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Page added on August 16, 2014
Is Sub-$100 Oil the New Normal?
Even with conflicts sprouting up in the Middle East between Israel and Gaza, along with Northern Iraq, crude oil has managed to find itself well below the $100 per barrel mark. What happened to all those magazine covers that were plastered with fears of “peak oil” and oil crippling our economy at $200 a barrel?
Well the fact of the matter is oil prices have been going down. Even during the summer which is historically a stronger season for the commodity. Dollar strength and, more specifically, Euro weakness is partially to blame. But there are stronger issues at hand here.
Think about the modern, fuel efficient cars that are out on the road. The US auto fleet is the oldest its been in a generation. As these cars finally come off the road you’re going to find yourself behind the wheel of a car meeting very high MPG standards. Perhaps this is enough of a demand shock to offset any increase in the amount of drivers on the road globally.
Look at how oil prices have struggled as of late. After failing at the $106 per barrel mark, oil had dropped since mid-June to the $97 level it trades today. Yesterday it had dipped as low as $95.70. Even with today’s rally we find ourselves trading below not only the 50-day moving average, but also below the 200-day.
The question, is sub-$100 per barrel oil the new normal?
I don’t think so. I think $100 has been the standard for the last several years and price action above or below that point eventually finds its way back to the $100 mark. We may dip below, we may rise above, but eventually we find ourselves back to that level.
What do you think?
14 Comments on "Is Sub-$100 Oil the New Normal?"
Bob Owens on Sat, 16th Aug 2014 11:44 am
It is impossible to predict future oil prices. Everyone who has attempted to do so has failed. They will continue to fail. There are too many variables. The only thing we can be certain of is that people will respond to economic circumstances by shifting resources, delaying purchases or doing with less. At the moment people are driving less then they used to (they are doing with less).
jim anglin on Sat, 16th Aug 2014 3:02 pm
There is no “new normal.” Most everything is already abnormal and we’re just trying to wish it away in our delusional fantasies.
Davy on Sat, 16th Aug 2014 3:22 pm
Gav, you change your name to Jim?
Poordogabone on Sat, 16th Aug 2014 7:08 pm
The only reason oil price is sticking around $100 is demand from china and other emerging economies. without that, prices would be in free fall not because of car efficiency but a faltering economy in the west.
Without China, tight oil would come to a grinding stop unless government intervention. But go ahead National Geo, everything is rosy and prices are low because of efficiencies and technology.
Makati1 on Sat, 16th Aug 2014 8:14 pm
Bob, people in the US may be driving less, but the new drivers in China, India and other developing countries are making up for it and then some. Oil prices are locked between what consumers can afford and what it costs to get it to the gas station with enough profit to keep investors from bailing.
rockman on Sat, 16th Aug 2014 9:03 pm
Sadly more mindless dribble IMHO. “…crude oil has managed to find itself well below the $100 per barrel”. What does that mean? Is “well below” $95/bbl? $85/bbl? $60/bbl? Typical BS of such articles: use non-defined metrics in grandiose statements.
As Bob seems to imply the future price of oil will depend on a myriad of factors none of which are readily known. Just as no one (and no one predicted in 2000 a boom in shale production because no one predicted $90+/bbl oil. Just as no one is predicting $60/bbl oil in 2018 resulting in a huge drop in shale drilling. Will that actually happen? Will that happen? I don’t know it for a fact. Nor does anyone else.
Nony on Sat, 16th Aug 2014 9:16 pm
Rock, the author answers your how much question:
“Look at how oil prices have struggled as of late. After failing at the $106 per barrel mark, oil had dropped since mid-June to the $97 level it trades today. Yesterday it had dipped as low as $95.70. Even with today’s rally we find ourselves trading below not only the 50-day moving average, but also below the 200-day.”
Otherwise, I agree article is basically a technical trading horserace report (silly).
Harquebus on Sat, 16th Aug 2014 10:07 pm
The economy will collapse long before lower EROEI kills production. The world’s economies have already demonstrated that they can not afford $100/bl oil.
Nony on Sun, 17th Aug 2014 7:19 am
We’ve had that price for several year now. Why expect some economic reaction now after so long. I agree it’s a brake. But a brake we’re already living with.
rockman on Sun, 17th Aug 2014 8:33 am
H – “The world’s economies have already demonstrated that they can not afford $100/bl oil.” Some can…some can’t. Some can handle $140/bbl. And 15 years ago some economies couldn’t handle $35/bbl.
It’s a big club with a wide degree of variations between members.
Davy on Sun, 17th Aug 2014 8:48 am
Rock, yes and no. The yes is there will initially be winners and losers but no because eventually the global BAU system will fracture and diminish and maybe collapsed leaving everyone poorer and oil prices who knows where.
Poordogabone on Sun, 17th Aug 2014 9:01 am
For the tens of million americans that can not afford a car therefore are priced out of the job market, the collapse has already happened.
Nony on Sun, 17th Aug 2014 9:43 am
Ride the bus.
https://www.youtube.com/watch?v=vQTuYo6HmiQ
Harquebus on Sun, 17th Aug 2014 5:13 pm
rockman.
Trade depends on transport depends on oil.
All economies will suffer.