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OIL, Discussion
flower
post Posted: Oct 20 2014, 06:33 PM
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Point being made by many observers today is that drops in the POO of this nature recently and more accentuated in the oil producers share prices--- were last seen as the US autumn of 2008 unfolded.

Eerie really, considering the same is being said about the bond yields.



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wren
post Posted: Oct 17 2014, 07:33 AM
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http://www.bbc.co.uk/news/blogs-echochambers-29651742
Some interesting speculations from the BBC


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arty
post Posted: Oct 15 2014, 09:31 AM
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Light Crude dropped to the lowest it's been since June 2012.
If it keeps falling like that, chances are for low-mid $70's or even mid-$60s.

Compared to "shirtfront" rhetoric, I reckon this kind of action hurts Vlad P far more...

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I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
Optionsman
post Posted: Oct 14 2014, 11:41 PM
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In Reply To: wren's post @ Oct 1 2014, 08:22 AM

The oil price continues to drop (tonight it is up a little however). How low will it go - the million dollar question.

Some commentary from Energynewsbulletin.net. For what it is worth, I agree with most, but not all, of the below commentary below.

The curious case of Saudi Arabia
Monday, 13 October 2014
POLITICS and oil have always been a deadly combination, as Slugcatcher has explained before, but what happened in the oil market last week was a more than a political exchange, it was the first shot in what could be a world-changing oil war.
The big event was a cut-price sale of surplus oil by the world’s biggest producer, Saudi Arabia, with preferred customers in Asia on the receiving end of the kingdom’s generosity which played a part in driving the oil price down to a four-year low.
On top of the discounted sale the Saudis have done something almost as interesting. They increased production during September by around 100,000 barrels a day to 9.7 million barrels a day.
Why Saudi Arabia made those two moves is yet to be explained, not that the reclusive country is in the habit of telling the world why it occasionally gives the taps at its oil terminals the odd flick up or down.
Other people were less hesitant in suggesting why the Saudis cranked up production, not by much, but enough to tip the market further into surplus, and why it tossed out a discount to its favourite Asian buyers.
The theories seen by The Slug include:
A shot across the bows of the US shale oil (and gas) industry which has emerged from nowhere to upset the cosy oligopoly which is the Organisation of Oil Producing Countries (OPEC);
A warning to fellow OPEC members that they need to show production discipline at a time of falling prices and to remind everyone that Saudi Arabia is the world’s oil boss and can move the price at will; or
A well-timed and coordinated attack, on the country which most annoys the Saudis and the US – Russia.
That first point, a Saudi reminder to US shale oil producers that they need a high oil price to survive, was addressed in a research report by the US investment bank, Citi.
Analysts at the bank reckon that “the Saudis could win a price war with US shale” but that any fight would be “painful, pyrrhic and short-lived”.
The essence of the Citi research report is that geopolitical considerations always play a part in Saudi deliberations and now is a time for the kingdom to stamp down on the world’s trendy new source of oil.
“They (the Saudis) think they can win any price war given shale’s full cycle production cost of considerably more than Saudi’s,” Citi said.
If Slugcatcher was awarding a prize for stating the bleeding obvious that comment about Saudi costs versus US shale costs would be an easy winner.
But, Citi’s view is that an oil-price war would encourage even greater technology innovation among the shale producers and that the Saudi belief that shale needs a floor price of $US90 ($A103.69) a barrel will be tested, and that there are an increasing number of shale producers with steeply falling costs who are well positioned to ride out a price war.
The Saudis “could sustain the pain of $60 a barrel for a while, but definitely not forever”, Citi said.
The other problem for the Saudis is that a price war would shatter the cohesion of OPEC with other members forced to boost production, even at the risk of damaging their oilfields, to stay in business and sustain their unbalanced economies.
The easiest and most plausible explanation for the recent increase in Saudi production and the big dip in the oil price is that global growth has slowed just as oil production has risen.
But, that Economics 101 explanation is not deterring the most devilish conspiracy theory of oil – that the Saudis and the US are working together to apply pressure to Russia, their number one enemy.
Issues between the US and Russia are well understood with Ukraine at the top of the list.
Less well understood is the animosity between Saudi Arabia and Russia which goes back decades and is directly linked to Russia’s link with Iran, the country which keeps Saudis awake at night because of its nuclear programs and because of a century-old religious split between Shia and Sunni Islam.
In August, not that many people noticed, Russia and Iran signed a fresh trade deal designed to by-pass western sanctions, a move which further annoyed both the US and Saudi Arabia.
It might be a coincidence, or maybe not, that a month after the new Russia/Iran trade deal was signed the Saudis boosted oil production in a move which flattened the price and put direct pressure on the budgets of Russia and Iran.
Higher oil output and a lower oil price will not hurt the US economy. It is actually the big beneficiary of cheaper oil.
Russia is certainly not a winner from what’s happening because it needs an oil price of $105 a barrel to balance its budget and it could be some time before oil returns to a price that high.



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wren
post Posted: Oct 1 2014, 08:22 AM
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In Reply To: flower's post @ Sep 25 2014, 06:51 PM

""one would have thought that the POO was overdue a rise. "
Almost.There was a huge fall in WTI overnight.Will be an interesting day for Oil stocks.

 
flower
post Posted: Sep 25 2014, 06:51 PM
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Depending somewhat on what happens in the short term to the USD Index it may be worth keeping a very close eye on the WTI complex.

Fundamentally given all that is happening in the ME and of course the much celebrated recovering US economy wacko.gif one would have thought that the POO was overdue a rise.
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wren
post Posted: Aug 23 2014, 02:04 PM
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In Reply To: Optionsman's post @ Aug 23 2014, 01:32 PM

A little more along similar lines…..

According to the Goldman Sachs report “400 projects to change the world”, which was released on May 16, the cost curve for the shale projects range from 60-105 $/b, however 90% of the curve is flat at 80-85 $/b. According to the Goldman report, it would require an oil price of 40-100 $/b to develop 4 Million b/d of peak production from Deepwater projects, 20-110$/b for Traditional projects to reach 4 Million b/d, 40-110$/b for Heavy oil projects to reach 5 million b/d at peak and 35-110$/b to develop Ultra deepwater at peak production of 8 million b/d. It would however not require a higher oil price than 85 $/b to see peak production of US shale oil reach 10.5 million b/d. This changes the whole industry as there is no longer a requirement for oil prices to increase anymore in order to cover the market need for the rest of the decade. We hence maintain our view of the oil market that we launched two years ago when we claimed that the shale oil is a game changer for the global oil industry.


There are several quotes from Goldmans’ top 400 report we would fully agree with. Here are some of them: “As shale supply continues to grow from the US with no potential upside to oil demand, significant downside risks continue to plague oil prices”. “Shale dominates volumes and pushes high cost developments into irrelevance”. “Assuming the pace of activity in developing US shale oil reserves remains high – a scenario that is likely with oil prices above 85 $/b – the global oil market will continue to be well supplied in our view. We believe this could have material consequences for oil discoveries that sit at the top of the cost curve, which may not get developed”. “The consequence of shale developments is a displacement of projects with break-evens above 85 $/b Brent”.

Sounds sensible to me.


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Optionsman
post Posted: Aug 23 2014, 01:32 PM
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In Reply To: marketwinner's post @ Aug 23 2014, 10:20 AM

Can't say I agree MW. Sure it may go down to $70-90/bbl for a short period but what do you think will happen to oil production in the US if oil goes to these levels? Most shale oil and tight oil projects in the US (and globally for that matter) will start losing money, so production will decline in a fairly short space of time. And it isn't just the shale oil and tight oil projects - the deep water projects being developed around the world are getting more and more expensive and many of these will be shelved too. There is very little growth left in 'cheap' oil.

Having said all that, I don't really expect oil prices to rise too much from here. Costs to develop tight/shale oil is coming down, little by little, and the expectation is for shale/tight oil production to keep growing -at least for the next 5-10 years - which 'should' offset declines in conventional production. The question is: are the sweetest spots in shale oil being produced now, or are there better areas to be found? I'm not sure anyone knows. What we do know is Saudi, in particular the giant Ghawar Field, has started producing significant amounts of water, and production is dropping. Investments are being made to try and keep production up there, but they are fighting a losing battle now.

Ofcouse, even the 'experts' get forecasts wrong, usually by a long way too! Thats my disclaimer ... rolleyes.gif


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marketwinner
post Posted: Aug 23 2014, 10:20 AM
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In Reply To: nipper's post @ Aug 11 2014, 09:11 PM

As I expected oil prices are in down trend now. NZD, AUD and CAD should follow oil next. Oil could go down to around $80 per barrel. This is good news for the global economy.

http://www.forbes.com/sites/thomaslandstre...re-set-to-fall/

Here Comes Cheaper Oil: Why Prices Are Set to Fall

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites. Please do your own research.


 
nipper
post Posted: Aug 11 2014, 09:11 PM
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QUOTE
The International Energy Agency in Paris says global investment in fossil fuel supply rose from $400bn to $900bn during the boom from 2000 and 2008, doubling in real terms. It has since levelled off, reaching $950bn last year. The returns have been meagre. Not a single large oil project has come on stream at a break-even cost below $80 a barrel for almost three years.

A study by Carbon Tracker said companies are committing $1.1 trillion over the next decade to projects requiring prices above $95 to make money. Some of the Arctic and deepwater projects have a break-even cost near $120. "The oil majors like Shell are having to replace cheap legacy reserves with new barrels from much more difficult places," said Mark Lewis from Kepler Cheuvreux.

The new worry is that many companies will be left with "stranded assets" as climate accords kick in. The IEA says companies have booked assets that can never be burned if there is a deal limit to C02 levels to 450 (PPM), a serious political risk for the industry. Estimates vary but Mr Lewis said this could reach $19 trillion for the oil nexus, and $28 trillion for all forms of fossil fuel.

The world's leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.

The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.

This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.

The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions.

The EIA said the shortfall between cash earnings from operations and expenditure -- mostly CAPEX and dividends -- has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.

The agency, a branch of the US Energy Department, said the increase in debt is "not necessarily a negative indicator" and may make sense for some if interest rates are low. Cheap capital has been a key reason why US companies have been able to boost output of shale gas and oil at an explosive rate, helping to lift the US economy out of the Great Recession.

The latest data shows that "tight oil" production has jumped to 3.7m barrels a day (b/d) from half a million in 2009. The Bakken field in North Dakota alone pumped 1m b/d in May, equivalent to Libya's historic levels of supply. Shale gas output has risen from three billion cubic feet to 35 billion in just seven years. The EIA said America will increase its lead as the world's largest producer of oil and gas combined this year, far ahead of Russia or Saudi Arabia.

However, the administration warned in May that "continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development". It said that upstream costs of exploring and drilling have been surging, causing companies to raise long-term debt by 9pc in 2012, and 11pc last year.

Upstream costs rose by 12pc a year from 2000 to 2012 due to rising rig rates, deeper water depths, and the costs of seismic technology. This was disguised as China burst onto the world scene and powered crude prices to record highs. Major disruptions in Libya, Iraq, and parts of Africa have since prevented oil from falling much below $100, even though other commodities have been in the doldrums. But even flat prices for three years have exposed how vulnerable the whole oil and gas edifice is becoming.
http://www.telegraph.co.uk/finance/newsbys...ll-in-cash.html





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- Dr John Hussman

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