Yeah, I fully expect to see oil go below $20, expecially after the shakeout and bankruptcies that allow pumping at lower prices. And it will be good for everyone except oil companies and oil kleptocracies. Other than California, look for gas below two bucks indefinitely.
[Update a few minuts later]
OK, well, this isn’t as encouraging:
During the 2007 crisis, central banks the world over made a coordinated effort that pumped large amounts of liquidity into the system, easing the pressure. However, since 2009, these same central banks have followed an easy monetary policy, inflating balance sheets to scary levels, as shown in the chart above. They will find it difficult to handle any future crises caused by low oil prices. They are now out of ammunition.
The current oil crisis will see regime changes in strategic places, and a currency crisis is in the offing. The world is staring at deflation. And while the 2007 crisis started in the US and then spread around the world, today’s crisis is affecting all major nations simultaneously. All are struggling due to low oil prices—some directly because of lower revenues, and others because of deflationary pressure.
The next crisis will be larger and longer and it will hurt a lot more than the last one. The windfall at the gas pump is a dark harbinger.
At least we’ll be able to afford to fill the tank, if we have jobs.
Throughout history there is a direct correlation between cheap available power sources and standard of living.
I don’t think so. People claiming sub $20 seem just as off as the people that claimed peak oil. The demand curve is already rising and has almost matched supply. It will take several months after that to work down the stored inventories from the drop. But I think we are at the relative bottom without much room to drop further. I won’t speculate on the new normal, other than to say we are closer to it now than is $20bbl.
That said, I think a lot of people were surprised by the efficiency in shale production. I think heavy oil market share will be affected the most. Tight oil isn’t looking so tight after all. Sucks to be Venezuela.
That said, I think a lot of people were surprised by the efficiency in shale production.
Not just the efficiency but the level and scope of it, at least for me. The first link is saying that frackers could one day compete at $20 a barrel, which means they will always be competitors because you are right about there being a price floor someplace. OPEC nations, or others, wont be able to drop prices low enough to totally put them out of business.
It should be interesting, from a Chinese proverb perspective, to see how Saudi Arabia and the other Arab oil countries respond and how we respond if/when the oil producers of the ME go full jihad.
If I could get a large enough investment pool together, I’d be buying all of that $20 a barrel oil I could lay my hands on, and store it for future use (via a long-term buy contract, of course). Five years from now, it would be worth five times what it is now.
The speculation market is what damps out big excursions like this. I’m curious as to why it isn’t doing so now.
And where are you going to store it?
There were people talking about “contango” (is that a South American dance representing the mating rituals of cattlemen and prostitutes?) for a long time now. I think that is a term-of-art in commodities trading for the price being high because of thinking you are expressing but the industry running out of places to put the oil.
Remember Steve Forbes saying oil is way overpriced and should be trading at $30/barrel? That was back in 2006, and Mr. Forbes lost a good deal of credibility on that one. I guess if you wait long enough, Steve Forbes is a prophet.
Five years from now? Yes, oil will have another price revolution, but maybe in 5, 10, perhaps 20 years? Can you hold out that long?
And where are you going to store it?
Plenty of underground to store oil in. I think the real problem is that you create a huge, costly liability by pumping oil back into the ground. And there will be a group of Luddites pretending to be environmentalists hitting you with all sorts of lawsuits in order to shut that down because oil storage would make it easier for us to continue on an oil based economy.
Inflation punishes savers, since the value of their savings declines over time; and rewards debtors, since they can pay off their debts with inflated currency. As a saver, I’m not sure why I should regard deflation as a bad thing.
Assuming a currency whose value remained fixed, the cost of goods and services should naturally decline over time as technological progress creates greater efficiency.
In a free economy leaders would take inflation into account. If only we lived in one.
“I don’t think so. People claiming sub $20 seem just as off as the people that claimed peak oil. The demand curve is already rising and has almost matched supply. It will take several months after that to work down the stored inventories from the drop. But I think we are at the relative bottom without much room to drop further. I won’t speculate on the new normal, other than to say we are closer to it now than is $20bbl”
Would agree and add that I don’t think the cause of the current oil glut ( the fracking boom) and increased car/light truck efficiency standards compares with aforementioned periods in the past when oil prices tanked. The current oil price collapse is probably more fueled by the technological breakthroughs represented by the fracking boom and higher vehicle efficiency; since the cause is different than in the past, don’t see how we can expect the same results as in the past.
“The current oil price collapse is probably more fueled by the technological breakthroughs represented by the fracking boom and higher vehicle efficiency; since the cause is different than in the past, don’t see how we can expect the same results as in the past.”
I agree – the fracking boom is what generated the glut and the glut is driving prices down.
Not sure how much the vehicle efficiency is really making a difference – especially when I see more larger cars on the road (it seems).
Once again! the Malthusian predicters of doom and gloom reckoned without the inventiveness of a free society.
ONCE AGAIN government tried to arrange how people lived because of a prediction it had no right or reason to make and was wrong. And billions of dollars destroyed.
“I agree – the fracking boom is what generated the glut and the glut is driving prices down. Not sure how much the vehicle efficiency is really making a difference – especially when I see more larger cars on the road (it seems).”
Mostly the fracking boom in fact probably primarily with the improved fuel efficiency very much less so. Another more important factor is people simply driving allot less. Not only “social media” replacing face time but say shopping on line replacing weekend trips to the shopping mall for instance. That one I bet is huge; know I shop on line allot more now and shop in suburban malls allot less.
“Once again! the Malthusian predicters of doom and gloom reckoned without the inventiveness of a free society.
ONCE AGAIN government tried to arrange how people lived because of a prediction it had no right or reason to make and was wrong. And billions of dollars destroyed.”
Yeah well…most people like that believe in it (the doom) to justify the kind of leftist/socialist/world gov takeover they want anyway. Expect the same kind of meltdown in belief when people figure out that global warming is a hoax; it is due to go the same way as “Peak Oil”.
“Would agree and add that I don’t think the cause of the current oil glut ( the fracking boom) and increased car/light truck efficiency standards compares with aforementioned periods in the past when oil prices tanked.”
I don’t think it has much to do car/light truck efficiency standards.
Or sort agree with:
“Some of the shrinkage in sales can be attributed to more fuel-efficient cars. But that presumably would be relatively small over shorter time frames and would be offset to some extent by population growth. ”
And later:
”
We have an aging population leaving the workforce, which we clearly see in the sustained contraction in the employment-population ratio.
There is growing trend toward a portable workplace and the ability to work from home.
Social media have provided powerful alternatives to face-to-face interaction requiring transportation (Internet apps, games, the ubiquitous mobile phone for talk and texting).
There has been a general trend in young adults to drive less (related to points two and three above). See this report at the U.S. PIRG website for details.
The US is experiencing accelerating urban population growth, which reduces the per-capita dependence on gasoline.”
Or I would say biggest factors is US oil production.
Plus [and related to US oil production] US strong dollar- as compared to global weakness of other countries “dollars”. Or oil is cheap for US and not as cheap for other countries. This can summed up as weak US economy causing other countries economies to be weak- a slowing of global economic growth or the Great Recession continue and unless the US does something to increase US economic growth, the world will continue to falter, though the consequences of the US failing to have higher economic growth for such a long time maybe shatter [or not prop up] failed global governance. And the more foreign governments fail the stronger US dollar will become. Or not terrible for US, but very bad for other countries, though very bad for other countries is not good news for US. Generally war is becoming more likely- though it’s not as though we have a shortage of war at the moment.
And rather than governmental car/light truck efficiency standards, it’s more of general improvement of vehicles due competition and markets which if anything has been inhibited by governmental regulations. Or would say high price of gasoline may have had bigger effect- as make more need/demand for fuel efficiency, and people would still want better efficiency even with lower gasoline prices. Or people simply want better cars- more choice of cars which fit their particular needs.
forgot link:
http://www.advisorperspectives.com/dshort/updates/Gasoline-Sales.php
The current oil price collapse is probably more fueled by the technological breakthroughs represented by the fracking boom and higher vehicle efficiency;
ND got hit pretty hard by the fracking slowdown and drop in oil prices. I am not sure what the production numbers are but you can search for used cars, trucks, trailers, and RVs in the area to get an idea how things changed. Or at least it was pretty bad last summer. Some frackers might be able to leverage technology to perform well at lower prices but a lot were over extended or just unable to compete at the current prices.
Some good deals on RVs if anyone has the skills to fix em up without ruining the profit potential.
IMO, the current low prices have something to do with the Saudis using oil as a weapon. Lower oil prices means that Russia and Iran have less money for their wars against Saudi Arabia by proxy. It isn’t in Saudi Arabia’s interest that prices are low. IIRC, they started running a deficit. It looks like they are banking on Iran and Russia being less resilient. That isn’t a qualitative analysis though, just my hunch.
Good time to be buying hybrid vehicles. I have noticed a distinct price drop in the Prius used market. 6 months ago they seemed way overpriced, now dropping closer to what I would expect for a used car of a given mileage. If they drop a bit more, I’m going to get one. I expect low gas prices for another year or two, then a rise. There are too many global players invested in high gas prices.
New tech will keep acting to hold prices down, but any kind of world turbulence can push them back up. And why not drive a hybrid, if the selling price is reasonable? I view it as insurance.
Deflation is bad because as you said, lenders take it in the shorts.
Look at what our economy has become in the past thirty years with cheap money? Start a deflationary cycle, and we start seeing massive defaults across the board.
I’ll admit it, I used to be one of the peak oil crowd.
Yes, I knew about the vast amounts locked in shale oil in the US, but at that time, it was just that, locked, because there wasn’t an economically viable way to extract it, then.
Therefor, I felt it a very real possibility that the world (and the USA in particular, due to its then-large dependance upon foreign oil) could be heading for a supply crunch. Therefor, IMHO it made sense to be looking into, and planning for, options, such as using coal methanol for auto fuel.
Obviously, fracking changed everything, including my stance on oil. However, I don’t regret my past position, because I feel it was rational based on what was known then. It is unwise in the extreme to bet the farm on technological advances that might happen, because they might not (or not in time).
I worked briefly in the old service industry some decades ago. I remember a big thing back then was Measure While Drilling: putting oil well logging instruments at the end of the drill string, behind the bit, and send data back up the pipe using very low speed mud pressure pulses (!).
Well, these days they’ve figured out how to wire a drill string for high speed data. Remember that a drill string is made of sections of steel pipe with threaded connectors on the ends (one male, one female). The rotation of the string acts to tighten the joints. The new scheme adds a coax cable inside each pipe, opening out to a coil at each end. The coil from one pipe nests onto the coil at the end of the next for an inductive coupling.
When used with occasional powered repeater segments (which can also measure local temperature/pressure and perhaps other things), data rates of 1 Mbit/s to/from the drill bit can be supported, even during drilling.
I bring this up because it’s an example of the kind of advance the oil/gas industry is continuing to see.
Er, “oil service”, not “old service”.
I see 3 major factors in the current low oil prices:
– new technology, mostly fracking.
– political, including Iran being unlocked after decades, the ISIS fire sale on oil, and OPEC breaking up.
– over development during the recent pathological high in oil prices.
The current low oil prices are unlikely to continue for very long. But baring a market pathology (most likely caused by political factors) we are also unlikely to see a repeat of recent high prices any time soon.
The low oil prices should allow for some degree of economic recovery and improvement in job growth. If oil is cheaper it enables the unemployed (with modest savings) to spend more on travels looking for a job. It also allows people to spend money driving to go to a theater to see a movie or whatever. So discretionary spending should improve and the economy should increase. At the same time global trade will increase.
If other economic factors weren’t twisted in knots, cheap oil would be good news for the markets.