Peak Oil is You
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Page added on October 2, 2014
Cheap oil ‘a mirage’ and heading to $140
Don’t bank on cheap oil, MercBloc President Dan Dicker said Wednesday.
Brent crude oil prices this week dropped 2.4 percent to $94.83 per barrel and West Texas Intermediate saw a 3.6 percent decline to $91.16 a barrel. Meanwhile, the U.S. dollar hit a four-year high.
On CNBC’s “Halftime Report,” Dicker called cheap oil prices “a mirage.”
“If you put up any chart for any currency you like against the dollar—put up the euro, put up the yen, put up the pound, put up whatever you like—you see a ski slope. And that’s really what’s been affecting oil,” he said. “And that, to me, is a financial connection that is specious at best. When it works, it works. But when it doesn’t work, it fails spectacularly. This is one of those moments when it’s really working. The dollar continues to get stronger and continues to force oil lower. But I tell you, this is a mirage, and this is why: It’s all about future production.”
27 Comments on "Cheap oil ‘a mirage’ and heading to $140"
steve on Thu, 2nd Oct 2014 8:22 am
oil predictions are just that “Cheap” and a waste of time….we might be heading into the mother of all depressions and we will not see this oil prediction….we know the shit is coming we just don’t know when…my guess was 2013….
westexas on Thu, 2nd Oct 2014 8:50 am
In any case, by definition, we have depleted the remaining volume of what I define as the post-2005 Cumulative volume of Global Net Exports of oil, what I call Global CNE (Cumulative Net Exports).
The question is, by what percentage?
Based on the 2005 to 2013 rate of decline in the combined ratio of production to consumption in the (2005) Top 33 net oil exporting countries, which fell from 3.8 in 2005 to 3.1 in 2013 (at a ratio of 1.0, net exports = zero), I estimate that we burned through about 30% of post-2005 Global CNE in the eight year period from 2006 to 2013 inclusive.
wildbourgman on Thu, 2nd Oct 2014 9:01 am
I think I’ve had the same prediction for a while. It hasn’t come true yet but that’s why I try not to put a date on it. I think we are going to see a severe recession or worse and then you’ll see Shale drilling and completion(fracking)SHUT DOWN very quickly. I think you’ll even see some major offshore projects be paused, until the Operators can reprice rig rates and services to reflect the downturn.
After that I’m thinking we’ll see QE-4 and we’ll see just how fast shale wells deplete. That’s when the $140 a barrel comes into play. That’s my gut feeling!
ghung on Thu, 2nd Oct 2014 9:03 am
Meanwhile, WTI dropped below $90 this morning. I wonder if the shale players are getting nervous.
wildbourgman on Thu, 2nd Oct 2014 9:28 am
I think that Shale players will get nervous once their source of cash flow gets nervous. I don’t think that Shale is the problem it’s the economies ability to pay for it that’s the problem.
Ralph on Thu, 2nd Oct 2014 9:56 am
Oil demand is going to fall sharply in the coming months. Ebola is not going to be constrained and as soon as it is apparent that is in the wild outside of Africa international aviation is going to go into freefall.
We are going to see some major financial games in the coming months.
wildbourgman on Thu, 2nd Oct 2014 10:00 am
Ralph I agree with your thoughts. Now how do I make money off of that line of thinking?
Not really I’m too chicken$h!t to take that risk. How do I not go broke and protect myself based on that line of thinking?
Makati1 on Thu, 2nd Oct 2014 10:03 am
I still believe that 2020 will see a drastically different world. And it will NOT be a George Jetson world. It will be a level world economically and somewhere much closer to 3rd world than first.
$140 oil or $60 oil. Both will end the can kicking forever. Are you prepared?
Northwest Resident on Thu, 2nd Oct 2014 10:03 am
“WTI dropped below $90 this morning.”
My guess is, if truth be told, the shale players knew going in that their business plan depended on massive debt accumulation and ultra-high price per barrel of oil that were unsustainable in the long run, and that their gig would be up sooner rather than later. I’m not so sure they’re as much getting nervous over that drop in WTI as they are saddling up and preparing to haul ass into the sunset, just like they knew they’d have to do eventually anyway.
Who might be getting a little nervous over continuing drop in WTI is Saudi Arabia, Russia and other oil exporting countries who totally depend on that oil revenue to keep their budgets balanced and their restive populations placated.
steve on Thu, 2nd Oct 2014 7:26 pm
“Saudi Arabia, Russia and other oil exporting countries who totally depend on that oil revenue to keep their budgets balanced and their restive populations placated.” If any of those countries go down then it is trouble for the United States as well…the infrastructure in the U.S is the worst…We should expect the price to boomerang a lot from here on out…
Nony on Thu, 2nd Oct 2014 9:23 pm
Lot of stories tonight about possible price war for OPEC. Maybe oil dropping to 60. Oh, please oh please!
Davy on Thu, 2nd Oct 2014 9:56 pm
Noo, can you live without Marcee cause that is what $60 will do to her. She will be down.
pat on Thu, 2nd Oct 2014 10:01 pm
‘$140 oil or $60 oil. Both will end the can kicking forever. Are you prepared?’ it says it all. 2015 is the year the world to look very different.
wildbourgman on Thu, 2nd Oct 2014 10:21 pm
I think $60 would cause $140.
Apneaman on Thu, 2nd Oct 2014 10:40 pm
Shale Oil Boom Breaking Down
http://www.dailyimpact.net/2014/10/01/shale-oil-boom-breaking-down/
Perk Earl on Fri, 3rd Oct 2014 3:04 am
The price of oil has recently dropped down a lot. When Brent broke below 100 I thought it would quickly rebound back up above 100, but instead it kept going down below 95! Does this recent drop in price have anything to do with anticipating QE ending in late October? Is the price of oil dropping because there is a fear the end of QE will spell the end of the stock market’s bull run? Something fundamental has to have changed, because oil price was fairly stable for a long time.
meld on Fri, 3rd Oct 2014 4:05 am
Oil isn’t as in demand because the global economy is crumbling. An interesting thing seems to be happening, each time we get a collapse in the economy the price of oil drops, the economy recovers slightly and oil prices rise again (but not too its previous peak) Even so this new lower peak is still too much for the crumbling economy. Personally I expect oil prices to move downwards or stay in this zone for the foreseeable future, which is why I don’t focus on price when discussing peak oil
indigoboy on Fri, 3rd Oct 2014 4:46 am
@ meld
I think you are right, indeed I believe the price of oil is in a kind of ‘Goldilocks’ range. Too high to afford, and/or too low to be economic to drill for. If we assume for a moment that the Goldilocks range is $140 ~ $65, we sometimes assume that the global ‘kill price’, is going to be close to $140. But it can just as easily be $75, whereby $75 is too low to drill for the marginal oil, whilst simultaneously, $75 is also too much for an over indebted planet to function on and thrive?
Nony on Fri, 3rd Oct 2014 6:28 am
IF I have to choose between high price and Bakken boom or low price and Bakken bust, that is a no brainer. I want to buy cheap gas for my 20 yo sportscar. If Rock has to retire, boohoo. Power to the people!
Nony on Fri, 3rd Oct 2014 6:34 am
Oh…and Davy, please keep up. Marcy is a gas girl, not oil. And it is the lowest cost gas. [Sells for $2 in the field, given the pipeline constraints.] It wins at the expense of others! Kicked Rock gas drilling butt out of the GOM. It wins at the expense of Haynesville, Canada, GOM, lower 48 conventional, etc. Only associated gas from oil drilling is more cost advantaged. Marcy will be just fine. She has kicked Art Berman’s ass but hard.
Davy on Fri, 3rd Oct 2014 6:48 am
QE has compressed the oil goldilocks range. It has allowed unnatural growth and de-growth through debt on both sides of our PO dynamics. We see producers enhanced by QE debt and low cost of money to aggressively exploit the higher cost oil resources. The consumer side of the economy has seen a stubbornly high oil price in relation to a real aggregate economic carrying capacity. We see a bifurcated economy of the %ers and then everyone else. The %er’s have had the ability to continue an economic growth through asset appreciation, asset arbitrage, and carry trades. This has maintained a Ponzi economic growth with various market bubbles and macroeconomic wealth transfer for the %ers. Everyone else is seeing their major assets decline in real value mainly the middleclass home. Everyone else is experiencing inflated cost in major cost areas of healthcare, education, food, and stubbornly high energy costs. The compression on Main Street is with a weak underlying economy. The average small business and middle class consumer is not growing in this new normal economy of manipulated cost of money and debt based arbitrage of assets and carry trades. The bulk of the economy is unable to absorb higher cost of anything without consumption tradeoffs. Oil being a fundamental element of all products and services is limited in its long term price level for the broader based economy. The oil producers are now dependent on an oil price being high enough to cash flow the high production cost of the new oil sources. Oil nationals are using an ever increasing share of their oil production to fund national budgets. The Oil producers countries’ budgets are increasing with increased social costs. The world is interconnected and interdependent yet, oil producers and consumers often act in different directions especially when under stress. Markets are ambivalent to oils rise or fall. As QE ends expect a dysfunctional market to develop. The debt supported market growth we have seen will increasingly become unstable. What little trickle down growth we saw into the broader economy will dribble into an overall economic malaise. The compression of oil’s goldilocks range will seek its lower limits as the economy sputters. Diminishing returns has hit QE and debt based growth. QE diminishment will results in the gradual shut-in of high cost production from lower demand growth and higher cost of capex interest cost. It is a lose lose proposition. There are no tools left to boast any part of the economy at this point. QE has out lived its usefulness. Any further QE applications could be far more dangerous and destabilizing especially a on/off type application. Confidence will suffer with mixed signals from the top. Markets cycle and there is no reason to believe this fundamental economic basic has changed.
Davy on Fri, 3rd Oct 2014 6:51 am
You bitch slapped me again NOO as I deserve from talking too much. but munch on the above word salad and tell me what you think.
marmico on Fri, 3rd Oct 2014 7:42 am
Everyone else is seeing their major assets decline in real value mainly the middleclass home
Let a little light into the darkness of the doomstead, Davy-boy. Try data instead of word salad.
House prices are rising and household debt service ratios are declining.
Nony on Fri, 3rd Oct 2014 7:51 am
In all seriousness, I don’t read it unless you put in paragraph breaks, Davy.
Davy on Fri, 3rd Oct 2014 8:36 am
Noo, that is the Davy word salad bullet. It is like poetry. You know like a sonnet or an ode. If you make it too readable you can’t baffle the Corn-tellects. The NOO and Marms of the world have exceptionally large brains that can’t be fooled into thinking anything is wrong with the world even with word salads. Yet, of course marm buys the %er propaganda that all is well with the housing market. Marm do you realize the distortions and manipulations of those numbers. Marm fires back “davy-boy numbers are numbers. OK, Marm, whatever you say. Sounds like a poor attempt at covering up your cognitive dissonance acid reflux that I have noticed more and more exhibited by the cornies.
Nony on Fri, 3rd Oct 2014 12:20 pm
I asked you to do para breaks before and you said, don’t bother reading it (and I wasn’t reading it already). I’m not trying to control you, I just feel bad that you go to all that work to communicate and then do so in a form that no one wants to read.
I don’t mind a word salad if there are new ideas and sharp thinking embedded. I just don’t get that from you, Davy. No offense. I’m sure you’re a handsome man and good around the house and other good qualities. Not everything is about being a sharp thinker.
Davy on Fri, 3rd Oct 2014 1:13 pm
Wam bam, thank you sir can I have another. Noo, the word salad bullets are purposeful. They differentiate me from the standard fare here. I am sorry you feel bad about feeling bad. As for sharp thinking you are the epitome of sharpness with you cheerleading. No offense taken because I find the fact you even respond means I am under your skin. As for me I am not here for a popularity contest. I enjoy playing with commenters like you. At least you are not an idiot like any of the star wars troop. You’re my corn toy. You will find those I hold in high regard here on this board get respectful treatment. These are the people that offer “new ideas and sharp thinking embedded”. I was never much on male cheerleaders just kinda corny. Do you wear tights Noo?