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Thread: Whither oil

  1. #1

    Default Whither oil

    There is some debate whether the oil price crash can be attributed to more fundamental factors or whether it is a consequence of central banks fidgeting with interest rates, and 'quantitative easing'. I belong to the second camp.

    Bank of America analysts are looking at the chart of oil and see remarkable similarities between the oil price cash of 2008 and today's. In 2008 we had the bursting of a credit fueled subprime mortgage bubble. Today we have a credit fueled junk bond bubble.

    http://www.bloomberg.com/news/articl...-like-subprime

    P.S. Whatever the case might be, a job lost in this recession won't return for at least 4 years if the 1980s are an indication.
    Last edited by Safir; 25-01-2016 at 10:19 AM.

  2. #2

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    ^so you are saying quantitative easing caused Saudi Arabia to keep pumping more, even while production increased? I don't think so. The similarity, is because both are examples of an overpriced commodity (oil / subprime debt) that then corrects. In oil's case, the correction is due to the fundamentals, until production drops, or demand significantly increases, the price will remain down.

  3. #3

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    ZIRP sure helped shale drillers finance their operations.

    China's credit expansion fueled more growth in their economy, causing oil demand to stay high as well.

    Other factors caused SA to not cut back on production and open the market to competition.

    One major threat was the number of plants and other developments that scheduled to come online over the next few years and dramatically depress prices through additional oil supply. Supply that would persist for quite a while. It made sense for SA to drive down oil prices before it was too late and 2015 was the closing of that window of opportunity.

    We here in Alberta may be better off as a result of it too.
    Last edited by KC; 25-01-2016 at 02:00 PM.

  4. #4

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    Quote Originally Posted by KC View Post

    One major threat was the number of plants and other developments that scheduled to come online over the next few years and dramatically depress prices through additional oil supply. Supply that would persist for quite a while. It made sense for SA to drive down oil prices before it was too late and 2015 was the closing of that window of opportunity.
    Thing is Daniel Yergin just told Davos that Saudi Barbaria did not factor in that private equity firms have a $60bn war chest and are waiting to pounce on forced s(h)ales, a mix of an asset with disruptive technology which can bring production online with $10m in 20 days.

    Shale ain't going away, so that credit policy (ZIRP/QE) actually financed a disruptive tech which pretty much crashed the price of the commodity.

  5. #5

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    Correlation does not equal causation, and many a market expert are looking at various correlative events to try to find an edge in an ever more heavily analyzed marketplace (see high frequency trading algorithms and the mental gymnastics that went into constructing them).

    You are ignoring that SA saw a few things happening, the looming Iran deal, multiple proxy wars due to the Arab Spring events and reacted to those regional events to help maintain control. They also have been in a pissing match with Russia over contracts with Europe and China. They aren't happy with Russian involvement in the M.E. especially given the closeness Russia has with some of their nemeses. Tack on all that with other events and that's what gives us our current position.

    Largely though this is a regional dispute that has scaled to a global problem. SA just uses the shale play as an effective political tool so that they don't have to outright claim they are trying to cause economic war and destruction to neighbouring states. If they kill off shale in the process even better and that helps them further fund their expansion of influence in the region. The US lifting export bans was further motivation to continue to try to kill other producers.

    I would suggest it goes beyond fundamentals of a market and into straight political maneuvering.

    China's growth was bolstered by credit expansion and also huge infrastructure projects (city building), but that was going to have to stop at some point given the empty project cities that were built. There has been an infrastructure and realestate bubble looming in China for a decade they tried to transition away from that and it was going to be messy so Chinas market freakout is the symptom of that mess.

    Shale had access to cheap credit which helped fuel expansion but is just a factor in the commodity collapse. To say the warchests or cheap credit are the cause of this is an outright fallacy and ignoring some very important political machinations.

    Shale is an excuse that SA is using to impose its will on the M.E. A very convenient excuse mind you but also an expensive one. If they can make the U.S. rely on them for oil then all the better and just trade it for military support be it with soldiers and expertise or technology and equipment.

    The size of the proxy wars and all the major players is not to be ignored though given that everyone involved also relies heavily on oil to fund their empire building.

    Shale fracking being a quick to spin up tech that is cheap to implement doesn't help the problem and has just acted to exacerbate an already unstable system. The war-chests of the large equity and investment trusts/firms just further adds to that instability.

    What you are seeing is a political unstable system funded by a single commodity showcasing the inherent instabilities that come about when politics and regional presence/influence are more important than profit taking.

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    Quote Originally Posted by Safir View Post
    Quote Originally Posted by KC View Post

    One major threat was the number of plants and other developments that scheduled to come online over the next few years and dramatically depress prices through additional oil supply. Supply that would persist for quite a while. It made sense for SA to drive down oil prices before it was too late and 2015 was the closing of that window of opportunity.
    Thing is Daniel Yergin just told Davos that Saudi Barbaria did not factor in that private equity firms have a $60bn war chest and are waiting to pounce on forced s(h)ales, a mix of an asset with disruptive technology which can bring production online with $10m in 20 days.

    Shale ain't going away, so that credit policy (ZIRP/QE) actually financed a disruptive tech which pretty much crashed the price of the commodity.
    Just linked to an article in The Telegraph on this very subject on the other oil thread.
    "The only really positive thing one could say about Vancouver is, itís not the rest of Canada." Oink (britishexpats.com)

  7. #7

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    I posted this study link back in 2012... Mostly a basic supply and demand discussion. we have to keep in mind that the high oil prices created high profits which always causes a flood of investors to pile in and create overproduction.


    Coupled with global market instability, these features of the current oil market will make it highly volatile until 2015, with significant probabilities of an oil price fall due to the fundamentals of supply and demand, and possible new spikes due to geopolitical tensions. This will make difficult for financial investors to devise a sound investment strategy and allocate capital on oil and gas companies.

    A hypothetical oil price downturn would have a significant impact, albeit short-lived, if it occurred before most of the projects considered in this paper had advanced significantly - that is, before 2015.

    Conversely, if an oil price collapse were to occur after 2015, a prolonged phase of overproduction could take place, because production capacity would have already expanded and production costs would have decreased as expected, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade.

    source: - see below

    Conclusion, pg. 64:

    The timing of a hypothetical downturn or collapse is crucial to understanding its duration and its impact on the global oil market. Most of the projects I studied are still being developed, with higher initial costs to adopt new technologies, build infrastructure, and overcome the learning curve. The downturn or collapse of the oil market would have a significant impact, particularly if it occurred before 2015, when most of these projects have yet to advance However, the duration and effect of such a collapse would probably be of short duration.

    Quote Originally Posted by KC View Post
    conclusion starts on page 64...

    Oil: The Next Revolution - The unprecedented upsurge of oil production capacity and what it means for the world
    June 2012

    "Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.

    The most surprising factor of the global picture, however, is the explosion of the U.S. oil output."...

    http://belfercenter.ksg.harvard.edu/...Revolution.pdf
    Post #26 27-06-2012, 12:33 AM

    http://www.connect2edmonton.ca/forum...194#post450194

    For future reference:

    Discussion Paper #2012-10
    Geopolitics of Energy Project
    Belfer Center for Science and International Affairs John F. Kennedy School of Government
    Harvard University
    Last edited by KC; 25-01-2016 at 06:37 PM.

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    Quote Originally Posted by LoebsPeugot208 View Post
    What you are seeing is a political unstable system funded by a single commodity showcasing the inherent instabilities that come about when politics and regional presence/influence are more important than profit taking.
    It is a mixture of all of it. The beauty of a scarce staple good is it brings all of this to the surface for global geopolitics/economics junkies.

    What we have is an unstable political system funded by a single commodity that is exploited into a bubble by irresponsible credit practices/overinvestment, which pops catastrophically and without much in the way of warning due to said political system shifting.

    A perfect storm of ingredients all designed to create a very unpredictable and dangerous revenue stream for places like Alberta...

  9. #9

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    Quote Originally Posted by expat View Post
    Quote Originally Posted by Safir View Post
    Quote Originally Posted by KC View Post

    One major threat was the number of plants and other developments that scheduled to come online over the next few years and dramatically depress prices through additional oil supply. Supply that would persist for quite a while. It made sense for SA to drive down oil prices before it was too late and 2015 was the closing of that window of opportunity.
    Thing is Daniel Yergin just told Davos that Saudi Barbaria did not factor in that private equity firms have a $60bn war chest and are waiting to pounce on forced s(h)ales, a mix of an asset with disruptive technology which can bring production online with $10m in 20 days.

    Shale ain't going away, so that credit policy (ZIRP/QE) actually financed a disruptive tech which pretty much crashed the price of the commodity.
    Just linked to an article in The Telegraph on this very subject on the other oil thread.
    Ha, I'm half way through his Yergin's book "The Prize"

  10. #10

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    Quote Originally Posted by moahunter View Post
    Quote Originally Posted by expat View Post
    Quote Originally Posted by Safir View Post
    Quote Originally Posted by KC View Post

    One major threat was the number of plants and other developments that scheduled to come online over the next few years and dramatically depress prices through additional oil supply. Supply that would persist for quite a while. It made sense for SA to drive down oil prices before it was too late and 2015 was the closing of that window of opportunity.
    Thing is Daniel Yergin just told Davos that Saudi Barbaria did not factor in that private equity firms have a $60bn war chest and are waiting to pounce on forced s(h)ales, a mix of an asset with disruptive technology which can bring production online with $10m in 20 days.

    Shale ain't going away, so that credit policy (ZIRP/QE) actually financed a disruptive tech which pretty much crashed the price of the commodity.
    Just linked to an article in The Telegraph on this very subject on the other oil thread.
    Ha, I'm half way through his Yergin's book "The Prize"
    $60 billion war chest. Sounds like spin to me. Various hedge funds will be opportunistically raising funds as will pension funds, companies and individual investors. $60 billion isn't much money these days in terms of capital flows that can be directed at any perceived opportunity. So any thought that the Saudis didn't understand the oil markets and the capital potentially available seems very uneducated.

    What the Saudis needed was to shock and awe the investment world, to flex their muscle, to highlight to all future investors that any excess profits are attained only at the grace of Saud. That at any moment the Saudis could and would pull the plug and flood the market and kill off a bunch of marginal producers and particularly hurtful is to kill off a development just before it is able to go online. (Debt holders take losses and get stuck with plant/reserves that are pretty much worthless.). Shock investors hard enough and many investors will stay away, pension and avisory boards/committees will hesitate to take high oil prices as a certainty and so won't jump to finance large scale (oil sands like) suppliers. Lenders who get screwed over on their now, very high yiekd junk bond loans will also hesitate to lend.

    As we discussed on this forum early in this price dip, productive online facilities stay online. Companies sell off plant for a huge loss, and the buyers pick it up for a song and so, much existing production stays operational and becomes economic and sometimes very profitable under new ownership. Moreover any company in Chapter 11 also keeps technically uneconomic plant producing, and it drives down the price of the product hurting the previously marginally economic /profitable producers.
    Last edited by KC; 26-01-2016 at 11:59 AM.

  11. #11

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    Quote Originally Posted by KC View Post
    So any thought that the Saudis don't understand the oil markets and the capital potentially available seems very uneducated.
    What makes you think the Saudis are educated? And even if they are, what makes you think they are acting rationally? I suggest you read "the Prize", winner of the Pulitzer prize, before calling this author uneducated, its basically the business and political bible of the history of oil and gas:

    http://www.amazon.ca/Prize-Epic-Ques...ords=the+prize
    Last edited by moahunter; 26-01-2016 at 11:57 AM.

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    In my view, this is a demand driven problem. Without china, consumption growth in oil just isn't going to happen. Even with these cheap prices, it is not like people are driving that much more. The very real and superior substitutes for oil in key applications like motor vehicles are already here and are only going to get better.

  13. #13

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    ^world demand is higher than it has ever been. And, like it or not, people in India and China and many South American and African countries, wouldn't mind having a lifestyle as good as ours with personal motor vehicles. Eventually demand will drop, but it won't be for a while until substitutes are a lot more economically viable for the developing world than they are today. The issue right now is an oversupply. How long that will persist for is unclear.

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    ^

    Growth is flat in demand. OR near flat. Off from years of increases. Prices are driven on the margins.

    It is irrelevant if they want to drive motor cars. Their economies have stalled. They won't be able to afford them on a mass scale for a long while. Especially in South America (Brazil disaster) and China (continued slowdown). Even Nigeria in Africa is slowing down significantly.

  15. #15

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    ^nope, much more complicated than just a demand problem. This is a supply thing driven by complex regional and global politics which is exacerbated by some fluctuations in demand. And the house of Saud isn't acting rationally in the sense of taking down high cost producers to hold market share. They are going after regional power and trying to consolidate control. This is the house of Saud going after Iran, Russia, and power consolidation. The ability to flex their muscle and crush high cost producers is that sweet sweet long term icing on the cake. They can make the US reliant on them and gain back some influence on the world stage, big brother US will keep protecting them and their friends in Qatar, and Kuwait and the UAE with troops, tech, equipment and training if the oil keeps flowing. If the US gets buddy buddy with Iran (and if Iran wants to lower the extremist rhetoric and return to their cosmopolitan ways which seems to be a very very strong pressure internally in the country, much more than is seen in SA), and the lowering of the conservative extremism then there will be a new strong rival. SA is a very conservative nation, Iran much less so. Anecdotally my travels and encounters with Saudis and Iranians has re-enforced the view that Iran is much more progressive despite the Ayatollah and some of the ruling elite in comparison to what happens in S.A. The US would love to stop propping up S.A. and thus supporting the huge destabilizing effect they have in the region.

    There isn't just a single set of things that caused this. Multiple factors are at play and they all originate back to nations trying to empire build and that is seen in the multiple proxy wars going on throughout the middle east. S.A. isn't trying to shock investor that is just a secondary or tertiary byproduct of their policies. They are going after nations to try to regain influence and wield control.

    All the other things have just coalesced into this perfect storm of a price drop, but make no mistake, S.A. would rather be pumping a little bit less with much higher oil prices and make huge profits. But they are driven not by profit or market share, instead we are looking at how a country wages economic warfare when they have a single tool at their disposal with which to use.

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    I stand by my assessment of the situation. The middle east stuff is noise. Let's see where we are in 5 years, 10 years with the consumption of oil.

  17. #17

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    Quote Originally Posted by AAAAE View Post
    ^

    Growth is flat in demand. OR near flat. Off from years of increases. Prices are driven on the margins.

    It is irrelevant if they want to drive motor cars. Their economies have stalled. They won't be able to afford them on a mass scale for a long while. Especially in South America (Brazil disaster) and China (continued slowdown). Even Nigeria in Africa is slowing down significantly.
    Slowing growth is still growth. However, a lot of consumption created by major plant and product might back off a lot. However, China is also attempting a shift to a more internal consumer economy. That and my thinking that China is far from saturated in terms of vehicles mens that new cars, produced there (with gov't assistance if necessary) will go on the road and the old cars will pass on to new owners. Oil consumption can still rise.

    Then there is India which may modernize and so may start adopting more and more cars, new housing developments etc..

    Since China was a major buyer of product from emerging markets, expect emerging markets to collapse due to the China slowdown. As those economies slow, dip, collapse, their currencies fall, and cheaper product becomes available to China. (Deflationary forces can create substantial booms upon economic rebounds, as happened in the 1800s.



    So, one has to decide what rough time perspective one is focussing on. A long time can be 2 to 3 yrs for some people. Ten years for others. So are we talking 1, 2, 3 years, or 4, 5, 6 year or more?)






    EIA estimates global consumption of petroleum and other liquid fuels grew by 1.4 million b/d in 2015, averaging 93.8 million b/d for the year.

    https://www.eia.gov/forecasts/steo/r...global_oil.cfm
    Last edited by KC; 26-01-2016 at 06:15 PM.

  18. #18

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    China and India are also looking to dump coal as a cooking, heating and electricity fuel source to combat terrible terrible pollution issues. Oil and NatGas are going to pick up that slack in the short term and likely large parts of long term.

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    Central Banks:
    I would suggest that interference from central banks only temporarily masks shifting economic fundamentals. If demand is not and won't be there to support the quantities of production, price can only go in one direction. My sense is that central banks act to prevent known problems today in favor for future unknown problems of potentially greater magnitude. We will eventually learn from these lessons, although it will be the hard way.

    Local Facilities:
    There are local facilities currently experiencing a glut of finished products regardless of the low current prices. Lowering the prices further isn't expected to drive an increase in demand, at least in this part of the world. Theoretically yes, and to a degree a practical increase may occur, however the practical significant demand increase would come from the seasonal shift in actual consumption.

    Pipelines:
    Onto the pipelines debate currently being discussed in the media...
    Allowing greater access to our ports would allow refiners / shippers greater flexibility in tailoring their operations to meet global fluctuations in demand. Those unable to be flexible enough to be profitable would (and should) be forced to close, OR retrofit to meet some other demand. Unfortunately, this discussion has consistently been politicized not only in our own country, but across our borders.

  20. #20

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    Watched a video yesterday of some guy trying to get me to buy solar energy stocks. His angle was that the current oil prices are a "going out of business sale."
    Let's make Edmonton better.

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    Quote Originally Posted by JayBee View Post
    Watched a video yesterday of some guy trying to get me to buy solar energy stocks. His angle was that the current oil prices are a "going out of business sale."
    I think as long as oil is cheap green energy is dead. Why would anyone spend $$$ on solar/wind when they only need to spend $ on oil/nat gas?

    When oil was over $80 it made sense to push alternative energy. Now, the only argument for it is climate change...and that has yet to be proven to be cause by humans.

    Count ethanol producers among those reeling from $30 oil.

    Distillers are reducing output as cheap crude and gasoline pressures returns.

    http://www.calgaryherald.com/busines...923/story.html
    Last edited by GranaryMan; 28-01-2016 at 06:52 AM.

  22. #22

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    Well that tells me, time to be long oil
    Quote Originally Posted by JayBee View Post
    Watched a video yesterday of some guy trying to get me to buy solar energy stocks. His angle was that the current oil prices are a "going out of business sale."

  23. #23

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    Re: the supply side of the debate

    Saudi Arabia strategy failed to take into account the hedges of the shalers. Their resistance has lasted over 1 year, much longer than the Saudis thought. I mean how could you not know what % of their production is hedged? Don't they have Bloomberg over there?

    http://www.telegraph.co.uk/finance/o...eculators.html

  24. #24

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    ^I wonder if its really fair to blame the Saudis though? They are pumping to capacity, which they have been doing for a long time. What dramatically changed the equation was the massive increase in US production. It was probably a bit naÔve to think, that the US could just keep ramping up production beyond global demand, and the Saudis would keep dropping theirs to maintain the price.

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    Far from being flat, world oil demand growth is accelerating, a completely predictable response to low prices.

    International Energy Agency (IEA) data shows world oil demand growing by 1.8 million b/d in 2015, 0.4 million b/d higher than EIA data cited in #17 above. This demand growth is significantly higher than the long-term (30 year) trend of about 1 million b/d per year.

    Europe is the only region where oil demand has been going down steadily for a decade, but IEA data shows demand growth of 0.3 million b/d in 2015.

    Data here: https://www.iea.org/oilmarketreport/omrpublic/

    The attraction of consuming cheap oil seems to be trumping any moral imperative about fighting climate change. For the sake of our climate, let's hope crude oil prices start going up real soon.

  26. #26

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    I am glad the discussion is back on track of imbalances of supply-demand, rather than a speech by a central banker.

    As I mention in the other thread, post # 862, the longer term balance still looks challenging. The path to $70 oil is through $20 oil. If the short term acute pain don't materialize, forcing some productions off the market, the pain becomes chronic. So I actually prefer further slide in prices rather than a volatile, but range bound 30-40 dollar crude.

  27. #27

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    Quote Originally Posted by GranaryMan View Post
    Now, the only argument for it is climate change...and that has yet to be proven to be cause by humans.
    That ship has sailed, it's us, move along and make peace with it.

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    Quote Originally Posted by LoebsPeugot208 View Post
    Quote Originally Posted by GranaryMan View Post
    Now, the only argument for it is climate change...and that has yet to be proven to be cause by humans.
    That ship has sailed, it's us, move along and make peace with it.
    Perhaps when there's actual proof I will believe it. Until then, it's just a cash grab.

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    Quote Originally Posted by GranaryMan View Post
    Quote Originally Posted by LoebsPeugot208 View Post
    Quote Originally Posted by GranaryMan View Post
    Now, the only argument for it is climate change...and that has yet to be proven to be cause by humans.
    That ship has sailed, it's us, move along and make peace with it.
    Perhaps when there's actual proof I will believe it. Until then, it's just a cash grab.
    Let's see, on the one hand we have climatology research funding that might in total be worth a few hundred million per year on the entire planet. On the other we have the fossil fuel industry, which for oil alone has annual revenues of something like 1-3 trillion, depending on the price of a barrel of oil.

    A cash grab, indeed.

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    Quote Originally Posted by Marcel Petrin View Post
    Quote Originally Posted by GranaryMan View Post
    Quote Originally Posted by LoebsPeugot208 View Post
    Quote Originally Posted by GranaryMan View Post
    Now, the only argument for it is climate change...and that has yet to be proven to be cause by humans.
    That ship has sailed, it's us, move along and make peace with it.
    Perhaps when there's actual proof I will believe it. Until then, it's just a cash grab.
    Let's see, on the one hand we have climatology research funding that might in total be worth a few hundred million per year on the entire planet. On the other we have the fossil fuel industry, which for oil alone has annual revenues of something like 1-3 trillion, depending on the price of a barrel of oil.

    A cash grab, indeed.
    And so buying carbon credits from an under developed country so that we can pollute more isn't lining someone's pockets? Nope, prove to me 100% without a doubt that global warming is caused by man and not a natural cycle (which you cannot) and i will believe, until then...bull plop.

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    Quote Originally Posted by GranaryMan View Post
    And so buying carbon credits from an under developed country so that we can pollute more isn't lining someone's pockets? Nope, prove to me 100% without a doubt that global warming is caused by man and not a natural cycle (which you cannot) and i will believe, until then...bull plop.
    You can head on over to the global warming thread if you want to continue this discussion.

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    When the Saudis decided to flood the market in fall 2014, they said their target was to rein in unconventional North American production. Canada is part of North America, and the oil sands are a unconventional source of oil.

    The tables at the links below take a very long (55 year) view of oil imports into the US market by source country.

    The first table looks at OPEC imports by country, and the second table non-OPEC imports by country.

    http://www.eia.gov/totalenergy/data/...df/sec3_10.pdf

    http://www.eia.gov/totalenergy/data/...df/sec3_11.pdf

    OPEC imports have experienced further declines of almost 500 thousand b/d in the first 10 months of 2015 compared to the same 10 months one year earlier. Meanwhile, non-OPEC imports (mostly Canadian) have increased by over 600 thousand b/d over the same time-frame.

    This cannot be pleasing to the House of Saud.

  33. #33

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    ^ while it is next to impossible to know the true intention of Saudies, I am more inclined to think their actual target is Iran directly, and Russia indirectly due to their support of Iran. In fact, as the following article, from the ever excellent John Kemp at Reuters, notes, the share of Saudi export to US has remained stable all along: http://uk.reuters.com/article/usa-re...-idUKL8N15D3XT

    That's why I mentioned a 30-40 dollar range for oil is our worst enemy: it mitigates a meaningful disruption in oil production as the big players, including Shale producers, can just hang on, thus prolonging the low oil price term, but it limits the revenue Iran can get, both short term and longer term, if that's the true intention.

  34. #34

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    ^^^ not to worry. Only 11% of the production is hedged this year. I believe we will see some shale players fold their tent

  35. #35

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    Quote Originally Posted by East McCauley View Post
    When the Saudis decided to flood the market in fall 2014, they said their target was to rein in unconventional North American production. Canada is part of North America, and the oil sands are a unconventional source of oil.

    The tables at the links below take a very long (55 year) view of oil imports into the US market by source country.

    The first table looks at OPEC imports by country, and the second table non-OPEC imports by country.

    http://www.eia.gov/totalenergy/data/...df/sec3_10.pdf

    http://www.eia.gov/totalenergy/data/...df/sec3_11.pdf

    OPEC imports have experienced further declines of almost 500 thousand b/d in the first 10 months of 2015 compared to the same 10 months one year earlier. Meanwhile, non-OPEC imports (mostly Canadian) have increased by over 600 thousand b/d over the same time-frame.

    This cannot be pleasing to the House of Saud.
    I don't recall any talk of targeting the north american shale producers. I just recall a change in stance to defend, or was it to grow market share.

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    Quote Originally Posted by FamilyMan View Post
    ^ while it is next to impossible to know the true intention of Saudies, I am more inclined to think their actual target is Iran directly, and Russia indirectly due to their support of Iran. In fact, as the following article, from the ever excellent John Kemp at Reuters, notes, the share of Saudi export to US has remained stable all along: http://uk.reuters.com/article/usa-re...-idUKL8N15D3XT
    Ever excellent or not, Kemp's use of 2009 as a starting point for Saudi imports draws an incomplete and even misleading picture. 2009 was the trough of the global financial crisis which temporarily depressed US oil demand. Had Kemp started Chart 1 in 2008 or taken a 10 year snapshot starting in 2005, the trend line is definitely negative. That's what the first table in my link above shows, which tracks Saudi imports going back decades.

    And while heavier Saudi crude complements lighter shale oil, so does heavier Canadian oil sand crude. In that regard, Canada has been growing its US market share at Saudi Arabia (another other heavy crude producers) expense as the second table in the link above shows.

    Never said that Saudi Arabia was only targeting North American unconventional production. It's targeting all high cost production, including off-shore.

    This from the "ever excellent" Nathan Vardi of Forbes magazine:

    Saudi Arabia, it seems, not only wants to protect market share, but to gain market share. Yes, it wants to inflict pain on U.S. shale energy producers, like EOG Resources EOG +4.23% and Pioneer Natural Resources PXD +2.44%. And the new OPEC policy has caused four U.S. corporate bankruptcies and managed to get the rig count down to 646 from 1609 in October. It also wants to hit another pocket of unconventional North American oil supply, the Canadian oil sands, which is believed to have experienced its lowest production in two years last month.
    http://www.forbes.com/sites/nathanva.../#4cb4a9682e86

  37. #37

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    ^ Not sure what ticked you off on the Kemp piece, he is a well respected analyst I regularly follow. I did check out your links, and generally enjoy your posts. Just shared my thought, which of course you can disagree with.

    Beside geopolitics, another reason I think Canada is not the target of Saudi tactics is the lead time required between investing and producing oil from our oil sands. It is too late for anyone to threaten Canada's oil production growth. I am sure you have come across the latest National Energy Board analysis:

    http://business.financialpost.com/ne..._lsa=106b-13b0

  38. #38
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    ^Not ticked. Thought 'ever excellent' to describe an oil analyst was a hoot. I'll have to remember that next time I try to pull the 'appeal to authority' card.

    Sometimes as Canadians we sell ourselves short.

    In 1990, Canadian oil exports to the US were 0.93 million barrels per day while Saudi exports were 1.34 million b/d. In 2015, Canadian oil exports to the US were 3.74 million b/d while Saudi exports were 1.03 million b/d.

    That would be enough to get my attention.

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    Default IEA Raises Oil Surplus Estimate

    Bloomberg Business News

    The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the International Energy Agency.

    Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand.
    Supplies outside OPEC slipped by 500,000 barrels a day in January from the previous month, halting annual growth. While non-OPEC production will drop by 600,000 barrels a day this year as the U.S. shale boom sputters, the decline is “taking an awful long time to happen,” the agency said.
    Did my dog just fall into a pothole???

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    Worth recalling what the International Energy Agency forecast as world oil demand growth in its forecast one year ago:

    The forecast of global oil demand growth for 2015 is unchanged from the January OMR, at 0.9 mb/d, bringing average demand for the year to 93.4 mb/d. Growth is expected to gain momentum from a modest 0.6 mb/d gain in 2014, on a slightly improved macroeconomic outlook.
    http://www.iea.org/newsroomandevents...-february.html

    One year later, the IEA says actual oil demand growth in 2015 turned out to be 1.5 mb/d, or 67% higher.

    Gasoline prices at many Edmonton stations dropped below 60 cents per litre overnight. In some parts of the US, gasoline has dropped below $1.17 per gallon.

    http://www.gasbuddy.com/GasPriceMap?...49092669999999

  41. #41

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    This increase in supply is entirely due to debt fueled production(hence the search for yield which QE/ZIRP have pretty much killed). The moment production is funded by equity, the supply will balance. That debt needs to wipe out the current equity and become equity itself. It started today with Cheasapeake. Let's hope it does not take down many banks in the process.

    http://markdow.tumblr.com/post/13894...oday-it-begins

    As you’d also expect, we talked a bit about oil as well. What would end the bear market? Would Saudi and Russia combine forces and reduce supply? How quickly can shale producers turn production on and off? But on this subject we came away with an answer, something wiser (not smarter, wiser) market types have been susurrating for several months: the supply pressures won’t stop until debt-financed production becomes equity-financed production. It really is that simple.
    Last edited by Safir; 09-02-2016 at 04:08 PM.

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    Supply will inevitably be balance with demand and the price of oil will likely recover in some fashion, but will there ever be a reason or shift to drive it to over $100 a barrel again...that seems less likely than ever to me personally.

  43. #43

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    Quote Originally Posted by Safir View Post
    This increase in supply is entirely due to debt fueled production(hence the search for yield which QE/ZIRP have pretty much killed). The moment production is funded by equity, the supply will balance. That debt needs to wipe out the current equity and become equity itself. It started today with Cheasapeake. Let's hope it does not take down many banks in the process.

    http://markdow.tumblr.com/post/13894...oday-it-begins

    As you’d also expect, we talked a bit about oil as well. What would end the bear market? Would Saudi and Russia combine forces and reduce supply? How quickly can shale producers turn production on and off? But on this subject we came away with an answer, something wiser (not smarter, wiser) market types have been susurrating for several months: the supply pressures won’t stop until debt-financed production becomes equity-financed production. It really is that simple.
    In recent years cheap debt likely helped companies finance added production (there's a lot of junk* debt tied to shale) but in the 1970s a lot of production was added at far higher interest rates, nominal or real. Prices moving between $80-140/bbl over the past few years likely provided a bit of an incentive too. In Alberta production was increasing long before ZIRP. Additionally, Saudi Arabia's swing producer role helped sustain higher prices by limiting supply.

    Funding supply through equity is unlikely. 2009 was essentially a cash market as spreads widened on everything. In that market demand for all assets started to collapse across the board. Swapping the debt for equity doesn't remove production and could further drive down the cost, and so, the price of marginal production. Where wiping out equity works is in cancelling future production. The fact that a lot of production is shale based is good in that the wells draw down fairly fast. The bad is that new wells can ramp up production fast as well. So I'd guess that demand would have to increase by much larger degrees going forward, before large capital long-term commitments will be made on future oil sands production.

    * high oil prices supported costly borrowing. Stripping off the gas helped cover costs as well.
    Last edited by KC; 09-02-2016 at 07:32 PM.

  44. #44

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    Quote Originally Posted by KC View Post
    The fact that a lot of production is shale based is good in that the wells draw down fairly fast.
    Right, so you are just as liable to see $120 as you are to see $20. That's Muricuh through the ages for you: 100% volatility and full of investulators.

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    Quote Originally Posted by DanC View Post
    Supply will inevitably be balance with demand and the price of oil will likely recover in some fashion, but will there ever be a reason or shift to drive it to over $100 a barrel again...that seems less likely than ever to me personally.
    Then you're just not imaginative enough. Whether it's some sort of geopolitical blow-up, or the acceleration of development in India (they're going faster than China now), or rapid development of African nations, or depletion of existing large fields that can't be replaced, or or or. Maybe it's a few years or even a decade or two before we see another spike in prices. No one really knows. But I think it's fairly safe to say that we'll see another one, as the world's economy is not getting weaned off oil to any significant degree any time in the next 50-100 years.

  46. #46

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    ^its possible, but I think its highly unlikely also. Demand will keep growing until eventually alternatives become more economically feasible, but the ability to rapidly ramp up production (e.g. Texas increasing by all of Alberta's production in only four years), makes the world a very different place.

  47. #47

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    Quote Originally Posted by moahunter View Post
    ^its possible, but I think its highly unlikely also. Demand will keep growing until eventually alternatives become more economically feasible, but the ability to rapidly ramp up production (e.g. Texas increasing by all of Alberta's production in only four years), makes the world a very different place.
    Shale will create the price ceilings going forward. Environmental issues, declining quality reserves, chemical shortages, etc. could rise the cost of shale to Alberta's advantage but it's ability to add supply in small, minimal cost increments will be an ongoing problem.

    As for cheap or clean alternatives, they are coming but very slowly. Notice how long we've had really cheap natural gas, but oil still climbed towards $100 and over. I don't even see electric cars being widely adopted around the world very quickly even if higher oil prices return in short order. There's still a lot to overcome with electrics. However, we shouldn't exclude mass adoption of them from any scenario. Though, every time oil prices drop, it just reinforces in the consumer's mind that high gas prices are temporary.

    Back to this thread's main issue - low interest rates. As debt gets converted to equity and cash flow needs back off, yes supply may moderate, but going forward, if ol prices rise, few investors will lend quite so willfully and cheaply. The debt holders may end up with great assets but many will take it on the chin and won't quickly forget the lessons learned. So a supply constraint has been added to the mix and I suspect that even with the rapid throttle response of shale, price volatility should still be very interesting.
    Last edited by KC; 10-02-2016 at 12:37 PM.

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    Quote Originally Posted by Marcel Petrin View Post
    But I think it's fairly safe to say that we'll see another one, as the world's economy is not getting weaned off oil to any significant degree any time in the next 50-100 years.
    That's a very big bet given how technological advances tend to leave us blind sided. Oil will no doubt continue to play a major part in meeting our energy needs but if global demand drops even by a couple of million barrels a day because of other sources of energy we have seen how disruptive that can be to the price of oil. So the issue then comes one of what the price ceiling will be on oil. And more importantly to Canada the over all economic viability of Alberta's oil sands given the potential range of prices.
    Did my dog just fall into a pothole???

  49. #49

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    Quote Originally Posted by norwoodguy View Post
    Quote Originally Posted by Marcel Petrin View Post
    But I think it's fairly safe to say that we'll see another one, as the world's economy is not getting weaned off oil to any significant degree any time in the next 50-100 years.
    That's a very big bet given how technological advances tend to leave us blind sided. Oil will no doubt continue to play a major part in meeting our energy needs but if global demand drops even by a couple of million barrels a day because of other sources of energy we have seen how disruptive that can be to the price of oil. So the issue then comes one of what the price ceiling will be on oil. And more importantly to Canada the over all economic viability of Alberta's oil sands given the potential range of prices.
    That ties in with capacity utilization rates. If the blindsiding continues unabated then the continual over production would force down prices as producers and investors forever over supply by over estimating demand. Otherwise, such technological advances might just be one off impacts as with killing off certain categories of consumption.


    On the issue of balance, note the volatility during the recent period of "balance" - the range seems to go from $65 to over $105:


    http://static.cdn-seekingalpha.com/u...58b2146460.png

    There's that "balance" word again:



    BP doesn't expect oil market to find balance until second half of 2016

    Bloomberg News, February 10, 2016

    http://calgaryherald.com/business/en...d-half-of-2016

    Last edited by KC; 10-02-2016 at 04:48 PM.

  50. #50

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    I have a used copy of his book: Green Oil by Satya Das - which I have't read yet - but know the gist of it.

    I think his timing was off a bit. However, it may now be an opportune and much more timely time to read and discuss what would have worked or could now work and what couldn't...


    Green Oil author Satya Das charts course for clean energy future
    Book combines climate change politics with Alberta economics, the royalty debate and an awful lot of report summaries
    BY PATRYCJA ROMANOWSKA
    December 01, 2009


    http://www.albertaoilmagazine.com/20...pe-for-change/

  51. #51
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    CALGARY - A small energy producer with wells and facilities in Alberta and B.C. says it has shut down production, laid off all non-executive employees and its directors and officers have resigned after a bank called in a loan.

    Calgary-based Terra Energy Corp. has long been struggling to turn a profit, first as low natural gas prices cut into earnings and then as the collapse in crude prices derailed its plans to switch focus from natural gas to oil.

    But the final blow came last week, when Terra said Canadian Western Bank was exercising its right under the federal Bankruptcy and Insolvency Act to call in its loan of $15.9 million plus interest, costs and fees.

    The company has until next Monday to repay.

    Terra said since it was losing money on its operations at current commodity prices and had no alternative financing options, the company had no choice but to halt production and lay off staff.

    "The directors have determined that Terra's business is no longer viable," the company said Monday in a news release. It did not respond to requests for comment.

    Source

  52. #52

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    Quote Originally Posted by glasshead View Post
    CALGARY - A small energy producer with wells and facilities in Alberta and B.C. says it has shut down production, laid off all non-executive employees and its directors and officers have resigned after a bank called in a loan.

    Calgary-based Terra Energy Corp. has long been struggling to turn a profit, first as low natural gas prices cut into earnings and then as the collapse in crude prices derailed its plans to switch focus from natural gas to oil.

    But the final blow came last week, when Terra said Canadian Western Bank was exercising its right under the federal Bankruptcy and Insolvency Act to call in its loan of $15.9 million plus interest, costs and fees.

    The company has until next Monday to repay.

    Terra said since it was losing money on its operations at current commodity prices and had no alternative financing options, the company had no choice but to halt production and lay off staff.

    "The directors have determined that Terra's business is no longer viable," the company said Monday in a news release. It did not respond to requests for comment.

    Source
    I've been wondering about Canadian Western's exposure to the market.

  53. #53

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    Older article but the comments are by the guy that got it right before the price collapse



    Why Oil Producers Will Be Over a Barrel for a Long Time Yet - Real Time Economics - WSJ


    Crude consumption, meanwhile, isn’t seen growing by large enough levels to justify a major increase in prices. To achieve a balance in the supply-demand ratio, demand would have to grow by 2.5 million barrels a day this year and two million in 2017, Mr. Maugeri said. That’s compared with an average annual growth rate of less than 900,000 barrels a day in the last five years and 1.7 million last year.

    After many past boom-bust cycles, demand recovered, but the new growth rate was much lower as efficiency gains enforced in the high-price years bled into the subsequent downturns, he said.

    In the wake of the 1980s plunge, oil prices stagnated for nearly two decades.

    “But unless demand growth actually explodes—which seems unlikely—the fundamentals remain the same,” Mr. Maugeri said. “In spite of some erosion of production here and there, global oil output, production capacity, and inventories will remain too high versus the level of consumption growth.”

    http://blogs.wsj.com/economics/2016/...long-time-yet/
    A must read:

    http://www.ogj.com/articles/uogr/pri...-analyses.html
    Last edited by KC; 01-02-2017 at 07:48 PM.

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