Skip to comments.Here Comes $75 Oil
Posted on 03/31/2014 12:25:50 PM PDT by thackney
The long-term outlook for global oil prices is lower, perhaps much lower, giving a strong boost to the U.S. economy while potentially crippling the economy of Vladimir Putin's Russia. Vast new discoveries of oil and natural gas in the U.S. and around the globe could drive the oil price to as low as $75 a barrel over the next five years from a current $100.
The demand side, too, will put pressure on the supremacy of petroleum. For the first time in its 150-year history, the internal combustion engine can be run efficiently on alternative fuels from a number of sources, including natural gas. As these alternatives are increasingly introduced, global consumption of oil will slow its growth and flatten out.
Citigroup's head of global commodity research, Edward Morse, believes the combination of flattening consumption and rising production should mean that "the $90-a-barrel floor on the world oil price over the past few years will become a $90 ceiling." Within a new trading range with a $90 ceiling, Morse sees an average of $75 as plausible.
That's a far cry from the old paradigm, promoted in the past 40 years, which posited ever-greater demand for petroleum as developing economies grew, and a slowdown on the supply side -- the looming prospect of "peak oil," whereby global production maxes out and falls into decline. To the contrary, unconventional sources of crude oil totaling more than a trillion barrels -- the equivalent of more than 30 years of extra supply -- have been discovered in the past five years. The majority is recoverable at $75 or less, and much is now being tapped.
Within the next five years, growth in U.S. production of oil should make this country a net exporter...
(Excerpt) Read more at online.barrons.com ...
The Argument for $75 Oil Should Be $95 Oil
By Jon C. Ogg March 29, 2014
The oil industry may feel picked on by Barrons of late. Master limited partnerships (MLPs) were not exactly given the biggest welcome mat in a piece about Kinder Morgan Inc. (NYSE: KMI). Now Barrons has its weekend cover story being about how oil will fall to $75 from $100. While anything can happen in trading levels in the markets on a daily or weekly level, this just doesnt jive with the economics and forecasts.
The Barrons shift to $75 oil is really subtitled Bad News For Putin, and it is based upon plentiful new oil finds and more efficient production methods. The report contends that this will all be a boost for the U.S. economy, but this is bad news for Russia as it needs oil at $100 to pay its bills.
24/7 Wall St. is not really targeting the Barrons article per say here, but we have focused recently around $100 oil being the new norm that prices either rise from or fall from. The reality is that this $100 level may really be $95 or somewhere around there, but it is likely a far cry from $75.
Production costs have been much higher than a decade ago, and many oil companies simply will mothball many oil fields at $75 per barrel. Those ultradeep water wells and many of the tight shale formations on land just wont work at $75 per barrel. Another issue is that the global economy has been and remains weaker than what everyone was hoping for a year ago. Oil was around $101 at the end of the week. Over the last two years, oil only managed to get under $85 once for a very brief time (see chart below).
Chevron Corp. (NYSE: CVX) CEO John Watson recently told a Houston audience that crude oil running $100 per barrel is becoming the new standard in the oil and gas industry and that consumers will pay more than they used to. Merrill Lynch just recently upgraded shares of BP PLC (NYSE: BP) and Exxon Mobil Corp. (NYSE: XOM) with Buy ratings. They were targeting close to 20% expected total returns in their calls, when you include dividends. These two Buy ratings would almost certainly not be in place if they thought oil would go to $75 and stay there.
One thing to consider here on a broad macroeconomic basis is that the $101 price of today is when China remains weak, Brazil is growing at what feels like a snails pace, India remains weak, turmoil in the Middle East is at somewhat normalized levels, and Europe remains weak.
excerpted as well
The Argument for $75 Oil Should Be $95 Oil
By Jon C. Ogg March 29, 2014
We shouldn’t want oil going too cheap. Takes the profitability out of whats going on in North Dakota. OIl seems fairly priced right how, and hopefully it stays at about this level.
Now that we’re a major oil producer $75 a barrel may not turn out to be so great for our economy.
“For the first time in its 150-year history, the internal combustion engine can be run efficiently on alternative fuels from a number of sources, including natural gas.”
If by “efficient” they mean that my engine can burn ethanol and get less mileage doing it? Is that “efficient”???
Gas will never drop to below $2.00 again it will probably got up more.
Is fracking cost effective at 75?
Oil market is as rigged as anything right now.
Fair price should be no more than $50.
And Gold should be nearly free, along with wheat, corn and anything else I want.
I still think the key is natural gas along with the gas liquids. Oil may end up being a byproduct. Don’t discount what may happen when countries have to pump and sell more oil into a falling market to maintain essential domestic spending. We’ve seen OPEC numbers violate agreements before.
The Saudis wouldn’t panic over our growing natural gas supplies for no reason. What do they see, that we do not?
The flood of natural gas is a game changer.
No doubt, and I fully agree. I still put gasoline in my car though :)
It starts getting pretty marginal along about there. For all the economic boost that cheap oil would provide, I’d prefer domestic sources remain viable. Otherwise we’d have an economic shot in the arm for a decade or so, domestic wells would be abandoned and then we’d be right back where we were in 2008. It’s worth a premium to me, to be as free from dependency upon people who want to kill us as possible.
Oil can be $150 bbl if it wants, as long as gas is $2 gal.
“Now that were a major oil producer $75 a barrel may not turn out to be so great for our economy.”
$75/Barrel oil bankrupts the Mullahs in Iran and their Chavista allies in Venezuela.
Plus puts a big hurt on the Russian Empire and their ability to threaten their neighbors and Western peoples.
That trumps what happens to Dakota and Texas oil men.
The greatest argument for $75 oil would not be to produce it in such volume as to drive down the price, but to make the value of the dollar so strong that the dollar actually revaluates. The number of dollars is made more scarce, meaning each dollar is that much more valuable, and consequently buys that much more in commodities.
A concept that frightens the Keynesians who pretend to understand how money works, and makes hash of all their theories about pump priming and “floating” currency.
You’re talking petrodollars rather than domestically circulated dollars.
The Peak Oil idiots are silent these days. I remember a bunch of Freepers screaming Peak Oil in the past, in terror. Like the people who said housing never goes down and we were not in a housing bubble, they have never been heard from again.
Oil was $20 a barrel as recently as 2002.
You really think $75 oil will cause the Mullahs to bat an eyelash?
It could fall back to $30 and the regime would still survive.
One way or the other, Netanyahu is going to have to take military action before it’s too late!