Peak Oil is You
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Page added on April 2, 2016
Andy Hall Thinks Oil Could Go Back Above $100
As we discussed yesterday, the jobs number today came and went without much of a market impact. Stocks went lower, then higher. Rate went lower, then higher, then lower. The dollar was mixed. As we said, the job creation has been steadily good. But the quality of jobs, the ability of workers to command better wages and the outlook for global economic and market stability (namely oil) are the biggies at this point.
On the oil note, we’re beginning to see some divergence between stocks and oil — two markets that have traded very tightly since the latter part of last year (stocks following oil).
Here’s a look at the latest chart …
Source: Billionaire’s Portfolio, Reuters
The question: Is this an opportunity to buy oil or sell stocks?
Given the significance of the oil bust threat to the global economy, we would argue the former.
At extremes in markets, the sentiment always becomes either euphoric (at highs) or utterly despaired (at lows). Back when oil was $147 the world was talking about peak oil (the argument: supply and demand). Now as oil has traded into the $20s again, the narrative has gone completely the other way. And the argument again has been supply and demand.
Guess what? Supply changes. So does demand.
The ugly truth is, often markets are driven to extremes by non-fundamental reasons. Sadly, the collective brilliance in the economic and investment industry always respond to price (they fit the story to the price). When oil was $147, they were making their cases for peak oil. All the while, the price of oil was being driven by nefarious activities (manipulation). A major oil distributor was betting massively on lower oil prices and ran out of cash to meet margin requirements, as they were consequently squeezed (forced to liquidate) by predatorial traders that pushed the market higher. Among the predatorial traders, the largest oil trading company in the world, Vitol, was found to have been essentially controlling the oil futures market.
So now, as we know, on the other end of the spectrum, it’s been manipulation by OPEC. In November of 2014, OPEC pulled the rug out from under the oil market by vowing not to make production cuts, in an attempt to crush the nascent shale industry. So again, it’s a story of manipulation, not the natural forces of the economy. When these situations end, they tend to end with abrupt reversions in price.
We’ve said don’t expect central banks to sit back and let OPEC undo the trillions of dollars of work that has been done to create recovery in the global economy. We’ve already seen evidence of the central banks responding, and it’s been powerful. With more central bank intervention (more easing, more QE, currency market intervention) oil jumped more than 50% from the lows in 27 trading days.
We talked a few days ago about a top oil trader (Pierre Andurand), with an incredible record of picking tops and bottoms in oil — and his call for $80 by next year. Another oil bull, Andy Hall of Astenbeck Capital (possbily the best oil trader in the world), has been in the sharp-recovery-camp for the past year. But he’s been slowly dying on the sword. His fund was down 35% last year. He now thinks we could see $100 again by next year, driven by a swing to “signficant supply shortfall in 2017.”
27 Comments on "Andy Hall Thinks Oil Could Go Back Above $100"
joe on Sat, 2nd Apr 2016 8:00 am
Yeah, obviously oil supply is going to tighten, as the price remains low, and the cartels dont invest (despite alsmost zero interest rates), then oil supply has to shrink just as developing economies get more hooked on black gold then prices will spike, tight oil will come back and the cycle will continue. As long as easy oil diverges its supply slope from global demand, tight oil will fill the gap to offset crisis, but there has to be a point of diminished returns for tight oil. Eventually the swings will be too big.
Lets hope were all using Teslas by then, and they are powered by fusion reactors….
rockman on Sat, 2nd Apr 2016 8:56 am
Of course oil “could” go above $100/bbl. It could go to $147/bbl. It could go to $17/bbl (adjusted for inflation) like it did in the late 90’s.
Such a gutsey prediction of what “could” happen to oil prices. LOL. In truth all those prices will likely develop at some point in the future. After all that’s just what happened in the last 20 years.
Plantagenet on Sat, 2nd Apr 2016 11:07 am
When the oil glut ends oil prices will go back up.
Its really that simple.
Cheers!
OIL UP on Sat, 2nd Apr 2016 11:07 am
Oil prices will jump up majorly as soon as IRAN agrees to the same OPEC quotas as real investments in exploration and production have declined significantly.
Boat on Sat, 2nd Apr 2016 11:28 am
So when does that glut disappear? 2016, 2017, or 2018.
Boat on Sat, 2nd Apr 2016 11:28 am
So when does that glut disappear? 2016, 2017, or 2018.
GregT on Sat, 2nd Apr 2016 12:36 pm
“When the oil glut ends oil prices will go back up.”
And when oil prices go back up, the economy will tank again, causing oil prices to go back down, which will ‘stimulate’ the economy, increasing demand, causing oil prices to go back up.
And when oil prices go back up, the economy will tank again, causing oil prices to go back down, which will ‘stimulate’ the economy, increasing demand, causing oil prices to go back up.
And when oil prices go back up, the economy will tank again, causing oil prices to go back down, which will ‘stimulate’ the economy, increasing demand, causing oil prices to go back up.
And when oil prices go back up, the economy will tank again, causing oil prices to go back down, which will ‘stimulate’ the economy, increasing demand, causing oil prices to go back up.
Wash, rinse, repeat, until the system is so completely mired in debt that it will finally come crashing down.
The End.
onlooker on Sat, 2nd Apr 2016 12:55 pm
Or until nobody wants to invest or produce oil at a loss anymore or until the economy is so depressed that no amount of oil can revive it. The End.
Boat on Sat, 2nd Apr 2016 1:06 pm
Or until nobody wants to invest or produce oil at a loss anymore or until the economy is so depressed that no amount of oil can revive it. The End.
Is this before or asteroid hits.
GregT on Sat, 2nd Apr 2016 1:27 pm
“Is this before or asteroid hits.”
Before.
GregT on Sat, 2nd Apr 2016 1:28 pm
Much before.
Outcast_Searcher on Sat, 2nd Apr 2016 1:37 pm
GregT on Sat, 2nd Apr 2016 12:36 pm
“When the oil glut ends oil prices will go back up.”
And when oil prices go back up, the economy will tank again, causing oil prices to go back down, which will ‘stimulate’ the economy, increasing demand, causing oil prices to go back up.
This is ludicrous. Why will oil prices going back up “tank” the economy now, when oil prices were at roughly $100 for four years in the 2010 to 2014 timeframe, and both global and US GDP grew steadily?
I keep seeing this meme on this site over and over with no evidence or logic aside from the “all doom all the time” wish of the doomer crowd.
At $100ish, gasoline prices typically were averaging a bit below $4.00. This wasn’t breaking people, it was just annoying. Now, with typically sub $2.00 gas, people are buying bigger, faster, fancier cars. And housing prices and rents are going up a lot.
So how is any of that a sign of the economy on the brink of “tanking” in any way, much less if oil returns to normal prices?
onlooker on Sat, 2nd Apr 2016 1:44 pm
Not quite Outcast. This from 2014 article. http://www.huffingtonpost.com/andrew-fieldhouse/five-years-after-the-grea_b_5530597.html
5 Years After the Great Recession, Our Economy Still Far from Recovered
Meantime, depletion continues unabated in the background, while unconventional is in retrospect going to be only a stop gap temporary measure.
GregT on Sat, 2nd Apr 2016 1:53 pm
“Our gross national product…counts air pollution and cigarette advertising and ambulances…It counts the destruction of our redwoods…Yet it does not allow for the health of our children the quality of their education or the strength of our marriages; neither our wisdom nor our learning; neither our compassion nor our devotion to our country which makes life worthwhile.”
Robert Kennedy 1968
GDP is not a reliable indicator of positive economic, or societal wellbeing. It is an indicator of economic activity, both good and bad. Yet another misleading construct of the e-CON-omists.
That being said, we still have not recovered from the “Global Financial Crisis” that began in 2008 when crude prices soared to $147/bbl. ~$40/bbl oil is still too high for economic recovery. The damage has been done. Enjoy your Wile E Coyote moment Outcast. Ignore at your own peril. 🙂
shortonoil on Sat, 2nd Apr 2016 3:12 pm
“This is ludicrous. Why will oil prices going back up “tank” the economy now, when oil prices were at roughly $100 for four years in the 2010 to 2014 timeframe, and both global and US GDP grew steadily?”
What happened at $100 oil was that the debt level exploded. World debt grew by over 40% between 2008 and 2013. More than it had grown in the previous 50 years! The world economy began shutting down, and crude production increases (as in C+C) came almost to a stand still. Between 1960 and 2005 world crude production grew at an average annual rate of 5.45%, between 2005 and 2014 it grew at an average annual rate of 0.43%. Of the 93mb/d that you read about 17 mb of it are Tennessee Moonshine (ethanol), and liquified cow farts (NGLs). None of it makes transportation fuels!
The cost to produce oil has exceeded what the economy can afford to pay for it. In 1960 the total cost of the world’s crude amounted to 1.54% of its GDP, in 2014 it was 3.26%; an increase of 211%. The world is now going bankrupt in an attempt to provide oil. That will cost $39 trillion over the next decade. The growing economy is the result of massive debt formation paid for with huge stacks of printed currency. It is all a forward Call on energy that the world will never be able to repay!
As to $100 oil, the average weighted price of oil over the last 55 years has been $29.77/ barrel. We believe that is were it will stabilize. Unfortunately, no one can continuously produce oil for $29.77?
Data points from our “EtpPro – Production” software package, a PROLOG based Expert System.
Boat on Sat, 2nd Apr 2016 4:24 pm
short,
How much did oil production grow from 2010 to 2016.
Truth Has A Liberal Bias on Sat, 2nd Apr 2016 5:23 pm
Hey short tell us what your crystal ball aka Etp model predicts. Then we’ll see if it happens. Think of it as a model validation exercise. So far your model is batting zero.
shortonoil on Sat, 2nd Apr 2016 6:44 pm
“short,
How much did oil production grow from 2010 to 2016.”
Output
Total Output for C+C
2010-2016
Total years -6
Average Change (Mb/day/year) – -4.09%
% change from year 2010 – 33.5%
Yearly Change – 5.58%
Total Production – 154.238 Gb
shortonoil on Sat, 2nd Apr 2016 6:48 pm
PS: I forgot,
Total processes 516,897
makati1 on Sat, 2nd Apr 2016 7:09 pm
Bring on $100 oil and totally collapse the system. Do it now! Except, this time the whole financial/economical system will NEVER recover. BAU will be over. This is not 2008. It is 2016 and the world has not recovered yet from that first spike.
No, I do not see oil ever getting to $100 again unless the US goes into a Weimer Republic inflation and they are printing million dollar bills to buy bread. But, lets see what happens if it does. Pass the popcorn.
shortonoil on Sat, 2nd Apr 2016 7:19 pm
“Hey short tell us what your crystal ball aka Etp model predicts. Then we’ll see if it happens. Think of it as a model validation exercise. So far your model is batting zero.”
You see, that may be a problem? I don’t own a crystal ball: I’ve got a computer screen. Now although they may appear similar to many, in reality they aren’t. They are very different critters. The first most obvious thing that someone is likely to notice is – you don’t look into a computer screen, you look into it.
So far so good, now what was your question?
shortonoil on Sat, 2nd Apr 2016 7:26 pm
correction:
you don’t look into a computer screen, you look onto it.
Boat on Sat, 2nd Apr 2016 7:45 pm
short,
” between 2005 and 2014 it grew at an average annual rate of 0.43%”.
Total Output for C+C
2010-2016
Total years -6
Average Change (Mb/day/year) – -4.09%
Between 1960 and 2005 world crude production grew at an average annual rate of 5.45%
From 5.45 to 4.09 is a much smaller drop in consumption than the years involving the down turn in your first example.
You say consumption will drop over the next three years. I say it will grow. We will see.
shortonoil on Sat, 2nd Apr 2016 8:02 pm
Further note from program:
2015 EIA data is incomplete – process error
If you had asked abut 2010 to 2014 this is what you would have gotten:
2010 – 2014
Total Years – 5
Average Change Mb/d/yr – 0.734
% Change from 2010 – 5.01%
Yearly Change – 1.00%
Total Production – 136.47 Gb
Total processes – 462,580
shortonoil on Sat, 2nd Apr 2016 8:08 pm
“Total processes” is how many times the program has visited a predicate.
shortonoil on Sat, 2nd Apr 2016 8:14 pm
2015 EIA data is incomplete – process error
That show say 2016? 200,000 lines of code will always have some kind of bug in it.
shortonoil on Sat, 2nd Apr 2016 8:19 pm
“That show say 2016?”
“That should say 2016”
At least the program isn’t any worse than my typing!