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Page added on January 5, 2015
Top Five Factors Affecting Oil Prices In 2015
As we ring in the New Year, let’s take stock of where we are at with the oil markets. 2014 proved to be a momentous one for the oil markets, having seen prices cut in half in just six months.
The big question is what oil prices will do in 2015. Oil prices are unsustainably low right now – many high-cost oil producers and oil-producing regions are currently operating in the red. That may work in the short-term, but over the medium and long-term, companies will be forced out of the market, precipitating a price rise. The big question is when they will rise, and by how much.
So, what does that mean for oil prices in 2015? It is anybody’s guess, but here are the top five variables that will determine the trajectory of oil prices over the next 12 months, in no particular order.
1. China’s Economy. China is the second largest consumer of oil in the world and surpassed the United States as the largest importer of liquid fuels in late 2013. More importantly for oil prices is how much China’s consumption will increase in the coming years. According to the EIA, China is expected burn through 3 million more barrels per day in 2020 compared to 2012, accounting for about one-quarter of global demand growth over that timeframe. Although there is much uncertainty, China just wrapped up a disappointing fourth quarter, capping off its slowest annual growth in over a quarter century. It is not at all obvious that China will be able to halt its sliding growth rate, but the trajectory of China’s economy will significantly impact oil prices in 2015.
2. American shale. By the end of 2014, the U.S. was producing more than 9 million barrels of oil per day, an 80 percent increase from 2007. That output went a long way to creating a glut of oil, which helped send oil prices to the dumps in 2014. Having collectively shot themselves in the foot, the big question is how affected U.S. drillers will be by sub-$60 WTI. Rig counts continue to fall, spending is being slashed, but output has so far been stable. Whether the industry can maintain output given today’s prices or production begins to fall will have an enormous impact on international supplies, and as a result, prices.
3. Elasticity of Demand. The cure for low prices is low prices. That cliché can be applied to both the supply and demand side of the equation. Will oil selling at fire sale prices spur renewed demand? In some countries where oil is more regulated, low prices may not trickle down to the retail level. Countries like Indonesia are scrapping subsidies, which will be a boon to state coffers but will diminish the benefits to consumers. However, in the U.S., gasoline prices are now below $2.40 per gallon, more than 35 percent down from mid-2014. That has led to an uptick in gasoline consumption. In the waning days of 2014, the U.S. consumed gasoline at the highest daily rate since 2007. Low prices could spark higher demand, which in turn could send oil prices back up.
4. OPEC’s Next Move. OPEC deserves a lot of credit (or blame) for the remarkable downturn in oil prices last year. While many pundits have declared OPEC irrelevant after their decision to leave output unchanged, the mere fact that oil prices crashed after the cartel’s November meeting demonstrates just how influential they are over price swings. For now OPEC – or, more accurately, Saudi Arabia – has stood firm in its insistence not to cut production quotas. Whether that remains true through 2015 is up in the air.
5. Geopolitical flashpoints. In the not too distant past, a small supply disruption would send oil prices skyward. In early 2014, for example, violence in Libya blocked oil exports, contributing to a rise in oil prices. In Iraq, ISIS overran parts of the country and oil prices shot up on fears of supply outages. But since then, geopolitical flashpoints have had much less of an effect on the price of crude. During the last few weeks of 2014, violence flared up again in Libya. But after a brief increase in prices, the markets shrugged off the event. Nevertheless, history has demonstrated time and again that geopolitical crises are some of the most powerful short-term movers of oil prices.
* * *
For now the futyures curve remains convinced prices bounce back…
30 Comments on "Top Five Factors Affecting Oil Prices In 2015"
Perk Earl on Mon, 5th Jan 2015 3:39 pm
http://www.bloomberg.com/energy/
Speaking of oil prices, WTI just went sub-50, down $2.91 to 49.78
And Brent went down a whopping 3.55 to $52.87 a barrel!
The Dow went down 332 pts.
Things are headed south this winter.
Bob Owens on Mon, 5th Jan 2015 7:19 pm
The global economy is shrinking faster than wars and chaos can shut oil production down. All oil producers are having to produce flat out because of their budgets. My crystal ball says we have another 5 years of low oil prices just as we have had the last 5 years of high prices.
shortonoil on Tue, 6th Jan 2015 9:44 am
Top Six Factors Affecting Oil Prices in 2015 and Beyond
The impact of declining oil prices is well highlighted in this Bloomberg article:
http://www.bloomberg.com/news/2015-01-05/oilfield-writedowns-loom-as-market-collapse-guts-drilling-values.html
The price drop of the last six months is going to wipe $trillions off the balance sheets of oil producers all over the world. It is occurring very rapidly. The sixth factor that will affect petroleum prices for now, and into the future will be the balance point between what the consumer can pay. and what the industry needs to produce it.
There is a price at which the consumer can afford to purchase all the petroleum that is produced. Above that price there is surplus production. Below it shortages. That price is now $76/barrel. Because of depletion that equilibrium price is declining!
http://www.thehillsgroup.org/depletion2_022.htm
The graphs in the page above were constructed from the output of energy balance equations, and they correlate to the past 53 year price of petroleum almost perfectly (r=0.965).
The world’s petroleum production hit a critical point in 2012. It was the first time in the history of the oil industry that the consumer could no longer afford to purchase all of the petroleum produced at a price that the industry required for the volume it was producing. Prior to 2012 the consumer was always able to pay more than what the industry required. After that point the balance was made up wilt massive debt formation that is now coming back to haunt the industry.
The reparation of this accumulated debt can only be resolved through significant cuts in investment, and employment. The present drastic decline in prices is occurring to bring the consumer’s ability to pay, and the industries ability to produce back into equilibrium. The result will be a hollowed out industry with no capacity to increase production in the future.
http://www.thehillsgroup.org/
GregT on Tue, 6th Jan 2015 9:56 am
“My crystal ball says we have another 5 years of low oil prices ”
Hope your crystal ball is correct Bob. I for one, could certainly use another 5 years to prep.
Northwest Resident on Tue, 6th Jan 2015 10:00 am
“My crystal ball says we have another 5 years of low oil prices just as we have had the last 5 years of high prices.”
And my crystal ball says that if the price of oil stays below $50 – $60 range for even another six months, the price of oil in 2016 and beyond won’t really matter a whole lot to the majority of people in the world because whatever it is, they won’t be able to afford it. Not in a collapsed global economy. Not when the only producers left producing are government owned and/or legacy conventional, maybe, all or most of which will be in the rapid decline phase.
My crystal ball says that we are getting so close to the point of no return that there is nothing that can be done at this point to prevent a near term slide over the cliff’s edge and into full blown economic collapse. There’s nothing left to do but try to prepare for that big fall and a new lifestyle shaped in large part by where you are and what preparations you have made once you hit bottom — IF you hit bottom.
Oil below $50 today, and still nose diving. No bottom in sight. $20 per barrel being floated on a Yahoo top-of-page article as a possible bottom.
As goes oil, so goes our modern high-tech civilization. When oil is crashing you can bet that the global economy and our version of civilization is heading the same direction.
But what the heck? It never was sustainable. Our boom/bust civilization and global economy needed constant supplies of new energy to gorge on, to produce a glut of consumerism that could drive commerce through another boom cycle. Now, no more energy to gorge on, no more resources to exploit. Here comes the bust, the final one, the really big one. We are on the way down…
Apneaman on Tue, 6th Jan 2015 10:51 am
If we do get the really big one, then prepping is useless. Hungry people are desperate people, especially ones with children. Maybe if you hide out for a time or are in a fire proof, smoke proof bunker you might miss the first cull. What about the 445 nuclear power plants and spent fuel pools? As long as the tens of thousands of employees who run and maintain them stay on the job for you while chaos ensues, you’ll be fine when you come out of hibernation. Tell yourself.
Davy on Tue, 6th Jan 2015 10:58 am
One thing apparent is oil causes economic issues whether too high or too low. What is not apparent now to many is the profound implications of an oil price out of equilibrium currently.
We were in a stable disequilibrium during the bumpy plateau of the last few years. This artificial stability came from financial repression and debt. Those actions hit limits from diminishing returns. The other issue that has complicated this is the reduction in economic value of oil per Shorts analysis from depletion.
We really have a two fold predicament. This is the reason historic Econ 101 is not going to properly account for the results of this oil price fall. It is something new and unsolvable.
Laws of nature are now needed to explain this change. Alternative economics that accounts for systematic economic disequilibrium is also needed. Our traditional economic thinking is like our political system both broken and ineffective.
ghung on Tue, 6th Jan 2015 10:59 am
Apneaman: “If we do get the really big one, then prepping is useless.”
I don’t know. Seems like a challenge to me. Beats the crap out of sitting in a cubical hoping BAU can be fixed. It depends on your definition of useless, but prepping is a lot more fun, whatever the outcome.
Davy on Tue, 6th Jan 2015 11:02 am
AP, maybe or maybe not. This is uncharted waters in regards to collapse. I feel location, degree and duration will matter. I don’t think a general result is likely everywhere. No doubt all locals will suffer but it is apparent which locals have no future. If you are in one of those areas prepping may be a waste of time.
ghung on Tue, 6th Jan 2015 11:25 am
Location, location, location, and community makeup. It’s pretty easy to spot those who live in areas that have little hope of transitioning, much less adapting to ‘the big one’. There’s a break-point in population density relative to local resource availability; the point between where cooperation becomes impossible and competition will be the norm.
MSN Fanboy on Tue, 6th Jan 2015 11:37 am
The nuclear power plants have automated shutdown/sleep commands in the case of severe issues… like B.A.U. collapsing. They are designed to be temporary however will suffice in permanent shutdown.
What is much more likely is B.A.U. will be dead 100+ years when containment fails (not taking into account human stupidity/ natural disasters)
They will ‘leak’ radiation into their local environment for the next 1000+ years.
This idea that B.A.U. collapses and all nuclear power plants blow like atomic bombs two weeks later is wrong.
The trick is location, as Davy states above.
The bigger issue will be all the human beings that must die to bring humanity back in equilibrium with the planets resource base. A resource base that will already be depleted, so far at least 6+ billion will die within the first 20 years. Make no mistake, it will be back to the state of nature whilst the chaos ensues.
Remember those ‘civilised’ people who mocked you for believing in the reality of peak oil etc…
Let us see how civilised they are when the B.A.U. illusion shatters and they find no food in the supermarket, amongst other issues.
Perk Earl on Tue, 6th Jan 2015 11:43 am
“Hungry people are desperate people, especially ones with children. Maybe if you hide out for a time or are in a fire proof, smoke proof bunker you might miss the first cull.”
I think that’s probably very true, ap. Some people like Ghung and Davy are probably in locations and have prepped enough their families will make it through.
But even where we are in a community of about 4500 in a rural setting with a few other thousands of people 10 of miles in radius, I’m certain it will be a killing field. I think the young, teens and twenty something’s, will employ packs of dogs and systematically go from house to house gutting them of anything worthwhile, but also killing the residents. They won’t risk their own lives – they’ll bust out a window and send in the dogs, then come in to finish the job or shoot them as they burst out the doors.
I don’t think they will mess around just taking their food. At that point it will be like the hyena vs. the lions in a desperate fight for any food that remains. The lions or older folks will have more to begin with, but after the hyena’s get done with them they’ll be gone. That’s how the numbers will dramatically drop. Leaving the lions to starve will only cause the hyena packs more trouble later as they whine about what happened to them implicating the hyena packs and line up for govt. food. No, they will be nixed to make sure they don’t eat any food just like what happens in the Serenghetti.
Even after the initial culling when there are encampments lead by the ‘hyena’, lions will not be allowed in. They won’t be killed necessarily as they approach encampments (because that would be too embarrassing to kill them in front of all those people), just turned away. 99% of the people post collapse culling will be under 30.
But that’s probably not a bad thing because medicine will be in short supply and it will be a much more laborious life.
Northwest Resident on Tue, 6th Jan 2015 11:50 am
Perk Earl — Your house-to-house prediction is a little disturbing, should it come to pass. No doubt it will in some or even perhaps many areas. But one thing about that possibility — a pack of scavengers going house-to-house are going to hit a LOT of homes where the occupants are armed to the teeth. That scavenging pack WILL take casualties, and lots of them, moving from house to house. Even if they arm themselves which they probably will, their attrition rate will be substantial. That’s in a complete breakdown scenario. I continue to hope and believe that at least for the first wave of chaos, the military or police or both, or perhaps citizen groups banding together in neighborhoods to prevent just that sort of thing, will minimize what you’re talking about. I certainly hope so! Dude, don’t scare me like that!!
GregT on Tue, 6th Jan 2015 11:54 am
“But even where we are in a community of about 4500 in a rural setting with a few other thousands of people 10 of miles in radius, I’m certain it will be a killing field.”
Now try to imagine what the cities will look like. Millions of people living in close proximity, who depend on food supplies from hundreds, or even thousands of miles away. It makes me shudder just thinking about it.
ghung on Tue, 6th Jan 2015 12:41 pm
MSN: “They are designed to be temporary however will suffice in permanent shutdown.”
I’m not sure what nuke plants you’re familiar with, but the modern PWRs I worked on aren’t something you can just shut down and walk away from. There is no OFF switch.
Rita on Tue, 6th Jan 2015 12:51 pm
Perk, a communist style state would be more welcomed than chaos. Food rationing, vegetarinism, eating insects, peri-urban agriculture, urban agriculture, reruralisation can feed as much people as today with much less resources. I lived during communism. We consumed ten times less than the americans and we were not desparate.
ghung on Tue, 6th Jan 2015 12:53 pm
NWR: Yeah, I think Perk lives in the wrong neighborhood. In our rural county, people’s first, and last, reaction is to help each other. Maybe it’s just an Appalachian thing; part of the culture. It wasn’t so long ago that our area was a largely ignored backwater where everyone depended on each other, never thinking about how poor they were, nor coveting what others had.
“We didn’t even know we was poor until the Federal Government came in and told us we were.” [quote from the documentary “Mountain Talk”]
Share your last can of beans with someone.
Bandits on Tue, 6th Jan 2015 1:15 pm
When shortages begin, people will mostly wait at the place they think food comes from….the supermarket or gas station. They will wait for government help. Deliveries will gradually slow, the fighting and squabbling at those venues will eventually prevent more deliveries.
The government will support police and the military for as long as possible. Marauding and slaughtering are for times of plenty, when it’s not a case of survival. When the crash comes, everyone is in “the same boat”, there is no point killing everyone unless you are going to eat them. During famines people become weak, too weak to travel and maraud, especially if there are fuel and resource shortages.
By the time they realize that the government is not going to help it will be far too late. Pilfering and some localized killing will probably take place but gangs on the move pillaging and plundering is not likely IMO.
And water is a huge, huge issue. If the power goes, people will begin drinking bad water. If they have none or little water to drink, people will start succumbing very quickly, weeks or months at most.
GregT on Tue, 6th Jan 2015 1:17 pm
Rita,
You are correct. Try telling people that though and you will be burned at the stake. Decades of propaganda are not easily dismissed.
MSN Fanboy on Tue, 6th Jan 2015 1:55 pm
MSN: “They are designed to be temporary however will suffice in permanent shutdown.”
Sounds contradictory lol,
I never said there was an off switch too
GregT on Tue, 6th Jan 2015 2:07 pm
“This idea that B.A.U. collapses and all nuclear power plants blow like atomic bombs two weeks later is wrong.”
Yes it is wrong. If/ when cooling systems shut down, meltdown will not take weeks, and atomic bombs contain much less ‘fuel’ than nuclear reactors do.
Perk Earl on Tue, 6th Jan 2015 2:52 pm
“Now try to imagine what the cities will look like. Millions of people living in close proximity, who depend on food supplies from hundreds, or even thousands of miles away. It makes me shudder just thinking about it.”
Yeah, it will be crazy in the cities, I agree completely, GregT. For that I’m grateful for being in a more rural region.
The idea by some on this post of people working together will come later when the numbers have been reduced. But in the initial chaos before people get weak from starvation they will pillage. It happened for centuries and it will return. People will not go into that goodnight without a fight, and in the US we are talking about very well armed people with dogs. I know it’s scary, but people will take much greater risks when they’ve got kids at home screaming for food and the wife says, go get some food! Then they will band together with other young people to work as a team.
The police/military will be overwhelmed. The best they can hope for is to try and protect the wealthiest areas.
Our neighborhood is actually quite calm right now. What I’m referring to is what happens in the chaos – at night it will get wild. It has to because it will be a game of musical chairs of who can survive with less, much less.
GregT on Tue, 6th Jan 2015 4:24 pm
When I first started trying to wrap my head around the implications of societal breakdown, I read everything that I could get my hands on.
Police forces and military personnel historically have been among the first groups to become corrupt. Centralized control rapidly breaks down and these organizations already have the training and the tools at their disposal to take over. In a survival situation it is not normally the good Samaritans that rise to the top. We don’t lock our doors to keep the criminals out. We lock our doors to keep the honest people out.
There is good reason for the expression: ‘We are only 3 meals from anarchy.’
Perk Earl on Tue, 6th Jan 2015 4:36 pm
Interesting angle GregT. I’ve wondered what I would do if the police knocked on the door in a chaotic situation – answer it, or just try to carry on a conversation through the door?
For those that posted thinking I was being too dystopian, take a look at this link to what happened in a Canadian town when the polic/fireman went on strike:
http://content.time.com/time/magazine/article/0,9171,840236,00.html
Montrealers discovered last week what it is like to live in a city without police and firemen. The lesson was costly: six banks were robbed, more than 100 shops were looted, and there were twelve fires. Property damage came close to $3,000,000; at least 40 carloads of glass will be needed to replace shattered storefronts. Two men were shot dead. At that, Montreal was probably lucky to escape as lightly as it did.
The immediate cause of the outburst was a strike for more pay staged by the city’s cops and firemen.”
Then ck. out this link to photos of post Katrina. Want to talk about mayhem – oh my, the police with rifles, looting, and so on. Once things break down they go completely out of control.
https://www.google.com/search?q=crime+post+katrina&biw=960&bih=440&tbm=isch&tbo=u&source=univ&sa=X&ei=CGKsVLzCJdiryATBq4GQCA&ved=0CDIQsAQ&dpr=2
GregT on Tue, 6th Jan 2015 4:50 pm
I’m sure that everyone has heard of the Stanley Cup riots in Vancouver. 4.2 million dollars in damages because the Vancouver Canucks lost a hockey game. Now try to imagine food shortages.
Perk Earl on Tue, 6th Jan 2015 5:05 pm
Yeah, exactly. Food shortages will have the effect of taking off all the restraints. I had an Asian dentist fully familiar with peak oil and the probability of collapse and he was talking about the mayhem that took place in China at one historical point in time when society broke down. Some of the stuff turned my stomach.
I do remember the Vancouver riots – that was one of the most outrageous riots ever. It was mesmerizing and I remember the tv news glossed over the damage, but the newspaper had a lot of detail. people can get really wild especially in a mob.
People just don’t think in terms of wild type behavior occurring, because the oil age has masked it for so long, but once things go south, they will get really crazy.
antaris on Tue, 6th Jan 2015 5:26 pm
When the banks take a holiday and VISA stops working, look out!
I have known Firemen who have the attitude “let the fucker burn” if life or limb are at risk and no one needs saving. I know a couple of cops that would probably turn their back on the mayor, if the wife and kids were in danger.
Davy on Tue, 6th Jan 2015 6:11 pm
Ante, this is why the military may be deployed at some point. If that happens it will most likely be martial law with a general in charge overtly or covertly. The military will be the only reliable security force. Their families will be on protected bases. Many of the men are young and don’t even have families. These young men’s family is their platoon. I imagine there will be control of the police and other emergency services by the military.
The big question is how will the state and federal interact? Could we see a civil war situation in some areas? Many states are becoming increasingly anti-fed and for good reason. We should then consider will a soldier fight against his local? This whole collapse situation has multiple scenarios as far as security is concerned.
antaris on Tue, 6th Jan 2015 6:25 pm
And in Western Canada, virtually no military to speak of. I hope the cops don’t turn tail.
GregT on Tue, 6th Jan 2015 7:30 pm
“The big question is how will the state and federal interact? Could we see a civil war situation in some areas? Many states are becoming increasingly anti-fed and for good reason. We should then consider will a soldier fight against his local? This whole collapse situation has multiple scenarios as far as security is concerned.”
Hmmm Davy,
Sounds a lot like another former Union.