[Quinny]

If low oil prices were the true harbinger of doom.

After years of thinking that oil prices would shoot up and price everyone out of the market, there are several indicators seeming to point to it simply not being worth drilling any-more. Maybe capitalism really does contain the seeds of it's own decline.

With Pops and Shortonoil falling out over ETP model, but Pops wedge theory also suggesting that we just simply cannot afford to extract the oil that's left, is it no longer worth scraping the barrel?

[dolanbaker]

Short answer is that the world won't go "cold turkey" with respect to oil, but the high cost involved appear to be a drag rather than a pull on the economy. Will economic activity decline sufficiently to allow "cheap" oil to supply all the market?

[Pops]

It would be ironic considering I've not heard one person here or anywhere say they've given up buying anything petroleum derived because it just ain't worth the trouble anymore.

/snark
Sorry

The difference between my outlook and short's is he predicts the price of oil will fall because oil no longer has value - not peak affordability but peak desire. $10/bbl by 2020 is the prediction I heard - since there is no oil anywhere that can be produced for $10, essentially there will be no oil produced within 5 years. That's some pretty cold turkey lol

My thought is people will continue to desire oil considering the world is made from it, the problem they have is ability to pay the freight due to increasing extraction costs. My guess a few years ago was $80/bbl average price in 2020 after repeated boom/bust cycles reduce ability to pay.

The big price drop is freaking people out. Everyone here is perennially on the edge of their keyboard waiting for the hammer to drop. And as we all know, when all you have is a nail, everything looks like a hammer. You'd sure expect a big thing to happen with such a big drop, Short's prediction is indeed dramatic, but I think a simpler explanation is better:
The surge in production caused the spare capacity to go up and reduced the "Risk Premium" - but then OPEC didn't defend the price like everyone expected - that was the big thing - and that freaked out speculators who cut and ran.

Speculators didn't run far, the futures market is in contango big-time, betting on $70 + a year from now and renting tankers to put their money where their mouth is. (contango is something we used to talk about to no end but not much lately.)

Demand is still increasing globally, not falling. It wasn't a huge increase last year but but the IEA, etc say it will increase with GDP this year - because of a lower price. Speaking of which, I mentioned elsewhere that Kopits' prediction is the next big thing will be a surge in demand from the low price + global QE collides with the full stop in new production along about this time next year.

I don't disagree with the idea that ERI is falling. EROI depends of course on the amount of new drilling; when demand is high and there is lots of new development ERI is lower (which we all suspect is bound to be true in the shales); and when supplies are better and drilling is lower, ERI is relatively higher. Obviously lower EROEI will affect the profits of drillers, etc and increase the cost of the marginal barrel, which of course is where the "increasing cost floor of the wedge comes from. But those are all costs that will be directly visible in drillers P&Ls, no crystal balls needed.

The thing is, like I said at the top, I've seen no evidence that demand - desire - is falling for oil - when prices were high "ability" was hurting but desire is gonna be with us for a while. I'm pretty sure this will be a short debate since I am gonna make a bold prediction that consumption goes higher in about - wait ...
$this->bbcode_second_pass_quote('', '(')Reuters) - Motorists in California purchased more gasoline in October 2014 than any corresponding month since 2007, according to state tax records, confirming the renewed growth in U.S. fuel demand.

[viewcrafters]

Wouldn't it be ironic if the car companies turned out to be the anti-Christ?

[kublikhan]

Hardly the harbinger of doom. Well, unless you are one of those overleveraged guys in the oil patch or the finance minister of Venezuela. It's more like the same old same old. Just another boom bust cycle in the oil patch. Demand is not down. Demand is up. The problem is supply is up even more. And prices might be low compared to recently, but they are still high compared to their long term historic average. I'm surprised people are freaking out over an oil bust. Especially since we just had one back in 2008. I remember back in the day I saw an oil price prediction chart that was jagged like an alligator's teeth. Well, we are on the downslope now. Enjoy it while it lasts oil consumers. It will go back up, eventually. Just wait for demand to catch up to supply.

$this->bbcode_second_pass_quote('', 'U')p until just a few months ago, things were going gangbusters in Texas. Now, with oil breaking below $45 a barrel, there's a legitimate fear the state will tumble into a recession. While the turnaround in the Lone Star state is dramatic, Texas oil veterans are well acquainted with the boom-and-bust cycle. For the better part of the last century, Texas has experienced the euphoria of high prices along with the heartache of low prices.

Denise Walker is still pained just thinking about the crash in oil prices that forced her to shut down her oilfield services company in Texas in the mid-1980s. "I've been there, done that. It's not fun, but you just have to learn how to survive," said Walker.

Back in 2008 Doug Fusilier lost his job at GE Oil & Gas when oil plummeted from nearly $150 a barrel to below $35 amid the financial crisis.

"A drastic decline in commodity prices is going to result in winners and losers. The weak get weaker and the strong get stronger." Companies that are financially irresponsible and believed the good times were "going to last forever" will be in trouble.

Employees entering the oil industry would benefit from recalling the history of boom-and-bust cycles in Texas. "Honestly, this dramatic fall in prices is something that a lot of us felt was inevitable," said one geologist in the Texas oil industry who requested anonymity. He pointed to a long history of technological advancements that lead to supply gluts and price crashes. The same can be said about today's shale boom.

[ROCKMAN]

k - "He pointed to a long history of technological advancements that lead to supply gluts and price crashes." I guess he and I have worked in different section of the oil patch. In my 4 decades I've never seen that happen to any significant degree. Talk about booms: how about in the boom in the late 70's when the rig count got above 4,500. Compare that to the puny numbers during the great shale boom. Yet all those rigs did little to stop the slide in US oil production. But the price spike (that led to the drilling boom) crippled the global economy and destroyed a great deal of demand...and gave us oil under $13/bbl. And we've just seen another price run up supplemented by historic debt accumulation that created a boom with the same tech we had when oil was selling for $40/bbl. And now it would appear that the high price period has finally caught up to the global economy which could no longer sustain itself at those price levels. Consider the previous bust: the world consumed more oil that averaged $98/bbl in '08 then it did in '09 when it averaged only $58/bbl. That wasn't the result of a technology induced "glut"...it was demand destruction. We'll have to wait until 1Q 2016 to see if that pattern develops again.

[KaiserJeep]

I think we just ran out. Overnight the gasoline price down on the corner went from $2.05/gallon to $2.85/gallon.

[Whitefang]

A lower oil price means lower income for our, western opponents, a strategic move to bring down the economy of Russia/Iran/Venuzuela and the like.
I think the market is not free to go up and down but controlled by those in power, FED petrodollar.

https://www.thefinancialist.com/the-eff ... onal-tour/

$this->bbcode_second_pass_quote('', 'I')n Venezuela, oil sales provide both 47 percent of government revenues and the main source of foreign currency. The result: the country’s economy will suffer disproportionately from falling oil prices. By the same token, the sudden drop in crude prices has triggered a run on the Russian ruble, which has fallen 91 percent against the dollar since the beginning of June. The weak currency, in turn, is driving inflation higher and forcing Russia’s central bank to raise interest rates even as the domestic economy struggles. Credit Suisse expects the combined effect of international sanctions and energy prices to shrink domestic GDP 1.5 percent next year. In Malaysia, reduced revenues from exports will overwhelm government savings on fuel subsidies, Credit Suisse says, making spending cuts likely. The bank thus sees a downside risk to its 5 percent GDP growth forecast in 2015. - See more at: https://www.thefinancialist.com/the-eff ... Kcxr6.dpuf

[sjn]

Pops, the idea that it's not worth producing the theoretical barrel with costs above the nominal value returned on economic activity - which is essentially what shortonoil is saying (I think), is entirely dependent on the structure of the "politico-economic system". That is, at a lower level of complexity, there is again economic value in producing oil, but that is only after the requisite structural change, aka "Demand Destruction". How much demand destruction is needed is perhaps pertinent, and at what point can that be described as "Doom".

[Observerbrb]

$this->bbcode_second_pass_quote('Pops', '
')The thing is, like I said at the top, I've seen no evidence that demand - desire - is falling for oil - when prices were high "ability" was hurting but desire is gonna be with us for a while. I'm pretty sure this will be a short debate since I am gonna make a bold prediction that consumption goes higher in about - wait ...

$this->bbcode_second_pass_quote('', '(')Reuters) - Motorists in California purchased more gasoline in October 2014 than any corresponding month since 2007, according to state tax records, confirming the renewed growth in U.S. fuel demand.

[americandream]

With most of the MEs oil now brought to market and out of the clutches of nationalists (Libya etc) this was only to be expected.

[sjn]

$this->bbcode_second_pass_quote('Observerbrb', '')$this->bbcode_second_pass_quote('Pops', '
')The thing is, like I said at the top, I've seen no evidence that demand - desire - is falling for oil - when prices were high "ability" was hurting but desire is gonna be with us for a while. I'm pretty sure this will be a short debate since I am gonna make a bold prediction that consumption goes higher in about - wait ...

$this->bbcode_second_pass_quote('', '(')Reuters) - Motorists in California purchased more gasoline in October 2014 than any corresponding month since 2007, according to state tax records, confirming the renewed growth in U.S. fuel demand.

[Quinny]

@ Pop - following your 'wedge' theory. What happens 'outside' the wedge?

I can see if oil is too expensive for the economy to afford then prices will fall, but what about when the lines cross and the 'cheapest' in terms of cost of extraction is more than the economy can afford?

It's OK saying the oscillating plateau will carry on, but for how long?

[Pops]

$this->bbcode_second_pass_quote('Observerbrb', 'I') think we should consider that consumers will always have the desire to buy oil, but the discussion is: At what price? As you pointed out, the "ability" to buy oil and its derivates weakens when the price is at 100 $ per barrel. Imagine that we artificially keep the price of the oil barrel at 100 $ without injecting such amounts of debt into the system, do you think that demand will be maintained after, for example, 5 or 10 years?

[Paulo1]

Just like 'Ghostbusters'!! "Don't cross the streams, whatever you do, don't cross the streams."

What happens when the wedge lines cross as the oscillations narrow?

[Pops]

$this->bbcode_second_pass_quote('Quinny', 'I')t's OK saying the oscillating plateau will carry on, but for how long?

[Pops]

$this->bbcode_second_pass_quote('Paulo1', 'J')ust like 'Ghostbusters'!! "Don't cross the streams, whatever you do, don't cross the streams."

What happens when the wedge lines cross as the oscillations narrow?

[Pops]

$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('Paulo1', 'J')ust like 'Ghostbusters'!! "Don't cross the streams, whatever you do, don't cross the streams."

What happens when the wedge lines cross as the oscillations narrow?

[Quinny]

Pops I sorta can see your graph to a certain extent supporting the ETP model. The disconnect of money and reality via the 'corporatist command economy' might be the only thing that allows us to 'cheat' the 'market' and the 2nd law. Can't see it being cheated for long though. You lot are pushing my doom meter up on a daily basis!

[Pops]

$this->bbcode_second_pass_quote('Quinny', 'P')ops I sorta can see your graph to a certain extent supporting the ETP model. The disconnect of money and reality via the 'corporatist command economy' might be the only thing that allows us to 'cheat' the 'market' and the 2nd law. Can't see it being cheated for long though. You lot are pushing my doom meter up on a daily basis!