The ingredients are in place for a massive oil price collapse - massive production, low...

The ingredients are in place for a massive oil price collapse - massive production, low breakeven costs, low financing costs, tight capacity - BAML says, seeing the possibility of $50 oil within the next 24 months. But with North American production costs relatively high and Saudi Arabia capable of decimating U.S. producers if it stepped up production enough, FT's Ed Crooks sees little chance of a dent in prices.

Comments (6)
  • Hillbilly Stock Star
    , contributor
    Comments (746) | Send Message
    BJK .....Time to go to Las Vegas!
    3 Dec 2012, 06:54 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2862) | Send Message
    Bottlenecks already have US prices much, much below Brent. If anything this will push a shift more towards Brent pricing worldwide, and away from US benchmarks. Buy the pipelines.
    3 Dec 2012, 07:06 PM Reply Like
  • Alex_G
    , contributor
    Comments (1116) | Send Message
    Without reading the whole report, it looks like the basic premise is that the same dynamics that crushed the price of NG will crush the price of oil. Weird analogy, as US NG is essentially trapped and in great supply, while oil is still being imported in large quantities and at Brent pricing. Brent would have to go to $50 for WTI to go to $50...
    3 Dec 2012, 09:12 PM Reply Like
  • kmi
    , contributor
    Comments (4581) | Send Message
    I don't buy the WTI going up to Brent over Brent going down to WTI.


    US consumption declines.
    US production increases.
    Cushing product ends up on Gulf.
    Cushing product starts getting sold to East Coast.
    European consumption declining.
    Chinese demand growth declining.
    Iranian oil not effectively on market.
    Sudanese production ramping up.
    Nigerian production a mess but likely to ramp up.
    Iraqi and Lebanese production ramping up.


    Meanwhile NG continues to be cheaper by some 50% to oil.
    Energy efficiency keeps increasing.
    Most commercials/industrials are moving away from oil.
    There haven't any recent weather events to create oil demand.


    blah blah it goes on and on.


    This year's consumption numbers on oil, I expect, to show a huge decrease in overall domestic consumption.


    Within 3 years some massive amounts of NG are going to be hitting the global market from projects under development worldwide (Indonesia, Israel, Australia, Kazakhstan) (the 'let's export our NG folks' to higher paying foreigners' will get caught out).


    By then some measure of domestic US oil use will have gone to NG via NG hybridization of diesel powerplants and NG commercial fillup stations.


    My interpretation is mostly that Brent contract is gaining in popularity because of low WTI demand not because of growing Brent interest. And that Brent will come down, regardless of Saudi currently expressed interest in maintaining $100 Brent; when Saudis get a clue on just how rampant demand destruction and energy source diversification is going on, they aren't going to defend that.
    4 Dec 2012, 07:25 AM Reply Like
  • PeakOiler
    , contributor
    Comments (299) | Send Message
    Reworded: one the one hand oil prices will collapse, on the other, oil prices will stay firm. Like, which is it going to be?
    3 Dec 2012, 10:00 PM Reply Like
  • Hendershott
    , contributor
    Comments (1752) | Send Message
    Great, we can have $50 oil and $3.75 gasoline. nobody wins but the refiners.
    3 Dec 2012, 10:39 PM Reply Like
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