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Goldilocks price?

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

Goldilocks price?

Unread postby onlooker » Sat 20 Oct 2018, 09:03:48

Just curious currently what oil price or price range is mutually acceptabe to both oil producers and consumers particularly in OECD countries? A price or price range that allows Economies to function adequately or in a healthy manner. Especially in light of this statement by a oil industry insider "  At $80 a barrel, BP says oil prices are “unhealthy for the world”

https://qz.com/1429680/bps-ceo-bob-dudl ... -too-high/
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Re: Goldilocks price?

Unread postby Outcast_Searcher » Sat 20 Oct 2018, 15:37:19

onlooker wrote:Just curious currently what oil price or price range is mutually acceptabe to both oil producers and consumers particularly in OECD countries?

Given how much is bought, sold, and burned every week, apparently whatever price we've experienced for many decades has been "mutually acceptable" to both producers and consumers, generally. Despite ALL the Cassandra predictions over the decades, BTW.

Over time, the market says a lot more about prices than various lip flapping and predictions. And the signals and incentives it sends helps keep supply and demand in balance, over time. Imagine that.

Oh, and if the price truly gets high enough over time to meaningfully "hurt" the global economy, that's a huge incentive to accelerate the production and mass purchase of various classes of BEV's. Having alternatives will be good for oil consumers. For producers over time, perhaps not so much.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Goldilocks price?

Unread postby evilgenius » Sun 21 Oct 2018, 11:48:57

I think Onlooker is asking what the current equilibrium is, not whether the concept is valid. My answer would be that with US interest rates rising whatever price will tend to be lower. Since oil is traded in dollars, with the value of the dollar going up the rest of the world won't be able to afford so much oil unless it gets cheaper. The US is producing more oil now, so it taking up the slack and engendering demand isn't as logical as it once was. Mind you, the US will export more oil than ever as well. That whole business of being self reliant is such bs.

Unless the Fed changes policy the range will probably head down. Now, I'm discounting the ability of foreign economies to make changes in response, of course. They can do a lot of things, like reduce fuel taxes or provide subsidies in order to make oil cheaper for their own people or businesses. But those would be more radical responses. I wouldn't expect to see those unless the stock markets actually tank, not simply go into correction. Because that's the other thing, the prices of things are almost all due to what happens in markets for them.

The amount of money available to those markets is determined in large part by interest rate policy. One could say that rates, especially as they rise, are the only storage place where there is really any value. They do compete with things like gold for that distinction. But gold is indestructible and rates are transitory instruments. When rates are moving up there is less money available to many markets because of what traders have to do in consideration of that stored value, where else they should put their money. That might be cash, the stock of companies that will benefit from a downturn, utility or other interest paying stocks or privately owned cash cows. Most investment instruments usually suffer under a rate rising regimen, especially commodities. Growth stocks suffer the most because they need cheap rates in order to drive their business models. Cheap rates incubate. Gold even suffers, though that's perhaps in the long term. Gold can see a lot of upside if there is too much turbulence in more ordinary investments and investors run to it out of fear. Bond prices would be falling, so they wouldn't be a very attractive investment to run to in comparison, except in the very short term, as in huge stock market sell offs.

My guess is that when oil hits $50, or the DOW $20,000, the Fed will stop raising rates.
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Re: Goldilocks price?

Unread postby ROCKMAN » Mon 22 Oct 2018, 11:17:43

Outcast - "...apparently whatever price we've experienced for many decades has been "mutually acceptable" to both producers and consumers..." Or as I would more bluntly put it: as far as the petroleum industry views the dynamic there is no such thing as a "goldilocks price" for oil. I had prospects that were still economic to drill when oil fell to $30/bbl a few years ago. Just not as many as when oil was $100/bbl. But when oil was $100/bbl I had many projects that still weren't economic to develop.

From the consumer view point perhaps a price that generates enough new oil production equal to the amount of oil production lost due to decline from depletion. But complicated to quantify. First, the lag time. Second the effect of global economic activity and thus demand and that affect on prices. Third, the difficulty distinguishing between increased production from new wells and increases from existing wells that is ramped up.

I'll let you and others figure it out. Not worth my time since no one has the ability to set whatever that magical number might be. The feedback loops do that. And no one can control those complex dynamics IMHO.
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Re: Goldilocks price?

Unread postby Outcast_Searcher » Mon 22 Oct 2018, 12:29:34

ROCKMAN wrote:I'll let you and others figure it out. Not worth my time since no one has the ability to set whatever that magical number might be. The feedback loops do that. And no one can control those complex dynamics IMHO.

Excellent point, and that was mainly the idea I was trying to get at. Speculating on that is about as useful as speculating on how many angels can dance on the head of a pin. And besides, experience has shown us that a pretty wide range of prices are "reasonably" acceptable, re the global economy functioning pretty normally, over time.

Although large price shifts upward produce a huge amount of WAILING, the idea that it is anywhere near the economic calamity so many claim is just nuts. As I've said repeatedly, a recession (like those experienced with the price shocks in the 70's) is an inconvenience -- not a calamaty. And a big part of that is that it was handled poorly, with gas lines instead of letting the market work.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Goldilocks price?

Unread postby evilgenius » Mon 22 Oct 2018, 23:51:10

This is a good opportunity to introduce something that is important, but can be forgotten. Math is makes a difference in life. When I was in high school various people said we would never use math again. More recently, I encountered the same relative certainty amongst my fellow college students. Both times they were wrong. When it comes to rates it is necessary to be able to do at least basic math. More importantly, it is paramount that a person going through changes or calamities be able to figure out exactly when to determine that the climate of investment has changed. A person, in a neutral climate, can accept all forms of input as positive. When the climate turns negative, however, you must be able to determine where the boundaries lie between what constitutes a viable option for your time versus what constitutes a waste of your time.
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Re: Goldilocks price?

Unread postby GHung » Thu 25 Oct 2018, 11:50:17

Right. The "Goldilocks Zone" ......

U.S. Shale Has A Glaring Problem

Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of U.S. shale companies are still struggling to turn a profit.

A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute detail the “alarming volumes of red ink” within the shale industry.

“Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting negative free cash flows through June,” the report’s authors write. The 33 small and medium-sized drillers posted a combined $3.9 billion in negative cash flow in the first half of 2018. ....
https://oilprice.com/Energy/Energy-Gene ... ews+Update)


Energy Market Update:
Red Flags on U.S. Fracking
Disappointing Financial Performance Continues

Executive Summary

Despite two and a half years of rising oil prices and growing expectations for improved financial results, the U.S. fracking sector continued to spill alarming amounts of red ink during the first half of 2018. .......
http://ieefa.org/wp-content/uploads/201 ... r-2018.pdf
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Re: Goldilocks price?

Unread postby Tanada » Thu 25 Oct 2018, 12:21:50

I have been seeing these reports of the shale companies being money losers for seven years running and naturally at first I took them as accurate. The thing is the sharp price drop in 2015 bottoming in January 2016 cleaned out most of those companies that were actually mismanaged. The ones who survived until 2017-18 are the ones with good management and they are not losing money hand over fist or they would not still be in business. All claims otherwise are just doomer wish fulfillment run amok. NOBODY constantly loans money to businesses year after year that lose money, doing so inevitably leads to a bankruptcy claim and loss of assets. Make no mistake, plenty of money ran down the rat hole in 2014-15 and into 2016, but the majority of companies are either making money or cooking their books because nobody would be loaning them funds for more well drilling and completions otherwise.
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Re: Goldilocks price?

Unread postby GHung » Thu 25 Oct 2018, 12:40:06

Tanada wrote: ........ NOBODY constantly loans money to businesses year after year that lose money, doing so inevitably leads to a bankruptcy claim and loss of assets. Make no mistake, plenty of money ran down the rat hole in 2014-15 and into 2016, but the majority of companies are either making money or cooking their books because nobody would be loaning them funds for more well drilling and completions otherwise.


Tell that to Elon Musk. Or maybe you think there's no history of people continuing to invest in losing enterprises. That's why we have sayings like "In for a Penny, In for a Pound", or "Throwing Good Money After Bad", or "There's a Sucker born every minute".......

Get real, Tanada. Somebody kept throwing money at Sears long after it was clear they were a loser. But maybe you want us to think the oil biz is somehow different.
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Re: Goldilocks price?

Unread postby onlooker » Thu 25 Oct 2018, 12:49:00

Tanada ,certainly your assertion has much merit to it. However, the economic mileu is one of free and loose lending nowadays.And, given the importance of the energy from oil, one should expect special leeway to finance Unconventional oil and gas. Also, cooking the books does seem plausible. And still the numbers are pretty staggering in terms of the economic hemorraging on the part of Shale companies.
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Re: Goldilocks price?

Unread postby GHung » Thu 25 Oct 2018, 13:12:57

Tesla may pay off in the long run, as I'm sure some of these oil producers will, but that doesn't keep me from posting articles which show that many of these companies are running at a deficit and are at the mercy of gamblers, or those who bank on dividends funded by debt. One thing I'm absolutely sure of; this economy will flip back on its ass and those who are operating in a deficit will be the first to perish. These days of cheap money are limited. Common sense, that. If they can't operate in the black during the best of times, it's a sure bet they won't when the financial SHTF.
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Re: Goldilocks price?

Unread postby evilgenius » Fri 26 Oct 2018, 11:22:27

I probably should have said something more like $18,000 on the DOW. 20k is an apparently easy target, and that's without figuring in what a strong dollar will do to business at home. I mentioned above how it will impact those trying to purchase dollar denominated assets abroad. It will also put a crimper on those repatriating money from overseas. I think the Fed wants the ten year at something like 5%.
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Re: Goldilocks price?

Unread postby ROCKMAN » Sat 27 Oct 2018, 15:08:09

Tanada - "...leads to a bankruptcy claim and loss of assets." For the benefit of those ignorant of US bankruptcy law I feel the need to point out that assets are rarely lost. Of the 80+ oil companies that filed Chapter 11 bankruptcy I found only one that had assets liquidated...Chapter 7. All the rest of the corporations that came out of the filing not only with all their assets intact but typically in very good financial shape: $billions in debt and hundreds of $millions of interest payments eliminated. Typically the unsecured bond holders suffered the real financial loss. But that's the risk they take for getting interest payments 3X to 8X the fed rate at the time. Can't take the pain...don't play the game. LOL.

As much as folks bitch about the govt being business friendly they have no clue how generous the federal bankruptcy laws are.
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