[Tanada]

Looking back over the last three years this morning I realized we are closing in on the end of several milestone crude oil prices. The last time oil was below $36.00 per barrel was late June 2004. http://stockcharts.com/h-sc/ui?c=$wtic,uu[w,a]dacanyay[df][pb200!i200!f][vc60][i] If I could figure out how to insert the chart I would

Following July 1, 2007 we will have passed the last time we saw $36.00 oil, the next benchmark after that will be appropriatly enough around Pearl Harbor day, December 7th. While there is no garuntee that oil will not fall to $36.00 again, or to the $40.25 level of December 2004 I am fairly confident that the end of this year will see the end of oil below those numbers on the three year cycle. And so it is I wish you a fond farewell Oil in the 35 dollar band, we barely new you and soon you shall be gone forever.

[Geko45]

[Tanada]

Time for an update, the new benchmark low for the last three years is $40.25, everything lower than that is gone off the chart of history.

[Tanada]

A week or so to go to the $40.25 low price mark, after that we have only one more @ $48.05 around the 21st of May 2005.

[Tanada]

Time for another update, we are closing in on the home streatch of the last time oil was $48.00 per barrell, almost three years ago today.

Last time I updated this thread in November oil had not been able to break $100.00, though it had been flirting with the ceiling. Now, six months later the price is up a little over 20%.

[Tanada]

If you look at the above chart today you can see how incredibly steep the decline in crude oil price has been from July 2008 until now. This kind of drop is only possible in a bubble bursting type of situation, but the excessive run up from April to July has been more than compensated for by now. IMO the price will in the not to distant future head back up to around 90 and stay in the 90-110 band for a while unless inflation really takes off.

I am not a financial advisor nor do I play one on the internet, this is just my opinion.

[pup55]

Good work Tanada in unearthing this.

The interesting thing will be to see whether/how soon the decreased price (year ago levels, in some cases) results in increased consumption, as people dust off their SUV's.

The difference now, of course is that 260,000 people are being laid off per month unlike in 2007 or 2006. The demand recovery might take quite a while.

In 1974, the US was in recession 3 out of the 4 quarters, and also in recession the first quarter of 1975. Fuel consumption vs. the previous year was negative for the entire year of 1974, and turned positive vs. the previous year in exactly the quarter the US eventually came out of the recession, which was the second quarter of 1975, so in this case, the correlation was nearly perfect.

It took another year, until 1976, for the fuel consumption to reach the same level as it did during the first part of 1973, so it took that long for the actual recovery to take place.

In the early 80-s of course, it took much longer--several years.


$this->bbcode_second_pass_quote('', 'J')un-1973 6964
Jul-1973 7023
Aug-1973 7257
Sep-1973 6581
Oct-1973 6677
Nov-1973 6823
Dec-1973 6237
Jan-1974 5804
Feb-1974 6100
Mar-1974 6162
Apr-1974 6457
May-1974 6745
Jun-1974 6919
Jul-1974 6959
Aug-1974 7061
Sep-1974 6388
Oct-1974 6712
Nov-1974 6547
Dec-1974 6558
Jan-1975 6206
Feb-1975 6096
Mar-1975 6326
Apr-1975 6718
May-1975 6871
Jun-1975 7076
Jul-1975 7041
Aug-1975 7008
Sep-1975 6729
Oct-1975 6778
Nov-1975 6390
Dec-1975 6808

[Tanada]

Revived this old thread to comment on the current situation, disappearing milestones.
http://stockcharts.com/h-sc/ui
I set it to cover the last three years (as far back as it will go) and include price labels for the peaks and dips.
The lowest price for a barrel of crude in the last 36 months was early August 2011 at $75.71.
The next dip brought us down to very late September/early October 2011 at $76.25.
From early November 2011 until June 2012 the price stayed at or above $92.00.
The end of June beginning of July 2012 got down very briefly to $77.28.
In mid July 2012 the price rose above $84.00 and has stayed above this level since then.
In early November 2012 the price dipped but rallied when it hit $84.05.
In Mid April 2013 the price dipped again but rebounded after reaching $85.90.
In the first week of November 2013 the price fell all the way to $93.07 and rebounded slightly.

From this data we can see that over the last 12 months the lowest WTI has traded $85.05 almost exactly a year ago. November 8, 2013 two days ago the WTI closing price was $94.35.
Given this pattern it seems likely we hard found a relatively hard bottom, fracking oil companies can't afford oil to get very much cheaper than it is today, and because they can sell everything they produce at today's prices they have no reason to try and sell at a lower price either.

[ROCKMAN]

It will be interesting to see what happens to WTI prices in the next month after the southern leg of Keystone begins flowing. That will eliminate much of the Cushing bottleneck that the Canadians were blaming for their low prices. Low prices that made it difficult for WTI sellers to push against. Perhaps some of the recent increase in WTI is an early response to completion of that Keystone segment. Various theoretical thoughts on the subject all of which will become rather meaningless after the pipeline starts deliver Canadian oil at a higher rate and lower cost in the next few months. By the end of 1Q 2014 we should have a pretty good idea how the dynamics will shake out.

[Pops]

Another interesting phenomena (not sure if it goes here) is the increasing spread between diesel and unleaded, a buck and a quarter difference last week as I was driving across Kansas. I pontificated to the long suffering wife trapped in the car with me that more and more oil here is being churned into diesel to be exported elsewhere (think Europe as their N Sea dries up) leaving lots and lots of unleaded - you can only make so little.

[ROCKMAN]

Pops - Good point. Same difficult theoretical to predict: yields from Canadian oil is very different than from the Eagle Ford which is why so much EFS production is being hauled to eastern Canadian refineries. Easier on my mind to just wait and see then try to work through all the dynamics now.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'P')ops - Good point. Same difficult theoretical to predict: yields from Canadian oil is very different than from the Eagle Ford which is why so much EFS production is being hauled to eastern Canadian refineries. Easier on my mind to just wait and see then try to work through all the dynamics now.

[ROCKMAN]

T - I can't help the fact that my DNA was altered forever when on my very first project 37 years ago the first five wells I drill off the platform targeting the exploration geologist's "proven" reserves were dry holes. And then based on the next 3+ decades of experience I automatically question everyone’s prediction about everything in the oil patch. And very rarely have I ever been proven to be overly pessimistic. Far more times my optimism proven unjustified.

[Tanada]

The 365 day moving average has climbed up to $97.40/bbl which is the highest it has been since 2012. It has been slowly but fairly steadily increasing since June 0f 2013 when it was $93.00/bbl. Short term cycles are often very spiky, but the 365 day moving average smooths everything out quite nicely. We are pretty much exactly where we were a year ago, which in the sense of predictability is good because it means everything is where we would expect it to be. This makes it easier to convince investors to put money forward for projects that will produce oil at any price under say $70.00/bbl, but anything higher than that becomes a tougher and tougher sell to get capital for development and exploration.

[ROCKMAN]

T - Since I've never been a fan of the "cliff" hypothesis so I don’t see production having a big impact either way anytime soon. OTOH there always that nasty booger hiding in the bushes that could crush oil prices to some degree: significant economic down turn. Of course the supply dynamic is much different now than in 1986 so the collapse in oil price might not last nearly as long. We saw a hint of that with the rebound of prices after the collapse in early ’09. Oil sunk below $40/bbl. But not for long and look where we are today, just 5 years latter, based upon your numbers. Takes two to tango on the oil price dance floor: supply and DEMAND.

[Subjectivist]

$this->bbcode_second_pass_quote('ROCKMAN', 'T') - Since I've never been a fan of the "cliff" hypothesis so I don’t see production having a big impact either way anytime soon. OTOH there always that nasty booger hiding in the bushes that could crush oil prices to some degree: significant economic down turn. Of course the supply dynamic is much different now than in 1986 so the collapse in oil price might not last nearly as long. We saw a hint of that with the rebound of prices after the collapse in early ’09. Oil sunk below $40/bbl. But not for long and look where we are today, just 5 years latter, based upon your numbers. Takes two to tango on the oil price dance floor: supply and DEMAND.

[ROCKMAN]

Sub - "That might imply that a price drop would add so many potential customers even with a slower economy that prices won't fall very far". Especially true with China if it isn't their economy taking the hit. Back in '09 it was China that went into a buying frenzy and helped prices to quickly recover as you describe.

[dolanbaker]

$this->bbcode_second_pass_quote('Subjectivist', '
')
Some recent lecturer I saw recently, maybe Kopits, had a graph showing that when the price dipped last quarter of 2013 demand went up by 2,000,000/bbl/day. That might imply that a price drop would add so many potential customers even with a slower economy that prices won't fall very far. The drop in 2009 was very steep but very short.

[Pops]

I agree with all that, seems pretty likely that a high steady price means there are those left wanting and any drop in price would mean a quick increase in demand.

For grins I did a funky little mashup of EIA gasoline vs consumption charts.



This is pretty cool, you can see the peaks each year for the bookend summer holidays and vacations between, then Christmas just before the winter slump. There was a dramatic summer spike in price in 05 and again in 06 & 07 then the price just never fell in the winter of 07. The vacation demand spike didn't happen in 08 but came back in 09 & 10.

Look what happened in 11-13, seasonal demand is flattening notably. I think that is further evidence that at this price there is lots of demand left wanting.

Looks like a fighter's smile after taking too many right hooks.