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Oil: How Low Can It Go?
Stephanie Dahle, Forbes
The Forbes.com Investor Team sorts out yo-yoing oil prices. The smart money is on the sidelines.
Call it the oil limbo–how low can prices go? Down 73% from crude’s $147 peak last July, it is now selling at $40.03. Most forecasts for crude show weakness in the market now, but there is room for per-barrel prices to rise modestly toward the end of the year.
And it’s going to drop even lower, according to North American energy analyst Mary Novak at IHS Global Insight. “I don’t see a free fall, but the price will certainly go lower.
… As OPEC cuts output and oil companies shelve expansion programs, an oil shortage is coming, says Matthew Simmons. He is founder of Simmons & Co, an investment bank catering to the energy industry.
“Within the next few months, we’ll have a sharp rebound in price,” he said. “[Oil companies] don’t have projects in the mill that can get them ahead of their blind curve. In measurable stocks, we’re basically as tight as a drum. Unless we have a sharp rebound fast, we’ll have an ever-steadier liquidation of useable petroleum stocks until it finally leads to shortages. “
Simmons estimates that serious shortages could quickly triple or quadruple the price within the next two years–and after that all bets are off. “Somewhere in the next two to five years, $500 a barrel,” he said.
(26 February 2009)
‘Next oil shock will be far worse than $147 a barrel’
Venkatesan Vembu, DNA (India)
The world is breathing easy, now that oil prices are below $40 a barrel, down sharply from $147 a barrel in June. But, in fact, the current financial crisis and recession could accentuate the severe supply-side constraints that drove up prices last year to record highs, cautions Mikkal Herberg, research director of the energy security programme at the National Bureau of Asian Research in Washington and a veteran strategist in the oil industry.
“It’s hard to say how long and deep this recession will be and how soon the global economy — and demand for oil — will recover, but when it does, in a year or two, it will immediately run into supply constraints,” says Herberg.
In fact, the current financial crunch has already led to the postponement or cancellation over $100 billion worth of oil projects in the past six months, which will aggravate the “supply pathology” when recovery begins, he points out.
At that point, oil prices will ride swiftly back up the escalator, perhaps even beyond their earlier highs
(26 February 2009)
TOD’s Khebab: Analysis of Decline Rates
Khebab, The Oil Drum
This post offers a kind of reverse engineering of what numbers could be behind the long and detailed IEA decline analysis in their last report (2008 IEA WEO). A tentative decline structure for the post-peak Super-Giant and Giants oilfields is offered as well as a possible scenario for future production. The conclusions are:
- It seems that the yearly decline rate of the post-peak resource base may accelerate to 10% until 2011 and then stabilize back toward 4.35%. This acceleration is due to the rapid decline rates for Large and Small oil fields (around 10%). Coincidentally, this value is the total decline rate value implicitly used by the IEA in their final forecast (see discussion here).
- 83.0% of the 2007 conventional oil resource base (69.8 mbpd in 2007) is coming from post-peak fields.
- The contribution from Super-Giants, Giants may have reached a broad plateau around 41 mbpd.
- Production may slide rapidly over 3-4 years past 2009 due to a short bust in decline of the resource base then reach a gentler decline regime past 2012.
Warning, It’s a long post with a lot of charts.
(25 February 2009)
A Few Thoughts on US Petroleum Demand, Inventories, and Prices
Gail Tverberg, The Oil Drum
The price of West Texas Intermediate (WTI) oil finally seems to be rising. At least part of this may be occurring because inventories at Cushing finally seem to be drawing rather than increasing:
… WTI has recently been trading at a discount to Brent. The shift in the inventory situation may help get this relationship back to a more normal relationship, with WTI priced above Brent.
One might also ask whether US demand is playing a role in higher prices. Below the fold I show a few graphs that seem to indicate that US demand is really not up much yet.
… Total demand still seems to be down in the 19 million barrel a day range. This is quite low for the US. Refiners are adapting gasoline supply to today’s reduced demand level. The lower supply is tightening inventories, and tending to keep gasoline prices higher.
(26 February 2009)
