Understanding Oil Prices

[freebird5825]

I think it will be temporary. I consider oil stocks "on sale" and have been buying on this massive drop.

Ditto....

 

[Fermion]

We need to make up the loss of oil production by US workers/companies with some other export or the drop in price of oil is a net negative long term (unless the export of US dollars can continue if the world appetite for them remains strong).

 

[imoldernu]

I surrender

Maybe I linked to the wrong article or something like that. It appears that no one thinks that even one of the 10 points would have any effect on the economy. The basis for the article was a five+ year oil price decline.

So if solar, shale, wind and ethanol go by the boards, and the billions of dollars spent to explore and initiate building long term sustainability of alternate energy, and the new jobs that were created disappear... the effect on the economy will not be serious.

Supply and demand? I hope you're right.

Much more here about international factors that suggest long term low rates.

http://www.theage.com.au/business/mining-and-resources/theres-more-to-oil-prices-than-just-supply-and-demand-20141211-1252iz.html

 

[audreyh1]

I'd have to disagree. Demand is dropping while supplies are rising, especially in the US. Prices are falling. Buyers are expecting cheaper prices in the future, so they are delaying purchases, dropping futures even more. Sudden changes are just a reflection of changes in future expectations of both demand and supply. In the last months the world econony started shrinking while opec stated they will purposely over produce. A price shock is EXACTLY what should happen.


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But the process should have started a year ago, causing a more gradual decline. Not this sudden stair step. A lot of the information - particularly supply, was obvious a year ago. The high oil prices earlier this year made no sense.

 

[explanade]

What happens if the price of oil remains down for a few years?

Maybe the marginal producers and exploration companies goes away but the rest of the economy, including the global economy, does better.

It sounds like the "shale revolution" was more about money than national security, energy independence, etc.

 

[dallas27]

Not true(audreyh1), the expectation was that opec will adjust supply it maximize profits and support higher prices, like any good monopoly would. They chose to enter a price war by oversupplying the market. Essentially they are purposely driving prices down to the cost of production or below to drive out / bankrupt competitors. When they took that tact, the market reacted strongly as they should. Opec signaled more and more strongly to the world they are serious and are going to ride this to the bottom to hurt others. I promise the long game is to maximize profits. Whether it works, is another story.

This is black oil friday, these deals won't last. It not any companies interest to maintain this level.



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[tryan]

Yeah, there would be a REAL opportunity in oil futures ... if only we knew how low it will go.

Hmmmm ...

 

[aja8888]

It sounds like the "shale revolution" was more about money than national security, energy independence, etc.

It was about the oil companies developing and perfecting horizontal drilling and more efficient ways to fracture tight formations to produce X20 the amount of hydrocarbons they traditionally got from vertical wells.

It's a game changer for oil companies and has nothing to do with national security, energy independence or any of that flag flying stuff.

Remember, oil companies cutting back on drilling and production results in keeping the hydrocarbons in the formations. Once prices are high enough to sustain lifting costs and profits, they will be back at it.

 

[Lsbcal]

...(snip)...

Remember, oil companies cutting back on drilling and production results in keeping the hydrocarbons in the formations. Once prices are high enough to sustain lifting costs and profits, they will be back at it.

Thanks for confirming my guess on this.

So I guess we can say that the US frackers are putting a ceiling on how high oil might go in the future? When it goes incrementally higher, more supply will become available?

 

[Mr._Graybeard]

The oil prices are 5-year lows. Did the market and the economy suffer when the prices were at these levels back then?

Yes, I'd say the economy was hurting pretty badly in 2009. But the oil price collapse then was the result of a crashing economy, not the other way around.

"This time it's different." This seems more like a replay of 1985, when the world economy was coming out of a serious recession, but expanding. The oil glut that followed gave consumers more spending power and stoked the economic engine that relies so heavily on the middle class.

The thing that puzzles me is, why are the Saudis pushing production now when they really don't have to? The country is the 800-lb gorilla of OPEC, and it has ample cash reserves. It doesn't need to maximize cash flow at the expense of other cartel members.

Is it possible that King Fahd agreed to boost oil production in the 1980s to destabilize the Soviet Union, which was fighting mujahadeen in Afghanistan and under increasing Cold War pressure from the United States? Perhaps the Saudis used their oil weapon at the behest of the US back then ... and, perhaps, now?

Vladimir Putin seems to think that's the case. He's seen this movie before too, through Russian eyes.

 

[Ed_The_Gypsy]

"Once prices are high enough to sustain lifting costs and profits, they will be back at it." In a New York minute.

 

[Fermion]

Is it possible that King Fahd agreed to boost oil production in the 1980s to destabilize the Soviet Union, which was fighting mujahadeen in Afghanistan and under increasing Cold War pressure from the United States? Perhaps the Saudis used their oil weapon at the behest of the US back then ... and, perhaps, now?

Vladimir Putin seems to think that's the case. He's seen this movie before too, through Russian eyes.

Makes me wonder if Russia may find some Russian citizens in Saudi Arabia who are getting oppressed and need Russian intervention.

 

[Ed_The_Gypsy]

He will find them, never fear.

 

[Mr._Graybeard]

Makes me wonder if Russia may find some Russian citizens in Saudi Arabia who are getting oppressed and need Russian intervention.

The Persian Gulf is bristling with weapons. Plus the Russians know what's likely to happen if they put a military force in the country that is home to Mecca -- we did that, and got 9-11.

If the 1980s repeat themselves, though, oil will remain in the basement for several years, until Russia undergoes economic collapse and regime change.

 

[aja8888]

Thanks for confirming my guess on this.

So I guess we can say that the US frackers are putting a ceiling on how high oil might go in the future? When it goes incrementally higher, more supply will become available?

"Once prices are high enough to sustain lifting costs and profits, they will be back at it." In a New York minute.

Note Ed's answer above....(highlight be me)

 

[Brat]

I have S&P 500 index in one of our Roths. I am reading predictions that the S&P will be hard hit by the drop in oil and recommendations to sell. If I did that what would be a better index fund? (other investments are Wellesley and Wellington)

 

[Lsbcal]

I have S&P 500 index in one of our Roths. I am reading predictions that the S&P will be hard hit by the drop in oil and recommendations to sell. If I did that what would be a better index fund? (other investments are Wellesley and Wellington)

Take a look at the chart I posted above. So far the predictions are wrong. I don't invest on predictions but they are entertaining.

 

[eytonxav]

I'll be surprised if we see these price levels for an extended period in 2015. I am really thinking of adding more oil/gas/equipment to my port, as I don't see oil going much lower.

 

[audreyh1]

The problem with swings like this is that they tend to undershoot before correcting. I don't see why it couldn't get a lot lower than this for a while, before settling at a higher level off the lows. Long enough to cause the most pain.

 

[explanade]

Anyone buying large vehicles?

Supposedly there have been spikes in SUV sales.

 

[Fermion]

Anyone buying large vehicles?

Supposedly there have been spikes in SUV sales.

I am thinking about upgrading our 19,500 GVWR Isuzu truck to a FTR model (26,000 GVWR) if I can find one. That large enough for you?

We may need the extra capacity to carry our camper and gear.

I admit that watching fuel drop and hearing it might stay low for 5 years is making me want to go with the larger vehicle. MPG will probably go from 11 to 8.

 

[aja8888]

Neighbor up the street just rolled home in a new F150, lady somewhere in the area drives by in a new Dodge SUV, I have a new Passat, guy in the ROMEO club bought a new Audi Q7. This is thinking quickley off the top of my head.

 

[Lsbcal]

I'll be surprised if we see these price levels for an extended period in 2015. I am really thinking of adding more oil/gas/equipment to my port, as I don't see oil going much lower.

Shades of the tech bust thinking circa 2001?

 

[meierlde]

Thanks for confirming my guess on this.

So I guess we can say that the US frackers are putting a ceiling on how high oil might go in the future? When it goes incrementally higher, more supply will become available?

Note that also the low prices will wring out inefficiencies in the proceedures used in drilling and completing the wells. This will over time reduce the break even price just as directionally drilling multiple wells from one pad has done (once you go directional, one can drill wells in different directions from a single site)

 

[explanade]

It seems there are much quicker reactions in terms of car purchasing behavior in response to oil price swings. When oil was like $150 and people were predicting $200 and $250, SUV sales plunged and public transit systems were packed.

Then previous drops in the price of oil saw sales spikes of large and performance cars.

You would think the car companies would be more inclined to offer incentives to buyers when oil price is high and they want to move the SUV inventory. As I understand it, pickups sell well all the time so they don't need incentives.