$70 More Likely Than $100 - YeeeeeeHaaaaa

Finally, someone agrees with my hope for $70 oil in 2019 ! !   Party time : )

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Barclays: $70 More Likely Than $100

A seasonal lull in demand in winter could take the heat off of the market. In addition, the U.S. or Saudi Arabia would almost surely meet an oil price spike with a supply response. “We believe either an SPR release, a massive uptick in Saudi exports, or both, are high likelihood events in the fourth quarter,” Barclays said.

Moreover, there is still a huge stockpile of crude oil sitting in storage. “OECD and non-OECD strategic stockpiles could combine to provide up to 5.4 mb/d of oil over 180 days to keep any serious spikes in check,” Barclays wrote. Ultimately, the investment bank argues that the oil market will return to a supply surplus next year, making $70 per barrel more likely than $100.

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1 minute ago, Rodent said:

speaking of prices..  poor canda!!

No worries, China to the rescue...

 

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Triple digit oil is looking less likely - and I'm still hoping for $70 Oil for 2019.

Triple Digit Oil Price Forecasters Silent As Crude Plummets Again, By 3 Percent

"Day two of the U.S. stock market sell-off resulted on Thursday, as was the case the day prior, in oil prices dropping - with the losses also said to be incurred by news of rising U.S. stockpiles.

... Also on Thursday, OPEC reduced its forecast of global crude demand growth next year for a third straight month, citing as the reasons trade disputes and volatile emerging markets impacting global economies."

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Good. Now staple their mouths just to make sure they never speak again.

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6 hours ago, Tom Kirkman said:

Finally, someone agrees with my hope for $70 oil in 2019 ! !   Party time : )

.......

,” Barclays wrote. Ultimately, the investment bank argues that the oil market will return to a supply surplus next year, making $70 per barrel more likely than $100.

I agree with you too. I was expecting the price to peak later in the year though then drop next year so I am selling down a few of my oil major shares today. Keeping the little ones as they have more strings to them than just rising oil price plus they are insurance incase you me and Barclays are wrong :)

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(edited)

So you expect SPR release or the phantom Saudi Spare capacity will save the day, if demand growth slows enough you might be right, but I think $80 to $90 per barrel is more likely in the absence of a Global recession until there is more pipeline capacity to enable further increases in the Permian basin, at that point we might see a bit of a drop in price, perhaps to $75/b depending on demand growth and potential future expansion of OPEC capacity.  Note that these are Brent oil prices which has become the de facto World Oil price.

For the past 16 months the Brent Oil price has been rising at an annual rate of about $25/b, the direction of prices is unlikely to change until OECD supplies rise above the 5 year average.  Currently the days of forward supply are about 92 days for OECD stocks and the 5 year average is 95 days.  The days of forward supply fluctuates quite a bit so if we consider the trailing 12 month number it is at 93.75 days in June 2018 and was last below this level in May 2015 and had been rising from a low of 91.22 in March 2014 and had only fallen below the 5 year average in Jan 2014 and by Aug 2014 the 12 month trailing average had risen above the 5 year trailing average.

Until we see OECD stocks rise above the 5 year average (in terms of days of forward supply), I do not think we will see oil prices fall very much.  I doubt we will see $100/b, but I am equally doubtful we will see $70/b before Sept 2019, especially for the trailing 30 day average price for Brent Spot prices.  My best guess remains $85+/-5/b.

Alternatively I would say there is about an equal likelihood of $70/b or lower and $100/b and higher, I would put it at about a 10% probability for either of these cases. I would say odds are roughly 50/50 between 80 to 90/b and a Brent 30 day average price outside of the 80 to 90/b range.  This estimate covers the period from now until Sept 30, 2019.

Edited by Dennis Coyne
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I remind everyone that we are a wasteful society - mostly because oil is so cheap.  If the Western nations in particular were to mandate the use of nitrogen to fill auto and truck tires, the amount of transport fuels used would drop by 5%.  Why?  Because the oxygen molecule is smaller than the nitrogen molecule, and O2 can migrate through the sidewall of a tire, at the rate of a pressure decrease of one psi per month.  N2 does not migrate; it also runs cooler, so the tires last longer.  Under-inflated tires consume lots of fuel.

The failure of motorists to carefully check tire pressures (and to make sure the valve is not leaking!) results in huge fuel losses.  What would an overnight drop in fuel use by 5% do to the consumption side of those "fuel demand" calculations everybody trots out?  Something to think about. 

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3 hours ago, Jan van Eck said:

I remind everyone that we are a wasteful society - mostly because oil is so cheap.  If the Western nations in particular were to mandate the use of nitrogen to fill auto and truck tires, the amount of transport fuels used would drop by 5%.

But the cost to consumers to inflate their tires would likely increase from zero, from using "free" air at the local gas (petrol) station, which only uses an air pump to inflate tires with local, free atmosphere.

Mandating use of nitrogen for filling tires would have a cost involved, shipping containers of compressed nitrogen to gas (petrol) stations.  The nitogen containers + dropoff and pickup transportation to and from local gas stations would not be free.

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4 hours ago, Tom Kirkman said:

 

Mandating use of nitrogen for filling tires would have a cost involved, shipping containers of compressed nitrogen to gas (petrol) stations.  The nitogen containers + dropoff and pickup transportation to and from local gas stations would not be free.

Tom is behind the curve on the technology.  Small nitrogen separators suitable for a retail tire shop or filling station can be bought retail for less than $6,000 today in the USA, and mandating the installation of one in a filling station, although perhaps viewed as govt over-reach in Libertarian circles, would be no different than mandating paid employee attendants for handicapped, or the installation of concrete liners on holding tanks, or automatic cut-off devices, all of which are costs imposed by govt fiat.  Requiring the provision of a nitrogen generator is yet another fiat requirement.  

But that all misses the point.  If tires are filled with nitrogen at the point of mounting the tire at the tire shop, then those tires will stay filled, and at the proper pressure, for a very long time.  Your drop over a year is not significant.  It is that ability to remain inflated at the proper pressure, hands-off, that provides the mileage gain, and the reduction in fuel use. 

All you have to do is walk around any shopping center parking lot and note all the cars and pick-ups with under-inflated tires.  And that by the way is dangerous.  Aside from the risk of blowout, and under-inflated tire will cause both handling and braking problems.  People are slobs; they don't even bother with the most elementary of requirements in owning a motor car.  

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16 hours ago, Jan van Eck said:

The failure of motorists to carefully check tire pressures (and to make sure the valve is not leaking!) results in huge fuel losses.  What would an overnight drop in fuel use by 5% do to the consumption side of those "fuel demand" calculations everybody trots out?  Something to think about. 

 

12 hours ago, Tom Kirkman said:

But the cost to consumers to inflate their tires would likely increase from zero, from using "free" air at the local gas (petrol) station, which only uses an air pump to inflate tires with local, free atmosphere.

Even if we disagree on the merits of nitrogen-filled tires, we can probably agree that there is ample room to improve efficiency.  I once tallied the efficiency improvements possible by implementing current-generation technology across the entire fleet.  I.e. I asked the question, "What if the new technologies being adopted existed in the entire fleet?"  Fuel consumption would drop 30-50%.  We're going to become more efficient even if consumers do nothing. 

That's an interesting point about nitrogen though; I did not know that's why cyclists use N2 in their tires; might have to get some. 

 

8 hours ago, Jan van Eck said:

People are slobs; they don't even bother with the most elementary of requirements in owning a motor car.  

Truth.  They're slobs and comically ignorant.

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I don't particularly have an issue with using nitrogen to fill tires.

I do however have an issue with the idea that governments mandate using nitrogen rather than using (currently) free air.

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Tom,

Sometimes mandates make sense.  You are misinterpreting what Jan said.  The tire shops and air filling stations at petrol stations would be mandated to have nitrogen filling of tires.

 

You would be free to buy a bicycle pump and fill your tires with "free" air.

Note that the increased cost of nitrogen filled tires would pay for itself in the fuel savings.

It is mandated by most state governments in the US that drivers have liability insurance for their vehicles, and that electrical work be done according to code requirements.  Do you believe that these government mandates are also a bad idea?

Markets do a good job at allocating resources, but note the "perfectly competitive" market assumption that underlies all of modern neoclassical economic analysis and the conclusion that markets allocate resources efficiently is usually not met in the real world for most industries.

Government intervention can sometimes lead to better results than laissez faire.  I would agree that government intervention should be minimal, but where it leads to better outcomes, such as conserving a dwindling resource at low cost, it makes perfect sense.

 

Jan's suggestion qualifies in my opinion.

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2 hours ago, Dennis Coyne said:

Jan's suggestion qualifies in my opinion.

Fair enough observation and argument.

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Thanks Tom.  Note that I agree that government intervention should be minimized, but I think in some cases this can be taken too far, the "sensible" regulations should be kept.  I also understand people have different viewpoints on what qualifies as sensible.

For example requiring that all tires be filled with nitrogen is not sensible, but Jan's suggestion that regulations be put in place to make it easier for people to choose nitrogen for their tires is sensible in my opinion.

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I own a fuel station in California, and I'll tell you I'm tired of these mandates brought on by consumers. 

Why dont we mandate that you consumers Install a nitrogen pump at your home, surely by the masses it would make the technology much les costly on economy of scale, what's a few thousand added on to your 30yr mortgage. 

You can only spend so much of someone else's money on your own ideas and desires. 

We already are "mandated" to offer free water, free restroom, free air, and a plethora of other high dollar mandates. And I'll tell you, for $3m US dollars, it's real frustrating to give away all that off of a major US interstate day in and day out. 

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