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Oil Prices Up Or Down From Here

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Unlike the experts I always correct any economic analysis for currency deflation via inflation. I've just run that analysis for oil prices which yielded the following:

150117-3.png

The real oil price is now below the trend line. It’s also 15% below the real average of $57.08 but it’s 7% above the real median price of $45.57. So which way from here? Unlike some on this site I have no idea and so I gave up trading a long time ago. That said I bought a healthy chunk of BP early this week because my mechanical investment strategy said it looked like a good idea.

Anybody else buying Oil & Gas Producers like Shell and BP or Oil Equipment, Services & Distribution companies like AMEC Foster Wheeler and Petrofac?

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Down!

I think that shale gas/oil is pushing down on the price of oil like how the low paid EU worker, pushes down on the average wage, and it doesn't even need to be pumped/employed, but it's lurking around in the background like Damocles sword, ready to spear any price/wage inflation.

This could go on for years.... maybe.

Edited by XswampyX

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Down!

I think that shale gas/oil is pushing down on the price of oil like how the low paid EU worker, pushes down on the average wage, and it doesn't even need to be pumped/employed, but it's lurking around in the background like Damocles sword, ready to spear any price/wage inflation.

This could go on for years.... maybe.

But once all that shale gas/oil equipment is rusted from non-use and Russia has been given an appropriate level of punishment do prices go back up again?

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Well yes, but that's a whole different problem, think of the 1970's.... we can discuss that, when it happens. It will be more end of days stuff! :D

Also if they don't need to actually pump any of the shale gas/oil, then how long will it last?

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There was a 20 year bear market followed by a 10 year bull which looks like it's just finished.

Due to the oscillations of markets coming quicker (caused by feedback from technology), I would say that were at the start of a 5 year Bear market followed by a 3 year bull commencing in 2020.

But then again anything could happen. Perhaps 'free' energy will come to market via cold fusion etc.

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Oh goody, another oil thread.

What the USD does is now the key isn't it - of the USD goes down next week, for example, then surely commodities would rise in price... such as gold and oil, etc?

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Oh goody, another oil thread.

What the USD does is now the key isn't it - of the USD goes down next week, for example, then surely commodities would rise in price... such as gold and oil, etc?

I have some of that but let's not go there...

Edited by wish I could afford one

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Probably.

2 bubbles (for diff reasons 70s, mid 2005-8) followed by dreary periods oscillating around a longer-term lower equilibirium

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I read something to the effect that commodity brokers have a saying "the cure for high commodity prices is high commodity prices", in other words high prices encourage additional exploration which in turn yields additional supply. It's reasonable to suppose that the opposite is true, low prices shuts down exploration which reduces supply and therefore pushes up prices.

We're seeing this happen right now, new oil wells are being mothballed and shale operations are going bankrupt.

So the price is unlikely to drop much further and in time it will start to rise. But when? BP talked about needing to prepare for three years of low prices, I'm less convinced. There are a lot of hungry mouths in Saudi Arabia, and a lot of greedy princes with their hands held out. My guess is prices will start to rise by the end of 2015.

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I read something to the effect that commodity brokers have a saying "the cure for high commodity prices is high commodity prices", in other words high prices encourage additional exploration which in turn yields additional supply. It's reasonable to suppose that the opposite is true, low prices shuts down exploration which reduces supply and therefore pushes up prices.

We're seeing this happen right now, new oil wells are being mothballed and shale operations are going bankrupt.

So the price is unlikely to drop much further and in time it will start to rise. But when? BP talked about needing to prepare for three years of low prices, I'm less convinced. There are a lot of hungry mouths in Saudi Arabia, and a lot of greedy princes with their hands held out. My guess is prices will start to rise by the end of 2015.

True but Saudi are no longer the swing producer. N. America has taken over that role. Moreover if/when prices recover mothballed sites can be started up again, especially the easier access shale opps.

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OK we sort of know that the Saudis want to let oil go down, at a possible loss to production, so they can get control back of the Oil market.

So imagine yourself in charge of Saudi Oil. Quantifying it.

This "loss" is an investment for a return at some point in the future. Perhaps the investment is $100bn, so we know this might be a finite figure. So thus, once this figure is hit, production will be cut, and the price will rise. So there will be a time of when this will happen.

If this is isn't the case, perhaps there is a number of bankruptcies of shale oil companies that will need to be hit - perhaps 100 large companies.

Edited by 200p

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OK we sort of know that the Saudis want to let oil go down, at a possible loss to production, so they can get control back of the Oil market.

So imagine yourself in charge of Saudi Oil. Quantifying it.

This "loss" is an investment for a return at some point in the future. Perhaps the investment is $100bn, so we know this might be a finite figure. So thus, once this figure is hit, production will be cut, and the price will rise. So there will be a time of when this will happen.

If this is isn't the case, perhaps there is a number of bankruptcies of shale oil companies that will need to be hit - perhaps 100 large companies.

It's a ******** strategy because all the hydrocarbons just lie in the ground until they are profitable enough to be produced, at which point they will be.

Thus the anticipated rise in price will never actually happen (at least over a sensible commissioning timescale).

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It's a ******** strategy because all the hydrocarbons just lie in the ground until they are profitable enough to be produced, at which point they will be.

Thus the anticipated rise in price will never actually happen (at least over a sensible commissioning timescale).

Surely the Saudis only need to let ISIL blow up a well and we'll be back @ $100 bbl before you can say 'false flag'?

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True but Saudi are no longer the swing producer. N. America has taken over that role. Moreover if/when prices recover mothballed sites can be started up again, especially the easier access shale opps.

I take your point about the scale of Saudi oil production, however I'm not so sure about shale. One of the accounts I read (and of course I can't find a link, sorry) went into some detail about how it wasn't just shale drillers who are suffering but more significantly the shale financiers. The implication being that they'll be far less willing to fund shale extraction in the future on such favourable terms knowing that shale could be pushed underwater at any time.

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But once all that shale gas/oil equipment is rusted from non-use and Russia has been given an appropriate level of punishment do prices go back up again?

I don`t think too many producers will go bankrupt or drop out of the market, just the weak ones. Oil it seems to me is now like tablets. Everyone and his uncle is producing it ( and them ...tablets) and everyone and his uncle will carry on, except the weak ones. This will keep prices low from now on for however long oil is being pumped from the ground, no matter what sort of system is used. America doesn`t want to see it`s own shale production come to a grinding halt, for political reasons. It will not allow it to happen in the long game.

No one producer or cartel has the upper hand any more. And so cannot manipulate the market like it has been in the past.

Edited by GinAndPlatonic

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Supply and demand (of oil and of dollars). The oil producers aren't in control of this.

There are less dollars to go around (deflation).

While there are many suppliers of oil. Ultimately there is only one source of $

We are not being flooded with cheap oil, we are loosing the easy money?

(maybe the smaller players in the oil shale go bust and get swallowed up by the majors but that is a side event)

IMHO I think this is about Russia. Cold War Version 2.0. How low and how long depends on how long Russia can stay afloat.

May be they are all loosing money but some of them have a friend who has the ability to print money.

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My Gaffers are anticpating $54 a barrel in 12 months. That is just about acceptable for our major onshore projects with a BEP of $40. At $60 and $75 respectively Deep Water and Ultra deep are dead in the water.

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Oh goody, another oil thread.

What the USD does is now the key isn't it - of the USD goes down next week, for example, then surely commodities would rise in price... such as gold and oil, etc?

This has always been the correlation however I wonder if this time it is different. Normally as you say if the dollar strengthens crude oil prices will fall but in this case if the ECB starts quantitative easing next week then I expect the dollar index to make new highs (100 might be a nice round number for the dollar index to peak but that's a pure guess) I do wonder if in this case the new stimulus will provide a short term boost to commodity prices including oil.

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My Gaffers are anticpating $54 a barrel in 12 months. That is just about acceptable for our major onshore projects with a BEP of $40. At $60 and $75 respectively Deep Water and Ultra deep are dead in the water.

Its interesting to hear an insiders view as most of the information I read on the industry is more from an economics perspective. Are they normally reasonably accurate in their predictions? and how far in advance do they attempt to predict the price?

Does the fact that they have projects with a break even point at $75 mean they did not predict prices to go this low or do they tend to take a very long term view on project like 25 years? i.e Will the $75 projects still be there in three year time if the oil price stays around $50, at what point would a loss making project be shut down?

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I don`t think too many producers will go bankrupt or drop out of the market, just the weak ones. Oil it seems to me is now like tablets. Everyone and his uncle is producing it ( and them ...tablets) and everyone and his uncle will carry on, except the weak ones. This will keep prices low from now on for however long oil is being pumped from the ground, no matter what sort of system is used. America doesn`t want to see it`s own shale production come to a grinding halt, for political reasons. It will not allow it to happen in the long game.

No one producer or cartel has the upper hand any more. And so cannot manipulate the market like it has been in the past.

Even if they do go bust, it is no problem. They will just goo in to administration, write off some debts and carry on. Failing that, assets are liquidated and reinvested.

This is all part of the economic cycle. Ofc, it is the investors who lose out and they are the people most connected with the state - especially the banks.

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