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If the U.S. jumps off the fiscal cliff, 24/7's Paul Ausick believes crude prices could dive well...

If the U.S. jumps off the fiscal cliff, 24/7's Paul Ausick believes crude prices could dive well below $80/bbl on the belief that economic growth will stagnate, noting U.S. and Canadian producers might shut-in production knowing they can't cover costs at prices below $60. "Fiscal cliffs, rising production and slow global economic growth all conspire to make energy production a pretty risky business in 2013," Ausick writes.
Comments (4)
  • saratogahawk
    , contributor
    Comments (2400) | Send Message
     
    Obviously there is a difference between dangling the toes in the fiscal whirlpool vs. a longtime plunge over the falls directly into the hydra. Since I don't think anyone believes that we would be permanently stuck without a budget and some changes to the tax plan I don't foresee any lengthy panic ensuing in the oil patch. Short term perturbations in prices tend to have little impact on exploration. Shut-ins tend to reduce production thereby driving prices higher. Generally the oil price spiral is upwards not downwards so I don't think that $60 will occur and even if it does won't last for more than a week or so. None of the offshore work is short term prices sensitive. If anything, I think he shows he doesn't really know the market drivers. Even the oil prices collapse following the 2008 crash only lasted for a short time. Nothing suggests that 2013 will resemble 2008.
    20 Dec 2012, 12:36 PM Reply Like
  • Uncle Pie
    , contributor
    Comments (3369) | Send Message
     
    The Saudis want Brent to stay over $100. That's probably a safer bet than the opinion of a dot-com company analyst.
    20 Dec 2012, 12:48 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2400) | Send Message
     
    Pie, why is it you and I almost always agree on this stuff?
    20 Dec 2012, 12:59 PM Reply Like
  • kmi
    , contributor
    Comments (4240) | Send Message
     
    The Saudis want Brent over $100, are budgeted expecting it over $90, but can handle it dropping a lot lower than that still because of their production cost.

     

    Saudi relevance is however diminishing in that they are the only OPEC member willing or able to reduce/increase output for the cartel's benefit, while at the same time non-OPEC production has been rising dramatically.

     

    All that said, it's pretty evident from a market perspective that there is pretty strong demand for crude anywhere around WTI $80 which makes that the price level to watch. And WTI has tons of headwinds to overcome over the next 12 months to try and hold that level even without considering the fiscal cliff.

     

    I don't think $60 is a longshot, but I also don't think its the fiscal cliff that will bring it about.
    20 Dec 2012, 01:52 PM Reply Like
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