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Here Comes $75 Oil
Barron's ^ | MARCH 29, 2014 | GENE EPSTEIN

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 ...


TOPICS: News/Current Events
KEYWORDS: energy; oil
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And the other view:

The Argument for $75 Oil Should Be $95 Oil

http://247wallst.com/energy-business/2014/03/29/the-argument-for-75-oil-should-be-95-oil/

By Jon C. Ogg March 29, 2014

The oil industry may feel picked on by Barron’s of late. Master limited partnerships (MLPs) were not exactly given the biggest welcome mat in a piece about Kinder Morgan Inc. (NYSE: KMI). Now Barron’s 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 doesn’t jive with the economics and forecasts.

The Barron’s 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 Barron’s 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 won’t 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 snail’s pace, India remains weak, turmoil in the Middle East is at somewhat normalized levels, and Europe remains weak.

excerpted as well

1 posted on 03/31/2014 12:25:50 PM PDT by thackney
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The Argument for $75 Oil Should Be $95 Oil

http://247wallst.com/energy-business/2014/03/29/the-argument-for-75-oil-should-be-95-oil/

By Jon C. Ogg March 29, 2014


2 posted on 03/31/2014 12:26:14 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney; expat_panama
Interesting.
3 posted on 03/31/2014 12:27:41 PM PDT by Chgogal (Obama "hung the SEALs out to dry, basically exposed them like a set of dog balls..." CMH)
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To: thackney

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.


4 posted on 03/31/2014 12:28:53 PM PDT by bigdaddy45
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To: thackney

Now that we’re a major oil producer $75 a barrel may not turn out to be so great for our economy.


5 posted on 03/31/2014 12:30:39 PM PDT by Buckeye McFrog
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To: thackney

“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”???


6 posted on 03/31/2014 12:34:07 PM PDT by Tallguy
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To: thackney

Gas will never drop to below $2.00 again it will probably got up more.


7 posted on 03/31/2014 12:34:52 PM PDT by Resolute Conservative
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To: Buckeye McFrog

Is fracking cost effective at 75?


8 posted on 03/31/2014 12:35:19 PM PDT by AU72
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To: thackney

Oil market is as rigged as anything right now.

Fair price should be no more than $50.


9 posted on 03/31/2014 12:36:26 PM PDT by Dave346
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To: Dave346

And Gold should be nearly free, along with wheat, corn and anything else I want.


10 posted on 03/31/2014 12:37:36 PM PDT by thackney (life is fragile, handle with prayer)
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To: bigdaddy45

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.


11 posted on 03/31/2014 12:38:57 PM PDT by meatloaf (Impeach Obama. That's my New Year's resolution.)
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To: meatloaf

No doubt, and I fully agree. I still put gasoline in my car though :)


12 posted on 03/31/2014 12:39:56 PM PDT by bigdaddy45
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To: AU72

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.


13 posted on 03/31/2014 12:42:03 PM PDT by RegulatorCountry
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To: Buckeye McFrog

Oil can be $150 bbl if it wants, as long as gas is $2 gal.


14 posted on 03/31/2014 12:45:50 PM PDT by Beagle8U (Unions are an Affirmative Action program for Slackers! .)
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To: thackney
Guess why "the Won" doesn't want Keystone oil. It would bankrupt Russia and Saudi Arabia.
15 posted on 03/31/2014 12:46:05 PM PDT by JoeFromSidney (Book: Resistance to Tyranny. Buy from Amazon.)
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To: Buckeye McFrog

“Now that we’re a major oil producer $75 a barrel may not turn out to be so great for our economy.”

Frak that.

$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.


16 posted on 03/31/2014 12:48:53 PM PDT by Reaganez
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To: Buckeye McFrog

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.


17 posted on 03/31/2014 12:50:59 PM PDT by alloysteel (Obamacare - Death and Taxes now available online. One-stop shopping at its best!)
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To: alloysteel

You’re talking petrodollars rather than domestically circulated dollars.


18 posted on 03/31/2014 12:54:33 PM PDT by RegulatorCountry
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To: thackney

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.


19 posted on 03/31/2014 12:55:25 PM PDT by Freedom_Is_Not_Free (Free goodies for all -- Freedom for none.)
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To: Reaganez

Please.

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!


20 posted on 03/31/2014 12:55:47 PM PDT by Dave346
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To: bigdaddy45

“OIl seems fairly priced right how, and hopefully it stays at about this level.”
Horse hockey!!!
gas is $3.38, diesel is $3.60+ in Texas.
Oil is overpriced, and too easily influenced (always increased) by the variations caused by the political/media narrative.


21 posted on 03/31/2014 1:01:21 PM PDT by 9422WMR (: " Tolerance is the virtue of a man who has no convictions".)
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To: 9422WMR
I say the problem is more the value of the dollar (which effects everything needed to produce the oil and gasoline)


22 posted on 03/31/2014 1:08:45 PM PDT by thackney (life is fragile, handle with prayer)
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To: Dave346

“Please.

Oil was $20 a barrel as recently as 2002.

You really think $75 oil will cause the Mullahs to bat an eyelash?”

You can’t possibly be serious.

They have greatly expanded their welfare state since then to quell opposition and justify their existence.

They need $110 to balance their budget, they are running in the red. Unlike Washington they simply can’t print money.

BTW in 2002 they were just about to go bust when Bush asked the Saudis to pull back in the name of Texas oilmen.


23 posted on 03/31/2014 1:16:45 PM PDT by Reaganez
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To: Resolute Conservative

I remember the good ol days when democrats were publicly flogging petroleum executives when gas hit 2 bucks. Now with Obama at the helm not a peep.


24 posted on 03/31/2014 1:23:50 PM PDT by Organic Panic
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To: bigdaddy45

I pay slightly more than $4 a gallon here in Commiefornia, so we have very different ideas of what “fairly priced” means with regards to oil/gas. I know a significant chunk of the cost is state taxes, but still...


25 posted on 03/31/2014 1:30:38 PM PDT by Two Kids' Dad (((( ))))
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To: thackney

The EPA has other plans.


26 posted on 03/31/2014 1:32:12 PM PDT by inpajamas (http://outskirtspress.com/ONE)
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To: 9422WMR
I would observe that the disruption in the Houston ship channel has almost everything to do with the recent gasoline price increases in Tx. vs. the price of crude. Gasoline is very much a supply and demand commodity. Any disruption and bang, you've got a price increase.

I note that stations local to me have dropped to $3.11 today from $3.19-$3.25 as recently as Saturday.

Otherwise the price between crude and gas correlates surprisingly closely. Check out a five year chart of crude/gas prices at gasbuddy. Our minds really notice a price increase but don't have that same reaction to a price decrease. Or something but the numbers are there.

Having watched the oil patch for a period of time I'm very pleased with where we are going but now we need more refining capacity.

27 posted on 03/31/2014 1:35:43 PM PDT by Proud_texan (Strange how paranoia can link up with reality now and then. - PK Dick)
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To: Proud_texan

Spill didn’t cause pump price spike some had feared {Houston Ship Channel}
http://www.freerepublic.com/focus/f-news/3137440/posts

The US already refines more than we use ourselves. We export the surplus.


28 posted on 03/31/2014 1:38:31 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
I was expecting more locally but then we get most of our gas from Corpus but still...

Frankly I've never quite understood the gas import/export numbers. They're government numbers so maybe that explains it ...but for the week ended 3/21 we imported 628,000 gallons a day. I don't have a handle on exports.

Any sense on how/why we import and export and what the export numbers are?

And I'd still like to see more refining capacity to handle things like fires and other unanticipated shut downs. While refining has gotten a lot more efficient in the last 20 years how many news ones have been built? Something like 1? Or has that only been approved and not built yet?

I'm a belt and suspenders guy.

29 posted on 03/31/2014 1:51:42 PM PDT by Proud_texan (Strange how paranoia can link up with reality now and then. - PK Dick)
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To: bigdaddy45
OIl seems fairly priced right how, and hopefully it stays at about this level.

Oil might be fairly priced right now but gas is averaging about $4/gallon in San Diego and most of us here don't think it's about right.

30 posted on 03/31/2014 1:51:48 PM PDT by luvbach1 (We are finished)
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To: Resolute Conservative
It's been 9+ years since gas went above $2 and I bought 2 Diesel Cars. I'd be happy with $2 Diesel. The US economy would be too.

We should be pumping Saudi Arabia and Iraq dry at $50/bbl or less.

31 posted on 03/31/2014 1:57:09 PM PDT by Paladin2
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To: thackney
Doh, a Homer search moment. U.S. Exports of Finished Motor Gasoline

Hope I caught you before you went to dig it up for me.

Sorry.

32 posted on 03/31/2014 1:57:58 PM PDT by Proud_texan (Strange how paranoia can link up with reality now and then. - PK Dick)
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To: Proud_texan

Net imports/exports combined are available.

http://www.eia.gov/dnav/pet/pet_move_neti_a_EP00_IMN_mbblpd_m.htm

http://www.eia.gov/dnav/pet/pet_move_neti_a_epc0_IMN_mbblpd_m.htm

http://www.eia.gov/dnav/pet/pet_move_neti_a_EPP0_IMN_mbblpd_m.htm

- - - - -

And I’d still like to see more refining capacity to handle things like fires and other unanticipated shut downs.

- - - - -

Nobody is going to spend billions of dollars building/expanding refineries that don’t normally run every day.

- - - - - -

While refining has gotten a lot more efficient in the last 20 years how many news ones have been built?

- - - - - -

We have built the equivalent of several large ones expanding the existing, it is cheaper that way. It is why our total refinery capacity had been rising, even with some closures.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGIRIUS2&f=M


33 posted on 03/31/2014 1:58:24 PM PDT by thackney (life is fragile, handle with prayer)
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To: luvbach1
averaging about $4/gallon in San Diego and most of us here don't think it's about right.

But most of the state keeps electing those that add the high taxes and over burdensome regulations.

34 posted on 03/31/2014 2:00:03 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

Excellent information, thanks very much.


35 posted on 03/31/2014 2:03:18 PM PDT by Proud_texan (Strange how paranoia can link up with reality now and then. - PK Dick)
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To: thackney

Of course taxes are a good part of the cost but aren’t the taxes pegged in part to the cost of the gas?


36 posted on 03/31/2014 2:05:06 PM PDT by luvbach1 (We are finished)
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To: luvbach1

Many are per gallon.

Some are percent of price.

STATE MOTOR FUEL TAXES: NOTES SUMMARY
http://www.api.org/oil-and-natural-gas-overview/industry-economics/~/media/47E397E1D3B14F61BAADCB6CA56A9F84.pdf


37 posted on 03/31/2014 2:07:58 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
But most of the state keeps electing those that add the high taxes and over burdensome regulations.

One would think the high cost of gas is most onerous to the low-info voters who keep electing Demonrats in California; or perhaps they can't make the connection.

38 posted on 03/31/2014 2:11:43 PM PDT by luvbach1 (We are finished)
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To: thackney

I remember well when the press kept telling us oil was too high when it first hit $40 under Bush.

If $40 under Bush is too high, then (adjusted for inflation) anything a penny more than $50 under Obama is too high.


39 posted on 03/31/2014 2:40:55 PM PDT by Dave346
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To: Reaganez

Sigh...

Iran is having no problems now after all of the sanctions lifting that started last November.

All of the anti-Western countries will rush to Iran’s aid as much as needed.

And all of the oil they sold in the last decade they made an absolute killing off of.


40 posted on 03/31/2014 2:43:56 PM PDT by Dave346
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To: meatloaf
The flood of natural gas is a game changer.

Which is why we are seeing pressure to go down to $75 a barrel and the "Methane" is evil and the cause of all ills stories sprouting up everywhere...

Hmmmm, the Saudi Lobby on K-Street working overtime perhaps?

41 posted on 03/31/2014 2:46:29 PM PDT by taildragger (The E-GOP won't know what hit them, The Party of Reagan is almost here, hang tight folks....)
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To: Buckeye McFrog

Here comes the mileage tax.


42 posted on 03/31/2014 2:48:15 PM PDT by TurboZamboni (Marx smelled bad and lived with his parents .)
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To: Dave346

No one will make up for Iran’s budget shortfall indefinitely.

Not Russia nor any OPEC if oil is at $75/barrel.

China does not have a dog in this fight.


43 posted on 03/31/2014 3:34:18 PM PDT by Reaganez
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To: Dave346
Fair price should be no more than $50.

On what do you base that stunning statement? How have you determined what price several billion individuals are willing to pay for energy?

44 posted on 03/31/2014 4:25:19 PM PDT by BfloGuy ( Even the opponents of Socialism are dominated by socialist ideas.)
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To: AU72

I was told that fracking is cost effective down to $30/bbl.


45 posted on 03/31/2014 4:37:41 PM PDT by Rodamala
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To: BfloGuy; Dave346
Fair price should be no more than $50.

On what do you base that stunning statement? How have you determined what price...

I'd be more interested in knowing why he and so many other "planned economy" types are posting their nonsense on a conservative forum.

46 posted on 03/31/2014 5:40:17 PM PDT by expat_panama (Arguing with those who have renounced reason is like giving medicine to the dead. --Thomas Paine)
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To: thackney

We’ll get 75 dollar a barrel oil when the highest bid is 75.


47 posted on 04/01/2014 5:06:35 AM PDT by Dusty Road
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To: Dave346

Please explain how it is rigged.


48 posted on 04/01/2014 5:07:44 AM PDT by Dusty Road
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To: Rodamala

I was told that fracking is cost effective down to $30/bbl.

- - - - - - -

There is no set number. As prices drop, more oil plays become less economic to produce. They farther the price drops, the more oil fields become money losers.


49 posted on 04/01/2014 5:10:15 AM PDT by thackney (life is fragile, handle with prayer)
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To: AU72

It’s always been cost effective, it’s a necessary part of the process and has been since before I was born, that was 64 years ago.


50 posted on 04/01/2014 5:11:40 AM PDT by Dusty Road
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