What Can Bring Oil Down to $20?

[JunoTen + 118]

Bad day again. How low can it go? And why did Saudi Arabia announce their highest budget ever? They're positive that the price will go up in 2019?

[Auson + 123]

1 hour ago, James Regan said:

It’s tanking again.....

They've surpassed themselves, and Trump has played a blinder. Who would have thought Iran sanctions and WTI in the mid $40s !

But really thats enough now. Time to take it back up again to $80 

[Brent Hamrick + 31]

Everyone, this is the plan. The plan to clear out the house of current investors, ride them out(burn their cash) until all the contracts are settled for the new land lease sales going on in US. Come mid 2019 all the OPEC contracts will have closed or been run up to knock them out of contention. Then the US oil companies futures will start to come online (start paying). Watch or get in the game but it will happen. 

[BillyBob + 5]

There was roughly 20 plus idle frac spreads already in the 3rd quarter in the permian and many more have been released in the 4th. As of this week, certain operator(s) dropping up to as many as 10 rigs. Its going to get ugly for the first half of 2019. 

Edited December 20, 2018 by BillyBob

[William Edwards + 708]

On 12/20/2018 at 12:05 PM, JunoTen said:

Bad day again. How low can it go? And why did Saudi Arabia announce their highest budget ever? They're positive that the price will go up in 2019?

The Saudis are as capable of wishful thinking as anyone. Check out their track record. They have been the industry price leader for forty years, over which time the price has ranged from $10/B to $150/B, with an average of about $40/B.

[ceo_energemsier + 1,818]

What is Driving the Oil Price Down?

What is driving the oil price down is the fact that the market believes the market is oversupplied.

That’s what Will Rhind, founder and CEO of GraniteShares, outlined in a video interview with CNBC on Friday.

“What is really driving this price movement down is the fact that the market believes that the market’s oversupplied and this is really the main factor coming into the end of the year when global markets are down and everybody’s feeling a bit bearish about growth more broadly and that’s affecting the price,” Rhind said in the interview.

“There are a lot of people very bearish about global growth for next year and in terms of the fund manager positioning in the oil market we’ve seen that positioning come off towards the end of the year … I think that could be just a function of people looking to close up books and investment mandates for the end of the year,” he added.

Rhind told CNBC that he thinks there is more risk skewed to the upside in terms of oil in 2019.

“I think that OPEC will act and will look to take production off the market and that has historically helped the price of oil,” Rhind said in the video interview.

“I think also China will be a big factor next year. I think China will look to go in the opposite direction of the G7 countries and look to ease and put more liquidity into the market next year and that should support oil and other commodities,” he added.

Earlier this week, Wood Mackenzie’s Chairman and Chief Analyst Simon Flowers stated in his latest The Edge column that “the sharp retreat in price maybe a good thing, injecting a healthy dose of reality to the industry at just the right time”.

In the column, Flowers said Brent over $80 per barrel “always seemed too good to last, defying the fundamentals”. The WoodMac analyst also confirmed in the column that WoodMac expects Brent to average $66 per barrel in 2019.

“That’s a tad down on 2018 though still a price that allows companies to generate free cash flow and continue to strengthen finances,” Flowers stated in The Edge.

GraniteShares, which his headquartered in New York, describes itself as an independent, fully funded ETF company. Rhind is a 16 year veteran of the ETF industry, the company’s website highlights.

 

The sharp retreat in price may turn out to be a good thing, injecting a healthy dose of reality to the industry at just the right time.

That’s what Wood Mackenzie’s (WoodMac) Chairman and Chief Analyst Simon Flowers stated in his latest The Edge column, which was published on WoodMac’s website on Tuesday.

In the column, Flowers said Brent over $80 per barrel “always seemed too good to last, defying the fundamentals”. The WoodMac analyst also confirmed in the column that WoodMac expects Brent to average $66 per barrel in 2019.

“That’s a tad down on 2018 though still a price that allows companies to generate free cash flow and continue to strengthen finances,” Flowers stated in The Edge.

In a CNBC video interview on Wednesday, Edward Bell, a commodity analyst at Emirates NBD, outlined that a $60 to $70 per barrel range for Brent in 2019 looks realistic.

“I think it’s very unlikely that we’ll get Brent prices for instance going back up to those mid-October highs over $80 a barrel,” Bell said in the interview.

“Looking ahead to 2019, a range somewhere in the $60 to $70 kind of range for Brent probably looks more realistic and WTI, I think that WTI Brent spread looks like it’s going to be pretty sticky and as prices have come off we’ve seen that pretty much stay entrenched at around $9 to $10 a barrel, so WTI prices holding in around the $50 range,” he added.

The Edge is an exclusive column from Flowers, which draws on the “expertise, intelligence, deep insight and data” from across the WoodMac business, according to WoodMac’s website.

Bell is responsible for Emirates NBD’s view on oil markets, including price forecasting. Prior to joining Emirates NBD, Bell served as senior commodities analyst covering energy, metals and agricultural markets and as a Middle East economist.

 

[William Edwards + 708]

18 hours ago, ceo_energemsier said:

What is Driving the Oil Price Down?

What is driving the oil price down is the fact that the market believes the market is oversupplied.

That’s what Will Rhind, founder and CEO of GraniteShares, outlined in a video interview with CNBC on Friday.

“What is really driving this price movement down is the fact that the market believes that the market’s oversupplied and this is really the main factor coming into the end of the year when global markets are down and everybody’s feeling a bit bearish about growth more broadly and that’s affecting the price,” Rhind said in the interview.

“There are a lot of people very bearish about global growth for next year and in terms of the fund manager positioning in the oil market we’ve seen that positioning come off towards the end of the year … I think that could be just a function of people looking to close up books and investment mandates for the end of the year,” he added.

Rhind told CNBC that he thinks there is more risk skewed to the upside in terms of oil in 2019.

“I think that OPEC will act and will look to take production off the market and that has historically helped the price of oil,” Rhind said in the video interview.

“I think also China will be a big factor next year. I think China will look to go in the opposite direction of the G7 countries and look to ease and put more liquidity into the market next year and that should support oil and other commodities,” he added.

Earlier this week, Wood Mackenzie’s Chairman and Chief Analyst Simon Flowers stated in his latest The Edge column that “the sharp retreat in price maybe a good thing, injecting a healthy dose of reality to the industry at just the right time”.

In the column, Flowers said Brent over $80 per barrel “always seemed too good to last, defying the fundamentals”. The WoodMac analyst also confirmed in the column that WoodMac expects Brent to average $66 per barrel in 2019.

“That’s a tad down on 2018 though still a price that allows companies to generate free cash flow and continue to strengthen finances,” Flowers stated in The Edge.

GraniteShares, which his headquartered in New York, describes itself as an independent, fully funded ETF company. Rhind is a 16 year veteran of the ETF industry, the company’s website highlights.

 

The sharp retreat in price may turn out to be a good thing, injecting a healthy dose of reality to the industry at just the right time.

That’s what Wood Mackenzie’s (WoodMac) Chairman and Chief Analyst Simon Flowers stated in his latest The Edge column, which was published on WoodMac’s website on Tuesday.

In the column, Flowers said Brent over $80 per barrel “always seemed too good to last, defying the fundamentals”. The WoodMac analyst also confirmed in the column that WoodMac expects Brent to average $66 per barrel in 2019.

“That’s a tad down on 2018 though still a price that allows companies to generate free cash flow and continue to strengthen finances,” Flowers stated in The Edge.

In a CNBC video interview on Wednesday, Edward Bell, a commodity analyst at Emirates NBD, outlined that a $60 to $70 per barrel range for Brent in 2019 looks realistic.

“I think it’s very unlikely that we’ll get Brent prices for instance going back up to those mid-October highs over $80 a barrel,” Bell said in the interview.

“Looking ahead to 2019, a range somewhere in the $60 to $70 kind of range for Brent probably looks more realistic and WTI, I think that WTI Brent spread looks like it’s going to be pretty sticky and as prices have come off we’ve seen that pretty much stay entrenched at around $9 to $10 a barrel, so WTI prices holding in around the $50 range,” he added.

The Edge is an exclusive column from Flowers, which draws on the “expertise, intelligence, deep insight and data” from across the WoodMac business, according to WoodMac’s website.

Bell is responsible for Emirates NBD’s view on oil markets, including price forecasting. Prior to joining Emirates NBD, Bell served as senior commodities analyst covering energy, metals and agricultural markets and as a Middle East economist.

 

If this type of meaningless "analysis" makes you feel good, then, by all means, enjoy it to the fullest. Realistically, however it has no meaningful substance. Keep guessing!!

[Khalid Alsaleem + 3]

Hi, I

am delighted to join you. 

[Outlaw Jackie + 78]

On 12/21/2018 at 2:11 PM, William Edwards said:

The Saudis are as capable of wishful thinking as anyone. Check out their track record. They have been the industry price leader for forty years, over which time the price has ranged from $10/B to $150/B, with an average of about $40/B.

And this fits nicely into the 'average'. As Mr. Edwards points out, even the experts are poorly capable of guessing the price. Happy Holidays everyone...

[Old-Ruffneck + 1,239]

My question to this group of professional traders, buyers, forecasters on 20 dollar oil is this:

Has anyone ever lived, worked, in some capacity in the Permian? I see a lot of comments above and 

analogies on where price structure is, should be, what costs to drill...…….most of the folks on here haven't 

a clue how pricing is made and profits from wells. I worked on a well near Pecos, Tx in 1978 that was drilled

in the 30's. Hand dug basement for the valves even. Today that pumpjack is still going up and down. Shallow well,

probably cost to produce less than 3.00 a bbl. There are literally 1000's of these old wells still producing. In the 

grand scheme, frac'd wells might cost now about 20-25 a bbl to produce. 

My whole take on this is that the average for 80 years the cost is still low enough that 20 oil is more than viable.

Old-Ruffneck

[D Coyne + 305]

Using BP World Prices and US CPI to adjust for inflation chart below shows real World Oil Prices from 1900-2017 in 2017 US$.

Also shown is 5 year centered average oil price and linear trend for annual prices from 1900 to 2017.  It is pretty evindent from the chart that there was a significant change after 1970 and the "30 year cycle" in oil prices did not begin until about 1970 or so.  Also the cycle looks to be about 25 rather than 30 years.

[D Coyne + 305]

Old Roughneck.

 

The Permian wells need about $62/b to breakeven.  The nature of the horizontal wells is that they are deeper and downhole maintenance is much more expensive about $15000 per month on average for older wells, so $20/b is not going to meet that fixed cost and when a pump goes down, it will not be worth fixing and the wells will be shut in at about 15 b/d at a cost of $40/b or less.

These wells do not pay out at less than $62/b at the wellhead on average about 63% of Permian wells are worse than average and this is the breakeven for the average Permian well with an Estimated Ultimate Recovery of about 400 kb over its average 25 year life (assuming hyperbolic decline with exponential decline when the annual decline rate falls below 10% annual rates.

 

Here's the oil price over the 1963 to 2017 period with the annual price given in 2017 US $.  Based on the trend, oil prices in 2018 should be about $77/b in 2017 $, prices have been rising at about $1/b each year from 1963 to 2017 on average.  Probably oil prices will be $80/b+/-40 over the next 10 to 15 years.

Eventually oil prices will fall as Mr Edwards suggests, but it will be after the peak in 2025 (C+C output) probably 2030 to 2040 as oil is replaced by electricity for most land transport and demand falls faster than supply (at higher price levels) and prices fall in response to a glut of oil supply relative to demand.

That's when oil falls to $20/b in 2017$, probably reaching this level by 2035 to 2040.

Edited December 24, 2018 by D Coyne

[D Coyne + 305]

5 hours ago, Outlaw Jackie said:

And this fits nicely into the 'average'. As Mr. Edwards points out, even the experts are poorly capable of guessing the price. Happy Holidays everyone...

Interesting on the price challenge how 80% of WTI guesses were within 1 standard deviation of the mean, the mean was 78 and std dev was 12.  The low guess of 54 looks like the best guess.  Though none of us (except perhaps Mr Edwards) claims to be experts.  For 2019 the $78/b may be a good guess (52 week average) for Brent with a 10/b window (68 to 88).

[ceo_energemsier + 1,818]

https://www.forbes.com/sites/clairepoole/2018/07/29/5-permian-basin-oil-producers-with-the-lowest-break-even-price/#4437558f5325

[Old-Ruffneck + 1,239]

1 hour ago, ceo_energemsier said:

https://www.forbes.com/sites/clairepoole/2018/07/29/5-permian-basin-oil-producers-with-the-lowest-break-even-price/#4437558f5325

The amount of sand/gravel pits in the last year have reduced a large chunk of well completion. Before all was rail car and semi'd in.

My point was that wells that are still producing bbl.'s drilled in the 30's and 40's en-mass, lower the bottom line of average cost overall

in the whole scheme of it all. 

If you have never worked in the Permian, and are just "guessing" at numbers...FAIL.

In 81-82 I was around Andrews (NW of Odessa), we were spuddin' in every 8 days. Riggin' down and back up running punching new hole 

every 8 days!!!!!  12.960 feet to be exact. Slumber and Halli wirelines finished the wells. Back then we went from contract drilling to paid by

the foot. 12 bucks if memory serves me correctly. Today, those wells are still in operation. 

Ira-Yates field, google the amount there. Mind blowing numbers of crude there.  That's east of Ft. Stockton.  Some should read actual 

historic news print on these old fields that's are still pumping crude and no slow down yet. It's actually a beautiful drive and a lot of history.

These folks that read these boards and think they are educated and quote others hypothesis's and best guess is annoying. 

https://en.wikipedia.org/wiki/Yates_Oil_Field

[ceo_energemsier + 1,818]

55 minutes ago, Old-Ruffneck said:

The amount of sand/gravel pits in the last year have reduced a large chunk of well completion. Before all was rail car and semi'd in.

My point was that wells that are still producing bbl.'s drilled in the 30's and 40's en-mass, lower the bottom line of average cost overall

in the whole scheme of it all. 

If you have never worked in the Permian, and are just "guessing" at numbers...FAIL.

In 81-82 I was around Andrews (NW of Odessa), we were spuddin' in every 8 days. Riggin' down and back up running punching new hole 

every 8 days!!!!!  12.960 feet to be exact. Slumber and Halli wirelines finished the wells. Back then we went from contract drilling to paid by

the foot. 12 bucks if memory serves me correctly. Today, those wells are still in operation. 

Ira-Yates field, google the amount there. Mind blowing numbers of crude there.  That's east of Ft. Stockton.  Some should read actual 

historic news print on these old fields that's are still pumping crude and no slow down yet. It's actually a beautiful drive and a lot of history.

These folks that read these boards and think they are educated and quote others hypothesis's and best guess is annoying. 

https://en.wikipedia.org/wiki/Yates_Oil_Field

You are correct in some aspects. BTW, I have worked in the Permian @ various levels of upstream involvement.

Not all shale and not all conventionals are the same, one shale patch within the same lease will act, behave and produce differently and these days everything depends on technology, find the best spots of hydrocarbons accumulation(s), the best way to access, drill, complete and produce each individual well and with the evolution of pad drilling... everything changes.  We have wells in the Permian we can be fine with 25$/bbl oil. Dont over pay for the leases either. That is the biggest killer is paying tens of thousands of dollars just for leasing acreage (per acre) without knowing the quality of the rocks and performance.  I have said this before elsewhere in my various posts on this site about technology being the game changer, use it right, use it the best, grow from there to have better long term sustainable production with an overall breakeven that is reasonable and low decline rates. I have seen lot of people have a complete "disdain" for shale........ and do not believe anyone can make $$$.

Bakken crude is getting 18-19$/bbl so only the operators who have the best quality rocks and costs down over the years can sustain the prices and keep producing. One aspect a lot of people also forget is that how long ago the well(s) were drilled? they may have already paid off all the investments made and all the costs associated with leasing and drilling completing etc. Also remember a lot of the wells produced high IPs for a while before decline. I have seen wells in the Permian, Eagle Ford, Bakken etc pay off within the first year and the rest as is stated is "gravy"

Again not all wells are the same and not all rock is the same, technology beats everything , even low prices if one has done their homework correctly from the get go.

 

[Udara Hemachandra + 10]

Happy Christmas Now i think it will go to 30

[Uvuvwevwevwe Onyetenyevwe Ugwemuhwem Osas + 96]

Why is oil price crashing?
Look at the Dow and Nasdaq.  There is "blood in the streets".
The price of oil does not exist in a vacuum.
Stock market crash --> general price deflation --> oil price deflation

[ceo_energemsier + 1,818]

36 minutes ago, Uvuvwevwevwe Onyetenyevwe Ugwemuhwem Osas said:

Why is oil price crashing?
Look at the Dow and Nasdaq.  There is "blood in the streets".
The price of oil does not exist in a vacuum.
Stock market crash --> general price deflation --> oil price deflation

YAWN@@@@

[Richardo + 6]

Go back to this site about a year ago and look at some of the predictions, one which asked, Oil at $300 per barrel? Now, there are predictions of $20?

Nothing else to add other than the schizophrenic nature of investors and the hedge fund shills who, through a cacophony of dire events, are hoping to influence enough panicky people to make a quick killling.

The mere prospect of $20 per barrel would cause a downward tailspin that would quickly lead to a full-on recession. The Fed Chairman Jerome Powell recently raised the interest rates and it instantly caused an eruption on Wall Street as the Dow plunged more than 650 points.

Exacerbating the uncertainty and fear for investors was the comment made by Treasury Secretary Steve Mnuchin raising the question of of the soundness of major banks and their lending ability and liquidity. Panic ensued following his puzzling comments that some interepreted to mean the economy will not only weaken but descend into a recession.

$20 oil can't boost much confidence in those investors who are pouring money into shale fracking and other deep water and offshore drilling operations and rig equipment. The general belief is, shale oil needs to rise to $70 per barrel just to break even. Buy long, sell short? What to do?

The only thing that the petroleum behemoths can do to is push a lot harder for war -- war somewhere because that's one of the few visceral acts that the troglodytes running our country can instigate if they want to stay in office and cause oil prices once again to soar.

Just a reminder to those who forked out several thousand into their 6-year lease on a gas-guzzling $65,000 monster pickup truck: don't expect the resale value to keep you from being upside down when it comes time to dump it, especially if oil hits $200 or higher.    

[Specyoulator + 9]

On 12/19/2018 at 9:36 AM, mthebold said:

 

 

 

 

There's a lot of discussion on here about price swings.  Granted:
1)  The price oscillates on a 30ish year schedule.
2)  Producers seem to plan in a short-sighted way
3)  Periodic low prices lead to layoffs and industry consolidation. 

I would argue that #3 is a feature, not a bug.  Those with the deepest pockets and best political connections will gladly weather short-term losses to gain market share.  I'm sure they're also happy to see pesky little innovators destroyed.  Within individual companies, layoffs are an opportunity to dispose of under performing employees, only to later replace them with new blood.  This allows companies to skirt employment regulations, thus maintaining their competitiveness.  If you don't believe it's important to cull the herd, go spend time with the UAW...

That said, there appear to be important differences in this cycle.  Correct me if these are wrong:
1)  Oil-funded welfare states are struggling.
2)  There seems to be an abnormal plethora of options for reducing demand and increasing production.
3)  POTUS is a nationalist - and a bit of a loose cannon.
4)  The US is sufficiently energy independent - and powerful - to do whatever it wants. 

Those differences open the possibility of entire countries going bankrupt and their production slowly disappearing from the market.  In the cases of Libya, Syria, and Iran, we've even seen the US actively interfere such that their production declined.  I.e. instead of killing off under performing employees and companies, could this cycle kill off under performing countries and ideologies? 

If so, who do you think will fall? 

why bother so much? i mean what is the purpose for killing this underperforming countries?

[Tomasz + 1,608]

Guys, 2018 was the last year with big projects that were sanctioned before price crash coming online.

From next year we will start a period when we have something like 6 milions barrels  of missing productions = big longterm projects that were not sanctioned in last 4 years because of low price. Just look on investments of big oil or oil discoveries in last 5 years.

If you take under consideration there is time lag of 5 to 7 years between approving a project and when a production should start you see that starting from next year we will increasingly lack this projects in supply|demand balance. Maybe not exacly in 2019 but in 20s for sure.

Im not saying that we will come back to three digit price but for me in 40-80 $ price environment of next couple of years moving forward 80$ seems more likely than 40.

Because I think there is a small supply crunch coming somewhere during next couple of years.

Because we need to invest something like 600 bilions every year in oil industry.

In 2014 it was about 750 bilions but during oil crash 400-500 and thats still too low for supply matching demand long term even in 2018 when average brent price is close to 70 $ = this year its about 500 bilions and long term we need 20 % more.

Edited December 26, 2018 by Tomasz

[Meredith Poor + 894]

1 hour ago, Tomasz said:

I'm not saying that we will come back to three digit price but for me in 40-80 $ price environment of next couple of years moving forward 80$ seems more likely than 40.

In January 2018 ASP (Average Selling Price) of photovoltaic panels was 30 cents per watt (NREL). As of December 2018 it's closer to 20 cents per watt. At some point cheap solar puts a cap on competing energy sources.

A homeowner installing PVs on their roof needs about 4Kw per occupant. An 1800 square foot house with two people might need 8Kw to 10Kw in panels. At 20 cents per watt, this works out to $1600 or $2000, not including the balance of system and installation. For those that can do the installation themselves, payback completes within 2 years.

The most direct competing energy source is natural gas. To the extent natural gas can displace oil as a fuel (generally for locomotives, trucks, buses, and ships) the resulting oil has to end up somewhere else. Oil is getting boxed in, sometimes directly and sometimes via one degree of separation.