Oil Prices

HAMISH_MCTAVISH

Oil will turn into a new bull market before the year is out as the price rout shuts down sufficient production to erode the global glut, according to Goldman Sachs Group Inc.

The crash in U.S. oil futures -- which sank back below $30 a barrel on Friday to a new 12-year low -- will send the nation’s shale-oil boom spinning into reverse in the second half of the year, the bank said in a report. As U.S. production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, Goldman predicts.

“The key theme for 2016 will be real fundamental adjustments that can re-balance markets to create the birth of a new bull market, which we still see happening in late 2016,” analysts Jeff Currie and Damien Courvalin wrote.

http://www.bloomberg.com/news/articles/2016-01-15/goldman-sachs-sees-oil-bull-market-being-born-in-today-s-crash

Interesting perspective.

As the old saying goes, "the solution to low oil prices is low oil prices", exploration dries up so supply falls, consumption/demand increases, and prices then rise.

The question today is whether or not the Shale boom will cap that process at lower levels than historically has been the case. Shale comes on-stream much faster when price justifies it so may well temper rises much above $60 a barrel.

Of course that depends on how willing the markets will be to finance shale, given the immense losses currently being experienced on the last round of shale funding, and with the knowledge the Saudis could turn on the taps and cause that bloodbath all over again.

I guess we'll find out soon enough.

Graham_Devon

The question that also needs to be raised is on the point of the 6 months issue.

Can the economy (I know ours can, but our economy is equally open to shock from other economies too) take oil prices this low for another 6 months?

With another 800 jobs on the line in North Sea oil, 6 months seems a long time away.

HAMISH_MCTAVISH

Saudi oil minister also commenting.

Saudi Oil Minister Ali al-Naimi said crude prices will rise and foresees that market forces and cooperation among producing nations will lead in time to renewed stability.

“I am optimistic about the future, the return of stability to the global oil markets, the improvement of prices and the cooperation among the major producing countries,” al-Naimi said.

“Market forces as well as the cooperation among producing nations always lead to the restoration of stability. This, however, takes some time.”

http://www.bloomberg.com/news/articles/2016-01-17/saudi-oil-minister-says-he-s-optimistic-crude-prices-will-rise

I wonder how long before Saudi judges sufficient damage has been done to Shale output?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Can the economy (I know ours can, but our economy is equally open to shock from other economies too) take oil prices this low for another 6 months?

Low oil prices are a significant benefit to the UK economy overall - worth about 1% of GDP and an additional 100K jobs.

They're also not massively material to UK tax revenue, albeit much more material to Scottish tax revenue, but that's purely a matter of size and diversification of the respective economies.

With another 800 jobs on the line in North Sea oil, 6 months seems a long time away.

Obviously low oil prices are not good for employment in some local parts of the UK, but when drilling and exploration starts up again that position will reverse, whether it's 6 months away or many years away is really the only question.

Graham_Devon

I really don't get this insistence from some suggesting that massive falls in oil only effect a few jobs.

Have you not seen the state of the FTSE? Worldwide indices? Nevermind instability in the regions this does really effect.

Have you not heard the fears from investors regarding shell dividends and pension providers?

And when a company goes pop, it doesn't just effect the company. It effects those who lent to it too, and all those who provided services to the company and it's workers.

As for it being good for the UK. Agree. But we have to be careful there too. Where are any savings that are spent being spent? Are they on British goods, or are we merely going to import more tatt?

Write me off as negative if you like. But it's hardly all jam and bread that you seem to make out it is.

Crashy_Time

HAMISH_MCTAVISH wrote: »

Low oil prices are a significant benefit to the UK economy overall - worth about 1% of GDP and an additional 100K jobs.

They're also not massively material to UK tax revenue, albeit much more material to Scottish tax revenue, but that's purely a matter of size and diversification of the respective economies.



Obviously low oil prices are not good for employment in some local parts of the UK, but when drilling and exploration starts up again that position will reverse, whether it's 6 months away or many years away is really the only question.

Why would exploration start up again in the North Sea though, whatever happens Aberdeen is toast now surely?

HAMISH_MCTAVISH

Graham_Devon wrote: »

I really don't get this insistence from some suggesting that massive falls in oil only effect a few jobs.
.

It does only affect a few jobs.

And even then only temporarily.

Oil extraction is probably the most capital/resource intensive business you can imagine.

The production of oil has a built in self-destruct mechanism - without constant exploration and drilling global production will ramp down quite rapidly.

At the moment almost all exploration has ceased. That will only hasten the day when prices rise. Which then brings exploration back online.

It's not ideal but it's not a catastrophe either.

Graham_Devon

HAMISH_MCTAVISH wrote: »

It does only affect a few jobs.

Must be everyone else in the financial services that are wrong then?

Crashy_Time

HAMISH_MCTAVISH wrote: »

It does only affect a few jobs.

And even then only temporarily.

Oil extraction is probably the most capital/resource intensive business you can imagine.

The production of oil has a built in self-destruct mechanism - without constant exploration and drilling global production will ramp down quite rapidly.

At the moment almost all exploration has ceased. That will only hasten the day when prices rise. Which then brings exploration back online.

It's not ideal but it's not a catastrophe either.

I hear they found some in Iran, no real need to spend years probing about in the North Sea now is there?

Graham_Devon

This article lists all the reasons as to why oil being low may not be as beneficial as many (on here at least) seem to claim...

Not my words, clearly. But plenty to munch on. All based on real figures and facts. Not simply theory.

http://www.theguardian.com/business/2016/jan/17/why-falling-oil-price-not-mean-global-economic-boom

HAMISH_MCTAVISH

Crashy_Time wrote: »

Why would exploration start up again in the North Sea though, whatever happens Aberdeen is toast now surely?

Not at all.

There's still around 20bn barrels left in the North Sea and production is likely to remain for another 30-40 years.

I have no doubt that the price of oil will rise and fall a lot over the next few decades and for much of that time exploration will be going on in the North Sea.