Oily on a slippery slope

Discussion in 'General Trading Discussion' started by SamClemensMT, Jan 23, 2015.

  1. SamClemensMT

    SamClemensMT Well-Known Member

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    Oil price continues to slide. Down 2.3% this morning. The price of crude is already below $46.50 a barrel. How low can it go? That's a good question. I'm expecting historic lows by the end of the year.
     
  2. petesede

    petesede Guest

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    it is hard to say historic lows, but some of the biggest producers of oil ( Venezuela and Russia) have to increase production to survive. I think countries like Saudi Arabia and the USA get hurt by low oil prices, but they can survive without overproducing. Russia and Ven are going to have to produce more, which will keep prices from rising.
     
  3. downloads

    downloads Well-Known Member

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    How low can it go? Many of the oil experts are saying that $40 is the price floor that OPEC is holding out for. I've been hearing this ever since oil dipped below $80 when everyone else was guessing a floor of $70 and $60. OPEC has a lot of supply, many oil fields, and many refineries, and a big oil reserve. They know that Western oil companies can't be profitable at under $40, so OPEC is basically going to undercut the world until the other guys start losing money.

    I do like the lower oil prices, but I fear it will jump back up quickly to even higher levels than we had before.
     
  4. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I didn't think a drop below $75 was likely, but I was wrong. I think there's more than simple supply / demand at work here IMO. Besides OPEC nations' actions, I think there must be heavy downside speculation going on by some heavy hitters.
     
  5. petesede

    petesede Guest

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    There are a lot of theories. Some say it is to punish russia, other say it is the Saudis trying to bankrupt the new fracking companies in the USA. My personal opinion is that this is ´free market´ economy working. I think OPEC is gone at this point, I don´t think the Saudis expect, or can force other members of OPEC to cut production in order to raise prices. From comments from the Saudis, they think if they ask OPEC to cut production, that Saudi Arabia would be the only one that actually does, which will hurt them. I think with the falling apart of OPEC, it just is more like a free market and with the economic crisis in Russia and Venezuala, there is just a lot of production going on.
     
  6. crimsonghost747

    crimsonghost747 Senior Investor

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    I think we are starting to get near the bottom. The price seems to have stabilized a little, we have seen quite a few up days and overall it seems like the whole situation has calmed down. Also a lot of the western oil companies have already announced cuts to their future investments, something that I think the Saudis are really happy about. Yesterday I started to look at some of the bigger oil producers, apart from PBT I don't have anything in the oil sector but I think that soon it's time to buy into one of the big and strong companies.
     
  7. JulianWilliams

    JulianWilliams Well-Known Member

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    The Saudis were talking about 20$ / barrel oil about a week ago, in the context that they could withstand such a price. The issue is OPEC is as good as dead. Everybody started cheating like crazy on their quota in the 90's so now they don't trust each other, so there's no incentive for any country to reduce their production and thus lose market share because all the other countries are cheating. So, it could go even lower. IIRC Saudi is pumping out oil for a few bucks / barrel.
     
  8. crimsonghost747

    crimsonghost747 Senior Investor

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    I'm not too sure but I was under the assumption that in Saudi the price for existing production averages at roughly $10 / barrel.
    Then some more accurate info: (from http://mobile.reuters.com/article/idUSKBN0L00CW20150127?irpc=932)
    "There are about 400,000 stripper wells in the United States, most with operating costs of between $20 and $50 per barrel, according to analysts at Wood Mackenzie, a leading energy and commodities consultancy."
    "publicly-traded shale oil companies talk of cash operating costs between $10 and $30 a barrel"
    "Break even levels for drilling new wells in most U.S. shale oil fields range between $50 and $80 per barrel - well above operating costs for existing shale wells."

    This pretty much just confirms what we are seeing now. Everyone is keeping their current pumps running (most of them anyway) but are making big cuts to spending on drilling and exploration. Basically the production with infrastructure already in place is safe, but it's hard to make new profitable wells.
     
  9. crimsonghost747

    crimsonghost747 Senior Investor

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    Yesterday the US released the report on their crude oil stocks.
    "The U.S. Energy Information Administration said U.S. crude stocks rose by 8.9 million barrels last week to 406.73 million barrels, the highest level since records began in 1982."

    though also take into account the smaller refined products stock
    "Gasoline stocks fell by 2.6 million barrels while distillate stocks, which include diesel and heating oil, fell by 3.9 million barrels, the EIA said. "

    Source: http://www.cnbc.com/id/102373989

    So there is the reason why yet again the oil dropped yesterday. Next week will be really interesting as quite a few of the major oil companies will be releasing their quarterly reports!
     
  10. forehandflick

    forehandflick Member

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    I don't think the question is, "How low will it go?" I think the question is, "How low can it go?" Oil is a commodity throughout the world for a very good reason in that it's efficient. An efficient commodity will never fall below a price point that would ruin its own market, nor would the major shareholders let it. We might see the price of oil fall another 10% or so, but don't expect prices to stay this low for too long or go into another free fall.
     

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