Oil price discussion and analysis

bluekelah said:

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.

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Garpal Gumnut said:

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

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over9k said:

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.

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Garpal Gumnut said:

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

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Garpal Gumnut said:

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

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bluekelah said:

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.

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CityIndex said:

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.

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CityIndex said:

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.

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Smurf1976 said:

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.

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Smurf1976 said:

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.

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over9k said:

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.

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Gunnerguy said:

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.

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over9k said:

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

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