Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 3, 2016
Here’s the catch-22 for the oil market
Oil prices could be heading lower as OPEC dithers, the election raises fears and traders stand on the sidelines.
OPEC will dictate where oil prices head for the remainder of the year and into 2017 and the organization’s failure to come to an agreement at its recent Vienna meeting is telling – the major sticking points are the same ones that have been in contention since negotiations began.
Everyone wants to boosts prices by cutting production but no one wants to actually cut. Iran wants to return to pre-sanction production levels, Iraq claims it needs the funds to help fight its war with ISIS, Nigeria along with Venezuela are facing economic hardship and in both places are trying to replace production lost due to conflict or lack of resources to maintain equipment.
At the last meeting, the consensus was that if any production cuts are to be made, the Saudi’s will have to do the majority of the lifting, and they are not ready to commit to that because they face their own budget issues and dwindling cash reserves.
If OPEC fails to reach an agreement before or at their formal meeting at the end of November, then oil prices will fall to the low 40’s and possibly the mid 30’s. Driving this drop will be the factors that drove it lower at this time last year: too much supply and falling demand as we head into winter and the fallout from a potential Fed rate hike, which will mean a stronger dollar and lower equity prices.
Many traders are taking a pause for the remainder of 2016, anxious not only about OPEC’s moves but also about the presidential election. Both candidates’ policies could prove negative for oil prices.
“Many traders are taking a pause for the remainder of 2016, anxious not only about OPEC’s moves but also about the presidential election. Both candidates’ policies could prove negative for oil prices.”
Many feel a Clinton victory will mean higher fuel prices mainly due to regulations that will be placed on their production and use as the country accelerates its push to green energy.
A Trump victory is viewed as bearish for prices as he has promised to approve more Federal land for drilling and green light the Keystone pipeline which would open up many more areas for oil production.
The latest Commitment of Traders Report shows that managed money has reduced a number of their long positions and added to shorts which signals a belief by them the market has taken a more bearish outlook.
As we head into spring of 2017 there will be increased demand for oil in anticipation of the summer driving season and prices will rebound but if OPEC has failed to curb output which is fast approaching 34 million barrels a day, the rebound will barely reach the $50 level.
If OPEC is able to come to an agreement at the upcoming meeting, then prices will have a floor and move higher by the beginning of 2017. Whether they can reach $60 dollars will depend on how fast U.S. production increases. There are many wells in this country ready to flow and a solid price move above $50 that lasts a few months will give the operators confidence in the wells profitability.
But here is the catch-22: As prices rise, production increases causing over-supply and prices to fall. So unless there is a major disruption in supply, prices in 2017 will stay between the $50 to $60 level.
If OPEC fails to reach an agreement, prices in 2017 will run between $40 to $50 a barrel. This is not much of a difference and highlights the headwinds OPEC is facing: Because of technology, oil is easier to produce and because of technology and alternatives like wind and solar, consumers will be using less oil every year. This is not good for OPECs over-all business model.
19 Comments on "Here’s the catch-22 for the oil market"
makati1 on Thu, 3rd Nov 2016 6:39 am
Maybe. Maybe not. Oil could be anywhere on the price scale, from $20 to $80, but most likely on the lower side for most of the year. ASSUMING … none of those black swans get tired and crash, bringing down the flock.
As for an agreement from OPEC…. LMAO!
Davy on Thu, 3rd Nov 2016 7:41 am
LOL “Many feel a Clinton victory will mean higher fuel prices mainly due to regulations that will be placed on their production and use as the country accelerates its push to green energy.”
These elections are the beginning of the end for the status quo not because of the candidates but because of the economy. We are in broad based demand destruction from deflation, decay, and dysfunction. These elections represent destructive change on the systematic level. The US politically is flying apart and that is not good for the US or the world. Neither candidate will get much done with the status quo. The status quo is on a multidimensional gradient of destructive change. Politically, culturally, economically and environmentally we are in an existential drift of a modern civilization in decline facing a day of reckoning. When is the question not if.
Oil prices may head up or down that does not matter what matters is that movement will not be healthy either way. The more healthy direction for maintenance of the status quo would be parking around $60. $60 is not healthy either but it is better than the extremes of $100 or $30. You can argue the good or bad of the status quo but you are eating and have lighting now because of it. It is good and bad in that regards. It is killing us and giving us life. That is an existential incongruous juxtaposition that cannot last. Oil is wrapped up in this catch 22 trap. So many articles deal with oil in the abstract and away from its foundational nature. Oil is vital and dangerous so we better start evaluating it in multiple ways.
Price is a very poor way to do this critical evaluation but price is the best we have because it is price that allows cooperative action. Price will increasingly be a dysfunctional tool because the economy and price discovery is flawed with repression and excessive unconnected liquidity. The repression is disregard for normal rules and the excessive liquidity is the creation of unrealistic debt in relation to reality. Oil is caught up in the existential problems of man and will die by them. Play the price game if you like. If you care about the deeper dynamics of peak oil and human survival dig deeper than price.
Davy on Thu, 3rd Nov 2016 8:12 am
“FBI Said To Move To “Likely Indictment” Of Clinton Foundation, Fox News Reports”
http://tinyurl.com/jfhhu6j
“WND RADIO”
‘BIGGEST SCANDAL IN U.S. HISTORY ABOUT TO BREAK’
“Investigative reporter who broke Hillary email bombshell reveals what’s coming next”
http://www.wnd.com/2016/11/biggest-scandal-in-u-s-history-about-to-break/
rockman on Thu, 3rd Nov 2016 8:25 am
“…the Keystone pipeline which would open up many more areas for oil production.” Just a small point: BOTH Keystone pipelines have carried hundreds of millions of bbls of Alberta oil to US refiners for years. The lack of the border crossing permit has not inhibited development or import of the Canadian oil sands. In fact it’s questionable that the remainder of the Keytone XL pipeline would be built if the permit were approved for two reasons. First, obviously lower oil prices. Second, part of the economic justification was based on also transporting N. Dakota production. But an alternate pipeline is being built to handle that transport.
joe on Thu, 3rd Nov 2016 9:11 am
IMHO oil cant go to 30. We get such a large part of our oil from tight oil sources that we are probobly at the low end now. If oil approaches 30, a huge portion of oil will simply stay in the ground and reserves will vanish. Prices will rise. A deal to cut might fight the glut but that is all. Its possible that the right deal will keep all players happy but thats highly unlikely. After the shiites rid themselves of ISIS and Iraq joins Iran to help Syria, then OPEC might come to a lasting deal. Prices might rise no matter what. Thats if ww3 doesnt come first.
penury on Thu, 3rd Nov 2016 10:42 am
If if and buts were candy and nuts, what a merry Christmas we would have. Everyone is correct, prices may go up, prices may go down, things may be different than today,Why is that a problem?
Kenz300 on Thu, 3rd Nov 2016 10:49 am
The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them.
Climate Change is real it will impact all of us.
It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..
rockman on Thu, 3rd Nov 2016 10:55 am
“…and traders stand on the sidelines.” Those “traders”, whoever they are, may stand on the sidelines. But oil producers will still produce, refineries will still buy oil and refine it and consumers will still by refinery products and consume them.
Overall the fossil fuel dynamic doesn’t really give a shit what’s the “traders” do or don’t fear. They daily trade a billion+ bbls of “paper oil” that never gets burned.
mx on Thu, 3rd Nov 2016 11:52 am
First Solar had a challenging quarter from competition from cheap Chinese panels.
Do you think that’s going to stop?
A 25% drop in panel prices. Pretty soon they’ll be cheaper than potato chips. The oil-pollution industry needs to take a hard look at their Real World Lack of a Future.
Indian Oil is building 2.7 GIGAWATTS of Solar.
They’re not going to go bankrupt like Marathon Coal.
Oil Shareholders better start a REVOLT.
Plantagenet on Thu, 3rd Nov 2016 1:46 pm
We are in an oil glut. Oil gluts don’t last forever. At least they’ve never lasted forever in the past.
Cheers!
.5mt on Thu, 3rd Nov 2016 2:24 pm
Quadruple Daylight Savings time could be to a free and easy solar-world.
rustvariable2 on Thu, 3rd Nov 2016 2:36 pm
Some nut upthread is citing Fox “News” and World Nut Daily as news sources.
WTF?
Davy on Thu, 3rd Nov 2016 2:49 pm
Rusty, read the link and use that greymatter and connect the dots. If Fox News or any other MSM is referencing this news it is significant. WSJ also referenced this story. Are they nuts too per your nutter meter? Fox News is a source becuase a significant amount of the population view it. I don’t follow MSM on TV or internet much except as applicable to a story or an issues. Here they are significant and with the election less than a week away this is significant. Are you a HillBilly troll or bot?
rustvariable2 on Thu, 3rd Nov 2016 2:57 pm
Apologies. Use of the word “nut” was unnecessary.
However, my point stands that cross checking Fox “News” and WND with other sources frequently reveals their “information” to be grossly distorted and sometimes wholly fabricated.
The fact that so many Americans confuse propaganda with news is tragic and the other cable news operations don’t offer much in the way of counterbalance. Thus the mess you see now.
When voters can’t make informed decisions, democracy is fscked.
Davy on Thu, 3rd Nov 2016 3:40 pm
Rust, I agree with you on MSM and propaganda and this is a huge issue now with this campaign. It is also evident in the degree of fleecing the general public is getting concerning what is going on. It is my hope the US MSM will be critically wounded becuase of this election and all the distortions. This nation was being hijacked slowly for years and now the hijacking is almost complete. This election or lack of one will decide this fate.
rockman on Thu, 3rd Nov 2016 3:52 pm
“They’re not going to go bankrupt like Marathon Coal.”
First, can’t find any sign of a “Marathon Coal”. Closest tie in is an Aussie company involved in coal gassification which has nothing to do with mining coal. In fact, essentially the opposite.
Second: “Indian Oil is building 2.7 GIGAWATTS of Solar.”
The reality: “As noted in the IEA’s World Energy Outlook 2015 India’s GDP will grow by 7.9% in 2016, more than twice the global average. Economic growth and modernization will in turn drive energy demand, especially for coal. India is currently the world’s third largest energy consumer.
Like China before it, India’s economic growth will be fueled by coal. Thus, in 2012, 45% of total primary energy demand and 72% of generated electricity demand was met by coal. India currently has approximately 205 GW of coal-fired electricity generation capacity, which will soon be augmented by 113 GW of new coal-fired capacity currently under construction.”
So in summary:
Existing coal fired capacity: 205 GW
Under construction coal fired capacity: 113 GW
Under construction solar capacity: 2.7 GW
IOW: 318 GW coal vs 2.7 GW solar.
rustvariable2 on Thu, 3rd Nov 2016 4:10 pm
Davy said: “It is my hope the US MSM will be critically wounded becuase of this election and all the distortions.”
Hear, hear.
makati1 on Thu, 3rd Nov 2016 5:35 pm
Rockman, thanks for pointing out the obvious to some of those here who wave the solar flag like it was magic. You saved me the time of doing it. They have no idea what the real world is like, just their narrow minded techie religion.
rockman on Thu, 3rd Nov 2016 10:11 pm
Mak – I can understand why so many folks get so jazzed up over the alternative energy technology and potential. It’s exciting…but the shine wears off quickly when economics are brought into the discussion.
Like how I brag about Texas being one of the global leaders in wind power. But in the next breath I’ll point out that we are by far the biggest coal consuming state and have never had the intention of replacing any coal consumption with wind power. And all because of the economy dynamics.