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Page added on October 17, 2014
End to Oil Collapse in Sight
Some of the world’s biggest banks say the collapse in oil is just about over.
Bank of America Corp. and BNP Paribas SA predict prices will hold above $80 a barrel. Commerzbank AG also sees that level as a possible low for Brent crude. They’re in part counting on OPEC cutting output — some say as soon as next month — to compensate for recent declines in demand.
North Sea Brent, the benchmark for more than half the world’s oil, has slid by more than $30 a barrel from its June high to below $83 a barrel today amid a supply glut and slower global growth. Ministers from the 12-member Organization of Petroleum Exporting Countries will meet in Vienna on Nov. 27 to discuss production and price levels.
“We are almost at the floor,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by phone yesterday. He estimates that Brent will be supported at $80 to $85 a barrel and could rebound to $95 by year-end. “It’s not in OPEC’s interest to see prices too low for too long a period.”
That banks’ forecasts hinge so much on OPEC’s decision next month underscores the pivotal role the group, and especially Saudi Arabia, still plays even as production surges everywhere from the U.S. to Russia to Canada. Analysts surveyed Oct. 9 by Bloomberg were split on whether the group will cut its oil-production target for the first time since 2008.
The oil-price floor of $80 a barrel may shift if OPEC rejects cuts next month, said Eugen Weinberg, head of commodities research for Commerzbank AG in Frankfurt.
Extreme Nervousness
“Given the extreme nervousness of the market, we might even drop below this level should OPEC do nothing,” Weinberg said by phone yesterday. Brent crude rebounded from the lowest level since November 2010 to settle 69 cents higher at $84.47 on the ICE Futures Europe exchange in London.
OPEC pumped 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey. The gain was led by Libya, where output climbed by 280,000 barrels a day to 780,000, the fifth straight increase.
The biggest producers in the group have responded to the drop in futures by cutting their official selling prices, sparking speculation they will compete for market share rather than trim output. Kuwait deepened the discount for its crude to Asian customers, two people who asked not to be identified because the information isn’t public, said yesterday. That follows similar moves by Saudi Arabia, Iran and Iraq.
OPEC Meeting
“OPEC is going to cut output with the help of some others when they gather next month,” Mike Wittner, head of oil market research at Societe Generale SA (GLE) in New York, said by phone yesterday. “The Saudis want others to make cuts. This is a significant change over recent years when the Saudis would just adjust production according to market conditions.”
The world’s largest oil exporter is able to protect its market share by keeping production steady even as prices hit a four-year low, while producers such as Russia, Iran and Venezuela stand to lose the most from the drop in prices. Saudi Arabia increased September output 0.5 percent to 9.65 million barrels a day, according to data compiled by Bloomberg.
“The Saudis are trying to protect their patch in Asia,” Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd., said by phone from Sydney yesterday.
The kingdom needs to start worrying about the decline in prices, billionaire Prince Alwaleed bin Talal Al Saud said in a letter dated Oct. 13 to oil minister Ali Al-Naimi.
While U.S. benchmark West Texas Intermediate may drop to $75 a barrel, Brent crude has “a lot of support” at $85, Francisco Blanch, head of commodities research at Bank of America in New York, said by phone yesterday. WTI, which closed at a two-year low of $81.78 a barrel yesterday, rebounded to $82.70 today.
Rebound Coming
“You have to believe there’s a cyclical rebound coming in the next three months,” Blanch said. “A lot of emerging economies are going to benefit from a strong dollar, strong U.S. economy and lower energy prices. The drop in prices will be pretty stimulating for demand.”
OPEC last cut output quotas in December 2008 at a meeting in Oran, Algeria, amid the global financial crisis. The group trimmed its target by 2.46 million barrels a day, responding to the crisis that sent WTI prices tumbling from a record $147.27 a barrel in July 2008 to a low of $32.40 in December the same year.
“It’s very difficult to say what the target will be until we know what the real purpose of the price war is,” Weinberg said. “Saudi Arabia is trying to test not only the other OPEC members but the likes of U.S. shale and Russia.”
Any support for Brent prices will have to come from the supply side as demand in the fourth quarter probably won’t move significantly higher, Miswin Mahesh, an oil analyst at Barclays Plc (BARC), said by phone from Singapore yesterday. At least 1 million barrels a day of supply needs to be cut, he said.
“It will be increasingly challenging for OPEC to resist action, be it in the form of communication or eventually with a decision on production,” Tchilinguirian said. “The price floor is a lot closer now than it was a couple of weeks ago.”
27 Comments on "End to Oil Collapse in Sight"
Davy on Fri, 17th Oct 2014 8:41 am
I see a floor on oil likely considering the mechanics of the market and the financial repression policies are still in place. This financial repression is manipulative, direct intervention, and legalized corruption. The TPTB still have the ability to stem a market route through jawboning and various tricks of intervention. Do you all remember how the TPTB smacked gold down? They will do the same with oil when it gets too far out of market balance. The conspiracy theories may have some validity but I doubt the intent has been designed for more than a limited effect. I have been reading the Fed is buying equities indirectly through intermediaries to prop up the market. I imagine the same behind the scene effort can be done with oil by the big players. The issue is the trend and I believe the trend is down for the equity markets and oil. All the efforts of the last 6 years and we are no better. Financial repression can only repress the business cycle so long we are 6 years into a repression driven economy a cycle is near. We may be able to repress markets but we cannot transcend business cycles.
HalfEmpty on Fri, 17th Oct 2014 9:39 am
So then, death and destruction awaits, well that or expensive oil. Steady up Davy, life is worth living even with a little strife.
shortonoil on Fri, 17th Oct 2014 9:53 am
If the Saudis do this that might happen, and if the Russians do that this could happen. If pigs had wings they could fly. These estimates are a lot of guesses based on a lot of ifs. This is what happens when economic theory is used to solve a problem in physics. If Bank of America had been managing the construction of the space shuttle it would still be sitting on the ground, but we would know all about its NPW.
Petroleum sells because it acts as a unique energy source for a unique market; primarily powering internal combustion engines. This allows a computation to be completed to give its maximum value to the economy. That value, based on the maximum theoretical properties of petroleum, puts an upper limit to its price of a $117/ barrel. Because petroleum is a commodity that is declining in value (depletion) that number is falling as it continues to be extracted.
This is of course bad news for the petroleum industry, production costs are increasing while the price is going down. This also does not bode well for Bank of America; petroleum is no longer capable of powering economic growth, and their business model requires growth to be workable. We are approaching the end of the oil age and expect a lot of “he said, she said, if that, if this”. A whole lot of ifs, to hopefully keep people indulged in the dream of those iffy pigs flying in the air for one more day!
http://www.thehillsgroup.org/
Davy on Fri, 17th Oct 2014 9:55 am
Halk empty I live your advice I opine doom. There is a difference.
JuanP on Fri, 17th Oct 2014 9:58 am
Davy’s comment hit the sweet spot. I agree this can only go on for so long, and it has already been six years and the “recovery” is running out of steam. Financial repression is becoming increasingly ineffective, as was inevitable.
In the last boom bust cycle oil went from $147.27 to $32.42 in a few months. Who knows what could happen now?
There are so many bubbles now it’s not funny. Almost every market I am aware of is in a huge bubble and ready to burst.
Hang on tight, this will be a rough ride!
JuanP on Fri, 17th Oct 2014 10:03 am
Short, Sorry. I have seen proof that pigs fly. This is all over the internet.
https://www.google.com/search?q=pigs+flying+images&rlz=1C9BKJA_enUS590US590&oq=pigs+flying&aqs=chrome.3.69i57j0l3&sourceid=chrome-mobile&espv=1&ie=UTF-8&hl=en-US
Makati1 on Fri, 17th Oct 2014 10:12 am
JuanP, I always knew you were smarter than most on here. I didn’t get to reply before they changed the articles. Your increasing consideration to relocate out of the new Gulag forming in North America proves it. Don’t wait too long.
No-one who has not lived in a foreign country and in a different culture can possibly know what it is like. Too many Americans visit a country for two weeks vacation and think they know that country after only hitting the tourist spots and buying a few souvenirs
.
Likewise, anyone who has lived/fought in a foreign country many years ago, only has a past view of the country, probably biased by the reason they were there. I get a lot of “I served in… (twenty, thirty, forty years ago)…so I know what it is like there.” No you don’t.
Anyway. Go for it! Any place will soon be better than North America, and any currency better than USDs. At least I think so.
Davy on Fri, 17th Oct 2014 10:24 am
Short, you are above me on this board with respect and depth of knowledge. I have no disagreement with your thesis. In fact I embrace it completely and it has shape my understanding of POD. My amateur disposition is towards the systematic. It is my personal academic passion. Short, we will see an avoidance of economic abandonment with oil and the oil driven transport. This introduces dysfunction and irrational consequences into the terminal decline of industrial man. The oil sector is in a class all its own. It is worshiped like a god much as the folks on Easter Island worship their statues in the act of cutting the last great palm tree down. The terminal decline of oil is not debatable as a law of nature yet, human nature is debatable. I expect your rational thesis to be tested around the edges in ways we cannot judge at this point.
Northwest Resident on Fri, 17th Oct 2014 10:38 am
The lies and the propaganda and the speculation posing as fact these last few days since the Saudi’s price cut announcement is thicker than raw sewage.
And smells about the same too.
My absolute favorite speculative theme being pushed through the internet and all MSM communication channels is this one:
American shale oil producers are a direct threat to Saudi Arabia. These shale oil companies are producing so much oil that they are not only making America energy-independent, they are also threatening to cut into Saudi oil sales worldwide.
(insert comedy sitcom laugh track here)
The KEY to cutting through all the bullshit is to understand one thing. And that is, shale oil (and other unconventional oil) production is a pig dressed up in a skin-tight mini-skirt, thick red lipstick pasted on, strutting her sweet butt down Investment Sucker Lane, looking for johns to roll.
The only “growth” in oil production since 2005 has been in shale/unconventional oil. Without that “growth”, it would be widely recognized that we are on the declining back side of peak oil — it would be impossible to hide that fact. And without “growth” — or at least the perception of “growth” (supplemented by amassing unsustainable debt) — the psychological impact worldwide would have brought down BAU long ago, not to mention that the only way massive debt and obligations have been paid all these years since 2008 is by taking on even more debt. When “growth” ends, so does the ability to pay off debt, and our debt-based economy will crash and burn.
“After five years of pretending we are in the vanguard of a new oil bonanza in America, all the operators are swamped with debt; their bonds are classified as junk and their stock isn’t looking much better — it’s leading the market down at the moment.
According to Business Insider: Over the previous quarter, some of the notable losers include Nabors, down 42%, Seadrill, down 40%, Whiting Petroleum, down 33%, Transocean, down 33%, Concho Resources, down 34%, and Helmerlich & Payne, down 32%.
It’s interesting that you and I have never heard of these companies, for all that they are supposed to be leading us into the dawning of a new Age of Petroleus. Also interesting that Chesapeake Energy, which we’ve kind of heard about in that it is the second largest player in the patch, has just announced that it is selling $5 billion worth of its shale leases in the (MIGHTY!!!) Marcellus play in West Virginia and the Utica Shale in Pennsylvania. Previously the company had sold $3 billion worth of leases, rigs, buildings and used cars — okay, I made that last one up — in order to stay afloat.”
Bulls Running: Frackers Getting Trampled
ht tp://www.dailyimpact.net/2014/10/16/bulls-running-frackers-getting-trampled/
Davy on Fri, 17th Oct 2014 10:41 am
I lived in Europe for 4 years in two different countries. I learned enough of their languages to be a part of those culture. I did not live with or associate with Americans during this residence. That is how you learn and live a culture. This experience shows me there are comparative advantages and disadvantages in different cultures. This was even true between my stays in Germany and Spain both very different countries. Anyone crowing about how bad the US is and pumping up his adopted country should tell you something. It should tell you the individual is experiencing cognitive dissonance and looking for decision support.
Plantagenet on Fri, 17th Oct 2014 11:27 am
Oil demand continues to slow. The EU is going into a triple dip recession, China is slowing and the US economy continues to burble along in low gear, with only money printing and borrowing keeping things going here. I don’t see oil prices recovering until sometime in 2015.
J-Gav on Fri, 17th Oct 2014 12:37 pm
Ah! Davy the European (to some extent). Wasn’t aware of that aspect of your experience. Four years is not a drop in the bucket. Would have expected Italy to be part of the equation there too since, well you know …
And yes, ‘human nature’ is debatable, fortunately – maybe still gives us a modicum of leeway as to our future choices – at least on a community level.
ghung on Fri, 17th Oct 2014 12:40 pm
Gosh, Juan, I don’t know about pigs, but cows certainly have flown in the past:
https://www.youtube.com/watch?feature=player_detailpage&v=JQ8jGqdE2iw#t=6
Davy on Fri, 17th Oct 2014 12:45 pm
Gav, fully immersed in Italian culture with my girlfriend of 5yrs. She has a wonderful apartment in the Dolomites near Bozano. Gav, I love my country but Europeans have culture. We are just cowboys with a little money here in the Mo, Ozarks.
J-Gav on Fri, 17th Oct 2014 1:06 pm
Short – I suspect your use of the acronym NPW refers to ‘Net Present Worth’ since ‘Non-Profit Whore’ version doesn’t quite fit the bill here.
As for GAAP (Generally Accepted Accounting Principles), they went out the window on a moon shadow long ago, as per my conversations with people well-placed to know in large corporations, Michael Hudson’s many articles, etc.
The end of the era you refer to is bound to be nasty. Re: Bank of America, here’s a little peek –
http://www.zerohedge.com/news/2014-10-15/bank-america-crime-now-ordinary-course-business
Northwest Resident on Fri, 17th Oct 2014 1:29 pm
“I don’t see oil prices recovering until sometime in 2015.”
Do you mean, “recovering” to a $100 per barrel price range?
Is it your opinion that $100 per barrel price range is the new “baseline price” for oil?
Just curious.
J-Gav on Fri, 17th Oct 2014 2:21 pm
JuanP – Returning to Uruguay? Could do worse for sure. Mujica will of course no longer be there (a remarkable man!)due to constitutional limits but your neighbors could be worse.
To the north, there are lots of question marks, but to the south, for example, Argentinian President Cristina Kirchner recently gave a courageous speech at the U.N. which I’m sure you’re aware of, but here it is for others with English subtitles:
http://www.youtube.com/watch?v=EyShGogzIn4
Fuck “los fondos buitres” (vulture funds) trying to extract that last drop of blood from a country, also under attack from other sources, when it has
already reimbursed over 90% of its foreign debt!
bobinget on Fri, 17th Oct 2014 2:29 pm
NATO is in as deep a difficulty as is OPEC.
Although the Turkish Parliament authorized NATO airstrikes into Syria from Turkish airspace using Turkish bases, to date this has not happened.
Each Allied sortie needs to burn two tons of jet-fuel for the 1,500 KM flight. Today alone there have been over two dozen such flights into Syria alone.
Remember, every single Muslim oil exporter is at war
(in a genuine sense) with at least two other members.
Please, tell me, what could possibly go wrong?
J-Gav on Fri, 17th Oct 2014 2:43 pm
Davy – Good on ya! Italy’s got such a rich cultural heritage you never get to the end of it. Though today’s situation there is borderline disastrous, my experience with it, mainly through history, architecture, cinema and especially literature (the classics – Dante, Boccaccio, Petrarca, l’Ariosto, il Tasso etc remain as pure gems), not to mention Macchiavelli (a widely misunderstood author), Giordano Bruno, Galileo, or the many powerful modern writers (Leonardo Sciascia, Natalia Ginsburg, Italo Calvino, Cesare Pavese, Dino Buzzati, Carlo Emilio Gadda and many others). Today maybe Roberto Saviano is the reference – and he’s got a contract out on his head …
Davy on Fri, 17th Oct 2014 3:12 pm
Gav – Fuck “los fondos buitres” (vulture funds) trying to extract that last drop of blood from a country, also under attack from other sources, when it has already reimbursed over 90% of its foreign debt!
Gav, the den of thieves in DC/NY are doing the same thing to local municipalities for example Birmingham, AL.
They are truly as C.L. Lewis said:
“I live in the Managerial Age, in a world of “Admin.” The greatest evil is not now done in those sordid “dens of crime” that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices. Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the office of a thoroughly nasty business concern.”
On Italy Gav, the women are first class partners. The country is a mess administratively but the culture is rich and deep and that makes up for being a f*ckup mess.
Northwest Resident on Fri, 17th Oct 2014 3:27 pm
J-Gav, Davy — I spent seven months anchored on a huge Navy ammunition carrier outside of Naples, Italy and Palermo, Sicily. As far as I could tell, the pizza, spaghetti and wine tasted the same in both places. But the culture is definitely rich in Italy. I still have mementos that I bought in Italy (I lost my Sicilian memento when I completed my prescription of penicillin). I did the tour of Rome, but spent most of my time wandering around Naples with my friends, soaking up the culture, meeting the people, hanging out in the clubs and restaurants. Very memorable time!
rockman on Fri, 17th Oct 2014 3:32 pm
“The oil sector is in a class all its own. It is worshiped like a god”. Thank goodness…finally the acknowledgement that I’m part of a divine class. LOL. Unfortunately that worshipping has a bit of a Oedipus tint to it: “I love you…now I’m going to kill you”.
I also think the “collapse” pitch is a tad over done. Oil seemed to have reached a comfortable neighborhood of around $100/bbl. And now it has “collapsed” about 20% to around $80/bbl. If this is exciting they should have been around in the early 80’s when oil prices fell about 70%. Now that’s a collapse, scooter.
Sure, the marginal prospects will be mothballed. How much remains to be seen. I just got off the phone with a major supplier of casing for the Eagle Ford players. No panic let alone blood in the streets for them…yet. But some rather frayed nerves beginning to be developed. Futures players can turn on a dime and can swing 180 degrees in hours. Operators can’t. The good news: a major retreat will take months to manifest itself. The bad news: it has always taken much longer to climb back up on the horse then it took to get thrown.
But there’s always a silver lining for someone in every situation: the Rockman and some of his conventional reservoir hunters would be thrilled to see the shale players and especially the Canadian oil sands developers burst into flames and die a quick and violent death. LOL. Anything to stop this insane increase in oil production
And as always: it isn’t personal…just business.
Davy on Fri, 17th Oct 2014 3:36 pm
NR, no one has the balls of a drunken sailor!
shortonoil on Fri, 17th Oct 2014 4:18 pm
“The end of the era you refer to is bound to be nasty. Re: Bank of America, here’s a little peek” –
By our calculations petroleum hit its peak energy delivery capabilities about 2000. That was the point where increasing production could no longer out pace increasing production energy costs. Because the economy was no longer really growing, to make money companies needed to get inventive. Of course, the easiest way, and possibly the only way was to steal it. The financial industry being in a unique position was the first to fully embrace the “new economy”. The TBTF banks, having back door access to the FED, took immediate advantage of the new reality, and sub prime offered the opportunity.
Since then a new paradigm has come into being. Find some asset that no one can easily value, put a ton of PR behind it, and unload it off to some poor smuck at ten times its true value. No one will hold you accountable for doing it. MBS, CDOs, and shale are a few examples. Of course there is nothing morally, or ethically wrong with this as long as you are making money. Its just the new business, of business.
The coming end of the oil age will cost us a lot more than our money.
http://www.thehillsgroup.org/
Davy on Fri, 17th Oct 2014 4:34 pm
http://www.zerohedge.com/news/2014-10-17/happy-27th-anniversary-black-monday
J-Gav on Fri, 17th Oct 2014 4:59 pm
Yes indeed Short – When the obscenely-leveraged, absurdly inflated, quadrillion-dollar non-economy comes crashing down around our ears, it’s bound to make enough noise that, even without my hearing-aids, I’ll still be able to pick up something …
Nony on Fri, 17th Oct 2014 11:14 pm
The shale plays can turn on/off very quickly. That’s the benefit of the fast decline curve. Your investment is covered in a year or two. You’re talking about repeated operations on derisked areas. This is not Kashagan or even the GOM. So, if the shale companies “get killed” with price drops, their replacements will go drill if price goes back up.