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Why oil prices could sink to $15 a barrel

American drivers could soon be partying like it’s 1999.

Oil prices have already taken a dramatic fall that’s saved consumers big time at the pump. Last week, crude tumbled below $42 a barrel, down from $100 last year.

One big-name investor is predicting an even sharper drop.

“There is no evidence whatsoever to suggest we have bottomed. You could have $15 or $20 oil — easily,” influential money manager David Kotok told CNNMoney.

A further decline to $15 a barrel would be huge. Oil hasn’t traded that low since early 1999, when gasoline at the pump was selling for under $1 a gallon.

Kotok’s views on the economy and financial markets are closely watched. The 72-year-old co-founder of Cumberland Advisors manages more than $2 billion in assets and hosts an annual invite-only fishing trip that doubles as an economic summit. Known as “Camp Kotok,” the event lures leaders in finance to Maine each summer.

“I’m an old goat. I remember when oil was $3 a barrel,” said Kotok, whose clients include former New Jersey Governor Thomas Kean.

 

Oil’s supply glut could worsen

Oil prices have already suffered a stunning decline. They’re down nearly 60% and trading at levels unseen since early 2009. It’s been a blessing to American drivers. The average price of gasoline is now $2.66 a gallon, down from $3.45 a year ago, according to AAA.

The big problem is the world still has more oil than it needs, especially given China’s economic slowdown. The American energy boom that began last decade created a supply glut. OPEC, led by Saudi Arabia, has been unwilling to balance the market by cutting production.

The oversupply problem may very well be amplified by the Iran nuclear deal. If the historic agreement goes forward, sanctions relief will allow Iran to drastically increase output. That could trigger a reaction from the Saudis, Iran’s longtime rival in the region.

“The Saudis’ best weapon is the lowest oil price at maximum volume. They have enough financial reserves to have staying power for years,” Kotok.

On the other hand, Iran has far less financial flexibility and it needs higher prices to turn a profit.

“With a low price, the Saudis are denying their enemy across the Persian Gulf money. That’s an oil war,” Kotok argued.

 

Some grades of crude oil are already around $20

Oil at $15 may sound crazy, but some grades of crude are already nearing those levels. For example, Western Canadian crude, a heavier type of crude that is more difficult to refine, is currently trading in the $20 range.

If history is any guide, seasonal forces may also start to pressure oil prices. The end of summer driving season tends to weaken energy demand, dragging prices lower.

All of this is why Kotok is warning investors to stay far, far away from oil stocks.

Unlike hedge fund giants David Einhorn and Carl Icahn, Kotok has been “max underweight” energy stocks since oil was sitting at $100 a barrel. That’s been a smart play. The XLE Energy Select SPDR ETF (XLE) has lost over a quarter of its value over the past year.

“There is an entry time coming in the energy patch, no question. In our view, it isn’t here yet,” Kotok said.

CNN



41 Comments on "Why oil prices could sink to $15 a barrel"

  1. Boat on Wed, 19th Aug 2015 6:49 pm 

    Costco,
    $2.13 two days ago in Houston. Yes Davy I am having a rough week. Lol $3.80 per gal 1 1/2 yrs ago. If this keeps up for a year I might be able to trade in my old truck. That new Ford truck that gets 24 mpg looks nice.

  2. GregT on Wed, 19th Aug 2015 7:07 pm 

    There’s a huge forest out there behind those little saplings Boat, and it is on fire.

  3. Davy on Wed, 19th Aug 2015 7:13 pm 

    Boat, I want to congratulate you on that deep thinking assertion of gas price low economy good observation.

  4. Boat on Wed, 19th Aug 2015 7:18 pm 

    ty ty Davy, that low price means almost $5,000 per year for this family. Think of the farmers bill. Think of the custom cutters fuel bill. Omg the truckers bill. Need I go on?

  5. Apneaman on Wed, 19th Aug 2015 7:24 pm 

    boater, ya should have bought a Chevy so you could drive it to the levy – but the levy was dry – get use to it. That’s right that Texas deluge that killed the homecoming queen a few months back is not the drought ending savior all them Texas deniers thought it would be. Drought and deluge that is the new normal along with picking up the pieces after each one. You know they rezoned a bunch of land that was once considered a flood plain – maybe even your suburb. Might want to check that out. The price of progress and never ending economic growth I guess. Caveat emptor.

    THE “FLASH DROUGHT” IS BRINGING THE TEXAS DROUGHT CREEPING BACK

    http://www.houstonpress.com/news/the-flash-drought-is-bringing-the-texas-drought-creeping-back-7678985

    Houston “Flash Drought” Reveals Foundation Damage

    http://www.digitaljournal.com/pr/2648218

    Flash Drought Strikes Southeastern U.S. Fields

    http://www.agriculture.com/news/crops/flash-drought-strikes-souastern-us_2-ar49943

  6. GregT on Wed, 19th Aug 2015 7:29 pm 

    Gas prices aren’t low Boat. They are still twice the prices leading up to the global financial crisis that began in ’08. You know, the crisis that we still haven’t recovered from.

    You, like so many others, have a very short and selective memory.

  7. Truth Has A Liberal Bias on Wed, 19th Aug 2015 7:44 pm 

    Media is talking the price sentiment down as the owners of said media have invested naked credit default swaps on the loans that don’t get repaid once the LTO industry goes belly up.

    Easy to see.

  8. Makati1 on Wed, 19th Aug 2015 8:06 pm 

    Truth, you are closer to the truth than most. It is ALL about keeping the suckers on the hook with dreams of future wealth. Take oil to $15 for a few months and see how fast everything closes down. When the financial system goes down this time, it will NOT be getting back up. Those malls will make great shelters for the millions of homeless coming soon to a neighborhood near you.

  9. Boat on Wed, 19th Aug 2015 8:42 pm 

    Talk about cherry picking numbers Greg=T

    http://www.gasbuddy.com/Charts

    Click the 10 year average. Prices are at or near the 10 year low average.

    You guys complain about the MSM, lol Ya’ll are spin professionals. Hope you get money for it.

  10. GregT on Wed, 19th Aug 2015 8:52 pm 

    Talk about cherry picking numbers Boat.

    The run-up in gasoline prices began in ’02.

    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_NUS_DPG&f=W

    Keep ignoring reality. Eventually it’ll bite you in the a$$.

  11. Boat on Wed, 19th Aug 2015 9:11 pm 

    Greg T

    2002 is a long time ago. My point was simple. I paid over $3.50 for years. I now pay close to $2

  12. GregT on Wed, 19th Aug 2015 9:56 pm 

    You’re still paying twice as much as what you were 12 years ago Boat, and if you are like most other people in NA, your wages have not even kept up with inflation. The gas price pull back from recent highs is welcome, but gasoline is not cheap now when compared to historical averages.

  13. dave thompson on Wed, 19th Aug 2015 10:51 pm 

    BP shut down the tar sands refinery in Hammond Ind. and gas went up from about 2.60 to over 3.40 overnight in the Chicago area.

  14. Makati1 on Wed, 19th Aug 2015 11:24 pm 

    Wait until the gas lines form again at any price. Or even/odd day rationing. Or $10 gas and #20 water. Not possible? Wait and see.

  15. shortonoil on Thu, 20th Aug 2015 7:55 am 

    $15/ barrel would not cover the lifting costs on 90% of the world’s production. Average world water cut is now 47%. When oil hits $15 there isn’t going to be any oil (for more than about a week). It just goes to prove that you can know absolutely ZERO, and still get an article published!

  16. BC on Thu, 20th Aug 2015 11:47 am 

    short, I have a potential technical target for WTI at $32, and below that at ~$24. WTI is currently testing an uptrend line from the late 1990s and early 2000s.

    How long the price remains in the $20s-$30s should it get there is another story.

    Note that US oil consumption PER CAPITA is 11-12% lower than in 1998-2001 when US oil production was a little less than 6Mbd and the US$ Index was at 100-120.

    This suggests that it is not inconceivable that a global debt-deflationary recession could reduce US and global demand such that the price of oil could fall further, causing a deep recession in the shale and tar sector, resulting in energy and energy-related sectors’ oil demand plunging along with production.

    Therefore, a decline in US shale production and consumption by 2-3Mbd during a global debt-deflationary recession can’t be ruled out in the years ahead.

    FWIW.

  17. Davy on Fri, 21st Aug 2015 6:38 am 

    I think this is the time to mention the market and commodities in regards to the cornucopian and doomer discussion here on this board. Folks look around at how quiet the corns are. It is amazing how the corns wanted their cake and eat it now that cake is rotting. Has anyone noticed how the biggest corn, Marmi, has gone AWOL. The NOo is very quiet and humbled. Some of the other commenters have stopped their Chinaphila. That is except the idiot Mak. Some of the cornucopian flag waivers like Boat are quiet. OK, I am a flag waiver but I am a doomer and my flag is upside-down in distress. I am not crowing because this is going to suck for my plans eventually. I am saying let’s get on cue and begin to formulate a common message so we can all maneuver this mine field better.

    What we have now is the beginning of “THE” unravel in the markets (all of them) that will be a contagion to the rest of the real economy. Those in charge have no tools to fight this. We will only see delaying maneuvers in a hopefully organized retreat. The only really solid optimism lately has been the markets and until recently the commodities markets especially oil. Do you all remember there once was a gold rush in the US oil sector? This is now folding and it appears with China no longer the global economic driver the floor is gone.

    We could always count on China’s consumption and credit creation along with fed easing and Zirp to maintain the FX, equity, bonds, and commodities markets. Now all of them are under pressure. What is worse they are all in a bubble. Now we have multiple bubbles deflating including China which was the biggest bubble mankind every created.

    Our board corn doodles were crowing supply and demand. They were telling us how low oil prices were good. They were discounting the carnage because for them everything will work out per what they learned in econ 101. Supply and demand rule supreme and always in a positive growth based way. Descent is only temporary for a corn. Wow, what a failure the corns are now!

    We now see that limits and declining marginal returns are real. It just takes time. Humans, especially the cornsucopians are so short term looking. It just took a little time for all the doom to coalesce into a descent. I firmly believe with China in contraction, commodities routed, and currencies in distress we are now definitely in the bumpy descent. The time frame is still uncertain on worse because we may drop and stabilize in a recession of sorts. Yet, this is likely not to be your daddy’s recession this is going to be the end of the road to growth and development. From here on out it is stumbles and falls of descent.

    Let us hope some global leaders will face the coming crisis with rational and sane policies. Unfortunately it won’t be from the US. Watching this election cycle makes me ill. Watching China, Russia, and Europe is not much better. This is especially true of China recently with its failed market responses. China is flying apart from corruption and greed. Europe is a slow motion train wreck of unrealistic lifestyle expectations. Putin’s Russia may be in the best position. But it won’t be the Putin dream. Putin was grandiose in his attempted decoupling from the west but he still likely made a wise choice limiting expose to the sinking global ship.

    We are almost certainly going to see food and fuel shortages because of this. It may take a little time but demand destructions will lead to supply reductions. Food, fuel, and the economy are closely linked. Lower fuel and economic levels and food will drop. Folks we have excess supply of oil but that is not going to last. Today all food consists of is oil and brought to your table by globalism run on oil. A global world with 7Bil people and growing with less food is a disaster in the making. Abrupt climate change appears to be happening as we speak which will further compound an already dire situation.

    We will likely see some stability in a recession of sorts and the corns will go back to happy faces but we are on the food, fuel, and economic gradient down. Growing growth is over and soon growth itself will be only decline. Once we have decline we have abandonment, dysfunction, and the irrational randomly popping up in the form of decay of a complex and energy intensive system. This is the end game. It might be a good time to prep.

  18. joke on Fri, 21st Aug 2015 8:45 am 

    Would look at current events as a signal that we are headed down, forever. There is going to have to be an event of some kind to drill this new paradigm caused by limits to growth into the heads of people. In history it was the sacking of Rome even though it was NOT the Capitol (Milan was, at the time), the people realised the long term trend was with something else, so thing new. It’s no accident that soon after this event, Arabia was ruled by a new region and empire and eastern Europe was forging it’s own path attached to the silk road. America will fall on the day when OPEC and Russia join forces to control global energy markets, that won’t happen as long as all the best guns are supplied by Washington.

  19. Makati1 on Fri, 21st Aug 2015 9:07 am 

    joke, but the best guns or weapons systems are no longer supplied by Washington. They are now supplied by Russia and China, keep believing if you want but they cannot even get the new F35 (14 years & $400 billion plus invested so far) to be as good as the F16. The best engineers have moved back East, and Russia had not lost it’s touch. But, the US has.

  20. marmico on Fri, 21st Aug 2015 9:36 am 

    Has anyone noticed how the biggest corn, Marmi, has gone AWOL.

    Fuck you. There are only so many hours in a week to waste my waking time responding to innumerate word salad prattle asshole doomers like you. If you had a cerebral cortex and did not inevitably defer to tribal doorknobs like the quart shy of oil, zero deadheads and the mudlogger, I might be able to find more time to map joint “crave&crayon” solutions.

    Oil will be scarce. But not today. Tech has outplayed depletion in the first 150 years of the game.

    Consider that AAPL has sufficient cash equivalents on its balance sheet to buy up all of the U.S. independent oil and gas producers’ high yield debt. Go figure.

  21. ghung on Fri, 21st Aug 2015 9:38 am 

    Davy; “It might be a good time to prep.”

    There’s never a good time not to, considering the big, systemic picture. It’s all a matter of what one is prepping for. Even the cornies are prepping for something, only if that something is more BAU good times.

    Me? I’m expecting another delivery of seeds; not too exciting for some, but I decided to use a credit at a seed supplier to stock up. I doubt the seed suppliers will run out in the spring, but who knows? Some will get planted for a late fall harvest, even into winter (started my first group of cabbages Monday; already sprouting nicely. Broccoli and leeks as well). Beans, tomatoes, cucumbers, beets, carrots, more; all nestled in their beds in the high tunnel. In my world, this is part of a win/win strategy.

    I also ordered some COB LED lights some of you preppers may find useful:

    http://www.ebay.com/itm/291161780706

    These little 12 VDC strip lights produce an amazing flood of light consuming only 5-6 watts. I’m running four in the high tunnel off of the small 12 volt PV system, and the claimed 500 lumen (6000K) may be a little low. I’m so impressed I ordered 10 more, just to play with. A pack of two is $5.51, only $2.75 per light. They are also available in colors. I may build an array for a grow light to start seeds under. Self-adhesive and waterproof (they are actually after-market running lights to stick on the front of a car).

    As my wife says, I’m a cheap date; all of this fun and joy from a few seeds and less than $30 worth of cheap Chinese LEDs. Some call this sort of thing ‘prepping’.

  22. Davy on Fri, 21st Aug 2015 10:26 am 

    G-man, I just got $20k commitment from the government to build my cattle/goat management intensive grazing area on the farm. I will operate on 60 of the 400 acres. That is only covering half the cost but it helps immensely.

  23. Davy on Fri, 21st Aug 2015 10:30 am 

    Poor Makster, joke jerked his chain over a well known fact that Russian and Chinese armaments are inferior to the U.S. That is changing quickly but they are still not there yet. The U.S. spends so much that it would be hard to out do them in aggregate. Poor Mak, he want to be a military expert but his agenda gets in the way instead he talks the fool.

  24. Davy on Fri, 21st Aug 2015 10:37 am 

    Marmi, how bad was the hit to your smallish wanna-be biggish investment yesterday? You sound agitated. I know it’s hard times for the big Marmi in this bearish world these days. It is hard to wake up and put a happy face on and preach Econ 101 supply and demand manna with so much market carnage going on.

  25. Boat on Fri, 21st Aug 2015 11:58 am 

    Davy,
    I have been dollar cost averaging for over 30 years. Look it up and you won’t worry/gloat so much. When the market drops you get more shares for the dollar. Do you realize than the price of any stock does not matter till the day you cash out.

  26. Davy on Fri, 21st Aug 2015 1:04 pm 

    Boat, do you realize the market does not reflect physical reality so your self-assurances of all is well per the boat investment strategy is just an illusion. You are investing in nothing more than a Ponzi scheme that is now top heavy IOW there is nothing there to pay out. Boat even if you get your money out soon what will it buy in an economic depression? I assure you Boat not what you think.

  27. Boat on Fri, 21st Aug 2015 1:38 pm 

    My goal is a zero energy home with 3 hybrid cars/truck. We both have prepping goals, mine are just more realistic and goat free.
    Another goal is to eliminate any vampire loss of electricity on all my products. I want all my grey water utilized. These are small goals but maybe attainable in the next few years. This is the model for future families. I want to provide an example. Not spread fear.

  28. Davy on Fri, 21st Aug 2015 2:03 pm 

    Boat, any plans for food or is the local Walmart got you covered. You are a friggen lost cause Boat. Zero energy home bullshit. What’s that a tipi? Hybrid car and truck so what Boat. How is that going to make thing better. Hybrids are dirty and suck energy just like everything else complex and energy intensive. You are A Boat load of fun!!

  29. Boat on Fri, 21st Aug 2015 3:18 pm 

    Most of us have to work to eat Davy. look around. This fantasy some of you doomers live in has nothing to do with the reality of real life.

    Here Davy, this is a site you should spend time in.

    http://www.abhota.info/end1.htm

  30. shortonoil on Fri, 21st Aug 2015 3:33 pm 

    On a BTU bases, using nominal dollars oil is 18% more expensive for the economy today than it was in 1970. Oil is not cheap, and the price is so low that few producers can turn a profit. None can afford to replace the reserves they are extracting. Consumers can not afford to buy it, and producers can not afford to keep producing it. Over the next couple of years the petroleum industry will present the worse financial performance it has ever known in its history.

    http://www.thehillsgroup.org/

  31. Davy on Fri, 21st Aug 2015 3:43 pm 

    Boat so you are saying we work meaningless jobs so we can go to Walmart and buy pork rinds and Pepsi. I agree with you on that one Boat because much of the work done today by modern man is meaningless and destructive.

    RowBoat don’t try to lay a white asswipe Protestant work ethic on me. I ain’t buyin that turd.

  32. Apneaman on Fri, 21st Aug 2015 3:51 pm 

    boat here is yet another common example of that non existent efficiency you keep going on about. A decrepit rotting infrastructure has no efficiency. Shiny gizmos like EV’s cannot mask the cancer, but they can sure make you feel better by deluding yourself for a few more years.

    Project reveals 20,000 leaks in Mass. gas lines
    Trouble spots widespread, some decades old

    https://www.bostonglobe.com/metro/2015/08/20/new-law-casts-light-state-natural-gas-leaks/qJJPCjRZITc5ai0JeHNOqO/story.html

  33. Apneaman on Fri, 21st Aug 2015 3:55 pm 

    Another efficiency tall tale blown out of the water.

    Weatherizing homes costs twice as much as the benefits

    “Summary: In a randomized controlled trial of over 30,000 households in Michigan, where 6% of them received energy efficiency improvements, the cost of efficiency upgrades were about double the energy savings, with a negative -9.5% rate of return of annually.”

    http://energyskeptic.com/2015/weatherization-cost-ineffective/#comment-33561

  34. Apneaman on Fri, 21st Aug 2015 4:27 pm 

    Davy, I know you like, Paul Chefurka so I thought you might be interested in his excellent comment from another crazy people doomer blog.

    Paul Chefurka Says:
    “August 21st, 2015 at 5:58 am
    This short metaphor may prove usueful in helping people understand our situation.

    The human experiment is caught in what I have come to call a carbon trap. Our continued existence depends on the very thing that is killing us: the combustion of the planet’s ancient carbon stocks.

    We are in a cell whose bars are made of carbon. The door swung closed when the atmosphere reached 300 ppm of CO2, and the lock snapped shut 50 ppm later. There is no key that will re-open it.

    The trap was constructed well outside of our conscious view or understanding.

    It was designed by our evolved desires for status, material comfort and security.

    It was built with the best of intentions by well-meaning scientists and engineers whose knowledge of the consequences was both incomplete and obfuscated by their own evolved desires.

    The strength of the bars comes from the thermodynamics of carbon combustion – an energetic process with a very steep gradient. Once we descend that gradient we would have to harness over twice the energy to climb back up again. We need the energy to keep things running (which is the reason we burned the carbon in the first place), the same amount of energy to break the molecular bonds and turn the CO2 back into harmless carbon and oxygen, and a little more to pay the Pied Piper of Entropy.

    Most of us distract ourselves by creating and admiring elaborate appointments for our carbon-clad prison.

    Most of those who are aware of the bars spend their time dreaming of ways to slip through them into the world they can see outside. They face one insurmountable problem. While the light of awareness can slip between the carbon bars, our bodies cannot.

    Those who are fully aware of the trap understand that we now need it to survive. We are collective victims of what complex systems scientists call “path dependence”: where we came from and how we got here limits what is now possible for us to do.

    One of the things we can’t to is simply to open the door and leave. Even the fact that our carbon-barred prison is now on fire can’t change the cold equations. We are condemned to wait until the very walls burn down, when a few soot-blackened survivors may stumble out into the blasted and barren landscape left behind by the construction project.

    Have a nice weekend.”

  35. Boat on Fri, 21st Aug 2015 4:58 pm 

    apneman,
    Did they do a heat radiation before and after the retro fit? Did they do a vacuum test before and after? Where are the before and after tests. New construction many times fail to meet these tests because it is still not a mainstream way of checking the quality of the work.

    Think of the price of nat gas. If the US were paying 15-17 vrs 2.5 how much would that change the results. Homes are multi lifetime structures now due to tech. IF done correctly will efficiency not only drop your bill but place a hedge against souring costs of FF in a finite planet.
    The houses in the study couldn’t even participate in the study due to asbestos or lack of owner interest. Keep trying. Try and find a well done before and after audit.
    The vacuum test with just caulk and spray foam makes a big difference.
    Older and many newer homes vent the attic with soffit, a sealed house that controls mildew and humidity and temp uses fans, These attics use foam insulation on the ceiling, in the floor and in the joists of the crawl space. hese are the houses that do much better. Air conditioning ducts must be sealed and the rooms individually temp controlled. This is the future.
    I have talked to carpenters that work on government programs and they say some of them should have been tore down. But nobody will tell the government or the home owner that. They take their pay and slap the lipstick on it with no testing.

  36. Davy on Fri, 21st Aug 2015 5:45 pm 

    Profound shit out of the Ape man as usual! Great link!

  37. Davy on Fri, 21st Aug 2015 5:50 pm 

    Boat; come on and get a grip on modern life of limits and marginal returns on investments that are in decline. All those feel good efforts at efficacy are not necessarily cost effective. I have been saying this since I came on this site. That does not mean we should not try to be efficient just we need to cost benefit test it.

    Efficiency for the sake of efficiency is a modern illness. It is an excuse to spend money and try to be more technical. Big business loves it and sells it like snake oil. You bought into it Boat but Ape Man and I know better.

  38. Gravy on Fri, 21st Aug 2015 7:20 pm 

    Everything makes me think the world’s going to end. Oil prices up, oil prices down, stocks up, stocks down, everything and anything makes me think that!

  39. Makati1 on Fri, 21st Aug 2015 9:45 pm 

    Boat, what makes you think there will be ANY kind of fuel for your three vehicles? At least any you can afford to buy? And what good does cutting electric waste when there will be no electric unless you have a stand alone solar system on your roof? Just asking.

  40. Makati1 on Fri, 21st Aug 2015 9:46 pm 

    Gravy, at least you are accepting the possibility. Many on here are not. But unicorn hugging seems to be popular today.

  41. Davy on Sat, 22nd Aug 2015 6:49 am 

    Mak, you are the king of the Unicorn Huggers thinking your Makati 2 room is safe enough for you to make a quick exit to the jungle liar wading through 12Mil people to get there. I wonder how safe your jungle liar is in a country of 100Mil in the space of the great state of Arizona. Sounds like overpopulation with a potential famine and collapse everywhere you look.

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