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发帖数: 11545 | 1 http://finance.yahoo.com/news/ready-10-oil-230002605.html;_ylt=
By A Gary Shilling
At about $50 a barrel, crude oil prices are down by more than half from
their June 2014 peak of $107. They may fall more, perhaps even as low as $10
to $20. Here’s why.
U.S. economic growth has averaged 2.3 percent a year since the recovery
started in mid-2009. That's about half the rate you might expect in a
rebound from the deepest recession since the 1930s. Meanwhile, growth in
China is slowing, is minimal in the euro zone and is negative in Japan.
Throw in the large increase in U.S. vehicle gas mileage and other
conservation measures and it’s clear why global oil demand is weak and
might even decline.
At the same time, output is climbing, thanks in large part to increased U.S.
production from hydraulic fracking and horizontal drilling. U.S. output
rose by 15 percent in the 12 months through November from a year earlier,
based on the latest data, while imports declined 4 percent.
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Russia Gains
Something else figures in the mix: The eroding power of the OPEC cartel.
Like all cartels, the Organization of Petroleum Exporting Countries is
designed to ensure stable and above-market crude prices. But those high
prices encourage cheating, as cartel members exceed their quotas. For the
cartel to function, its leader -- in this case, Saudi Arabia -- must
accommodate the cheaters by cutting its own output to keep prices from
falling. But the Saudis have seen their past cutbacks result in market-share
losses.
So the Saudis, backed by other Persian Gulf oil producers with sizable
financial resources -- Kuwait, Qatar and the United Arab Emirates --
embarked on a game of chicken with the cheaters. On Nov. 27, OPEC said that
it wouldn't cut output, sending oil prices off a cliff. The Saudis figure
they can withstand low prices for longer than their financially weaker
competitors, who will have to cut production first as pumping becomes
uneconomical.
More from Bloomberg.com: Kuwait Sees Crude Recovering Amid Plans to Add More
Rigs
What is the price at which major producers chicken out and slash output?
Whatever that price is, it is much lower than the $125 a barrel Venezuela
needs to support its mismanaged economy. The same goes for Ecuador, Algeria,
Nigeria, Iraq, Iran and Angola.
Saudi Arabia requires a price of more than $90 to fund its budget. But it
has $726 billion in foreign currency reserves and is betting it can survive
for two years with prices of less than $40 a barrel.
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Furthermore, the price when producers chicken out isn’t necessarily the
average cost of production, which for 80 percent of new U.S. shale oil
production this year will be $50 to $69 a barrel, according to Daniel Yergin
of energy consultant IHS Cambridge Energy Research Associates. Instead, the
chicken-out point is the marginal cost of production, or the additional
costs after the wells are drilled and the pipes are laid. Another way to
think of it: It's the price at which cash flow for an additional barrel
falls to zero.
Last month, Wood Mackenzie, an energy research organization, found that of 2
,222 oil fields surveyed worldwide, only 1.6 percent would have negative
cash flow at $40 a barrel. That suggests there won't be a lot of chickening
out at $40. Keep in mind that the marginal cost for efficient U.S. shale-oil
producers is about $10 to $20 a barrel in the Permian Basin in Texas and
about the same for oil produced in the Persian Gulf.
Also consider the conundrum financially troubled countries such as Russia
and Venezuela find themselves in: They desperately need the revenue from oil
exports to service foreign debts and fund imports. Yet, the lower the price
, the more oil they need to produce and export to earn the same number of
dollars, the currency used to price and trade oil.
With new discoveries, stability in parts of the Middle East and increasing
drilling efficiency, global oil output will no doubt rise in the next
several years, adding to pressure on prices. U.S. crude oil production is
forecast to rise by 300,000 barrels a day during the next year from 9.1
million now. Sure, the drilling rig count is falling, but it’s the
inefficient rigs that are being idled, not the horizontal rigs that are the
backbone of the fracking industry. Consider also Iraq’s recent deal with
the Kurds, meaning that another 550,000 barrels a day will enter the market.
While supply climbs, demand is weakening. OPEC forecasts demand for its oil
at a 14-year low of 28.2 million barrels a day in 2017, 600,000 less than
its forecast a year ago and down from current output of 30.7 million. It
also cut its 2015 demand forecast to a 12-year low of 29.12 million barrels.
Meanwhile, the International Energy Agency reduced its 2015 global demand
forecast for the fourth time in 12 months by 230,000 barrels a day to 93.3
million and sees supply exceeding demand this year by 400,000 barrels a day.
Although the 40 percent decline in U.S. gasoline prices since April 2014 has
led consumers to buy more gas-guzzling SUVs and pick-up trucks, consumers
during the past few years have bought the most efficient blend of cars and
trucks ever. At the same time, slowing growth in China and the shift away
from energy-intensive manufactured exports and infrastructure to consumer
services is depressing oil demand. China accounted for two-thirds of the
growth in demand for oil in the past decade.
So look for more big declines in crude oil and related energy prices. My
next column will cover the winners and losers from low oil prices. | l********k
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