Forget $20 Oil: StanChart Says "Prices Could Fall As Low As $10 A Barrel"
A little over a year ago, Paul Hodges was roundly mocked when in December 2014 he made a drastic call that "Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers." After oil got as close as 40 cents away from the dreaded 2-handle, Paul had the last laugh.
But the bigger point is that not only is $20 oil not a shocker any more, it is largely expected and could be indeed welcomed, as first Goldman, then practically everyone else has now admitted it is just a matter of time before oil trades to levels not seen since the 20th century.
So, perhaps to make a name for himself, the head of commodity research at Standard Chartered, Paul Horsnell decided to lower the bar into even more dramatic territory, and overnight suggested that oil prices could drop as low as $10 a barrel.
"Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the USD and equity markets,” Horsnell said. "We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far."
When does he see oil bottoming? "in extreme case, price floor may be set when entire market believes oil has undershot."
So with a new, and even lower bogey, that means that an upper, or even lower $20-print in oil will be the shocker so many bottom hunters are looking for, but instead after this expectations reset, oil may have to indeed drop another $10 before the BTFD algos can finally make some money.
So with a $10 oil bogey now in the books, here is what others are predicting, courtesy of Bloomberg. Spoiler alert: everyone is bearish.
Energy Aspects
- Even oil in $20s won’t speed market rebalancing
- Cost of halting and then restarting production makes output curbs unlikely, even at prices below $30/bbl
- Risk of further price declines “still on the cards”
ADIA head of research Christof Ruhl
- Conventional oil producers “can’t win” in battle to drive U.S. shale producers out of market
- U.S. oil shale showing relentless efficiency gains
Natixis
- Natixis cuts 2016 Brent forecast by $8.30 to $39.50/bbl
- “We expect a very slow recovery in oil prices, thanks to the continued resilience of U.S. oil output”
Barclays
- Strong demand may lead to gasoline shortage in summer
- Cites new refinery additions less tailored toward light products, increasing demand for petrol in Asia
- Cut Brent, WTI 2016 fcasts to $37/bbl on “marked deterioration” of mkt fundamentals
- Represents $23 cut to Brent fcast, $19 reduction on WTI
In short, peak pessimism is here. The only missing link is one major high-cost oil producer (like Venezuela for example) blowing up. It shouldn't be too long.
(8 votes)
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Haven't you noticed that they are trying to undercut US and Canadian producers too doing that?
It ain't about Russia, it's about the Arabs having budgets if they don't take out a good chunk of the competition.
You keep pretending there is a formal USA Saudi military alliance - there isn't.
http://www.zerohedge.com/news/2016-01-07/saudi-devaluation-odds-highest-...
Causation is not what is happening....when oil was high...more oil was searched for and was found..now it is on the market and we dont use that much..so the price drops.....the conspiracy theory you talk about is just that....its pure and simple Econ 101....now with $10 oil..no one will search for it...and soon wells will dry up and oil will become short again..and the price will go back up....just like the apartments in China..everyone was buying because everyone was buying..and prices went up...now there are to many and no one is buying and prices are dropping....to think Obama is a world leader running the oil market is a fools dream....Hope and Change baby...
LOL. Buddy, if you think that Supply/Demand models result in such have an extreme and rapid price swing (> $100 down to $10-20 range), then you don't truly understand that model as it pertains to Oil.
What you suggest is a co-contributor that results in price change in some fractional price changes, but not in MULTIPLES. To get the latter effect, you need massive political factors driving the show.
I don't think they found so much new oil in Saudi Arabia recently.
USSR collapsed because it was sclerotic under Brezhnev and the world had moved on from heavy industry. It may have been given an extra lease of life after 1973 but it was finished long before oil prices collapsed. High oil prices simply hit the truth as it has with Saudi Arabia
That's exactly what the Sauds are doing. It worked like a charm before, because the Soviet Union was a centrally planned economy with no significant sources of hard currency other than oil (only the truly desperate or stupid would buy anything manufactured in Russia with his own money), and its government was universally hated by its people.
It won't work this time---not on Russia anyway.
Russia is a free country with a government that is actually on her people's side, and is rewarded with their loyalty. The Russian standard of living has improved immensely to boot. For one thing, Russia got much better at feeding herself once she abandoned collective farming. Lines for staples are a distant memory even in the provinces.
Saudi Arabia is a howling desert that would never have been more than sparsely populated had oil never been found there. Whatever loyalty the House of Saud enjoys from anybody, in Arabia or outside it, is bought and paid for.
Without oil money, feeding its current population will be impossible. Saudi is now the totalitarian state facing a catastrophe that will make the fall of the Soviet Union look like a day at the beach, and from which they are much less likely to recover than Russia did. Once the oil money runs out, Saudi Arabia faces not only open revolt but mass starvation---and by then the civilized world, whose peoples have had enough of Islam to last till the Day of Judgment, will be no mood whatever to accept Saudi "refugees."
Long oil and Russia. Short debt and Islam.
This is all correct, but it may get worse before it gets better. I would be careful with the long oil.
at $10 lots of people are going to go hungry around the world...many countries oil is the only income they have....all the eggs in one basket...
Nigerians will be coming to a municipality near you
Germany will take care of them.
at $10 lots of people are going to go hungry around the world
But my teee-veee says all those people are getting a tax break. If they're not eating they must be buying smart phones with all that new found money, silly peasants.
ya...like Washington or Wall Street...care about that. Just go to Detroit or Chicago to see what they like...slums, violence, low information backers
Oil is the poster child for fake/rigged market values.
Thatt marks the bottom. Back up the tanker train.
When the price gets too low the producers will turn off the taps. The world will eat into the current supply, prices will spike and they'll start producing again. This stuff isn't really that complicated...demand is fixed and absolute, somebody controls supply, supply controls prices.
If by some freak chance oil hits $20 or lower, put every last dime you have into it because it is a mathematical certainty that it will rise again quickly.
So what would somebody invest in? futures? i dont have storage facilities.
One of the many disadvantages of living on a slab.
That, and slabs are tornado magnets.
...and when it does, it will go to a similar, opposite extreme...
really...and how would the criminal on Wall STreet and the CEO at the oil companies...afford their bonuses. Greed will take them to the limit.... Plus oil should have been between $15-$25...all along!
Russia cant take these low oil prices forever. At some point, Putin will do something crazy:
https://www.youtube.com/watch?v=SyTgrhJd6BQ&list=WL&index=3
Anyone here every revisit history? There are plenty of cases where the producer becomes the buyer from the low cost sellers and takes their product and either resells it our warehouses it.
The low cost seller? He goes broke and wonders whta the hell happened.
Not claiming to be prescient, but any time an analyst publicizes a prediction like that, it's usually wrong. Get ready for a reversal and a huge short covering rally in oil.
I <3 cheap gas
How can so many produce so long and lose so much in the process?
Too much easy money has gotten into too many hands.
They never plan to pay it back, so they may as well gamble it away.
And they are....
It's gonna be a mess for everyone when it finally does end...
Let's see
- 600 Million barrels of oil went into Global storage last year.
- Supply currently exceeds demand by over 1 million barrels a day
- Demand Growth is tepid due to global recession.
Oil still has a ways to go.
Ho ho ho, what about -10$?
Christmas delayed :-)
The past is indeed prologue.
Anyone old enough to recall the so-called Arab Oil Embargo of the 1970's (raising hand) will also recall the popular sentiment that it was rigged from the get-go, and that there was never a physical oil shortage, only a deliberate bottleneck in distribution. In short, a conspiracy. Which was later revealed by investigative journalist (back when we actually had such creatures) Jack Anderson around 1975 (who said that Nixon, Kissenger and the Shah of Iran were the main conspirators)
In what was evidently a psyop against the Saudis, the popular media began circulating rumors about 'Operation PETROLAND' (as if a real plan would be so telegraphic) which proposed a US invasion of Saudi Arabia. Atlantic magazine even a had a cover illustration showing then President Ford and Kissenger wading ashore in an amphibious assault, wearing army fatigues with submachine guns blazing. Shortly after that the petrodollar arrangement came into being. While the US citizen suffered through a long recession and blamed 'the Arabs' for it. All bunkum and BS.
The present low sales cost of oil is vindicating all those who lived through such hard times back then as having done so unnecessarily. How much must the present generation suffer this time from these machinations?
Short answer: Lots.
p.s.
People don't know or forget that when it comes to oil, petrodollars, and geopolitics, things get far more complex than the simple Economic models predict.
Economics: the pseudo science, pretending to be a real one. If the Swedish Rijksbank says so and awards Nobel Prizes, it must be so, right? ;-)
FREE oil for everyone!!!!
Gas tax is on the horizon in NJ...to fix the roads and such. Assholes...cant even let us enjoy $1.50 gas
Story needs to be verified of course but why wouldn't we be seeing "Bath House" seeing rewards for all his efforts in destroying what is left of the Empire going on 8 years in!
When you see shit like this you know we're nearing the end of the rope and rightfully so!!!
I say oil to trade between $20 and $80 within the next 2 years bet I'll be right.
Why even bother with postive....you have NIRP...so you get -$5 Oil...who doesn't love a centralized planned economy!
We better get some social workers to start pushing subprime auto-loans. Now that'd be some profitable predatory lending. Kind of like how guidance counselors, teachers, and sometimes even whole communities encourage 18 year olds to take out tens of thousands of student loan debt. Debt that cannot be discharged in bankruptcy. Debt of a magnitude that is difficult for one with little to no financial experience to fully comprehend. But I digress, the point is, we must reflate! Even if all we've got is hot air.
The end of the downward spiral is near. Have been on this planet long enough to have seen it all (well, a lot). Once you have guys calling for extremes, like $10 oil a move has run it's course. Happens over and over again. The bottom is near.
Whatever it takes to achieve the bank objective, eh?
What I find interesting is that as the banks are turning up the pressure on the US, China, the Saud, Syria, Russia ... they are creating a lot of enemies. The enemies are those who had benefitted personally from the ONE bank system, but now are being betrayed by the ONE bank.
The bank seemingly wants to remain in the shadows and force everyone to fight each other. But, the more pressure they put on the individual parties and countries, the more obvious their role in engineering the entire scenario and betrayal becomes.
Soon, the powerful agents of the bank may become isolated and the willing doops may reconsider their support.
I'm calling $8.88 low for Oil because the chinese investor/gambler guy cannot resist betting on that number every time.
I'll see your $8.88 and raise you -$.40.
At what price will the barrels cost more than the oil that's in them? Used 55 gal barrels are 10 bucks on Craigslist
Has anyone one considered all those "smart investors" that bought crude at the plus $60 price and put it in tankers for storage?
I have no heard anything about that floating supply.
Are they still holding it?
Have they sold it?
I think oil will be free, just like in Star Trek.
Love it!
About time,
We will be close to the bottom price when the headlines of mainstream media predict that is oil is going much lower from whatever the current price is at the time.
Why does Barkley's even open their ridiculous mouth...?
Oil drives US dollar
what will happen to it then