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What If An Oil Rebound Never Comes?

Tyler Durden's picture




 

Submitted by Nick Cunningham via OilPrice.com,

Oil prices will remain subdued for the next 20 years.

That comes from a new policy brief from Stanford economist Frank Wolak, who says that a series of phenomena – surging U.S. shale production, a weakening OPEC, the shale revolution spreading globally, efficiencies in drilling, and more natural gas substitution for oil – will combine to prevent oil prices from rising above $100 per barrel anytime soon.

Wolak correctly identifies several trends that are already underway, several of which contributed to the 2014-2015 oil bust.

But there are very good reasons as to why the notion that oil prices will not rebound and instead stay in a moderate band of $50 to $60 per barrel over the next 20 years, as Wolak suggests, is a bit optimistic (or pessimistic, depending on your point of view). Wolak does offer some caveats for why his scenario for tepid oil prices may not play out, but they are treated more as outside risks rather than real possibilities.

Let’s examine some of his points. First is the argument that shale production has truly upended global supplies. Citing a 5 million barrel-per-day increase from North America – 4 million from U.S. shale and 1 million from Canada’s tar sands – Wolak wisely notes the role that shale has played in causing oil prices to crash over the past year. But the shale boom will likely be temporary. Most estimates project that U.S. shale will begin to fizzle after the next five years or so. The IEA in its 2014 World Energy Outlook said that U.S. shale will peak and then decline in the early 2020’s. Some think it could happen even sooner.

After U.S. shale stops driving global growth, what are we left with? The IEA says that an overwhelming amount of oil growth will need to come from the Middle East, particularly from Iraq. Iraq, a war-torn country rife with insecurity and political gridlock, is expected to account for 50 percent of the growth in oil production that is needed in the 2020s. “We now have a problem,” IEA Chief Economist Fatih Birol said at a February conference, referring to the world’s likely inability to meet rising demand over the next 20 years.

Moreover, an estimated $900 billion in investment each year will be needed to meet demand through 2030, an astronomic sum considering investment only reached a little under $700 billion in 2014, and is set to decline by around 17 percent in 2015. Massive cut backs in capital expenditures over the next few years will plant the seeds for the next oil price spike.

Another major reason that Wolak cites for why oil prices will remain stable and moderate is the fact that the shale revolution will spread like wildfire around the world. That is possible. Countries like China, Russia, and Argentina have massive shale oil and gas resources that in some cases even surpass those of the United States. But the spread of shale technology has proven stubborn, owing to a very complex set of circumstances. In Europe, the excitement in Poland in particular has proven to be ill-founded. After failing to find any commercial volumes of oil and gas and drilling some dry holes, oil majors Chevron and ExxonMobil, among others, packed up and left. Opposition to fracking has also walled off major sources of energy in Europe.

In China, the going has been no better. The lack of infrastructure, complex geology, and increasingly scarce and contaminated water are all throwing up major roadblocks. Argentina is trying its best to replicate the shale boom, but a web of rules on the movement of capital, plus regulated prices that hurt investment over the long-term (but in the current low-price environment, are currently helping Argentina) could constrain further development.

On the other hand, Wolak does cite the fact that increasing global efforts to deal with carbon pollution, the falling cost of alternatives, standardization and innovation, and weaker-than-expected demand could all keep a lid on prices.

Those are all very possible scenarios. But there is also a wide array of upside forces that Wolak leaves out. Just to name a few: rising interest rates will increase the cost of capital; a wave of bankruptcies this year could scare away banks, also increasing the cost of capital; declining conventional production; and the increasing shift to expensive oil (deep offshore, Arctic) to replace maturing fields will increase the marginal cost of production. Plus, if the world does experience fast and robust increases in oil demand (think China and India), can oil producers keep up?

In other words, Wolak’s scenario largely depends on several optimistic trends all coming true. If we have learned anything over the past year, it is that oil markets are highly volatile. A long and sustained period of moderate oil prices just isn’t likely.

*  *  *

Oil - Lower for Longer

 

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Fri, 04/03/2015 - 08:23 | 5955222 LawsofPhysics
LawsofPhysics's picture

Some people will have access to consumable calories allowing them to make and do shit and live well...   ...most will not.

 

same as it ever was...

Fri, 04/03/2015 - 08:32 | 5955248 GetZeeGold
GetZeeGold's picture

 

 

You don't need us to tell you that gas prices are back on the rise.

https://www.youtube.com/watch?v=dAkxR9T01pw

Fri, 04/03/2015 - 08:43 | 5955291 bwh1214
bwh1214's picture

lolololol

 

I work in the oil and gas industry, and capex is grinding to a halt.  Production will drop like a rock, granted on a lag, in a couple years.  The oil market will work and the solution to low prices will be low prices.  

 

The over production was caused by Fed policy and misallocation of resouces.  They forced yeilds down and caused investors to reach for yeild in the oil patch, this investment caused over investemnt which, surprise surprise, led to over production.  Now that investment is drying up, and it will again be a huge surprise in a couple years when the production drys up.  But this misallocation is not a zero sum, resouces were diverted from what in a free market would have gotten the capital and it went into shale oil and gas, now it will swing the other way and be just as ugly on the other side.  ALL THE FEDS FAULT.  

 

This is exactly the scenario that happened in housing.  A sector looks promising and due to low interest rates people dump money into that sector, there is over investment, followed by oversupply followed by a bust, and the destruction shift to another market. Sound familiar?  How this isn't being shouted on ZH in every other story I don't understand, instead we get this oil prices will be low forever nonsense. 

Fri, 04/03/2015 - 08:54 | 5955337 MalteseFalcon
MalteseFalcon's picture

"Oil prices will remain subdued for the next 20 years. That comes from a new policy brief from Stanford economist Frank Wolak, who says that a series of phenomena – surging U.S. shale production,

Wait a minute.  The US had MOAR oil?  Thought it all ran out in the 70s?

a weakening OPEC, the shale revolution spreading globally,

What is this shale revolution of which you speak?  Hubbert never mentioned shale.

efficiencies in drilling, and more natural gas substitution for oil

Natural gas is made of the same stuff as farts.  Go luck powering your Camry with that!!

– will combine to prevent oil prices from rising above $100 per barrel anytime soon."

No way, man.  No way.

Fri, 04/03/2015 - 09:00 | 5955351 LawsofPhysics
LawsofPhysics's picture

It's not how much oil is in the ground that matters, what matters is how much energy is required to extract it.

But who cares right, most americans don't care about details like that or math.

Fri, 04/03/2015 - 09:10 | 5955391 saveandsound
saveandsound's picture

If the oil-price continues to fall, the gold-price is going to follow. Given the long-term correlation.

Fri, 04/03/2015 - 09:44 | 5955542 Pinto Currency
Pinto Currency's picture

 

 

And if the dollar craters Nick?

Let off the Cunningham.

Fri, 04/03/2015 - 10:27 | 5955689 BigJim
BigJim's picture

 Oil prices will remain subdued for the next 20 years.

That comes from a new policy brief from Stanford economist Frank Wolak, who says that a series of phenomena – surging U.S. shale production, a weakening OPEC, the shale revolution spreading globally, efficiencies in drilling, and more natural gas substitution for oil – will combine to prevent oil prices from rising above $100 per barrel anytime soon.

FFS, oil is trading ~$47. a price of $100 wouldn't be a rebound?

And no, Wolak, there won't be capex into developing new shale fields unless prices rise.. and look like they'll be staying there.

I wonder whether Mr. Wolak foresaw the price crash a year ago? If not, he's just another overpaid but clueless price pundit.

Fri, 04/03/2015 - 11:01 | 5955816 SRSrocco
SRSrocco's picture

STANFORD ECONOMIST.... LOL.  The U.S. Shale Oil Industry is in serious trouble and if we don't get the price of oil above $100 again, then I would image a production collapse is in order.

If you want to see WHAT THE DEATH OF THE BAKKEN OIL FIELD will look like, you can check it out at my artcle below:

What Will The Death Of The Great Bakken Oil Field Look Like??

http://srsroccoreport.com/what-will-the-death-of-the-great-bakken-oil-field-look-like/what-will-the-death-of-the-great-bakken-oil-field-look-like/

Fri, 04/03/2015 - 10:01 | 5955606 LawsofPhysics
LawsofPhysics's picture

You sir, are an optimist.

Fri, 04/03/2015 - 09:16 | 5955420 MalteseFalcon
MalteseFalcon's picture

Yes, moar energy is needed, so profit margins will only be 50% instead of 200%.

LET'S ALL HEAD FOR THE LIFE BOATS!!!!!!!!!!!!!!!!!!!!

Fri, 04/03/2015 - 10:01 | 5955605 LawsofPhysics
LawsofPhysics's picture

Provide a link to data on those profit margins for American producers or shut the fuck up and be recognized for the troll that you are.

Fri, 04/03/2015 - 11:15 | 5955876 MalteseFalcon
MalteseFalcon's picture

LOL!
Where would that data come from? The oil industry or the governments & academics that the industry owns? What do you think accountants actually do for a living?

The "energy" biz is an oligarchy & has been for over a century. And that's all you need to know!

Fri, 04/03/2015 - 09:31 | 5955487 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

But who cares right, most americans don't care about details like that or math.

That seems to include Stanford economists. Shale fracking isn't new technology. It seems new because it's only been put into large scale production within the last few years. This is because it is only profitable with high oil prices.

This Stanford guy believes that shale fracking on a global scale will maintain low oil prices, yet never considers that fracking isn't an economically feasible project without high oil prices.

Funny how even a dumb hillbilly like me can figure that out.

Fri, 04/03/2015 - 09:41 | 5955528 Handful of Dust
Handful of Dust's picture

gas prices are to low for people to drive out to look for a job I guess. No one likes paying for dirt cheap gas.

 

It's when Freeden might call, "Paradoxical!"

Fri, 04/03/2015 - 17:45 | 5957154 mkkby
mkkby's picture

This ecomomist might actually be RIGHT.  If you look that the last major oil bust, the mid 80s, prices didn't rebound for 10-20 years.  The long term oil price chart has been posted on ZH several times, so you can all look it up.

After the bust, the major players will buy up the now dirt cheap bankrupt assets.  They are going concerns with deep pockets, so they will reap the benefits the next time oil is up.  And they are very good at constraining supply to create artificial shortages.  The frackers were a pain in the traditional industry's rump.  So the major players are glad to see them suffer.

Fri, 04/03/2015 - 09:48 | 5955564 Wild Theories
Wild Theories's picture

that's because dumb hillbillies like you happen to live in the real world, and haven't been "educated" enough.

Fri, 04/03/2015 - 10:18 | 5955664 iofera
iofera's picture

There's plenty of oil out there that can be extracted economically, Bob.

Fri, 04/03/2015 - 13:17 | 5956260 Jumbotron
Jumbotron's picture

The cheap, easy to get to oil using conventional drilling technologies peaked and began to decline in 1970 in America.  It never came back and never will.  Alaska has peaked and is in terminal decline.  Brent in the North Sea has peaked and is in terminal decline.  Mexico has peaked and is in terminal decline.  Saudi Arabia is increasingly cutting their oil with water.....sort of their version of fracking terminal wells.

Scraping the sides of the toilet bowl for shale oil is a clear, direct sign that Peak Cheap Oil is here and for real.  And not going away.  Conventional oil production using cheap technology is gone.  All that is left is fracking for shale, deep underwater and underground drilling in the oceans and Artic / Anatartic regions are all that is left.

Steep supply and price swings are a clear, direct sign of the unhealthy nature of cheap energy production in the world today.  And that is not going to change from here on out.

Fri, 04/03/2015 - 13:45 | 5956376 sun tzu
sun tzu's picture

Except technological advances make deep sea and shale fracking cheaper each year. What has driven the price of oil more than anything for the past 10 years is the USD

Fri, 04/03/2015 - 14:11 | 5956479 Jumbotron
Jumbotron's picture

Bullshit.

That's like a politician saying that his administration has decreased the deficit by the largest amount on record....which really means all they have done is decrease the RATE of the INCREASE in the deficit.

Technology does not make oil production cheaper vis a vis fracking and deep sea drilling.  It's just made them relatively cheaper than the first gen.  It's still WAAAAY more expensive than just sticking a straw in the ground and giving a bit of grease over time.

Why then all the dismay over the financing drying up for the fracking plays ?  What about all that money lost by BP when the Deep Water Horizon blew up like a thermobaric bomb?

Guess again.  Cheap oil production is done.  Forever. 

Fri, 04/03/2015 - 14:28 | 5956551 Jumbotron
Jumbotron's picture

Let me make it simple for you using pictures

There was a time when 1 barrel of oil helped you produce 100 barrels of oil out of the ground

http://baronenergy.com/wp-content/uploads/2011/02/spindle-top.jpg

 

Now....that same barrel of oil only yields 10 barrels of oil extracted....if that.  And here is what you get.

http://static.guim.co.uk/sys-images/Environment/Pix/pictures/2009/10/8/1...

https://1.bp.blogspot.com/-CIqhX1l3yHc/Ui9ycqtmXnI/AAAAAAAAIq0/ANN0saSWO...

http://pipelineobserver.ca/wp-content/uploads/2013/02/oil-sands.jpg

 

I still call bullshit.

Fri, 04/03/2015 - 14:55 | 5956663 Jumbotron
Jumbotron's picture

By the way....those pictures of tar sand oil above.   That's from Canada.  Of the oil we import.....we import more oil from these tar sands in Canada than anywhere else....including Saudi Arabia.

This is what the Keystone Pipeline is all about.

Fri, 04/03/2015 - 09:29 | 5955479 northern vigor
northern vigor's picture

I don't uunderstand how anyone from Stanford could write this without researching it. Historically,  fracked well's production levels drop quickly  after two years. 

As the drilling rigs have mostly stopped...US fracked oil production will be dropping  within 24 months at $50/ barrel. 

Fri, 04/03/2015 - 09:33 | 5955495 TheFourthStooge-ing
TheFourthStooge-ing's picture

Ivory League economists expect reality to conform to their models, not the other way around.

Fri, 04/03/2015 - 10:21 | 5955672 iofera
iofera's picture

What's the "Ivory League", Bob?

Are you filching tusks again?

Fri, 04/03/2015 - 10:30 | 5955698 BigJim
BigJim's picture

Ivory league economist's hunchbacked assistant: The economy is diverging from our models!

Ivory league economist: Don't be a fool! The model is fine! The data must be wrong!

Fri, 04/03/2015 - 11:08 | 5955840 thecrud
thecrud's picture

Because these things will keep going for at least a hundred years. surging U.S. shale production, a weakening OPEC, the shale revolution spreading globally, efficiencies in drilling, and more natural gas substitution for oil.

And like fracking other methods will come along.

Everyone thing China and India will use oil no Wind solar and hydrogen are going to drive them.

Look at technological progress in the last twenty years the next twenty will eclipse this.

I am putting my money on it.

Fri, 04/03/2015 - 13:20 | 5956272 StupidEarthlings
StupidEarthlings's picture

Not seeingtthe 'housing market ' analogy as the same as oil market.

So..your saying housing prices are down? They are still about 300% overvalued right now. So..

Fri, 04/03/2015 - 16:27 | 5956916 Carpenter1
Carpenter1's picture

Laugh if you like bwh, your pink slip is a mere months away, at most.

Fri, 04/03/2015 - 11:01 | 5955815 thecrud
thecrud's picture

Mine have fallen to 1.98 yesterday. when they had 2.24.

Fri, 04/03/2015 - 17:01 | 5957005 Carpenter1
Carpenter1's picture

Reading these comments, I think I know where much of the retail, dumb money flowing into oil ETF's is coming from. Shale is toast, but we'll all watch as it wriggles and squirms it's way to death one inch at a time, sucking lots of dumb money into its vortex on the way down.

ZH'ers are astute at recognizing a manipulated market and taking advantage, but don't see how oil is being purposefully driven down, despite all the rhetoric by the Saudis, zero acknowledgement by Obummer or the FED, and even Iran blathering about how many millions of barrels it's going to dump on the market soon, an astoundingly stupid move for an oil producer, unless for some reason they want the price driven down.

Fucking open your eyes.

Fri, 04/03/2015 - 08:25 | 5955227 LawsofPhysics
LawsofPhysics's picture

"surging U.S. shale production" --  LOL, and for how long do we expect this to keep up with the 7+ billion, and growing, all competing for a better standard of living and all the resources that make that possible.

I think we have another contender for the Nobel in eCONomics...

Fri, 04/03/2015 - 08:32 | 5955249 Comte d'herblay
Comte d'herblay's picture

Or someone trying to force the price further down because they are short, or want to accumulate more at lower prices in the next few months or year.

My cynicantennae are vibrating.

Fri, 04/03/2015 - 08:40 | 5955277 Serfs Up
Serfs Up's picture

Does this genius Stanford dude know that shale oil from all US sources was set to peak in 2020?  

That's, like, five years from now.

...which makes his next 15 years after that a bit suspect, eh wot?

Fri, 04/03/2015 - 10:42 | 5955739 Amish Hacker
Amish Hacker's picture

And he makes a common mistake that you see all the time when people try to make predictions: projecting the current trend in a linear fashion into the future, ignoring the cyclical nature of human activity.

Fri, 04/03/2015 - 09:11 | 5955387 SpeakerFTD
SpeakerFTD's picture

The problem is that all energy is productivity.  The price of that productivity determines our ability to maintain the lives of 7+ billion people.   I think the equilibirum price of productivity necessary to keep the world populations satisifed is probably equivalent to oil prices around $20/bbl (the historical price up to the 1970s).   If the natural demand for energy needed to keep 7 billion people alive can be supplied for less than that price, it creates surplus productivity, allowing the population to prosper and grow.   Anything much above that price point, and the productivity is too expensive to effectively produce all the goods needed for all those people.

Once oil goes above that level,  the world effectively goes into recession - you are producing less than the world really needs/expects.  We have been able to finesse it globally over the last decades with the creation of debt, pulling forward demand to create the illusion that we can support productivity costs above $20/bbl.  This has allowed us to produce more now, on the assumption it will be paid later.  We have been able to get as high as around $100/bbl, before that expensive level of productivity eventually overwhelmed even the debt-charged demand.  

We have been able to feed 7 billion people by giving suppliers of all things a series of IOUs.  All this debt needs to be serviced and retired at some point.  

For the foreseeable future, I think we see a declining sine wave of oil prices, with lower peaks and lower lows, falling below the equilibirum value of $20/bbl until the piles of existing debt are slowly extinguished.  

Unless there are some remarkable technological breakthroughs, the natural demand of 7 billion will almost certainly not be met by supply available at these price points, so that demand will go unmet and will be reduced.    

If you accept that the current credit bubble really took off in 1971, the global population at that time was around 3.5 billion.   Since then we have had some remarkable technological breakthroughs, which have increased productivity tremendously.   Offsetting that, we have piles of debt and we can no longer develop (drill) basic energy productivity at anywhere near the cheap production prices available back then.  It's hard to estimate exactly how those factors interact, but certainly the global population equilibrium is far below the current 7 billion, and it might be below the 3.5 billion of the 70s.  

Fri, 04/03/2015 - 10:13 | 5955647 LawsofPhysics
LawsofPhysics's picture

Price in fiat is fucking irrelevant.  The price in calories returned on calories invested is the only thing that matters.

 

FAIL!!!!

Fri, 04/03/2015 - 10:33 | 5955712 BigJim
BigJim's picture

Exactly. EROEI can't be measured in USD, just as an engineer wouldn't attempt to calculate the load dimensions of a new bridge using rubber band lengths.

How did this dude come up with the $20/barrel figure, anyway? Why not $17? Or $24?

Fri, 04/03/2015 - 11:35 | 5955961 SpeakerFTD
SpeakerFTD's picture

You're right, but that's why I said price equivalent to around $20/bbl.   This whole article is a discussion in USD, and people don't talk in calories.

Fri, 04/03/2015 - 13:45 | 5956373 daveO
daveO's picture

You're right. $'s are debt based. If the debt fails, the $ price of oil falls regardless of of extraction costs. I was preaching this, when oil was $100/barrel, to all the peak oil posters (bankers/traders?). Of course, the debt won't be allowed to officially fail. So, this price is temporary, probably, very temporary. 

Fri, 04/03/2015 - 08:26 | 5955228 101 years and c...
101 years and counting's picture

you have to assume at some point the money printers fail and the depression takes hold.  when it does, oil will drop under $20.  could be later this year.  maybe next.  but, its coming.

Fri, 04/03/2015 - 08:30 | 5955243 LawsofPhysics
LawsofPhysics's picture

Good luck taking delivery at $20 per barrel or are you saying producers will be happy to work at a loss?

Fri, 04/03/2015 - 08:34 | 5955257 NoWayJose
NoWayJose's picture

The producers will go out and buy 55 gallon drums, fill them with $20 oil, stack EM up and wait for their price. There will be lots of free Fed money willing to co-invest in this.

Fri, 04/03/2015 - 08:38 | 5955269 LawsofPhysics
LawsofPhysics's picture

So long as the FRN is still accepted on global markets, yes.

Fri, 04/03/2015 - 08:53 | 5955335 deflator
deflator's picture

 A barrel of oil is 42 gallons.

Fri, 04/03/2015 - 13:56 | 5956424 sun tzu
sun tzu's picture

They will work at a loss until they go bankrupt. North Dakota Bakken oil is $33/bbl for sweet crude and $24/bbl for sour crude right now and has been for most of Jan-March. Companies like Continental, Oasis, and Whiting are still working and it's for a massive loss. Their estimated cost is $60/bbl. What choice do they have but to keep pumping oil until the cash flow runs dry? They are all saddled with billions in debt and have interest payments to make each month. The leases might be for 5-10-15 years. If they don't start fracking, they've spent hundreds of millions for nothing.  While logic says they should reduce production, the financial situation demands that they increase production. All of the mid-sized E&P's are projecting production increases of 5% to 25% this year over 2014. 

http://www.paalp.com/customer-center/crude-oil-price-bulletins-1363.html

Fri, 04/03/2015 - 16:51 | 5956975 Carpenter1
Carpenter1's picture

LoP, do you STILL not see the writing on the wall? The end game has been kicked off, oil isn't going anywhere but down. Nobody gives a shit about shale producers, they're the lamb at the lamb dinner.

Fri, 04/03/2015 - 08:26 | 5955230 Thirst Mutilator
Thirst Mutilator's picture

Well ~ I suppose FIRST one must begin with premise that, in 20 years, ANYTHING will be priced in 'dollars'...

Fri, 04/03/2015 - 08:28 | 5955236 LawsofPhysics
LawsofPhysics's picture

Bingo.  Yes, I have absolutely no doubt that the government can set an "official" price for oil and distillates...    ...availability will be another thing altogether.

Fri, 04/03/2015 - 08:28 | 5955233 NoDebt
NoDebt's picture

"Most estimates project that U.S. shale will begin to fizzle after the next five years or so."

Five years?  I guess we'll just have to jump off that bridge when we come to it.

Fri, 04/03/2015 - 08:29 | 5955238 Comte d'herblay
Comte d'herblay's picture

Only a supremely arrogant, ignorant, prideful egomaniac would even 'think' out 20 yrs and attempt to make a prediction about oil prices.

Or someone with a nefarious agenda.

Fri, 04/03/2015 - 08:32 | 5955251 Roanman
Roanman's picture

Maybe both.

Fri, 04/03/2015 - 08:31 | 5955244 Little Boomer
Little Boomer's picture

I see big gas tax increases.

Fri, 04/03/2015 - 08:33 | 5955255 thatthingcanfly
thatthingcanfly's picture

This article struck me as pretty fair and balanced.

Another topic I haven't seen covered yet to great degree, is the impact lower prices are having on the operating practices of shale E&Ps. Necessity being the mother of invention, these guys are learning - for the first time in some cases - to strive for efficiency and eliminate unnecessary costs. Didn't have to have a lean process when oil was $100/bbl. The improvements that will come out of this price contraction will surprise most people who are only casually familiar with the industry.

Fri, 04/03/2015 - 08:49 | 5955283 LawsofPhysics
LawsofPhysics's picture

It's been that way for over 100 years in this business.  The issue is always with the size of the price swings.  On at least one occassion, the availability and price of oil lead to a world war, but yes absolutely correct.  Just imagine the innovation that comes after half the population is taken out.

Fri, 04/03/2015 - 08:47 | 5955304 Serfs Up
Serfs Up's picture

I hate to be the one to break it to you, but geology trumps necessity.  Always has and always will.

There has been almost exactly zero gains in per well productivity over the past several years and that's *with* using more frac stages, more proppant, longer laterals, and more frac pressure.

That is, and let me spell this out for you, better technology and increasingly poor geology have fought each other to a standstill....but geology is set to win as the core sweet spots are drilled up.

Reality...it won't just be for poor people soon.

Fri, 04/03/2015 - 09:08 | 5955384 CarpetShag
CarpetShag's picture

Financialization trumps everything, including geology. How many bankers do you know who are geologists?

Fri, 04/03/2015 - 14:03 | 5956455 sun tzu
sun tzu's picture

The first peak oil claims were made in 1920. Since then, oil production has increased 100 fold. 

One hundred years ago, underwater drilling was a pipe dream. Fifty years ago, deep sea drilling was a pipe dream. Twenty years ago, fracking and oilsands were pipe dreams.

Fri, 04/03/2015 - 08:40 | 5955278 orangegeek
orangegeek's picture

Historically, oil is expensive at $50.  Should be between $10 and $30. 

 

Notice the freefall in the monthly?

 

http://bullandbearmash.com/chart/wti-oil-monthly-closes-flat-wild-swings...

 

We are ready to break below March 2009 and the stronger USD will drive us to get there.

Fri, 04/03/2015 - 08:46 | 5955300 NoWayJose
NoWayJose's picture

Historically, ground beef and steaks should be cheaper too - but they are not. Historically, cars should be cheaper - but they are not. Historically, healthcare should be cheaper as we improve techniques and diagnoses - but it is not. So why would oil be historically cheap? And find me some historically cheap coffee, cocoa, or orange juice too!

Fri, 04/03/2015 - 09:12 | 5955401 NoDebt
NoDebt's picture

Could I get some historically cheap health insurance with that, too?

Fri, 04/03/2015 - 13:55 | 5956422 daveO
daveO's picture

Us debt is over 100% of GDP, just counting official debt. Forget about unfunded liabilities, they'll never be funded. This trend has it's limitations built in by demographics and free trade with slave labor nations. Still, everything will probably get cheaper while the real price still goes up, thanks to the plantation owners in DC and NYC.

Fri, 04/03/2015 - 09:10 | 5955390 CarpetShag
CarpetShag's picture

So,you are proposing that future prices can be predicted by plotting charts? Good luck.

Fri, 04/03/2015 - 08:41 | 5955284 NoWayJose
NoWayJose's picture

Given the massive cuts in capex and E&P projects, combined with Iranian nuke testing, combined with the US debt - I see $100 and not $20.

Look back a year and I bet you can find this guy writing against Fracking or global warming.

Fri, 04/03/2015 - 14:16 | 5956502 sun tzu
sun tzu's picture

What happened to the price of oil when the US economy collapsed in 2008-2009? It wasn't an increase in the supply side that caused prices to go from $140 to $40. 

I live in Texas where people sneer at mass transit. They love their fast cars and big trucks. What happens when gas prices hit $3.50? The trains and busses are full, people stuffed in like sardines. You start to see carpooling, smaller cars, and hybrids. When the money isn't there, people have no choice but to cut back on consumption.

With obamacare, food, taxes, and housing costs skyrocketing and stagnant wages, where will the money come from for $100 oil and $5 gas? Something will have to give and if oil goes to $100 it will be the entire economy that collapses and oil prices will follow. Unemployed people don't drive much. Bankrupt companies don't ship goods. It's called demand destruction. Raise the price of milk or orange juice to $10 and I assure you there will be demand destruction and prices will collapse.

 

Fri, 04/03/2015 - 08:52 | 5955332 Space Animatoltipap
Space Animatoltipap's picture

These long term predictations are very funny, apart from most stupid.

Fri, 04/03/2015 - 09:12 | 5955399 MalteseFalcon
MalteseFalcon's picture

You mean like the projections derived from Hubbert's work, right?

Fri, 04/03/2015 - 08:58 | 5955348 buzzsaw99
buzzsaw99's picture

Stanford economist...

say no moar

Fri, 04/03/2015 - 09:39 | 5955516 TheFourthStooge-ing
TheFourthStooge-ing's picture

Another economist who can not account for reality and is trying to save his 'science'.

Fri, 04/03/2015 - 09:00 | 5955353 Platypus
Platypus's picture

Blablablablablablaabla!!!! Oil may stay low for a while, but the reason is to break Russias back. And the BRICS in general. The BRICS were in the process of becoming too strong, so the AngloAmerican empire decided to hit them where it hurts.

Fri, 04/03/2015 - 09:31 | 5955488 Wahooo
Wahooo's picture

The reason the Saudis lowered prices was to contain Iran, which it knew from its pals in the US would be given a new lease on life and no sanctions. In preparation for the day when millions of gallons of Iranian oil hits the market - at higher than black market prices - the Sheiks protected share, and will continue doing so. Fracking isn't even on their radar. It's about the Persians, always.

Fri, 04/03/2015 - 11:52 | 5956000 Loucleve
Loucleve's picture

Russia partially, but i believe they also saw the economy tanking and decided to goose it.

Fri, 04/03/2015 - 09:00 | 5955354 andrewp111
andrewp111's picture

A little nuclear war in the oil patch will get prices up in a hurry.  Such a war is becoming more inevitable all the time, as the Shiite-Sunni conflict escalates.

Fri, 04/03/2015 - 09:19 | 5955433 MalteseFalcon
MalteseFalcon's picture

"Shiite-Sunni conflict"

LOL.

Those Shiite-Sunnis got nukes?  Nope.

Fri, 04/03/2015 - 09:40 | 5955527 PirateOfBaltimore
PirateOfBaltimore's picture

Considering how the "negotiations" (read: capitulation) in Iran are going, it's only a matter of time.

 

Doesn't even have to be nuclear war, either.  Disrupt production in the house of Saud or commerce in the Gulf and watch prices rise.

Fri, 04/03/2015 - 23:41 | 5957984 juicy_bananas
juicy_bananas's picture

Israel-everyone conflict.

 

There, fixed it for you.

Fri, 04/03/2015 - 09:05 | 5955374 ratpack1968
ratpack1968's picture

The doom porn plot just a few years ago was peak oil, never see oil below $120 barrel in our lifetime, get your hockey mask and leathers ready it's going to be Mad Max.  How things change... 

Fri, 04/03/2015 - 10:37 | 5955727 BigJim
BigJim's picture

Different times call for different huxters.

Fri, 04/03/2015 - 09:19 | 5955434 q99x2
q99x2's picture

Arab men wearing dresses will be standing in front of the 7/11s.

Fri, 04/03/2015 - 09:44 | 5955538 shovelhead
shovelhead's picture

Predicting out 20 years?

Stanford Economist's predictions probably could be ripped to shreds by a high school educated guy with 20 years in the oil patch.

You don't have to know a damn thing about oil to know that even with major fluctuations like we now see, oil prices will always rise.

Knowing how currency is being debased ensures that alone.

Remember what you were paying for gas 20 years ago?

$1.11 = 1.63 adj. for inflation to 2013. (Govt. #'s, dubious accounting practices over time)

Retail Gas has gone up. What's gone down far more?

http://energy.gov/eere/vehicles/fact-835-august-25-average-historical-an...

Fri, 04/03/2015 - 14:01 | 5956442 daveO
daveO's picture

Look at the 2 big spikes. Gold window closure and Greenspan/Bernanke below market interest rates. 

Fri, 04/03/2015 - 16:42 | 5956953 SpeakerFTD
SpeakerFTD's picture

Too many here constantly confuse credit inflation with currency debasement.   They are not same thing.  Currency debasement eventually leads to hyperinflation.   Credit inflation, the phenomenon we have experienced for the last 40 years, eventually leads to massive deflation.  

A government's answer to the resulting deflation has historically often been currency debasement, but until we actually see FRNs raining down from helicopters, that isn't what is happening.

Fri, 04/03/2015 - 09:47 | 5955558 Fourmyle
Fourmyle's picture

Fracking economics has some very nasty positive feedback loops. Short well life and cheap finance -> exponential growth in well numbers to maintain linear production growth. Dropping oil prices make new drilling a certain lose once the median well will not repay it's drilling and operating costs over it's life span. Falling cash flow from low prices encourages maximizing flow from existing wells, which actually reduces the final total production from those wells but adds to an immediate glut. Add to that countries with low production costs ( UAE ) who have based their budgets on high oil prices and can substitute more production to maintain cash flow into lower prices. Even without fantasy financing this is a setup that can't help but oscillate wildly. If anyone ever starts to demand that the loans/investments be repaid, let alone turn a profit, and IMHO we'll get to watch one "unforeseen" chain reaction wreak with few wells, and high prices following. The cycle may repeat, they often do. I suspect this event will be referred to financially as "bad luck".

Fri, 04/03/2015 - 10:00 | 5955601 Hohum
Hohum's picture

In 20 years, new drilling for oil will be close to zero.  Can't economists do marginal analysis anymore?

Fri, 04/03/2015 - 10:06 | 5955619 akrainer
akrainer's picture

As a commodity trader and oil market analyst since 1996, I couldn't agree less. There is about zero chance that Mr. Wolak is correct. Here is my analysis: https://thejubilee.wordpress.com/2015/03/25/our-energy-predicament/.

Fri, 04/03/2015 - 18:51 | 5957375 Radical Marijuana
Radical Marijuana's picture

akrainer, your article was worthwhile!

The energy we must invest to obtain new energy can not be printed and our declining EROEI numbers reflect the diminishing returns from investment in energy production.  ... I think we can get closer to the truth by researching about how various military organizations look at energy-related issues. ... three reports consider the peak oil hypothesis with utmost seriousness and treats the notion that we have run out of cheap, easily extractable oil as a hard fact with grave consequences for the world economy, societies and global security. While the U.S. Army report doesn’t mention “peak oil” as such, it is based on the notion that “The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close… ”

As my comment below outlined, the consequences of such objective facts developing through social systems based on being able to back up lies with violence will become more and more psychotic.

The ONLY way to understand the oil markets is to understand the overall degree to which ALL MARKETS ARE RIGGED by fundamentally fraudulent financial accounting systems. It is NOT the supply of oil that has oscillated wildly up and down, IT IS the way that fundamentally fraudulent financial accounting systems work that enables the oil markets to develop criminally insane volatilities, which have wilder and wilder counter-productive and counter-intuitive effects, which can not be fully understood without understanding the basic background that the entire political economy is based on ENFORCING FRAUDS, which is inherently problematic and increasingly unstable!

To be more realistic about that situation would require facing the ways that human ecology and political economy actually worked through combined murder/money systems, where the death controls backed up the debt controls. IF we were ever able to develop some saner and stabler systems, that would require surmounting the extremely difficult dilemmas regarding how to operate better death controls, to back up better debt controls.

In the absence of such a series of political miracles, then the already established systems of ENFORCED FRAUDS will automatically become more psychotic and criminally insane. At the present time it is NOT possible for human systems to be understood as rationally connected through environmental energy systems, because the human systems are based upon ENFORCED FRAUDS which are socially successful to the degree that they are able to get away with publicly presenting themselves as NOT actually being ENFORCED FRAUDS.

Fri, 04/03/2015 - 10:12 | 5955640 iofera
iofera's picture

Vlad filled my tank at the Esso station yesterday. Said he may never leave New Jersey if this slump continues.

He said to keep those Zero Hedge care packages coming!

Fri, 04/03/2015 - 10:27 | 5955685 dexter_morgan
dexter_morgan's picture

But didn't Obozo just promise the UN he would cut greenhouse gases by driving up the price of energy?

The day that never comes

https://www.youtube.com/watch?v=5j_-T4cfSYE

Fri, 04/03/2015 - 11:14 | 5955867 boeing747
boeing747's picture

Another 'Saudi Pipeline' propaganda from ZH.
Do you think Dollar will keep value for next 20 years?
BRIC people will not buy another car?
ME will in peace for next 20 years?

Fri, 04/03/2015 - 11:20 | 5955898 Consuelo
Consuelo's picture

U.S. foreign policy, anyone...?

 

 

Fri, 04/03/2015 - 11:45 | 5955974 cwsuisse
cwsuisse's picture

It appears very unlikely to me that the shale boom in the US is going to continue or is going to be replicated in other areas around the globe. Unless the prices are going to climb soon and significantly the US shale industry is in trouble and over time the volumes will drop. If it should be correct, as frequently stated in various contributions published on Zerohedge, that shale companies are cash-flow negativ and that the business model is not sustainable I very much doubt that outside of the US where people are extremely keen to participate in highly risky ventures the shale business model is going to be applied in any significant degree unless of course the prices skyrocket. There seems to be a fundamental error in the thought that shale is going to be utilized in a low price scenario. It is obviously an either or and studying at Stanford might not be helpful in understanding basic logic. In Europe in general fracking will never make it because of "green policy", concerns from the population and lack of space - unless of course Angela Merkel permits the erection of drill towers on government premises in Berlin. 

Fri, 04/03/2015 - 12:35 | 5956145 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

you guys are over thinking things, if/when oil gets to $20/bbl

they'll just change the definition of a BBL dividing it by 5 and walla $100/bbl.

oh happy daze

Fri, 04/03/2015 - 13:28 | 5956309 Dekyus
Dekyus's picture

Did Stanford economist Frank Wolak anticipate oil at 45$ per barrel 6 month ago ? absolutly not !  so shut your f*** up and don't predict what you don't know b****

Fri, 04/03/2015 - 15:21 | 5956720 Magooo
Magooo's picture

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.  http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

 

BUT WE NEED HIGH OIL PRICES:  The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth.  http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

 

Low price - high price ----  WE ARE FUCKED EITHER WAY

Fri, 04/03/2015 - 15:21 | 5956722 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Rubbish. The Saudis will be out of oil in 15 years. It won't be possible to avoid paying for oil what it costs to get it out of the ground.

The real plan is to bring the new oil producers to their knees and snap up their oil at a fraction of its real worth---or, in Russia's case, anybody putting them on notice that the people's natural resources are not to be given away to foreign thieves.

The Saudis know they'll be out of oil in 15 years and are trying to move into the investment banking racket. It'll work out about as well as it did for Nauru, once the richest nation on earth per capita, now living by its wits and the crumbs it gets from Australia for agreeing to be a holding pen for asylum seekers. 

Fri, 04/03/2015 - 21:03 | 5957303 Radical Marijuana
Radical Marijuana's picture
Oil Price Crash: Who Cooda Node?

... how the Banks REALLY “Dissipate Loss” ... we all know that story well by now, they get Bailed Out and the Loss goes onto the Balance Sheet of the Taxpayer. Meanwhile, some well positioned Pigmen pick up the “assets” for Pennies on the Dollar! Said well positioned Pigmen “make a mint”, but who pays the difference between what the first company lost and what the Pigmen made here? YOU DO! None of this debt ever disappears, it has to go somewhere onto somebody’s balance sheet, and where it goes in the end is Debt that Da Goobermint signs for in your name!

The REALITY is none of this has EVER been “profitable” enterprise, all that was ever being done here was the Burning of Capital, which was the Fossil Fuel Energy stored up over millions of years. It now floats around in the atmosphere as CO2, and it cannot be repoed. Banks and Energy Extractors positioned themselves in between the “owners” of this Oil and the “consumers” of the oil, providing credit to both, and the monetary system based on this “worked” up until the cost for dragging up the Oil exceeded the amount the consumer could afford to pay for it. Who goes bankrupt FIRST here? The consumers do. They are furthest down the line from the Credit issuance, it comes to them in the form of Wages from money borrowed into existence earlier by the folks who run these industries. When they go bankrupt, the losses are shifted onto the general population, and the total Debt grows all the time here. A VERY few criminals profit from this scheme, MOST people suffer from it.

The Game is in its final stages now, and how it plays out here is that many local economies are being triaged off the Credit Bandwagon, Greece, Ukraine, Argentina, Syria and many other places are devolving to failed state status because they have become superfluous, “useless eaters” if you will. Without access to internationally recognized Credit issued by the International Banking Cartel, these folks no longer have access to Oil, or any of the products and services that Oil makes possible. Internecine conflicts arise and Civil War breaks out. As that problem crosses borders to neighboring countries, the wars begin between the Nation-States.

What everybody is fighting about here has close to ZERO connection to what religious sect they belong to. Its a fight over ever diminishing Global Resources. It’s a fight between those who control those resources and the folks who have come to depend on them over time. There no longer is enough for EVERYBODY to live the lifestyle of Happy Motoring, and location by location the consumers of the Oil are being triaged off this economy, in what Steve refers to as “Conservation by Other Means”. It’s happening now in Greece and Ukraine, and It’s Coming Soon to a Theater Near You also.

To say this was “Not Predictable” is a complete canard. It WAS predictable, and it WAS predicted, ... by ... numerous other people who have been tracking this going back at least to the Club of Rome and their Limits to Growth analysis in the 1970s, and Richard Duncan’s Olduvai Hypothesis in the 1990s. ...

This is all PREDICTABLE, and has been for quite some time. The general population is sold a bunch of BULLSHIT by Industry Shills, ... but the Truth is quite obvious here, we have a Finite World with Finite Resources, and they are no longer able to keep up with the voracious appetite of a growing population of Homo Saps long since in Overshoot who bought this line of Bullshit.

Do not believe the LIE that “Nobody Cooda Node”.

Many people NODE. Just nobody LISTENED.

The deeper reasons for how and why "oil markets are highly volatile" are that the basic political economy in which those currently exist are operating through fundamentally fraudulent financial accounting systems, which are headed through psychotic breakdowns. Ironically, it is possible to understand how human energy systems have necessarily developed to become criminally insane, due to the selection pressures in each short-term increment enabling the development of systems of deceits backed by destruction, to become systems of enforced frauds. However, better understanding of that makes no practical political difference to the established systems devolving through runaway psychotic breakdowns, due to their grand paradoxes of final failure from too much success at backing up lies with violence.

It is POLITICALLY IMPOSSIBLE to have any rational public discussions regarding political economy, and even less so regarding human ecology. There are great paradoxes with respect to human civilizations, because those were necessarily based on being able to back up lies with violence, while the people who were the best at doing that were necessarily the best at lying about what they are really doing, and suppressing the basic facts about that situation. The currently established systems are operated by the best available professional liars and immaculate hypocrites, who can not publicly discuss any of their problems except through more lies and hypocrisy.

Those great paradoxes are CONSISTENT with basic energy laws. The universe as whole continues to be PERFECT, despite that the ONLY connection between human laws and natural laws is the ability to back up lies with violence. While those degrees of evil deliberate ignorance cause corresponding amounts of human suffering, those entrenched systems continue to be able to maintain their attitudes of willful blindness nonetheless. The great paradoxes have manifested due to the history of successful warfare based on deceits, which then became the basis for successful finance based on frauds. Warfare was organized crime on larger and larger scales, which then became the basis upon which was built an economics on larger and larger scales. Through those long historical processes, the biggest bullies' bullshit world view became almost totally dominant, through its natural languages and philosophy of science, so that everything ended up being deliberately misunderstood in the most backward and absurd ways possible!

Those great paradoxes are due to the ways that human civilization is being dominated by fundamentally fraudulent financial accounting systems, which makes SENSE from the perspective of how human civilization actually operates according to fractal patterns of the principles and methods of organized crime. However, since the ability to back up lies with violence, despite being socially successful, NEVER stops those lies from being false, that social pyramid system necessarily becomes more and more psychotic, and therefore, heads towards psychotic breakdowns, due to the limits of the ability of violence to back up lies driving civilization's successes to become more completely corrupted and crazy ...

Hence, it is POLITICALLY IMPOSSIBLE for enough human beings to understand general energy systems enough to have any more relatively rational political economy, and even less so to have any more relatively rational human ecology. Indeed, it is NOT possible to exaggerate the degree to which the success of social pyramid systems based on being able to back up lies with violence has inverted and perverted our understanding of everything, until we misunderstand everything in ways which became as backward and absurd as possible. Indeed, while it is theoretically possible to understand human beings and human civilizations as manifestations of general energy systems, it is practically IMPOSSIBLE for the established political economies to be able to admit those radical truths about themselves, and even more practically IMPOSSIBLE for the established human ecologies to be able to admit those radical truths about themselves.

The oil markets operate inside of integrated systems of legalized lies, backed by legalized violence, which deliberately misrepresent themselves as much as they possibly can to themselves, as well as to everyone else. The essential dilemmas are that human beings and human civilizations necessarily operate as entropic pumps of energy flows, whose operations match the principles and methods of organized crime, in which context, governments are the biggest forms of organized crime, controlled by the best organized gangs of criminals. That is the context in which the oil markets have always existed, which means it is POLITICALLY IMPOSSIBLE for them to stop being as dishonest as they possibly can be, despite that their dishonesty can NEVER be backed up with enough violence to stop their dishonesties from still being fundamentally false. The oil markets are merely the single most significant markets, within social systems in which all other markets also operate through fundamentally fraudulent financial accounting systems.

Those problems are way more PROFOUND than as perceived by those who continue to think using DUALITIES, through promoting false fundamental dichotomies, and the related impossible ideals as the basis for their bogus "solutions" for those problems. Those problems are way more PROFOUND because in order to understand human beings and human civilizations as general energy systems, one must switch over to using UNITARY MECHANISMS.

Since political economy and human ecology continue to be controlled by ideologies and religions that are hundreds or thousands of years old, while those higher up in the social pyramid systems tend to still believe in the most old-fashioned of those, it is POLITICALLY IMPOSSIBLE to develop a better understanding of human beings and human civilizations, based on UNITARY MECHANISMS, which are more consistent with the progress made in physical sciences, which have gone through a series of profound paradigm shifts, while NOTHING like that kind of series of intellectual revolutions have happened in political science. Moreover, there are no reasonable and realistic ways to imagine how that could happen, before the established systems cause their own mad self-destruction, due to continuing to back up lies with violence, to keep their enforced frauds going, despite how more and more psychotically out of touch with relatively more objective facts their enforcing frauds becomes.

Perceiving the real world that way then leads to recognizing that there is nothing but the dynamic equilibria of different systems of organized lies operating robberies, in which context exists phenomena such as that "oil markets are highly volatile!" While it may be theoretically possible to develop better dynamic equilibria between the different systems of organized lies operating robberies, since all of the most dominate ones are the most fanatical about lying about themselves as much as they possibly can, while struggling to continue to be able to back up bigger lies with more violence, that makes it POLITICALLY IMPOSSIBLE to develop better dynamic equilibria ... other than through the established systems FIRST driving their wilder and wilder volatilities through psychotic breakdowns ...

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