Oil at $300?

The horror: if oil producers don't start investing in new production, crude could hit $300 in a few years, says Pierre Andurand. BUT if prices jump over $100 and quickly this will eliminate the risk of oil at $300. 

“So paradoxically these peak demand fears (of the producers) might bring the largest supply shock ever,” he wrote. “If oil prices do not rise fast enough, US$300 oil in a few years is not impossible.”

Funnily enough--or suspiciously enough--Andurand, who wrote these opinions in a series of tweets, later deleted them. Even more funnily enough, one of the few people who share Andurand's opinion is Khalid al-Falid. The majority of the industry for some strange reason believes higher oil prices will hurt economies. Can't imagine why.

  • Like 1

Share this post


Link to post
Share on other sites

My view on oil prices are pretty clear.  I've been pretty consistent about my views on oil prices since 2015.

But since I'm new to this forum, guess I need to reiterate.

In 2015 and 2016 I commented ad nauseum (mostly on the new defunct Oilpro forum) that I would be happy if oil was a stable average around $50 to $60, but closer to $50.  

In 2017, I changed my view and comments to I would be happy if oil was a stable average around $50 to $60, but closer to $60.  

This year, I changed my view and comments to I would be happy if oil was a stable average around $65.

And I would be happy if oil was a stable average around $70 for 2019.

Note that I think the value of the US Dollar will be devalued a bit later this year and early next year as the PetroYuan starts gaining international acceptance.

So in real terms, I'm actually hoping for oil prices to average $65 for 2018 and 2019.

$100 oil is not sustainable long term.  $300 oil is just nuts.

Excessively high oil prices would kill global economies, and crash oil prices all over again.

Here is one of my old articles from 3 years ago.  Seems like it is still relevant today.  (This was one of my articles for the old Oilpro forum, which I also posted to LinkedIn... All my old Oilpro articles are gone : (

Why Oil is Unlikely to Hit $200 in the Next Decade


https://www.linkedin.com/pulse/why-oil-unlikely-hit-200-next-decade-tom-kirkman

  • Like 3
  • Upvote 5

Share this post


Link to post
Share on other sites

Oil at $300 will killing the industry! Substitution effect to other energy sources will exponentially grow never to recover! 

  • Like 2
  • Upvote 1
  • Downvote 1

Share this post


Link to post
Share on other sites

I think oil market experience of last 20 years can teach as that the price just under 80 dollars per barell (lets say 70-80) is best for oil markets long term. It doesnt kill natural oil demand thanks to adequate world economic growth, it doesnt also hurt world economic growth after a couple of quartals with high price. It also strategically long term doesn't promote too fast growth of revenables and assure as there will be quite strong growth in shale but not the "made mode" during years of high price about 100 dollars or more.

I think big oil powers like Russia and Saudi Arabia, Iraq or Iran are happy in this price environment. But USA and president Trump are also happy because it means strong shale growth and some oil indepence but also a big  problems for emerging markets like India but most importantly problem for their rival China- they have mature declining fields and a position of world's biggest importer of oil but not in long time also LNG - high oil prices means high LNG prices and probably also lower but  quite high prices for gazprom gas - second blow for China economic growth.

So prices will be in my opinion quite high and shale will try to fill the gape because of underinvestment. But although 70-80 dollars per barell is good for oil market unfortunately I agree with IEA and Pierre Andurand or Energy Aspects there will be a supply shock in couple of years and probably three digit prices for sime time in next decade - and thats  not good for oil market and anyone.

  • Like 2
  • Upvote 1

Share this post


Link to post
Share on other sites

Actually 300$ a bbl would be useful. Why - 1) Tax on Petroleum would increase and allow Governments to balance more useful spending 

2) Quality would be the name of the game  - oil would be used on the basis that its products are so precious that C02 emission control would mean new advances in catalytic converters and such like would be developed so that C02 is captured and potentially is a powersource of its own. 

3) More money for Renewables to be done properly . Its rather stupid to see people trying Geothermal in places where its too dangerous and ridiculous issues such as shareholder trash whinging on how expensive it is to fund Wind... eg GE Capital & GE Power issues...  

4) It would alllow companies like mine PetroStars to buy housing for the homeless for every well we drill

 

  • Like 1
  • Upvote 2

Share this post


Link to post
Share on other sites

Pierre Andurand was one of the few analysts who started to take a (what turned out to be a highly profitable) bearish position on oil prices in 2014.  He turned bullish on oil in early 2016.  
 
He was probably a little early, but the fact remains that monthly Brent crude oil prices have risen an an annualized rate of about 40%/year since hitting the monthly low for this cycle of $31 in January, 2016. 
  • Like 1

Share this post


Link to post
Share on other sites

Pierre must be well informed and doing his homework effectively keeping track of oil price trends and market forces. I personally would lean to be bullish but conservative with respect to speed of significant increases. 

  • Like 1

Share this post


Link to post
Share on other sites

Dear all It's my pleasure to contribute on this discussion. In my point of view I think oil price at $300 will be more ambitious even in the long run, because according to the oil price function behaviour was experinced wish seasonal flectuations and price detoriorated in an inreasing rate. As we have see previously the highest oil price happend in 2003 in $140 since 1970th when the price reach $12. So if we assume that oil price function will behave simallery price will csculate $300 on 2035 aprogximetly. 

  • Like 1
  • Upvote 1

Share this post


Link to post
Share on other sites

14 hours ago, Phil Bailey said:

3) More money for Renewables to be done properly . Its rather stupid to see people trying Geothermal in places where its too dangerous and ridiculous issues such as shareholder trash whinging on how expensive it is to fund Wind... eg GE Capital & GE Power issues...  

Yes, renewable energy is a clear winner from higher oil prices.

Share this post


Link to post
Share on other sites

This appears like a deliberate move by Arabs to make west crash. With increasing oil price, the excessively import oriented economies that export useless things like services will be hit very hard. The idea on which western economies ran was that technology was too precious and the raw materials were too cheap. So, by selling high technology goods like arms, planes, semiconductors and other luxury goods at exorbitant price by quoting high standard of living and labour cost, they used to exploit countries with natural resources.

The oil price is unlikelt to go to $300 anytime soon.In 1 year, one can expect the oil prices to go to $90 a barrel.

Share this post


Link to post
Share on other sites

When I was a little boy, I use to play on the titter-totter.

When a fat kid would sit down on one end, the kid on the other end usually went flying!

  • Like 1
  • Upvote 1

Share this post


Link to post
Share on other sites

If shale continues the same strategy the oil will be so cheap and will stabilise around 45 to 50 . Why ? OPEC countries can’t hold their cutting beyond a point they will start to cheat . Then the production cost comes to play . Shale and BP confirmed they are happy selling at 40 . That means  even below that price also fine for them . Saudi and OPEC will be out from market and Russia and shale will play the game 

  • Like 2
  • Downvote 1

Share this post


Link to post
Share on other sites

On 5/1/2018 at 1:10 PM, Jeffrey Brown said:
Pierre Andurand was one of the few analysts who started to take a (what turned out to be a highly profitable) bearish position on oil prices in 2014.  He turned bullish on oil in early 2016.  
 
He was probably a little early, but the fact remains that monthly Brent crude oil prices have risen an an annualized rate of about 40%/year since hitting the monthly low for this cycle of $31 in January, 2016. 

Andurand got burned badly - same goes for Andy Hall... $300 oil is outrageous but $85 could happen this year for sure.

  • Upvote 1

Share this post


Link to post
Share on other sites

I think Pierre could be right if one or both of the following events happens.  1)  USD collapses causing very high inflation compared to others currencies.  2) The Saudis/Israelis start a hot war with Iran.  Other than that Pierre is full of natural gas.

  • Like 2
  • Upvote 2

Share this post


Link to post
Share on other sites

There are many other factors to consider. While fear of a future supply crunch cannot easily be dismissed (with the reduction in CAPEX amounting to trillion dollars or so) it is still not clear if we will suffer from a demand supply imbalance once again. The share of renewable energy is increasing. China, one of the largest consumer of crude oil, is leading the way. Then there are electric trucks, electric vehicles. Also, the recent uptick in prices has resulted in an increase (slight one) in Capex. 

However, it might not be due to the demand/supply issue but Middle-Eastern geopolitical concerns that we might see oil soaring.....$300? That might be too much. 

 

May be he realized this later on...hence deleted the tweets?

Share this post


Link to post
Share on other sites

There are many other factors to consider. While fear of a future supply crunch cannot easily be dismissed (with the reduction in CAPEX amounting to trillion dollars or so) it is still not clear if we will suffer from a demand supply imbalance once again. The share of renewable energy is increasing. China, one of the largest consumer of crude oil, is leading the way. Then there are electric trucks, electric vehicles. Also, the recent uptick in prices has resulted in an increase (slight one) in Capex. 

However, it might not be due to the demand/supply issue but Middle-Eastern geopolitical concerns that we might see oil soaring.....$300? That might be too much. 

 

May be he realized this later on...hence deleted the tweets?

Share this post


Link to post
Share on other sites

$300 oil would definitely crash the global economy. Energy is a key factor in labor productivity. As the price of oil climbs, labor loses its productivity, which leads to a collapse in labor markets and consumer demand. Oil in excess of $150 can suffice to inflict a global recession. Any talk of $300 being good for any industry is foolishness. 

As a mental exercise, suppose oil is at $300. This easily puts gasoline and diesel over $8/gal in places like the US. Try to imaging how a consumer economy dependent on private automobiles would function. How much would you drive to go shopping? How expensive would delivery from Amazon become? Would you be able to find work as an Uber driver? Would you even bother buying a new car? Even if you wanted to buy an EV, would you have enough confidence in your own employment situation to make the purchase? As all these things come to a halt, unemployment rates surge while investment and consumption freeze up. 

$300 oil may seem like a dream to oil bull, but is an economic nightmare for everyone else.

  • Like 1
  • Upvote 2

Share this post


Link to post
Share on other sites

The fact is, while operators are hesitating to explore for new oil, daily consumption is ongoing. If the industry does not wake up and realize that the oversupply of two years ago is dwindling fast and start drilling again, then there is a fair chance that the oil price will spike in the near future. In simplistic terms, it is a function of Keynesian supply and demand.

A few years ago the large operators said they needed $40/bbl to get back into the exploration game, then it was $50, then $60 - and yet at today's prices nobody is seriously exploring.

  • Like 1

Share this post


Link to post
Share on other sites

Hi Douglas, great to see you over here on Oil Price.  You still in KL these days?

Share this post


Link to post
Share on other sites

6 hours ago, JHM said:

$300 oil would definitely crash the global economy. Energy is a key factor in labor productivity. As the price of oil climbs, labor loses its productivity, which leads to a collapse in labor markets and consumer demand. Oil in excess of $150 can suffice to inflict a global recession. Any talk of $300 being good for any industry is foolishness. 

As a mental exercise, suppose oil is at $300. This easily puts gasoline and diesel over $8/gal in places like the US. Try to imaging how a consumer economy dependent on private automobiles would function. How much would you drive to go shopping? How expensive would delivery from Amazon become? Would you be able to find work as an Uber driver? Would you even bother buying a new car? Even if you wanted to buy an EV, would you have enough confidence in your own employment situation to make the purchase? As all these things come to a halt, unemployment rates surge while investment and consumption freeze up. 

$300 oil may seem like a dream to oil bull, but is an economic nightmare for everyone else.

JHM, You hit the nail on the head!,   I can't afford $300 fill ups in my two Yukons. Although they are Flex-Fuel so I could run on E-85 if its price would stay down.

  • Like 1

Share this post


Link to post
Share on other sites

3 hours ago, Douglas Buckland said:

The fact is, while operators are hesitating to explore for new oil, daily consumption is ongoing. If the industry does not wake up and realize that the oversupply of two years ago is dwindling fast and start drilling again, then there is a fair chance that the oil price will spike in the near future. In simplistic terms, it is a function of Keynesian supply and demand.

A few years ago the large operators said they needed $40/bbl to get back into the exploration game, then it was $50, then $60 - and yet at today's prices nobody is seriously exploring.

Saudi Aramco is sitting on 270 billion proven barrels, a 76 year supply at 10mb/d production rate. Why should they explore? They could produce at 3 times the rate and still outlast long term demand for oil. 

Why should anyone explore for oil when about a third of existing reserves will never be produced? Batteries and renewable energy have already created a lower cost substitute for proven oil and gas reserves. The question is how much oil will be produced while EVs and renewables ramp up production. The higher the price of oil, the faster the ramp, which in turn means fewer proven barrels will ever be produced. The best way to prevent reserve asset stranding is to liquidate those assets as quickly as possible.

  • Like 1

Share this post


Link to post
Share on other sites

My in Detroit called me this week, He filled up with E-85 because E-10 was $3.00 per gallon in Detroit. So demand destruction is already happening at the edges with current oil prices. Short of a war, I don't believe the market would ever push oil prices to $300 per barrel, no one can afford those prices in today's economy. 

Share this post


Link to post
Share on other sites

On 5/1/2018 at 3:08 AM, Tom Kirkman said:

My view on oil prices are pretty clear.  I've been pretty consistent about my views on oil prices since 2015.

But since I'm new to this forum, guess I need to reiterate.

In 2015 and 2016 I commented ad nauseum (mostly on the new defunct Oilpro forum) that I would be happy if oil was a stable average around $50 to $60, but closer to $50.  

In 2017, I changed my view and comments to I would be happy if oil was a stable average around $50 to $60, but closer to $60.  

This year, I changed my view and comments to I would be happy if oil was a stable average around $65.

And I would be happy if oil was a stable average around $70 for 2019.

Note that I think the value of the US Dollar will be devalued a bit later this year and early next year as the PetroYuan starts gaining international acceptance.

So in real terms, I'm actually hoping for oil prices to average $65 for 2018 and 2019.

$100 oil is not sustainable long term.  $300 oil is just nuts.

Excessively high oil prices would kill global economies, and crash oil prices all over again.

Here is one of my old articles from 3 years ago.  Seems like it is still relevant today.  (This was one of my articles for the old Oilpro forum, which I also posted to LinkedIn... All my old Oilpro articles are gone : (

Why Oil is Unlikely to Hit $200 in the Next Decade


https://www.linkedin.com/pulse/why-oil-unlikely-hit-200-next-decade-tom-kirkman

It isn't headline grabbing stuff but this is refreshingly sensible in a storm of $100 - $300 predictions. WTI could hit $80 on the back of some significant outages or a serious rise in geopolitical risk - but a long term range of $60 - $70 is really what global economies should be shooting for.

  • Like 1

Share this post


Link to post
Share on other sites

In regard to the "Chindia" region and oil prices:

GNE = Combined net oil exports from (2005) Top 33 net oil exporters (BP + EIA data, total petroleum liquids)

CNI  = Chindia’s Combined Net Imports (BP, total petroleum liquids)

ANE = Available Net Exports, GNE less CNI

Using the BP data base, Chindia's Net (total petroleum liquids) Imports, or CNI, increased from 5.1 million bpd in 2005 to 12.0 million bpd in 2016, which I would round off to 5 and 12 million bpd respectively.

Following is a link showing my GNE/CNI chart for 2002 to 2011, using EIA data:
http://i1095.photobucket.com/albums/i475/westexas/Slide1_zpsu5daownl.gif

Note that the extrapolation (based on the 2005 to 2011 rate of decline in the GNE/CNI Ratio) shows the ratio falling to just below 4.0 in 2015, on track to approach 1.0 (the Chindia region theoretically consuming 100% of GNE) by 2030.

Using the updated data, the GNE/CNI Ratio fell to 3.8 in 2016, on track to approach 1.0 by the year 2033:
http://i1095.photobucket.com/albums/i475/westexas/GNECNI Ratio 2002 to 2016_zpswuwvgp8m.jpg

What I define as Available Net Exports (ANE, or GNE less CNI) fell from 40 million bpd in 2005 to 33 million bpd in 2016. This is the volume of Global Net Exports of oil available to importers other than China & India, and based on the most recent EIA data the US was still net importing 6.5 million bpd of crude oil. 
 

Share this post


Link to post
Share on other sites

(edited)

17 hours ago, TomTom said:

Andurand got burned badly - same goes for Andy Hall... $300 oil is outrageous but $85 could happen this year for sure.

But the fact remains that Andurand accurately predicted the 2014 decline, and he accurately called the bottom for the current oil price cycle, to-wit, a monthly low $31 for Brent in January, 2016.  

Following are annual Brent crude oil prices for 2011 to 2017:

2011:  $111

2012:  $112

2013:  $109

2014:  $99

2015:  $52

2016:  $43

2017:  $54
 

Edited by Jeffrey Brown
  • Like 1

Share this post


Link to post
Share on other sites