Thought about throwing this in Science/Math/Philosophy forum, but then I thought a few people in particular might not ever see it, ... because they don't really believe in science. Nor math, often.
Oh bummer. ... If the oil majors are suddenly cutting investment some 20-30%, because they've finally admitted they can't make a profit with oil at $105, what is the real price of oil right now? What would the "free market" set it at? ... $125? How about $140? ... That is, in order for these guys to keep their heads above water, at least, with a bit of free cash flow ...
Now imagine the world today if oil had been $130-150 this whole time, where it perhaps belonged? Or what the S&P will shrink to if oil price spikes to where it "needs to be?"
Obviously the most important question springs to mind: What does that say about global production totals going forward? Still think we'll be maintaining that mind-boggling 91M barrels per day? Are we to believe that smaller companies will ride to the rescue? Will vast US reserves of oil and gas from shale rock under U.S. neighborhoods continue to fill the ever-widening gap left behind by flat conventional production? (9 years years running, now)... Not likely. There is far more evidence unconventional production is already tightening, not expanding as the industry and big media would have you believe.
Anyone confused or skeptical about why this matters is encouraged to listen to Douglas-Westward's managing director Steve Kopits recently at Columbia Univ.
Global Oil Market Forecasting: Main Approaches & Key Drivers
Steven Kopits, Managing Director, Douglas-Westwood
The developments presented in this presentation only confirm the model talked and mocked about 5-10 years ago:
the easy oil is in terminal decline
the moderate oil is growing exhausted and near decline
the tight oil is vast, yet far too expensive
Advanced societies already can not bear triple-digit oil prices. Yet those prices clearly need to be $120-$200 for oil giants to be free cash flow neutral. Otherwise, they dump investment and assets.
With investment suddenly scaled way back, it won't be long now before conventional production begins decline (1-2 years?). At that point, no amount of desperate hydraulics under U.S. neighborhoods will calm the markets.
Ah well. Heed it, and invest accordingly. Or don't. Your call.
Last edited by JiggsCasey; 03-10-2014 at 12:10 AM.