Oil $10 Barrel

Seasoned Oak said:

New calls for big drop in oil prices!
http://gm-volt.com/2017/10/18/analyst-predicts-evs-will-cause-oil-prices-dip-10-barrel/

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I'm not selling my oil stock just yet!

It will be interesting to see what happens to oil and how investors head for the exits. A lot of frackers have a lot of debt so I imagine they will stop first. The oil nations are going to be screwed because their economies are so dependent on oil and not much else (think Venezuela); even Saudi Arabia has recently borrowed billions of dollars to cover deficits at home. The same goes for Russia, whose economy has been shrinking for years, and the currency collapsed a few years ago when oil prices bottomed. But I doubt their leaders care much about the future economic wellness of their nations after stealing so much of that wealth.

As for oil companies, there will be consolidation and bankruptcies. But don't underestimate the ability of oil companies to distort the market in their favor and postpone the inevitable.

EatenByLimestone said:

I don't buy it. Mostly due to the time frame. Well, if we see massive deflation that could happen...

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I definitely think the price shift oil will set off conflicts around the world that could cause wars and deflation. When people get desperate wars become an option. I am not saying it's going to happen but the world hasn't experienced a major event shock in almost 9 years. Are we due for one soon?

I don't think even Saudi Arabia can't produce oil for $10 a barrel anymore, much less do so in the middle of the chaos resulting from the economic collapse that would unfold.

Besides which, losing the fuel cost advantage of electric cars will not help their adoption.

Even a severe oversupply due to an unexpected decline in demand would struggle to create a short term $10/barrel drop. The current pricing is on a recovery from a really major oversupply situation.

The 6-8 year EV sales forecasts don't pair well with his claims either.

Let's see. The article didn't say much, but I have read some better ones on this subject.....

Oil producers are all about return on investment, on a 15-30 year timeframe for majors, or a 2-5 year time frame for frackers. Development of these resources, especially deepwater and arctic is staggeringly expensive...just this side of building a moon colony expensive...you have to suppose that you will literally suck liquid money out of the ground for decades to make the numbers work out.

Making the numbers work has always been easy though....because demand has always been going up up up (except when it didn't in the 70s), and there have always been more consumers (global population rise) with more money (people getting richer). AND there has never been a substitute....the oil cos literally argued that civilization would collapse if they stopped satisfying this rising oil demand.

So...add up the above, and you have every politician happy to throw subsidies at this industry (in the essential national interest) from commies in asia, to lefties in scandanavia, to brits, to africans to texans to californians....everyone wanted these companies to come in and get a piece of the never ending giant money pie. And everyone loves the energy...flying vast distances in hours, having your own sleek and powerful car at your beck and call, having all the heat you want at the flick of a switch.

And the oil cos reminded you again and again with advertising that all of that is their doing. Even if you worry about some smelly car exhaust, or a line of smog on the horizon, or a few birds killed by a spill....what choice do you have? Oil IS civilization...do you want anarchy?

Bottom line: even the folks that don't like oil still LOVE oil....and will buy tons of it to function. And investors....oil is seen as one of the biggest and SAFEST investments you could possible imagine. It might be a little volatile, but its not going to go away. Your stock price might go down, but its never ever going to go to zero. Long term...it has to keep going up and up, just like global oil demand...

And so oil has been treated for decades.

And then last year the oil cos started to admit that they think global oil DEMAND will PEAK and start to DECLINE. OMG that is news!!

In this consensus, the only question is when does the peak hit? The oil majors will tell you 2025-2035 timeframe. Other analysts like Bloomberg or Tony Seba will tell you numbers more like 2020-2023.

Why does it matter? If you are oil major and it takes 20 to 30 years of production to make your money back on a mega-project, you need to have a steady or rising demand out to 2020 (when your project comes on line) plus 20 to 30 = 2040-2050. If you think demand is peaking around 2030...this means you have no freaking clue what the market will look like in 2040. The logical conclusion is that you (the guy running Shell or Exxon) simply will demur on building any more expensive mega-projects. And that is exactly what has happened in the last few years. Something like a $trillion of oil development projects shelved or cancelled outright.

So, as far as the oil majors are concerned, it doesn't really matter much whether peak demand is in 2022 or 2030. Their business model is already toast.

As far as the frackers are concerned...given their 2-5 year return timelines, they still have time to dig a hole, suck out the money, and run before the curtain comes down. And they are on track to tap out ALL the best tight oil resources in the next 5-10 years...suggesting that they too are very well aware of the coming disruption and want to be all done by then.

Both majors and frackers will have a lifeline in natural gas, where US and global demand is soaring. Maybe some of those oil countries will survive on an expanded global LNG trade? Depends on their geology I suppose. The frackers are well placed....tight oil fields are typically very gassy. Even after the oil is gone, there is still some gas coming out. Details will matter, so there will be winners and losers and only a geologist can tell you which.

That new shiny EV fleet will run largely on natural gas for quite a while, so the gas plan should be pretty peachy. Renewables will come for gas eventually, giving that market a peak...but no one is ready to call that one yet. Until both wind and solar have grown several fold (which takes a decade or two) AND someone is shipping cheap grid storage solutions (imaginable in 2017 for a decade or two from now, but still a dream nonetheless) then gas still looks like a solid investment.

Oil probably will hit $10 a barrel at some point....at that point it is likely that no one will still care.

A big investor decides not to join the Aramco IPO party. Hard to say if the reason is because Saudi Arabia seems to be hurtling down the despot highway or because people are hedging their bets on oil.

https://www.bloomberg.com/news/arti...just-lost-the-world-s-largest-equity-investor

"Norway’s $1 trillion sovereign wealth fund has proposed dumping all its oil and gas stocks -- roughly $35 billion -- to diversify away from energy. The Nordic nation is one of the world’s top oil producers and its fund invests heavily in energy, owning large chunks of Big Oil as well as stakes in major state-controlled companies including Petrobras of Brazil and Sinopec of China."

"The exit, if backed by the government, will create two problems for the Saudis. First, it eliminates a potential cornerstone investor either ahead of the IPO or during its book-building. With Riyadh hoping for a valuation of $2 trillion -- and raising $100 billion selling a 5 percent stake -- Aramco will need every investor it can get. Second, it’s likely to embolden those who view oil companies as potentially stranded assets that should be avoided. That, in turn, could reduce the appetite among Western pension funds to buy into the IPO."

Energy storage is major technical challenge facing our world economies.
Chemical energy storage is awesome as far as density, surpassed only by nuclear energy (IIRC)
I see no problem with leaving fossil fuels stored in the ground for possible use at a future time (e.g , when solar power is unavailable).

semipro said:

Energy storage is major technical challenge facing our world economies.
Chemical energy storage is awesome as far as density, surpassed only by nuclear energy (IIRC)
I see no problem with leaving fossil fuels stored in the ground for possible use at a future time (e.g , when solar power is unavailable).

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The problem, is who 'owns' the fuel while it sits underground. The valuation of many of the largest companies in the world is based upon those hydrocarbons under the ground, and the **assumption** that they will be able to extract and sell them for a fat profit at a future date.

Those same wealthy entities are directly bankrolling climate misinformation, and supporting political candidates that are undermining climate science, climate policy and climate action.

It could be pointed out that the US GOP is the **only** political party in the entire world (discounting tiny fringe and crank groups without any power) that denies anthropogenic climate change in its platform and as a litmus test for candidates. And they all receive huge amounts of campaign cash (and post retirement think-tank payola) from those folks holding those assets under the ground.

To make the problem quantitative, the current valuation of the fossil companies is based upon the premise that they can and will extract and burn enough fuel to add 2,500 billion tons of CO2 to the atmosphere before 2100.

And every scientific body on the planet has stated that keeping climate change on the good side of catastrophe requires that no more than 450±200 billion tons of CO2 be emitted before 2100. Less than a fifth of the currently valued underground assets. Or about what the world would emit at current rates in less than 20 years.

So, given this math...how much are those assets under the ground really worth? What about the companies that hold them? How about less than 20% of current value? Or zero?

If the transition to a sustainable energy system is still possible, technically, and at a cost comparable to burning fossils, and every government in the world has signed on to starting the transition, which avoids catastrophe, and saves millions of lives (per year) in the near future from reduced air pollution, why would we not say 'hell yeah, let's do this thing'??

Because the holders of those currently harmless underground assets have used a tiny fraction of their paper wealth to subvert the will of the people, undermine our nation's bedrock confidence in science and the media, and to literally buy a majority of the US polity and to keep it in power. All this for no other reason but to delay the **inevitable** day of reckoning that comes for them and their fictitious valuation models.

And you and I and anyone with a retirement index fund or a pension is investing in them. But the Norwegians, and other entities holding $5T in assets around the world have said enough. They won't be party to this crime any more. Good for them.

woodgeek said:

But the Norwegians, and other entities holding $5T in assets around the world have said enough. They won't be party to this crime any more. Good for them.

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I don't think the Norwegians are being altruistic, but rather calculating and hedging against the future collapse of oil prices. As a nation, oil and gas make up a big chunk of their economy, and investing that wealth in more oil and gas in other parts of the World would just double their exposure to a collapse in prices. They are doing the smart thing. Like I said before, only the suckers will be left holding these assets on the way down. Which is why the Aramco IPO is happening - it allows the Saudis to sell a devaluing asset to a larger pool of suckers.

woodgeek said:

The problem, is who 'owns' the fuel while it sits underground. The valuation of many of the largest companies in the world is based upon those hydrocarbons under the ground, and the **assumption** that they will be able to extract and sell them for a fat profit at a future date.

Those same wealthy entities are directly bankrolling climate misinformation, and supporting political candidates that are undermining climate science, climate policy and climate action.

It could be pointed out that the US GOP is the **only** political party in the entire world (discounting tiny fringe and crank groups without any power) that denies anthropogenic climate change in its platform and as a litmus test for candidates. And they all receive huge amounts of campaign cash (and post retirement think-tank payola) from those folks holding those assets under the ground.

To make the problem quantitative, the current valuation of the fossil companies is based upon the premise that they can and will extract and burn enough fuel to add 2,500 billion tons of CO2 to the atmosphere before 2100.

And every scientific body on the planet has stated that keeping climate change on the good side of catastrophe requires that no more than 450±200 billion tons of CO2 be emitted before 2100. Less than a fifth of the currently valued underground assets. Or about what the world would emit at current rates in less than 20 years.

So, given this math...how much are those assets under the ground really worth? What about the companies that hold them? How about less than 20% of current value? Or zero?

If the transition to a sustainable energy system is still possible, technically, and at a cost comparable to burning fossils, and every government in the world has signed on to starting the transition, which avoids catastrophe, and saves millions of lives (per year) in the near future from reduced air pollution, why would we not say 'hell yeah, let's do this thing'??

Because the holders of those currently harmless underground assets have used a tiny fraction of their paper wealth to subvert the will of the people, undermine our nation's bedrock confidence in science and the media, and to literally buy a majority of the US polity and to keep it in power. All this for no other reason but to delay the **inevitable** day of reckoning that comes for them and their fictitious valuation models.

And you and I and anyone with a retirement index fund or a pension is investing in them. But the Norwegians, and other entities holding $5T in assets around the world have said enough. They won't be party to this crime any more. Good for them.

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A perspective way beyond my understanding of things. I do appreciate the insight. Your response reminds me of this cartoon which I'm sure many here have seen before.


I guess I'm looking at things very simply (and naively unencumbered by the constraints of the real world)

• We have great stores of (carbon) chemical energy available for ready use. There's no problem with leaving them in place and many problems associated with accessing and using them - global climate change for one.
• We also have a steady stream of solar energy available which is readily usable but with associated storage challenges.
• One of the key Armageddon type threats that we face, though admittedly unlikely in our lifetimes, is disruption of that flow of solar energy due to meteor impacts and volcanic activity.
• Our best use of fossil chemical (and nuclear) stores is for backup in case of a civilization-threatening emergency.