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Page added on February 3, 2015
OPEC leader: Oil could shoot back to $200
Right now the oil market is totally focused on finding a bottom for oil prices. However, according to OPEC’s Secretary-General Abdulla al-Badri we’ve already hit bottom.
Not only that, but he sees a real possibility that oil prices could explode higher to upwards of $200 per barrel in the future. He’s far from the only one that sees a return of triple-digit oil prices.
Finding a bottom: According to recent comments by the Secretary-General when he was in London, the oil market doesn’t need to look for oil prices to bottom as the market has already bottomed. Instead, he offered quite bullish comments by saying, “Now the prices are around $45-$55, and I think maybe they [have] reached the bottom and we [will] see some rebound very soon.”
Normally that type of remark would be just another layer of noise, but this is coming from OPEC’s Secretary-General so it comes with a lot of weight behind it.
That said, he’s not saying that OPEC will come in and rescue the oil market by reversing its previous decision to hold steady on production. Instead, he sees the signs that the oil market is self-correcting as oil companies have made deep cuts to spending, which will eventually lead to lower production growth.
Further, the rig count in the U.S. is plunging, which is usually a key to a bottom in oil prices. However, in the midst of cutting back as the industry works through the current oversupply the Secretary-General is now warning that the industry is putting future oil supplies at risk by under investing today.
Underinvestment leads to a shortage: The Secretary-General said that, “if you don’t invest in oil and gas, you will see more than $200” when it comes to future oil prices. While he didn’t give a time frame, he did note the correlation between investment and future production.
CNN wants to know: What was your best investment ever?
This is because oil production naturally declines and oil companies need to invest in new production to not only replace this decline in production from legacy oil fields but to add new production to meet growing demand. However, oil companies are reluctant to invest in new production as their cash flows decline.
Over time this could become a problem as oil fields around the world naturally decline by an average of about 5% per year. As we see in this chart from a Chevron Corporation (CVX) investor presentation, in order to overcome this decline oil companies need to develop about 200 billion barrels of oil supplies over the next decade and a half just to meet demand.
These supplies will require the industry to invest $7-$10 trillion. However, with the big capital budget reductions oil companies have announced this year it could make it harder for the industry to meet future supply needs. In fact, the industry might defer up to $150 billion oil projects this year due to the collapse in crude prices. Many of these investments, however, wouldn’t have yielded actual production for a couple of years due to the long lead time of major projects.
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As an example, Chevron delivered first oil on two of its Gulf of Mexico projects late last year after beginning construction on the fields in 2011. Meanwhile, another $6 billion project it just sanctioned at the end of last year won’t produce any oil until 2018. It’s these long lead time projects that are being delayed, which is setting the world up for higher oil prices in the future as an under investment today has the potential to lead to a constriction in future supplies.
Investor takeaway: OPEC’s Secretary-General is calling the bottom in oil prices. While he’s not the first to call a bottom, he does lead the organization that currently controls the oil market so his comments do have a lot of weight.
Further, he’s also suggesting that the cuts that oil companies are making could have a dramatic impact on future oil prices as the under investment has the potential to cause oil prices to rocket higher if demand grows faster than future supplies. That, however, would all be part of OPEC’s plan as it purposely pushed for lower oil prices now so it could control market share once oil prices surged in the future. It’s willing to endure short-term pain for the potential of a big long-term gain
28 Comments on "OPEC leader: Oil could shoot back to $200"
Newfie on Tue, 3rd Feb 2015 9:21 pm
The economy will collapse at $200 a barrel. And then the price of oil will collapse. No way oil will ever reach $200 except maybe momentarily.
Sharpie on Tue, 3rd Feb 2015 9:29 pm
Any how, exactly, can the economy afford $200 oil? I didn’t see clarification here in the article.
Although short has elaborated many times as to why that ain’t happening.
Ted Wilson on Tue, 3rd Feb 2015 9:43 pm
Did anyone expect oil prices to hit $100/barrel, it did and it drained the economy of many countries while it empowered terrorist groups like Al Qaeda and Islamic State.
If the shale production ever goes down, $200 / barrel of oil will be a reality.
Makati1 on Tue, 3rd Feb 2015 10:07 pm
Ted, only for a few weeks at most. The deafening sound you will hear will be the collapse of the world’s economy and the crashing of globalization. $140 oil for a few days almost did the world in. Only the printing of trillions of dollars and other currencies, slapped a patch on the sinking Titanic. But, it will not work again. Wait and see.
GregT on Tue, 3rd Feb 2015 10:09 pm
“while it empowered terrorist groups like Al Qaeda and Islamic State”
Geez Ted, what flavour is that kool-aid? It must really be good!
Plantagenet on Tue, 3rd Feb 2015 10:19 pm
When the oil glut ends, prices will head up. However, the oil glut doesn’t seem to be over yet—-US oil inventories went up another 6 million bbls just last week, indicating more oil is still being produced then can be sold
http://seekingalpha.com/news/2269686-api-reports-bearish-inventory-number-for-oil
GregT on Tue, 3rd Feb 2015 10:40 pm
There you go again Plant. Keep pushing those buttons…………
rockman on Tue, 3rd Feb 2015 10:59 pm
As been pointed out before there is no glut of $50/bbl oil,,,every bbl of it being produced today has a buyer. But the is a huge glut of $100/bbl oil and severe shortage of $20/bbl oil.
GregT on Tue, 3rd Feb 2015 11:21 pm
And if that $100 per barrel oil is not affordable to modern industrial society, it may as well be sawdust. Oil is not just a commodity, it is a THE key resource that runs our economies. It is not the volume that matters, it is the price, and the EROEI. $100/bbl oil, and $50/bbl oil are apples and oranges. They are not the same thing.
dave thompson on Tue, 3rd Feb 2015 11:31 pm
http://macedoniaonline.eu/content/view/26919/52/
GregT on Wed, 4th Feb 2015 12:02 am
http://theeconomiccollapseblog.com/wp-content/uploads/2013/04/The-Price-Of-Oil1.png
From the point of view of a Native North American Indian’s sustenance, a buffalo was a buffalo. There was a big difference however, whether that buffalo was napping on the grass five feet in front of him, or if it was on the other side of a mountain range stampeding in the opposite direction. Those two buffalo contained the same amount of food, but one of those buffalo meant survival, and the other eventually meant starvation. Close examination revealed that both of those buffalo were the same, but from the point of view of the Indian, they were apples, and sawdust.
Northwest Resident on Wed, 4th Feb 2015 1:17 am
“As been pointed out before…”
rockman, we have to recognize that one of our persistent, all too frequently posting residents is immune to fact and reason. But it is good to put the facts out to counter the constant stream of B.S., in order that people coming to this site for the real information can get it.
Arthur75 on Wed, 4th Feb 2015 6:45 am
@Newfie
“The economy will collapse at $200 a barrel. And then the price of oil will collapse. No way oil will ever reach $200 except maybe momentarily.”
Yes …
A clear depiction of the process we are in (from 2009) :
http://www.manicore.com/documentation/petrole/prix_futur_graph3.jpg
From the page :
http://www.manicore.com/documentation/petrole/prix_futur.html
Note for the graph (first link) :
“plafond de production atteinf” = “production ceiling reached”
“dégats économiques” = “economic crisis”
paulo1 on Wed, 4th Feb 2015 7:58 am
Guys,
This came from CNN Money. That is astounding. There were no if ands or buts. The word is out. The bird told me.
https://www.youtube.com/watch?v=aPrtFxd9u9Y
rockman on Wed, 4th Feb 2015 8:24 am
Greg – “They ($50 and $100 oil) are not the same thing.” Such simplistic eligence. Bravo! I wouldn’t even classify it as apples to oranges. It’s more like air to water: they can both exist but their utilization has significant differences
Arthur75 on Wed, 4th Feb 2015 8:45 am
@paulo
I didn’t look at vid (the cnn one), but the graphs, (in the cnn video as well ?)
are quite telling and point to the right message.
As too oil going to 200, could be for a short period of time seems to me (as in July 2008).
Difficult to know how many ups and downs are left before the system truly breaks …
shortonoil on Wed, 4th Feb 2015 9:17 am
Oil hit $53 this morning, only $147 to go! Unless someone can figure out how to get the energy out of a barrel of oil without refining it, or they figure out how to change the laws of physics $200 is just not going to happen. al-Badri knows that their oil empire is in serious trouble, and the best that they can do is delay the inevitable for as long as possible. If that means running a campaign to convince people that the earth will stop circling the sun, that things are going to start falling up instead of down, and that heat moves from colder to warmer bodies, so be it.
The entropic destruction of petroleum is as assured as an iron bolt will rust in the weather. Both must eventually succumb to nature’s laws. The al-Bardri’s of the world will continue to spread falsehoods, CNN will swear to it, and the world will continue on its downward spiral. The masses will await the rebound that they have been told is just around the corner, while the world’s petroleum pumps slowly go silent.
http://www.thehillsgroup.org/
Arthur75 on Wed, 4th Feb 2015 9:53 am
@Shortonoil
All these points are fine (entropy and all that).
But does not mean a price spike to $200 could not happen, current situation is below one :
http://www.manicore.com/documentation/petrole/prix_futur_graph3.jpg
Printed $ still can buy a lot of oil, even if that means many “parts”(countries and US domestic groups) not being able to afford it.
But for sure the tension regarding a system collapse is strong.
Speculawyer on Wed, 4th Feb 2015 11:45 am
I’ve seen so many stories with this headline but they really take what he said out of context and exaggerated it to create a click-bait headline. He just said it was possible if certain things happened . . . things that are not likely to happen.
So much of our news these days is click-bait, not reality. 🙁
shortonoil on Wed, 4th Feb 2015 2:17 pm
But does not mean a price spike to $200 could not happen, current situation is below one :
There is a maximum price that the economy can pay for oil. That is equal to value of the economic activity that a unit of it can power. Common sense tells us that an economy that produces $1 of goods and services can not operate using $2 of oil to accomplish that production. We have calculated those values and posted them here at this page:
http://www.thehillsgroup.org/depletion2_022.htm
It should certainly not be surprising that there is a finite amount of extractable oil, and that it has a finite value. Nor should it be surprising that as the resource is depleted its per unit value declines. In all the hype about URR, and wells drilled per pad, these very obvious elements are usually ignored. The very simple fact is that the world’s economy can not pay for $200 oil,
either in $ terms, or energy terms. The last part being the most significant. That is because central banks can not print BTU.
As we have repeatedly stated, the decline of the petroleum era will become imminently obvious to the even the most uniformed observer over the next few years. The next few years will show growing distress in the industry.
http://www.thehillsgroup.org/
Arthur75 on Wed, 4th Feb 2015 3:08 pm
@shotonoil
Still doesn’t mean a $200 spike cannot happen, volatility in price is what we get around the peak at which we are.
First spike (73 oil shock) was a direct consequence of US peak in 70 and dropping of B Woods in 71.
A $200 spike can happen in a few months for sure.
Does not mean that the end of the oil era isn’t on going.
Perk Earl on Wed, 4th Feb 2015 3:31 pm
Immediately upon seeing the headline it was obvious someone hadn’t been paying attention to the history of oil price. $200 bucks a barrel would blow this world economy from here to kingdom come. You want to see billion+ people soup lines, then artificially force oil price to $200 a barrel.
Meanwhile recently oil price had been going back up only to take a dive today. Is the increased volatility of the world stock markets and the price of oil reflective of the pulse of civilization becoming erratic, like a heart with arrhythmia?
Crude Oil (WTI) USD/bbl. 48.75 -4.30 -8.11% Mar 15 15:42:11
Crude Oil (Brent) USD/bbl. 54.73 -3.18 -5.49% Mar 15 15:41:33
http://www.bloomberg.com/energy/
GregT on Wed, 4th Feb 2015 3:52 pm
“It’s more like air to water: they can both exist but their utilization has significant differences”
Thanks Rock, sometimes I find it difficult to figure out where people are coming from. IMO this should be blatantly obvious, but some appear unable to grasp such a simple concept.
alokin on Wed, 4th Feb 2015 4:59 pm
All these public figures selling agendas, he probably does not even believe himself what he’s telling. The question is why is he telling us the story?
shortonoil on Wed, 4th Feb 2015 5:33 pm
Still doesn’t mean a $200 spike cannot happen, volatility in price is what we get around the peak at which we are.
If oil went to $200/barrel the refining industry would have to come up with an additional $4.3 trillion per year just to buy their raw material. 100s of $trillions in derivative contract would implode. Interest rates would skyrocket which would blow up another $400 trillion in interest rate derivatives. Half the banks in the US would shut their doors. $200 oil is not only thermodynamically impossible, it is financially inconceivable.
The question is why is he telling us the story?
How do you keep rats from deserting a sinking ship?
Throw cheese at them!!!
Davy on Wed, 4th Feb 2015 5:59 pm
Short, many here including me feel it is possible for oil to go to $200 and as likely as not. I personally see its possibility for a very short time in a dysfunctional and irrational blow out where everything is flying apart. You said what could happen in your comment and that is what may come. The opposite is just as possible. The bumpy descent could see demand and supply spiral down in destructive deflationary reinforcing infection. The economy contracts forcing oil production to contract. Planter’s economic glut continues on in a spiral down to ever smaller reserves and productive resources.
This is the end game we are in now. It is the bumpy plateau shifting into the bumpy descent. Anyone that thinks this is good ole econ 101 at work and all is good is in the BAU haze. BAU haze is what it feels like when the grocery store shelves are still full, gas is at the pumps, and the lights always go on. Soon and very soon this is not always going to be the case. There are too many loose ends that are not being taken care of. These problems that have been multiplying lately will converge into a shit storm and then the BAU haze will not be a haze it will be smoke. Many corns will still be fiddling as BAU burns and the aristocrats at the Titanic’s bar with drinks falling over. It has always been the case that there are those who choose not to see.
Arthur75 on Thu, 5th Feb 2015 2:41 am
@Short, for me “$200 oil is not only thermodynamically impossible” does not mean much or anything, as oil price is not a thermodynamic or physical data.
As to the refining industry, seems to me they work more on rates/percentages for the price of their output compared to their input, so that high barrel price is more “good” if anything for them.
But again, I’m not saying the current economic system can withstand a $200 barrel for a long time, but that a spike at $200 is perfectly possible.
rockman on Thu, 5th Feb 2015 7:09 am
Oil prices spike and oil prices slump. Oil spiked back in 2008 to over $145/bbl. The avg oil price for 2008 was $98/bbl. Adjusted for inflation that would be $100/bbl. The next year it avg $59/bbl and took 4 years to recover to $92/bbl. The 2008 avg price is NOT the highest ever recorded: in 1980 it reached $107/bbl. It took 6 years for that price to collapse to $31/bbl. And then took 22 years to gain back $100/bbl.
So where are we now? In 2013 the avg price was $92/bbl. Thru Nov 2014 it had an avg of $89/bbl. For that last couple of months it has averaged in the low $50/bbl range. And what will be the 2015 avg oil price? I don’t know nor does anyone else. Will there be an oil price spike in 2015? I don’t know nor does anyone else. Will there be a sharp downward slump in 2015? I don’t know nor does anyone else.
We’ll look back by the spring of 2016 and review how 2015 played out. See y’all then. LOL.