Oil Price Scenarios for 2015 and 2016

[Raúl Ilargi Meijer]

Harris&Ewing F Street, Washington, DC 1935 This is another article from our friend in Aberdeen, Euan Mearns. It was first posted on Euan’s own site, E
[See the full post at: Oil Price Scenarios for 2015 and 2016]

[SteveB]

I think Euan and Roger have pretty solid assessments. The one thing I wonder about with regard to Scenario 2 in particular (though it would apply in general) is whether the supply curve would permanently (inflexibly) go more vertical above the demand curve each time the demand curve drops and some production capacity is permanently lost. At the very least wouldn’t it be more vertical than the 2014 curve? I don’t know if Euan doesn’t give enough weight to the financial (as opposed to economic) factors or if the supply curve really is somewhat flexible in that regard. What do you think, Ilargi?

It might be interesting to look back at 2007-2009 to see what occurred. Of course, the shale boom has been a big factor since then. If that was a one-time phenomenon, the supply curve would become fixed in an even more permanently vertical slope to the right of the demand curve as that shifts lower (to the left). Or could shale come back from the dead? Isn’t that an even bigger question than what will OPEC do?

[Euan Mearns]

Capacity adjustments are made by moving the blue supply curve left or right. But you are correct to question whether or not the shape might change as well. It worked incredibly well on the way up and down in 2008. In a way it is a response curve of industry to changing demand. I guess we may find out in the next couple of years if there has been a fundamental change. For the time being, its all I have to go on.

[Carbon waste life form]

Having such low oil prices not only squashes non-opec oil and shale oil, but also all efforts to transition away from fossil fuels including conservation and renewables. It just locks us right back into the 20th century until the oil depletion reduces the excess capacity OPEC has. We lose another few years and another few billion barrels and the EROEI will be lower next time.

[ninjin]

Um, I may be a little thick, but why the assumption of 2016 demand rebound in all three scenarios? If credit is fully unwound and asset prices return to mean, how is the consumption paid for? Don’t forget, producer credit directly influences consumption as oil co. spending/salaries AND as knock-on spending in broader economy.

Musashi

[Jb]

“Each of the scenarios see strong recovery in oil price to the region of $100 come 2016.”

ninjin said: “Um, I may be a little thick, but why the assumption of 2016 demand rebound in all three scenarios?”

Ditto! Why the assumption that after LTO goes bankrupt in the US (and thousands of people get laid off…), that the marginal consumer is going to have the borrowing capacity to bring the marginal oil field back to life a few years hence? They can’t afford $100/b oil now. How will they afford it in the future?

[SteveB]

Good points, ninjin and Jb. It seems that they wouldn’t be able to afford it, Jb, which is what Nicole has predicted. So is it more realistic that the supply curve will move further to the left and the demand curve only slightly and briefly shifts to the right over the next two years?

[Professorlocknload]

So, supply and demand (Fundamentals) are back again? With rates at artificial lows? In a world where Central Banks and governments control and manipulate financial systems?

Manipulations which created this bubble in the first place will suddenly yield to fundamental process? Why now? Why, when the Fed is “All in” will it find religion and capitulate, clear it’s desk and go home?

Rest assured, if they feel the need, they will buy Bakken product at top dollar and put it in the SPR, or whatever.

The oil “market” is no more operating on fundamentals than are the equity and security “markets” under this Central Bank Monopoly of “money” creation (discount pricing?)

Supply and demand are secondary factors in this Brave New Economy.

For certain, though, the printing induced “supply shocks” of the 70’s gave the Fed Carte Blanche on continued new money creation, in the aftermath, furthering double digit price inflation in the process. Humm?

[Euan Mearns]

ninjin, if demand and price does not recover in 2016, then we are looking at widespread destruction of non-OPEC high cost supply. The world would then settle on a lower supply of low cost oil commensurate with a significantly reduced global GDP. Its likely that we see nationalisation of energy industries and a new world order that is impossible to forecast.

[TonyPrep]

I’d take anything written at Energy Matters with a great amount of skepticism as that site often publishes posts that play down the climate change predicament, often sailing very close to denial. Doesn’t seem like they examine subjects dispassionately.

[Euan Mearns]

TonyPrep

I know that Roel disagrees with me when it comes to CC, but we mange to live with that. But your comment has really, really pissed me off.

The link between sunshine and temperature based on UK climate records since 1933

UK temperatures since 1956 – physical models and interpretation of temperature change

The Vostok Ice Core: Temperature, CO2 and CH4

I expect you to come with a substantial critique of these three articles highlighting where my analysis is dispassionate.

[Euan Mearns]

Here’s a couple more….

The Ice Man Cometh

The Carbon Cycle: a geologist’s view

[Author]

Posts