$60 / Barrel by year end

[Kirkhill]

“We’re heading toward a short supply situation unfortunately, “ said Harold Hamm, head of the US shale driller Continental Resources.
“That’s going to get very concerning in the latter part of the year,” he told the Wall Street Journal. Mr Hamm said prices will this jump later this year to $60.

Ms Croft said the market is likely to tighten in the second half of the year despite the return of Iran, arguing that there are very few spots in the world other than Libya able to crank up output quickly
“We remain of the view that many of the bearish macro factors appear overblown. Current market conditions are setting the market up for a supply shortfall for the coming years, which is not accurately priced into the forward curve,” she said.

The first signs of a thaw are emerging for the battered oil market after Russia signalled a sharp fall in exports this year, a move that may offset the long-feared surge of supply from Iran.
The oil-pipeline monopoly Transneft said Russian companies are likely to cut crude shipments by 6.4pc over the course of 2016, based on applications submitted so far by Lukoil, Rosneft, Gazprom and other producers.

http://www.telegraph.co.uk/finance/economics/12100609/Glimmers-of-hope-for-oil-as-Russia-poised-to-slash-output.html

Events, dear boy. Events.

 

[The Bread Guy]

Well, then, I'll enjoy my buck-a-litre gas (honestly can't remember the last time it was that low in these parts) as long as it lasts.

 

[a_majoor]

$60 would be nice for oil companies and cash starved governments looking for tax and royalty revenues, but I suspect that is the far right hand edge of the bell curve. OF course I am equally sceptical of the predictions that oil might dip to $20 or less as well (think of that as the left edge of the bell curve).

Regardless of what Russia does, the key factor is how Saudi Arabia feels the oil war against Iran and Iranian allies/proxies/enablers (Syria/Hezbollah/Russia) is going, with the secondary factor being how desperate Iran is to get some revenue flow to continue with their war aims.

The wild card is how well and how quickly American producers of unconventional oil plays can adapt. It wasn't too long ago that there were confident predictions that they would be driven out of business when oil dropped below $80, then $60, then $55......There is obviously a bottom somewhere, we just don't know where it is yet.

 

[YZT580]

paid 81 yesterday.  you are getting hosed.

 

[The Bread Guy]

paid 81 yesterday.  you are getting hosed.

We're used to getting hosed on gasoline prices in northern Ontario, but given the range o' prices across Ontario, $1/litre's LOOOOOOOxury in these parts ...

 

[Nfld Sapper]

Well, then, I'll enjoy my buck-a-litre gas (honestly can't remember the last time it was that low in these parts) as long as it lasts.

Less than that here in NL, maximum price is 99.1 in St. John's.......but many sell for less thanks to COSTCO....

 

[The Bread Guy]

Less than that here in NL, maximum price is 99.1 in St. John's.......but many sell for less thanks to COSTCO....

That's still not bad for what a "far from the geographic centre and huge urban centres" provincial capital.

 

[ModlrMike]

77.9 in the Peg. Subtract the 10.5 I get for loyalty, that makes for some sweet gas pricing.

 

[cupper]

I'm starting a pool to guess the date when oil is free. ;D

Seriously though, I can see it hitting $20, but it won't stay that low for long. I think that would be the tipping point. to bring the drop to a halt. Going back to $60 is a lot harder to envision though.

The Saudis have a vested interest in keeping Canadian crude out of the market, and even more importantly tamping down the expansion of the Balken Shale formations. They need to hold onto their market share, and keeping the price artificially low works in their favour, even if the economic sustainability calls that into question.

China's economic and industrial decline also is starting to take a bite out of the Saudi marketshare, and there doesn't seem to be any sign of that improving soon.

 

[Brad Sallows]

As long as commodity prices - oil especially - stay depressed, the federal government and provincial governments which claim to have answers to boosting economic growth will have an excellent opportunity to prove they "can" - or "can't".

 

[Kirkhill]

I'm starting a pool to guess the date when oil is free. ;D

Seriously though, I can see it hitting $20, but it won't stay that low for long. I think that would be the tipping point. to bring the drop to a halt. Going back to $60 is a lot harder to envision though.

The Saudis have a vested interest in keeping Canadian crude out of the market, and even more importantly tamping down the expansion of the Balken Shale formations. They need to hold onto their market share, and keeping the price artificially low works in their favour, even if the economic sustainability calls that into question.

China's economic and industrial decline also is starting to take a bite out of the Saudi marketshare, and there doesn't seem to be any sign of that improving soon.

I am betting on volatility..... I don't think anybody has a grip on what is likely to happen.

And the same thing goes for Saudi, ISIS, Syria and Russia.  I don't think any heads are wearing their crowns easily just now.

 

[larry Strong]

I pay about a buck for 94 Octane in Red Deer.....



Larry

 

[vonGarvin]

Well, then, I'll enjoy my buck-a-litre gas (honestly can't remember the last time it was that low in these parts) as long as it lasts.

48 cents a liter here in the US (1.83 per US gallon)

 

[SupersonicMax]

TV: $0.48 USD which is more like $0.70 CAD!

 

[Oldgateboatdriver]

I'm starting a pool to guess the date when oil is free. ;D

Oh, it will be free to Exxon and the likes, but you and I will still have to pay 0.95$ a litre to get it  :nod:.

I am betting on volatility..... I don't think anybody has a grip on what is likely to happen.

Time perhaps for those who have not read it to get their hands on a copy of Jeff Rubin's The End of Growth.

About ten years ago (when oil was trading around $50 a barrel) Rubin was guest speaker at an oil company executives convention. He predicted to them that shortly, oil would trade at about $100, perhaps all the way up to $150. He was almost laughed out of the podium. Yet, within two years, his prediction had come true.

So what does he postulate in The End of Growth? He postulates that the way the oft predicted "end-of-cheap-oil" scenario will develop is not the ever increasing price of oil forecasted by most, but rather a series of wild swings between ever higher and ever lower oil prices, in more and more rapid fashion. In short, volatility of markets at ever more accelerated pace.

He comes to this conclusion on the basis that, as oil prices get very high, ever more companies jump in to develop methods to get at the more difficult to exploit oil. When the prices go down, they don't want to lose their market so all start to dump oil in vast amounts in the market, all of them hoping to be able to survive the ride and come out the winners when the price goes up again. However, too many of them then go bankrupt at the low point and the resulting production drops below the demand and the price shoot up like crazy.

One figure missing in the information to determine if, or when, we enter this "swinging market" phase is the ultra -secretive figures on the state of Middle Eastern easy to pump oil. The Saudis absolutely refuse to talk reserves, except to  reassure people that they  have more than enough. But nobody knows for sure, and as the Saudis have developed a huge nanny state to keep their subjects happy, they need increasingly large amounts of cash to satisfy their budgetary needs. As a result, the temptation is always there for the Saudis to dump increasingly large amounts of oil in the market when prices swing down regardless of the amount of their reserves, just to keep good order inside the Kingdom.

All this to say: yes, oil markets will likely be volatile and wild for quite a few decades to come.

God (if there is such a woman) pray for Albertans.
 

 

[YZT580]

I'm starting a pool to guess the date when oil is free. ;D

Seriously though, I can see it hitting $20, but it won't stay that low for long. I think that would be the tipping point. to bring the drop to a halt. Going back to $60 is a lot harder to envision though.

The Saudis have a vested interest in keeping Canadian crude out of the market, and even more importantly tamping down the expansion of the Balken Shale formations. They need to hold onto their market share, and keeping the price artificially low works in their favour, even if the economic sustainability calls that into question.

The Saudis don't need to work at keeping our oil out of the market.  Between B.C. and Ontario actions regarding pipeline construction and usage, and Alberta's royalty taxes, Alberta crude won't see the marketplace any time soon.

 

[The Bread Guy]

TV: $0.48 USD which is more like $0.70 CAD!

Which is about what it's at at the gas station just south of the border in these parts - and still a bargoon.

 

[Kirkhill]

Oh, it will be free to Exxon and the likes, but you and I will still have to pay 0.95$ a litre to get it  :nod:.

Time perhaps for those who have not read it to get their hands on a copy of Jeff Rubin's The End of Growth.

About ten years ago (when oil was trading around $50 a barrel) Rubin was guest speaker at an oil company executives convention. He predicted to them that shortly, oil would trade at about $100, perhaps all the way up to $150. He was almost laughed out of the podium. Yet, within two years, his prediction had come true.

So what does he postulate in The End of Growth? He postulates that the way the oft predicted "end-of-cheap-oil" scenario will develop is not the ever increasing price of oil forecasted by most, but rather a series of wild swings between ever higher and ever lower oil prices, in more and more rapid fashion. In short, volatility of markets at ever more accelerated pace.

He comes to this conclusion on the basis that, as oil prices get very high, ever more companies jump in to develop methods to get at the more difficult to exploit oil. When the prices go down, they don't want to lose their market so all start to dump oil in vast amounts in the market, all of them hoping to be able to survive the ride and come out the winners when the price goes up again. However, too many of them then go bankrupt at the low point and the resulting production drops below the demand and the price shoot up like crazy.

One figure missing in the information to determine if, or when, we enter this "swinging market" phase is the ultra -secretive figures on the state of Middle Eastern easy to pump oil. The Saudis absolutely refuse to talk reserves, except to  reassure people that they  have more than enough. But nobody knows for sure, and as the Saudis have developed a huge nanny state to keep their subjects happy, they need increasingly large amounts of cash to satisfy their budgetary needs. As a result, the temptation is always there for the Saudis to dump increasingly large amounts of oil in the market when prices swing down regardless of the amount of their reserves, just to keep good order inside the Kingdom.

All this to say: yes, oil markets will likely be volatile and wild for quite a few decades to come.

God (if there is such a woman) pray for Albertans.

The one thing that money does not like is volatility.  It likes predictable supply and predictable demand.

Now, the one area where Rubin may fall flat is this:  If volatility becomes the norm then than in itself becomes predictable.

If the swings from ridiculously high to ridiculously low start occurring at ever shorter intervals then that too becomes manageable.  Storage capacity then becomes critical - and how quickly you can turn on and turn off the taps.

Refined products then need to held in mass quantities, and that would cost money, but it would be possible to make the business case in order to generate stability.  The oil market would become like the grain market, the fruit market or even the fish market - both of which are highly seasonal and highly variable. 

The variability is managed by storage capacity.

And some oil can be stored in the ground. It isn't going anywhere. 

One way to damp an oscillating signal is simply to shut off the energy supply.  While Alberta is involuntarily in that situation now - some other players, like Saudi, may come to the same conclusion soon.

 

[a_majoor]

While Alberta is involuntarily out of the market, the reserves are so large (estimates run to a trillion+ barrels of recoverable oil, depending on what assumptions you make about recovering bitumen), that the simple knowledge that this amount of oil is potentially available may serve as a damper on the system.

Consider that George W Bush simply announced the end of some restrictions to drilling on federal land and the oil market promptly tanked,despite the fact that not even a single drill had started turning. Potential US reserves were known and understood at that time to be considerable (and this was before many of the technologies like fracking and shale oil recovery were mature), so the potential for this to enter the market was already being forward factored into the prices.

I suspect that the potential entry of Iranian oil will have a similar damping effect, and we might see other "dampers" such as the reestablishment of a functioning government in Venezuela or Chinese efforts to master the technology of fracking start to pay off. This will be amplified by the sure knowledge that as prices edge up into the $40 + range, US unconventional production starts to become profitable, and that oil will start entering the market again.

And, as Chris points out, there will be a huge incentive to begin storing oil to buffer the market swings. Creating caverns in salt domes is a well known technology which can be used to create truly monstrous underground reservoirs. Look for all kinds of formerly exotic technologies being commercialized to ride to the market swings.

 

[Old Sweat]

And hopefully we will not see a repetition of the late-70s early-80s "made in Canada" oil price. Partly in response to a plea from the Government of Ontario and probably mostly for ideological reasons, the Trudeau government set a price for Canadian oil well below the world price which insulated Ontario (and the rest of the country) from high oil prices while really p****** off Alberta. At the same time oil imported from offshore for Eastern Canadian markets was subsidized by the Feds to bring its market price down to the "made in Canada" price. Much of the economic and debt servicing difficulties of the 90s resulted from the massive deficits generated by this policy.

I hope and pray we do not start borrowing money to subsidize oil production, and maybe I just am looking for trouble where none exists.