Here Comes $75 Oil

Barron's ^ | MARCH 29, 2014 | GENE EPSTEIN

[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...

[9422WMR]

“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.

[thackney]

I say the problem is more the value of the dollar (which effects everything needed to produce the oil and gasoline)

[Reaganez]

“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.

[Organic Panic]

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.

[Two Kids' Dad]

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...

[inpajamas]

The EPA has other plans.

[Proud_texan]

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.

[thackney]

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.

[Proud_texan]

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.

[luvbach1]

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.

[Paladin2]

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.

[Proud_texan]

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.

[thackney]

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

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

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

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

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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

[thackney]

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.

[Proud_texan]

Excellent information, thanks very much.

[luvbach1]

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

[thackney]

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

[luvbach1]

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.

[Dave346]

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.

[Dave346]

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.