OPEC Cuts Deep to Save Cartel

[Bhimsen Pachawry + 72]

8 hours ago, William Edwards said:

I think I will assign your assessment about the same credibility as I have given the global head of Goldman Sachs' commodities research. Here is an excerpt from a just-published interview. Judge for yourself its quality.

Interviewer: The big question on everyone’s lips is whether we are going to see a return to oil prices at $100/barrel and beyond. Where do you think the market is going?

Jeffrey Currie: We’re not saying $100/barrel oil cannot happen. It’s not our base case, nor do we think it’s very likely. To get a $100 price spike, you need to have a sustainable loss in all of Iran’s exports for an extendable period of time... The key point here is yes, if you had a sustained outage you could see a spike of that magnitude, but in no way is it our base case.

Our base case is for a modest decline in inventories in the fourth quarter, which will likely keep prices somewhere around $80/barrel. But the faster and sooner the Iranian barrels are lost, the greater the upside potential, because it’s harder and more difficult for the non-Iranian producers in OPEC to respond to that kind of disruption.

My comment: His world is too small!

This completely misses the point of oil pricing. Oil price is not set by market. The suppliers set tge price. Oil is a natural resource and its quantity is limited. There is no urgemcy in selling it by large production as conserving oil can help in long term.

Unlikein case of agriculture where the goods are produced every season and hqve to be sold immediately to avoid damage and hence the pricing may be reduced due to generous supply, Petroleum is sold at tge price set by the supplier. If the supplier says that he will not sell petroleum for less than $100 dollars, the buyer has no choice but to pay $100 dollars orlive without oil. There is no need for Iranian or any other supply to be reduced for prices to rise. Just the whims of oil producers is enough for oil prices to rise.

I qm surprised that you equate my argument with backing of reason with an opinion of someone else. The best example of oil price setting is in 1973 when the suppliers artificially raised prices without any supply decline

[William Edwards + 708]

3 hours ago, Tom Kirkman said:

Ah, so that's how you arrived at the $45 bbl historical average.

Actually, I used a 150-year average and it is closer to $40. Rather simple (or simple-minded) , isn't it, Tom.

Edited December 13, 2018 by William Edwards

[William Edwards + 708]

2 hours ago, Bhimsen Pachawry said:

This completely misses the point of oil pricing. Oil price is not set by market. The suppliers set tge price. Oil is a natural resource and its quantity is limited. There is no urgemcy in selling it by large production as conserving oil can help in long term.

Unlikein case of agriculture where the goods are produced every season and hqve to be sold immediately to avoid damage and hence the pricing may be reduced due to generous supply, Petroleum is sold at tge price set by the supplier. If the supplier says that he will not sell petroleum for less than $100 dollars, the buyer has no choice but to pay $100 dollars orlive without oil. There is no need for Iranian or any other supply to be reduced for prices to rise. Just the whims of oil producers is enough for oil prices to rise.

I qm surprised that you equate my argument with backing of reason with an opinion of someone else. The best example of oil price setting is in 1973 when the suppliers artificially raised prices without any supply decline

We differ, both in our memory of history and our assessment of same. But we will keep on studying.

[Tom Kirkman + 8,860]

48 minutes ago, William Edwards said:

Actually, I used a 150-year average and it is closer to $40. Rather simple (or simple-minded) , isn't it, Tom.

Heh heh, my hope for $50 oil back in 2015 came from just a 1 year average, while putting together this article for Oilpro.  Your 150 years is a much larger data pool.

 

Many 2016 Government Budgets Are Settling Around An Assumed Oil Price Of $50 bbl _ Tom Kirkman Oilpro article 2015.doc

[Jan van Eck + 7,558]

58 minutes ago, William Edwards said:

Actually, I used a 150-year average and it is closer to $40. Rather simple (or simple-minded) , isn't it, Tom.

The one issue with using the above moving average as the benchmark is the context:  during all that time, there was a continual displacement of other energy sources with oil  (and hence an expansion of latent demand) and a concurrent expansion due to the twin forces of population growth and machines designed to consume oil derivatives. 

For example, steamships were (at one time) fired with either wood or coal.  Along came oil, which was more convenient, and coal was pushed out as a fuel source for steamships.  Ditto with personal transport, as the horse was displaced by the automobile.  And also with resins, as plastics displaced wood and glass. 

But those parameters have shifted, as now societies are actively engaged in developing displacement products that exclude oil.  Significantly, in the military you have entire naval fleets going to nuclear power.  That alone is a vast lake of oil being substituted yearly.  And you have thin-walling going on in bottle design, so that less and less oil-based resins are used in each soda bottle.  Electric buses, and electrified rail, are specifically designed to avoid oil consumption, that is the motivation.  These inexorable displacements are new to society, and represent the largest threat to the oil producers, not some global tiff such as disputes with Qatar or Iran. 

Based on that, I will go out on a limb and predict that oil will, eventually, sink down to $27. 

Edited December 13, 2018 by Jan van Eck
typing error

[William Edwards + 708]

26 minutes ago, Jan van Eck said:

The one issue with using the above moving average as the benchmark is the context:  during all that time, there was a continual displacement of other energy sources with oil  (and hence an expansion of latent demand) and a concurrent expansion due to the twin forces of population growth and machines designed to consume oil derivatives. 

For example, steamships were (at one time) fired with either wood or coal.  Along came oil, which was more convenient, and coal was pushed out as a fuel source for steamships.  Ditto with personal transport, as the horse was displaced by the automobile.  And also with resins, as plastics displaced wood and glass. 

But those parameters have shifted, as now societies are actively engaged in developing displacement products that exclude oil.  Significantly, in the military you have entire naval fleets going to nuclear power.  That alone is a vast lake of oil being substituted yearly.  And you have thin-walling going on in bottle design, so that less and less oil-based resins re used in each soda bottle.  Electric buses, and electrified rail, are specifically designed to avoid oil consumption, that is the motivation.  These inexorable displacements are new to society, and represent the largest threat to the oil producers, not some global tiff such as disputes with Qatar or Iran. 

Based on that, I will go out on a limb and predict that oil will, eventually, sink down to $27. 

I suspect that the trading community will take the price below this number. After all, the $27 number is now the target, and the place where stops are installed, and will become market orders when the price is reached.

[Jan van Eck + 7,558]

3 minutes ago, William Edwards said:

I suspect that the trading community will take the price below this number. After all, the $27 number is now the target, and the place where stops are installed, and will become market orders when the price is reached.

And at that point, Alberta has got some seriously serious problems. 

WCS goes negative; Syncrude shareholders have to pay someone to take the stuff away.  Canada is headed for a cataclysm of unprecedented proportions. 

[Tom Kirkman + 8,860]

20 minutes ago, William Edwards said:

I suspect that the trading community will take the price below this number. After all, the $27 number is now the target, and the place where stops are installed, and will become market orders when the price is reached.

 

16 minutes ago, Jan van Eck said:

And at that point, Alberta has got some seriously serious problems. 

WCS goes negative; Syncrude shareholders have to pay someone to take the stuff away.  Canada is headed for a cataclysm of unprecedented proportions. 

Jeez, remember all that talk during the Summer of possible $100 oil?

My hope for $70 oil for 2019 is now perhaps looking a bit on the optimistic side.

On the other hand, anyone recall the trader who declared in 2016 :

GARTMAN: Crude oil will never trade back above $44 'in my lifetime'

[William Edwards + 708]

1 minute ago, Tom Kirkman said:

 

Jeez, remember all that talk during the Summer of possible $100 oil?

My hope for $70 oil for 2019 is now perhaps looking a bit on the optimistic side.

On the other hand, anyone recall the trader who declared in 2016 :

GARTMAN: Crude oil will never trade back above $44 'in my lifetime'

You need to be very careful who you believe.

[Tom Kirkman + 8,860]

1 minute ago, William Edwards said:

You need to be very careful who you believe.

I laugh my butt off at Gartman.  ZeroHedge has a field day laughing at him too. 

If you really want to increase your odds, maybe consider doing the exact opposite of whatever Gartman says.

Not too often I directly poke fun of a person by name, but Gartman is a special case.  He brought it on himself.  Astonishing hubris, followed by spectacular failure, and then lather, rinse, repeat, repeat, repeat...

[William Edwards + 708]

9 minutes ago, Tom Kirkman said:

I laugh my butt off at Gartman.  ZeroHedge has a field day laughing at him too. 

If you really want to increase your odds, maybe consider doing the exact opposite of whatever Gartman says.

Not too often I directly poke fun of a person by name, but Gartman is a special case.  He brought it on himself.  Astonishing hubris, followed by spectacular failure, and then lather, rinse, repeat, repeat, repeat...

It is amazing how successful this strategy can be.

[OilPro_Rolando + 17]

On 12/9/2018 at 6:54 PM, Tom Kirkman said:

Entertaining and thoughtful article from Tom Luongo.  I certainly don't agree with everything he says, but his viewpoint is worth reading:

OPEC Cuts Deep to Save Cartel

With oil prices in free fall and the dawning realization that Great Reflation trade of 2017 is over, OPEC needed to do something drastic to remind everyone how important they are.

Moreover, with Qatar quitting the cartel last week it was then doubly necessary for OPEC to make the markets stand up and remember them.

So, after a few days of wrangling, a 1.2 million barrel per day cut was announced by OPEC, far larger than the market was expecting.  

The Trump administration is fuming today over this result.  

Predictably, oil prices jumped on the news.  All is right with their world, yes?

Well, yes and no.  The Saudis need $80 per barrel oil.  Russia doesn’t get its hair mussed below around $50 and even then it simply scales back government spending in line with oil prices — auto-budgeting based on oil tariffs.  ...

The problem with the premise is that this is, so far, strictly a JawBone Rally.  Saudi has not actually implemented the cuts, but the punditocracy credits it to them without basis in fact.  I do think they will eventually implement this cut due to their increasingly dire internal finances, but they have a long history of...ahem...as we say in Texas, Bullshitting on the issue.  (I understand some people consider that a vulgarity, but here its a technical term and has a long and proud tradition within the oil Bidnez).  I would also point to that prices didn't actually rally.  It's like he's writing form his wishful thinking rather than actually looking the facts.  Therein lies the danger for Saudi.  Their attempt to spark a JawBone Rally seems to have fallen flat.  Will the cuts, if actually implemented, succeed in sparking a rally or at the very least stabilize prices a little above $50 for WTI?  If it fails, then what?  And, I doubt very seriously there's anything they can do to drive prices anywhere close to the $80 mark. Some reports are that even with cuts by Saudi and Russia, the so called OPEC+, inventory levels may still rise by 1mm BPD.  Combined with what now looks like a very real and possibly serious slow down in the world economy, particularly in the USA, may cause prices to fall further.  Between unnecessary trade wars and over production in the Permian, it seems we're about to kill the bull.   

[Tom Kirkman + 8,860]

1 hour ago, OilPro_Rolando said:

Between unnecessary trade wars and over production in the Permian, it seems we're about to kill the bull.   

Cartoon Of the Week

December 14, 2018

John Cole

 

I have been fighting oil price volatility for the entire 40 years I have been an oil producer in America.  I am plum wore out.

[Illurion + 894]

On 12/11/2018 at 7:21 PM, Tom Kirkman said:

We seem to be pretty much on the same page.  The only difference is in our differing opinions on a sustainable price.  

While you view $45 as sustainable, I view $65 to $70 as sustainable.  And I cannot offer solid justifications for my opinions and hopes about $65 to $70 being a relatively sustainable oil price.  Because it is only my opinion.

I view $100 oil as unsustainably too high.  And similarly view $20 oil as unsustainably too low.  Again, just my opinion.

Well,   it has been 10 days,  and WTI is now at $45.59,  so i have what i want.

The question is,   will the price of gasoline that was $1.98 at WTI of $51 drop down to $1.80 or so now that the WTI is $45.59 ?

Currently the price of gasoline is $2.05 here in North Florida after the wholesalers yanked the price to $2.19 on 12/8/2018.

I hope we reach that $1.80 gasoline price,  and i hope WTI stays around $45.

What do you think now ?

[Tom Kirkman + 8,860]

29 minutes ago, Illurion said:

What do you think now ?

My opinion remains pretty much the same.  I view $65 to $70 oil as the optimal sustainable price, the best relative balance between oil producers and oil consumers.

And again, I cannot justify my opinion of $65 to $70 oil as suitable... as it is only my opinion.

[OilPro_Rolando + 17]

On 12/21/2018 at 8:52 PM, Tom Kirkman said:

My opinion remains pretty much the same.  I view $65 to $70 oil as the optimal sustainable price, the best relative balance between oil producers and oil consumers.

And again, I cannot justify my opinion of $65 to $70 oil as suitable... as it is only my opinion.

I'm not a trader nor do I posses any technical expertise.  I have been in the business of selling interests in wells and producing from my own wells for most of the last 20 years.  I also believe whole heartedly that $65/bbl for WTI is an equilibrium price.      

[Tomasz + 1,608]

When you think about average price in last 150 years you have to take under consideration that we need to use more expensive sources of oil because traditional oil fiels are more and more depleted. 

In USA we produce now 6 milion barrels of shale not because its cheap source of oil   but because traditional fields are depleted so you need to use much more expensive fracking to produce 12 milion barrels of oil in US.

We also need in future supply\demand balance oil from sands, shale oil, deepwater oil, arctic oil and it will year after year take a larger share of supply than now.

Even in shale oil we now produce oil in sweet spots and in future we will have to turn back to more expensive fields in Permian on Bakken with higher break even costs.

Its a lot more expensive oil so you should not compare it with situation that took place decades ago when traditional oil fields just began to produce oil.

According to some  reseach even in KSA you need now a much higher price to produce oil than lets say 20-30 years ago. 

Its some form of peak supply= there is a plenty of oil reserves all over the world but a lot higher price is needed than  40 years ago to produce marginal barrel in situation of demand growing by more than 1 million barrel per year.

Edited January 2, 2019 by Tomasz