Oil prices

Oil to Surge to $200 Per Barrel: Or Maybe Collapse to $20 Per Barrel

Whatever.

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Oil Roller Coaster
ChinaDaily

A week ago, the general secretary of the Organization of Petroleum Exporting Countries (OPEC) Abdulla al-Badri declared that oil prices have bottomed out and suggested that falling investments in future production will lead to $200 per barrel oil. As prices fell to $50 per barrel, lots of oil rigs went idle which indicates that future production will likely slow. On the other hand, it is relatively easy to crank up fracking in the U.S. if prices start rising.

Today, Bloomberg News is reporting an analysis by Citigroup that suggests that oil prices could collapse to $20 per barrel and signal the "end of OPEC." From Bloomberg:

Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.

A pullback in production isn't likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range "for a while," according to the report. The U.S. shale-oil revolution has broken OPEC's ability to manipulate prices and maximize profits for oil-producing countries.

"It looks exceedingly unlikely for OPEC to return to its old way of doing business," Morse wrote. "While many analysts have seen in past market crises 'the end of OPEC,' this time around might well be different," Morse said.

When it comes to predicting the future price of oil it is always well to remember U.S. Foreign Service Officer James Akins trenchant observation:

"Oil experts, economists, and government officials who have attempted in recent years to predict the future demand and prices of oil have had only marginally better success than those who foretell the advent of earthquakes or the second coming of the Messiah."

Akins was speaking in 1973.

In any case, one might well dispute that petroleum prognosticators do have "marginally better success" than other practitioners of haruspicy.

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40 responses to “Oil to Surge to $200 Per Barrel: Or Maybe Collapse to $20 Per Barrel

  1. Oil futures tend not to be that helpful because oil can be stored in tanks as well as in the ground. So the futures prices tend to follow Hotelling’s rule, even though the actual prices in the future won’t.

  2. When the price of oil falls, then eventually the supply will fall as the oil that costs a lot of money to extract will not be extracted.

    This drop in supply will eventually cause the price to rise, which will result in supply going up as those idle wells become economical again.

    This rise is supply will eventually cause the price to drop, resulting in some wells going idle as they will no longer be economical to use.

    Is it just me, or do I see a pattern here?

    1. And they subsequent rises and dips get smaller and smaller until it finds a stable medium or until some event or techonology disturbs the equilibrium.

      1. The cheap wells running dry, or a cheaper method of getting to the previously expensive oil happens more often than equilibrium. Not to mention the demand side effect on price stability.

    2. OPEC is only telling half the story.

      They know that fracking got away from everybody, and hammered their oligopoly on supply. They have been leaving the spigot on in order to decrease the price for about a year or two, causing fracking to largely stop.

      Why?

      Because they are buying time for the environmental lobbyists to kill fracking in the US. All they need is a few years for legislation to catch up and solve their competitor problem. Recently, they have had a hard time because legislators are unwilling to put a bunch of workers in their districts out of work. But Oil Company layoffs are starting and pretty soon the number of constituents tied to the oil industry will decrease measurably. And then they will be free to ban or restrict the process with gusto. In two or three years, when oil prices are way back up, the US will be unable to exploit those price gains because drillers in the country will be disallowed from adding wells.

      This is why there are still wells going in near my house. You can’t drive down I-25 without seeing dozens of derricks lighting up the night. Oil companies know that this is probably the last chance they get to drill wells. It is costing them more than it earns them right now, but as long as they can get the wells in before legislation bans it, they can sit on the oil until the time is right.

      1. You’re probably right.

    3. sarc, I think the ‘pattern’ is that we should trust ‘predictions’ from Bloomberg News about as much as I support pronouncements from Michael Bloomberg…

      Nada, zilch, bupkis, Zero!

  3. Anthropogenic Pricing Change.

  4. Today, Bloomberg News is reporting an analysis by Citigroup that suggests that oil prices could collapse to $20 per barrel and signal the “end of OPEC.”

    And of civilization as we know it!

    “It looks exceedingly unlikely for OPEC to return to its old way of doing business,” Morse wrote.

    “Man will finally stop sinning. The Lion will lie with the Sheep and Paradise Shall return to the Earth.”

    “While many analysts have seen in past market crises ‘the end of OPEC,’ this time around might well be different,” Morse said.

    “If we throw the dice often enough, the odds of having more than twelve can only increase!”

    1. “If we throw the dice often enough, the odds of having more than twelve can only increase!”

      I would like to introduce you to an old invention – Polyhedral Dice

    2. I’m no expert analyst, but my semi-professional analysis is that expert analysts are full of shit a counter-intuitive majority of the time. (“Counter-intuitive” because you would think that after a while they would give up on analysis and just flip a coin, leading in the long term to their predictions being wrong just about exactly half the time. But, no, they keep finding new ways to be wrong.)

    3. The Cubs will win the World Series.

      1. Do we have to have another World War?

    1. RAAAPE KULTURE!!!111!

    2. Women are going to get raped by camels? Kinky.

    3. The most Saudi Arabian story of all time is that time when a woman was gang raped while with a man who wasn’t her husband. Because she was with a man who wasn’t her husband, both she and the man (who had also been beaten by the gang rapists) were sentenced to 100 lashes and six months in prison.

      The woman went to the international press with the story in order to get the word out, so the Saudis doubled her sentence for speaking to the press.

      It’s really a wonderful country.

    4. Good to know the Saudis have their own Josh Earnest.

    5. In SA, a woman’s honor is not her own; it belongs to her family. So repressive and primitive.

  5. Fucking amazing. Kevin Williamson used “haruspicy” in the first line of his article today on NRO:

    “The Supreme Court will soon rule on a bundle of gay-marriage cases, and many Court-watchers, who perform acts of haruspicy on the justices’ public actions that call to mind the exertions of Cold War Kremlinologists, expect that the outcome will be the gutting of traditional-marriage laws across the United States.”

    What are the fucking odds of seeing THAT word twice in two separate articles in one day?

    1. What are the fucking odds of seeing THAT word twice in two separate articles in one day?

      They served liver and onions at the Press Club cafeteria yesterday.

      1. I thought they’d served ‘Umble Pie. That sees more of the entrails for such divinations.

  6. “In any case, one might well dispute that petroleum prognosticators do have “marginally better success” than other practitioners of haruspicy.”

    Not sure they do, but Hubbert has been no better than Ehrlich or Malthus or Mann, or……

    1. S: Which is why “one might well dispute”…

  7. Peak Oil is out there.

    It’s coming for you, America.

    1. We’ve hit Peak Oil several times in the last twenty years or so, I think we can stand one more visit from that particular hobgoblin.

  8. I grin every time I pass a gas station sign displaying prices in the $2 range, just thinking how the green energy whiners probably pop a vein when they see the same sign.

    1. I think they’re happy too. All they do is talk, not act. They are a bunch of hypocrits.

  9. This is not a difficult issue. The long term price of oil is whatever the price necessary to make fracking profitable. The price will of course in the short term flucuate over and above that. It will always however gravitate towards that mark. If the price goes above that, fracking will come on line and raise supply to bring it back down. If it goes below it, fracking will go off line reducing supply until the price goes above it.

    Long term it is probably a good bet that fracking will get cheaper over time as the process is better perfected. For this reason the price of oil is likely to fall in the future rather than raise, short term fluctuations aside.

    1. Except, as I note above, if legislation makes it impossible- either by regulating the extraction costs out of feasibility or banning it outright. Make no mistake, this is why the Saudis are hemorrhaging cash to keep supply up. They want US production to stop until their dupes in the Green movement can shut it the fuck down.

      1. Yes. The government can always intervene and make things worse and make everyone but a few cronies poor. There is always that.

      2. The Saudis are profitable at $10/barrel. They are not hemorrhaging.

        AND

        The long term price of oil is whatever the price necessary to make fracking profitable.

        Yes, but as the Saudis make it harder and harder to keep our wells profitable, it incentivises US drillers to find new efficiencies to remain profitable. So the break even point will be lower and lower. That will put downward pressure on oil prices.

        Oil will go back up, eventually, but not as high as it was before.

        1. Just because the Saudis make some profit pumping their oil doesn’t mean they make enough profit to pay their bills. The Saudis have no economy beyond paying people off with oil money. Take away the oil money and the Saudi Royal family would be hanged from lamp posts pretty quickly. I am not sure what price of oil the Saudis need to keep their population bought off, but it is higher than $10 a barrell.

          The good news is that places like Russia, Venezuela and Iran are so corrupt and stupid that they are fucked with anything under a $100 a barrel oil. If oil doesn’t start going up, those governments are going to be in a lot of trouble sooner rather than later.

          1. Just because the Saudis make some profit pumping their oil doesn’t mean they make enough profit to pay their bills

            .

            Fair nuff.

            Comments by Saudi officials indicate they continue to believe shale oil requires a price of $90 a barrel to be profitable, the analysts noted. While the Saudis think this represents a new floor for oil prices, the floor is actually falling as shale-oil production technology continues to improve, Citi said. (It costs just a few dollars a barrel to extract Saudi Arabian oil, but the International Monetary Fund in September estimated that the “breakeven” price required to balance the country’s budget rose to $89 a barrel in 2013 from $78 in 2012.)

            1. I think they are in trouble. Couldn’t happen to a better bunch of people.

            2. Francisco! What’s missing from that report is WHY the Saudis set their ‘profitability floor’ to BE $90 per barrel, or any other number!

              I heard on NPR of all places, the other day, a guy who owns a stripper well in TX that said it costs him something like $20 a barrel for his lifting costs. He said that any market price above about $40/bbl is fine with him! And his production volume is just a couple of bbl.’s per day!

              Go, Saudis!

      3. But even then, in the longer term, the maximum sustained price of oil is the equivalent of whatever it costs to make profitably make liquid hydrocarbons out of vastly-abundant coal and water. Which is well short of $100/bbl equivalent.

        Even if the US bans CTL plants for environmental reasons, one would have to successfully ban them globally, otherwise we’ll just import the liquid fuels from foreign CTL plants.

  10. The Saudis are continuing to extract oil because if they don’t, they have to cut back on their lavish lifestyles. They’ve pretty much said as much.

    1. I agree, and per my reply above to Francisco, I’d bet that that is exactly how the Saudis (the monarchy, that is…) set their minimum acceptable ‘profitability levels.’

  11. my best friend’s sister makes $61 hourly on the computer . She has been without a job for 8 months but last month her income was $15147 just working on the computer for a few hours. this page…………..

    ????? http://www.netpay20.com

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