Oil prices going down

[William Edwards + 708]

1 hour ago, Osama said:

Who knows? Who saw oil prices falling to $26? and then rallying up all the way to $80? Predicting oil prices is never easy. We can, however, safely trace out, with careful reading and observation, the trend(s)!

You ask "Who saw oil prices falling to $26?" May I answer that question by providing you with an article that I posted in OilPro, in mid-2015, when prices were roughly the same as now, after recovering from the $40's a few months earlier, but before falling into the $20's later.  I apologize for the length of this answer, but for many this is their first rodeo.

Is $20 Oil Possible?

Yes, $20 oil is possible. Will it happen? I don't know. But it is worthwhile to understand why a $20 price is not out of reason.

Six months ago it was almost impossible to get  an article published that talked about $60  oil. That price was believed to be completely unreasonable. Now we are flooded with commentaries speculating on "How low will it go?", with $30-40 numbers quite common. It now takes $10 or $20 to reach the  "sensational" threshold. But is the  $20 number of today the same as the $60 number six months ago? Is it just a matter of time? To answer that question we need to remind ourselves of the way prices happen.

Forget everything that you have been told  or that you think  you understand about the way oil price happens. Here  is the  real story in today's world.

We will use the price of gasoline as our  example. Other oil products follow a similar pattern. We begin at the end -- pumping gasoline into the  tank  of our  automobile. What price do we pay at that point? The price posted on the pump, of course. Do we negotiate the price with the fueling station before we pump? Of course not. If we tried, the  service station owner would roll his eyes  and  turn to a sane customer. Thus the ultimate sale price of oil sold  as gasoline is determined by the  service station owner.

Where does the  service station owner get  his price? On the  invoice that comes along with the  tank  truck delivery by the  wholesaler. He tacks on his margin of a few cents and posts the  resulting number on the  pump. Where does the  wholesaler get  the  price he puts on the  invoice? From  the  refiner/supplier. He will add  a few cents margin to the wholesale price and  that is the  number that appears on the  invoice to the  service station owner.

Where does the  refiner get  the  price that he puts on the  invoice to the  wholesaler? Here the details of the  story get  somewhat cloudy, but  the  result is clear. The number that appears on the invoice that the refiner presents to the wholesaler is the  price set by someone in the  marketing department. You might say that Rex Tillerson provides that number for Exxonmobil, and he does bear the  ultimate responsibility for that number, but he delegates the  actual number-crunching to his underlings. Where then does the underling get the actual number that he instructs be applied to the  wholesaler's invoice? This answer is the key to our understanding, so I will elaborate.

If one listens to distinguished professors, elite  analysts from financial institutions or industry associations, or television talking heads, we might be advised that this price is determined by 1) the  price of crude, 2) the  cost of the highest cost production, 3) the average cost of production, 4) the  cost of a competing fuel, 5) OPEC's production level, 6) world spare capacity, 7) OPEC's quota, 😎 OPEC cheating or a myriad of other reasons. All are wrong. The number cruncher in the  refining company gets his number directly from  the published prices on the  oil futures exchange. His price, therefore the refining company's price, therefore my price is directly created and  supplied by the  CME Group, the  company that operates the  oil futures exchanges.

We then are left with the question "How are futures prices determined?" Do the  futures traders analyze world supply and  demand on an instantaneous basis,  factor in the cost or production from  a million  wells, assess and  quantify the transportation element in each oil movement worldwide and  then apply that complicated assessment in his price outcry? Of course not!  He knows nothing and  cares less about all those factors. He is merely guessing whether the  price he is bidding or taking will be better, in his direction, in a few seconds, minutes or hours. It has nothing to do with oil, other than the  name on the  contract. When one realizes this fact  it is appalling that this activity  determines the price of oil. It is even more appalling that people who advise us and  should know better suggest that the  "market" is wise and,  in fact, knows all.

Now that we have established that the  actual price determination is whatever price results from  transactions between futures traders, we should be in a position to gauge the  price range that can  occur under these circumstances. The answer to that question is "Anything". There are no limits to the  numbers that futures traders are willing to consider since the  absolute number has no meaning. The only guess is whether it will be higher or lower on the  next trade. By recognizing this fact we can  appreciate why the duration of a trend is the  only important element in judging how high,  or low, the  price can go.

Are we then left to conclude that the  price can be as low as zero and  as high  as infinity? Theoretically, yes. Practically speaking, zero is not really a lower limit for short periods. And the  upper limit is probably restricted to the  availability of margin money. But unreasonable prices in either direction are possible.

But, you protest, we have been taught that there is a relationship, in fact  an equilibrium, between price and  supply as well as price and  demand. So wild movements in either direction cannot occur! Your protest is denied. Time is of the  essence. Futures price movements occur in microseconds. Establishing an approach to equilibrium between price and  demand is on the  order of a year or two.  The equilibrium time for supply approaching a price-determined level is probably decades. Microseconds beats out years or decades every  time. So the  futures-created price can  be unreasonable for a long time. As a futures trader once commented, I can  keep prices at an unreasonable level longer than you can supply margin money.

Now that we understand the reality  of pricing, let us return to the  initial question. Can the  price of oil go as low as $20.  Of course it can.  Can it go as low as $10? Of course it can.  Will it? Who knows! Saudi Arabia should take  note of this fact.

 

Edited June 19, 2018 by William Edwards

[Tom Kirkman + 8,860]

6 hours ago, William Edwards said:

You ask "Who saw oil prices falling to $26?" May I answer that question by providing you with an article that I posted in OilPro, in mid-2015, when prices were roughly the same as now, after recovering from the $40's a few months earlier, but before falling into the $20's later.  I apologize for the length of this answer, but for many this is their first rodeo.

Yep, I remember reading your article on Oilpro back in 2015, William.  It caused a bit of a stir.  Good points made in your arguments.

[ronwagn + 6,290]

Jan: Has methanol been used, on a large scale, anywhere? Why not just use natural gas as the fuel of choice? The technology is very mature worldwide. It just needs to be expanded in scale. 

[Dan Warnick + 6,100]

I'd like to be a fly on the wall in Vienna today 👀

[Guillaume Albasini + 851]

24 minutes ago, Dan Warnick said:

I'd like to be a fly on the wall in Vienna today 👀

At least you can see the main characters of the show at the 7th OPEC International Seminar

Day 1 :  https://www.youtube.com/watch?v=Af2QzEX_KCI   (starts at 44:00)

Day 1 program : https://www.opecseminar.org/en/Programme/Day-1.htm

 

Day 2 : https://www.youtube.com/watch?v=Gjcyc9SYXUY    (starts at 28:00)

Day 2 program : https://www.opecseminar.org/en/Programme/Day-2.htm

Edited June 22, 2018 by Guillaume Albasini

[Dennis Coyne + 82]

On ‎6‎/‎19‎/‎2018 at 11:40 AM, William Edwards said:

You ask "Who saw oil prices falling to $26?" May I answer that question by providing you with an article that I posted in OilPro, in mid-2015, when prices were roughly the same as now, after recovering from the $40's a few months earlier, but before falling into the $20's later.  I apologize for the length of this answer, but for many this is their first rodeo.

Is $20 Oil Possible?

Yes, $20 oil is possible. Will it happen? I don't know. But it is worthwhile to understand why a $20 price is not out of reason.

Six months ago it was almost impossible to get  an article published that talked about $60  oil. That price was believed to be completely unreasonable. Now we are flooded with commentaries speculating on "How low will it go?", with $30-40 numbers quite common. It now takes $10 or $20 to reach the  "sensational" threshold. But is the  $20 number of today the same as the $60 number six months ago? Is it just a matter of time? To answer that question we need to remind ourselves of the way prices happen.

Forget everything that you have been told  or that you think  you understand about the way oil price happens. Here  is the  real story in today's world.

We will use the price of gasoline as our  example. Other oil products follow a similar pattern. We begin at the end -- pumping gasoline into the  tank  of our  automobile. What price do we pay at that point? The price posted on the pump, of course. Do we negotiate the price with the fueling station before we pump? Of course not. If we tried, the  service station owner would roll his eyes  and  turn to a sane customer. Thus the ultimate sale price of oil sold  as gasoline is determined by the  service station owner.

Where does the  service station owner get  his price? On the  invoice that comes along with the  tank  truck delivery by the  wholesaler. He tacks on his margin of a few cents and posts the  resulting number on the  pump. Where does the  wholesaler get  the  price he puts on the  invoice? From  the  refiner/supplier. He will add  a few cents margin to the wholesale price and  that is the  number that appears on the  invoice to the  service station owner.

Where does the  refiner get  the  price that he puts on the  invoice to the  wholesaler? Here the details of the  story get  somewhat cloudy, but  the  result is clear. The number that appears on the invoice that the refiner presents to the wholesaler is the  price set by someone in the  marketing department. You might say that Rex Tillerson provides that number for Exxonmobil, and he does bear the  ultimate responsibility for that number, but he delegates the  actual number-crunching to his underlings. Where then does the underling get the actual number that he instructs be applied to the  wholesaler's invoice? This answer is the key to our understanding, so I will elaborate.

If one listens to distinguished professors, elite  analysts from financial institutions or industry associations, or television talking heads, we might be advised that this price is determined by 1) the  price of crude, 2) the  cost of the highest cost production, 3) the average cost of production, 4) the  cost of a competing fuel, 5) OPEC's production level, 6) world spare capacity, 7) OPEC's quota, 😎 OPEC cheating or a myriad of other reasons. All are wrong. The number cruncher in the  refining company gets his number directly from  the published prices on the  oil futures exchange. His price, therefore the refining company's price, therefore my price is directly created and  supplied by the  CME Group, the  company that operates the  oil futures exchanges.

We then are left with the question "How are futures prices determined?" Do the  futures traders analyze world supply and  demand on an instantaneous basis,  factor in the cost or production from  a million  wells, assess and  quantify the transportation element in each oil movement worldwide and  then apply that complicated assessment in his price outcry? Of course not!  He knows nothing and  cares less about all those factors. He is merely guessing whether the  price he is bidding or taking will be better, in his direction, in a few seconds, minutes or hours. It has nothing to do with oil, other than the  name on the  contract. When one realizes this fact  it is appalling that this activity  determines the price of oil. It is even more appalling that people who advise us and  should know better suggest that the  "market" is wise and,  in fact, knows all.

Now that we have established that the  actual price determination is whatever price results from  transactions between futures traders, we should be in a position to gauge the  price range that can  occur under these circumstances. The answer to that question is "Anything". There are no limits to the  numbers that futures traders are willing to consider since the  absolute number has no meaning. The only guess is whether it will be higher or lower on the  next trade. By recognizing this fact we can  appreciate why the duration of a trend is the  only important element in judging how high,  or low, the  price can go.

Are we then left to conclude that the  price can be as low as zero and  as high  as infinity? Theoretically, yes. Practically speaking, zero is not really a lower limit for short periods. And the  upper limit is probably restricted to the  availability of margin money. But unreasonable prices in either direction are possible.

But, you protest, we have been taught that there is a relationship, in fact  an equilibrium, between price and  supply as well as price and  demand. So wild movements in either direction cannot occur! Your protest is denied. Time is of the  essence. Futures price movements occur in microseconds. Establishing an approach to equilibrium between price and  demand is on the  order of a year or two.  The equilibrium time for supply approaching a price-determined level is probably decades. Microseconds beats out years or decades every  time. So the  futures-created price can  be unreasonable for a long time. As a futures trader once commented, I can  keep prices at an unreasonable level longer than you can supply margin money.

Now that we understand the reality  of pricing, let us return to the  initial question. Can the  price of oil go as low as $20.  Of course it can.  Can it go as low as $10? Of course it can.  Will it? Who knows! Saudi Arabia should take  note of this fact.

 

Sure prices could go to $20/b for a short time.  In the next 5 years, I would be very surprised if the annual average price of oil falls to below $55/b, time will tell, my guess is $75+/-$10/b from 2018 to June 2020 for the 12 month trailing average price of Brent crude in 2017US$/b.

 

Looking at trailing 12 month real Brent crude price in 2017$/b, the average price from  Jan 1988 to May 2018 was $56/b and from Jan 2004 to May 2018 the average price was $82.60/b (both are in 2017$/b).

 

Data for Brent spot prices from

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M

and for CPI to convert to real prices from

https://www.eia.gov/outlooks/steo/realprices/

I expect a tight oil market where supply is barely able to meet demand over the next few years is likely to keep oil prices in the $65-$85/b price range for the next two years.  If there is no severe recession before 2025, I think continued tightness in the World oil market might drive oil prices up to $100/b, eventually substitution will bring oil prices back down (perhaps to $40/b in 2017$), but my expectation is that we won't get there until 2035 to 2040. and this is more likely to be driven by falling demand as the World substitutes other energy sources for petroleum liquids.

Edited June 22, 2018 by Dennis Coyne
add image

[Jan van Eck + 7,558]

19 hours ago, ronwagn said:

Jan: Has methanol been used, on a large scale, anywhere? Why not just use natural gas as the fuel of choice? The technology is very mature worldwide. It just needs to be expanded in scale. 

Short answer:  I dunno.  However, you are going to see methanol being used on a staggeringly vast scale in 2020.  It will be the drop-in fuel for large marine engine installations; the entire shipping industry is headed for it, simply because they cannot go to diesel, as the price of diesel and its supply will constrict the ability of more than a handful of ships going that direction.  Keep in mind that the marine shipping industry easily consumes some 5% of world fuel, so it is a lot! 

There will be serious money made in methanol soon enough.  

[William Edwards + 708]

10 hours ago, Dennis Coyne said:

Sure prices could go to $20/b for a short time.  In the next 5 years, I would be very surprised if the annual average price of oil falls to below $55/b, time will tell, my guess is $75+/-$10/b from 2018 to June 2020 for the 12 month trailing average price of Brent crude in 2017US$/b.

 

Looking at trailing 12 month real Brent crude price in 2017$/b, the average price from  Jan 1988 to May 2018 was $56/b and from Jan 2004 to May 2018 the average price was $82.60/b (both are in 2017$/b).

 

Data for Brent spot prices from

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M

and for CPI to convert to real prices from

https://www.eia.gov/outlooks/steo/realprices/

I expect a tight oil market where supply is barely able to meet demand over the next few years is likely to keep oil prices in the $65-$85/b price range for the next two years.  If there is no severe recession before 2025, I think continued tightness in the World oil market might drive oil prices up to $100/b, eventually substitution will bring oil prices back down (perhaps to $40/b in 2017$), but my expectation is that we won't get there until 2035 to 2040. and this is more likely to be driven by falling demand as the World substitutes other energy sources for petroleum liquids.

Now if you choose the 2012-2015 time period to get your average you get $110/B. If you chaise 1990-2000 for your time series you get $30. As you are quite aware, cherry-picking the time span an give you any number that you have pre-selected.

For realistic assessment I submit that you need to cover more than one thirty-year span, since history indicates that that is the time between tops or bottoms. Please repeat your analysis using the past sixty years as the time span, or, alternatively, show me why a thirty years span is not correct.

Thanks.

[Osama + 248]

On ‎6‎/‎19‎/‎2018 at 8:40 PM, William Edwards said:

You ask "Who saw oil prices falling to $26?" May I answer that question by providing you with an article that I posted in OilPro, in mid-2015, when prices were roughly the same as now, after recovering from the $40's a few months earlier, but before falling into the $20's later.  I apologize for the length of this answer, but for many this is their first rodeo.

Is $20 Oil Possible?

Yes, $20 oil is possible. Will it happen? I don't know. But it is worthwhile to understand why a $20 price is not out of reason.

Six months ago it was almost impossible to get  an article published that talked about $60  oil. That price was believed to be completely unreasonable. Now we are flooded with commentaries speculating on "How low will it go?", with $30-40 numbers quite common. It now takes $10 or $20 to reach the  "sensational" threshold. But is the  $20 number of today the same as the $60 number six months ago? Is it just a matter of time? To answer that question we need to remind ourselves of the way prices happen.

Forget everything that you have been told  or that you think  you understand about the way oil price happens. Here  is the  real story in today's world.

We will use the price of gasoline as our  example. Other oil products follow a similar pattern. We begin at the end -- pumping gasoline into the  tank  of our  automobile. What price do we pay at that point? The price posted on the pump, of course. Do we negotiate the price with the fueling station before we pump? Of course not. If we tried, the  service station owner would roll his eyes  and  turn to a sane customer. Thus the ultimate sale price of oil sold  as gasoline is determined by the  service station owner.

Where does the  service station owner get  his price? On the  invoice that comes along with the  tank  truck delivery by the  wholesaler. He tacks on his margin of a few cents and posts the  resulting number on the  pump. Where does the  wholesaler get  the  price he puts on the  invoice? From  the  refiner/supplier. He will add  a few cents margin to the wholesale price and  that is the  number that appears on the  invoice to the  service station owner.

Where does the  refiner get  the  price that he puts on the  invoice to the  wholesaler? Here the details of the  story get  somewhat cloudy, but  the  result is clear. The number that appears on the invoice that the refiner presents to the wholesaler is the  price set by someone in the  marketing department. You might say that Rex Tillerson provides that number for Exxonmobil, and he does bear the  ultimate responsibility for that number, but he delegates the  actual number-crunching to his underlings. Where then does the underling get the actual number that he instructs be applied to the  wholesaler's invoice? This answer is the key to our understanding, so I will elaborate.

If one listens to distinguished professors, elite  analysts from financial institutions or industry associations, or television talking heads, we might be advised that this price is determined by 1) the  price of crude, 2) the  cost of the highest cost production, 3) the average cost of production, 4) the  cost of a competing fuel, 5) OPEC's production level, 6) world spare capacity, 7) OPEC's quota, 😎 OPEC cheating or a myriad of other reasons. All are wrong. The number cruncher in the  refining company gets his number directly from  the published prices on the  oil futures exchange. His price, therefore the refining company's price, therefore my price is directly created and  supplied by the  CME Group, the  company that operates the  oil futures exchanges. 

We then are left with the question "How are futures prices determined?" Do the  futures traders analyze world supply and  demand on an instantaneous basis,  factor in the cost or production from  a million  wells, assess and  quantify the transportation element in each oil movement worldwide and  then apply that complicated assessment in his price outcry? Of course not!  He knows nothing and  cares less about all those factors. He is merely guessing whether the  price he is bidding or taking will be better, in his direction, in a few seconds, minutes or hours. It has nothing to do with oil, other than the  name on the  contract. When one realizes this fact  it is appalling that this activity  determines the price of oil. It is even more appalling that people who advise us and  should know better suggest that the  "market" is wise and,  in fact, knows all.

Now that we have established that the  actual price determination is whatever price results from  transactions between futures traders, we should be in a position to gauge the  price range that can  occur under these circumstances. The answer to that question is "Anything". There are no limits to the  numbers that futures traders are willing to consider since the  absolute number has no meaning. The only guess is whether it will be higher or lower on the  next trade. By recognizing this fact we can  appreciate why the duration of a trend is the  only important element in judging how high,  or low, the  price can go.

Are we then left to conclude that the  price can be as low as zero and  as high  as infinity? Theoretically, yes. Practically speaking, zero is not really a lower limit for short periods. And the  upper limit is probably restricted to the  availability of margin money. But unreasonable prices in either direction are possible.

But, you protest, we have been taught that there is a relationship, in fact  an equilibrium, between price and  supply as well as price and  demand. So wild movements in either direction cannot occur! Your protest is denied. Time is of the  essence. Futures price movements occur in microseconds. Establishing an approach to equilibrium between price and  demand is on the  order of a year or two.  The equilibrium time for supply approaching a price-determined level is probably decades. Microseconds beats out years or decades every  time. So the  futures-created price can  be unreasonable for a long time. As a futures trader once commented, I can  keep prices at an unreasonable level longer than you can supply margin money.

Now that we understand the reality  of pricing, let us return to the  initial question. Can the  price of oil go as low as $20.  Of course it can.  Can it go as low as $10? Of course it can.  Will it? Who knows! Saudi Arabia should take  note of this fact.

 

Dear Mr. Edwards, you just have another fan added to your fan club!!

[William Edwards + 708]

16 hours ago, Osama said:

Dear Mr. Edwards, you just have another fan added to your fan club!!

I am honored, Osama, that you think my comments are worthwhile. I will try to live up to your expectations.

Edited June 23, 2018 by William Edwards

[ronwagn + 6,290]

On 6/22/2018 at 3:11 PM, Jan van Eck said:

Short answer:  I dunno.  However, you are going to see methanol being used on a staggeringly vast scale in 2020.  It will be the drop-in fuel for large marine engine installations; the entire shipping industry is headed for it, simply because they cannot go to diesel, as the price of diesel and its supply will constrict the ability of more than a handful of ships going that direction.  Keep in mind that the marine shipping industry easily consumes some 5% of world fuel, so it is a lot! 

There will be serious money made in methanol soon enough.  

I think natural gas will be the fuel of the future. No need to make it into methanol. 

[Jan van Eck + 7,558]

37 minutes ago, ronwagn said:

I think natural gas will be the fuel of the future. No need to make it into methanol. 

Here's your problem, Ron. You cannot realistically convert natural gas into a marine fuel on ships already built.  First, there is no real estate for the tanks.  Second, the tanks have to be put in the back on an open shelf for safety reasons, and the boat is already built so it becomes unrealistic to try a conversion.  Third, the engine itself would have to be removed and a nat gas engine installed, and again way too expensive, as those motors are monsters and you cannot just pull one out and drop another one in.  Those things are built in pieces in the boat before the engine room is finished with a roof.  So either you have some other liquid fuel, or you scrap the boat. 

Meanwhile, methanol is a liquid fuel, and it can be stored inside the existing tanks already in the boat. 

[Dennis Coyne + 82]

On ‎6‎/‎22‎/‎2018 at 11:40 PM, William Edwards said:

Now if you choose the 2012-2015 time period to get your average you get $110/B. If you chaise 1990-2000 for your time series you get $30. As you are quite aware, cherry-picking the time span an give you any number that you have pre-selected.

For realistic assessment I submit that you need to cover more than one thirty-year span, since history indicates that that is the time between tops or bottoms. Please repeat your analysis using the past sixty years as the time span, or, alternatively, show me why a thirty years span is not correct.

Thanks.

William,

I didn't choose any periods shorter than 14 years.  The period from 1951-1970 was a period of relatively abundant oil supply where supply was restricted so that oil prices wouldn't fall too low (mostly controlled by the RRC of Texas with Texas as the swing producer).

You may imagine that oil supply will always be as plentiful as it was in the 50s and 60s, but that is a fantasy. So looking at oil prices before 1974 is not relevant.  For the past 44 years the average oil price has been about $60/b in 2017$.

For the long term price we can look at the centered 29 year average oil price in 2017$ using BP data.

It is pretty clear that the 29 year average oil price has been increasing since 1960, I expect this trend will continue for another 10 years or so before high oil prices and substitution lead to a decrease in this trend.

 

 

Edited June 28, 2018 by Dennis Coyne

[Osama + 248]

Well well well...

Oil prices tumble: https://www.ft.com/content/548e6938-84fd-11e8-a29d-73e3d454535d

[William Edwards + 708]

10 hours ago, Osama said:

Well well well...

Oil prices tumble: https://www.ft.com/content/548e6938-84fd-11e8-a29d-73e3d454535d

As I may have mentioned previously, this is just the beginning.

For your info, Osama, the Financial Times blocks its content.

[Osama + 248]

13 hours ago, William Edwards said:

As I may have mentioned previously, this is just the beginning.

For your info, Osama, the Financial Times blocks its content.

Indeed Mr. Edwards!

I realized this and already have posted the key points in my latest thread of the abovementioned article.

[Rodent + 1,424]

21 hours ago, William Edwards said:

As I may have mentioned previously, this is just the beginning.

For your info, Osama, the Financial Times blocks its content.

I think what you mean is that the financial times attempts to block its content. copy headline, paste into incognito mode in Google. 

this message will self-destruct in 5, 4, 3...

[RedWhiteFree 0]

On 6/5/2018 at 12:03 PM, William Edwards said:

Osama's reasoning is sound. I might suggest some additional guidance regarding the potential price range going forward. Since there is absolutely no correlation between price and demand, inventories, spare capacity, the weather, Trump's latest tweet or anything else, we conclude that the actual price level will be a random trading number. The only guidance that I can rely on is the historical record. Therefore I can easily see a price as low as $20 over the next few years, since that has been a historical comfort low.

Good evening, first post.

With all due respect William I disagree with the comment "since that has been a historical comfort low" 

The cost of business has increased. The future price is more complex than historical rates. 

Supply/demand/capex/cost to operate just a few of the ever changing variables. I would welcome the data that shows companies could continue to operate, invest in the future/capex and supply current needs or drastically reduced needs at $20/bbl long term.

The current situation is partly the result of only a couple years of low prices resulting in reduced investment.

The flipside is the run up is a correction of underinvestment that couldn't be sustained.

Just my thoughts,

Best Regards.

 

[William Edwards + 708]

15 hours ago, RedWhiteFree said:

Good evening, first post.

With all due respect William I disagree with the comment "since that has been a historical comfort low" 

The cost of business has increased. The future price is more complex than historical rates. 

Supply/demand/capex/cost to operate just a few of the ever changing variables. I would welcome the data that shows companies could continue to operate, invest in the future/capex and supply current needs or drastically reduced needs at $20/bbl long term.

The current situation is partly the result of only a couple years of low prices resulting in reduced investment.

The flipside is the run up is a correction of underinvestment that couldn't be sustained.

Just my thoughts,

Best Regards.

 

 Thanks for your thoughts, DAVID. May I make a few comments? First the $20 figure I use is an inflation corrected figure that goes back as far as 150 years. So I’m using a long time span to make my assessment. If you consider the changes that have occurred in the world economy over the past 150 years, I think you will find that the recent two or five or 10 or 20 years doesn’t contain any significantly different abbetations then won't have been experienced over the previous time span. So I suggest you might reconsider the idea that what is happening now is new.

 One other significant point: my view of the cause and effect relationship between price and the various fundamental factors is essentially opposite to what you read and see from most observers. Price is an independent variable that, when set, allows demand and matching supply to correspond to that level, given enough equilibrium time. 

 May I suggest that you observe prices for a few more years, try out your theories against what happens in what I believe to be a fairly random system, and then you may want to revisit the fundamental ideas that I expressed.

Thanks for your interest and contribution.

Edited July 14, 2018 by William Edwards

[Osama + 248]

Oil Falls as Saudis Are Said to Offer Extra Crude to Some Buyers----https://www.bloomberg.com/news/articles/2018-07-16/oil-holds-below-71-on-prospect-of-u-s-and-opec-boosting-output

 

Oil retreated below $71 a barrel after Saudi Arabia was said to offer extra crude supplies to some customers as OPEC’s biggest producer plans to boost output, while the U.S. is considering tapping into its emergency stockpiles to rein in prices.

Crude has been weakened by fears that global demand will be hurt by trade tensions between the U.S. and China, after prices hit a three-year high last month on prospects of a supply crunch. Investors are watching for signs that members of the Organization of Petroleum Exporting Countries and its partners are moving to fill any potential gaps in supply caused by renewed U.S. sanctions on Iran, falling output in Venezuela and sporadic disruptions in Libya.

[William Edwards + 708]

2 minutes ago, Osama said:

Oil Falls as Saudis Are Said to Offer Extra Crude to Some Buyers----https://www.bloomberg.com/news/articles/2018-07-16/oil-holds-below-71-on-prospect-of-u-s-and-opec-boosting-output

 

Oil retreated below $71 a barrel after Saudi Arabia was said to offer extra crude supplies to some customers as OPEC’s biggest producer plans to boost output, while the U.S. is considering tapping into its emergency stockpiles to rein in prices.

Crude has been weakened by fears that global demand will be hurt by trade tensions between the U.S. and China, after prices hit a three-year high last month on prospects of a supply crunch. Investors are watching for signs that members of the Organization of Petroleum Exporting Countries and its partners are moving to fill any potential gaps in supply caused by renewed U.S. sanctions on Iran, falling output in Venezuela and sporadic disruptions in Libya.

First the Saudis offer more crude. Next the customer asks for a discounted price. Following that the supplier about to be rejected offers an even lower price. From such actions is a price drop developed.

[dbdicker + 2]

This has been an interesting conversation to follow - some very smart voices in here, discussing the very important speculative role in oil pricing, a subject to which I've devoted my entire career.  Take a moment to subscribe to my free energy blog -- Where I still see plenty of long-term opportunity in oil equities over the next 18 months:

 

http;//dandicker.com /  

[William Edwards + 708]

42 minutes ago, dbdicker said:

This has been an interesting conversation to follow - some very smart voices in here, discussing the very important speculative role in oil pricing, a subject to which I've devoted my entire career.  Take a moment to subscribe to my free energy blog -- Where I still see plenty of long-term opportunity in oil equities over the next 18 months:

 

http;//dandicker.com /  

Interesting offer, Dan. As a test of your grasp of the fundamental factors affecting the oil industry, could you please give us a brief comment on the impact, or lack thereof, of the change in the sulfur spec for marine bunker fuels set to arrive in a year and a half?

[Osama + 248]

"The bull argument is based on faulty analysis"---https://oilprice.com/Energy/Oil-Prices/Why-All-The-Experts-Disagree-On-Oil-Prices.html

 

The so-called “shale band” theory, popularized several years ago, posited that shale production would go offline below $45 per barrel, putting a floor beneath prices at that level, while any surge above $65 brought new supply online, which would push prices back down. Citi sees the recent run up in oil prices as temporary. “We think oil is headed back to that range by the end of 2019,” Morse said in an interview with the Financial Post in Calgary. “The bull argument is based on faulty analysis,” he said.

………..

Moreover, drilling technology is also vastly superior compared to years past, which means producers can squeeze more oil out of wells while spending less. Finally, he argued that the assumption of significant decline rates are overblown, and he says that only about 40 to 45 million barrels per day (mb/d) will suffer from decline rates on the order of about 5 percent. Morse says most energy analysts apply assumptions about decline rates for most or all of the 100 mb/d of supply, which is not a reasonable assumption.