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Deckard

Verleger Says Oil To Collapse To $20 This Year On `devastating' Crude Glut

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http://www.bloomberg.com/apps/news?pid=206...id=auTu3RI8WC1A

July 16 (Bloomberg) -- Crude oil will collapse to $20 a barrel this year as the recession takes a deeper toll on fuel demand, according to academic and former U.S. government adviser Philip Verleger.

A crude surplus of 100 million barrels will accumulate by the end of the year, straining global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said.

“The economic situation is not getting better,†Verleger, 64, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a telephone interview yesterday. “Global refinery runs are going to be much lower in the fall. If the recession continues and it’s a warm winter, it’s going to be devastating.â€

Sounds a bit extreme... I really don't know enough about oil to gauge whether or not this is complete rubbish.

Just thoguht I'd kick off some debate with the Peak Oil brigade ;)

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Anything's possible I suppose. I believe the recent rises (+ increase in Baltic Dry) have been due to China stockpiling.

But then peak oil theory suggests increased price volatility as much as increased prices per se.

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**** report; OPEC can and will cut production, it is they not some economics academic that control the price of crude. Russia cannot afford low crude price either.

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i work in the oil industry and believe me lots of oil is still economic at $20. Plus OPEC can't realistically cut production much more than it already has done.

I don't think oil will fall to $20 anytime soon, but it could easily fall to $40 - demand growth is a distance prospect (despite the optimisitc tones of the IEA recently - a subset of the OECD) and people tend to forget that $100 oil is only a very recent development (that seriously none of us ever thought would happen just 3 or 4 years ago)

....but then predicting such things is an almost impossible science

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It fell from $147 to $35 in 6 months.

I'm suprised people don't think it can fall from $60 to $20.

I suspect BDI rebounding sharply is as much to do with cutting capacity as China stockpiling. But it's just a hunch.

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Quite a lot of people don't think prices can fall that much further as that would mean prices below the marginal cost curve - but (a) prices can fall below this no problem (at least in the short term), and (B) the marginal barrel of oil changes as demand contracts (i.e. it stops being that expensive to refine Canadian tar sands and becomes more easily extractable Middle Eastern oil (hence the marginal cost falls), plus © in a global recession costs (such as engineering and steel costs) also fall, further diminishing the marginal cost.

...so yes prices can certainly fall quite a bit further, $30 by end 2009 is my call

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http://www.bloomberg.com/apps/news?pid=206...id=auTu3RI8WC1A

Sounds a bit extreme... I really don't know enough about oil to gauge whether or not this is complete rubbish.

Just thoguht I'd kick off some debate with the Peak Oil brigade ;)

I thought we (supposedly) used 85 million barrels a day (just how and who counts that anyways)? But anway if it IS 85 million per day then 100 million is finished by the time I have had my morning coffee the next day, some surplus that ehh

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Sounds a bit extreme... I really don't know enough about oil to gauge whether or not this is complete rubbish.

Just thoguht I'd kick off some debate with the Peak Oil brigade ;)

Oil production is down 3mb/d from 'peak', if that's what it is... we've had a collapse in demand.

Oil price is based on the marginal barrel, so can gyrate well around the 'proper' price (i,.e. marginal production price). It dropped to $9 a barrel in 1999, if I recall correctly, and that was miles below cost of production for a big chunk of supply.

The crunch time comes if/when demand starts to pick up in the recovery (if we have a recovery, of course).

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I thought we (supposedly) used 85 million barrels a day (just how and who counts that anyways)? But anway if it IS 85 million per day then 100 million is finished by the time I have had my morning coffee the next day, some surplus that ehh

...i think the confusion here is one is referring to "barrels per day" and the other total barrels

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http://www.bloomberg.com/apps/news?pid=206...id=auTu3RI8WC1A

Sounds a bit extreme... I really don't know enough about oil to gauge whether or not this is complete rubbish.

Just thoguht I'd kick off some debate with the Peak Oil brigade ;)

Peak oil refers to production rate, not demand. To dismiss peak oil theory, we need to demonstrate that production can rise consistently and sustainably, forever.

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$20 oil is certainly possible, as is $10. But given that vast amounts of North Sea oil will now never be extracted due to tax laws/lack of investment money then the oil price will eventually go to the moon.

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Its a very difficult market to call and I suspect the majoirty of the current price is driven by specualtors.. we have heard how some have built up huge supplies in tankers, I suspect others have taken positions on an increasing crude price... personaly though I think what we'll see if ahything is a plateau and not a recovery so theres no demand reaoson for the price of crude to rise...... and of course I would agree with other posters there isn't and never will be any such thing as peak oil.

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$20 oil is certainly possible, as is $10. But given that vast amounts of North Sea oil will now never be extracted due to tax laws/lack of investment money then the oil price will eventually go to the moon.

At absolute peak, TOTAL north sea production reached as much as 8% of world production, half being from Norway.

It is now in steep decline because most has been extracted. Even if labour banned oil production in the UKCS altogether the effect would be negligible, as would the effect of dropping every single tax and regulation.

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