Maverick wrong on OIL, Gold, Markets as usual.......want the Oil truth ?

[cornix]

That may well be true, as you say, long term but the pain inflicted in the short term is likely to be quite severe. It would be nice if they turned on Putin but they do love the way he strokes their ego as if Russia is a great nation. It's a second (or even third) class operation with oil production keeping it barely afloat at $60 oil and not at all afloat if oil goes under $50.

Awakening to the reality is often painful. But my compatriots deserve it.

 

[piezoe]

Not necessarily so. Given that there are so many state actors in the hydrocarbon game production cuts can be, and have in the past, been political decisions not tied to the cost of production.

Possibly. I think producers that would now operate for long at a loss, even for political reasons, are few, regardless of whether State or privately owned. Usually the only time you will see that is if a large producer takes a loss to drive weak competitors out of the market. I don't think that is any longer a viable option for petroleum producers; if you cut, someone else will step into the breach; and if you succeed, the competitors return once prices rebound.

A more interesting question to me is where is the break even point for the various producers. That is a number held close to the chest, and can only be guessed at by outsiders. Because production is more geographically and technologically diverse today than in the past, it is more difficult to push prices using production cuts. You've got countries like the Ecuadors out there that are heavily dependent on oil revenue. They'll pump as long as revenues exceed production costs, and as you point out, perhaps even a little longer.

I'd be surprised to see less than about $50/barrel. Higher prices will return because lower prices and development will slowly lift demand. Oil is the single most important feedstock for the Chemical Industry. Long dated oil futures might be worth considering.

Alternative energy is less competitive now and is bound to be set back some by this swoon in oil prices. One of my friends speaking at the United Nations Framework Convention on Climate Change in Peru told me he thought oil was down to intentionally drive the alternative energy folks out of business. That's just pure crap to me. You can't get producers as diverse as we have in petroleum today to cooperate enough to pull off a conspiracy. On the other hand, you don't need to. They all think pretty much alike.

 

[Tsing Tao]

I'd be surprised to see less than about $50/barrel. Higher prices will return because lower prices and development will slowly lift demand. Oil is the single most important feedstock for the Chemical Industry. Long dated oil futures might be worth considering.

And, of course, you've taken out a large position in oil for the relatively long term, right? Because, you back up your words with action. What was the size and position again?

 

[piezoe]

And, of course, you've taken out a large position in oil for the relatively long term, right? Because, you back up your words with action. What was the size and position again?

I haven't any long dated oil futures. I am considering them however, but I'm not sure I can go far enough out to make me happy.. The only oil I have is a tiny amount of Conoco Phillips (COP)stock in a Roth IRA. I have orders to acquire more if the price goes to where I expect. [You've no doubt noticed that commodities are not the markets darlings right now.]

I would also suggest keeping an eye on the crack spread. Will this drop in oil help refiners? I suppose it depends partially on their hedging position, so it isn't that easy to know. January is often a good month to acquire refiners' stock. There is no gain without risk. (Unless you are Goldman Sachs, of course.)

http://blogs.wsj.com/moneybeat/2014...ing-the-crack-spread-even-as-gas-prices-fall/

 

[Landis82]

Oil is down, because makers of US foreign policy have decided to destroy Russian economy which relies something like 70% on export of oil.

Because US government has influence over enough OPEC members, they can demand higher or lower supply and thus set the oil price to whatever they want.

You are a clown.
The Saudi's primary goal is to MAINTAIN market share.
They do this by getting rid of the high cost producers of Oil.
They did this in 1998 and they are doing it again now.

Given that the US shale plays are break-even at roughly $73 crude oil and 30% of them are break-even at $80, your claim about the US government having "influence" over the Saudis (and intent) to crush our own energy independence . . . goes right out the window.

Meanwhile, at current pace the US was on track to exceed the production capacity of the Saudis and the Russians in 2015. If you think that OPEC was happy with this current trend, you are even more ignorant than originally thought.

It's all about MARKET SHARE.

 

[Ucan'tEatBonds]

You are a clown.
The Saudi's primary goal is to MAINTAIN market share.
They do this by getting rid of the high cost producers of Oil.
They did this in 1998 and they are doing it again now.

Given that the US shale plays are break-even at roughly $73 crude oil and 30% of them are break-even at $80, your claim about the US government having "influence" over the Saudis (and intent) to crush our own energy independence . . . goes right out the window.

Meanwhile, at current pace the US was on track to exceed the production capacity of the Saudis and the Russians in 2015. If you think that OPEC was happy with this current trend, you are even more ignorant than originally thought.

It's all about MARKET SHARE.

Unlike you (the true clown) I don't get my "facts" from US mainstream media.

I get World WIDE Global information

The last OPEC meeting was extremely telling, after the meeting all the country representatives that are strong allies of USA were smiling and relaxed for the cameras.

And all the countries that were Anti-USA like Iran and few other members of OPEC came out of meeting visibly angry and stressed, voicing their dissatisfaction.

 

[achilles28]

Ruble trading halted. Clearly good for Russia

 

[Bill R]

http://www.reuters.com/article/2014/12/31/us-usa-crude-exports-guidance-idUSKBN0K81C920141231

I've been lurking waiting to read some insightful comments on the opening up of exports but I guess everyone has been partying it up.

 

[iflyjetzzz]

Given that the US shale plays are break-even at roughly $73 crude oil and 30% of them are break-even at $80, your claim about the US government having "influence" over the Saudis (and intent) to crush our own energy independence . . . goes right out the window.

That's 'all in' cost. You're including sunk costs of acquiring drilling rights, drilling, etc. The marginal cost of production is a larger determinant of whether or not oil shale wells get shut in. I've seen articles stating that the marginal costs are around $20/bbl, +/- $5.

I've also read that shutting in oil shale wells are more problematic, as there are greater costs to restart them than conventional wells.

Oil shale producers are more interested in keeping the doors open and to do that, it's all about cash flow. As long as they can sell their oil for more than $25/bbl, they're not likely to start shutting in wells.


While I love all of the cloak and dagger suggestions in this thread, my thoughts are that we've seen 1) supply increase, 2) demand decrease, and (most importantly) 3) risk premiums decrease significantly. There's now less concern about ISIS blowing up wells, especially since they've been selling oil on the world markets. If you want to point to a single reason for oil's price collapse, my money would be on the news that ISIS is selling oil. Definitely a risk premium killer.

The steep contango is signaling that oil prices will continue to fall. Piezoe, you've got to be nuts to even ponder playing the forward curve with contango this steep. Not to mention that the trading is extremely thin on the forward curve.
As I write this, front month WTI (feb15) is 54.18
Jun15 is 56.50
Dec15 is 60.25
Dec16 is 69.11
And the spread widens the further out on the curve you go. Right now, the oil storage trade is thriving because of oil being in contango.

Disclaimer: I'm short oil future on the forward curve.

 

[piezoe]

That's 'all in' cost. You're including sunk costs of acquiring drilling rights, drilling, etc. The marginal cost of production is a larger determinant of whether or not oil shale wells get shut in. I've seen articles stating that the marginal costs are around $20/bbl, +/- $5.

I've also read that shutting in oil shale wells are more problematic, as there are greater costs to restart them than conventional wells.

Oil shale producers are more interested in keeping the doors open and to do that, it's all about cash flow. As long as they can sell their oil for more than $25/bbl, they're not likely to start shutting in wells.


While I love all of the cloak and dagger suggestions in this thread, my thoughts are that we've seen 1) supply increase, 2) demand decrease, and (most importantly) 3) risk premiums decrease significantly. There's now less concern about ISIS blowing up wells, especially since they've been selling oil on the world markets. If you want to point to a single reason for oil's price collapse, my money would be on the news that ISIS is selling oil. Definitely a risk premium killer.

The steep contango is signaling that oil prices will continue to fall. Piezoe, you've got to be nuts to even ponder playing the forward curve with contango this steep. Not to mention that the trading is extremely thin on the forward curve.
As I write this, front month WTI (feb15) is 54.18
Jun15 is 56.50
Dec15 is 60.25
Dec16 is 69.11
And the spread widens the further out on the curve you go. Right now, the oil storage trade is thriving because of oil being in contango.

Disclaimer: I'm short oil future on the forward curve.

Indeed. I have already decided it would be nuts!