Oil price discussion and analysis

[DeepState]

Re: OIL AGAIN!

Looking at history since WW2 (so that's nearly 70 years), oil "should" be around the $20 - $30 mark in 2014 USD.

Curious. How did arrive at this?

 

[Smurf1976]

Re: OIL AGAIN!

Curious. How did arrive at this?

Long term actual prices in "real" terms (inflation adjusted).

In real terms the price didn't exceed $20 per barrel from the 1920's to the 1970's. That's a 50 year period prior to which there was minimal use of oil anyway.

Then in the 1970's prices spiked amidst political conflict, the oil embargoes, situation in Iran and so on. But by the mid-1980's prices were back down and stayed in the $10 - $30 range until this century. Now we're seeing prices around $100 as "normal" and that's a huge change.

A search for "long term real oil price chart" will bring up plenty of links covering this one.

Another one is the price of oil relative to other fuels. There was a time when industry was abandoning coal since oil was a cheaper way to fire boilers etc. Oil heating was everywhere, even power generation was using oil as the second largest fuel. But nobody would even think of doing that today since oil is prohibitively expensive when compared to coal or gas for firing boilers etc and there's very few places still running oil-fired power stations apart from as backup or for peak loads (run for short periods only).

So the price of oil has increased both relative to overall inflation and relative to the price of other fuels (coal and gas). That's a large part of the reason for the boom in LNG - nobody would bother with the hassle of gas liquefaction, specially built ships and so on if fuel oil was still cheaply available as an alternative.

 

[DeepState]

Just ran a few things on PCE vs WTI. Thought you might find this of interest. I was looking to see if the sensitivity of PCE to changes in WTI had changed in the last 30 years. I calculated 'beta' of PCE to WTI on a rolling 3 year



Apart from the spike leading into and during the GFC, sensitivities have been fairly stable.

 

[tradernor]

IRAQ helps the oil price a lot. and the conflict in Iraq is not going to end anytime soon.

 

[qldfrog]

I will always remember a quote from a chemistry teacher at uni:
oil is too precious to be burnt;
indeed, you can not easily or even ever create all the plastics, extract all the chemicals we can get from petrol from gas or coal;
Oil is full of very complex aromatics ; it is a chemist golden dream;
To think we just burn the lot to get heat is actually very troubling;
I do believe that this fact alone means that even with plentiful supply of coal/gas (that I am not that sure we have) peak oil means oil price will increase and increase until such time that no one in a sane mind would even consider burning it in a car.

 

[Smurf1976]

I will always remember a quote from a chemistry teacher at uni:
oil is too precious to be burnt;

There's also the question of how you burn it, some uses being more valuable than others.

The key point there is that if you compare now with 40 years ago well:

Power generation - oil was the second largest source behind coal. Oil is now a minor source of electricity in most countries. Looking at it in the Australian context, Kwinana (WA), Torrens Island (SA), Spencer Street (Vic), Richmond (Vic), Bell Bay (Tas) and Stokes Hill (NT) power stations are all either gone completely or now run on gas. Oil is used only for peak generation or in remote areas these days.

Heating buildings - oil was the dominant means in much of the developed world. Oil heating is now almost completely phased out in many countries and is declining practically everywhere. There's still the odd Vulcan etc oil heater here and there, but you don't see tankers going from house to house all down the street and reeling out the hose to top the tanks up as was once the case.

Industrial boilers etc - oil was the dominant fuel for new or retrofitted facilities. Nobody uses it today unless they have no alternative available. You'd have to look pretty hard to find anyone still running a large oil-fired boiler these days, they've pretty much all gone now.

Shipping - practically every ship ran on oil. Now there's a definite trend toward powering ships with LNG.

So we've already got rid of much of the discretionary oil use for electricity, heating, boilers etc and now have only the higher value (as fuel) uses left with the lowest of those (ships) now going to gas. That trend alone tells you that oil has, relative to other fuels at least, become more scarce over the past 40 years.

 

[LockNLoad]

Looks like oil price has more legs. Not good for US indexes, looking toppy.

 

[Wysiwyg]

Beachlife (thanks the poster) gave an alert to a consolidation triangle (WTI) on another thread and a break out in price has since occurred. It has been about a three month consolidation with resistance around $105. Shall be interesting to see if this present breakout continues and price hits above $110.

To bulls disappointment, the breakout was met by resistance forcing price down to breakout area twice in the last 4 days. Do you buy the initial breakout or wait for a possible revisit to the breakout area? Pay the latter on WTI maybe.

 

[beachlife]

volume has been leaving the July contract and moving to the Aug contract. If you look at the Aug chart the pull back isnt too bad. (disclosure I am still long)

 

[MARKETWINNER]

http://online.barrons.com/news/articles/SB50001424053111904544004579642562781676606?mod=BOL_twm_mw

U.S. Resists Rising Oil Prices

 

[Wysiwyg]

U.S. Resists Rising Oil Prices

Yeah that was a terrible breakthrough of month on month resistance. Price has now fallen below previous resistance. Maybe support in the 103 range.

 

[beachlife]

62% Fib level that acted as resistance didnt hold tonight as support so 50% level is possible place to watch.

 

[beachlife]

It came back and closed right on the 62% line...interesting.

 

[MARKETWINNER]

http://www.bloomberg.com/news/2014-...gest-oil-producer-after-overtaking-saudi.html

U.S. Seen as Biggest Oil Producer After Overtaking Saudi Arabia

 

[Smurf1976]

A few comments about oil shale (rock that is mined etc, as distinct from shale oil being extracted in the US).

Here in Tasmania we have a known, proven deposit of very high quality oil shale.

It is right next to a river so water for processing is not a problem.

It is also very near a rail line and suitable road.

There is plenty of power available, with high voltage lines within walking distance and a number of hydro-electric plants nearby.

It is within commuting distance of a significant town and port (Devonport). Oil could easily be shipped to refineries in Victoria, or exported overseas.

There are plenty of unemployed workers in the area, indeed lack of work has long been a problem. Many of these unemployed workers are "blue collar" having a background in now defunct heavy manufacturing industries.

Natural gas is also available if required from a nearby pipeline.

There is a nearby factory still operating, only 10km away, that is the largest non-electricity energy user in the state. Current fuel used is coal.

Surrounding land has nothing of value on it, and is not protected from development.

The oil shale has actually been mined and liquids extracted in the past, so it's a very proven resource.

So it's basically as good it gets so far as shale is concerned. It ticks all the boxes in every way and you'd be hard pressed to find a better spot to mine oil shale anywhere really.

But the harsh reality is that numerous companies, from large mining companies to exploration juniors, have had a look and all reached the same conclusions. The state government once had a look too, also reaching the same conclusion. And so did those who, back in the 1920's and 30's, actually mined shale and extracted oil until they went broke.

It's just not viable financially. When oil was at $20 it needed to be $25 to make shale worthwhile. Now it's at $100 and that's still not enough. Quite likely, we'll never get there.

As a source of liquid fuel - it can't produce petrol etc at anything approaching the current market price.

As a source of furnace fuel - not viable at the nearby factory without first extracting the oil due to the very high non-combustible portion of the shale. And if you're going to fire the kilns with oil then you may just as well buy it more cheaply rather than extract it from shale. Or just take the much cheaper route of using coal.

As a means of electricity generation it can be done, but again it's more costly than coal. Or gas. Or hydro. Or wind. Etc.

Over 150 years after it was discovered, 99%+ of this stuff is still in the ground and the trivial amount that was extracted was done at a financial loss and with considerable air pollution too (must have been pretty bad if it was causing concern back in the 1930's, a time when the environment just wasn't thought about usually). And everyone who has tried to revive the idea has walked away rather than blowing their money.

Now, if shale doesn't stack up in an "ideal" situation like this one then I very much doubt that it's going to stack up anywhere in the foreseeable future other than Estonia (by far the largest shale user in the world) burning raw shale in power stations. Maybe someone can make it work, but the idea that we'll be mining rocks and turning them into petrol doesn't seem too likely anytime soon.

 

[DeepState]

Why has the bottom fallen out of the oil market recently?

 

[CanOz]

no link, but the bloomy says no demand...refinery maintenance...blah blah

 

[qldfrog]

Why has the bottom fallen out of the oil market recently?

unsure but a months or so ago, china was buyinmgh as much as it could to fill some new storage capacity, maybe this phase is over?
just speculation...

 

[CanOz]

We could be very 'risk off' at the moment, that would put upward pressure on the USD which would put downward pressure on commodities...will check the DX and see what its been up to the last coupla days...

 

[CanOz]

DX up, CL down....Risk off?