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Page added on November 6, 2014
OPEC Officials Don’t Expect Oil Price Below $75 a Barrel This Year
As oil prices slid further downward Thursday, OPEC signaled that it isn’t ready to hit the panic button—yet.
Oil’s more-than-25% decline since the summer has led to speculation that the Organization of the Petroleum Exporting Countries—whose crude accounts for around a third of global oil supply—would cut its output to try to support prices, especially as some of the group’s members grow fearful of the likely hit to their government budgets.
At a news conference in Vienna on Thursday, OPEC secretary-general Abdalla Salem el-Badri said the group is “concerned, but we are not panicking.” Mr. el-Badri blamed market speculators for the sharp oil price drop, saying “fundamentals don’t deserve this price decline.”
Despite his comments, some within OPEC are already thinking about the oil-price level at which the group will be forced to respond, with $70 a barrel for Brent crude emerging as the key threshold.
“At $70 a barrel, there will be panic in OPEC. We have become used to living with $100 a barrel,” said one OPEC official, speaking on the sidelines of a meeting of governors and other officials from the 12 OPEC member nations this week, ahead of a full OPEC ministerial meeting on Nov. 27.
Were prices to fall to “$70 a barrel, there will be action from OPEC,” according to another OPEC official. December Brent crude on London’s ICE Futures exchange fell to $82.55 a barrel on Thursday. The front-month for U.S. benchmark West Texas Intermediate crude fell to $77.76 per barrel on the New York Mercantile Exchange.
OPEC officials in Vienna said they don’t expect oil to fall below $75 a barrel in the near-term, while Mr. el-Badri said he expected prices to rebound in the second half of 2015.
But as the full OPEC meeting approaches, some within the group are less calm.
“We will discuss all mechanisms…to keep prices within a range of between $90 and $100,” at the Nov. 27 meeting, Pedro Merizalde, Ecuador’s minister of nonrenewable natural resources told The Wall Street Journal late Wednesday. “Many analysts say there is too much oil in the market.”
If oil prices were to fall to $70 a barrel for an extended period it would put pressure on most OPEC members, who will need higher prices for their fiscal budgets to break even next year, according to estimates from Deutsche Bank .
Venezuela, for example, would need crude to average around $117.5 a barrel next year to balance its budget, Deutsche Bank forecasts. But the price of its basket of heavy crude and refined products fell by nearly $4 to $72 a barrel as of Thursday, government officials said.
“There is a war of prices,” the country’s oil minister, Asdrubal Chavez, said at a National Assembly hearing on Thursday.
Venezuela’s foreign minister and OPEC representative, Rafael Ramirez and Saudi Arabia’s oil minister Ali al-Naimi held a rare bilateral meeting late Wednesday amid oil’s slump.
Despite the rising nerves within OPEC, no officials yet expect the group to cut the self-imposed limit on its oil output when the ministers meet. OPEC currently sets a 30-million-barrel-a-day ceiling on its collective production, though in practice it often exceeds the limit. OPEC members together produced 30.7 million barrels a day in September, according to the International Energy Agency. Any cut to the ceiling would imply that OPEC is looking to restrict oil supply in the face of weakening global demand growth.
The shut-down of 300,000 barrels a day of Libyan supply Wednesday following an attack by rebel militias on a key oil field there has damped any appetite for an actual production cut.
“Libya has done the cut for us,” said one OPEC official, who had previously advocated a reduction of 500,000 barrels a day.
Even so, OPEC itself expects its output to fall over the medium term as oil supply grows elsewhere, mainly thanks to rising shale-oil production in the U.S. In its annual energy outlook, OPEC said its crude production would fall by 1.8 million barrels a day by the end of 2017 to 28.2 million barrels a day from 30 million barrels a day this year.
14 Comments on "OPEC Officials Don’t Expect Oil Price Below $75 a Barrel This Year"
Davy on Fri, 7th Nov 2014 7:24 am
Opec can say all they want about prices. They have always come up against what the economy will pay for it and lost. It is growing apparent the economy is stalling. We are at a critical time of policy changes and a repressed business cycle. A perpetual bull market is nothing more than a Ponzi scheme. Bubbles always pop.
Opec is part of this game. Opec has the ability to pop that bubble for sure. Prices out of the goldilocks range are dangerous either way. Low prices are a short term benefit for parts of the economy but not all. Longer term we know from our POD discussions extended low prices damage supply. This supply is harder to get going then to shut in. There is a resistance to shutting down supply and supply projects but if producers see a protracted slow down the shut in will be quick. The financial system is part of this supply ending activity by shutting down capex availability. This is true of the markets and central bank actions. Opec is a player too but only one of the players longer term.
We are at a turning point or maybe more profoundly a paradigm shift of descent. We may be about to witness a long term drop in economic activity and the destruction of the traditional structures and networks we have grown up with. Globalism will not survive a long term descent as BAU. I am sure something will morph out of a descending global BAU. Since descent is random, dysfunction, and destructive it is hard to predict what may shake out. It won’t be good for an overpopulated world in economic and ecosystem overshoot that is clear.
shortonoil on Fri, 7th Nov 2014 8:16 am
Our model puts WTI prices at:
2012….$104.60
2013……96.20
2014……87.40
2015……77.30
2016……65.90
2017……54.20
2018……41.20
2019……26.90
http://www.thehillsgroup.org/
Davy on Fri, 7th Nov 2014 8:55 am
Short you know I am fully on board with your group’s analysis.
The economy and economic actions from the top must be included in any model of oil IMHO. Since forcasting the economy more than a year out is a fools game does your models have a deviation for this? Do you make assumptions on the economy based upon the affordability of oil to the economy affecting the economy per your model prices? Shorting my word salad to the point, any acknowledgement of central bank action in those prices or is the economic assumptions all thing remaining the same financially with the economy?
poaecdotcom on Fri, 7th Nov 2014 10:31 am
Short:
Prices are set for EXPORTS in the futures market.
Common sense dictates that Countries will not EXPORT below their cost of production (at least for very long).
EXPORTERS domestic consumption is increasing at exponential rates.
Supplies are subject to exponential depletion rates.
Bottom Line: Oil available for EXPORT will shrink at non linear rates, likely AT LEAST exponentially.
Demand will decline based on deflationary pressures, I agree definitely. BUT, I maintain that supply, more precisely EXPORTS, will ratchet down at rates that will be impossible to model.
Importers will be printing like crazy to get at these dwindling exports, causing massive, printer press induced spikes in price that could be double, triple even an order of magnitude HIGHER than what your model shows.
Ultimately (within 10 years, I would guess) the price of oil will be zero or infinite, depending on your perspective, as available oil exports tend to zero.
shortonoil on Fri, 7th Nov 2014 11:03 am
“The economy and economic actions from the top must be included in any model of oil IMHO.”
I am sure that you understand that nothing can happen in the economy without energy. The economy will respond to its availability regardless of other factors. It is an absolute essential component for the functioning of an economy. We have already extracted, and burned the majority of the world’s high quality liquid petro-carbons; what remains is the dregs at the bottom of the barrel. Shale is the quintessential example; most of it can not even supply sufficient energy to power its own production, processing, and distribution. Its total net gain is probably zero. What prosperity it seems to provide is an illusion. It has been used to move money from one sector of the economy to another without providing any real wealth creation in the process.
The chart of the prices above is a reflection of the deteriorating energy delivery characteristics of petroleum. As they decline the economy will decline with it. What ever macerations those in power employ to alter it will only succeed in moving money from one sector of the economy to another, Like shale production what they do will not, can not, generate real wealth; unless of course one is on the receiving end of the move. The central banks will print more unbacked currency, Wall Street will generate more worthless paper to sell to unsuspecting investors, and it will all be presented as doing something to improve the overall condition.
Undoubtedly, there will be significant manipulation of the monetary system, and the markets, like what is presently happening. Unfortunately they will have no real power to improve the overall situation; the only thing that they can do is make it worse. As always our model is a best case scenario, there is no mathematical function know to describe human antipathy.
poaecdotcom on Fri, 7th Nov 2014 11:24 am
Energy is everything, I get that.
Where you leave the real world and enter the shambolic abyss of fiat chaos is by denoting (pricing) real world energy in future fiat dollars, as those those dollars mean something in and of themselves.
Whether a $1, $100 or $1,000,000 buys a barrel of oil has nothing to do with the Laws of Thermodynamics, so why make predictions of price, when price is simply an arbitrary construct, backed by nothing.
Northwest Resident on Fri, 7th Nov 2014 11:27 am
“what remains is the dregs at the bottom of the barrel”
Forget about shale decline rates. Forget about technological advancement in shale extraction. Forget about water cut and forget about EROI. Forget about all that technical mumbo-jumbo.
Why?
Because you don’t need to know any of the very technical information related to shale/unconventional oil production to know beyond a reasonable shadow of a doubt that the global and national economies are having severe energy-related problems, all of which can be categorized under the “Peak Oil” (or even better, “Peak Oil Dynamic”) title(s).
Stand back and take a look at the “big picture”. Just look at the extreme efforts that are being made to squeeze oil out of the ground. Look at the massive debt and correspondingly massive fraud and hype that goes hand-in-hand with shale/unconventional oil production. Look at the trillion$ in debt that governments are pumping out, without which there would not be enough “money” to finance shale/unconventional extraction efforts. Look at the wealth being sucked from the 90% and into the 10%, who do what? Invest in energy/shale/unconventional — to keep the ball rolling.
The “big picture” certainly looks like the world is having major problems with its energy supply, doesn’t it? Now, drill down deeper, and you find that conventional fields that got us to where we are now as a technologically “advanced” civilization are in decline and probably more than the owners of those conventional fields are divulging. You find that for every average barrel of shale/unconventional “oil” produced, there is very little (to zero) net energy gain. You find the cockroaches and crawling vermin of finance and propaganda thriving (for the moment) under every layer of shale hype bullshit that you peel away.
It’s ugly. It’s gross! It is what we are doing to keep BAU stumbling forward, day after day, toward that ultimate cliff.
Davy on Fri, 7th Nov 2014 11:36 am
Short, I am agreeing with your comment fully. I just find price forcasting difficult because of the financial considerations. I see the two as codependent. There is no need for oil without a functioning economy. There is a thermodynamic element to human economic potential just as energy has economic value by providing energy. Gas needs a car, roads, and people to realize a transportation work.
nemteck on Fri, 7th Nov 2014 12:21 pm
The price chart of shortonoil is consistent with his forecast for 2030-2035 when the cost of oil will be $0.00. (shortonoil on Sun, 26th Oct 2014 8:10 am).
I plotted his above data and, to my amazement, the curve is a straight about line, form 2013 down to 2019.What model is this? I need myself only be given one point, say, 2019 where I think an oil price will be $26.90 and then make a straight line up to the present price.
So, the shortonoil model predicting an oil price of $0.00 in 2030-2305 is wrong since by extending the straight line a few more years will hit $0.00 in July 2021.
poaecdotcom on Fri, 7th Nov 2014 12:39 pm
Models of price forecasting out 1, 3, 5 or 15 years out without understanding and acknowledging fluctuations in money supply are naive at best, misleadingly sloppy at worst.
As a mathematician, I would state that to then use three significant figures to imply precision is simply egregious, self aggrandizing. Poor.
steve on Fri, 7th Nov 2014 12:51 pm
Poacdotcom….I get what you are saying and have had problems with this as well….,and when you jump into the fiat currency argument it gets a little bit strange to say the least…The part that worries me is when you are burning two barrels of oil to get one…
farmboy on Fri, 7th Nov 2014 2:35 pm
Short I think I understand why your model predicts the price of crude going down over time.
But to bring it closer home, how will that affect the price at the pump? My guess would be that according to your model; the price at the pump, over time should go up, and the price of crude be going down over time.
shortonoil on Fri, 7th Nov 2014 2:57 pm
“Models of price forecasting out 1, 3, 5 or 15 years out without understanding and acknowledging fluctuations in money supply are naive at best, misleadingly sloppy at worst.”
Quit to the contrary, compliments of the World Bank, and EIA we have a very good historical perspective of the relationship of energy vs dollars. This is the relationship we have used for our energy to $ conversions. Of course this could change, but it is doubtful that it will change significantly over a fairly short period of time.
http://www.thehillsgroup.org/depletion2_008.htm
Over the last 38 years crude costs have run an average of 71% of gasoline prices. I expect that to remain fairly constant over the next few years. Increases are likely to come from States raising fuel taxes as they become more financially stressed.
http://www.thehillsgroup.org/
poaecdotcom on Fri, 7th Nov 2014 3:29 pm
“we have a very good historical perspective of the relationship of energy vs dollars. ”
PLEASE STOP.
One barrel of oil went from $21 to $147 in five years. (03-08).
Your “relationship” changed by 600%.
Predicting future prices in dollars is a fools game “without understanding and acknowledging fluctuations in money supply”. It is “naive at best, misleadingly sloppy at worst.”
I hope no-one uses your ‘numbers’ to hedge in the real world……..