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Page added on September 23, 2015
Oil unlikely to return to $100 a barrel for years
Traders said goodbye to $100 oil prices a little over a year ago, and they might be staying away even longer than some expect.
West Texas Intermediate crude-oil prices won’t likely climb back to $100 a barrel this year, or next, according to Tom Kloza, global head of energy analysis at Oil Price Information Service.
‘Generally, it is difficult to make a case for $100 a barrel oil through the next few years.’
“Anything beyond the realm of the next 18 months smacks of witchcraft rather than real analysis,” he said in an email interview. “Generally, it is difficult to make a case for $100 a barrel oil through the next few years.”
Kloza sees a more realistic range between $40 and $60 a barrel for monthly WTI averages over the next 15 months.
“Anything north of $60 a barrel brings a return of drilled-but-uncompleted shale wells, and anything south of $40 a barrel probably inspires cuts in some of the larger domestic and overseas projects,” he said.
Oil prices have dropped more than 50% from their peak in the summer of 2014, pressured by a global glut of supplies and concerns about a slowdown in energy demand from China.
On Wednesday, November WTI crude CLX5, -3.82% was trading at $44.89 a barrel on the New York Mercantile Exchange, down $1.47, or 3.2%. November Brent crude LCOX5, -2.53% on the ICE Futures exchange was at $48.22, down 86 cents, or 1.7%.
An executive from Brazil’s Petroleo Brasileiro SA PETR3, -0.84% PETR4, -1.72% has said that oil prices won’t make it back to $100 at all. “It won’t get to $100 again. If it gets to $70, we’ll be happy,” Cristina Pinho, an executive manager at Petrobras said at an event in Rio de Janeiro, according to Bloomberg News.
Billionaire Saudi businessman Prince al-Waleed bin Talal made headlines in January when he predicted oil would never again top $100 a barrel, deeming such price levels “artificial.”
Kloza argues that a $100 price for WTI is not possible without a change in Saudi Arabia’s “policy of market share, as opposed to the long-held policy of being the [Organization of the Petroleum Exporting Countries’] swing producer.”
He said a change in Saudi policy isn’t very likely, but the Saudis do “have the power to alter the calculus that has prevailed for crude-oil prices since after the OPEC meeting last November.”
Meanwhile, a slide in emerging-market growth, particularly in China, would change the “variable of rising demand,” he said. And “weakness in the spot prices for gasoline and diesel and heating oil could tug crude-oil prices lower in the fourth quarter.”
Looking much further forward, Kloza was optimistic that higher oil prices are on tap in the next decade.
“Investment banks project that light duty vehicle counts in India and China will advance to around 250 million versus about 50 million in 2008,” he said.
16 Comments on "Oil unlikely to return to $100 a barrel for years"
Plantagenet on Wed, 23rd Sep 2015 2:44 pm
If oil production doesn’t fall and demand doesn’t increase over the next couple of years, then the oil glut will continue.
Cheers!
dissident on Wed, 23rd Sep 2015 4:12 pm
What glut? Demand has to increase simply due to global population growth aside from global economic growth. This “glut” is actually a serious global recession which has reduced demand. Unlike 2008-2009 this time around China is joining the global slide into recession and will not help to pull it out.
penury on Wed, 23rd Sep 2015 4:19 pm
What I have maintained for years. The oil glut is caused by the money shortage. The people have no money.
BC on Wed, 23rd Sep 2015 4:27 pm
diss and pen, agreed, although I would replace money with after-tax and -debt service income and purchasing power.
Now businesses’ after-tax income is being hit after several years of the largest firms borrowing trillions of dollars to buy back shares to artificially increase earnings per share from reduction of share float. That process is done, leaving US non-financial corporate debt at the highest in history as a share of GDP, surpassing 1929 and Japan in 1987-94.
The only thing left now is for central banks to print still more trillions in fiat digital book entry credits to banks’ balance sheets to allow banks to buy gov’t debt to permit gov’ts to run deficits to prevent contraction of nominal GDP.
Global growth in real terms per capita is done.
apneaman on Wed, 23rd Sep 2015 4:36 pm
Nice short piece by Tom Lewis that speaks to the meaningless of planty’s so called “glut” and Boats “cheap gas”.
When This Caterpillar Dies, We Don’t Get a Butterfly
“In order to have an industrial economy you have to build industrial things — roads, ports, buildings, power stations and their grids, airports, houses and shopping centers — and you have to replace them when they wear out. Such building is the activity on which an industrial society rests, the primary source of jobs and all the consequent economic activity that flows from people with jobs. What every one of these building projects needs, in addition to capital and workers, is heavy machinery. That is why the health of Caterpillar, the world’s dominant manufacturer of heavy equipment, and to a lesser extent England”s JCB, are taken as precursors of the world’s financial health.
Call hospice.
It’s bad enough the Caterpillar’s world sales were down 11% year-to-year in August, worse that they have declined by a similar amount every month this year. What is truly awful is that Caterpillar has a string of such sales declines — on average 10% per month — going back almost three years. It’s the longest stretch of sales declines in the history of the company. To those who regard Caterpillar as a bellwether, and it has been reliable in the past, our future is going to be called the Second Great Depression.
The good news is, we’re not alone. In the UK, JCB has just announced it is cutting 400 jobs worldwide in the face of staggering declines in the economies of the countries in which it works. CEO Graeme Macdonald said in a press release, “In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36% and China by 47%. Parts of Europe are also struggling, with France down by 26%.”
Both of these companies are global operators; both are engaged in creating and maintaining the foundations of the industrial age. Their decline and fall is the decline and fall of the age.
This bull isn’t a dozer, he’s a goner.”
http://www.dailyimpact.net/2015/09/23/when-this-caterpillar-dies-we-dont-get-a-butterfly/
BC on Wed, 23rd Sep 2015 4:45 pm
http://usawatchdog.com/global-economy-imploding-now-warren-pollock/
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1VmR
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1RQF
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1VmW
Pollock in the interview at the first link above is spot on.
Capital formation as a share of GDP is at a 60-year low, M2 velocity to private GDP is below 0.8, and labor share is at a record low, but stock market cap as a share of GDP is higher than in 2000, and debt to GDP is at the level prior to the GFC and onset of the Great Recession.
joe on Wed, 23rd Sep 2015 5:20 pm
Was oil over 100pbl because of a shortage? Is it now down because of a glut? Oil production has steadily increased since 2005 when some had imagined that to be the year of peak oil. When Lehman brothers collapsed and the banks tore at each others livers, the great shinning knight Obama rode to the rescue and with TARP, he saved the day. Had he done nothing else then that might have been the end for us all, but onward he went from TARP to QE. Right now the western consumer has been on an almost 40 year binge, ever since ‘Ronnie’ Regan got into office, deregulation and taxes for the wealthy have given rise to a spree which we may never have seen in history, and may never see again, the US middle class, decimated and without a wage rise has absorbed as much debt as it can. Now we must wait a few years while the new imported human capital (immigrants) can begin their life of debt and enslavement to banks. In the meantime there is a lull in the revenous and rapacious consumption, this so called glut is absolutely temporary but that’s not the entire story.
The glut will lead to a new effort to consume and grow our way out increasing debt. The oil suppliers will face a choice in future, to either supply the future rapacious growth with easy oil and irreparably damage their oil fields or else cut a bit and hike the oil price and without future QE, hope the free market can withstand the strain (which of course it cant). We are condemned to live in the pockets of bankers and governments who’s only capability is debt and tax cuts to the rich and of course war.
So this glut will lead to higher prices, but the true tale is going to be one of uncontrollable budgets and deficits and the nagging questions of sharing and using global resources all the while trying to manage climate change as they stumble from crisis to crisis until people begin to see that they really have no idea what they are doing and the system built on nothing has no future. But by the time people really wake up, the world they were born into will be gone forever, most westerners born circa 1980 have had the privilege of seeing their system triumph over the system that was seems rather tame compared to what is around now, and that triumphalist hubris will founder and weaken. We are repeating the mistakes of history. By not recognising when to be pragmatic and knowing when to fight, governments see only the zero sum outcome and the real strategy and aims not even concealed anymore. Join east and west at the hip, make them one people and make them all grow and prosper, but this is only one earth in the end. Limits to growth will come in time. Resource depletion and water usage, cannot forever be concealed by throwing dollars at it.
Bob Owens on Wed, 23rd Sep 2015 7:05 pm
Predicting the price of oil is a fool’s errand. No one, not even the Pope, foretold the 50% price crash over the last year. No one predicted an oil spike to $150 and crash, yet we had one. No one can predict the price of gas next week, yet we continue to think that the trends of today will extend into the future forever. All it would take would be 1 civil war in SA, or one nuke in Moscow, and oil would be over $100 in a day. We simply can’t predict the price of oil very well at all. Buy an economical, fuel efficient car and relax.
Davy on Wed, 23rd Sep 2015 7:38 pm
Bob, we can acknowledge bad economic and geologic conditions with oil and the economy that point to economic contraction. Many of the issues spoke of here and on TOD are happenning in varying degree as predicted.
BC on Wed, 23rd Sep 2015 7:47 pm
The price of oil was driven by increasing leverage in the futures market as commodities became an “asset class” by the early to mid-2000s. The TBTE banks and hedge funds were/are increasingly big players at the margin, forcing producers to become futures speculators to manage forward price and deliveries.
The exchanges promote the increasing leverage and price volatility, as they make money from the increase in transaction volume and leveraged price action, as well as the self-reinforcing effects of participants engaging in hedging volatility.
BTW, Bob Owens, it is incorrect that “no one” foretold the price bubble for oil and the two crashes since 2008. Sophisticated technical analysis methods and a good understanding of futures and leverage did, in fact, foretell the price action, including the crash for WTI from the $90s-$100 area, the recent low, the rally to resistance, and the recent price action in probing for a secondary cyclical low and possible test of the low $30s.
But those who know what I am referring to are not going to reveal how they know, and they wryly grin each time they hear someone say that technical analysis of financial securities and commodities does not “work”. I know because I’m one of those dudes who has been successfully using TA for 25 years. 🙂
makati1 on Wed, 23rd Sep 2015 7:55 pm
Bob, I would not expect oil to get to $100 again no matter what happens in the world. There is no money for consumers to consume the amounts they once did on their credit card at that price. Real incomes are shrinking and the huge debt hangover is not going to go away.
If it hits $100, it will last only a few days until it crashes the economy and puts the West and some of the rest of the world (Western wannabees) into a Greater Depression that we will never get out of.
Some say the Us never got out of the 2008 one. I agree. That’s why it is trying to destroy all of the other countries that are not under the iron boot of Washington. Insanity knows no bounds.
BC on Wed, 23rd Sep 2015 8:32 pm
mak, right. As I have often shared, the 5- and 10-year average rate of real GDP per capita does not grow with the 5- and 10-year average prices of oil above $30-$40. The average prices today are $95-$100 but rolling over with the 9-year rate turning negative as in the early 1960s and 1986.
But in the 1960s and mid-1980s, the constant-US$ price of oil was $12-$20 and the trend rate of real GDP per capita was twice today’s rate or more, whereas debt to wages and GDP was much lower than today.
So, comparatively, oil is not cheap and the US economy is structurally weaker with the peak Boomer demographic drag effects and fiscal constraints bearing down on the US and much of the world hereafter.
Among the sillier notions the Fed is promoting is the “2% inflation target”. The post-2007 trend rate for nominal GDP is 2.6% and ~1.9% per capita, whereas the average rate of real GDP per capita since 2007-08 is ~0%. By definition, a 2% “inflation” target under the new normal conditions of secular stagnation and real nominal growth per capita of less than 2% is an implicit no growth. 😀
That is to say, under the current structural post-2007 trend rate of real growth per capita, a 2% “inflation” target is de facto a target rate for real GDP per capita of ~0%. 🙂
I bet you haven’t heard anyone on CNBS, Bloomberg, Foxy Noise, The E-CON-omist, or FT stating that Auntie Janet’s objective is ~0% real growth per capita for the US economy. 😀
But one has to admit that the Fed and financial media enablers put on a reasonably good clown or vaudevillian act at times. 😀
makati1 on Thu, 24th Sep 2015 2:53 am
BC, you explained it better than I could. I only have a sense of what is happening and not the financial background to understand all of the variables. I only know that the incomes of all of the people I know have been shrinking for years and seem to be speeding to the bottom faster than usual.
And, though I have nothing in the market, I watch it for the glaring insanity of the current set up. Being retired means I have lots of time to roam the net and pick up many views on world events. It is a gloomy and dark picture I see ahead.
onlooker on Thu, 24th Sep 2015 10:36 am
I think a particularly nasty combination is setting itself up meaning stagflation. A stagnant economy whereby assets are deflated yet simultaneously prices relentlessly going upward as demand for certain commodities in particular necessities far outpaces supply. All this was predicted by peak oil experts.
Davy on Thu, 24th Sep 2015 11:18 am
Onlooker, stagflation in a demand and supply destruction environment with an aging population, overpopulation, and overconsumption dependence all combining in a shitstorm of problems unable to be solved.
This scenario all the while the global leadership claims everything will be fine once we get back to growth as we fall further and further into a hole.
This is not your Daddy’s stagflation from the 70’s. This is the end game stagflation of a system too brittle to adjust, too weak to grow, and too far along to reverse.
onlooker on Thu, 24th Sep 2015 11:53 am
Unfortunately Davy, I must totally agree. I usually prefer to avoid profanity. But anywhere you look the shitstorm is headed our way!