Massive Oil Discovery Down Under

[onthebottom]

Crude oil price at one point in the last 5 years plunged to
as low as $30. Anything is possible but speculating an unrealistic
price has as much meaning as saying a stock market crash
of the magnitude of 2008 could happen.

I cannot predict what the crude oil price will be one year
from now. If I have to venture a guess oil price could fall anywhere
in the range of $70---$200 in the next few years. This kind of 'forecast'
won't help with oil stock investing of course. For me the important
thing is to have a more or less accurate macro picture. From every
sign I've observed oil supply will remain tight for a while. Despite
very impressive surge of oil production in North Dakota and Texas
oil price futures trading in NYMEX show no signs of retreat to anywhere
close to the 2008 level despite the fact that U.S. oil demand has
dropped significantly. In the rest of the world I see no evidence of any
impending major increase in oil production with the exception of
Iraq. As far as I can see any realistic possibility of a major pull back of the
oil price to below $70 would have to be another downturn of the global
economy nearly as bad as the 2008 financial crisis. At the other extreme
a major geopolitical conflict like a war with Iran, Saudi revolution
or Al Qaeda attack of Saudi oil fields can send oil to a level as high
as $200. Common sense dictates the more extreme a scenario the
least likely it is going to transpire. As such while I am not going to disregard
the possibility of an oil crisis at both extremes 100% I will focus on
protection of my stock portfolio from the impact of oil price volatility and
escalating energy costs on the economy rather than predicting oil
pricing trend beyond the immediate to intermediate future.

Even $70 oil is on the high side for the U.S. economy to resume a
pre-2000 growth rate. If global economic activity ever rise
back to the pre-2008 level oil price can easily shoot back
to $140 in my assessment.

Oil price going below $50 would be tremendous for everyone
other than oil producers. For the third world it means affordable
transportation and food prices. If only I can disregard the impact
of global warming I would like to see oil prices falling to $30 which
could help to alleviate ongoing food and gas crisis in Egypt. To me
any prospect of oil prices driven to such an unrealistically low range in
the future by a largely undeveloped oil resource however massive is no
more meaningful than my view that U.S. along with global oil production
will dwindle to a tiny fraction of the present level by the end of this
century. If one of these views is true neither will materialize soon enough to
have any impact on my investment strategy.

Do you see regional differences expanding or contracting?

Canada doesn't get global market rates for the oil it sells to the US. (http://eclecticlip.com/2013/01/18/alberta-oil-selling-at-50-percent-discount-to-world-price/)

Natural Gas is much cheaper in the US than it is in Europe (export restrictions and costs). (http://abnormalecon.blogspot.com/2013/03/us-natural-gas-price-versus-europe.html)

OTB

 

[George The Curious]

In another unrelated thread, someone mentioned Tesla motor (TSLA) producing economically viable electric cars, which can potentially replace a lot of gas powered cars in the next decade. Also we are beginning to see lighter and more powerful batteries being invented every few months, it could really be a time we see a sharp drop in demand side of petroleum.

 

[onthebottom]

In another unrelated thread, someone mentioned Tesla motor (TSLA) producing economically viable electric cars, which can potentially replace a lot of gas powered cars in the next decade. Also we are beginning to see lighter and more powerful batteries being invented every few months, it could really be a time we see a sharp drop in demand side of petroleum.

Your optimism might be a bit premature: http://www.nytimes.com/2013/02/10/automobiles/stalled-on-the-ev-highway.html?pagewanted=all

 

[danibbler]

Why could the US not sell China the technology, or better yet, have our oil/gas firms go develop it for them... you don't think the ME developed their own technology - look at Venezuela, they can't even refine the oil they can produce....

OTB

There was an opinion piece in the WSJ a couple of months back that went into the reasons why China may not experience a natgas boom despite massive shale reserves. Something to do with property rights. It sounded plausible enough.

 

[onthebottom]

There was an opinion piece in the WSJ a couple of months back that went into the reasons why China may not experience a natgas boom despite massive shale reserves. Something to do with property rights. It sounded plausible enough.

Given how the Chinese threw out residents in short order to build an Olympic village I'd be surprised that property rights would be a hinderance..... if you can find that article I'd like to read it.

OTB