Oil price discussion and analysis

luutzu said:

I knew it was silly to think they just need to drill a couple of holes in an entire field

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craiggary said:

Hi guys

I booked some really nice profits on WTI this month. Adam button from forex live has 5 top seasonal trades every month. one of them for April was oil. So i had a close look and got in right at the bottom.View attachment 66422View attachment 66422

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Smurf1976 said:

My basic point is that oil differs from most other commodities in terms of how a resource is extracted.

Anything mined as a solid material - you build a mine that produces (for example) 5 million tonnes per year based on a 50 million tonne resource. It then does just that, you get 5 million tonnes of the stuff every year for the next 10 years and it's at a pretty constant rate until very close to the end. It's not quite constant but it's reasonably close.

Oil differs in that production tapers off over time from any given field and doesn't have the "flat" profile that most other things do. Whatever flow you get at the start, pretty quickly that comes down unless you keep drilling more and more wells to tap surrounding deposits (or to inject water, CO2 etc to enhance oil recovery).

So oil is very much a case of having to keep investing just to maintain a constant output. The world is producing somewhere around 96 million barrels per day at the moment (varies a bit depending on the data source). If we stop all investment in new wells etc tomorrow, then that figure will start coming down almost immediately.

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IamSurri said:

Does anyone belive that Crude is going to go

to 90$ by the end of 2016? I read that on news headlines today.
????

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Right now, the market is sensitive to any kind of supply disruption," he told CNBC, noting the oil trade had already been roiled by sabotage on Nigeria.

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JohnITMS said:

The psychology of people involved in the stock market never ceases to amaze me. On February 11, 2016 crude oil traded as low as $26.00 a barrel, but people in the stock market were terrified to buy it at that level. In fact, many of the financial talking heads on television were saying that oil would go down to $10.00 a barrel. These types of remarks caused people in the public to avoid investing in crude despite the commodity trading at new yearly lows and being severely oversold. Now crude is trading above $50.00 a barrel and people are afraid to sell it short despite crude rallying higher by nearly 100 percent since February.

Many of the financial talking heads are now saying that oil will go to $75.00 a barrel before peaking out. Isn’t it funny how these so called experts come up with these levels? What are they using to say these statements. The truth is that they are probably hoping it comes back to that level so their investments can work out or recover from the 2016 decline earlier this year. If anyone looks at a chart of crude oil they could clearly see oil has major resistance around the $50 to $55.00 dollar area. Today, crude oil is trading around $51.00 a barrel.

There are many factors that affect the price of crude oil. Some of these factors include oil production output, weather, geopolitical events, and the U.S. Dollar. Out of all of these factors the strength and weakness in the U.S. Dollar seems to be most important. Please understand, most of the oil in the world is traded in U.S. Dollars. So if the U.S. Dollar is strong against most other currencies in the world the oil price will likely decline. That was certainly the primary reason for the decline in crude throughout the past two years.

There are many ways to trade oil despite using oil futures these days. ETF's and ETN's such as the United States Oil Fund LP (ETF)(NYSEARCA:USO), iPath S&P GSCI Crude Oil Total Return(NYSEARCA:OIL), and the ProShares Ultra DJ-UBS Crude Oil(NYSEARCA:UCO) are just a few different vehicles that can be used to trade oil on the long side. Some short side trading equities for crude include the ProShares UltraShort Bloomberg Crude Oil ETF(NYSEARCA:SCO), and the DB Crude Oil Double Short ETN (NYSEARCATO).

Full disclosure: I currently own SCO shares.

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Value Hunter said:

People like Jim Rickards, T Boone Pickens, and many others suggest that the long-term equilibrium price of oil is in the $50-$80 USD per barrel range. An extended period at a price less than $50 and a lot of supply will shut down due to operational losses. An extended period of a price above $80 USD and a lot of new supply will come onto the market due to strong profitability. For those that are interested in trading oil by that analysis you should be buying at or below $40 USD or less and selling at $60 - $80 USD per barrel. I personally tend to stay away from oil because in the long-term the cost of alternative energy will come down due to new technology and this could perhaps gradually lower the long-term sustainable ceiling price of oil.

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Value Hunter said:

People like Jim Rickards, T Boone Pickens, and many others suggest that the long-term equilibrium price of oil is in the $50-$80 USD per barrel range. An extended period at a price less than $50 and a lot of supply will shut down due to operational losses.

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luutzu said:

Then with energy being so low, costly investment and switching of major infrastructure, or replacement decision to replace aging plants with alternatives... most would be delayed or cancelled.

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Smurf1976 said:

The USA is an example of that with production declining significantly in recent months. Low prices killed drilling for new projects and in due course those already underway when the price collapsed were completed. After that, it's a simple case of the slow but steady decline in output from existing fields being greater than the now small amount of new production being brought online. End result = production goes down.

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Smurf1976 said:

Oil is almost always the easiest option to deploy at the consumption end (industrial fuel, power generation etc) simply because it's an energy dense liquid that's very easily transported, stored and used. Apart from a few things like making steel, you only bother with coal, gas, nuclear, hydro or whatever unless it's cheaper than the easy option of oil. And for something else to be cheaper, well oil has to be reasonably expensive to start with since the non-fuel cost of every other option is almost always higher than it is with oil due to the infrastructure required.

Coal needs handling, emissions controls, ash disposal, means to move and store a large volume of a solid material (coal) and so on. Gas needs a pipeline as a minimum, LNG (huge capital cost) at worst. Nuclear or renewables are incredibly capital intensive to set up with all that's required. Oil is almost always far simpler (cheaper) to get running since less infrastructure is required such that any advantage in using something else depends on the oil itself being sufficiently expensive that the higher capital cost (and longer lead time) of some other option ends up cheaper overall.

We've got 3 temporary (hired) gas turbine generators sitting here in Tasmania at the moment due to the power supply problems. They're literally right next to a major gas pipeline but to cut a long story short it wasn't worth the cost and hassle of actually connecting gas to them given that they're just as happy firing oil (diesel) as fuel and there's plenty of that on hand just up the road which can easily be trucked to the site. If oil cost $200 per barrel then we'd have connected the gas to those generators for sure, but with oil at the present price it just wasn't worth the cost and hassle of doing so.

Same logic applies to any situation in industry, power etc. Oil is the easiest (cheapest) to set up almost always, you only use something else if the saving on fuel cost justifies the additional expense of setting it up. That's an easy decision if oil is expensive but it's much harder to make the economics work in favour of something else if oil is reasonably cheap.

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