[kenberg]

OK, locally it is $2.25 for regular. I understand that oil goes for something like $48 a barrel now.
My question:
Was this drop, of this magnitude, predicted by anyone?

Oil is important. And there is a lot of money to be made. Or lost. So it would seem that people who know something should have seen this coming. Did they? I didn't, but no one thinks I actually know anything. Possibly no one else does either? Retroactive explanations of why obviously the price was going to plummet don't count.

[Aberlour10]

This is a price war, what now happens.All involved countries produce oil on the top of their capacities, Saudi Arabia, Russia, Usa etc..No one is ready to cut these. Saudi Arabia means, our producing costs are so low, that the other, especially US fracking oil companies cannot face this price level for a long time ( due to their own costs) They might be right, because these fracking boom is financed in the main part with The Wall Street high yield bonds. These bonds cannot be paid back if the oil price will stay at the current level. Many experts in Europe are afraid that these all can end with the same result as in 2008/2009.

[mike777]

Here is a quote of oil prices.
http://www.cmegroup....weet-crude.html

Included in this quote are predictions of future prices which include such issues as "cost and carry" and other issues, the markets best current guess.


You can see that the markets are adjusting, that old thing called supply and demand.


btw I agree with ABE that if prices continue to fall for a "long time" you will see some problems but I predict also some good stuff.

Abe points out the fear in Europe, Europe is afraid. Capitalism, markets destroy. Capitalism destroys jobs, Capitalism destroys companies and in rare cases Capitalism can devastate an industry. This is why people dislike capitalism and markets, some will be hurt and and this is where they demand that government step in and protect them, protect jobs, protect their company.

[MrAce]

kenberg, on 2015-January-10, 09:10, said:

OK, locally it is $2.25 for regular. I understand that oil goes for something like $48 a barrel now.
My question:
Was this drop, of this magnitude, predicted by anyone?

Oil is important. And there is a lot of money to be made. Or lost. So it would seem that people who know something should have seen this coming. Did they? I didn't, but no one thinks I actually know anything. Possibly no one else does either? Retroactive explanations of why obviously the price was going to plummet don't count.

I live in Houston TX, at the center of Oil and Gas companies. No it was not predicted by everyone. This has been very bad for the local economy in Texas. We are expecting to see more than 50.000 people to be laid off here.

For Americans, the cost of producing their own oil per barrel was too high compared to buying it. But the prices at some point came close to a point which was not the case anymore. Besides the fact that this is screwing up countries like Russia, Venezuela who are not in the most popular list of USA. Also USA has much more than it in its economy unlike Russia and Venezuela. In one hand it caused losing jobs for people in oil and gas industry, it creates a lot of other jobs in USA. Such as automotive sector, transportation etc etc. However transportation alone, with cheap oil, makes price of everything else go down. Which at some point has to stop because it is also not very good. Saudis and U.S are still going with full throttle as far as I know. Basically there is too many oil in the market.

It is 1.72 per/gallon in my neighbourhood (West Houston) 20$ and I have 3/4 tank of gas.

[kenberg]

MrAce, on 2015-January-10, 11:26, said:

I live in Houston TX, at the center of Oil and Gas companies. No it was not predicted by everyone. This has been very bad for the local economy in Texas. We are expecting to see more than 50.000 people to be laid off here.

For Americans, the cost of producing their own oil per barrel was too high compared to buying it. But the prices at some point came close to a point which was not the case anymore. Besides the fact that this is screwing up countries like Russia, Venezuela who are not in the most popular list of USA. Also USA has much more than it in its economy unlike Russia and Venezuela. In one hand it caused losing jobs for people in oil and gas industry, it creates a lot of other jobs in USA. Such as automotive sector, transportation etc etc. However transportation alone, with cheap oil, makes price of everything else go down. Which at some point has to stop because it is also not very good. Saudis and U.S are still going with full throttle as far as I know. Basically there is too many oil in the market.

It is 1.72 per/gallon in my neighbourhood (West Houston) 20$ and I have 3/4 tanks of gas.

Your second sentence, " No it was not predicted by everyone.", matches my impression. I don't much sit around reading the Wall Street Journal and certainly I don't read specialized reports about the oil industry but my impression is/was that this caught everyone by surprise.

Any wild swing like this is going to cause shocks, some good, some bad. It has long seemed to me that a substantial tax on oil would be good, but I have also thought it could possibly be used to stabilize prices at the pump. If the world price rises, the tax coould go down, if the world price falls, the tax could rise. It wouldn't have to be a rigid thing, but maybe the price at the pump could be kept in the 2.80 to 3.30 range. Similar thoughts about heating oil

Of course for me personally watching the price fall is very pleasant. But I have a general if vague appreciation for the type of disruption you describe.

[barmar]

One of the points made on a news report I heard a week or two ago is that this price drop isn't going to result in lower prices for heating oil this winter. Utilities generally enter into contracts with periods of a year or more, so they're stuck paying the prices they agreed on a year or two ago. This works to the consumer's advantage when prices go up, but not when they drop like this. But such precipitous drops are presumably not very common.

[kenberg]

mike777, on 2015-January-10, 10:18, said:

Here is a quote of oil prices.
http://www.cmegroup....weet-crude.html

Included in this quote are predictions of future prices which include such issues as "cost and carry" and other issues, the markets best current guess.


You can see that the markets are adjusting, that old thing called supply and demand.


btw I agree with ABE that if prices continue to fall for a "long time" you will see some problems but I predict also some good stuff.

Abe points out the fear in Europe, Europe is afraid. Capitalism, markets destroy. Capitalism destroys jobs, Capitalism destroys companies and in rare cases Capitalism can devastate an industry. This is why people dislike capitalism and markets, some will be hurt and and this is where they demand that government step in and protect them, protect jobs, protect their company.

With regard to that site: Is it possible to find what this site said a year ago regarding prices predicted for Jan of 2015?
I have often thought that we over-estimate, and maybe by quite a bit, our understanding of world economics. It's not that people are stupid, of at least that isn't the whole issue, it's that the problems are complex.
I am all in favor of using our intelligence to foresee the likely consequences of our actions (or in-actions). But despite our best efforts, we often find ourselves saying "Never saw that coming".

[ggwhiz]

Conspiracy theory:

Maybe the whole attempt is for the ruble to tank enough that Putin is run out of office.

[blackshoe]

mike777, on 2015-January-10, 10:18, said:

Here is a quote of oil prices.
http://www.cmegroup....weet-crude.html

Included in this quote are predictions of future prices which include such issues as "cost and carry" and other issues, the markets best current guess.


You can see that the markets are adjusting, that old thing called supply and demand.


btw I agree with ABE that if prices continue to fall for a "long time" you will see some problems but I predict also some good stuff.

Abe points out the fear in Europe, Europe is afraid. Capitalism, markets destroy. Capitalism destroys jobs, Capitalism destroys companies and in rare cases Capitalism can devastate an industry. This is why people dislike capitalism and markets, some will be hurt and and this is where they demand that government step in and protect them, protect jobs, protect their company.

Capitalism does none of those things. In most cases it's greed that does them.

[mike777]

blackshoe, on 2015-January-10, 13:27, said:

Capitalism does none of those things. In most cases it's greed that does them.

Actually destruction and failure is an inherent part of capitalism. Granted a part many dislike.

[mike777]

kenberg, on 2015-January-10, 13:05, said:

With regard to that site: Is it possible to find what this site said a year ago regarding prices predicted for Jan of 2015?
I have often thought that we over-estimate, and maybe by quite a bit, our understanding of world economics. It's not that people are stupid, of at least that isn't the whole issue, it's that the problems are complex.
I am all in favor of using our intelligence to foresee the likely consequences of our actions (or in-actions). But despite our best efforts, we often find ourselves saying "Never saw that coming".

5/01/2013 @ 3:50PM 88,783 views

Oil Price Forecast for 2013-2014: Falling Prices


Comment Now Follow Comments




Update: an updated oil price forecast was published December 18, 2014.


Oil prices are headed down, and I mean down at least $20 a barrel. The key reason is that prices have been high. It’s not a paradox, but a result of the long time lags in oil production.




12/18/2014 @ 2:14PM 98,701 views

Oil Price Forecast: 2015-2016

Continued from page 1


My price forecast is that today’s $60 price is likely to be the high end for the coming two years. There may be temporary market volatility higher, but don’t expect a higher price to be sustained. At the low end, $50 seems like a floor absent a global recession.
http://www.forbes.co...st-2015-2016/2/

[Aberlour10]

ggwhiz, on 2015-January-10, 13:18, said:

Conspiracy theory:

Maybe the whole attempt is for the ruble to tank enough that Putin is run out of office.

Surely the close alliance between USA and Saudi Arabia in the 80's to keep oil price low ( 10 $) resulted in the economcal collapse of the Sovjet Uniom. Its a fact.

But the situation nowdays is differrent. Russia has still reserves about 400 bill dollars. The entire state debt ( 50 bill) is so low. It could be paid back every single day in gold.

This makes RF able to face this situation min 3-4 years.

Another difference. Saudi Arabia and USA are still allied, but on oil market they are hard competitors. For Riad is more dangerous what happens at the fracking fields in USA and Canada then what Kremlin political does.


there are up to 500 bill pumped in the new oil industries in the USA. I doubt USA would risk to destroy it fighting for lower and lower prices only to kick Mr Putin out of the business. Who knows if the next president would be more friendly for the western world.

[mike777]

Ken Future pricing from a year ago here:

http://online.wsj.co...dc_pastcalendar

forecast was for oil to go from roughly 95 to 75 by dec 2014
edit you may need to click on the historical price date calendar to activate history.


I believe the price in December 2014 was 75$
Got volatility!? The topic du jour is crude oil. As I write this article, West Texas Intermediate oil prices are $75/bbl, Brent
http://www.worldoil....gas-prices.html

[kenberg]

Hers is part of the last article you cite:

Quote

$70/bbl WTI. In a draconian case of $70/bbl WTI in 2015, we believe many of the ramping oil basins become uneconomic below $80/bbl, which will create a disincentive to drill new wells. Moreover, many E&P companies’ balance sheets, combined with lack of access to capital markets, will also create lower drilling activity.

If $70 is Draconian, what is $48? The article seems to be recent, as he refers to the failure to cut production at the Nov 27 meeting. That's November 2014, right?

Now I realize that price per barrel is not quite a precise figure. Which barrel from where of just what comes into play here.

Anyway, both data and comments seem to support the idea that this caught just about everyone by surprise. Put differently, anyone who accurately ands confidently anticipated this must have made an enormous amount of money. What we should do to take advantage of the good part of it and ameliorate the troublesome side effects is not so clear. Acknowledging the limits of our ability to predict and the limits of our ability to control could be a start.

[mike777]

kenberg, on 2015-January-10, 15:32, said:

Hers is part of the last article you cite:



If $70 is Draconian, what is $48? The article seems to be recent, as he refers to the failure to cut production at the Nov 27 meeting. That's November 2014, right?

Now I realize that price per barrel is not quite a precise figure. Which barrel from where of just what comes into play here.

Anyway, both data and comments seem to support the idea that this caught just about everyone by surprise. Put differently, anyone who accurately ands confidently anticipated this must have made an enormous amount of money. What we should do to take advantage of the good part of it and ameliorate the troublesome side effects is not so clear. Acknowledging the limits of our ability to predict and the limits of our ability to control could be a start.

Certainly to go from 75 to 48 in a month is draconian, I agree! You raise the key point how much will we acknowledge our limits and how much will we demand government do something.

I note you already posted a suggestion for the government to do something.

[kenberg]

mike777, on 2015-January-10, 15:36, said:

Certainly to go from 75 to 48 in a month is draconian, I agree! You raise the key point how much will we acknowledge our limits and how much will we demand government do something.

I note you already posted a suggestion for the government to do something.

Yes, when push comes to shove, I probably am a liberal of some sort. Maybe.

From Woody Allen in Love and Death: "If God exists, I don't think that He is evel. But you would certainly have to call him an underachiever". I may have something of the same view of government. But I keep the faith.

[mike777]

"Many experts in Europe are afraid that these all can end with the same result as in 2008/2009."

To bring back an old idea from Taleb and others. Where are these experts putting their money or is this just random talk? A good way to hard measure just how afraid are they.

fwiw I have some risky money in 2 broad based commodity funds and conservative money in Inflation govt bonds (TIPS) so we will see.

[Phil]

Good for consumers, airlines and plastics companies. It should be good for US geopolitical interests.

Bad for all producers (small and large), oilfield service companies, Texas, North Dakota, alternative fuels and related industries. Very bad for Russia. Fracked wells have a higher lifting cost.

OPEC has stated they won't consider cutting production until oil hits $40. Rogue countries like Libya gladly thumb their nose at the cartel.

Just read an article in the New Yorker that the Keystone XL could be an attractive bargaining chip to a late term president trying to cement his legacy.

Will be interesting to see where all this settles out.

[mike777]

kenberg, on 2015-January-10, 15:45, said:

Yes, when push comes to shove, I probably am a liberal of some sort. Maybe.

From Woody Allen in Love and Death: "If God exists, I don't think that He is evel. But you would certainly have to call him an underachiever". I may have something of the same view of government. But I keep the faith.

This is a conservative proposal to match your Liberal one that I read somewhere:

1) Increase gas tax $1 per gallon( no doubt we will debate how to spend it)
2) reduce FICA tax by roughly 600 bucks a year.( of course we got to advocate to cut some tax somewhere)

[nige1]

Perhaps, Saudi Arabia, with low overheads, is buying the market. A low oil price bites into the margins of rival producers like Iran and Russia. It makes fracking and off-shore oil production uneconomic -- effectively shutting down lots of Western oil-production.

Arguably, Western arms interests have deliberately restarted the cold war by deposing the elected Ukraine president and imposing sanctions on Russia.

I fear that the inevitable recession will have worse long-term effects on the West (especially Europe) than on Russia or China. We're cutting off our nose to spite our face