Current Oil Price

[3rdRock]

The market is rigged.

There - fixed it for you

You're joking, right? Surely that can't be so?

[biffvernon]

From a facebook discussion started by Nicole Foss. See also:
http://www.theautomaticearth.com/you-th ... e-kidding/

[Tarrel]

World economy = terminally ill patient
QE = life support systems
Oil price = effect of turning off life support systems?

[AutomaticEarth]

Damn beaten to it by Biff. Oil price is indeed a good harbinger of doom. Saying that it has stabilised lately.

[biffvernon]

Now here's news to warm the cockles of your heart: http://www.telegraph.co.uk/finance/news ... uptcy.html

A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude

[PS_RalphW]

Brent below $57, wti below $53.

Peak oil barrel is reporting wellhead prices for some condensate rich shale oils as low as $20, one sour grade is quoted at $8.50.

[raspberry-blower]

The market is rigged.

There - fixed it for you

You're joking, right? Surely that can't be so?

More damning stories emerge:
The Cartel: How BP Got Insider Tips Through A Secret Chat Room

As a company with global operations, BP is a major user of the $5.3-trillion-a-day foreign-exchange market. Dollars earned from the sale of crude oil are converted into local currencies to pay the salaries of employees and fund infrastructure projects from Azerbaijan to Trinidad. Refined products such as liquefied natural gas and kerosene are sold for yuan and reais.

The trading unit’s primary role is to manage the firm’s exposure to financial risks, including fluctuations in interest rates and foreign exchange, according to the company’s website. Unlike at most corporations, it also is run as a profit center, which means that in addition to hedging risks, traders can place their own bets on the direction of markets. The company doesn’t break out how much money the treasury unit makes.

Wonder if they've been betting on the collapse of the oil price, then?

[AutomaticEarth]

That's quite a projection, based on just a few days of relative stability.

To be fair Tarrel was probably right. WTI / Brent is dropping below $60 as we speak and there is no reason for it to rise now that the Santa Rally is over

[PS_RalphW]

Brent below $56 is less than half its peak price last summer.

[UndercoverElephant]

And the cause, presumably, is falling demand due to the ongoing global economic/monetary crisis?

In which case one has to ask how low the price has to fall before a combination of falling supply (because it is unprofitable for the suppliers) and increased economic activity due to the lower price stops it falling any further.

[biffvernon]

It's a chaotic but bounded system. Recent bounds have been $147 and $35 but it is fundamentally impossible to say if they hold for the future.

[Tarrel]

Yes, but the boundaries are changing over time if you follow the "Triangle of Doom" principle. The upper boundary (i.e. The highest price the economy will stand before constraint / contraction) will get lower as the economy becomes more affected by other factors such as other resource constraints and increasing debt-burden. The lower boundary (i.e. The price below which it becomes uneconomical to extract the oil) will rise over time as the percentage of easy-to-get oil falls.

Eventually those lines will intersect and oil will only be able to be produced profitably at a price which is too high for the economy to stand.

Which will be interesting.

[UndercoverElephant]

Yes, but the boundaries are changing over time if you follow the "Triangle of Doom" principle. The upper boundary (i.e. The highest price the economy will stand before constraint / contraction) will get lower as the economy becomes more affected by other factors such as other resource constraints and increasing debt-burden. The lower boundary (i.e. The price below which it becomes uneconomical to extract the oil) will rise over time as the percentage of easy-to-get oil falls.

Eventually those lines will intersect and oil will only be able to be produced profitably at a price which is too high for the economy to stand.

Which will be interesting.

That sounds about right, but with the proviso that some consumers of oil stand outside the (not) free market system. By that I mean the military, and the very wealthy, who will continue to act as buyers for oil at almost any price, long after "normal" consumers have been priced out of the market. In other words, I think the two lines you are talking about will come much closer together until only the military and the super-rich can afford to buy oil, at which point the dynamic will change.

[kenneal - lagger]

No, it will change long before then because the economy will have broken and much of the wealth of the super rich will have evaporated along with the banking system. At that point the government will have no taxpayers on whom it can inflict the burden of a bail out. At that point the whole economic system will have broken bringing down with it computers, the internet, the fuel distribution system and along with that the food distribution system.

The upcoming failure of the system is unlikely to be the slow decline seen in previous civilisation collapses because of the complicated technological nature of our current civilisation. Everything is so interrelated and predicated on the use of fossil fuel that, once the fossil fuel is taken out of the system, immediate collapse of the whole system, including mass starvation, is a certainty.

We can't grow our food without fuel: we can't distribute our food without fuel: we can't distribute our water without fuel and we can't distribute our fuel without fuel!! We can't even get our money without fuel! I would say the whole system could collapse within five years or less; maybe even one year!

[biffvernon]

There's a lot of talk about the low oil price being 'good' for business and importing nations, even if it hurts producers and exporters. But while the price may fluctuate within the bounded but chaotic market the physical reality remains unchanged. We're running out of easy to reach oil and if supply is to be maintained the EROEI can only move in one direction. Reducing price should not be seen as a sign of economic opportunity but rather as part of the transition away from past experience.