Oil price discussion and analysis

[Garpal Gumnut]

I like to look for simpler explanations. For oil it will be the lack of investment and CAPEX past 2 years, remember when oil dropped to zero during covid? so for 2020 u could say no spending at all, and probably some extra investment only starting to flow in during 2H2021 as oil prices slowly recovered past 40USD mark and up to 70-80 by end of the year.

Shale needs more than 40USD to be profitable. Likely higher at $45USD now considering cost of labour and inflation on goods used. But the supply doesnt just kick in, it will take time to permit new wells and get the funding and staff to restart old ones.

I monitor some oil rig makers as well, and only toward 2H2021 have they started getting some interest and smallish orders for new rigs.

So with underinvestment for 2020 and most of 2021, i reckon we are going to see a continued climb in oil prices for at least next 1-2years. Russia problems, Saudi problems will compound the problem but unless there is a sudden recession happening, imho POO will slowly trend up this year due to supply limits from prior underinvestment into the sector, just like it had in 2021 on the back of covid recovery.

I believe a repeat of history where oil prices went up to $180 before the GFC hit will happen again, only this time likely to breach $200 from inflation and just the amount of printed money sloshing around.

Thanks @bluekelah , a good summary of where we are at.

One other factor I might add, and it is a black swan. Then we live in an age of black swans.

I do not believe that Saudi stability is as good as it is portrayed. I cannot think of a country nor leadership around the world that is more hated than that sandy pit pilfered by the Saud cousins, all two or three thousand of them. Their only friends are the English upper class who come from a similar source of unearned wealth and such as Trumpers who are equally tarnished.

I could very well see a coup in Saudi Arabia which would send oil through the roof.

gg

 

[bluekelah]

Thanks @bluekelah , a good summary of where we are at.

One other factor I might add, and it is a black swan. Then we live in an age of black swans.

I do not believe that Saudi stability is as good as it is portrayed. I cannot think of a country nor leadership around the world that is more hated than that sandy pit pilfered by the Saud cousins, all two or three thousand of them. Their only friends are the English upper class who come from a similar source of unearned wealth and such as Trumpers who are equally tarnished.

I could very well see a coup in Saudi Arabia which would send oil through the roof.

gg

It's quite messy there much like it was in afghanistan due to the harsh deserts and often mountainous terrain, excellent for small ground forces to hide from airstrikes and guerilla type warfare..

Apparently the fighting there has been going on for 7 years now since the Houthis gained control of most of Yemen in 2015. They have in the past year been gaining ground in controlling the important Marib Province which has american oil interests and provides quite a bit of energy to Yemen. Marib is held by the remnants of the previous saudi/american backed gov troops.

Funny thing is houthis are supposedly supported by Iran and Saudi-coalition has american backing. Yet the Americans are trying to discuss lifting sanctions for oil with Iran, perhaps thats why Saudis are reaching out to the Chinese.

I dont see a coup in Riyadh for now, the crown prince who did the coup in 2017 had rounded up some other family members for plotting a coup in 2020, i doubt they would try again so soon, but yeah oil markets would go crazy, like nickel markets now if that happens.

However I do see advancement of the houthi/yemen forces to perhaps take Marib by this year. It is very very hard to defend cities in that region and much like Afghanistan, Yemen is now a broken nonprofitable country which Americans will not be interested to send troops in to get killed, they had enough of that in Afghanistan. And a lot of saudi oil infrastructure is above ground, easy to be hit and detroyed if the aim of the opponent is to destroy and not to take the facilities intact.

But as I mentioned, supply constriants from underinvestment past couple years should be enough to bring oil price up to at least $150 this coming year.In any case I am accumulating oil plays now. JUST IN CASE

 

[Garpal Gumnut]

Well I’ve only flown in to one country that was all hunky dorey when I boarded and in full coup mode when I landed.

It only took five to six bullets, there was some dispute about the number, but none about the outcome.

I was a civilian and spent a rather uncomfortable six hours being guarded by some illiterate anxious young men in an airport hanger.

We took off again and my only regret about the change of ghouls running said country was that I was unable to replenish my duty free grog which allayed my anxiety.

So the point I’m making is that change of leadership particularly in countries like Saudi which is led by peasants little different from their grandparents can be quite sudden.

And this will suddenly affect the oil price.

gg

 

[qldfrog]

Coming soon near you:
Only so much i can stockpile:
https://oilprice.com/Energy/Energy-General/Rationing-Looms-As-Diesel-Crisis-Goes-Global.html

 

[over9k]

Oil down 6% and counting with the first round of peace talks agreed to start.

There's going to be a hell of a dip to buy once there's a lull here before the saudi's & iranians start shooting at one another. That facility that was hit by the yemeni's or whoever it was over the weekend was only the beginning.

 

[Garpal Gumnut]

Oil down 6% and counting with the first round of peace talks agreed to start.

There's going to be a hell of a dip to buy once there's a lull here before the saudi's & iranians start shooting at one another. That facility that was hit by the yemeni's or whoever it was over the weekend was only the beginning.

That sudden drop in POI is more due to COVID lockdowns in Shanghai than anything else atm.

Interesting times.

Markets will whipsaw.

The main thing is not to be on the wrong side of history. The world atm depends on Oil, Gas and Coal to turn the wheels of industry.

And will for some years to come.

gg

 

[rederob]

POG and POO are both nicely volatile atm, and not too far off their all time highs given both have lost a lot of ground in recent weeks.
As I like to put things into proper perspective, POO's hourly chart is below, and the band colours will become clear in the chart afterwards, which is monthly:

Now let's go back 65 years and get the big picture:

There are three distinct phases, which need little explanation.
In this last phase which we are now in OPEC ceases to be the dominant player and market power fluctuations lead to continuing crazy price volatility. Russian and then US production spikes after 2014 pushed down the POO to unsustainable levels, and that's why I have a horizontal grey band in the chart above. The cost of finding new wells of quality (outside of the volume rich North American fracking patches), and being profitable is imho above $75/bbl. You only need to look at the price charts of all the global (and Australian) oil majors to see their wealth destruction over the last decade.

The fourth phase will be the NEV transition.
We are some years away and the likely trend as it dawns will see only those oil majors with low production costs surviving unless they too start buying into transitional opportunities, like both Shell and BP have with major investments in EV charging station rollouts.
I see the fourth phase as where oil prices will have a floor greatly over $100/bbl, as there will no longer be enough demand to fund the increasingly higher costs of exploration for consistently poorer ROI.

 

[over9k]

That sudden drop in POI is more due to COVID lockdowns in Shanghai than anything else atm.

Interesting times.

Markets will whipsaw.

The main thing is not to be on the wrong side of history. The world atm depends on Oil, Gas and Coal to turn the wheels of industry.

And will for some years to come.

gg

Precisely

 

[bluekelah]

Well I’ve only flown in to one country that was all hunky dorey when I boarded and in full coup mode when I landed.

It only took five to six bullets, there was some dispute about the number, but none about the outcome.

I was a civilian and spent a rather uncomfortable six hours being guarded by some illiterate anxious young men in an airport hanger.

We took off again and my only regret about the change of ghouls running said country was that I was unable to replenish my duty free grog which allayed my anxiety.

So the point I’m making is that change of leadership particularly in countries like Saudi which is led by peasants little different from their grandparents can be quite sudden.

And this will suddenly affect the oil price.

gg

Thanks for the personal story, indeed thats why the middle eastern region seems to be in constant conflict. The oil wells are like gold mines, and there are so many different 'tribes'

Another sudden coup in saudi would definitely send pog to crazy prices.

But I think just basic lack of ability of oil sector to increase supply significantly post covid will edge price much higher than today.

Oil rationing could happen soon as well if we have a breakdown of supply chains worldwide and gov like China start hoarding oil.

 

[qldfrog]

Thanks for the personal story, indeed thats why the middle eastern region seems to be in constant conflict. The oil wells are like gold mines, and there are so many different 'tribes'

Another sudden coup in saudi would definitely send pog to crazy prices.

But I think just basic lack of ability of oil sector to increase supply significantly post covid will edge price much higher than today.

Oil rationing could happen soon as well if we have a breakdown of supply chains worldwide and gov like China start hoarding oil.

As i remember it, China was filling up like mad less than a year ago..
Not just starting hoarding, and australia was starting to reflect wd had not even recommended reserve..so we signed a IOU with the US to use their own reserve...sure..

 

[qldfrog]

https://finance.yahoo.com/news/russian-oil-tankers-vanished-tracking-185404054.html

 

[CityIndex]

Oil prices have reversed the last two days of gains on reports that the US is weighing a plan to release a million barrels a day. WTI is down 4.67% at the time of writing.

Trendline support for US crude coming from the December lows is around the key psychological level of $100, and price could be at risk of a downside breakout if the market sees this as enough to anticipate to offset the loss of Russian supply.

All trading carries risk, and headlines out of Eastern Europe will surely continue to play a massive role in direction, but should be interesting to see how price moves from here, especially with the OPEC+ meeting today as well.

 

[Garpal Gumnut]

Oil prices have reversed the last two days of gains on reports that the US is weighing a plan to release a million barrels a day. WTI is down 4.67% at the time of writing.

Trendline support for US crude coming from the December lows is around the key psychological level of $100, and price could be at risk of a downside breakout if the market sees this as enough to anticipate to offset the loss of Russian supply.

All trading carries risk, and headlines out of Eastern Europe will surely continue to play a massive role in direction, but should be interesting to see how price moves from here, especially with the OPEC+ meeting today as well.

Mate,

With respect,

In this climate the little old lady sitting outside Coles on a bench checking her purse has as much chance of predicting the future as the latest market insights from your team of expert analysts.

gg

 

[Garpal Gumnut]

Mr. Biden will make a statement early tomorrow morning re. his thoughts on releasing US Oil Reserves to combat price rises and inflation.

The POO and oil stocks here have retreated today.

@CityIndex and others have predicted this. Well done.

My only thoughts are whether the USA will keep sufficient in reserve for war should they be dragged in to the present Russian push for hegemony.

This may impact how much they release and the POO.

Seesawing is normal in unpredictable times.

gg

 

[Smurf1976]

Oil prices have reversed the last two days of gains on reports that the US is weighing a plan to release a million barrels a day.

Just my opinion but I've long thought that at some time we'd see the US draw down the Strategic Petroleum Reserve (SPR) in a big way and that doing so would mark a turning point of historical significance far beyond the oil itself.

580 million barrels in storage at present so 81% full (nominal capacity is 714 million barrels). Draw out the reported 1 million barrels per day for six months and that drops it down to just below 400 million barrels or 56% of capacity.

My underlying thought being that it'll never be refilled and at some point, perhaps a decade from now, ends up being completely emptied amidst an environment of broader problems. That might seem a bit far fetched but they haven't put back the release in 2011 yet, that's the last time it was full and the present level is lower than any time since 2002.

Drop it to 400 million barrels and that'll take it down to a point last seen in 1984.

 

[Garpal Gumnut]

Just my opinion but I've long thought that at some time we'd see the US draw down the Strategic Petroleum Reserve (SPR) in a big way and that doing so would mark a turning point of historical significance far beyond the oil itself.

580 million barrels in storage at present so 81% full (nominal capacity is 714 million barrels). Draw out the reported 1 million barrels per day for six months and that drops it down to just below 400 million barrels or 56% of capacity.

My underlying thought being that it'll never be refilled and at some point, perhaps a decade from now, ends up being completely emptied amidst an environment of broader problems. That might seem a bit far fetched but they haven't put back the release in 2011 yet, that's the last time it was full and the present level is lower than any time since 2002.

Drop it to 400 million barrels and that'll take it down to a point last seen in 1984.

Good points especially in relation to switch to EV, Hydrogen ICE and renewables.

Many commentators on Bloomberg today however believe it will not change much the problems faced this year as it will increase demand without other measures.

And that is just during the summer months led by motorists and trucks.

It is looking very much like the 70's Oil Crisis.

gg

 

[over9k]

Just my opinion but I've long thought that at some time we'd see the US draw down the Strategic Petroleum Reserve (SPR) in a big way and that doing so would mark a turning point of historical significance far beyond the oil itself.

580 million barrels in storage at present so 81% full (nominal capacity is 714 million barrels). Draw out the reported 1 million barrels per day for six months and that drops it down to just below 400 million barrels or 56% of capacity.

My underlying thought being that it'll never be refilled and at some point, perhaps a decade from now, ends up being completely emptied amidst an environment of broader problems. That might seem a bit far fetched but they haven't put back the release in 2011 yet, that's the last time it was full and the present level is lower than any time since 2002.

Drop it to 400 million barrels and that'll take it down to a point last seen in 1984.

Won't be necessary once all their new shale capacity is built out.

They could also block exports to dump domestic prices, refill, then reenable exports. Or even just tell the producers to refill them at $70/barrel and tell them they'll block exports if they don't and won't reenable them until they do. Wouldn't be difficult.

The uppermost echelons being beholden to the interest of big business might be the only reason why we haven't seen this already.

But yeah, some more domestic capacity and this all goes away. Very simple supply & demand.

 

[Gunnerguy]

Won't be necessary once all their new shale capacity is built out.

They could also block exports to dump domestic prices, refill, then reenable exports. Or even just tell the producers to refill them at $70/barrel and tell them they'll block exports if they don't and won't reenable them until they do. Wouldn't be difficult.

The uppermost echelons being beholden to the interest of big business might be the only reason why we haven't seen this already.

But yeah, some more domestic capacity and this all goes away. Very simple supply & demand.

The US release of strategic reserves is SOOOOOO insignificant to the daily US or global current supply/demand.it will have a blip of affect on the oil price.
I don’t know if POO will go down or up in the short /medium time. But the US reserves release will not have any significant effect.
Gunnerguy.

 

[over9k]

The US release of strategic reserves is SOOOOOO insignificant to the daily US or global current supply/demand.it will have a blip of affect on the oil price.
I don’t know if POO will go down or up in the short /medium time. But the US reserves release will not have any significant effect.
Gunnerguy.

I was talking about the producers. Cutting their access to foreign markets off would give the yanks a domestic oil price of about $70/barrel. The rest of the world would be looking at more like $170.

Opec's just opened the taps by another 400k/day though, which is good.

 

[Smurf1976]

Won't be necessary once all their new shale capacity is built out.

When will that happen though?

Latest figures I can find puts the US drilling rig count, for rigs specifically drilling for oil (not gas) at 531.

That compares to about 700 immediately prior to the pandemic and almost 900 at the end of 2019.

Unless that changes, it's going to be pretty slow going in terms of any production increase in the US.