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Oil Prices Will Fall: A Lesson In Gravity
Submitted by Arthur Berman via OilPrice.com,
The oil price collapse is not over yet. It is more likely that the Brent price could fall back into the mid-$50 range than that it will continue to rise toward $70 per barrel.
That is because oil prices have risen based on sentiment alone. The fundamentals of supply and demand indicate a dismal reality: oil prices will fall and may fall hard in the near term.
Our present situation is like that of the cartoon character Wile E. Coyote. He routinely ran off of a cliff and as long as he didn’t look down, everything was fine. But as soon as he looked down and saw that there was no ground beneath him, he fell. Hope and momentum cannot overcome gravity.
Figure 1. Wile E. Coyote cartoons. Sources: The Braiser, Dubsisms and Forbes.
Neither can ignoring the data.
When I look down from $60 WTI and almost $68 Brent, I see no support except sentiment. Like Wile E. Coyote, we need a gravity lesson about oil prices. What goes up for no reason, will come down sooner than later and it may fall hard.
Let’s examine the facts.
The principal reason for the oil-price collapse is a production surplus–more supply than demand for oil. The latest data from EIA (Figure 2) indicates that the surplus is the greatest since the current oil-price collapse began. In other words, the cause of the price collapse is getting worse, not better!
Figure 2. World liquids production surplus or deficit (production minus consumption), January 2011-April 2015. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
The latest data from IEA indicates that the production surplus in first quarter of 2015 is the greatest of the last decade and much greater than during the 4 previous quarters (Figure 3).
Figure 3. Quarterly world liquids production surplus or deficit (production minus consumption), 2006-2015. Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
With data like this from EIA and IEA, how can anyone be optimistic that even higher oil prices may be coming? How can anyone say that the price increase in recent months has any relationship to reality whatsoever?
Both IEA and OPEC offered grave concerns about persistent over-supply in their recent monthly reports that seem to have been ignored or dismissed in the jubilance of higher oil prices.
Analysts may be hopeful that the drop in U.S. rig counts–which has almost stopped in the last two weeks–will result in a decrease in tight oil production. I believe that is true but the U.S. is not the world and the world continues to add production.
With somewhat higher prices, some tight oil producers like EOG say they are ready to aggressively grow production again if prices stabilize around $65 per barrel. If other producers do the same, so much for the as-yet-to-be seen production decline from lower rig counts.
Many point to signs of increased oil demand because of low product prices as a positive trend. I agree, but as long as production is growing faster than consumption, we have an over-supply problem.
I hope that the rebound in oil prices over the past two months is sustainable and that prices continue to rise. But hope doesn’t count much for very long in global markets. The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.
Wile E. Coyote never learned the lesson of gravity but that was in a cartoon. This is real.
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This analysis from last Decemner is still on track...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
Supply and Demand? Fundamentals? Look at precious metals. Oil prices can be taken anywhere.
Suppy and demand and price to earnings are things of the past, today it is Forex trading and algos. The sytem has become a game!
What happened right after the last time gas prices spiked to absurd levels?
For extra credit, what happened to precious metals?
In the spring of 2008, oil spiked to near $140 a barrel. Then, I read that an expert said that oil should be trading at $65 a barrel, that the higher price was market manipulation. In short order, as the Wall Street collapse took hold, oil's barrel price dropped by over a $100, to about $38 a barrel by September. That $65 a barrel price is still what the benchmark price should be. The problem for frackers is that at $65, frackers can't make any profits.
Also the other problem for frackers was they couldn't make any positive free cash flows with oil at $100.
good grief....price of oil.com only 8 months behind the curve. love how he uses sentiment alone to describe the rise in price....laughable at this late stage. any reader of zero hedge would use manipulation.
There are frackers who claim profitablity at $40 a bbl. Now that the rush is off efficiency is improving.
It's not just frackers, but producers from oil sands, too.
Not even 10 years ago, teh Saudi's claimed that their economy required a minimum of $80 /bbl for crude.
I think they require $70 a bbl now to keep their oil socialism afloat.
Wait, wait, I know this one.... the entire world financial system nearly collapsed. Gold went down in sympathy, then up as everyone freaked out that the world was going to end, then down again and slowly crawled back to roughly UNCH for the year.
there is a kernel of truth to that... oil prices were basically stable between US$20 to $30 per barrel from around 1985 to 2005... then the ICE trading cartel got involved... their control of the European supply chain and subsequent manipulation of the Brent price gave us the highs we've seen in oil in recent memory...
that model is illegal and unsustainable... the Saudis knew they could leverage the reality of their capacity to crush that activity and reap market share, and they have to spectacular effect...
Oil prices won't fall 'in the near term' because Goldman et al needs to stick it to Murikan drivers this summer. They should fall again, but not until the fall.
So...when all the storage space is gone the price will go up? Love the new economics.....just hard to throw logic out the window.....
Should help the baltic dry index because they will start filling every ship they can find with oil just to keep growing supply for when prices go back up.........should be great timing esp if the market plunges and deflation sets in to any great extent.
if oil was water...
"if oil was water..."
The two are more interconnected than you know.
No water-No oil.
No oil-No water.
A few exceptions exist obviously but this it the hard cold reality.
The planet seemed to do just fine and there was plenty if water before all humanity starting extracting all that oil. What the fuck are you talking about? What is oil? Oil is in fact consumable calories and reduced hydrocarbons. The fact is, these are very useful things, especially when it comes to maintaining a high standard of living.
http://market-guru.co.uk/oil-rally-meets-resistance/
hypothicate it. pump it back into the ground. strategic reserves, ha...
China was the support (demand) mechanism for high oil prices. China is FOOOOKED! Unless they resume building cities that very few people live in...demand to support oil at $100+ per barrel cannot be maintained...and India will not be replacing China anytime soon....so expect nuclear to be reborn (FYI...they lied to you about its dangers to protect the energy hierarchy). But if they don't raise wages and reduce expenses for the average guy...the system blows-up into oblivion. Don't bet on them letting that happen.
Could not agree more,
Only the willfully stupid can believe that after blowing 28 trillion on what is a total mis-allocation of capital to end up with 140 cities and 70 million luxury apartment overhang, not counting millions of shoe boxes and hovels in the sky and the sheer volume of oil needed to build that, is going to come back any time soon.
Unless the fucking cretinous faggot monkey in Chief after wiping the shit off his cock again decides to turn the US unto a new China fantasy land and burn another 30 trillion or so on fucking useless crap
Oil is just another worthless commodity, I prefer stuff I can touch and have unlimited supply (abundance), like paper Federal Reserve notes.
They're all just waiting for higher oil prices, so they can hedge their production and keep growing production. It'll be interesting to watch the fall...and autumn.
Well, of course oil prices will never recover! Goldman told us so! Goldman wouldn't lie, would they?
In any case, in markets surpluses are self-correcting. The North American shale oil industry has essentially collapsed, leaving more room for dirty Muslim oil to take its place.
Ah well. I suppose they'll be plenty of work building mosques and terrorist recruitment centers across the Fruited Plain.
Anyone ever read an article where the price of something was $60 and the guy writing the article said $60 was a good price?
oil will fall, before it goes up? or will it fall after it goes up?
will it fall, go up, fall? or go up, fall, go up?
or go up slowly, go up fast, then fall?
or fall, go up, go up, fall?
or...
well, you get my drift
Oil prices will fall but gas will continue to go up. God Bless America.
Just off the title , and as a matter of information , God will not let oil prices fall since He manages a long only Oil Hedge Fund.
LOL! In the absence of price discovery, oil "prices" can be whatever the fuck you like...
However, there is plenty of real demand for oil (consumable calories and reduced hydrocarbons).
It cant fall much due to instability in the Middle East or it would be $25/bbl by now. A little big war there and it will go back to $90/bbl at which point all those zero-cash flow Frackers will re-appear and start drilling and pumping like mofos!
Off Topic: Russia has just closed NATO's access to Afghanistan through Russia. www.russia-insider.com . Read on the main banner!
Likely WTI will continue to decline...calling it a "collapse" is just drama. Should not be a surprise, as the oil services stocks stalled out over a week ago.
Likely WTI will continue to decline...calling it a "collapse" is just drama. Should not be a surprise, as the oil services stocks stalled out over a week ago.
The monopoly can charge anything they want at the pump, in fact, gasoline prices are increasing at the pump, not decreasing.
All of the US markets are controlled by the criminal cartel monopoly and are not subject to supply and demand that was taught to you in school.
Summer stock gasoline (lower reid vapor pressure so your car's fuel system doesnt vapor lock) means an automatic price increase this time of year.
Most/all price pressure (if there is actually such a thing anymore) on crude is down. As long as The Crazies are running the Middle East asylum, the price will not hit absolute bottom. Risk has to be incorporated into the price somehow.