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Page added on January 10, 2016
Why Oil May Never Hit $100 per Barrel Again
The decline of the energy industry in the U.S. was swift in 2015 and for investors the losses were widespread. In addition, the pain spread to average Americans with an estimated 250,000 jobs lost in the oil & gas industry alone in 2015.
Calls for a recovery in oil prices haven’t come to fruition and now shale drillers, big oil companies, and OPEC are in a standoff that may leave more collateral damage than anyone expected. All three hope oil rises to $100 per barrel again but each wants to take as much of that energy pie as they can. But when you look at where the oil market sits today I don’t think $100 per barrel oil is in our future, this year or ever again.
OPEC can’t let oil hit $100 per barrel
If you’re going to take away one thing from this article it’s that OPEC doesn’t want to see the consequences of $100 per barrel oil ever again. There’s a trifecta of negativity when oil goes over $100 per barrel: U.S. consumers use less oil, U.S. companies produce more oil, and the U.S. imports less oil from OPEC. That’s Econ 101, as you can see in the chart below.
US Crude Oil Production data by YCharts
As the world’s most influential marginal producer, OPEC can sway prices with its own production choices. As it let oil remain over $100 per barrel between 2010 and 2014 it let competitors into the market, reduced demand for its product, and backed itself into the corner it’s in today that requires years of low oil prices to squeeze out high cost producers. It won’t make that mistake again.
Innovation hasn’t stopped with $35 oil
While OPEC looks at the dynamic facing oil prices over the next 5-10 years, companies around the world are thinking about what transportation will look like in 50 years. And that hasn’t stopped because of low oil prices.
Electric vehicle innovation and production growth can be seen as a proxy for these changes, but long-term we’ll have hydrogen vehicles, ride sharing, and even better mass transit (think Hyperloop) to help reduce dependence on oil.
Ford has developed a concept car with solar cells integrated in the roof, powering the car as you drive. Image: Ford and SunPower.
Tesla Motors (NASDAQ:TSLA) gets a lot of attention for its plan to build 500,000 electric vehicles by 2020 and that will play a modest role in reducing oil consumption. But the fact that automakers like Ford (NYSE:F) has been touting electric vehicles and autonomous vehicles at CES in Las Vegas recently may be even more important. CEO Mark Fields says the company’s EV and self-driving plans will be aimed at the mass market, not just luxury vehicles, which could help drive wide adoption of alternative fuel vehicles in a decade or less.
There’s also Toyota (NYSE: TM), which recently launched the hydrogen powered Mirai on a limited basis. Toyota would argue that hydrogen is an even better source of energy than electricity EVs use because it’s easier to fill your car with hydrogen.
Adding to the plans of Tesla Motors, Ford and Toyota, tech companies like Google (NASDAQ: GOOG) putting over a million miles on autonomously driven vehicles and you have a level of disruption to energy and transportation that we haven’t seen in a century.
OPEC has to be worried that tech companies and automakers are going to develop new products that bypass oil to transport people, denting demand. Remember, when oil dropped from $100 to $35 per barrel it was because the market was oversupplied by about 1-2 million barrels per day, which is less than 3% of demand everyday. Oil prices are extremely sensitive to demand changes and OPEC can’t afford to lose a significant number of customers to electric or hydrogen vehicles or we could see prices decline even further than they did in 2015.
OPEC is in trouble and it knows it
When you look at the macro trends above you begin to see that OPEC can’t let oil jump to $100 per barrel. It risks allowing competitors like shale drillers to take share and it also kills demand for oil. In addition, it has to cash in on oil while it can because companies like Tesla, Ford, Toyota, and Google are building vehicle platforms that don’t require oil as their base source of energy.
OPEC is stuck between a rock and a hard place, forcing some very difficult decisions for the oil cartel. At the end of the day, I think OPEC will let oil prices rise to $60-$80 per barrel in the next two years but it’ll be careful not to let it rise high enough to spur too much new oil production. Longer term, I see new, cleaner technologies continuing to take share, slowly diminishing our need for oil. Add it up and the days of $100 oil are behind us. That’s good news or bad news, depending on who you ask.
| Motley Fool |
18 Comments on "Why Oil May Never Hit $100 per Barrel Again"
shortonoil on Sun, 10th Jan 2016 8:21 am
Is a Motley Fool someone who can’t add, subtract, multiply, or divide. No oil producer cares about how may barrels they sell; all they care about is how many dollars they get for the barrels that they do sell. At $32/ barrel OPEC is not getting many dollars. When OPEC is getting enough dollars to keep the lights on, only then, and maybe then will they worry about Tesla. Motley Fool; the name serves them.
eugene on Sun, 10th Jan 2016 9:13 am
Motley Fool is a brokerage. Hence the happy days will be here again tale. Gotta keep the masses “happy” or “I’m out of business”. I will say this much, there’s not a big enough pile of BS in the world that American won’t swallow it.
makati1 on Sun, 10th Jan 2016 9:14 am
There are two ways oil can go to $100.
1. Sudden shortage that causes prices to spike, in which case, the world economic collapse will soon follow.
2. Hyper inflation makes $100 equal to $10 in today’s purchasing power, in which case, it will not matter as that will also collapse the economy.
Or so it seems to me.
Bob Owens on Sun, 10th Jan 2016 9:35 am
Predicting the price of oil is a fool’s game. No one has ever gotten it right, including the Pope! Buy an economical car, reduce your use of resources and you will sleep well at night and won’t worry about the future price of oil. No one can look at the boiling ME cauldron and tell me that SA will logically throttle oil production up or down, depending on what outcome it wants.
paulo1 on Sun, 10th Jan 2016 10:18 am
Hydrogen is an energy storage medium, not an energy source. Furthermore, it isn’t very cost-effective. It is also a bit on the volatile stage to use as a transportion fuel.
dissident on Sun, 10th Jan 2016 11:33 am
Hydrogen in its H2 form is not a viable fuel source since it leaks through metal and fast enough to matter. Fuel cells based on NH3 make more sense than direct combustion of cryogenic H2.
The only way oil is not going back over $100 per barrels is the world economy never recovers and keeps shrinking. That is going to be true in the long term and not in the short term. We should be entering a supply limited market stage in the next few years. Spikes over $200 per barrel are not excluded.
onlooker on Sun, 10th Jan 2016 11:52 am
Actually this is all part of peak oil theory anticipating huge spikes and descents as well as great volatility. Someday Hydrogen I am sure will be used in some way for energy given that it is the most abundant element in the universe.
ennui2 on Sun, 10th Jan 2016 12:27 pm
“Actually this is all part of peak oil theory anticipating huge spikes and descents as well as great volatility.”
Nope. It’s post 2008 retconning.
onlooker on Sun, 10th Jan 2016 12:44 pm
Nope taken from the Oil drum http://www.theoildrum.com/node/4448
and in fact having been proven out by real world events. $147 and now $33. I would think that is a pretty fair oscillation.
rockman on Sun, 10th Jan 2016 2:44 pm
So those high oil prices backed OPEC into a corner. lol. I wonder if they bothered to add up the total revenue OPEC took in during those high price years and compared it to their income over the same number of prior years. Pretty nice f*cking corner IMHO. lol.
shortonoil on Sun, 10th Jan 2016 2:59 pm
“The only way oil is not going back over $100 per barrels is the world economy never recovers and keeps shrinking.”
Oil has fallen in price by 68%, and there is still no increase in demand. It is now below the full life cycle production cost for most producers. Where, exactly is this increase in price going to come from? If the economy can not buy more at $33/ barrel, it will be buying almost none at $100. The value of oil to the economy has been going down, is going down, and will continue to go down until it is not worth taking out of the ground. It is called depletion!
Newfie on Sun, 10th Jan 2016 4:15 pm
Hydrogen fuel ? Hah!
Davy on Sun, 10th Jan 2016 5:26 pm
Drill baby drill gets adapted to Burn baby burn
http://eoimages.gsfc.nasa.gov/images/imagerecords/87000/87285/libya_amo_2016006_lrg.jpg
Pete Bauer on Sun, 10th Jan 2016 5:38 pm
http://www.reuters.com/article/us-oil-pricing-opec-idUSKBN0UL0Z820160107
As of 2016-01-01
OPEC has switched their benchmark
From Brent (38 degrees API low sulfur light crude which is of higher quality)
To ASCI (30 degrees API high sulfur medium crude which is of lower quality).
This makes better sense since the supply of crude that matches Brent quality has declined and only the medium crude is increasing.
This shows that the light crude has hit the peak.
Mark on Sun, 10th Jan 2016 5:44 pm
How about oil may never hit $100 again, because most consumers in the 1st world are getting too poor to afford it @ $30.00/barrel? Permanent economic contraction in play now.
makati1 on Sun, 10th Jan 2016 6:20 pm
It appears that you are correct, Mark.
Davy on Mon, 11th Jan 2016 6:26 am
And people have been telling me the petro dollar is dead…
“Oil Seen Heading to $20 by Morgan Stanley on Dollar Strength”
“http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation”
“A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, according to Morgan Stanley. Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Jan. 11. A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the U.S. dollar, according to the report. “Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,” the analysts wrote in the report. “The U.S. dollar and non-fundamental factors continue to drive oil prices.”
Kenz300 on Tue, 12th Jan 2016 9:59 am
The world is in transition away from fossil fuels…..
There Are Now More Solar Jobs In America Than Oil Jobs
http://www.huffingtonpost.com/entry/solar-jobs-rising_569409e5e4b0cad15e65be87