'..I'm sticking with my forecast of $10 to $20 a barrel..'

Posted by archive 
<blockquote>'..I'm sticking with my forecast of $10 to $20 a barrel. The logic behind that February projection still seems valid. Cartels exist to keep prices above equilibrium. But that encourages cheating, as cartel members want more than their allotted share and outsiders sell more to take advantage of the artificially elevated price. So the job of the cartel leader -- in OPEC's case, Saudi Arabia -- is to cut its production to accommodate the cheaters and prevent a price collapse. The Saudis had been doing that for decades, and as a result, OPEC production over the last 10 years has been flat, with all the growth instead enjoyed by non-OPEC producers, including U.S. frackers and Canadian oil-sands companies.


..it's the marginal cost of getting the oil out of the ground once the wells are drilled, the pipelines laid and the overhead covered. It's the price at which cash flow for an additional barrel drops to zero. In Texas's Permian Basin and in the Persian Gulf, the marginal cost is $10 to $20 a barrel, and even lower for some Saudi oil fields.

As long as prices exceed marginal cost, more (not less) production is encouraged to make up for lost revenue. Some producers will raise output even at prices below marginal costs..


Meanwhile, all-in costs for U.S. fracking continue to plummet. OPEC believes that many projects in North Dakota are profitable at $24 to $41 a barrel..


..worldwide supply would exceed demand by more than 1 million barrels a day next year. And the demand projections by IEA and even lower forecasts by OPEC do not factor in slower growth in China and other emerging markets..'

- A. Gary Shilling, A Funny Thing Happened on the Way to $80 Oil, August 20, 2015</blockquote>

<blockquote>'..until global deleveraging is completed, gross domestic product will continue to grow by about 2 percent annually. I've also noted that reducing debt levels after a financial crisis, especially one caused by a borrowing binge, normally takes about a decade. This episode is eight years old, and at the rate things are going, it may take longer than 10 years. U.S. household debt relative to after-tax income has fallen to 102 percent from 130 percent, but it's still a long way from the 65 percent norm.


So there doesn't appear to be any meaningful statistical relationship between capital spending and enhanced productivity. Spending money on more machines doesn't do the job, suggesting that productivity flows mainly from new technology such as robotics, better management, more motivated employees, better logistics and, probably, dumb luck.


Apparently, Americans still believe they can get further on their own merit than by pushing government to redistribute income in their favor. And if I'm right about a coming economic boom, they will have even less reason to rely on government largess.'

- A. Gary Shilling, Slow-Growth Pessimists Miss the Mark, July 7, 2015</blockquote>


<blockquote>'..the marginal cost for efficient U.S. shale-oil producers is about $10 to $20 a barrel in the Permian Basin..' - Get Ready for $10 Oil

'..Allowing U.S. Crude Oil Exports.' - '..Canada and the US – could be global leaders in future [energy] supply developments..'

(Oil target bandwidth price: $20 - $40) - 'Whether it goes down to $20, $40, $50, $60, it is irrelevant.' - Ali al-Naimi

'..inflating an especially dangerous Bubble at the heart of “money” and Credit..'</blockquote>