Not sure I believe anything about oil forecasts. So many have been wrong since the recession.
John Mauldin on oil wars This is Goldman acknowledging the existential struggle between North American oil shale producers and OPEC. OPEC didn't shut down oil shale production last year so they're doubling down because if they can't drive oil shale production out of business, Saudi Arabia falls. Don't look at it as an economic discussion. This is a survival play the Saudi oligarchs.Right now, some US shale operators can break even at $10/barrel. Costs for the “expensive” ones run around $55 per barrel but are falling fast. With massive quantities of oil and gas still in the ground, there is no economic reason these companies can’t make big money even if energy prices stay in the $40s.
With the side impact of bankrupting Russia and tanking their economy as well.This is Goldman acknowledging the existential struggle between North American oil shale producers and OPEC. OPEC didn't shut down oil shale production last year so they're doubling down because if they can't drive oil shale production out of business, Saudi Arabia falls.
Don't forget Venezuela. Also consider that the biggest consumer of oil these days is China, and their economy is in an uncertain place... and they mostly buy from Russia, Saudi Arabia and Kazakhstan. Geopolitically speaking, shale producers make FreedomOil. OPEC II: AMERICA STRIKES BACK. Only problem is how heavily it's fucking the manufacturing sector. Interesting times.
I don't know about how realistic $20/bbl is but Saudi's OPEC minister was quoted as saying that they would sustain a price war to that level in the event of increased shale oil production. Some of the interesting points I heard this morning to support the Goldman analysis is that a lot of OPEC countries that aren't Saudi have grown so dependent on oil revenue to fund their governments that in the case of crashing prices they wouldn't be able to survive a severe production cut and would actually have to continue at max production levels. I think it's likely that Saudi would intervene at that point and fund them with some sort of hedge for their losses. And again you also have to remember that one of the most oil-rich countries in the world was just reintroduced to the world economy due to the sanctions being reduced to Iran. The U.S. is going to shut off its expensive Shale pumps for a year or two while we can get cheap oil from elsewhere. Then when Saudi bring prices back up above $60 they'll turn back on and equalize. But it's oil. Nobody really gets it. It's black magic.
It's interesting to think that low prices could breed instability and put the blame on the Saudis. It's also interesting to think that the Iran deal could stabilize the current government, and that falling oil prices could have worked as leverage in the US's favor in getting the deal.I think it's likely that Saudi would intervene at that point and fund them with some sort of hedge for their losses.
The Economist has not raised the Big Mac index since the summer of 2014, but it hardly matters. I don't have any special insider knowledge about oil; this bet was based on Julian Simon's exhaustively documented thesis that the cost of all natural resources tends to decrease over time. I am ready to repeat the bet in December 2015 if I can find any takers, though I would prefer to stick with dollars instead of burgers.
LOL. I'm looking at a refinery right now. I jog past tankers off the beach. The sand has tar rising in it from the deposits that made J. Paul Getty rich - prior to the white folx showing up, the local indians used to harvest the tar balls in Ballona Creek and sell them to other indians. I pay $4.59 a gallon for super-unleaded at a station less than a mile from this.
http://econbrowser.com/archives/2014/06/gasoline-price-calculator Gas is right on target where I'm at. Current Brent is 44.95. Current pump is 1.95. If oil drops to $20/bbl you'll see $1.34 where I am.