• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Goldman Sachs: Inventory Drawdowns Will Not Continue

Goldman Sachs has reported that…

Alt Text

UK Oil And Gas Costs To Rise 100% If Brexit Fails

Brexit negotiators’ failure to secure…

Alt Text

Oil Prices Poised To Rise In Early 2018

A consistent fall in comparative…

Is Oil Returning To $100 Or Dropping To $10?

Is Oil Returning To $100 Or Dropping To $10?

If you have been following the price of oil over the last few months, the chances are you’re a little confused. On the one hand you have the likes of A. Gary Shilling who, in this Bloomberg article, loudly trumpets the prospect of oil at $10/Barrel, and on the other there is T. Boone Pickens, who, at the end of last year was predicting a return to $100 within 12-18 months. Pickens prediction has moderated somewhat as WTI and Brent crude have continued to fall, but in January he was still saying that oil would return to $70 or $80/barrel in the near future. So, who is correct?

The answer is neither one. As with most things in life it is unlikely that the truth lies at either extreme. Pickens, and Shilling and other commentators suggesting that oil will fall to levels not seen since 1998, purport to have sound reasons for saying what they do, but the real reasons for such comments are most likely the two oldest human motivations in the book, greed and hubris. “Talking your book” is nothing new in financial markets and, while Pickens has an insider’s knowledge of the oil business, he also has a massive stake in driving oil higher however he can. Shilling is in the business of garnering eyeballs and clicks, hence the competition for the most outrageous prediction among the bears. Related: Why The Stock Market Likes Cheap Oil

I know it isn’t sexy and it probably breaks some unwritten rule of internet hackery to say it, but the most likely scenario is that WTI futures will bounce around current levels for a while before gradually recovering to the $60-$70/Barrel level. It could even reach Pickens’ revised $70 or $80 level before too long, but we are unlikely to see $100 in the near future without some major external influences.

Now that the dust has settled somewhat, the reasons for the big drop are becoming clearer, and it is clear that supply was not the only factor. It was obvious for a while that as fracking unlocked oil deposits in shale and sand that had previously been thought unreachable, supply, particularly in the U.S. would grow considerably. That wasn’t seen as too much of a problem by the market, though, until questions about slowing global economic growth and a rapidly appreciating Dollar were added to the mix in the middle of last year. Once that happened and OPEC made it clear that they would not immediately cut supply and hand power to the upstart U.S. shale producers, the collapse began.

The drop halted at a logical level. In 2008 and 2009 when a complete global economic collapse looked on the cards oil was trading in the mid $40s and that is where support was eventually found. According to EIA data, global oil production in 2008 was an average 74.016 million barrels per day and in the first 10 months of 2014 averaged 77.427 million barrels, an increase of around 5%. Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%. Related: EIA Inventory Announcement Scuppers Oil Rally Hopes

Put simply, supply has increased faster than demand, so a rapid return to oil over $100/Barrel looks extremely unlikely. That said though, in order to believe that the price will fall much further you have to believe that the economic outlook today is worse than it was at the beginning of the deepest recession since 1929. That too seems like a bit of a stretch.

The only logical conclusion then is that in the near term oil will trade in an approximate range of $50-$70. Incidentally, the bottom end of that range represents the inflation adjusted 100 year average price, according to one Morgan Stanley analyst quoted in another Bloomberg article. We shouldn’t, therefore, be shocked that oil is here any more than we should be shocked that publicity hungry columnists and heavily invested oilmen are predicting further wild swings.

By Martin Tillier for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Daniel in Rockford on February 23 2015 said:
    Thank you Mr. Tillier for a well thought out article. I think it hits the price range right on the head. Good one...well held my good man.
  • Don on February 23 2015 said:
    It is not a true free market. Saudis own oil and US owns the currency of oil. Therefore barrel by the dollar. If Saudis, want oil to rise, just shut of their pumps. Your see oil rise then. They can't pump such a large quantity forever, so oil will rise someday.
  • Royce on February 23 2015 said:
    Martin: I like the article and agree with the premise. Please help me understand the consumption calculation in the last sentence of the 5th paragraph.
  • stoneman on February 23 2015 said:
    Give me a break! They are both full of it! Show me a person that can go to Las Vegas and say "I'm gonna beat the house every time!" There are way too many things involved that can change oil prices. War, Opec etc....no one can predict what tomorrow brings in the oil business! If you think you can then you're full of yourself. All you can do is ride it when it's good and hunker down like a whipped pup when it's bad. When I started my trucking business in the 90's oil was 10.50 a barrel. Can it go back that low? Maybe! Can it go back up to 100.00? Maybe! Tomorrow? Maybe! A year from now? Maybe! Point is get real guys.
  • Will on February 24 2015 said:
    Yes that calculation regarding consumption doesn't look right...
  • Robert on February 24 2015 said:
    Thanks for the analysis. As someone totally unfamiliar with the oil industry (except as a consumer) I had assumed that the price drop was a coordinated effort between the Saudis and the Obama administration to destroy the US shale oil industry (each for their own reasons). And that once they were successful at it, the Saudis would cut back on production and send the price skyward again. Do you think that plays into it even in a minor way?
  • John on February 24 2015 said:
    As noted prior:

    Quote: "Consumption in 2008 was 86.045 million barrels per day and in 2014 was 92.13 million, an increase of 1.2%"

    Isn't the increase ~7% and not 1.2%?
    92.13/86.045 = 1.0707: Then 1.0707-1.000 = .07: Then 0.07 * 100 = 7%

    I believe that's the correct number.
  • Matt on February 24 2015 said:
    The production figures are too low, there cannot be such a large gap. I saw a number from last year: consumption 91 million bpd, production 86 million bpd.

    In any event, why is oil falling if consumption exceeds supply? Is there missing production in the numbers?
  • Gary on March 09 2015 said:
    Matt was the only one that pointed that out? The supply and consumption equation doesn't make a sense.
  • Joe on September 14 2015 said:
    Throw all of the economic indicators out the window. The American Government is using the Saudis to break the Russian economy. They did the same thing to the Russians when the Soviet Union fell in 1989.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News