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The Set Up For a Collapse of Oil Prices

General discussions of the systemic, societal and civilisational effects of depletion.

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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Fri 30 Aug 2013, 18:25:52

Russia prepares budget for oil drop

With increasingly oil markets volatile, Russia’s Ministry of Finance has come out with a game plan. The Ministry sees oil,the backbone of Russia’s economy, falling to $80/bbl from 2016 to 2030, down from two–year peak of $115/bbl.

The overall strategy is based on the assumption oil prices will fall, and the budget will not return to pre-crisis levels, but will meet all state needs, Vedomosti reported after receiving the document pre-publication.

Russia’s economy hasn’t expanded since the fourth quarter of 2011, and the Kremlin, which has tried its best to deny a forthcoming recession, has amended its budget to get ready for slowed economic activity.

Russia recently lowered its 2013 economic-growth forecast from 2.4 percent down to 1.8 percent, the second amendment this year. In Q2, the economy expanded 1.2 percent.

The most optimistic trajectory assumes a short – term drop in oil to $60 per barrel from 2016, with quick price recovery to follow.

Less favorably, oil will steadily plateau at $80 per barrel.

All of the three scenarios, however, involve a cut in budget spending, as well as lower revenues. If the oil price falls sharply, Russia plans to dip into its Reserve Fund – mainly to finance infrastructure developments.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby radon1 » Fri 30 Aug 2013, 19:07:05

The current Russian government, except for 1 or 2 people (and except Foreign/Security ministries who report directly to Putin) are a bunch of complete morons who should rather be totally ignored. The likelihood is that they are going to be let go not too long from now, so any "prediction" that they make is just another trick for them to substantiate yet another swindle to grab yet another piece of loot one more time before they are kicked off for good. They know it, and everyone and the oldest babushka in the farthest Russian village knows it. This time they appear to be targeting the budget and the Reserve Fund to "finance infrastructure development" - i.e. to transfer public funds to various personal accounts outside Russia.

Having said that, the current oil pricing is formed in the futures market which is orders of magnitude greater than the market for the physical oil. So no one really knows what the fair price of the physical oil is. Making predictions up to 2030 is a pretty useless exercise in the circumstances. No one really knows where the price of oil settles if and when the futures bubble bursts. Maybe substantially lower, maybe substantially higher, maybe something in between.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Sat 31 Aug 2013, 06:42:11

Oil futures for 2020 are at $80 today.
Oil is worth $100 right now (not counting the war premium) so that's about a 3% per year discount.
Sounds like the gamblers think oil will be at least $100 in 2020.
It has come down from $90+ a year ago however.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Plantagenet » Sat 31 Aug 2013, 06:57:22

The price of oil will collapse if the global economy collapses as occurred in 2009

Otherwise oil continues to steadily increase as it has mostly done for the last 14 years

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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Sat 31 Aug 2013, 08:03:50

P - IMHO any prediction of future oil prices is, for the most part, a prediction of future economic health. Whatever excess production that may exist in the world today I don't believe it's large enough to spur a price war. Oil prices may not drop as low as it has in previous economy crashes. With fewer supplies available and SOME economies in much better shape than others prices might not retreat too far. Consider the world today: many economies are in the toilet...Greece, Portugal, MENA countries et al. Yet enough other economies are doing well enough to pay $100+ per bbl. Would the balance point be this price when the global economy can only afford to buy, say, 75 million bopd? Less maybe? Maybe even more? If the oil exporters lose that much of their sales volume there will be great pressure on them max their income. Since they couldn't flood the market with huge volumes of oil to ramp up cash flow their only option would be to maintain high prices. But then there's the question of how well the healthier economies would be doing if many smaller economies are in severe trouble. But then there's the wild cards: China et al that may be able to afford oil prices the healthier would have trouble with in a global.

Thank goodness I not one of those folks driven to make predictions. LOL
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Tue 03 Sep 2013, 17:57:39

Syria strike could send oil prices tumbling, (yes tumbling)

Believe it or not, a Syria strike could send oil prices tumbling -- yes tumbling.

That may seem counter-intuitive, but that's exactly what Cramer is hearing from Carley Garner, the co-founder of DeCarley Trading and author of A Trader's First Book on Commodities.

She tells Cramer that historical patterns would suggest a strike should generate some watershed selling.
Looking back two years, when the US went into Libya, the price of oil domestically dropped by 10% almost immediately. And after America invaded Iraq a decade ago, oil futures tumbled 15%.

That's largely because oil prices tend to rally in anticipation of an attack, but after it happens it becomes a 'sell the news' event.


Looking at how sharp the decline may be, Garner says there's every reason for crude to decline down to $96 and adds if that level doesn't hold, the next level of support should be $90.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Fri 25 Oct 2013, 16:34:34

Oil’s $5 Trillion Permian Boom Threatened by $70 Crude

Bryan Sheffield, a third-generation oil wildcatter in Texas’s Permian Basin, knows what he’ll do if crude drops to $80 a barrel: shut down half his drilling rigs and go on a takeover hunt for weaker rivals.

Sheffield is among producers who’ve together invested $150 billion in the Permian since 2010 seeking their piece of an oil trove estimated to be worth as much as $5 trillion. As the money pours in, risks are mounting of a bust as analysts including Marshall Adkins of Raymond James & Associates Inc. forecast crude is heading down to $70 a barrel next year, a price that would slow drilling in the most expensive U.S. shale formation.

While traditional wells have been drilled in the Permian since the 1920s, producers have become giddy over the potential of the region’s vast overlapping layers of oil-soaked shale rock. Pioneer Natural Resources Co. estimated the remaining yield at the equivalent of 50 billion barrels, more than any field on Earth except Saudi Arabia’s Ghawar. The varied geology, though, makes it more costly to explore and develop.

“That’s the double-edged sword,” said Benjamin Shattuck, an analyst at Wood Mackenzie Ltd. in Houston. Multiple oil zones layered one atop another provide ample potential for riches, “but you also have to be a knowledgeable and good operator in order to drill economic wells out there.”

If oil drops another 18 percent to $80 a barrel, wells in some parts of the Permian that sprawls beneath Texas and New Mexico will become money-losers, said Tim Rezvan, an analyst at Sterne Agee & Leach Inc. in New York.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Mon 28 Oct 2013, 17:13:55

Will the world run out of oil?

One of the most discussed topics in the energy sector is “Will the world run short of oil?”. This question, often in the form of ‘peak oil’, has been the topic of discussion across the industry for decades and a driver of key decisions made not only in the oil industry, but across the energy sector and wider economy.

Whilst oil demand has increased significantly over the past four decades, accessible reserves are actually increasing every year thanks to increased explorations for both conventional and unconventional oil and improved technology such as horizontal drilling.

Technological improvements have been the main driver for increased reserves as conventional oil producers expanded their operations to deeper, further and harsher locations. For instance, average depth of exploratory wells across the globe has increased, and countries such as Saudi Arabia are further developing their off-shore production.

Ultra deep water rigs and explorations in the Arctic regions, and deep water drilling from pre-salt reservoir in Brazil are good examples of this increased investment in conventional oil production.

Furthermore, rising oil prices are supporting oil production from unconventional sources, leading to an even more diverse source of supply. In fact, global unconventional recoverable resources, estimated to be 3.3 trillion barrels, is larger than conventional resources currently estimated by the International Energy Agency to be 2.7 trillion barrels.

Total oil supply growth will be driven by non-OPEC countries and unconventional sources of oil, which will provide the world with sufficient oil to last over another 100 years.



While these are expected outcomes, black swan events which change the dynamics of an industry may occur. Therefore, we also analysed potential game changers which might prove one or all of our predictions wrong. In particular, technological innovations such as a biofuel revolution triggered by algae based feedstock, cheaper and accessible renewable energy and a more consumer friendly electric car industry are real threats to oil consumption in the long run, which may lead to lower demand and therefore lower prices.

Ultimately, we hope that an understanding of the trends and risks associated with the oil industry will enable producers, businesses and governments alike to develop effective and sustainable strategies that can withstand these black swan events while delivering maximum results.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby Beery1 » Tue 29 Oct 2013, 05:24:54

Really Graeme? You're posting a 'running out of oil' article here? That takes some balls.

Do you still really think peak oil is about running out of oil, after all the time you've spent here?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Tue 29 Oct 2013, 09:45:51

Beery1 wrote:Really Graeme? You're posting a 'running out of oil' article here? That takes some balls.


What? So the discussion of peak oil isn't allowed to encompass how BADLY it has turned out? Does it take balls to note that peak oil allegedly came and went (a couple of times depending on which prediction you want to use) and we still suffer endlessly from traffic jams, what with the fuel shortages being as bad as they are? :lol: :lol:

Reality first, apocalyptic pipe dreams second, and when viewed that way, Graeme is noticing the obvious...peak oil....it ain't doin' quite what was expected. Worse yet, according to TOD editors, it turns out it wasn't even peak oil.

You can have your own opinion, but not your own facts. Graeme seems to recognize that quite well, quite the open minded individual it would seem.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Sat 02 Nov 2013, 16:14:43

World’s quest for cheaper oil may end post-2020

The world’s quest for cheaper crude may well end sometime in the next decade with the fast-improving horizontal drilling and hydraulic fracturing technology, popularly known as fracking, leading to global oil markets being flooded with the relatively inexpensive shale oil, say energy experts.

The market glut, they say, would then exert downward pressure on the international oil prices as there would be more crude supply than demand.

As matters stand, only the US and Canada are producing oil and natural gas from shale in commercial quantities. The shale oil and gas has transformed the energy outlook in the US

Last month, China surpassed the United States as the world’s largest importer of crude, according to the US government, as the rise of domestic output cuts the US dependence on overseas oil. This development marks a paradigm shift as it shows the world’s largest economy is slowly but surely moving towards its goal of self reliance in oil.

However, the impact of shale energy on the rest of the world has been negligible so far. The experts say continuous improvements in drilling and increases in the number of drill rigs capable of fracking should allow oil and gas production to continue growing in the US, and eventually allow other countries to start producing shale oil.

“Increases in production, both from conventional sources, such as Iraq and Libya and unconventional sources, such as shale oil in the US and ultra deepwater off the coast of South America could mean that the world is awash with oil in five years time. In addition, increases in efficiency, especially in automobiles, should mean that demand for oil from developed countries stagnates, whilst demand from emerging economies could be much less than anticipated. The upshot is that we expect oil prices to decline significantly over the next five years. Indeed, we expect oil prices to be at $70 per barrel by the end of the decade,” Thomas Pugh, Commodities Economist at The London-based research firm Capital Economics Ltd told Gulf News.

Ann-Louise Hittle, the US-based Head of Macro Oils Research for Wood Mackenzie told Gulf News they have studied the potential resources of shale oil globally and “it could lead to even further gains in non-Opec supply after 2020 than we are currently forecasting.”

“However, the development of this resource outside North America is still at the very early stage and it is difficult to assess the ultimate potential. This means the paradigm shift is much more likely to be well after 2020, if it were to occur,” Hittle added.


As per the estimates, there are technically recoverable shale oil resources of 345 billion barrels in 42 countries that were surveyed, or 10 per cent of global oil supplies. The assessment showed that Russia has the largest shale oil resource, with 75 billion barrels, followed by the US at 58 billion, China at 32 billion, Argentina at 27 billion and Libya at 26 billion barrels.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Sat 02 Nov 2013, 18:22:13

"The world’s quest for cheaper crude may well end sometime in the next decade with the fast-improving horizontal drilling and hydraulic fracturing technology, popularly known as fracking, leading to global oil markets being flooded with the relatively inexpensive shale oil, say energy experts."

I hope like heck we don't need to explain the absurdity of that statement to anyone on this site.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Sat 02 Nov 2013, 19:22:58

Amen.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Sat 02 Nov 2013, 23:13:14

ROCKMAN wrote:"The world’s quest for cheaper crude may well end sometime in the next decade with the fast-improving horizontal drilling and hydraulic fracturing technology, popularly known as fracking, leading to global oil markets being flooded with the relatively inexpensive shale oil, say energy experts."

I hope like heck we don't need to explain the absurdity of that statement to anyone on this site.


Which part? Peak oil gave us $148 in July of 2008. Since then we have been handed copious amounts of production and here is the nominal price since then.

This week ended at what, $94? "Cheaper crude" is certainly encompassed in the idea of it being 35% less expensive then before. Now, as to whether or not this can carry on until 2020....not sure. But cheaper crude? Sure. Been there. Done that.

http://invezz.com/news/commodities/6474 ... OMC-stance
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Re: The Set Up For a Collapse of Oil Prices

Unread postby dolanbaker » Sun 03 Nov 2013, 05:30:52

At what price point do shale operations shut down?
Ronald Coase, Nobel Economic Sciences, said in 1991 “If we torture the data long enough, it will confess.”
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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Sun 03 Nov 2013, 10:12:38

John - Try to stay up with the facts. The $147/bbls and $10+/mcf's lead to an economic crash. That lead to demand destruction that dropped oil below $40/bbl and eventually NG to $2.50/mcf. That killed drilling activity. Eventually oil prices increased over 200% with NG increasing by 150%. The price boom of '08 help create the basis for today's HIGH oil prices. Unless you wish to argue that $98/bbl isn't higher than $40/bbl.

But you're certainly welcome to agree that $300/bbl will lead to increased consumption and not a global recession... and that will lead to increased drilling that will lead to lower oil prices... and despite those lower prices companies will continue the drilling boom...have at it. Me...I'll stick my personal fantasy of zero calorie Blue Bell ice cream. LOL.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Sun 03 Nov 2013, 10:15:13

dolanbaker wrote:At what price point do shale operations shut down?


Shale gas was being produced back in 1825 when the price of natural gas was....unknown? Certainly shale oil from the Devonian was happening in the Ohio Valley circa 1880 or so, and the nominal price of oil was pretty low. The new, more expensive shale oil, lets say 200,000 barrels for a well, undiscounted, balances against $5 million dollar drilling costs at maybe $25/bbl. Of course, companies don't get to keep the value of everything they produce, so it must be higher than $25/bbl. Maybe $40/bbl?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Sun 03 Nov 2013, 10:25:02

ROCKMAN wrote:John - Try to stay up with the facts. The $147/bbls and $10+/mcf's lead to an economic crash.


No more than $30/bbl did back around 1980. Todays $147 was yesterdays $30...what will next decades crash point be? And when gas hit more than $10/mcf back in 2005...there wasn't a crash. You did say facts, and that is certainly one of them.

Rockman wrote:But you're certainly welcome to agree that $300/bbl will lead to increased consumption and not a global recession... and that will lead to increased drilling that will lead to lower oil prices... and despite those lower prices companies will continue the drilling boom...have at it. Me...I'll stick my personal fantasy of zero calorie Blue Bell ice cream. LOL.


I certainly didn't say anything about $300/bbl. There was a presentation at the 33rd Oil Shale symposium given by some resource expert or another and he had an interesting price scale on his cost supply curve. Certainly if you were to provide an industry cost supply curve we could discuss the price of oil in the context of other resources in the future...but I haven't ever seen you cough one up. Do you have one, or do you just enjoy speaking of the generalities because the instant you actually provide that curve, it pins you down? Versus ice cream comparisons, which say nothing about what the price of oil would have to be to bring on these other resources? You know, like the folks building bottoms up price models and such to access those resources, an idea you have already endorsed....much to the chagrin of those doing even more arm waving on this issue (I won't tell them how proper your general answer is versus theirs, don't worry :) ).

I throw this one out as an example, but there are obviously others. This right here says how high prices have to be for things to work. And $300/bll...it ain't on the scale.

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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Thu 06 Mar 2014, 18:48:56

Why the price of oil may be about to tank

Which is why it’s so refreshing—and to be frank, scary—to talk with Bob Hoye, the Vancouver-based financial analyst, professional crisis spotter and student of the long view. Ask Hoye about where oil prices are headed and you’ll be taken on a journey through the coal panic of the 1860s, the collapse of the late-19th-century bubble in whale oil and the energy crisis of the 1970s. Hoye has a knack for looking past the hype in any market and determining when mania has reached a fever pitch. In 2005 he began warning of a recession on the horizon. By mid-2007, when most forecasters expected a mild correction in U.S. house prices, he predicted, “This is likely the biggest train wreck in financial history.”

So what does Hoye see coming down the pipe for oil, that sludgy lifeblood of the Canadian economy? “Somewhere in the next couple of months the price advance in crude will probably have maxed out for this business cycle,” he says. “It’s easy to say that crude oil could fall to 25 per cent of its recent high. It will change things enormously.”


There are several elements to Hoye’s forecast for a 75 per cent drop in prices, but let’s focus on just a couple. Perhaps most important is the energy revolution under way around the world. You’ll have heard of peak oil, the theory dating back to the 1950s and embraced with great enthusiasm last decade, that petroleum extraction will hit a wall as recoverable supplies run out. You’ll also notice you don’t hear much about it anymore. That’s because new discoveries and technologies for extracting petroleum, like hydraulic fracturing, have sparked a boom in production. The U.S. is on track to produce more oil this year than at any time since the 1980s.

A similar story has played out in natural gas. Barely a decade after America feared it was running out of recoverable natural gas, the U.S. is now producing more than it has at any time in its history. The result has been a collapse in prices, from around US$15 per million British thermal units in 2008 to below US$3 by 2012. (The price has recovered to about US$5.) Yet despite the sharp rise in oil production, light crude prices have mounted a bumpy climb from their post-recession low of US$34 a barrel to around US$102 today. If Hoye is correct, that price could soon tumble to around US$25 a barrel, invariably bringing the price of Alberta crude with it.

The second part of Hoye’s forecast rests on the craziness playing itself out in the futures market, where, as the name suggests, traders place bets on the future price of various commodities. While America’s energy revolution has been under way the past few years, he notes, large speculators have continued to believe oil prices have nowhere to go but up. Hedge funds and institutional investors have taken the largest net long position on crude in history, meaning they’re more bullish that prices will go up than ever before. Yet at the same time, commercial traders, who represent companies involved in the production and consumption of crude—and who use futures to protect their profits against falling prices—have their largest net short position in history, meaning they expect prices to drop. “These markets get distorted when you approach a top,” he says. “We’re at a point where it’s close to changing.”


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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Thu 06 Mar 2014, 21:26:35

"...technologies for extracting petroleum, like hydraulic fracturing, have sparked a boom in production". Once again, the great LIE. Or, if I'm feeling generous, the great MISCONCEPTION. I'm sure most here are as tired of hearing it as I am saying it: it was high oil prices that caused the boom in oil production. The high oil prices that justified the use of known technology in known oil producing trends. Anyone who honestly believes that our production increase can be maintained if oil prices tank is beyond hope IMHO.

Which isn't to say there isn't a potential for a collapse in oil prices. It would happen for the same reason oil prices fell 70% the last time: a severe global recession as we had in the mid 80's.
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