US $20 per barrel in 2016: Three Points

[August1991]

1. Horizontal drilling has opened new fields/plays barely understood elsewhere in the world.

2. In 1998 or so, the price was about $12 per barrel. Real terms, currency dunno.

3. Kyoto, COP21, Paris, CO2 emissions, cap and trade, carbon tax. Forget all that. The most significant fact is the fall in the price of oil.

====

If you believe that CO2 emissions matter, then the price of oil has changed, well, everything.

Edited January 9, 2016 by August1991

[ReeferMadness]

Yup.

And thanks to the imperfections of geological science and the dysfunctions of capitalism, OPEC and international politics, nobody has the real information on how much oil is really in the reserves or how much will be produced. To date, the prices have been beaten down by overproduction due to all of the companies grimly hanging on hoping to drive each other into bankruptcy. The Saudis and other low cost producers are looking to drive the high priced producers out the market and eventually it will work. Already, companies are dropping their capital expenditures in drilling new wells. And the production of fracked wells peaks and drops off much more quickly than conventional wells.

So what will happen is production will collapse even as demand starts to take off. This will cause the price to swing like a drunk cyclist riding on a ship in a storm. I wouldn't be surprised to see the price of oil up over $200 in a couple of years.

Edited January 9, 2016 by Charles Anthony
excessive quoting; [OpeningPost]

[msj]

I prefer this about 15 ways for oil to bottom: http://thereformedbroker.com/2016/01/07/15-ways-for-oil-to-bottom/

My favourite: Canada builds a wall along southern border.

[Wilber]

Na, let the Americans build the wall. We can spend our infrastructure money elsewhere.

[bush_cheney2004]

Na, let the Americans build the wall. We can spend our infrastructure money elsewhere.

Yeah...build some more gas plants in Ontario.

[sharkman]

1. Horizontal drilling has opened new fields/plays barely understood elsewhere in the world.

2. In 1998 or so, the price was about $12 per barrel. Real terms, currency dunno.

3. Kyoto, COP21, Paris, CO2 emissions, cap and trade, carbon tax. Forget all that. The most significant fact is the fall in the price of oil.

====

If you believe that CO2 emissions matter, then the price of oil has changed, well, everything.

Do you really think that oil could drop to $20? I know that those invested in energy/oil don't want it to happen since it means they've jumped in too soon, but is this what some are saying?

[msj]

Why not $20?

The idea is not new, it has happened before, and there are as good reasons to support a lower trading range than higher: http://blogs.reuters.com/anatole-kaletsky/2014/12/19/the-reason-oil-could-drop-as-low-as-20-per-barrel/

[ReeferMadness]

Do you really think that oil could drop to $20? I know that those invested in energy/oil don't want it to happen since it means they've jumped in too soon, but is this what some are saying?

Canadian crude is already selling below $20.

As for the world price, any number above zero is a possibility. Storage facilities are reaching capacity and heavily leveraged producers face a choice between selling oil and bankruptcy. Markets suck at predicting but they're great at correcting. "Correcting" is economist speak for people going bankrupt and losing everything .

The Saudis are sitting back and chuckling. The longer prices stay low, the more production will be squeezed out of the markets and the higher prices will rebound on the other end. The number of active rigs in the US is now at the lowest point since 2010 but there will be a lag as fracked well production declines.

The silver lining in all of this is that people will gradually come to the realization that they can get energy price stability without wrecking the biosphere from sources like solar, wind and geothermal.

[eyeball]

I just wonder how much longer the planet can sustain a gradual realization.

It's 2015 already for crying out loud.

[On Guard for Thee]

The Bank of Abu Dhabi says they don't care if it goes to $10, they are into solar.

[August1991]

And thanks to the imperfections of geological science and the dysfunctions of capitalism, OPEC and international politics, nobody has the real information on how much oil is really in the reserves or how much will be produced. To date, the prices have been beaten down by overproduction due to all of the companies grimly hanging on hoping to drive each other into bankruptcy. The Saudis and other low cost producers are looking to drive the high priced producers out the market and eventually it will work. Already, companies are dropping their capital expenditures in drilling new wells. And the production of fracked wells peaks and drops off much more quickly than conventional wells.

So what will happen is production will collapse even as demand starts to take off. This will cause the price to swing like a drunk cyclist riding on a ship in a storm. I wouldn't be surprised to see the price of oil up over $200 in a couple of years.

IOW, according to you, the world price of oil could make everyone rich.

You remind me of condo buyers in Florida in 2006. {You've bought/sold one; buy another and make more money!)

[TimG]

The silver lining in all of this is that people will gradually come to the realization that they can get energy price stability without wrecking the biosphere from sources like solar, wind and geothermal.

ROTFL. Are you serious? The only people who care about price 'stability' are producers. Consumers just want cheap energy and if the price of one source varies between $50-$150/month and the price of another source is a constant $200/month then the best deal is the one with the variable price. Edited January 11, 2016 by TimG

[ReeferMadness]

IOW, according to you, the world price of oil could make everyone rich.

Clearly, it cannot make "everyone" rich. However, if it swings the way it could, then yes, some people could make a lot of money. Just as some people have lost a lot through the price of oil dropping. If that is somehow controversial, I'm not clear how.

I should just point out that timing the market is notoriously difficult. And there are other risks to price appreciation. If the world economy tanks or if the world actually gets its shit together and starts to aggressively tax fossil fuels according to the damage they cause, maybe the prices never come back.

You remind me of condo buyers in Florida in 2006. {You've bought/sold one; buy another and make more money!)

OK, I have no idea what the price of oil (which has wildly fluctuated in the past several times according to supply, demand and market manipulation), has to do with the price of Florida real estate.

[Wilber]

Canadian crude is already selling below $20.

As for the world price, any number above zero is a possibility. Storage facilities are reaching capacity and heavily leveraged producers face a choice between selling oil and bankruptcy. Markets suck at predicting but they're great at correcting. "Correcting" is economist speak for people going bankrupt and losing everything .

The Saudis are sitting back and chuckling. The longer prices stay low, the more production will be squeezed out of the markets and the higher prices will rebound on the other end. The number of active rigs in the US is now at the lowest point since 2010 but there will be a lag as fracked well production declines.

The silver lining in all of this is that people will gradually come to the realization that they can get energy price stability without wrecking the biosphere from sources like solar, wind and geothermal.

The Saudis are screwing themselves. They have to keep pumping oil to provide all that free money they give to their people. The more they pump the lower the price goes so they have to keep pumping more even though world demand isn't increasing. They are rapidly burning through their foreign reserves because they need 100 dollar oil to balance their budget and there is no end in sight.

[sharkman]

I don't know, you'd think they would have a more seasoned approach than that. I gather that the old theory of Saudi Arabia pumping up supply to oust the more expensive fracking and tar sand methods is not something you believe?

Where did you hear that the Saudis need $100 oil?

[ReeferMadness]

The Saudis are screwing themselves. They have to keep pumping oil to provide all that free money they give to their people. The more they pump the lower the price goes so they have to keep pumping more even though world demand isn't increasing. They are rapidly burning through their foreign reserves because they need 100 dollar oil to balance their budget and there is no end in sight.

The Saudis screwed themselves years ago. A massive welfare program for the thousands of members of the royal family, one of the world's largest military budgets, an economy built on a foundation of "guest workers", subsidized fuel for the country. All relying on a single volatile commodity. The very definition of an unsustainable state.

They may get one last hurrah but one day the party will be over. And all that money will have disappeared like water into the sand.

[ReeferMadness]

I don't know, you'd think they would have a more seasoned approach than that. I gather that the old theory of Saudi Arabia pumping up supply to oust the more expensive fracking and tar sand methods is not something you believe?

Where did you hear that the Saudis need $100 oil?

They don't need it to make money on their oil - their production costs are among the lowest in the world. However, they do need it to balance their budget - they have precious little else to rely on.

[TimG]

Where did you hear that the Saudis need $100 oil?

http://www.bloomberg.com/news/articles/2015-11-30/oil-states-need-price-jump-to-balance-budget-opec-reality-check

[Wilber]

http://www.bloomberg.com/news/articles/2015-11-30/oil-states-need-price-jump-to-balance-budget-opec-reality-check

http://www.marketwatch.com/story/will-fiscal-pain-of-low-oil-prices-force-saudi-arabias-hand-2015-10-22

[sharkman]

Well, bad news for the Saudis then. Recently Goldman Sachs and Morgan Stanley have downgraded their outlooks for oil to $10/barrel, and others are joining the chorus.

[Wilber]

Bad news for us to. Shutting down the oil sands isn't really an option, it has to keep producing even if it is at below cost.

[ReeferMadness]

Bad news for us to. Shutting down the oil sands isn't really an option, it has to keep producing even if it is at below cost.

It doesn't have to do anything. If prices are low enough, long enough, those same oil companies that beat a gold rush path to dig sludge out of Alberta will pack up and leave. Or go under.

And the good citizens of Alberta will be left with the tab for the clean-up. More likely, it will just sit there like some abandoned Soviet mine as toxins slowly leach into the watershed.

[Wilber]

It doesn't have to do anything. If prices are low enough, long enough, those same oil companies that beat a gold rush path to dig sludge out of Alberta will pack up and leave. Or go under.

And the good citizens of Alberta will be left with the tab for the clean-up. More likely, it will just sit there like some abandoned Soviet mine as toxins slowly leach into the watershed.

Dollar closed below 70 cents today, careful what you wish for. You are 25% poorer than you were this time last year.

[ReeferMadness]

Dollar closed below 70 cents today, careful what you wish for.

I wish people on this planet would come to their collective senses and figure out that living according to the tenet of the major religions (Christianity, Islam, Hinduism, capitalism, nationalism) is getting us nowhere and the only path that will avoid an extinction event is for us to learn to cooperate with each other and respect the limits of the planet. But I might as well wish for flying unicorns that fart rainbows.

Oh, sorry, you were talking about the horrors of our low dollar....

You are 25% poorer than you were this time last year.

If I convert my money to American dollars, then yes. Otherwise, no.

[Wilber]

I wish people on this planet would come to their collective senses and figure out that living according to the tenet of the major religions (Christianity, Islam, Hinduism, capitalism, nationalism) is getting us nowhere and the only path that will avoid an extinction event is for us to learn to cooperate with each other and respect the limits of the planet. But I might as well wish for flying unicorns that fart rainbows.

Oh, sorry, you were talking about the horrors of our low dollar....

If I convert my money to American dollars, then yes. Otherwise, no.

Dream on, everything you buy that wasn't produced in Canada costs more to import. Anything that Canada exports costs more because others can pay more for it than you. You don't live in a bubble.