Just a little more than a year ago oil was still 110 a barrell

[KevinNYC]

http://econintersect.com/images/2014/9/17341987image16.png
Russian Ruble hit hard. Canadian and Norwegian currency dropped.
http://marketbusinessnews.com/wp-content/uploads/2014/11/WTI-prices.jpg

Oil prices keep plummeting (http://www.vox.com/2014/11/28/7302827/oil-prices-opec) as OPEC starts a price war with the US

Today West Texas oil is $42 a barrel and Brent is $48 a barrell.

[~primetime~]

Supposedly China is driving prices down now.

Their economy is crap right now, thus they drive less, thus less demand for oil. Supplies are increasing.

[~primetime~]

Gas prices will be sub $2.00 in December


I don't think oil will ever go up to $110 again, not anytime soon any way. Population increase will eventually increase the demand for oil though.

[KevinNYC]

Venezuela is in really bad shape. Their currency is in rough shape and their foreign holdings are mostly in gold. So they are getting battered by a drop in both oil and gold prices.

Headlines include words like implode and hyperinflation. These are real headlines

Venezuela Is Running Out of Beer

Shortages in Venezuela mean priests are running out of Hosts

No beer, no communion? yikes.

[KevinNYC]

For Norway, Oil at $50 Is Worse Than the Global Financial Crisis

[KevinNYC]

The costs of OPEC’s plan to protect members' share of the oil market by out-producing rivals are mounting.
As oil prices slump to six-year lows, the risks of worsening political turmoil are rising in the organization’s most vulnerable nations. This includes Algeria, Iraq, Libya, Nigeria and Venezuela, a group dubbed the `Fragile Five' by RBC Capital Markets Ltd.
The pain doesn’t end there. With even Saudi Arabia facing its biggest budget deficit in almost three decades, consultant Petromatrix GmbH says the plan to produce at full throttle was a “strategic mistake.”

[Bandito]

Gas prices will be sub $2.00 in December


I don't think oil will ever go up to $110 again, not anytime soon any way. Population increase will eventually increase the demand for oil though.
But the birth % are going down so that means population is decreasing no?

[B-hoop]

The problem isn't really the Chinese economy, there economy isn't going to shit, they just aren't going to grow 7%+ yearly like they have been doing for the last 20+ years.

The bigger problem is a supply glut, and not low demand (though demand is indeed lower than what was expected) caused by the shale revolution in the U.S.

OPEC (led by Saudi Arabia) is trying to kill american shale oil companies by oversupplying the market instead of cutting production to keep prices high.

Its a game of resistance, most OPEC countries need oil at around 80$ to finance their budgets so they are using their reserves to keep the country running for now, but those reserves aren't infinite.

And in the same way, most shale oil companies don't have positive cashflows because of the high level of investment needed and so depend on the debt markets to live. With the FED probably raising interest rates some time this year we could see the interest paid by the shale companies raising to unsustainable levels and forcing them into bankrupticy.

Saudi Arabia, which is really the country that matters in OPEC, can survive with oil prices this low until 2017 when their FX reserves should end (that is if they keep their budget deficit constant). There are also some wildcards like Venezuela, Libya or Russia imploding and decreasing their production but these decreases would only be momentary, they need to produce and sell as much oil as they can to survive, the price doesn't really matter since most of the investment has already been made.

[RidonKs]

OPEC (led by Saudi Arabia) is trying to kill american shale oil companies by oversupplying the market instead of cutting production to keep prices high.
well first and foremost its trying to undermine any potential source of revenue that could stream into isis. the american shale revolution is older than isis and the saudi's didn't start flooding supply until a year or two ago.

[Godzuki]

The problem isn't really the Chinese economy, there economy isn't going to shit, they just aren't going to grow 7%+ yearly like they have been doing for the last 20+ years.

The bigger problem is a supply glut, and not low demand (though demand is indeed lower than what was expected) caused by the shale revolution in the U.S.

OPEC (led by Saudi Arabia) is trying to kill american shale oil companies by oversupplying the market instead of cutting production to keep prices high.

Its a game of resistance, most OPEC countries need oil at around 80$ to finance their budgets so they are using their reserves to keep the country running for now, but those reserves aren't infinite.

And in the same way, most shale oil companies don't have positive cashflows because of the high level of investment needed and so depend on the debt markets to live. With the FED probably raising interest rates some time this year we could see the interest paid by the shale companies raising to unsustainable levels and forcing them into bankrupticy.

Saudi Arabia, which is really the country that matters in OPEC, can survive with oil prices this low until 2017 when their FX reserves should end (that is if they keep their budget deficit constant). There are also some wildcards like Venezuela, Libya or Russia imploding and decreasing their production but these decreases would only be momentary, they need to produce and sell as much oil as they can to survive, the price doesn't really matter since most of the investment has already been made.

i agree with this. all of the newer startups and smaller oil producers without tons of cash flow are going to get taken out with the low oil prices first. even some big producers have so much money tied up and debt they may go under, more specifically Venezuela's state sponsored oil. opec has tons of cash flow so they can bleed the competition into BK/default.

in the end the US is winning. more than few of our enemies rely on oil and they're going thru major issues due to the oil glut. even if oil goes back to previous lower supply levels we can always encourage the startup of oil companies to recreate a glut.

[KevinNYC]

Russia's economy contracted 4.6% last quarter and is expected to be down over 3% for all of 2015.

Ruble is back up to like 66 to the dollar.

[KevinNYC]

well first and foremost its trying to undermine any potential source of revenue that could stream into isis. the american shale revolution is older than isis and the saudi's didn't start flooding supply until a year or two ago.
yes, but it didn't spread and spread and spread until we had an oil glut until last year.

and I highly doubt first and foremost the saudis are trying to undermine ISIS.

[B-hoop]

in the end the US is winning. more than few of our enemies rely on oil and they're going thru major issues due to the oil glut. even if oil goes back to previous lower supply levels we can always encourage the startup of oil companies to recreate a glut.

I also think that in the end OPEC will blink first, the earnings released by most shale companies show that they have been able to reduce CAPEX while increasing production (new technologies allowing for lower costs and gains of efficiency).

I think the countries that will be most impacted by the low oil price will be marginal producers like Brazil, Russia, Canada, Norway and the UK because the CAPEX needed to develop their reserves are a lot higher than what is needed for shale, their investments take longer to complete (an oil platform costs billions of dollars and takes years to be built) and production rate is lower (on the other hand their wells last for decades). Problem is that the longer timeframe screws up the FCF that the investment would generate making them unattractive with these prices.

So without any new production coming from these countries and OPEC we should see the supply glut diminishing over time. Still, prices will only rise up to the level needed for new shale developments to become attractive. Shale oil companies marginal cost has become the new limit for oil prices because of how quick they can increase their production compared to other types of oil exploration.

[B-hoop]

well first and foremost its trying to undermine any potential source of revenue that could stream into isis. the american shale revolution is older than isis and the saudi's didn't start flooding supply until a year or two ago.

The Saudis didn't start flooding the market, shale oil companies flooded the market, the Saudis (and OPEC as a whole) just haven't decreased their own production like they normally did in other decades.

[RidonKs]

yes, but it didn't spread and spread and spread until we had an oil glut until last year.

and I highly doubt first and foremost the saudis are trying to undermine ISIS.
yeah? isis presents the strongest competitor to powerful saudi interests in a really long time. the only issue probably treated with more seriousness than isis is domestic stability, meaning maintaining power for the family dictatorship.

what didn't spread and spread and spread?

[KevinNYC]

yeah? isis presents the strongest competitor to powerful saudi interests in a really long time. the only issue probably treated with more seriousness than isis is domestic stability, meaning maintaining power for the family dictatorship.

what didn't spread and spread and spread?
The shale revolution started before last year, but it hadn't spread enough to be a threat until last year.

Iran is a much, much bigger concern for Saudi Arabia than ISIS

[RidonKs]

The shale revolution started before last year, but it hadn't spread enough to be a threat until last year.

Iran is a much, much bigger concern for Saudi Arabia than ISIS
disagree entirely. they have a common enemy, so for the time being, they'll work together. the 'first and foremost' prioritization of isis above all other thorny foreign policies is as much a tactic as it is an endgame. iran may be competition, but iran is an internationally recognized state and they aren't going anywhere. isis came out of nowhere and can still be put down, or so the saudi state clearly believes, given its role in the conflict. additionally they are at odds ideologically meaning there isn't much demographic overlap for followers.

you might be right. i know more about geopolitics than price wars over energy. nevertheless, i think you're overestimating the threat of shale to the saudi state, which is not exactly on the brink of bankruptcy.

[sundizz]

Interestingly, oil prices seem to have a correlation with a recession. Summarily, oil price are higher during a recession. I'd buy into oil at whatever lowest I could and simply wait it out for a recession. It'll eventually happen and spike oil to over 80. Doubt electric cars etc are going to take over in the next 10 years (not before another mini recession at least).

[KevinNYC]

Interestingly, oil prices seem to have a correlation with a recession. Summarily, oil price are higher during a recession. I'd buy into oil at whatever lowest I could and simply wait it out for a recession. It'll eventually happen and spike oil to over 80. Doubt electric cars etc are going to take over in the next 10 years (not before another mini recession at least).

What are you buying? Are you buying actual oil? Because then you have to find a place to warehouse it and store it and that takes money.

There were hedge funds that did this. They would buy a supertanker of oil and not deliver the oil, just pay the tanker for months and months of use.

It only pays off if you have money you can tie up for periods of time, the cash flow to keep up expenses and if the difference in price makes up for all of the above and would be higher than just say, buying an sp500 index fund.

Also oil prices in the recession following the financial crisis went way down and the slowing of China's economy is bringing prices down today. So it's not an exact correlation.

[RidonKs]

What are you buying? Are you buying actual oil? Because then you have to find a place to warehouse it and store it and that takes money.

There were hedge funds that did this. They would buy a supertanker of oil and not deliver the oil, just pay the tanker for months and months of use.

It only pays off if you have money you can tie up for periods of time, the cash flow to keep up expenses and if the difference in price makes up for all of the above and would be higher than just say, buying an sp500 index fund.

Also oil prices in the recession following the financial crisis went way down and the slowing of China's economy is bringing prices down today. So it's not an exact correlation.
why do you say were?

[KevinNYC]

Ruble hit 71 to a dollar.

Oil went below $40

China stock prices just dropped 8% and then 7% again which means probably less demand for oil in China.


From Venezuela to Iraq to Russia, Oil Price Drops Raise Fears of Unrest (http://www.nytimes.com/2015/08/25/world/from-venezuela-to-iraq-to-russia-oil-price-drops-raise-fears-of-unrest.html)
Mr. Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion in oil sales because of the price decline over the last year.

“The apparent weakness in the Chinese economy is radiating out into the world,” said Daniel Yergin, author of two seminal books on the history of the oil industry, “The Prize” and “The Quest.”

“An awful lot of producers who enjoyed good times were more dependent on Chinese economic growth than they recognized,” Mr. Yergin said. “This is an oil shock.”

Although the price drop has most directly hurt oil exporters, it also may signal a new period of global economic fragility that could hurt all countries — an anxiety that already has been evident in the gyrating stock markets.

[KevinNYC]

Venezuela has an election coming up in December. I think it will get ugly there very soon.

9 Opposition Candidates Barred From Venezuela’s December Ballot (http://www.nytimes.com/2015/08/24/world/americas/9-opposition-candidates-barred-from-venezuelas-december-ballot.html)

[~primetime~]

Oil up 16% over the last two days.

Now over $45 a barrel

[KevinNYC]

Oil is $44 a barrel and according to OPEC (http://finance.yahoo.com/news/opec-us-shale-boom-over-124228588.html) it won't be that low much longer. OPEC is claiming victory over shale.


The US shale boom is grinding to a halt.
In its latest monthly oil-market report, published Monday, the 12-member oil cartel OPEC said US oil producers were finally beginning to feel the squeeze of lower oil prices.

OPEC writes: "In North America, there are signs that US production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly US production falls."

OPEC slashed its forecast for US production in 2015 by 100,000 barrels a day to 13.75 million.

Not so fast according to Goldman Sachs, US producers have proven themselves to be resilient. it could go as low as $20 (http://www.businessinsider.com/goldman-sachs-huge-supply-and-weak-demand-could-send-oil-prices-plunging-to-20-per-barrel-2015-9)[QUOTE]The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth,.......Goldman's base case