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Page added on December 22, 2015
IMF sees oil between $30 and $20
Report predicts that Iranian exports will ramp up when international sanctions are lifted
Another major global forecast has suggested that the oil price has a lot further to fall yet – and that it could go as low as $20 a barrel.
This is the extreme low “cost price” predicted since the autumn by Goldman Sachs for early next year. Now the International Monetary Fund has hinted that global prices could fall this low when Iran increases its oil exports in the wake of the lifting of international sanctions.
Iran reckons it could increase its output by around one million barrels a day. The oil would enter a global market that is already oversupplied by up to two million barrels a day. The IMF says this will bring renewed downward pressure on the beleaguered oil industry that will cause prices to fall from their current levels by between $5 and $15 a barrel, The Guardian reports.
Given prices are currently in the mid-$30s per barrel, this implies a fall back to the early 2000s level of around or below $30, or as low as $20. At this price it’s likely there will be a sharp decrease in investment and production that should see a sustained – and perhaps rapid – recovery.
The news comes after oil hit another 11-year low for the second consecutive trading session yesterday. International benchmark Brent crude fell to just a few cents above $36 a barrel, but Reuters says the rolling over of monthly futures contracts has prompted a modest recovery to around $36.60 a barrel this morning.
US benchmark West Texas Intermediate is now trading only marginally lower than Brent since the recent budget deal in the US lifted an export ban, with the price around $36 a barrel this morning.
As for the consequences of falling oil prices, the International Monetary Fund says it reckons the slump would mean a 0.3 per cent boost to the global economy next year. This would be the net effect of higher consumer spending as a result of fuel and energy bills falling, minus the drag of job losses and reduced investment.
On the downside, the Los Angeles Times‘s Steve Yetiv says that the low oil prices worldwide are undermining arguments made at the Paris climate change summit this month that “burning fossil fuels is an increasingly costly habit”. If prices remain low for too long, he says, it “will hurt efforts to address climate change, especially in the US, where citizens largely oppose raising oil taxes”.
Oil price: no relief in sight as crude hits 11-year low
21 December
The oil price has plumbed new post-crisis depths, with the international benchmark hitting its lowest level since 2004 in Asian trading overnight.
Brent crude fell to just 17 cents above $36 a barrel, which means it breached the post-financial crisis low it set on Christmas Eve in 2008, according to the Financial Times. The last time it was below this level was when it briefly dipped into the mid-$30s in July 2004 during a protracted recovery from a trough in the 1990s when the price was at one point in single digit dollars.
While a fall to those extreme lows is unlikely, oil is expected to drop back to its early 2004 levels of $30 a barrel or less next year before it recovers in a meaningful way. Some experts even predict it will drop as low as $20 a barrel (see below).
Four factors that are fuelling this down trend – all in one way or another related to the persistent global supply glut – are being cited as reasons for the latest dip.
Top of the list of concerns is excess production. With oil having fallen by 70 per cent in the past year, global production was expected to fall as a ferocious turf war claimed swathes of victims, notably in the expensive American shale oil industry. But the sector’s unexpected resilience was underlined when the US energy watchdog revealed an increase of 17 in the number of active rigs drilling for oil last week, the Wall Street Journal reports.
A second factor is that supplies are already at record levels and stockpiles in the US surged by 4.8 million barrels last week, at a time of year when reserves typically fall, the investment bank ANZ told the FT. On the other side of the equation, a third issue is that demand is expected to be hit by a post-interest rate rise jump in the dollar, which makes oil more expensive for overseas buyers.
Finally, Brent is under particular pressure after the recent US budget deal that lifted a ban on US oil exports and is expected to reduce the international benchmark’s premium compared its US counterpart West Texas Intermediate. This latter fell to $34.37 overnight – a new seven-year low but still around $2 above its 2008 nadir.
Oil price: four reasons it could still fall to $20
18 December
Oil companies and countries dependent on revenues from ‘black gold’ might be forgiven for thinking that things cannot get much worse. Goldman Sachs, however, believes that they can.
Analysts at the US investment banking giant issued a note on Thursday in which they stood by the ultra-bearish forecast for global oil prices to slump to $20 a barrel next year, before recovering in any meaningful way, says CNBC. Here are four arguments supporting the case for another major drop:
1. Stockpiles just keep rising
Yesterday another report revealed that oil reserves were rising in the US – a bearish indicator for the ongoing global supply glut. The Wall Street Journal cites an estimate from data provider Genscape that stockpiles at the Cushing, Oklahoma depository, which acts as the delivery point for US benchmark West Texas Intermediate futures contracts, rose by 1.4 million barrels last week.
The rise mostly took place in the second half of the week and followed the US energy watchdog’s report of a surprise surge of 4.8 million barrels in overall domestic crude oil reserves last week. In response, WTI fell to a six-year low of below $35 a barrel and international counterpart Brent crude fell close to one per cent to a new seven-year low of a fraction above $37.
2. Production is not falling enough
It is one of the enigmas that has confounded analysts: why production has remained resilient despite the painful fall in the oil price. US shale in particular, which is thought to be more expensive than much of the rest of global production, has fallen from its peak output of 9.6 million barrels a day but is still above nine millions barrels and has been edging higher of late.
Goldman Sachs says that with Opec already pumping 1.5 million barrels a day above a 30 million barrel production ‘ceiling’ – and having now abandoned any targets for production after its latest meeting ended in acrimony – there is simply not enough of a decline being signalled elsewhere to rebalance the market. This will not happen until the final three months of 2016, the bank reckons.
3. Fed rates rise will hit demand
Demand is also a key factor in the supply equation and, again, it has been disappointing. Efficiencies in fuel use, warmer weather caused by the El Nino phenomenon and a new drive to reduce fossil fuel burning to protect against climate change are all preventing drawdowns surging to meet or exceed supply.
The decision by the Federal Reserve this week could exacerbate this issue, traders fear. Lower oil prices were starting to filter through into greater fuel purchases, but if the dollar rises strongly on the back of the rates increase this will hold prices higher for overseas buyers and could undermine that trend.
4. Budget deal is bad news for Brent
For the international benchmark, Brent, there was further bad news this week in the form of a new budget deal in the US congress that controversially saw the Democrats cave in to Republican demands to remove a ban on domestic oil exports. The protectionist measure has meant that international oil is bought at a premium to the US benchmark and could see more oil flood onto the global market.
The net result of this could be that the ‘spread’ between the two prices shrinks – most likely through a fall in the relative premium paid for Brent. At some point this week the spread fell to less than $2 and some industry analysts reckon that over time the two prices may even reach parity.
Are any rises being predicted?
Plenty, in fact the consensus view probably still remains for oil to enjoy higher average prices in 2016 than this year. But these forecasts are falling every time they are republished and many experts are now predicting a near-time fall lower – perhaps to around $30 a barrel – before a volatile recovery pushes prices to within a wide $40-$60 range.
Oil price hits another low after ‘dead cat bounce’
17 December
Chris Jarvis, president and senior analyst at Caprock Risk Management in Maryland, struck a sombre note when he spoke to CNBC. “I don’t view the… statement as being all that supportive and now that we have the announcement behind us, it’s back to fundamentals,” he said.
arvis was referring in the first instance to the historic rise in interest rates announced by the Federal Reserve yesterday, which has pushed the dollar slightly higher. This brings further downward pressure on the already low oil prices, as the commodity will now be more expensive to overseas buyers.
In the second instance, Jarvis was commenting on the ongoing oversupply situation, which Bob Yawger, director of the futures division at Mizuho Securities USA, told the Wall Street Journal was “negative with an exclamation point”. New data from the US energy watchdog yesterday showed that domestic stockpiles surged by 4.8 million barrels last week to a new all-time record of above 1.3 billion barrels. Analysts had expected a slight fall.
The result of all this was that the two-day rally in the oil price from its post-crisis low was revealed to be, in the words of FastFT, nothing more than a “dead-cat bounce”. Having risen to above $38 a barrel – which is still unprofitable for much global production – international benchmark Brent crude fell by three per cent to a little above $37 a barrel.
This represents a new low since December 2008 and is only marginally above the next lowest point in July 2004. Earlier that year the oil price had been below $30 a barrel and some experts reckon it will return to a similarly low price in the early part of next year as Iranian exports open up after the removal of international sanctions.
Reuters says a number of factors could exacerbate, or reverse, this trend. It highlights the continued and unexpected resilience of expensive US shale production, and Opec’s current disarray, as bearish indicators; but also points to unrest in the Middle East, a likely increase in demand and the potential for further investment cuts as factors that could give bullish traders “a reason to pile back in”.
Overall, most industry analysts agree that it will take time to reverse the huge supply overhang so that prices can recover significantly. Only a major concerted effort on supply is likely to make this happen before the end of the next year.
Oil price: who is betting on a recovery in 2016?
16 December
The oil price has been in recovery in recent days. Having hit a post-crisis low of close to $36 a barrel on Monday, it has since rallied and at one point yesterday it was back above $38 a barrel.
But this is still a painfully low price, close to 70 per cent below the September 2014 peak. While unprecedented production efficiency has protected drilling companies in a way few thought possible, in the North Sea, for example, it is still supposed to cost approaching $50 to extract a barrel of oil. This should be significantly higher in US shale oil fields.
The situation is worse for those countries that depend on oil as a source of income. Many Opec members in financial difficulty, such as Venezuela and Nigeria, the de facto cartel leader Saudi Arabia and even non-Opec export giant Russia, all designed budgets around oil prices in excess of $100 a barrel.
As investment is rapidly withdrawn and spending cut, these companies and countries are hoping prices will recover more quickly than markets currently expect. Encouragingly for them, there are experts who see that happening.
Liam Halligan wrote in the Daily Telegraph this week that prices will recover faster, as investment cuts are ramped up to cope with the latest price crash. Elsewhere, The Times reports that the Wellcome Trust has substantially increased its investment in energy stocks such as Shell and BP as it “builds into what markets are doing” and takes advantage of perceived bargains ahead of an inevitable recovery.
Reuters says that there is also a wider market bet gaining traction for prices to recover to between $50 and $80 in 2016, with derivatives that would pay out in this range climbing “steeply” in recent weeks.
The downside is that investors broadly see this happening in around 12 months at the very end of 2016. Near-term bets are still on further falls, perhaps to around $30 in the early months of next year as Iranian exports re-emerge from behind international sanctions.
It will take an output concession from Opec to push the price higher sooner – and the group has seldom looked less cohesive on its production policy.
Oil price misses 11-year low – but for how long?
15 December
The oil price recovered in afternoon trading in New York yesterday, after coming close to 11-year lows earlier in the session.
International benchmark Brent crude had earlier tumbled below $37 a barrel in London and settled just 13 cents above the $38.20 it reached in September 2008 in the teeth of the global financial crisis.
Below this, it would be at the lowest level since July 2004, Reuters notes, when it briefly languished in the mid-$30 range after a protracted recovery from a single-digit mid-1990s trough.
The rally yesterday, during which Brent bounced back two per cent, was not driven by particular fundamentals.
Rather, it was a function of inevitable volatility in a market that is currently beset by ‘short’ bets on a lower price. This morning Brent was sitting a little above $38 a barrel, which is still unprofitable for most production.
‘Long’ positions – bets on a higher price – are now at the lowest since records were first compiled in 2009.
This means two things: there will probably be some wild swings, as ‘short positions’ are rapidly covered any time the price ticks upwards even slightly; and most traders and analysts are still convinced the market has not found its bottom.
Where could that bottom be? A technical analysis has been offered by legendary data trader Daryl Guppy, who writes on CNBC that current trend charts indicate “prices have further to fall”.
Based on historical support levels and general trading patterns, he sets a main target for the price floor at a little below $30 a barrel, near that 2004 nadir.
There is a consensus fast emerging that a price around this level will be reached before the supply glut clears next year – but there are those who believe if this does happen it will presage a faster recovery than some are currently expecting.
Echoing the Shell chief executive Ben van Beurden, who warned in October that rapid retrenchment could cause oil prices to spike, Nick Cunningham writes on Oilprice.com that another big step down in prices could “spark deeper cuts to spending and drilling, which could perhaps contribute to an accelerated pace of adjustment”.
37 Comments on "IMF sees oil between $30 and $20"
JuanP on Tue, 22nd Dec 2015 1:56 pm
The IMF is an American controlled and dominated institution. Its purpose is to serve the American empire’s goals. It is never to be trusted or believed, just like its master, the USA government. The world would be a better place without the IMF, and the same goes for other US controlled international organizations like NATO and SWIFT.
JuanP on Tue, 22nd Dec 2015 1:59 pm
Having said that, I believe that it is perfectly possible that oil prices could fall to around $20 for a while next year.
rockman on Tue, 22nd Dec 2015 3:09 pm
Juan – Why not: the inflation adjusted price of oil fell to $17/bbl in 1998.
Anonymous on Tue, 22nd Dec 2015 3:57 pm
The ‘fix’ is simple enough. The US could abandon its attempts to wreck Russia and Iran’s economy. It could also stop trying to overrun Syria with its ‘ISIS’ proxy army.
Sure,and elephants will learn to fly next. Ok, both the ‘civil war’ in Syria and this price manipulation are both aimed(primarily) at Russia and Iran. It would be navie to think the US will abandon either war anytime soon. I can understand why Iran and Russia are producing more, they have no reason not to. To slow their own production would not stop the price decline(that is controlled by NY, London and Tel Aviv). It would also play into the americans hands. Best for everyone, even the indebted-to-the-eyeballs ‘frakers’ in the homeland to keep pumping that black gold as fast as possible, or (paint thinner) in the case of the US, than to let prices rise. Because if the price were to rise again, then Hitler, I mean Putin, will be able to afford new gold toilets for all his palaces. Cant have that. At $20.00, Hitler, will only be able to afford single-ply toilet paper. That will teach him not to bomb americans favorite terrorists (ISIS) in Syria.
Newfie on Tue, 22nd Dec 2015 6:13 pm
“The world would be a better place without the IMF, and … NATO and SWIFT.”
Yeah, and then the Chinese and Russians would divide the world between them. What a wonderful world that would be. They are both such respecters of human rights and human freedoms.
tarzan boy on Tue, 22nd Dec 2015 6:51 pm
so has anybody thought about the political ramifications of a nuclear armed iran and what the Saudis might do in retaliation to the west for arming or allowing the Iranians to arm themselves nuclearly.
makati1 on Tue, 22nd Dec 2015 7:08 pm
Newfie, you must not be much older than say … 20. If you are American, you obviously don’t own a mirror.
The Devil’s Holiday Letter: 2015
“… this year I am in fine spirits, nay, let me even declare myself absolutely giddy, for the destruction of the United States of America by its own citizenry and government draws ever nearer.
Though my minions have long sown festering seeds of hate and disharmony in that now-benighted land, my favored weapons of destruction–leverage, debt, half-truths and endless, self-serving justifications for greed, sloth, lust, pride, envy, anger and gluttony–have wormed their way into the stricken heart of that Republic and are now the default setting of American culture…
…American extravagance has surpassed even my highest expectations, as purveyors of luxury goods reap record profits, and the childish desire for instant gratification has become the unspoken ruler of the land…
…The mere thought of the word greed cause me to chuckle delightedly, as the U.S. excels as a haven for greed without bounds,…
…The nation bleeds itself with unwinnable wars, sacrificing its youth on the altar of endless war–how can I not rejoice at this orgy of death, destruction and sowing of hate?…
…If ignorance were treasure, the American political class must be declared wealthier than Midas…The leaders are themselves leaderless, blank, hollowed-out souls doing the bidding of their parasitic masters,…
…For the U.S.A. is now an Empire of Debt and Lies,…A hunger for fantasy and illusion, a fear of adaptation, a childish demand for instant gratification-…
…-no external enemy is required. The Americans are destroying themselves, …The spiritual rot is now so deep and pervasive that the people no longer even recognize the decay-…
…Ignorance, my poor dear Americans, will not save you, nor will your endless parade of excuses, justifications and rationalizations. Indeed, they are my weapons which you drive deeper into your nation’s heart with every lie, every excuse, every frantic justification for your own entitlement.”
http://charleshughsmith.blogspot.jp/2015/12/the-devils-holiday-letter-2015.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+%28oftwominds%29
A short, concise, description of the only rogue terrorist country in the world. The Fascist Police States of America. Merry Christmas!
makati1 on Tue, 22nd Dec 2015 7:17 pm
Tarzan, even the US admits that Iran has no nukes nor any plans to make them, nor the resources to do so if they did. But odds are that the KSA does, or will have, either from the US or from Pakistan. Some knowledgeable people are expecting a war in the ME next year that will go nuclear. Then what?
BTW: http://www.shtfplan.com/headline-news/pope-goes-full-doomsday-for-those-who-celebrate-christmas-it-may-be-their-last_12222015
“In a solemn sermon at the Vatican, Pope Francis has announced that Christmas this year will be a “charade” due to the fact that the globe is currently engaging in World War 3. … Speaking before a crowd Pope Francis has made a frightening prediction. With wars raging the world over this may be our last Christmas.”
Buckle up! 2016 could be the beginning of the end. Not my prediction, the Pope’s. LOL
Newfie on Tue, 22nd Dec 2015 9:52 pm
“With wars raging the world over”
Wars have been raging since the dawn of history. Next years Christmas is safe.
makati1 on Tue, 22nd Dec 2015 10:06 pm
Newfie, tomorrow isn’t safe. The war going on now is nowhere near what past wars were like. Take Hiroshima times 100 in power and put it all over the world 1,000+ times. THAT is today’s war. And it could be over in less than an hour.
Reality is a bitch, but pretending it isn’t there will not change it. Nor will shooting the messenger. While I do not expect it to happen in 2016, it could and I would NOT be surprised.
GregT on Tue, 22nd Dec 2015 10:14 pm
“Next years Christmas is safe.”
Thanks Newfie, good to hear that you have everything under control. Try to get your message out to a bigger audience, billions of people still remain overly concerned. Maybe start with the Kremlin, or the Pentagon. Those people could really use some reassurance from you right about now.
dissident on Tue, 22nd Dec 2015 10:32 pm
The oil price is due to a global recession and not some grand conspiracy between the USA and Saudi Arabia to bring down Russia. Most of the oil price drop has been nullified by the ruble exchange rate drop. It’s almost too good to be true and tells me that there is no conspiracy. If the US was pulling strings at this level it would have kept the ruble exchange almost the same, then the oil price drop would really hurt Russia’s economy. And the cherry on top of this “we didn’t see it coming cake” is that import substitution is ramping up in Russia and buffering the GDP drop associated with the import price shock while at the same time setting up long term growth.
Truth Has A Liberal Bias on Tue, 22nd Dec 2015 10:40 pm
I wish the Houthi rebels would hurry up and fire a few scud missles at the KSA refinery belt and knock some sense into those assholes.
One of my coworkers asked me if I thought NATO should get some ‘boots on the ground’ and fight radical Sunni Islamists. I replied that I’d be very pleased indeed if NATO members would just stop selling them weapons.
Nobody has a fucking clue anymore.
shallow sand on Wed, 23rd Dec 2015 4:59 am
You all need to realize that many North American producers are already getting below $30 per barrel. ROCKMAN knows this, but few others do.
Go look at price bulletins from Plains or Flint Hills.
When prices were at these levels in 2002-2004, our spread to WTI was about $1.50. Due to the price spike that followed, our spread increased to as much as $6.00. It has only retreated to about $4.75.
Some grades in the Rockies are selling between $7-$18. Dont believe me, go look it up.
The price is unsustainable long term, absent decreasing demand. The longer we are here, the worse the future spike.
We are still here, but hurting.
When combining fuel mileage with inflation and price, when was gasoline last this cheap? 1999? For a few weeks in early 2009?
JuanP on Wed, 23rd Dec 2015 6:02 am
“no external enemy is required. The Americans are destroying themselves”
That is exactly the same point I was making yesterday. America is obsessed with fighting imaginary foreign enemies and in the process it is destroying itself. Americans are their worst enemies. All the USA empire’s enemies and victimshave to do is just wait for this process to end. American craziness is growing exponentially as all of us here on this board witness daily and the USA will collapse on its own, there is no need to fight it, just watch them destroy themselves by trying to rule the world. If stupid is as stupid does, the American government is the most stupid government in human history.
rockman on Wed, 23rd Dec 2015 6:18 am
Just for those who might be confused by shallow’s comment: for instances MUCH of crude sold based on the WTI BENCHMARK isn’t WTI oil. So while you might see that the WTI price is $38/bbl. But one operator might be selling for WTI+$3 per bbl and another at WTI-$12 per bbl. It the past I’ve tried to find a weighted average for US oil prices but I’ve had no luck. It even varies some from buyer to buyer a tad. One EFS player might be getting $36/bbl and one on the offset lease producing the identical oil might be getting $39/bbl. It just depends on their contracts with their buyers. For the last 5 years I’ve had my Texas WTI oil barged to Lake Charles and was paid on the basis of LLS…La. Light Sweet: a better price even taking into account the transport costs.
On the downside a heavy oil with a good bit of sulphur might fetch $15/bbl. Years ago I was selling some nasty stuff for $7/bbl. And that was only when my one buyer needed more to make asphalt. Price variations aren’t a big deal unless you try to calculate revenue from US oil production. I actually couldn’t guess how much that might be more or less than WTI prices. And remember even the WTI price you often see isn’t the price that WTI is selling for that they….it’s usually the 30 day WTI futures prices. And that price can swing considerably during a single 24 hr period.
rockman on Wed, 23rd Dec 2015 6:21 am
Truth – There was a report of that already happening a couple of days ago. But don’t know who to believe: the Saudis say no hit and the Houthi say they got a hit in southern SA.
shallow sand on Wed, 23rd Dec 2015 8:20 am
ROCKMAN. I’d wager that LLS is one of the few US crudes that commonly bring a higher price than WTI.
You are down near refinery row, and therefore in the best location in the US with regard to transport costs.
The Bakken has light sweet crude, but not enough pipeline capacity. And it is not near any major refining.
Both quality and transportation play a big factor. Also, a mom and pop selling 10 bopd will get posted price. A large independent could get a $3-4 bonus to posted.
Impossible to determine, but my guess is that when WTI is $35, all US average is $28-30.
marmico on Wed, 23rd Dec 2015 8:43 am
Refinery acquisition cost of crude oil (domestic or imported)
https://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm
~$2.10 per gallon in 2015 dollars equals 1999 for miles travelled per hour worked, adjusted for ~15% increase in fleet fuel efficiency.
GregT on Wed, 23rd Dec 2015 9:00 am
“~$2.10 per gallon in 2015 dollars equals 1999 for miles travelled per hour worked, adjusted for ~15% increase in fleet fuel efficiency.”
If miles travelled per hour worked was the only thing that mattered, the world’s economies be in great shape. They instead continue to unravel, and miles travelled per hour worked is irrelevant. Repeatedly spewing the same nonsense over and over is not going to make reality go away. Try to find a way to explain reality, as opposed to remaining in denial of it.
marmico on Wed, 23rd Dec 2015 9:50 am
Peakers blah blah about declining net petroleum energy. I blah blah about the work that the net energy can perform.
When it comes to personal transportation, a unit of energy in a gasoline tank in 2015 can perform 80% more work than the same unit of energy in 1965.
GregT on Wed, 23rd Dec 2015 6:58 pm
“When it comes to personal transportation, a unit of energy in a gasoline tank in 2015 can perform 80% more work than the same unit of energy in 1965.”
If the unit of energy in a gasoline tank in 2015 was the only thing that mattered, the world’s economies might be in better shape. Instead they continue to unravel, and the unit of energy in a gasoline tank in 2015 is irrelevant. Repeatedly spewing the same nonsense over and over is not going to make reality go away. Try to find a way to explain reality, as opposed to remaining in denial of it.
makati1 on Wed, 23rd Dec 2015 8:13 pm
Marmico, in 1965, my 396 cu.in. Chevy engine could move my 4,000 pound (plus passengers) Impala convertible about 16 miles with one gallon of gas. I know, I often check my real mileage.
Now, top model Chevy Impala 50 years later, no convertibles, or 8 cylinders. Best mpg is highway at 29 mpg and 6 cylinders. (Sticker claim) Same weight. No longer an Impala. More like a warthog.
Seems to me that 15 mpg vs 29 mpg is a poor efficiency gain in 50 years. If computer improvements were that slow we would still be using punch cards.
Not to mention in 2015 dollars:
1965 Chevy Imp. = ~$19,100.
2015 Chevy Imp. = ~$40,000.
buddavis on Wed, 23rd Dec 2015 8:58 pm
South Arkansas producers were getting between $6-$12 less WTI Last week. Granted a lot of their crude is heavy and sour but the LOE’s and overhead is still the same.
Nony on Wed, 23rd Dec 2015 9:36 pm
40-50 API oil produces more gasoline (premium product) and makes less residual fuel oil (RFO) and pet-coke (junky products). It also requires less hydrogen (less methane) for desulfurization and cracking. It has always sold for more than heavier sour grades. Despite the Jeffrey Brown catterwalling about how great heavy oil is and how bad light is.
For the last few years that differential has been less in the US (not internationally) because of the glut of LTO and condensate. But still a plus for the lighter. Just a little smaller. Now with WTI moving up to equality with Brent (export ban lifted, spread has now collapsed), the spread for US heavy and light will increase back to historic levels.
BC on Thu, 24th Dec 2015 4:43 pm
Commercials/producers/hedgers are still fully hedged for lower prices with Iran set to add marginal global supply as soon as Jan, Brent-WTI spread vanishing, and technical conditions for WTI implying the mid- to upper $20s in Q1-Q2 2016.
World trade is not growing and is at the slowest 5- and 10-year rates since the 1930s-40s and late 1880s to early 1900s.
China is experiencing a hard landing.
India imports 100% of oil consumption with available global oil exports having fallen significantly per capita since 2005. India is 45-50 to 80-100 years too late to industrialization.
The US economy is stalling with health care spending and subprime auto loan-induced auto sales holding up consumer spending, even as health care spending is a net drag on the rest of the economy, and US wholesale orders and sales and industrial production are contracting YoY with inventories/sales at recessionary levels.
Implied gains to US consumers from falling oil and gasoline prices are more than offset by rising rents for 30-35% of households, flat real, after-tax and -debt service wages, and by surging health care costs to wages, household income, and final sales.
US profits after tax are contracting as is non-residential investment per employee and as a share of GDP, both of which has been historical precursors to recession 4-6 qtrs. thereafter.
Payroll receipts vs. reported wage and salary disbursements imply less than 1% growth employment YoY, if not virtually no growth, rather than the reported 1.8% growth. Given the reported wages, salaries, and payrolls, real GDP should be growing 3-3.25% vs. the 4-qtr. SAAR average of barely 2%.
Housing Bubble II peaked in 2012-13 and is now in the early stages of deflating as in 2006-07, 1990, 1980, and 1973.
The broad US equity index began a bear market in May-Aug this year.
Banks’ C&I loan delinquencies and charge-offs are increasing YoY at the fastest rate since the previous recessions since the early 1980s.
Junk and emerging markets’ debt is imploding and spreading to Baa investment-grade spreads to US Treasuries, which previously occurred in 2008 and the recessions of the 1920s-30s, and bank and railroad bond yields to commercial paper and US Treasury yields in the 1890s.
The price of oil has been crashing for a year because 70-75% of the world economy is at no faster than stall speed or in recession, and marginal growth of demand for oil outside the energy and energy-related transport sectors and for war is historically recessionary.
But those here who have been paying attention already know/knew this and don’t need to be reminded; others, they still don’t get it yet.
https://app.box.com/s/vvt8ywyh6w3xxtgvv39myfny2jhgnu0e
The clincher for the US is at the link above. The price of oil is still not “cheap” in terms of the change rates of final sales and oil consumption to final sales. To achieve “escape velocity” for the US economy, the price of oil would need to decline to the $20s and persist there for 5+ years. But consider what the implications would be for the energy, energy-related transport, and lenders to the energy sector.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2XMx
This is occurring coincident with Texas and the energy states having entered recession no later than Q2-Q3 this year.
An enjoyable holiday season to all, and Happy Festivus to the rest of us!!! 😀
Davy on Fri, 25th Dec 2015 3:10 am
BC, gave a great summary of a very complicated global picture. I would add to that there are many sub sectors that are doing well. The 1%’era are still doing relatively better than a broad cross section. I will further add people have lights, food, and gas. No shortages or hyperinflation type situations. Status quo is functional in its dysfunctional.
My biggest question is minimum operating level and what is after a breached minimum operating level. It then becomes a matter of degree in time and location in space. Do we become a more polarized world economically. We are definitely politically polarizing. Can we drop a few notches in economic activity and still maintain a status quo all of us live with? I would say it comes down to 50/50. I say this because it is all a matter of human nature in the short term. It is human nature for cooperation allowing an environment for a minimum operating level of status quo. It is also a matter of economic confidence allowing the necessary liquidity for economies of scale for the global status quo.
We can see a clear descent trajectory but beyond that we are in uncharted waters. We know there is a peak oil dynamics going on. We see this with the supply and demand incongruities. We know climate is destabilizing and ecological decline and failures are occurring as we speak. Yet, nothing that indicates near term failure. It really comes down to “We” humans. We created this existential catch 22 predicament and currently it is we humans who can maintain the status quo for a while longer.
What can be done? Not much. Yet, what can be done are certain actions, investments, and adaptations that will leverage up many times. Once we go into a economic decline many things will not be possible per our economic abilities. All the various excesses we see in our global system now could be utilized positively. Yes, huge bad debt has occurred across the board but there is still a window of action for a coming economic and population rebalance.
JuanP on Fri, 25th Dec 2015 7:00 am
Oil prices, https://www.rt.com/business/326959-oil-prices-forecast-opec-russia/
BobInget on Fri, 25th Dec 2015 12:04 pm
China
The first ten months of 2015 saw Chinese oil product demand growth average 6.7% (or 0.7 mb/d) in y-o-y terms. This figure shows surprising buoyancy compared to the previous five-year average when the underlying macroeconomic backdrop was arguably much more favourable. Gasoline, LPG and ‘other product’ demand posted average y-o-y gains of 0.2 mb/d y-o-y through the first ten months of 2015, more than offsetting weak expansion in gasoil and naphtha and absolute declines in residual fuel oil.
Although the economic outlook grew more precarious in 2015, Chinese consumers maintained sufficiently high confidence levels to stimulate escalating vehicle usage – both road and air – supporting robust gasoline (see Heady vehicle sales support strong Chinese gasoline demand growth) and jet fuel deliveries. Chinese gasoline demand growth averaged 10.4% (or 230 kb/d) y-o-y through the first ten months of 2015 and jet 19.1% (or 100 kb/d). Such heady gains, coupled with sharp increases in the country’s LPG requirement as a petrochemical feedstock, proved more than sufficient to offset China’s otherwise ailing industrial oil use.
Data for the first ten months of 2015 from the China Association of Automobile Manufacturers (CAAM) show sales of 16.5 million passenger cars. Although such new car sales were only 3.9% higher than the corresponding period in 2014, assuming sales over the remainder of the year averaged the previous ten months, total Chinese passenger car sales would easily top 20 million units in 2015. With an ambitious Chinese scrapping estimate of less than 1 million vehicles in 2015, this equates to a near 20% increase in the Chinese fleet.
India
Adding approximately 0.3 mb/d in 2015, to 4.0 mb/d, Indian demand posted its largest ever gain supported by strong growth in gasoil/diesel, gasoline and LPG. Preliminary October data, from the Petroleum Planning and Analysis Cell of the Indian government, showed demand growth of 17.5% y-o-y, a 12-year high, with the transport sector leading the upside. With domestic passenger car sales up 22% y-o-y, according to the Society of Indian Automobile Manufacturers, alongside reports of a heavy road building programme, gasoline, diesel and bitumen demand surged, respectively higher by 14.2%, 16.1 % and 64.4% y-o-y in October.
Davy on Fri, 25th Dec 2015 6:02 pm
In other Chinese news we see a different picture:
http://www.zerohedge.com/news/2015-12-25/chinese-state-firms-debt-hits-new-all-time-high-profits-tumble
makati1 on Fri, 25th Dec 2015 8:06 pm
Davy, your long-winded comments are all blind to the US reality. All you like to do is point out other countries and try to turn the attention to them. Doesn’t work for those who know better.
Asia is still growing. That they have many of the same problems (pollution/worker’s strikes/etc) the Us had 40-50 years ago says they are on the right track.
Most of us here are aware of conditions in the rest of the world, and those conditions are not half as bad as portrayed in US MSM propaganda. If you pay attention, you would realize that the BS shifts when a country moves onto the US shitlist and away from being an ally. The country didn’t change, just the US propaganda.
If your long-winded compositions are trying to impress on us that you are an over educated 1%er, you are succeeding. Verbiage saying nothing only counts if you are a US MSM author who writes for a paycheck.
I’ll read a comment that is short and concise, but the punctuation, spelling or grammar is less than perfect, anytime. It is the thought conveyed that is important.
Davy on Sat, 26th Dec 2015 4:59 am
Folks, you know when you are cracking the door of reality with a narrow agenda when someone has nothing to do but attack your message with a personal attack. The above comment is trying to be clever by deflecting a very negative reality in Asia by dirtying the messenger. I chalk that up to another victory for balance, fairness, and higher level conduct.
GregT on Sun, 27th Dec 2015 2:30 am
“I chalk that up to another victory for balance, fairness, and higher level conduct.”
Still haven’t quite figured out your own personal identity yet Davy? Sad to see, but not surprising.
GregT on Sun, 27th Dec 2015 2:42 am
You either left because of a matter of principle, or you got kicked out. Which one was it Davy?
Davy on Sun, 27th Dec 2015 5:09 am
Greg, I know you are getting an idea block when you give “naked” personal attacks like above. You don’t have the ideas at hand like an author with “writer’s block” to explain your position.
Your buddies are big boys let them defend themselves. You are like the little yapping dog that is at a big dog fight. Be a big dog and fight with teeth that on this board represent ideas instead of the bark that is your “naked” personal attacks.
You and your gang practice poor manners with the personal attacks and the crude language. You and the gang are rude and abusive. There is a group censorship with intorrance for anything other than you narrow agenda. You guys are uptight hot heads that get a thrill off pouncing on people who think differently. You find justification through a righteous belief in an agenda we all know so well.
I believe in principals of self defense. I am only attacking the scabs here when they attack me. I just watch as you uptight adolescent boys practice your playground bullying with others and chuckle. Grow up Greg, a mind is a terrible thing to waste.
JuanP on Sun, 27th Dec 2015 6:30 am
Yankees go home! The whole world hates you! The USA is a corrupt declining empire entering collapse and its population is the most deluded, criminal bunch of thugs that ever existed.
All we have to do is wait and enjoy the show, guys! Delusional American exceptionalist cowards, traitors, and one percenters are doing an excellent job of destroying the world in general and the USA in particular. They don’t need any help from us. The USA couldn’t be destroyed faster than it is destroying itself.
Russia and China hold the global moral and ethical high ground and are the new leaders of the free world and the international community, and this infuriates impotent Americans. The delusional rants of exceptionalist American buffoons only confirms the moral degradation of the society they grew up and live in.
Long live Putin! Long live Russia! Go China! Go BRICS! Go AIIB! Go EEU! Go SCO! The Western colonial power structure has become irrelevant because nobody in their sane minds believes in it any longer. Do you believe in the USA? NATO? The IMF? World Bank? CIA? IEA? EIA? US Army? Amnesty International? Fill in this space with your favorite corrupt, criminal, biased Western or American institution, but don’t overdo it, that list could be endless.
Amvet on Sun, 27th Dec 2015 12:47 pm
If true that the oil market is oversupplied by 2 million bpd, look at some data:
Two millions bpd are refinery gain, ie, not production.
NGPL are about 9 million bpd and most of these are not useful as fuels.
Where is the surplus ???