fatpitch2

Has Crude Turned the Corner?

Don't forget the "supply" side....
Depletion rates are even by conservative estimates 5% or better ...
(Cantarel is dropping by double-digit rates) that's good for cutting production by at least 4M bbl/day off every year...

and it doesn't take a rocket scientist to figure out that with current low prices that capex spending is way down so new sources are not being found and new wells are not getting drilled. Stripper wells are shutting down. All of this activity takes a while to circle around to impact supply due to long lag times ... if may be interesting when we figure it out....

Don't forget that a lot of the oil stored in super tankers and other places is by design - taking advantage of the strong contango pricing of oil... buy now for $35/bbl hold it for 6-month sell it for $65/bbl even after carrying costs... what's not to like?

$25 Oil Could Happen Before a Return to $100

I keep trying to figure out how much of the demand is discretionary and will be extinguished by consumers turning down thermostats and etc...
Offset somewhat by the fact that it now costs only half as much to fill up gas tanks.

Industrial demand for energy is clearly down and will stay down ...

I'm too stupid to figure out the details on that stuff

BUT as Alan points out...

As the price of oil slides the marginal (highest cost) producers have to shut down in the longer term ... yes???

If the cost to produce a barrel of oil from the tar sands is $70 why would I go to the trouble to produce and sell only to loose $20/bbl. Indeed I have some fixed overhead I would like to support etc.. but do I not continue to do what is already being done... stop CapEx for expansion and hunker down

How much SUPPLY gets extinguished incrementally as the price of oil drops and producers throw in the towel and go home?

Further... since it is much easier to take production OFF-line than it is to put it back ON-line ... will we not wake up some day after a cold snap wishing for more oil only to find that it will take producers 3 months to bring some extra production back on line?

My head hurts as bad as my commodity-over-weight portfolio....