one night in the next six months silencing all pundits, talking heads, and policy makers.
There are a number of MLP's that have no to managable debt, reasonably hedged and paying high single digit to low double digit yields. My account sez the dividends are tax free. They reduce my basis and once the basis is zero they are no longer tax free.
So finding the right MLP with after tax yields in the range mentioned above seems like the right thing to do as far as I am concerned.
If anyone checks, Saudi Arabia has a huge new refinery in the middle of their country, and it hasn't even been turned on yet. KSA is out to supply the world, not really caring who they put out of business, because they have the oil. We're not talking maybe the best crude, but certainly better than tar sands or shale oil, and certainly more accessible than Bakkun crude. It's going to happen, and even if oil goes to $20 a barrel, bcause the Saudis don't really care, they are out to produce and supply.
Saudis have sand and oil.
Wtf are they going to do...? NOT produce??? then they would have a bunch of people sitting around doing nothing . . . not exactly like they have much else they can do but extract and sell fuel.
Besides, these sobs are sooooo rich they dont give a shit at this point if they sell the oil for only 1~3% profit . . . remember all asset prices always approach the cost of production on the long run.
If it costs 20$ to produce a barrel of oil, then the price of a barrel of oil will gradually approach 21~23$ a barrel on a long time line.
So you look at the cost and add 2~5% margin and there is your price in the future. . . unless something catastrophic happens and we get hyperinflation.
The largest portions of the populations in the world are over the hump in terms of age, they will not be driving as much as they used to.... and as such oil will go down in price.
99% of the traffic on roads today is caused by crashed taxi cabs and road repairs/poorly designed roads not to mention 90% of the fucking parking spots being taken up by bicycles and bus stops ^^ . . .
The streets in most cities are designed narrow, for horses and carriages . . . very poor city planning.
nominally those numbers are meaningless, have we seen the low price in oil? on the one hand other deflationary assets have not fallen yet, housing, gold, etc. you have to think that there is more deflation to come. there is no reason to think all these things will bottom in price at the same time, and at the bottom of a deflationary collapse there are shortages, and then prices start up often in hyperinflationary fashion. as the sellers of[oil] see their commodity selling for next to nothing they pull it off the market. gold at $500 cannot be bought. there is none. i filled up sunday for 293 and the next day it was 303. traffic is returning with a vengance. at least where i am some sort of bottom seems to be in place.
Millions of Americans declare bankrupcy every year. There is your deflation.
What deflation?
http://research.stlouisfed.org/fred2/graph/?id=TCMDO,
With all the new hybrid and electric vehicles I see on the roads, why would oil go up to $100 again?
QE
QE does not consume oil, it produces oil. Lot of that cheap money was flowing into oil drilling.
Oil hit ten cents a barrel in 1930.
I think one dollar a barrel is being generous myself....
Price oil in gold then we'll talk.
Adjusting for the quintupling of money supply its already under $10/bbl.
Brilliant anaylsis consisting of nothing but conjecture and speculation. One year ago this same analysis would have led us to $100 oil prediction 12 months out. Truth be told nobody knows where the oil price is going. What happens when oil storage fills up and/or the futures market returns to backwardation? What happens when all of the VLCC crude tankers are full and nobody is buying all the excess oil that is being produced?
There are still hundreds of thousands of BPD from new projects coming online in Alberta this year that will only add to the supply glut. AND, third world OPEC countries need to pump more oil now just maintain their budgets and prevent their countries from collapsing. And they can, because they have a $10 cash breakeven on existing projects.
If you're going to make an argument, at least back it up with data or some other rationalization other than 'middle of the road'. Otherwise why even bother writing the article in the first place? Even the data you are using seems likely to beincorrect, stating that we have been consuming roughly 12-15MM BPD more oil than we've produced every single day between 2008 and 2014. That's 32BN barrels of oil unaccounted for - don't think we had that much stocked up in the world.
Please cease and desist from writing (and posting) usless content.
Take the average of the two, there is your oil price.
High priced oil destroys growth:
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH
http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth
Low priced oil bankrupts producers:
Oil and gas company debt soars to danger levels to cover shortfall in cash
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html
There is no solution to this problem.
As long as T. Boone Pickens can secure a 10 year water supply contract with São Paulo and Rio. :)
Oil price depends on many things:
1. Consumption
2. Production (which in turn depends on drilling, well production curves, and Opec's discipline or lack thereof)
3. Available storage capacity
4. Economic optimism or pessimism
Anyone who claims to be able to predict future price is deluded or dishonest. It might plummet to $10 as storage capacity maxes out then shoot back up to $100 a year later as production plummets. Shilling and Pickens might both be right. Or not.
$10 before $100, that's the way it will go.
Oil has to go to $200. because PEAK OIL, Bitches.
Peak Oil? You might as well talk about the Tooth Fairy, dude.
Hey it ain't that funny.
All the production growth in the last 10 years came from the US and Canada and they're about to be run out of town.
Meanwhile most OPEC countries are in decline or flat at best with a couple of exceptions.
Russia has VAST untapped resources and lots of OIL. Might as well sit on it and use it yourself and for China. NOt to mention they are building HUGE solar farms with the latest tech. and also humongous year round polytunnels growing food year round.
Russia has VAST untapped resources and lots of OIL. Might as well sit on it and use it yourself and for China. NOt to mention they are building HUGE solar farms with the latest tech. and also humongous year round polytunnels growing food year round.
Sweet crude in Iran.
Target Iran.
"According to EIA data, global oil production in 2008 was an average 74.016 million barrels per day and in the first 10 months of 2014 averaged 77.427 million barrels, an increase of around 5%. Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%."
The current volumes and prices are missing the magic oil that was consumed and not produced.
OK folks, Am I the only one that sees a 15MILLION bbl/day SHORTFALL
in production, relative to consumption??? !!!
Precisely where is that 15MILLION bbls per day coming from?
The FEDs printer have a new sideline we ain't heard
of yet???
And how precisely do you get oil falling off a cliff ( price wise )
while supply obviously doesn't come close to demand?!!!?
According to EIA data here: http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=5&pid=5&aid=2#
2009-2013
Production growth 6.0%
Consumption growth 7.3%
And total consumption exceeded total supply in 2013.....
Inventories going up in 2015.....
Well the numbers I highlighted are 2014 data.
Which agrees with your point, that consumption exceeded
production.
Now unless, y'all can prove that that reversed in around 4Q2014
and continues today, how does prices fall in this environment???
Or have I entered the twilight zone... LOL
I have to assume there is cheating by OPEC members? I don't see how prices could be falling otherwise. The other possibility is a sharp and sudden drop in demand. China's economic numbers have dropped sharply in the past 6 months.
I agree with a lot of the analysis already presented on this site that:
- demand is falling
- over-supply from shale patch
versus
- algos/investors trying to time the bottom
Given apparent Saudi strategy of driving out weakest competition, I predict true bottom will be when we start to read about wave of bankruptcies in shale producers. I have no guess what price will be when that happens.
In the meantime, any pop is a selling opportunity for Oil and Canadian dollar.
I know several people here in Northern Europe that run their whole home and electric cars and scooters from Solar. The tech is growing by leaps and bounds.
Saw a video yesterday that showed that the whole earth could be powered by solar farms in the Sahara the size of France.
BTW,the Sahara is as large as the entire lower 48 states. Few people know that.
Will supply of barrels outstrip the supply of new bills?
I was paying 8-10 dollars a gallon equivalent here in Europe early last year and years before that. Now its all the way dowdn to about 7 dollars a gallon. Still I have WAY more disposable income here than I ever had living in the USA for 35 years. and ZERO debt.
What station in Europe is using gallons instead of liters?
Pump price for gasoline (US$ per liter)
Fuel price in Europe
Gasoline prices in selected countries worldwide as of November 2014 (in U.S. dollars per gallon)
See the magic? Allow me to pull a rabbit from my hat.
I stated Gallon equivalent, sonny.
I guess reading comprehension is not your forte.
I live 15 minutes from German border and run over there to fill up because its cheaper. as your Link noted EQUIVALENT 6.94 a gallon. That means I was paying over 7 dollars a gallon in NL. FYI, NL means Netherlands.
I also stated that earlier in 2014 and 2013 I was paying almost 9-10 dollars a gallon EQUIVALENT.
Yes we get gas in liters here, Are you trying to be a smart ass? Let me guess, you are an Americunt who thinks he knows everything.
I live 15 minutes from German border and run over there to fill up because its cheaper. as your Link noted EQUIVALENT 6.94 a gallon. That means I was paying over 7 dollars a gallon in NL. FYI, NL means Netherlands.
I also stated that earlier in 2014 and 2013 I was paying almost 9-10 dollars a gallon EQUIVALENT.
Yes we get gas in liters here, Are you trying to be a smart ass? Let me guess, you are an Americunt who thinks he knows everything.
How long until the rig count is decimated? How long until the excess supply is absorbed? How long can the Sauds keep this up? How long until US crude in all its forms can be exported? Right after that...things get very expensive.
We seem to forget that the shale boom for the most part was never truly profitable to begin with. Maybe the question we should be asking is where would the price of oil be had the boom never happened.
Oil future traders manipulated the price down, it should be $5000 per barrel.