Crude Oil

[BlackPeter]

OK - so I made under my "2016 predictions" the following points:

1) interest rates will stay low, though drifting slightly upwards towards the second half of 2016 (US,Europe, NZ) due to inflation rising (oil prices can't drop forever). Low interest rates will keep equity prices up;

2) oil will stay low (<US$60/bbl), this should help companies like AIR, THL, NZR (and others);

and got a question / response from troyvdh:

Giday Blackpete...good post ..but the first two confuse me..about oil ..I believe that the average price per barrel is about $27.50...over the past 120 odd years..not sure if that is inflation adjusted....as you are aware the world currently has S...

Just thought that the subject belongs more into this thread ... and therefore transferred the lot.

First - I am no oil expert - and I didn't foresee the amazing crash in the oil prices (in the 2nd half of 2014) either - i.e. your view is as good as mine or anybody elses. Here is the reasons I think that the average oil price in 2016 will be similar, or not much lower than 2015 and (modestly) rising afterwards:

Hardly any oil producer around these days who can afford to live with the current prices. A number of mid American countries are due to low oil price close to state bankrupt (e.g. Venezuela), Russia has huge financial problems and even Saudi Arabia can't afford to keep pumping long term at current price level. If you look at the balance between world oil supply and demand - yes, we have currently more supply than demand, but the gap is not that huge. Take less than 2% from the supply side away and demand is larger than supply and prices would increase (though obviously - the higher the price goes, the more additional wells (like shale oil) turn profitable again, and as well a higher price would curb demand (which is currently rising with an amazing rate) - i.e. I don't expect oil to reach anytime soon prices above $80 again.

Just do the sums ... if every oil producer produces just 2% less oil, than they all could immediately get say 50% more money for their oil. What would you chose? Producing 100 bbl oil for $40 each, or 98 bbl for $60? Right - I know, there are a lot of idiots in the oil business who just love to constantly shoot into their own feet, but I think this business case is just too compelling to keep them from fighting a price war forever nobody can win (and I mean nobody).

Otherwise - if they really keep fighting ... (assume Saudi Arabia's strategy works) - it does not take too much to bankrupt 2% of the world oil producers and again ... the oil price will immediately react. Remember - not too many new shale oil projects started in 2015 ... and a shale oil field loses within 18 months or so about 50% of its production if you don't keep drilling.

I.e. worst case (if you like a higher oil price) is for the glut to continue in 2016 (with Iran coming online), but by end of 2016 more shale oil will have left the market than the Iranians can additionally produce. Again - oil will go up in 2017.

That's the reason I think that 2016 will bring first another mild price dip (remember Iran) and in 2017 oil will move upwards again.

BTW - I seem to be not the only one believing in a (after 2016) slowly increasing oil price. Have a look into the current Brent futures (http://www.barchart.com/commodityfut.../CB?search=CB*), or look into the recent IEA report (https://www.iea.org/oilmarketreport/omrpublic/) - they all show similar trends, but again ... experts have been wrong before (and so have I) ...

Hope this helps. DYOR & all the best

[troyvdh]

Thanks B pete..My understanding is that OPEC want to screw both Russia and the US frackers...who both require oil between 80-100.
MY understanding is the price in some OPEC countries was (to extract) is 5-15 per barrel.
My understanding also is that production in Russia and the frackers..cannot be easily turned on again quickly.

We live in interesting times..who would have thought the US would be self sufficient re oil 10 years ago..?????

Stocks of oil in the China and the US are I believe there highest ever.....

This geopolitical stuff re oil is truly fascinating....cheers

PS...Imagine when asked your occupation and replying "Im a little fracker"...cheers agin

[BlackPeter]

Interesting development in the middle East after the recent politically motivated Saudi executions:
http://edition.cnn.com/2016/01/03/mi...dozens-terror/

Killing political opponents is always a sign of weakness. Last resort of a tyrannical and unjust government. Strong governments don't need to kill their opponents, they can afford to have a dialogue with them.

Sure, we don't know whether this spark was strong enough to bring the powder barrel to explosion - and if it does, than the process to follow can (and probably will) go on for years to come (just another lawless state like Libya, Iraq, Syria?), but I think that what we might see now is the beginning of the end of the Saudi kingdom.

Pretty sure it will make Saudi Arabia a still less desirable place to live (more refugees?). Interesting question is however what trouble in Saudi Arabia might mean for the rest of the world. More or less terrorism paid by oil dollars? Oil price up or down?

Or is this just a news flash and the cemetery of Saudi Arabia will fall back into deadly silence?

[Daytr]

BP, I agree that oil probably can't be sustained at current prices, however what we are seeing is a war of attrition in regards supply. In the past when the price has dropped we have seen production cuts, now we see efficiency gains and increased production to lower costs. Its a last man standing mentality & its not just the oil market that is seeing this behavior. The Saudis have always been the swing factor in regards production, however they realize now that any cut they make will just be taken up by someone else. The Saudis also know that he world is on the cusp of an energy revolution in regards alternatives to the combustion engine and its only a matter of time that demand starts falling. So in the mean time they want o pump as much as they can. At some point I believe the Saudi regime will be toppled due its corruption & the massive disparity of wealth that its citizens do not share in. In summary I think you are right oil will go higher, but it may take a wee while for the production cuts to take effect.

[Daytr]

Wow crude smashed again! I saw BOA calling for $25/bbl the other day!

[Valuegrowth]

It is time to take advantage from falling oil and other commodity prices. This will benefit industries which consume more commodities such as oil, grain and other raw materials.

[Daytr]

Airlines are a good example, but that's hardly a new thought.
With oil so low there is likely to be a global debt crisis in regards the industry as many producers fall over in 2016.
I have been calling for a $32 low in oil for about a year.
I noticed last night we bounced off that.
Certainly be interesting to see if this is indeed the low.
Copper smashed, now $2/lb.
Gold over $1100.
Equities smashed again.
Interesting times

[BlackPeter]

interesting interview:

http://www.nzherald.co.nz/business/n...lery_id=156938

[JBmurc]

from 2014-
http://investmentwatchblog.com/2-tri...-in-the-north/


Latest new on OIL....
http://www.bbc.com/news/business-35245133


How much longer can many Oil focused businesses keep afloat if the 2014 articles are correct ??..with so much DEBT tied to Oil ....looks very GFC all over again but this time it's not from overleveraged property but crude oil ....and like last time this will feed through the system to yet again force the likes of the FED to bail out it mates on wall street while taxpayers worldwide will fit the bill...DEBT and more DEBT === Deflation ....=Depression ?

[BlackPeter]

from 2014-
http://investmentwatchblog.com/2-tri...-in-the-north/


Latest new on OIL....
http://www.bbc.com/news/business-35245133


How much longer can many Oil focused businesses keep afloat if the 2014 articles are correct ??..with so much DEBT tied to Oil ....looks very GFC all over again but this time it's not from overleveraged property but crude oil ....and like last time this will feed through the system to yet again force the likes of the FED to bail out it mates on wall street while taxpayers worldwide will fit the bill...DEBT and more DEBT === Deflation ....=Depression ?

Show me the analyst who predicted the 2014 oil price drop prior to it going down. Same thing now - only thing these guys seem to be able to do is linear extrapolation, which is easy, but (at least mid and long term) always wrong.

Lower oil prices so far have always been a stimulus for the world economy - and I fail to see why it should be different this time around. Cheap transport is crucial in a globalised world.

As well - long term it is impossible to sustainably produce oil (or anything else) below production cost - and both Saudi Arabia and Iran together (who really could go down to close to $10 / bbl) are not able to supply all the oil the world needs (at the moment they produce together roughly 15% of the world supply - i.e. 85 % must be sourced from more expensive wells), i.e. the oil price will recover at least to around the production cost of the most expensive still required well (including Europe and US).

I don't know, what the oil price is in a month, but I am sure that next year this time it will be higher than today.

I've seen recently a statistics - and from memory all oil debts in the US together are something like 0.7% of their total debts. Less than what the Greek debts are to Europe. Unlikely as well for all of them default.

Agreed - at this stage there are a number of oilers running on a deficit - and some of them will get caught. Whether this now triggers the crash of the world banking system not achieved in 2015 by the Greek crisis nor by the Shemittah nor by the blood moon (I think in October) - I don't think so.