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Roubini: We’re Not Going Back to $100/Barrel Oil

Roubini Global Economics co-founder Nouriel Roubini comments on oil prices during an interview with Bloomberg’s Stephanie Ruhle and Erik Schatzker at the Milken Global Conference in Beverly Hills, CA.



27 Comments on "Roubini: We’re Not Going Back to $100/Barrel Oil"

  1. BobInget on Wed, 29th Apr 2015 8:00 pm 

    Audio missing

  2. Nony on Wed, 29th Apr 2015 8:57 pm 

    Another nail in the coffin of James Hamilton’s flawed “hundred dollars here to stay”.

    http://econbrowser.com/archives/2014/07/the-changing-face-of-world-oil-markets

    It’s not just that he was wrong, but that he refuses to do a post mortem and directly say he was wrong. And it’s pretty clear that his bias led him to being wrong. He has a history of peaker bias going back to his thesis. And he messed up his 2008 paper (ironically saying OPEC had little effect on prices, right before a massive intervention). He totally dismissed shale and missed the story there. But he had time to make 20 different figures of different states in the US and their peaked production.

  3. Davy on Wed, 29th Apr 2015 9:05 pm 

    NOo, I am going to start keeping track of how many times you mention this peaker or that peaker getting it wrong.

    Gezze Boy Wonder you are a broken record. Are you back on the nose candy today?

    Why don’t you tell us how the Hills Group is wrong? Maybe you are afraid of going there because you will look like a dork.

  4. Nony on Wed, 29th Apr 2015 9:14 pm 

    They are goldbugs. Stay away. Hate goldbugs whether they are liberal or conservative.

  5. GregT on Wed, 29th Apr 2015 10:14 pm 

    I started investing in gold back in the 80s Nony. I wish I new now what I didn’t know then. I would have been much farther ahead if I hadn’t of diversified my portfolio. I would have done much better if I hadn’t of invested in the market casino.

    Oh well, I still have my gold. Now if I could only get my other assets out of the casino without taking such a huge tax hit, the rest of my portfolio would also be golden.

  6. shallow sand on Wed, 29th Apr 2015 11:01 pm 

    Predicting oil out past one year is pretty tough and I tend to tune out the “never to return BS”.

    In a seven year time frame we have seen WTI run up over $140, drop to $32, climb back over $100 and fall to $43.

    Ed Morse at Citi made a great call for oil to go lower, yet he predicted lows in the $70-75 range last summer and the price dropped about $30 past that. Then, early this year, he said $20s were possible in May, but right now the trend is higher.

    Few foresaw the shale effect, or that OPEC would not cut. Now all are convinced OPEC won’t cut in the foreseeable future. But what if they are wrong?

    OPEC cuts 1.5 million per day, I bet we would see a quick run up. KSA ramps up to 11 million plus, prices could fall quite a bit, maybe test $43.

    Too many variables. I do think its noteworthy that the bottom of each of the last four crashes (1998, 2001, 2008 and 2015) has been higher than the previous crash. I think this is due to traders being aware that OPEX per barrel is ever increasing. I think XOM having per BOE OPEX in 2014 almost 4 times that of XON in 1997 is a prover.

    I expect more crashes in the future, with each bottom being higher than the last, assuming the trend continues.

  7. shallow sand on Wed, 29th Apr 2015 11:10 pm 

    As for gold, I am not anti, but I have never owned much. It produces no income, so therefore you must be good at knowing both when to buy and sell.

    I am not good at knowing when to sell, tend to be an accumulator. Therefore, I have mostly stayed away from gold and silver. Same for non-dividend paying stocks.

  8. Nony on Wed, 29th Apr 2015 11:52 pm 

    Shallow: I like you.

    Determining the exact gyrations is a mugs game. But people who comment without even considering how it compares to futures are ignorant. Even at 100, it was still backwarded.

    Furthermore, I did (FWIW) have arguments in the mind 2000s about the possibility of the US driving a crack to OPEC cartel. I didn’t even know what shale was. But I had read the Prize and remembered 1986…and how strange people of 1981 or the 70s would have looked at 1986 to 2004.

    I’m not surprised you like dividend stocks. But you need to realize lots of investments are not annuities. A biotech has a value. It may be very risky. Might be Amgen, might crap out. But even the probability weighted average of the two has a value.

  9. apneaman on Thu, 30th Apr 2015 2:12 am 

    There it is. Nony read “The Prize” in his youth and got all moist over Yergin’s fantasy version of the blood soaked industry. It’s understandable nony, it was indented to have that effect. All the best propaganda, like all the best stories follow the same framework.

  10. Davy on Thu, 30th Apr 2015 2:18 am 

    Trends continue until they don’t. The changes since 08 in global finance suggest we are in uncharted waters with the finance system and oil IOW the foundations of our system are in uncharted waters. Have we ever had rates this low this long? Has there ever been this much debt accumulated? Has the market ever been this high without corresponding justifying fundamentals? Has the global political ever been this adrift with the destruction of the post WWII US dominated system ending?

    I am of the opinion trends are not what they used to be because we are entering a period of destructive change. The post WWII world has progressed to a peak in 08 and was shattered. We now are adrift as a global people. Oil will behave predictably unpredictable within its possible economic trend range. The economy of suppliers and consumers have limits that limit that range. These ranges are pressured currently like never before.

    The economy is not normal now with financial repression and debt monitarization per past historic economies. That new normal condition suggests an oil price range per suppliers and consumers is under increasing pressure. This oil price pressure is part of the destructive change. This destructive change is the end of normal price discovery that we knew pre new normal. All commodities have been affected but oil has been affected the most. Low rates and high liquidity flowed into oil price range destructively.

    Oil is different than other commodities. Oil is foundational and all other commodities rely on oil hence all other are influenced by oil. Oil’s foundation is finance. It takes E&P to bring oil to the economy. Oil requires adequate capex and favorable interest rates to have E&P. In the destructive change of the new normal without proper price discovery in the traditional free market environment oil has been brought to market skewed.

    Oil is the foundation of our economy and the economy drives oil. Neither of the two currently are where they were pre 08 crisis. Both are in a period of destructive change which appears to contain the negative feedbacks of demand destruction in the economy through deflation and depletion with oil. Oil’s depletion is most clearly shown with the increase in other liquids and unconventional sources.

    General limits of growth and broad based diminishing returns appear to be affecting the global economy. Currently diminishing returns are most evident in the economy with the central bank policies and debt and equity market upside potential. Population continues to rise with a carrying capacity that has stagnated. Ecosystems are in broad based decline and or collapsing. Climate and water are under stress.

    The global system has progress to a point of interconnected delocalized locals all supported by a just in time production and distribution system. Oil is a foundation of that global system and that global system supports oil production and consumption. There is no alternative to this relationship. There is no decouple of oil and the economy. There is no substitution for oil to the global system. This is it as far as the current economy and oil is concerned.

    There is a time value to trends and predictions. Short is clearly better. Destructive change means trends can end. Dooming is nothing more than a prediction. I am short on life. Others are long life. Life is above oil and the economy. Life is about something higher than oil and the economy and that is human nature. I see destructive change occurring with human confidence at all levels top to bottom.

    The power of the system to maintain this confidence is waning. The whole human confidence system is “all in” with no alternative so part of the “all in” is from having no choices. BAU has been surprisingly resilient up until now but how long can this resilience last? IOW trend.

    Panic cannot be predicted. The trend in confidence is a trend in human nature. Oil and the economy are nothing more than a subset of a human nature trend. We are close to dangerous confidence issues. A cascade of liquidity issues resulting from these negative confidence issues is unfortunately unpredictable but we know dangerous confidence issues lead to liquidity issues. The global system must have global confidence. That my friends does not make me feel confident and that is why I am short life IOW doomish.

  11. Davy on Thu, 30th Apr 2015 2:40 am 

    I do not price gold. Gold is a prep tool. If you are a doomer like me then you are anticipating an end to normal markets. Pricing gold would only be needed if I were forced to sell while there are normal markets. I am not in financial difficulties nor investing so I don’t price gold for investment purposes. I keep an eye on the price only per buying. If the price gets too far up I quit buying. If it is within a value range I buy.

    I am in a doom and prep mode so I buy gold as a tool like I may buy food, ammo, or AltE equipment as a shortish list of many. There are other prep tools that are as important as gold. A diversified prep portfolio is more important than being heavy gold but gold is an essential part of a diversified prep portfolio. Gold can be traded for other prep tools post crisis but trade may not always be possible so watch being heavy gold thinking you can trade for food. I recommend tenth of an ounce gold coins as a prep tool. Silver ounces are good too. A little cash is essential in case the ATM stops working and bank doors are closed.

  12. Perk Earl on Thu, 30th Apr 2015 2:48 am 

    Here’s a great article by zero hedge about the ‘all in’ situation now of govt’s being so reliant on the markets, that they no longer can be allowed to drop. They are in effect too big to fail. But it gets likened to a forest never allowed to burn off the dead wood. When it finally pops, look out!

    http://www.zerohedge.com/news/2015-04-29/financial-markets-now-control-everything

    The Financial Markets Now Control Everything

    The financial markets don’t just dominate the economy–they now control everything.

    In effect, politicians now look to the markets for policy guidance, and any market turbulence now causes governments to quickly amend their policies to “rescue” the all-important markets from instability.

    It’s not just banks that have become too big to fail; the markets themselves are now too influential and big to fail.

    The government must prop up markets, not just to insure the cash keeps flowing into political campaign coffers, but to save pension funds and the “wealth effect” that is now the sole driver of “growth” (expanding consumption) other than debt.

    This dependence on the markets is pushing central banks and states into ever-more extreme policies, even as the risks of complex swaps and trades is rising beneath the surface.

    the next crisis will not be controllable, and destabilized markets will not be “saved” by tricks such as lowering interest rates to zero and increasing liquidity.

    When a forest is never allowed to burn away the accumulation of dead branches and underbrush with a limited fire, the forest eventually catches fire anyway. The deadwood (of bad debt, excessive credit and leverage and phantom collateral) is now piled so high, the entire forest burns down to ashes.

    All the “saves” have done is guarantee the financial system will burn down in a conflagration ignited by a seemingly trivial spark somewhere in the vast global system of phantom collateral.

  13. Perk Earl on Thu, 30th Apr 2015 3:03 am 

    The above article is suggestive of a circumstance that has evolved out of two factors being stretched apart; net energy decline vs. the need for growth. We saw the first cataclysm of that dynamic in 08, and since then every effort has been put into keeping the markets rising or at least held superficially high in order to avoid the next downturn, knowing there probably is no longer enough net energy to jolt the financial system back to life.

    The best analogy I can think of is it’s like an injured athlete injecting himself with pain relievers, knowing it buys some more time, yet also insures his career will be over quite suddenly at some point.

    TPTB know there’s only so much juice left in the oil age, so they’ve gone all in, injecting the economy with as much stimulus (cortisone) as needed to keep it going, hoping for the best, but knowing it probably won’t end well.

    As the commentator said about the last offensive play by the Redskins against the Raiders in their superbowl, as John Riggs ran with the ball on a 4th and 1 yard for the first; “Might as well die with your boots on.”

  14. Davy on Thu, 30th Apr 2015 3:07 am 

    I saw that article and will read it Perk. I burned fields yesterday. I have some good stands of native grasses I am managing. They will be important if climate change makes my region hot and dry. There is a science but also and art to burning. The science is knowing the fuel, wind, humidity. With any science you need the right tools to measure and predict. You need tools to control and manage the burn process. The art is knowing when to apply fire, how, and for what result.

    You can do a slow burn or a hot burn. I call a hot burn a “mad man” and a slow smoky burn a “smoky bear”. You have neighbors to be concerned about. Today I was putting some serious smoke downwind on my neighbors because of a slight wind shift. If you have animal habitat you have to weigh bird nesting time. The grass has its needs on timing and the type of burn. Then there is ones schedule it is just another competing item on my list that must be prioritized.

  15. dashster on Thu, 30th Apr 2015 3:48 am 

    “But why?” I thought the guy was asking “Why do you think they won’t go back to $100”. But it seems that he wanted to know why they would go up to $70. And he asked that after the interviewee just said that oil capex was being reduced around the world and the low prices would lower shale output.

  16. marmico on Thu, 30th Apr 2015 5:54 am 

    3.8%. That is the lowest quarterly ratio of U.S. household gasoline spending relative to wages and salaries in the last 11 years. Affordability what?

    The Freddy Fluff Stuff.

  17. meld on Thu, 30th Apr 2015 6:19 am 

    Low prices = low supply = high prices = high supply = glut = low prices = low supply = high prices = High supply = glut = etc. etc. etc. etc.

    This is the future of oil prices. Meanwhile the world economy will collapse, millions will die slow deaths and nobody will have any reason to explain why except a few peakers who understand what is happening.

  18. Davy on Thu, 30th Apr 2015 7:45 am 

    Thanks Marmi, I have been trying to figure out why everything is so peachy with life and now I know. Cheap gas = happiness.

  19. marmico on Thu, 30th Apr 2015 7:51 am 

    No Doomer-Day. It’s all about the peakoiler nutters who have pivoted away from empirical maximum production volumes as the definition of peak oil to non-empirical affordability as the definition of peak oil. Either way, they are nutters.

    So you are burning the goat shit off your boots, are ya?

  20. Davy on Thu, 30th Apr 2015 8:19 am 

    Goat are awesome Marmi, Amazon now rents them. You are so passe.

    OOH, Marmi, does it matter what makes up those Volumes?

    Remember I am a doomer and a fairweather peaker. You appear to be a solid anti-peaker regardless of reality.

  21. BobInget on Thu, 30th Apr 2015 11:09 am 

    For heads up on future oil prices, watch copper.
    http://finviz.com/futures.ashx

  22. BobInget on Thu, 30th Apr 2015 11:11 am 

    AS for goats, if there is one weak fence, goats will find what horses never will.

  23. BobInget on Thu, 30th Apr 2015 1:23 pm 

    http://www.livecharts.co.uk/MarketCharts/brent.php

    WE are almost there. I too doubt we will stay at the $100 level for long.
    Pent up pressure, Saudi spending, E&P slowdowns, world wide conflicts all involving oil
    drives price higher, no matter oil use is damaging
    human health and infrastructure.

    The idea of war is to blow stuff up, Not build
    bridges. As oil creeps higher so will domestic industrial and rearming employment.
    So called ‘defense jobs’ pay well but paint a false economic picture.
    (best use for weapons, that they be scrapped)
    Residential building for instance, provides employment for many decades to come.

    So far, we want to believe, apart from pollution,
    FF’s are force for constructive betterment.
    Far from correct. Without oil, modern war is impossible. During the next few decades wars, ironically for oil, will require two million barrels
    daily across multi-factional-warfare around the globe. If we refuse to count that oil, who are we kidding?

  24. Perk Earl on Thu, 30th Apr 2015 10:46 pm 

    Sounds like a lot of work, Davy, but certainly all that rural space helps isolate you for when what is happening in Baltimore is going on in every city in the country. It will definitely be nice to be off the beaten track even if it means more work.

    I’m trying to get the initiative up to weedwack the rest of our 1/4 acre for the 2nd time this Spring – lol! I just keep finding other things to do.

  25. shallow sand on Fri, 1st May 2015 12:13 am 

    Davy. I’m with living far from the cities. Don’t think I could hack it there quite honestly. Too much competition in many facets.

    Back to the stuff about gold and silver. You believe that if everything goes to crap it will be a money substitute? Seems to me that may not be the case. Seems to me a good chunk of real estate with good water wells would be more valuable. Might be real good too if the land has some gas wells on it. Plenty of timber also a plus.

    Would want plenty of guns and ammo for hunting, and for protection too, possibly. Seems like that might also be more valuable. Some good bows and arrows, reloading equipment, other hunting and fishing stuff.

    What do you envision buying with the metals if your scenario plays out.

    Also, have you lived in a city? I have not, so I have a hard time relating. Do you think more people along your line of thinking come from the cities? I know a lot of people who grow/raise/hunt/fish their food, stay pretty isolated. However, it appears to be more a lifestyle choice due to growing up that way, as opposed to getting ready for a major meltdown.

  26. Davy on Fri, 1st May 2015 2:14 am 

    SS Sands, I say live far from Mega cities. My kids live with their mom in a town called Hermann, MO one hour north of my farm. It is a town of 3000. That kind of town is good. You could probably go to a population of 100,000 in the right location and feel like your community can negotiate a crisis situation. When one proceeds up the ladder from 100,000 location becomes critical along with community spirit. When one gets to the million or more we can be sure difficulties will be too great to avoid dislocation and migration for many. In the beginnings of a crisis the big cities may fare better having the power and the control but eventually they cannot be supported. Big is bad in a collapse

    Gold’s value will depend on what type of collapse we have and how quickly. A slow collapse like Kunstlers long emergency gold may very well serve as a currency for many. It is unclear whether the authorities will confiscate it or thieve will get it. If we have a serious collapse gold will offer a means of trade and barter. It will offer this in a small package with its never ending appeal as value.

    Tenth of an ounce gold eagles are like a $100 bill to me. One must discount them because of conversion due to risk of authenticity. Currently tenth oz eagle real value is $135. People will always be suspect of the authenticity but I feel small gold coins will work for trade and barter. Silver is great too. I like gold because it has a big punch in a small package.

    My point with gold is have some in your diversified prep portfolio if you can. Get the hell out of digital wealth or keep it to a minimum if you must continue to play the game. This includes cash which may become worthless quickly. Yet, one should have some cash too. The liquidity of cash is great until it is worthless. The game means dancing near the edge but many have no choice to be heavy digital. Just be positioned to dump and run with some of it. We don’t know how long the game will go on. I dumped my portfolio in 06 look at the market now.

    There is no substitute for good land, water, and food raising potential. I would say this is the most important investment you can make now. Much of the population must move back to the land to survive. Timber is likewise important in the colder climates. Again what kind of collapse is unclear but you cannot go wrong with land in a good location. It needs to be in a location that will not be overrun by locust people hungry, cold, and desperate. Physical assets need to be managed, maintained, and secured. That is the one difficulty with land and food raising.

    The other prep items are important. The list could be rather longish and would depend on your local but the list would boil down to short and longer term prep items. The list would include immediate survival needs of food, water, shelter, medicines, and security. Longer term it is about making a life post fossil fuels. It is about getting back to the old ways pre-fossil fuels. It is about using the remnants of BAU through salvage to leverage the old ways to provide a livelihood. Let’s face it the world has been transformed to the Anthropocene so we will have to learn to utilize what is left much like the city of Rome was cannibalized for building material. This will be a hybrid affair of the old ways and BAU ways into a new way.

    Your mentioned skills are important too. We are going to have to have diversified skills but having a specialty skill will be a bonus too. I can do all the country boy skills you mention also. These skill will vary per location but will all revolve around food, water, shelter, and security. All of us should be learning new skills and gathering a library of important knowledge.

    The most critical element of all this now and post collapse is attitude. Morale is critical to the equation. Small armies win wars through its use that says volumes on its importance. One must have an understanding of how difficult this transformation will be. We will have to be ready to experience pain, suffering, and death. That is a tall order for us sanitized modern humans. I am hoping the worst will not occur. Maybe a slower decline can take place but I am increasingly worried because all levels of society are heading in the wrong direction. It is for this reason attitude is so important. Doom now, practice relative sacrifice now, and face a future reality of less with less. Prepare short and long term in some way any way if nothing else with your attitude.

  27. Davy on Fri, 1st May 2015 2:35 am 

    Perk, sometimes I get exhausted or hurt. Two weeks ago I cut my hand bad when a fire hose came apart in my hand when I was burning some native grasses. I needed 6 stitches. I was lucky I got no infection because my hands were very dirty with mud, fire carbon and diesel from the drip torch. I was burning alone when I cut my hand so I had no choice but to wrap it up and get the fire under control. If I had left the fire it could have got out of control. I have been working two weeks with a gimp hand. It is bad enough I am getting older with aches and pains now an injury.

    It is great being on the land but it is not for everyone. I am an introvert and loner. Some people are extrovert and need lots of people interaction. I had to do extravert in the corporate world for years but now I can be myself with few people on the land. It worth it though I would not go back to the corporate life. I gave up a large chunk of change but I have no regrets.

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