Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 23, 2015
Goldman Predicts $20 Oil
Oil prices may fall another 50 percent from their current levels of about $40 a barrel if the world runs out of storage space and mild weather reduces heating demand.
“Goldman Sachs told clients that the increasing glut of oil on the global market has combined with mild weather from a freak El Nino this winter. The twin-effect could send prices plummeting to $20 a barrel, the so-called ‘cash cost’ that forces drillers to abandon production,” writes Ambrose Evans-Pritchard in the U.K. Daily Telegraph. “Risks of a sharp leg lower remain elevated,” it said.
“America’s storage sites are 70 percent full, in theory leaving room for another 150 million barrels. But this is already tight enough to create regional bottlenecks,” writes Evans-Pritchard. “It will not be sufficient if OPEC continues to flood the global market in a bid to drive out rivals.”
Energy producers are pumping out 2 million barrels a day more than is needed by industries and consumers worldwide. Saudi Arabia and its Persian Gulf allies have maintained their output to pressure U.S. shale drillers.
But the U.S. shale industry has remained resilient even with the collapse in oil prices from a peak of $107 a barrel in 2014. It can rapidly redeploy its wells if the price recovers.
“OPEC was slow to understand the rising threat posed by the U.S. shale industry. It may now have misjudged its resilience,” says Evans-Pritchard. “Frackers have been quick to cut costs with multiple pad-drilling, and they can revive production relatively quickly as soon as prices recover.”
El Nino, the periodic warming of Pacific waters, is forecast to be especially strong this year, reducing the need for heating oil. Slowing growth in China will also dampen demand for energy, even as the country buys 200,000 to 300,000 barrels a day for its strategic reserve.
“It is unclear exactly how much more space China may have,” says Evans-Pritchard. “Reserves cover just 50 days demand, far short of the 90-day minimum recommended by the International Energy Agency.”
Meanwhile, Saudi Arabia is working with other OPEC members and producers from outside the cartel to stabilize the market, according to Bloomberg News.
The global economy is going through an unstable period, Saudi Oil Minister Ali al-Naimi said. Demand for oil is forecast to rise by 1 million barrels a day every year until 2020, and the world requires more investments in oil to compensate for declining recovery rates, he said.
“Saudi Arabia is a very reliable supplier. We cooperate with OPEC and non-OPEC countries to stabilize the market,” al-Naimi said at a conference in Manama, Bahrain, according to Bloomberg. “We need billions of dollars to continue exploration and producing oil and to invest in spare capacity to stabilize the market.”
30 Comments on "Goldman Predicts $20 Oil"
Davy on Mon, 23rd Nov 2015 8:22 am
Blame it on storage is like blaming an STD on a faulty rubber. There are deeper issues and greater impacts in the pipeline with anything possible from volatility of an industry in serious distortion.
onlooker on Mon, 23rd Nov 2015 8:31 am
leave it to one of the elite investment banks to utter this irrelevant and inane comment. Part of what I guess Davy you would categorize as denial. I for one would.
GregT on Mon, 23rd Nov 2015 10:28 am
“We need billions of dollars to continue exploration and producing oil and to invest in spare capacity to stabilize the market.”
And we need trillions of dollars, and a miracle, to undo the damage to our planet caused by 150 years worth of burning fossil fuels. So what’s more important? Stable markets? Or a stable planet capable of supporting life as we know it? Hmmm, tough choice.
James on Mon, 23rd Nov 2015 10:31 am
GS has been touting this bullshit for months now. The over supply is 2% over demand if the numbers are accurate. GS has taken a short position and needs to clean it up and screams this BS to anyone who will listen. This is especially true as we wind down the books for 2015. There is no basis in fact for any of it. When did GS tout that $100/bbl oil as going to be the new normal?
rockman on Mon, 23rd Nov 2015 10:47 am
NEWS FLASH!!! Just got this from my CFO as I was typing this message. Goldman covered a big hedge position by Mexico’s PEMEX. As a result Goldman just wrote a check to PEMEX for $7 BILLION. This might add some cred to my speculation below that Goldman might have been trying to influence the market by issuing this “prediction.”
My original message. So here’s the key question: is Goldman confident enough in their prediction to bet a few hundred $million on oil futures? if so (and if they are correct) the could pocket a cool $1 BILLION PROFIT in the short term. Or maybe they have and are just trying to spook the market to get oil prices to move in the direction that benefits their position.
And again about oil going into storage: as of the 1st week in November, according to the EIA, less than 0.5% of US production and imports. That was 730,000 bo. The most current number for US oil storage capacity from the EIA was in March 2015: 459 million bbls. BTW while Cushing might be the largest oil storage facility in the world, but it still has only an 86 million bbl capacity…about 19% of total US oil storage capacity. So don’t let folks hype you on its current fill. And I March 2015 there was a total of 391 million bbls of oil in storage tanks. That would leave space for another 68 million bbls of oil.
onlooker on Mon, 23rd Nov 2015 10:50 am
Isn’t that what of the fundamental problems with us humans we have valued the economy more than the Earth. Ironic as the economy totally depends on the Earth.
rockman on Mon, 23rd Nov 2015 10:51 am
And the other big NEWS FLASH. But we need to wait to see if the KSA really ,means it this time. From this morning: Oil Surges After Saudi Arabia Pulls A Draghi, Says Will Do “Whatever It Takes” For Stable Oil Market
The oil producers are rapidly learning from the central banks how to jawbone markets higher. With both Brent and WTI sliding as recently as ten minutes ago, suddenly a buying frenzy was unleashed following a Bloomberg headline which cited the Saudi Press Agency, according to which the world’s largest crude exporter was ready to pull a Draghi and would do “whatever it takes” for a stable oil market, and that it would cooperate with OPEC and non-OPEC members for stable prices.
Here is the Bloomberg take:
•SAUDI GOVT READY TO DO WHAT IT TAKES FOR STABLE OIL MARKET: SPA
•SAUDI READY TO COOPERATE WITH OPEC, NON-OPEC FOR STABLE PRICES
Which however is somewhat different from the actual SPA press release, which says “The Cabinet stressed the Kingdom’s role in the stability of the oil market, its constant readiness and continuing pursuit to cooperate with all oil producing and exporting countries.”
Which just happens to be something the Saudis have said on countless prior occasions already. So just another “lost in translation” attempt to jawbone prices higher, in the finest of ECB traditions?
Also whether this means that Saudi Arabia, which has been pumping record amounts in recent months will slow down, is unclear: after all the entire strategy by the Saudis has been to put marginal, high cost producers out of business. So did they just wave the white flag of surrender? We seriously doubt it.
If anything, this is more of a market test to see just how much impact jawboning has on market prices. And judging by the immediate reaction, it is substantial.
keith on Mon, 23rd Nov 2015 10:51 am
shortonoil predicted $20 oil before GS Gang.
Plantagenet on Mon, 23rd Nov 2015 11:13 am
GS is right—As long as the oil glut continues to worsen, oil prices are at risk at taking another leg downward.
Truth Has A Liberal Bias on Mon, 23rd Nov 2015 12:17 pm
GS is shoring oil. Their prediction is based on manipulating sentiment not on a data driven prediction.
Truth Has A Liberal Bias on Mon, 23rd Nov 2015 12:17 pm
**shorting
rockman on Mon, 23rd Nov 2015 12:50 pm
keith – Nothing against ole shorty but predictions are easy to make. But betting hard $’s on such a prediction separates the true believers from the guesses. LOL.
rockman on Mon, 23rd Nov 2015 12:53 pm
Truth – Shorting or snorting? Based upon the $7 BILLION future loss they just suffered with the bet with PEMEX I might go with snorting. LOL
shortonoil on Mon, 23rd Nov 2015 1:02 pm
“shortonoil predicted $20 oil before GS Gang.”
Not before 2020, Outside of a full scale thermo nuclear war, a major asteroid strike, or the planet flipping it poles the chances in 2016 are about zero (0). The chances that GS is trying to set someone up for a major fleecing are about 100 million times greater.
http://www.thehillsgroup.org/depletion2_022.htm
shortonoil on Mon, 23rd Nov 2015 1:05 pm
PS: If Goldman said the sky was blue — I’d go outside and check!
Davy on Mon, 23rd Nov 2015 1:36 pm
I have been following ZeroHedge religiously now going on 3 years. This is typical GS market making activity. You really don’t know what their motives are and I imagine within GS there are conflicting activities between competing groups.
These folks thrive on movements and being first. That is not going to change. They are known to have every important position they can find staffed by ex-GS personnel. They will bend the law and then some. This is psychopathic activity at its most influential. They are the tip of the spear for the global financial system and its misbehavior. Do not trust them and do not underestimate them. I imagine the are like the movie the firm with all the Hollywood fluff. We live in interesting times.
Truth Has A Liberal Bias on Mon, 23rd Nov 2015 2:33 pm
http://www.reuters.com/article/2015/11/05/usa-refining-kemp-idUSL8N13043L20151105?feedType=RSS&feedName=everything&virtualBrandChannel=11563
peakyeast on Mon, 23rd Nov 2015 2:33 pm
I completely concur with Davy on GS.
The largest danish energy provider got basically sold to GS – and responsible minister were lying, misinforming, and covering everything about the sale in secrecy.
It was only a few weeks after GS bought a large portion of the shares that DONG suddenly doubled its value…
There was a lot of other interested (danish) buyers, but they were prevented from buying the shares.
A secret deal that obviously was a
“payoff” or directly corruption..
rockman on Mon, 23rd Nov 2015 2:35 pm
“They are the tip of the spear for the global financial system and its misbehavior. Do not trust them and do not underestimate them.” That $7 BILLION check they have to write to PEMEX blunts that spear point a tad. And yes: but not only don’t underestimate GS but one might not want to overestimate their smarts either. LOL.
rockman on Mon, 23rd Nov 2015 2:37 pm
peaky – Yeah but it was only Danes that got screwed. Except for their pastries no one really cares about them.
marmico on Mon, 23rd Nov 2015 2:37 pm
Every year PEMEX enters into a put option hedge with investment banks. PEMEX is short the put, the investment banks are long the put. The concept is that PEMEX can guarantee its oil export revenues to the Mexican government.
In 2014, PEMEX paid $700 million cash upfront to 7 investment banks to hedge 225 million barrels of oil at $79/barrel for calendar year 2015. The long puts got crushed to the tune of $7 billion. Now if you think that the investment banks didn’t take the $700 million from PEMEX and further hedge then you are as dumb as Rockman’s CFO.
Apparently, the 2015 hedge for calender 2016 cost PEMEX $1 billion upfront to hedge 202 million barrels/day @ $49/barrel WTI. Now if you think that the investment banks won’t take the $1 billion from PEMEX…yadda,yadda.
rockman on Mon, 23rd Nov 2015 3:47 pm
marm – I don’t follow that game too closely: do you think GS paid that $7 billion or did they lay much or most of it off to investors and just made a brokerage fee? IOW GS might have made some coin and those investors lost their asses?
shortonoil on Mon, 23rd Nov 2015 4:02 pm
“peaky – Yeah but it was only Danes that got screwed. Except for their pastries no one really cares about them.”
One time Rock tried to say
“speciallægepraksisplanlægningsstabiliseringsperiode”
which is Danish for something. His ten gallon hat fell over his eyes, and he never forgave them.
peakyeast on Mon, 23rd Nov 2015 4:31 pm
@rock: I completely agree. I am a Dane and even I dont care about them – so I wouldnt expect anyone else with two bits to move around would do so.
@shortonoil: I am not sure that is a valid word 🙂 – even though it consists of correctly spelled danish words
peakyeast on Mon, 23rd Nov 2015 4:38 pm
@short: translated directly it means:
Specialist doctor practice planning stabilization period.
peakyeast on Mon, 23rd Nov 2015 4:40 pm
@short: Btw – 1000 thank yous for the very instructive CD you have sent me.
Truth Has A Liberal Bias on Mon, 23rd Nov 2015 5:02 pm
Here’s the PEMEX/GS story
http://www.bloomberg.com/news/articles/2015-11-23/oil-deal-of-the-year-mexico-set-for-6-billion-hedging-windfall
shortonoil on Mon, 23rd Nov 2015 5:06 pm
“@short: translated directly it means:
Specialist doctor practice planning stabilization period.”
Here I thought it meant: “the third brick in your outhouse fell out”. I’ll have to brush up on my Danish when I get a chance?
Dredd on Tue, 24th Nov 2015 1:48 am
The romance of the planet killing poison excites some people.
Killers like porn too I suppose.
rockman on Tue, 24th Nov 2015 6:26 am
Dredd – More like practicality and self-preservation then “romance”. Of course just as self-serving as porn…just much stronger motivation, especially thee older you get. LOL.