Oil: how low can it go?

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Discussion

PorkInsider

Original Poster:

5,877 posts

140 months

Tuesday 8th December 2015
quotequote all
Brent crude looking like it might go under $40 now as OPEC continues its efforts to snuff out US shale.

Grim news for the UK's oil industry again the. Wonder how far they'll push it?


anonymous-user

53 months

Tuesday 8th December 2015
quotequote all
In the short term very low, day to day extraction cost are not high, in terms of return on investment and future exploration its a different issue,
Some Saudi Fields are 6$ a Barrel, Much of the North sea was commercially viable at 25$ a barrel in the 80's (The investment decision on the Troll field needed 18$ a barrel), of course this changes with the further investment in enhanced production. American Shale is stated to be around 60$ a barrel publicly, but in private people involved in it say 40$ is closer.
It is probably as low as it can go now in terms of long term investment economics, but it may be driven down for political reasons, e.g bankrupt shale, bankrupt Russia, choose your own conspiracy theory.

eharding

13,594 posts

283 months

Tuesday 8th December 2015
quotequote all
PorkInsider said:
Brent crude looking like it might go under $40 now as OPEC continues its efforts to snuff out US shale.

Grim news for the UK's oil industry again the. Wonder how far they'll push it?
OPEC, as a functional cartel, is dead.

The delegates might still turn up for the OPEC summits, but only for the hospitality - from here on in, none of the OPEC members give a monkey's about ostensible OPEC policy, and will act as they see fit.

Trying to destroy shale by bankrupting themselves won't work though. The shale operators - those with a bit of weight - will have all manner of hedge instruments to insure themselves against this sort of tactic.

AJS-

15,366 posts

235 months

Tuesday 8th December 2015
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I think how long it stays there will be more important than how low it actually goes. Historically it seems to have gone in very long term cycles, declining after WW2 until the early 1970s, shooting up and then declining again from the early 80s to the late 90s before shooting up again. I suspect it will hover between $30 and $50 for a good few years to come.

anonymous-user

53 months

Tuesday 8th December 2015
quotequote all
Not sure I agree it will stay low for long, at the moment people are cutting back on well maintenance to ease cash flow, that will effect production in the medium term for a lot of producers, but as I say if Saudi continue to produce and china demand is low, then political decisions will over ride the industry and economic pressure for an increase

AJS-

15,366 posts

235 months

Tuesday 8th December 2015
quotequote all
I understand that the storage facilities are all pretty well full to capacity already, so there's the question of where this excess oil will go?

Not that I have any inside information on this which I guess you do, Berw? I'm going off the historical pattern more than anything.

And with the caveat that anyone who had followed my financial predictions for the last few years would not be wealthy!

jshell

11,006 posts

204 months

Tuesday 8th December 2015
quotequote all
2-ish years before any major gains in price, further decimation of the oil industry in the UK, particularly the exploration side. Many, many people have and will lose their jobs in the coming while and I wouldn't be buying property in Aberdeenshire or Western Norway right now!

cptsideways

13,535 posts

251 months

Tuesday 8th December 2015
quotequote all
Is it me or is all this a very short term view?

In theory now would be a good time to buy a lifetimes worth of petrol/diesel/heating oil & some storage for it. At what point does it work out cost effective?

I reckon I have 30 years of driving left in me, say I oil heated our small house & wanted a mix of petrol/diesel fuel for the road.

Captain Benzo

442 posts

137 months

Tuesday 8th December 2015
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jshell said:
2-ish years before any major gains in price, further decimation of the oil industry in the UK, particularly the exploration side. Many, many people have and will lose their jobs in the coming while and I wouldn't be buying property in Aberdeenshire or Western Norway right now!
as I sit at my desk in Aberdeen, i can agree with you. I'm fortunate to be busy right now, but ask me again in six months.

forecasts for next year aren't good, but there is work out there.

the issue here is that at $110 / barrel, there was excess cash to create meaningless jobs, those have all gone. the junior Skilled workers are starting to be let go too.

as stated before, there is a limit to how little maintenance can be done, those rigs are pretty rusty as it is. there is still work in the middle east, africa and gulf of mexico.


skyrover

12,668 posts

203 months

Tuesday 8th December 2015
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On the other hand, you could argue our economy is benefiting to a great degree by cheaper energy.

2Btoo

3,410 posts

202 months

Tuesday 8th December 2015
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Stupid Q, but how much is the ISIS issue keeping the price low? Given that they are funded by oil revenues, keeping the oil price low keeps money from their wallets - meaning more political incentive to keep prices down.

Is this much of an issue, or am I dreaming it?

cptsideways - nice idea! Let me know where you get with it. Mrs 2BToo has a few spare jam jars which I could fill up ....

GT03ROB

13,207 posts

220 months

Tuesday 8th December 2015
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I've said it on other threads, but here in Kuwait we continue to see both new field development work, investment in upstream infrastructure & investment in new refining capacity. The development work whilst on relatively low cost fields, includes development of the more difficult/expensive sour fields. Whatever OPEC are up to it's certainly not associated with price maintenance.

MitchmachineUAE

602 posts

171 months

Tuesday 8th December 2015
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Analysts are predicting best case 3 years before a notable price increase takes shape. I think this is optimistic given the current surplus of reportedly 3bn barrels. It'll take a long time to get through that especially with China reporting what can only be described as dubious growth figures.

The Middle East is still spending money but margins for contractors are now woeful. CAPEX expenditure globally has taken a hit and will remain low for years to come. Asset Management, decommissioning and brownfield work are where spend will still happen but to a lesser extent than in recent years gone by.

Wouldn't want to be in Aberdeen, Reading, Yarmouth or Norway at the moment though. Job cuts are significant as existing projects sanctioned at a higher $/barrel come to an end with no new work to move personnel on to and overheads are reduced accordingly. The result of this downturn is going to create a skill gap more akin to that of the early 1990s and it'll take the major oil and gas players a long time to recover.

The focus is going to be on distributing engineering to low cost centers (India, China etc.) to execute work but this will cause its own problems with quality control.

Welshbeef

49,633 posts

197 months

Tuesday 8th December 2015
quotequote all
cptsideways said:
Is it me or is all this a very short term view?

In theory now would be a good time to buy a lifetimes worth of petrol/diesel/heating oil & some storage for it. At what point does it work out cost effective?

I reckon I have 30 years of driving left in me, say I oil heated our small house & wanted a mix of petrol/diesel fuel for the road.
Surely if you invest in a few 30/40 year hedges if they have that low value then storage isn't an issue?


Is it possible that you go to Shell/Tesco etc and ask for 50,000 gallons of derv/petrol to be paid for in advance and then drawn down on a prepaid card for free.

louiebaby

10,651 posts

190 months

Tuesday 8th December 2015
quotequote all
Welshbeef said:
cptsideways said:
In theory now would be a good time to buy a lifetimes worth of petrol/diesel/heating oil & some storage for it. At what point does it work out cost effective?

I reckon I have 30 years of driving left in me, say I oil heated our small house & wanted a mix of petrol/diesel fuel for the road.
Is it possible that you go to Shell/Tesco etc and ask for 50,000 gallons of derv/petrol to be paid for in advance and then drawn down on a prepaid card for free.
How about...

http://trucks.autotrader.co.uk/used-trucks/seddon-...

???

skyrover

12,668 posts

203 months

Tuesday 8th December 2015
quotequote all
I would love to see what would happen if you showed up in one of those and started emptying the pumps biggrin

turbobloke

103,737 posts

259 months

Tuesday 8th December 2015
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Predictions are, hopefully, getting better.

At school we were told it would be gone by 2000. Is 3000 too soon?

GT03ROB

13,207 posts

220 months

Tuesday 8th December 2015
quotequote all
anonymous said:
[redacted]
Not much. Remember 1991? This place was devastated. Recovery with the right motivation can be done relatively quickly.

GT03ROB

13,207 posts

220 months

Tuesday 8th December 2015
quotequote all
MitchmachineUAE said:
The focus is going to be on distributing engineering to low cost centers (India, China etc.) to execute work but this will cause its own problems with quality control.
Ergh..... about 15yrs late on that one! Virtually nobody has done bulk design in the West on any scale for years.



MitchmachineUAE

602 posts

171 months

Tuesday 8th December 2015
quotequote all
GT03ROB said:
Ergh..... about 15yrs late on that one! Virtually nobody has done bulk design in the West on any scale for years.
Correct but the point I was getting at was that even more will start going that way.