[ennui2]

Occam's Razor tells me fracking is working and margins ARE high enough to make it worthwhile even at these prices. Sure, there are pundits who say this is some overarching ploy to punish Russia or banksters are shorting themselves for some sort of ponzi scheme. This may be true, but there's no way to really tell once and for all until later. But in the meantime, society seems to run better with $60 oil than $100 oil, despite the damage to the environment, so I'm not going to look a gift horse in the mouth.

[dolanbaker]

Don't know if this has been posted already, but it claims that the price has been buoyed by QE.
http://wolfstreet.com/2014/12/21/did-th ... ing-chart/

[dolanbaker]

[Byron Walter]

$this->bbcode_second_pass_quote('dolanbaker', 'D')on't know if this has been posted already, but it claims that the price has been buoyed by QE.

[ROCKMAN]

"But in the meantime, society seems to run better with $60 oil than $100 oil, despite the damage to the environment, so I'm not going to look a gift horse in the mouth." As you said, time will tell. No one has a clue how the world's economies will respond to $60/bbl oil because there's no clear picture yet of the ultimate effect of $90+/bbl and all the QE influence. If one uses oil consumption as a rough metric of economic vitality: how much did oil falling from $98/bbl in 2008 to $58/bbl in 2009 boost the global economy? It didn't: oil consumption of $58/bbl oil was a bit less then the consumption of $98/bbl oil.

By December 2015 we'll likely have the answer. In fact, by July we should have a pretty good hint. Especially if we back out any increase in Chinese consumption. China consumption which actually increased in 2009 making the decline in the rest of the world that year appear even more severe.

[Pops]

$this->bbcode_second_pass_quote('Numbersman', 'T')he main premise is that due to increasing costs to extract, ship, and refine oil, the useable energy in a barrel of oil is falling. Therefore, the price should be falling in proportion to the useable energy.

[Observerbrb]

$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('Numbersman', 'T')he main premise is that due to increasing costs to extract, ship, and refine oil, the useable energy in a barrel of oil is falling. Therefore, the price should be falling in proportion to the useable energy.

[Plantagenet]

Price in an open market is controlled by supply and demand.

Supply has been very slowly increasing for the last few years, mainly because of US fracking. The global economy has been very slowly growing since 2009, and over the last few months an imbalance developed between supply and demand, resulting in a glut of oil in the market. There is a review of oil supply and demand data on the "news" page showing oil supply exceeded demand by about 2 million bbls/day during the latter part of 2014. The oversupply in oil created an oil glut and resulted in a 40+% collapse in oil prices.

Drilling is already starting to slow in the US oil patch due to the low oil prices. Drilling is also slowing in the North Sea and other areas. Less drilling will eventually result in an end to the oil glut, with tightening occurring in the oil market and concomitant increases in oil prices to come sometime in the future.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')he cause of the economic crisis in 2008 was that less net-energy was entering the system, and the consequence is that we cannot pay again for a 145 USD barrel of oil

[Observerbrb]

$this->bbcode_second_pass_quote('rockdoc123', '')$this->bbcode_second_pass_quote('', 'T')he cause of the economic crisis in 2008 was that less net-energy was entering the system, and the consequence is that we cannot pay again for a 145 USD barrel of oil

[Pops]

$this->bbcode_second_pass_quote('Observerbrb', '')$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('Numbersman', 'T')he main premise is that due to increasing costs to extract, ship, and refine oil, the useable energy in a barrel of oil is falling. Therefore, the price should be falling in proportion to the useable energy.

[ROCKMAN]

"If energy is becoming scarcer, whatever the reason, why on earth would it become cheaper?" I would say it could easily become cheaper (for a limited period of time) if the global economies regress as it did in the mid 80's leading to $12/bbl and in 1997 leading to $17/bbl. Just as all time high global oil production the last few years lead to record high average yearly oil prices: economic vitality.

And if my suspicion that the recent price decrease is again the result of global economic then you have your answer again. Technically speaking isn't there less oil reserves left in the world today, selling for $55/bbl, compared to how much oil reserves there were a couple of years ago when prices were bouncing around $100/bbl?

What's that line Carvel coined: "It's the economy, stupid". Not that Pops is stupid...one of the sharper pencils in our kit here.

[ennui2]

$this->bbcode_second_pass_quote('Observerbrb', '
')Because this is the same energy that powers the economic system. As its ability to power it is strangled due to increasing extraction, production and refining costs (it is really the energy investment to obtain energy), we cannot afford to pay for higher prices.

[ennui2]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')echnically speaking isn't there less oil reserves left in the world today, selling for $55/bbl

[rockdoc123]

$this->bbcode_second_pass_quote('', 'O')f course it has to do, but that wasn't the trigger of the event. The FED could have continued to kick the can down the road if it weren't for the bump in oil prices. Printing money at low interest rates backed with an endless supply of cheap energy could create bubbles like that and mask them for much more time.

[Pops]

Exactly roc, lower demand is the same as higher supply, both leave an excess of product on the block which drives down the price. Add in the herd mentality of the market thinking tomorrow will be just like today and you get more extreme examples - '08 & '09 show how far away from reality markets can get.

The OP seems to be saying that because more effort is being expended to obtain oil today, the amount of energy in a barrel of oil is somehow smaller and so should be cheaper. This of course ignores the fact that the amount of energy in a barrel of oil is the same as it ever was. And it ignores demand, which doesn't care about the cost to produce. For that matter it ignores the producers who must recoup the increased cost of the increased effort to produce if he is to continue producing.

I think that theory gets a thumbs down.

[Observerbrb]

$this->bbcode_second_pass_quote('ennui2', '
')
Nonsense. The price needs to go up long enough for people to feel the bite of scarcity before they reduce their spending. The sticker-shock comes first, THEN the economic downturn. That's what happened when we had our biggest oil-shocks back in the 70s.
Gee, I thought it had something to do with real-estate and collateral-debt-obligations. Ever heard of that angle?