What Can Bring Oil Down to $20?

let's have some fun, shall we? What needs to happen -- plausibly, mind -- for oil prices to dive to $20 a barrel.

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1) Demand for oil plummets due to the economic effects of the threat of triple digit oil prices.

2) Oil and gas production continue to increase, far more than is needed, due to overblown concerns about oil production cutbacks in Iran, Venezuela, etc.

3) Canada gets its act together and an oil pipeline system is put in place to export more oil to U.S.  Tar sands production increases due to pressure to pay down fixed costs.

4) U.S. Shale oil pipeline bottlenecks get resolved, and Shale oil production increases dramatically.

5) Iran keeps exporting oil, but on the black market, resulting in incorrect global oil production figures, and OPEC and Russia don't cut back.

6) Oil traders panic about overproduction and drive oil prices over a cliff.

If some (or all) of these happen by middle / end of 2019, I could plausibly see $20 oil.

 

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#2 and #3 would be the hardest to get done, but not impossible.

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5 hours ago, Tom Kirkman said:

1) Demand for oil plummets due to the economic effects of the threat of triple digit oil prices.

2) Oil and gas production continue to increase, far more than is needed, due to overblown concerns about oil production cutbacks in Iran, Venezuela, etc.

3) Canada gets its act together and an oil pipeline system is put in place to export more oil to U.S.  Tar sands production increases due to pressure to pay down fixed costs.

4) U.S. Shale oil pipeline bottlenecks get resolved, and Shale oil production increases dramatically.

5) Iran keeps exporting oil, but on the black market, resulting in incorrect global oil production figures, and OPEC and Russia don't cut back.

6) Oil traders panic about overproduction and drive oil prices over a cliff.

If some (or all) of these happen by middle / end of 2019, I could plausibly see $20 oil.

Wouldn't it be fun if we could have 2-6,,, but #1 was merely a dip, and the ensuing cheap price lead to an increasing demand, and an economic windfall for everyone.

I wanted to play, but honestly, Tom did a better job than I would have anyway.   Tom ...the oil price in the $60s that you have spoke of,, desired I believe.  Is that enough to induce future investment from the industry to keep the game going?

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(edited)

In next couple of years with such  low spare capacity?

Nothing. Maybe apart from massive global recession.

Oil under 60 $  is just too low for supply/demand balance. Oil over 80 $ too high and it promotes green energy.

60-80 range in long term is new sweet spot.

Edited by Tomasz
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One in ten petrol powered vehicles in the US can run on 80% bioethanol today.

Twice there have been attempts by US lawmakers to increase the number of vehicles with flex fuel engines. They merely have to try again. 

There is a film documentary - Pump - on YouTube where a car was simply reprogrammed to run on higher ethanol blends. That documentary is 6 years old. 

It's a capitalist thing. Simple competition will drive the oil price down - if the oil refiners will allow it. 

 

 

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22 hours ago, Marina Schwarz said:

#2 and #3 would be the hardest to get done, but not impossible.

#2 is already happening.  I believe this will become apparent within a month or so.  Iranian oil will continue to be sold, but on the black market.  Pakistan is one probable venue, as in the past.

As the black market crude oil supply from Iran increases into a glut, at steeply discounted prices, the price of NON black market crude oil should get depressed, dragging down Brent prices with it.

Just wait for the news cycle to figure this out.  Iranian crude oil is not going away.  Overproduction and oversupply is the likely outcome within the next couple of months.  OPEC, Russia, U.S. will finally figure out too late that there will be a global oversupply of crude oil due to unreported quantities of Iranian black market oil.

I'll just wait patiently here and revisit my comments in this thread in the beginning of December, to see if I was correct or not. 

 

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4 hours ago, Mike Marcellus said:

I wanted to play, but honestly, Tom did a better job than I would have anyway.   

Tom ...the oil price in the $60s that you have spoke of,, desired I believe.  Is that enough to induce future investment from the industry to keep the game going?

Thanks for your kind words, Mike.

As far as the $60 oil you refer to, it's not quite correct.  I've been hoping for $65 oil (Brent) this year, and $70 oil (Brent) in 2019.  Note that hoping is not the same as predicting.

And yes, in my opinion, those 2 numbers should be the "relative balance" for 2018 and 2019 to allow oil companies to pursue new Exploration activities.  New Exploration activities have already resumed in Q3 this year.

Much in the same way that $100 oil is too high to be sustainable (it will crash global economies and significantly reduce demand) $20 oil is also not sustainable, as it will add to the current insufficient new Exploration activities by oil companies, which would result in far too high oil prices a few years down the road, due to insufficient supply.

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3 hours ago, Tomasz said:

Oil under 60 $  is just too low for supply/demand balance. Oil over 80 $ too high and it promotes green energy.

60-80 range in long term is new sweet spot.

Sounds about right.  During the Summer I suggested the remainder of this year would likely be in the $50 - $80 range (yes, I know that's a big range).

Hopefully talk of triple digit prices will go away soon. And sub - $50 is too low to allow new Exploration activities to continue / increase.

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I was thinking about Venezuela, though. If it managed to somehow up production it would make a splash. But I can't see it happening right now.

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4 hours ago, Marina Schwarz said:

I was thinking about Venezuela, though. If it managed to somehow up production it would make a splash. But I can't see it happening right now.

I forgot to add in the possible knock-down effects of the LNG glut, which may remain until 2022 or so.

LNG tankers stranded off Singapore, Malaysia as demand outlook weakens

* Half-dozen tankers sit offshore Singapore with unsold LNG

* Mild winter weather expected for Japan

* Meteorologists expect return of El Nino weather

* Japan has restarted seven nuclear power reactors

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technically looks down

 

 

WTI311018.PNG

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14 hours ago, Tom Kirkman said:

#2 is already happening.  I believe this will become apparent within a month or so.  Iranian oil will continue to be sold, but on the black market.  Pakistan is one probable venue, as in the past.

One news item that I think is highly under-highlighted is that China is actually, right now, storing oil for Iran.  They are also allowing Iran to continue sending more oil to China for storage.  Call me skeptical, but it wouldn't be a far stretch to think that what China actually does with that stored oil after it reaches China is to actually use it!

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14 hours ago, Tom Kirkman said:

Overproduction and oversupply is the likely outcome within the next couple of months.  OPEC, Russia, U.S. will finally figure out too late that there will be a global oversupply of crude oil due to unreported quantities of Iranian black market oil.

AS history, and I think @William Edwards, have shown, the industry always goes boom to bust. 

There is far too much tanker capacity being built right now.  The pipelines that are in the pipeline right now (I know :)) will end up being too much, and Canada still won't have their own solutions which will further alienate them from the $$.  Refinery capacity and flexibility will be built up just in time for lower demand. Etc., etc. etc.

Then the cycle reverses and all of that excess will become apparent and the loans will become due.  The newly built assets will be allowed to fall into disrepair, eventually costing more to bring back online than to build new again.  Can you imagine the shale equipment that will simply be left where the companies leave it and walk away?

Rinse and repeat every 15 years or so.

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12 hours ago, Jayapal Jayapal said:

oil low 63

Somehow that quote matches the photo.  Good call Jayapal!  

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(edited)

1 hour ago, Dan Warnick said:

One news item that I think is highly under-highlighted is that China is actually, right now, storing oil for Iran.  They are also allowing Iran to continue sending more oil to China for storage.  Call me skeptical, but it wouldn't be a far stretch to think that what China actually does with that stored oil after it reaches China is to actually use it!

USA could easily block this trade but I think instead USA will quadruple down on tariffing other Chinese goods.  China has so much more to lose by not coming to the table with USA.  #1 navy in the world big help to controlling oil market.  I think prices right now are optimal and will probably remain between $60 & $80 for the next 2 years.  The only thing that could change this is war, which is always a strong possibility in this day and age.  Trump has actually done a fine job of navigating the USA out of war so far.  Other Asian and middle Eastern countries seem to be flirting on the brink of war India, Pakistan, Yemen, obviously Syria.  Black market oil is not going to be able to supplement enough of the markets need especially where there is instability and wars.  In the end we all want to be able to trust our trading partners.  Iran China deal "black market oil" call me skeptical.      

Edited by BigJets
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2 minutes ago, BigJets said:

USA could easily block this trade but I think instead USA will quadruple down on tariffing other Chinese goods.  China has so much more to lose by not coming to the table with USA.  #1 navy in the world big help to controlling oil market.  I think prices right now are optimal and will probably remain between $60 & $80 for the next 6 years.  The only thing that could change this is war, which is always a strong possibility in this day and age.  Trump has actually done a fine job of navigating the USA out of war so far. 

The sanctions actually don't address storage of oil, so what they are doing is actually allowed.  BUT, the trade/purchase of the oil is not allowed.  What I'm suggesting is that once the oil is in the storage tanks it would seem that it could easily be let out via pipe for, er, moving it to another storage place like, say, a refinery.  Nah, they wouldn't do that, would they?

I agree that China has more to lose, but that is hotly debated by a lot of people.

I think WTI oil prices will crash down to $45-$50/barrel for a while because of overproduction and then come back to the natural of $60-$80, same as you (and @Tom Kirkman).  To me, $60-$80 is a good range because it allows speculators to speculate and make money while making all the world parties, for the most part, able to abide.

I also agree strongly that, besides a lot of rhetoric that stirs the pot well beyond many people's comfort zone, Trump indeed is anti-war in all its forms except genuine defense, where he is very serious about using the tools at his disposal.

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