A "Flood" of new oil..........

[GRG55]

Re: A "Flood" of new oil..........

I think my thesis is consistent with PCO. I made a wager that WTI would touch $60 some time during 2014 (and in behind the paywall posted a similar outlook some months ago). I have no idea if I will be proven correct, as I have also posted many, many times that forecasting oil prices over short time intervals is a mugs game.

However, here's my thinking...and why I do not think it inconsistent with PCO.

First I was specific about WTI. The differential between WTI and the most popular global index, Brent, is being influenced by factors that have nothing to do with global supply, demand or GDP, and everything to do with USA domestic pipeline, truck, rail, barge and refining capacity...all of which are presently overtaxed while the upstream industry does what it always does...drill baby, drill. I just got back from a short trip to Dallas and Midland, TX. I made a 2 hour drive northwest of Dallas to meet a biz associate. I had the rental car on cruise control at 75 mph in the right lane. Once I got out of Fort Worth I was being passed by an almost continuous line of trucks hauling drill pipe...I gave up counting them.

Then I flew from DFW to Midland. What I saw there and out in Pecos County confirmed what I expected. The big boys, Apache, Anadarko, and others similar are drilling up a storm. They won't stop until they, and industry as a whole, create a price drop...that is the usual scenario in pretty well every drilling boom. If Brent price cracks, WTI will probably be more volatile this time.

Second, I wagered "touch $60". If the oil price declines, but does it by way of a gentle drift down to perhaps $80ish, I'll lose the bet with my brother. Possible, but not a typical commodity (oil) price decline. Usually once the oil price cracks the speculators exit their long dated futures en masse creating a selling avalanche and oil overshoots to the downside. All that is needed is a single intraday trade settled at $60. If that happens I would expect a pretty healthy bounce in the oil price immediately after...but I will nevertheless be placing an order with my brother for an expensive bottle of Margaux.

Said brother emailed last night. He's starting to sweat that winning this bet may not be a slam dunk for him after all. Still a ways to go however, and no assurance a bounce on Monday from this oversold won't mark the bottom.

[Fiat Currency]

Re: A "Flood" of new oil..........

Said brother emailed last night. He's starting to sweat that winning this bet may not be a slam dunk for him after all. Still a ways to go however, and no assurance a bounce on Monday from this oversold won't mark the bottom.

Hard to say - but I was thinking about your bet yesterday, as I bought some O&G properties.

It could even overshoot $60 (at least for a short time) on the way down - who knows for sure.

Either way, good luck on your friendly wager - damn prescient - win or lose I say.

[sutro]

Re: A "Flood" of new oil..........

Peak Cheap Oil.

We're not in Kansas anymore. Or Oklahoma, as the case may be.

If the AFC had not occurred in theory the oil price will be $150 by Apr. 2014.

But the AFC had to happen because the oil price reached $147 in 2008, to produce the recession that lowered oil demand and price but only to $40.

But if the AFC occurred and Fortress America energy policy had not been undertaken starting in 2003 then the oil price in Apr 2014 is ~$130.

But if the oil price was $130 by Apr 2014 then the economy is in recession and the oil price is falling now.

But if the AFC occurred and Fortress America energy policy is undertaken starting in 2003 then the oil price in Apr 2014 is ~$100.

Can the oil price fall below $80 in 2014?

Yes, if -- and only if -- the global economy collapses as much as it did in 2008.

Welcome to PCO.

So the collapse is still happening sometime after oil falls below $80, but not before obviously?

[Southernguy]

Re: A "Flood" of new oil..........

So the collapse is still happening sometime after oil falls below $80, but not before obviously?

The collapse is happening, only not in USA. Just watch Japan, Europe (continental) and China.
USA, however important, is not the world umbilicus. Add to that information provided by GRG about USA drilling and you get what's happening....easy to see...after the fact, of course. GRG, however, saw it before the fact. Hat tip.
Just add some political maneuvering towards some not to friendly states (namely Russia, Iran and Venezuela) and the picture comes out perfectly. Two big questions are, of course: Where's the bottom?
When does it happen?

[EJ]

Re: A "Flood" of new oil..........

Peak Cheap Oil.

Can the oil price fall below $80 in 2014?

Yes, if -- and only if -- the global economy collapses as much as it did in 2008.

Welcome to PCO.

Or if the Saudis fail to cut output as Iraq and the U.S. flood the world with oil.

The demand numbers are solid for a price rise but the supply numbers are not.

Score: GRG 1, EJ 0

[GRG55]

Re: A "Flood" of new oil..........

Or if the Saudis fail to cut output as Iraq and the U.S. flood the world with oil.

The demand numbers are solid for a price rise but the supply numbers are not.

Score: GRG 1, EJ 0

Anybody can get lucky once. Even me.

[touchring]

Re: A "Flood" of new oil..........

Or if the Saudis fail to cut output as Iraq and the U.S. flood the world with oil.

The demand numbers are solid for a price rise but the supply numbers are not.

Score: GRG 1, EJ 0

Oil is very political, you never know the true reason why the Arabs are not cutting output. If Obama doesn't fulfill his end of the bargain by sending in ground coalition force to get rid of Assad or Isis, it could change very quickly.

[GRG55]

Re: A "Flood" of new oil..........

Oil is very political, you never know the true reason why the Arabs are not cutting output. If Obama doesn't fulfill his end of the bargain by sending in ground coalition force to get rid of Assad or Isis, it could change very quickly.

Oil is THE most political of commodities.

But the "bargain" you refer to has no obvious rationale behind it. Nor does the idea of boots on the ground.

Fomenting war is a favourite activity of western political leaders in trouble at the polls or needing a shot of inflation to goose a moribund economy. It's not just an American phenomenon; recall how anxious Sarkozy was to lead a dust up in Libya just prior to losing his Presidency.

Cranking up demand for expensive, high tech arms manufacturing is usually a very effective fiscal reflation strategy. And in these deflationary times, with the Fed "tapering" monetary stimulus, creating a demand for drones, smart bombs, air launched missiles, ground-to-air defense systems, mobilizing more carrier groups and such would seem a slam dunk stimulus program. The only forces needed on the ground are "military advisers" (in reality intelligence operations) and small commando teams for ground-based laser targeting.

Do not discount the secondary objective of maintaining confidence in the military and promoting it as the most competent of government institutions at times when politicians and most other government entities are not held in high regard by the public. This biases toward the active promotion of a "moral" conflict in one remote outpost or another; recall Bush Jr.'s "crusade" comment in the run up to Gulf War II followed by "Mission Accomplished", or Maggie Thatcher's justification to go to war over the Falklands instead of seeking a diplomatic solution? Saddam, and the two unfortunates pictured below were easy targets, as is ISIS in this new "War Against Beheadings". EJ has written about the rise of the military class in the USA. You might want to do a search and read some of those old posts.

[touchring]

Re: A "Flood" of new oil..........

Oil is THE most political of commodities.

But the "bargain" you refer to has no obvious rationale behind it. Nor does the idea of boots on the ground.

A cartel exists for a reason. If it doesn't operate as a cartel, there must be some political bargain here and what bargain could there be other than what concerns Syria? The only other reason I can think of would be a deliberate attempt to lower oil prices in hope that American shale oil producers will go out of business? Is this probable?

[jk]

Re: A "Flood" of new oil..........

A cartel exists for a reason. If it doesn't operate as a cartel, there must be some political bargain here and what bargain could there be other than what concerns Syria? The only other reason I can think of would be a deliberate attempt to lower oil prices in hope that American shale oil producers will go out of business? Is this probable?

there are many possible reasons the saudis have chosen, so far, to keep pumping and allow prices to fall. these reasons are not mutually exclusive.

one is to undermine russia/putin, especially in light of its support for [shiite] iranian nuclear development.

another is to maintain the flow of funds to support its own vast domestic spending/subsidy program that is in place to assuage any domestic unrest.

i doubt the saudis really want to undermine isis - after all, isis mainly is fighting the iraqi shiite forces and the syrian shiite forces.

another reason to drop prices is to cut the legs out from under the shale boom in the u.s. -- drop the oil price below the hurdle rate for more shale drilling. if that drilling can be halted, and the shale development business dismantled, it will not be easily or quickly reconstituted when prices go up again.

monopolies like to manipulate prices. this is one of the critiques/fears of amazon in retail: drop prices enough to put competitors [russian and u.s. shale for saudi oil] out of business. then, down the road, use your resultant monopoly pricing power to generate more profits.

[sutro]

Re: A "Flood" of new oil..........

This here link says Bakken crude is good to go as low as $42 bucks a barrel. Seems like if the Saudis are targeting US shale producers it will take good while for this to play out. I guess this will slow down new wells but how long until the current wells become unprofitable? In the meantime, it looks like Iran and Russia are the big losers.

http://www.vox.com/2014/11/28/7302827/oil-prices-opec

[GRG55]

Re: A "Flood" of new oil..........

A cartel exists for a reason. If it doesn't operate as a cartel, there must be some political bargain here and what bargain could there be other than what concerns Syria?...

You have not explained what is in it for the Americans to agree to this "bargain" you keep referring to.

If it is the historical security of oil supply from the Middle East that it desires, then the USA should be acting to maintain stability in the region...which is what it did for decades through military and political clout.

But it does not appear to be doing any such thing in recent years. In fact I have posited before that the USA may now be pursuing a nearly opposite policy of deliberate fragmentation in the region (and elsewhere). Political and economic instability in the rest of the world, combined with a heavy handed approach to foreign banking centers (such as the US treatment of Switzerland) promotes safe haven capital flows towards the USA, and supports demand for the US Dollar.

Seems to be working quite effectively at the moment.

[sutro]

Re: A "Flood" of new oil..........

+1!

[due_indigence]

Re: A "Flood" of new oil..........

there are many possible reasons the saudis have chosen, so far, to keep pumping and allow prices to fall. these reasons are not mutually exclusive.

one is to undermine russia/putin, especially in light of its support for [shiite] iranian nuclear development.

another is to maintain the flow of funds to support its own vast domestic spending/subsidy program that is in place to assuage any domestic unrest.

i doubt the saudis really want to undermine isis - after all, isis mainly is fighting the iraqi shiite forces and the syrian shiite forces.

On the contrary Saudi Arabia is Enemy number One for ISIS. Wahhabism is radically monotheistic. They want Mecca.

Slightly OT: Is this site still active? The Suez Canal vid has been up there almost since the crisis itself. Are there still substantive updates? I haven't been here in years.

[touchring]

Re: A "Flood" of new oil..........

You have not explained what is in it for the Americans to agree to this "bargain" you keep referring to.

If it is the historical security of oil supply from the Middle East that it desires, then the USA should be acting to maintain stability in the region...which is what it did for decades through military and political clout.

But it does not appear to be doing any such thing in recent years. In fact I have posited before that the USA may now be pursuing a nearly opposite policy of deliberate fragmentation in the region (and elsewhere). Political and economic instability in the rest of the world, combined with a heavy handed approach to foreign banking centers (such as the US treatment of Switzerland) promotes safe haven capital flows towards the USA, and supports demand for the US Dollar.

Oh yes, it's for East Ukraine coal and gas fields that some Americans are interested in- albet this represents only 0.000001% of Americans.

Lower the price of oil in hope that Russia will give up the gas fields so who and who can earn a couple tens of million bucks.

Of course, it remains to be seen whether air raids alone can solve the problems in Syria. But judging from how it worked out in Afghanistan, the chance of succeeding is very very low.

It's no wonder that Hagel resigned!