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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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The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Tue 09 Jul 2013, 18:29:03

The Set Up For a Collapse of Oil Prices

Chatham House warns that the price of oil is heading for a crash similar to the one in the mid-1980s, when world oil prices fell by over 50%, writes Damon Evans.

THE oil price is heading for a crash reminiscent to the 1986 collapse, when world oil prices fell by over 50%, an energy economics expert from UK think tank Chatham House warned.
Professor Paul Stevens, who is also a specialist on the political economy of the Gulf States, told the Australian Petroleum and Exploration Association (APPEA) conference that the oil price is heading for a big fall over the next one to two years.

He had that while there are striking similarities to the price collapse in the period 1981-86, this time around, he believes the correction will happen in a much shorter space of time and it will rebound quicker too.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 09 Jul 2013, 19:27:10

He's wrong.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Tue 09 Jul 2013, 19:58:43

SeaGypsy wrote:He's wrong.


They didn't believe it would happen in 86 either.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby pstarr » Tue 09 Jul 2013, 20:15:32

John_A wrote:
SeaGypsy wrote:He's wrong.


They didn't believe it would happen in 86 either.
It didn't. The oil-price crash in occurred in 1980-1985, a consequence of North Slope, North Sea coming online. '86 was actually the bottom of the last and final cheap-oil boom. It's pretty obvious, huh? John. Why not stop trolling

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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Tue 09 Jul 2013, 20:25:44

LOL, good headline graeme but without a subscription we have no idea why Stevens thinks what he does.

He was the guy who thought there was "peak investment" back in '08
This report argues that unless there is a collapse in oil
demand within the next five to ten years, there will be a
serious oil ‘supply crunch’ – not because of below-ground
resource constraints but because of inadequate investment
by international oil companies (IOCs) and national oil
companies (NOCs).

http://www.chathamhouse.org/publication ... iew/108872

The OilCos spent several hundred percent more the last 5 years than the 5 before and only netted a couple of percent increase in "liquids". I'm thinking there may be some "below-ground" constraints after all.

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Re: The Set Up For a Collapse of Oil Prices

Unread postby Subjectivist » Tue 09 Jul 2013, 20:37:30

If it costs $75.00 per barrel too produce the tight oil from shale formations wouldn't that put a solid floor on how low prices can fall?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Oily Stuff » Tue 09 Jul 2013, 20:42:36

Actually, "they," we, some of us anyway, did see it coming in 1984-5 and planed for the arising. Rather the alowering. It's cyclic all this crude oil stuff, fairly predictable; like tides in the Kenai. Here is an old S. Texas oilfield proverb to remember, that the EIA seems to have allowed to get plumb over its tiny little government minds ...what goes up, always comes down.

Don't get me to lying about 2008 though. That still gives me the heebie jeebies.

We are going to see a significant correction in oil soon enough, but not 50%. Not enough demand deterioration and not near enough supply glut, in spite of the tight oil hubbub, for that to happen. There are about 9 bbls. of spare production capacity in the entire world right now. Actually, those shale dudes need a big dose of 70 dollar oil for about 5 months. That will teach those wanks; they need to get off their high horses. Actually, Americans needs a little reality check too. It is not high oil prices that will lead to conservation, it is lots of little, yellow plastic bags stuck on gas pump nozzles that will get them headed away from the shopping mall toward conservation.

The dude who wrote this article must bunk with Danny Yergin on road trips.
Last edited by Oily Stuff on Tue 09 Jul 2013, 21:01:23, edited 2 times in total.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Tue 09 Jul 2013, 20:48:16

I've been arguing that for a while now sub...

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post1147217.html?hilit=price%20collapse#p1147217


LOL Oily! What do ya really think about those Wanks?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Tue 09 Jul 2013, 21:25:14

Sub – “If it costs $75.00 per barrel too produce the tight oil from shale formations wouldn't that put a solid floor on how low prices can fall?”

Of course not. My crude buyers don’t pay me on the basis of how much I spent to get it out of the ground. They don’t even have a clue. Otherwise they would be paying more for my oil from one well that cost me $110/bbl to develop than my other well 1,200’ away from the first well that cost me $40/bbl to develop. No: they pay me exactly the same for the oil from both wells: $93/bbl last month.

Same can be said of all those Haynesville Shale players that spent $6+/mcf to develop NG they eventually sold for less than $3/mcf.

It’s the price of oil that sets the level of drilling in every play. And that’s how it has worked since the dawn of the oil industry.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Tue 09 Jul 2013, 21:31:41

Paul Stevens wrote a report with a similar title in 2008 - "The Coming Oil Supply Crunch".
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Re: The Set Up For a Collapse of Oil Prices

Unread postby westexas » Tue 09 Jul 2013, 21:36:59

Since 1998, we have seen three year over year declines in annual Brent crude oil prices:

1998: $13
2001: $24
2009: $62

In other words, we have seen, since the Late Nineties, a cyclical pattern of higher annual highs and higher annual lows, with successive annual lows being about twice, or more than twice, the previous low. Specifically, 2001 exceeded 1998 by 85%, while 2009 exceeded 2001 by 158%.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=A
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Tue 09 Jul 2013, 21:44:25

WT, Would you agree with Paul Stevens that an oil price drop is imminent within a year or 2? And perhaps judging from the pattern you've described, we could expect quite a substantial fall.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 09 Jul 2013, 21:53:30

Graeme wrote:He had that while there are striking similarities to the price collapse in the period 1981-86, this time around, he believes the correction will happen in a much shorter space of time and it will rebound quicker too.


In other words, a 'dip' not a drop. If that's all he's talking about, what is the point? (As Pops said, behind a paywall, it's a bit hard to discuss specifics. Doubt anyone here will pay just to discuss.)
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Tanada » Tue 09 Jul 2013, 22:00:04

westexas wrote:Since 1998, we have seen three year over year declines in annual Brent crude oil prices:

1998: $13
2001: $24
2009: $62

In other words, we have seen, since the Late Nineties, a cyclical pattern of higher annual highs and higher annual lows, with successive annual lows being about twice, or more than twice, the previous low. Specifically, 2001 exceeded 1998 by 85%, while 2009 exceeded 2001 by 158%.


Wes, what kind of a decline do you think is realistically possible? If it doesn't pay to drill Tight Oil then nobody will drill it for a while until prices recover, but how long will that take? Not that I find the idea of $60.00 oil terrible or anything, I just don't think there is enough $60.00 oil to meet demand.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Oily Stuff » Tue 09 Jul 2013, 22:02:13

I wish, as Mr. Rockman reminds us, the powers that be could have always set a price floor for me to sleep on. I would never, ever have plugged 100 wells or more in my career that were making 2 BOPD. I wish to hell and back I had them right now. I would be posting on PO.com from a villa in France and not in a stinking hot trailer on a very buggy night in S. Texas trying to regain lost circulation. Will somebody please send me some cotton seed? How about crushed walnuts shells? Panty hose and sash cord? Hep!!

Mr. Pops, I would dearly like to tell you someday, humorously or not, how the shale oil industry (wankers they are) has forever changed my life and all the lives of everyone else in the oil industry, forever. For the worse, not the better. I am your huckleberry; just tell me when.

Mr. Westexas, respectfully sir, are you implying that perhaps more than a 50% correction indeed is forthcoming? Tell me and I will rig this puppy down right now.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby C8 » Tue 09 Jul 2013, 22:28:48

if oil prices dip, these are reasons it may not be very steep or long lasting:

1. The Chinese will buys gobs to put in their storage facilities

2. Speculators will just buy tons to store in docked oil tankers to resell when the rebound comes

3. Shale drillers cutting back will bite into supply very quickly given steep 1-2 year depletion rates on wells

4. Airlines will get lots of business from low fares that entice long distance vacation starved Americans

5. The poor and working poor will drive more because they can afford the gas

6. SA will cut back ("for future generations" of course)

7. Nations that were being forced into cutting gas subsidies to their citizens will keep them or increase them

8. Bill McKibben will buy a used Hummer

The only thing I can foresee that overcomes these forces is a massive increase in unemployment- and I mean MASSIVE!

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Re: The Set Up For a Collapse of Oil Prices

Unread postby John_A » Tue 09 Jul 2013, 23:15:12

Subjectivist wrote:If it costs $75.00 per barrel too produce the tight oil from shale formations wouldn't that put a solid floor on how low prices can fall?


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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 09 Jul 2013, 23:50:57

There is nothing solid about the floor, but it is very important to the USA and I suspect heavily influences geo-politics. My bet is the floor will stay as long as the shale/ sands/ tight plays don't fall off a cliff. Also I bet when they do, the only price movement will be up.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby westexas » Wed 10 Jul 2013, 07:20:31

For all,

I think that most of you misunderstood what I was saying, primarily because my missive was poorly worded. Note that I am talking about the price levels reached during price declines, and not the magnitude of the decline.

Empirically since the late Nineties, the price level reached during each successive year over year decline in annual Brent crude oil prices significantly exceeded the price level hit during the prior year over year decline in annual Brent crude oil prices.

If the prior pattern holds, the next year over year decline in annual Brent crude oil prices would bring prices down to roughly somewhere between $115 and $160.

If we look at rates of change instead of simple percentage increases, the 1998 to 2001 rate of increase was 20%/year, and the 2001 to 2009 rate of increase was lower, at 12%/year:

1998: $13
2001: $24
2009: $62

Here are the successive annual Brent peaks, following price declines:

2000: $29 (40%/year rate of increase, 1998 to 2000)*
2008: $97 (20%/year rate of increase, 2001 to 2008)

So, in recent years the rate of increase in annual Brent peaks (prior to declines) has been between 20%/year to 40%/year, while the rate of increase in annual Brent lows has been between 12%/year and 20%/year. In other words, a cyclical pattern of higher annual price highs and higher annual price lows.

If we see an annual Brent price decline in 2013, the 2009 to 2012 rate of increase in prices ($62 to $112) would have been about 20%/year, and the 2013 annual price level would presumably not fall below $100 (based on prior rates of change).

*As annual Brent prices were increasing at 40%/year from 1998 to 2000, the Economist Magazine ran their $5 oil price cover story, in 1999.

Note that the following recent article posted on Peakoil.com is on point:

The Shale Oil Revolution Is Already Ending And Oil Prices Are Going To Surge
http://peakoil.com/production/the-shale-oil-revolution-is-already-ending-and-oil-prices-are-going-to-surge
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Re: The Set Up For a Collapse of Oil Prices

Unread postby TheAntiDoomer » Wed 10 Jul 2013, 07:28:03

^Yawn, another "shale boom is ending" article, only to be proven wrong over the next few years.
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