Posted on 01/31/2007 10:56:33 AM PST by sully777
[Snip highlights]
"...Crude oil markets will continue to show heightened volatility and price spikes cannotbe ruled out, as participants react to short-term developments ranging from politicalcrises to the weather forecast. However, under our baseline forecast, to which weattach a probability of 50%, markets respond to the price signal. Consequently, drilling activity continues to increase while consumption growth continues to slow, and inventories are replenished. As the factors underlying the recent price spikes unwind, we see crude oil reverting to its long-term average price of $40-45 in nominal terms. This assumes that demand growth is roughly offset by advances in productivity, resulting in a constant long-term marginal cost of production of around $20. There is then an additional premium of $20 built-in to reflect geopolitical uncertainty and OPEC control of reserves.
However, oil markets will remain highly volatile influenced as they are by economic and political factors, a lagging investment cycle and information asymmetriesbetween producers and consumers. Upside risks remain because of possible underinvestment resulting from OPEC’s grip on the market. Overall, we attach a probability of 35-40% to our upside price scenario. Whilst the oil majors may be willing to live with these risks, as they can operate profitable at prices around $25 per barrel, businesses dependent on affordable energy or refined products will need to insure against higher prices by hedging or planning.
Downside price risks include slower-than-expected economic growth as global imbalances take a toll on performance and oversupply owing to the collapse of the OPEC cartel...
I'll have to drive my V8 more.
If I'm not mistaken, the current parameters of profitability in oil is between $25US and $45US while investment in new energy sources falls in the $40US to $60US zone.
Seems like that's the case, but I could be wrong.
In other news, Uganda will go online with their new oil discoveries with new refineries. Libya is working a deal (not so secret now) to pipe it out. IIRC reading right, the known reserves at this point are in the neighborhood of 500 million barrels of oil. But there is ongoing exploration so the number is current not future. Untold reserves of natural gas.
Time for $1.50 a gallon gas?
I paid $1.79 at Murphy Oil in Claremore yesterday. The Quik Trip sold it for $1.82. Most stations in Tulsa sell it for $1.85.
So, I can see it at $1.50 if the trend continues into Labor Day
In August of 2005 Steve Forbes predicted that oil prices would be at $35/barrell by the end of 2005. I'm still waiting.
i only want my oil from iraq and kuwait
I often wonder: Does anyone think there are refineries that take only one nation's oil? Does anyone think that US oil is never exported?
I still remember paying $0.879/gallon back in late '99. Those were the days!
Soros' buddies and the other speculators had to pull out first. Takes time.
$0.64 in Tulsa during that time.
I was in North-Central NM (ABQ).
It's interesting that Bloomberg reports the "news" that was published back in January 13, 2006.
I believe that greatly overstates the cost of producing oil. Aberta Oil Sands for example are one of the most expensive "per barrel" production in the world.
In mid-2006, the National Energy Board of Canada estimated the operating cost of a new mining operation in the Athabasca oil sands to be $9 to $12 per barrel, while the cost of an in-situ SAGD operation (using dual horizontal wells) would be $10 to $14 per barrel.
Alberta's Heavy Oil and Oil Sands - Digital Guidebook, June 2006
I was trying to say that if oil remains above $25-45 then "traditional" oil extraction/sources will remain in the black but if the price was in the range of $40 or higher, it proves better for oil sand/oil shale, etc.
Perhaps the volatility will quicken R&D to make oil sands/shale more profitable in the 25-35 zone. I think future tech will hold the key to keeping prices low while allowing new techs to go online profitably. JMO based on past applications of tech in the capitalistic system.
Very, very little is exported.
But those prices were for oil sands. Oil Shale is more expensive but Shell believe they have the price down to be economical when oil is at $30.
In 1986, they paid me $0.239 a gallon to haul the stuff away.
I usually poured it into fresh salmon-spawning rivers.
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