It will take a lot more than a price war that OPEC started to kill that Criminal Enterprise off.


I'd expect BoA to go under, first. And that's probably why BoA is bad-mouthing OPEC.

It will pull a bail in before it does that.
And it has trillions of dollars ( notional value) in derivatives which it seems to think will translate into real money if needs be.

I will do such a happy dance if it does go under.......

And vice-versa.

Meaning that perhaps the oil that the KXL pipeline is supposed to move becomes un-economic to extract?

Tar sands industry faces 'existential' $246 billion loss

Gregory McGann

27th November 2014


One of the most destructive forms of oil production is financially nonsensical and faces total collapse, according to a new report by the Carbon Tracker Initiative (CTI), Oil Sands: Fact sheets.

The report suggests that that investors are being misled about the economic viability of oil sands production, which is doing irreparable damage to the pristine boreal forests of northwestern Canada.

CTI, an environmentally-aware financial analysis company, argues that future oil sands projects, besides being environmentally disastrous, are also financially catastrophic and are leading their investors towards serious loss.

Despite the recent dramatic fall in oil prices, the companies have failed to factor in the risk of further falls in prices. Oil sands projects, with their high productions costs, are especially vulnerable as oil price declines can easily wipe out all their profitability.

-snip-

http://www.theecologist.org/News/news_round_up/2650530/tar_sands_industry_faces_existential_246_billion_loss.html

The first is that the "true" break-even price for the new production is really an unknown because the costs have been so severely inflated. What it costs to make bitumen or shale fungible crude oil will probably plummet when the runaway costs that came from their respective expansions are brought under control.

The second is unless we very literally whack Comrad Maduro, we're going to need the Canadian heavy crude. The US is experiencing an embarrassment of riches of light crude, but we need both and US refiners on the West Coast and Gulf Coast like the stuff.

Good afternoon, Senator.

Focus on top spots to boost US oil output even as well permits fall

By Reuters Media on Dec 6, 2014 at 1:12 a.m.

WILLISTON -- U.S. energy firms are swiftly shifting drilling rigs away from less productive areas and hunkering down in sweet spots of North Dakota and Texas shale oil fields as they try to lift output and cut costs in response to the toughest crude market in years.

Rig deployments or applications for new well permits fell by half in recent months in parts of North Dakota's Bakken formation and the Eagle Ford and Permian Basin in Texas, but the most prolific areas are holding up, according to officials and data from the two top crude-producing states.
....

Sweet spots

North Dakota regulators say prices would have to slide to $40 per barrel before most producers started losing money there.

Consultants at Woods Mackenzie say the breakeven level for Eagle Ford in Texas could be as low as $50 per barrel.

once punishing Putin for invading Ukraine has run its course, preferably with him out of office in favor of somebody who keeps his shirt on, his mind out of the same sex bedroom, and his heart set on improving Russia instead of expanding it.

I don't think it will go much below $60. Too many billionaires will be screaming like castrated rabbits.

Much of my income comes from oil revenues. I never did learn how to be a spendthrift so I'm doing just fine. I just hope the BofA analysts are right about the filthy oil sand scam being abandoned. Unfortunately, the push for renewables will also suffer from cheap oil.

OPEC won't die but its members, used to the easy money of oil > $100/bbl, are not going to toe the line by reducing output to bring the price up. They need the revenue too badly. This has been a 40% pay cut for them.

They'll survive this. Can't say the same about many shale producers.

I think they will start cutting back production sooner rather than later ...

they are funding too many terrorist organizations to let the price fall any further ...

Shale producers can't.

The price will magically rebound once the high overhead players have been forced into bankruptcy.

The good news is that the argument over the KXL will probably become moot as the Canadian producers will shitcan the project.

The bad news is, as soon as they and others do, OPEC will push the prices back up.

we should take this time of low energy cost and use the savings to accelerate our shift to alternatives. If we could get off our collective arses and just do it.

We should grasp this opportunity without hesitation. Hopefully we can make a return to high import prices matter so much less than previous events of that sort.

It ain't going anywhere.

OPEC has found a temporary solution for a problem that doesn't exist. Shale becoming viable happens anyway at high oil prices. OPEC can let that happen now, artificially, or it happens naturally in a decade or so.

The House of Saud is doing for Obama what they did for Reagan in the 80's. Reducing the influence of the then Soviet Union by pumping a surplus. Their new oilfield is now heading for the top of the Hubbert curve.
OPEC is not dead, but the economy in the rest of the world is on life support due to austerity.

So don't worry, when oil prices go down, somebody will start a war somewhere.

Putin is not Yeltsin, nor even Gorbachev. He's more an FDR.

His voice quickens further when he reminisces about the era of great oil diplomacy in the Seventies and his contemporary, former US Secretary of State Henry Kissinger.

At this point he makes an extraordinary claim: 'I am 100 per cent sure that the Americans were behind the increase in the price of oil. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them.'

He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view, that a hike would be dangerous to Opec because it would alienate the US, to advocating higher prices.

'King Faisal sent me to the Shah of Iran, who said: "Why are you against the increase in the price of oil? That is what they want? Ask Henry Kissinger - he is the one who wants a higher price".'

Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where UK and US officials determined to orchestrate a 400 per cent increase in the oil price.

http://www.theguardian.com/business/2001/jan/14/globalrecession.oilandpetrol

Doesn't it? Why risk ruining the environment?

for a dog's age.

People forget, Standard Oil became rich by controlling the price of oil from the 1860s till 1912. Standard oil promised people oil at a high but steady price. Economists have pointed out that given a choice between Higher but Stable Prices AND lower overall prices but with price spikes, people want higher stable prices. Standard oil used this to gain a monopoly on oil and kept it till 1912. WWI kept the prices of oil high as did the subsequent ban on Soviet Farm Products (Which lead to higher prices for American Farmers which permitted them to embrace the car in the 1920s).

When Stalin managed to trade Ukrainian Wheat for Industrial factory equipment starting in 1927, the Great Depression kicked in and the price of oil dropped like a rock (Yes in Rural American the Great Depression started in 1927, two years BEFORE 1929). Into this falling oil price debacle stepped the Texas Railroad Commission. The Texas Railroad Commission had also been given authority over oil production and used that power to restrict how much oil was produced in Texas. Texas produced over half of the oil in the world at that time, so Texas could set the price of oil by how much oil their produced. The Texas Railroad Commission will look at the price of oil and determine how much oil Texas would produce that year to keep the price more or less stable.

Thus from the 1930s till 1969, the Texas Railroad Commission set the world price of oil. OPEC was formed in 1960, more so the Arab Oil Producers could be told in one meeting what price the Texas Railroad Commission had set for oil.

The problem was in 1969 Texas could NO longer increase production to reduce the price of oil. The Texas Railroad Commission ordered full production of oil in Texas, but demand still exceeded supply and the price kept going up and up.

In 1974 the Arabs did their oil embargo and found that for the first time such an embargo hit the US hard (the Arabs had Embargoed oil in 1956 and 1967, but the US was still a net oil exporter so those embargos had little affect on the US unlike the 1974 Embargo).

Prices went up and down in the 1970s and into the 1980s till Saudi Arabia finally decided it was going to control the price of oil by restricting its production. Saudi Arabia always went through the motions of going through OPEC, but in reality it was Saudi Arabia that set the price. The rest of OPEC cheated left and right and Saudi Arabia learned NOT to depend on them.

I was in Texas in the early 1980s when North Sea Oil entered the Market. Thatcher kept trying to increase British Market Share by lowing the price of oil, so she would have more money to crush the Labor Unions of Britain (and to hurt Russian who was then the third largest oil producer, behind Saudi Arabia and the US). After a couple of years, Saudi Arabia grew tire of her price cuts, so they cut Arabia Crude to a price BELOW the cost of producing North Sea Oil. This caused panic in England, no money from oil, maybe even having to come up with other taxes to pay the oil workers. Thatcher finally got the message, when the House of Saud increased the price of oil, she just matched it not underbid it.

Thus we have stable prices for oil. The biggest exception was in the late 1990s when Indonesia became a net oil importer. Indonesia had been a member of OPEC but the lost of oil money lead to a massive increase in oil in Indonesia and a massive collapse of the use of oil throughout the East Indies. Russia oil production had decline since Soviet Days, but it was up in the late 1990s increasing supply of oil as the price dropped. The House of Saud acted to late to cut oil production so the price of oil dropped to its lowest price ever in constant US Dollars.

Once the crisis was over, the price of oil return to a "Normal" price and remain so till after the invasion of Iraq. During the actual Invasion, Saudi Arabia increased oil production so no real price increase occurred and then cut back as Iraqi Oil slowly returned to the world market. Then around 2003, the price of oil started to go up, despite various attempts by Saudi Arabia to stop the price increase. Saudi Arabia did increase its oil production, but not enough to keep up with demand and worse the oil Saudi Arabia was putting on the Market was Sour heavy oil only refinable in US Refineries on the Texas Coast.

Thus you had a shortage of Sweat Light Oil, that most refineries could handle and you had a steep increase in the price of oil, till US drop in demand do to the high prices finally lead to a situation where demand fell below supply.

Now Speculators helped lead to the high price oil did reached, but also helped in the low prices oil fell to afterward. This is typical of speculators, they keep on betting the prices will be higher till it peaks, then bid on it dropping lower till it hits bottom. Speculators speed up this price change but there is little evidence they effect has any real effect on the price of oil, except to accelerate when the price hits peak and bottom.

The reason the Speculators could step in was the House of Saud and lost control over the price of oil. Instead of setting the price of oil by controlling their production, Saudi Arabia had to open all of its fields (just like Texas in 1969) and found out that did NOT bring down the price of oil till demand fell.

Thus for a the first time since the days of Standard Oil (Except for the early years of the Great Depression AND the 1970s), no one controls the price of oil. Thus demand will have to adjust to the supply and supply has to adjust to the demand, without a middle party trying to set a middle ground. Whenever the price of oil gets to high, demand will have to fall OR supply will have to increase, but the increase in supply will have to be from new wells AND NOT from wells already drilled but capped till the price was right (Which was the rule under Standard Oil, The Texas Railroad Commission and Saudi Arabia, when each of them controlled the supply of oil in the world).

That also means, when price drops, production does not stop when someone tells someone to stop production, but only when the cost of producing that oil is more then it can be sold for. This is true even if price is below the cost of already drilling the well and pumping the oil in the well. As long as the cost of pumping is less then what it can be sold for, the oil will be pumped. This is the concept that if you can NOT maximize profits, you minimize loss.

The problem with that type of system it encourages production even at an overall loss, so no money can go into replacement wells. Thus sooner or later the existing wells stop producing and close down, but no new wells are on hand to replace them. This leads to a shortage of oil and a spike price which leads to massive new drilling of wells to cash in on the new high price. The high prices leads to a drop in demand, which leads to a drop in price, then the price drops below the cost of drilling a new well and the cycle starts all over again.

The coal industry had this problems for decades, no one could control the price of coal, to many producers and all of them to small and unwilling to cut production to maintain price. Thus the price of Coal was always up or down, never at a steady price. It was one of the reasons people hated coal, oil had a more stable price given the control by Standard Oil and then the Texas Railroad Commission.

Now, what has this to do with OPEC? Simple, OPEC has had little to do with the price of oil, it claims to control but OPEC never did, Saudi Arabia controlled the price of oil but like making out it was OPEC not Saudi Arabia setting the price of oil. OPEC will thus survive for Saudi Arabia still wants to use it to cover up their efforts to control the price of oil. The problem is Saudi Arabia can not control the price of oil. The market will set the price and the market will have huge ups and downs do to the nature of any energy market that is uncontrolled. No one is in a position to restrict production to keep the price of oil from going to high OR increase production when the price gets to low.

The price of oil will drop till it either drops below the cost of producing shale oil in the US OR so many shale oil wells finally run out of oil (most have expected life spans of less then five years) and NO new ones are drill given the low price of oil. The resulting shortage of oil will then drive the price of oil back up till New Shale Oil Wells starts to look at something that can be sold at a profit. That boom will continue till we have enough oil in the market and the price is so high that demands drops below supply and prices will drop like a rock. Shale Oil will still be produced as long as the cost of pumping is below the price of oil (even if that price is BELOW the cost of the well if you include the cost of drilling the well). When enough of these wells either run out of oil OR the price drops below the cost of pumping those wells and they stop pumping, the price of oil will then go up and up till the cycle re starts again.

We are now in a down draw of such a cycle, as we were in 2009 when the prices hit bottom. The price of oil can go lower for there are Shale Oil Wells still pumping oil and can make a profit on selling that oil if you exclude the cost of drilling the well. As long as that is the case the price of oil will stay low, but sooner or later many of those wells will go dry and will no new ones being drilled you will have a shortage of oil and the price will go back up. When the bottom or Top of these prices extremes will be I do not know but the tendency will be upward over time.

OPEC will survive it, most of the Shale Oil Drillers will survive this cycle, but it will become the new norm for the next 20 to 50 years. With the peaks being higher and higher and the bottoms NOT going as low as before. We have to get use to this up and down in price for that is the cost of NOT having someone being able to control price by controlling production.

It is further evidence we have hit Peak Oil, we are entering the downside of the bell curve and price will be set by how much oil we learn to live without. Demand will always exceed Supply except for brief periods of over supply do to massive reduction in demand do to high prices (and increases in supply do to the high prices). We can look for this to continue till oil disappears about 150 years from now. Yes we will have oil for at least another 150 years, just in decreasing amounts and at higher prices.

Now, there are alternatives to oil and they will slowly be adopted and will have affect on the increase in the price of oil. Notice I did not say such alternatives will increase the supply of oil, but as the price of oil goes up, alternatives start to make economic sense. As more and more people shift to alternatives, this will have the effect of reducing the demand for oil.

I include in Alternatives, conservation of oil, i.e. people adjusting they lifestyle so they use less oil. i.e. moving closer to where they work so they can walk to work instead of driving. Putting more insulation in their homes so they use less fuel. For longer trips opting for a bike or the train instead of their automobile. Other adjustments not limited to using electric cars, including installing electric solar panels on homes (installing solar panels on bike lanes or even highways).

Alternatives to gasoline including gasohol and Hydrogen (I see both being reserved to areas where electric drive is not possible, such as on ocean going ships and airplanes etc). Overhead wires for trucks and other transport will come back (the alternative is having Charging station at every bus stop thus the bus is constantly being charged as it picks up and drop off passengers). Once you have sufficient vehicle, overhead wires provide the better option then batteries. On the other hand on lower volume of traffic overhead wires may NOT be sufficient so batteries and charging stations may be the way to go in those locations.

Exacting how we get out of this mess we are in is hard to see at the present time, we have a lot of alternatives all with plus and negative points. I mentioned some of them, depending on how they are adopted will have an effect on the demand for oil.

My point is OPEC will survive, but as a stage for Saudi Arabia (which is what it has been since the 1970s). The price of oil will continue to fall for a while, but sooner or later it will bottom out and you will see a rapid increase in the price of oil. The price of oil will peak and drop and this is the new norm and we have to get use to it AND address the good and bad points of such instability in the price of oil.

Standard Oil loved the idea of
a minimum price...
they pocket the difference.

NO Thanks.

But my point was, given a choice between Higher but Stable Prices, and lower prices subject to price spikes, people prefer High but Stable Prices. Price spikes are to disruptive for budget purposes and people will pay extra to avoid them. The bad of such price spikes more the overcome any good from the overall general lower prices one get without any controls.

Right now, no on has control of the price of oil and thus we will have future price spikes, like we had in the 1970s when we were in a similar situation (But that one was temporary, this appears to be permanent).

Now, the US Government can ease this problem by adopting a five dollar a gallon fuel tax. You heard me, a $5 a gallon fuel tax. In times of declining prices, it will increase the cost of fuel an encourage people to live more fuel efficiently. In times of raising prices, you could cut the tax to reduce the effect of the increase in the price. The problem is I do not see Congress having the courage to pass such a tax, for it will face massive opposition from people who will NOT accept the fact oil production has peaked or is peaking AND as a result high prices is what we will be facing from now on.

We need a way to control the price of oil and that means controls on Supply or Controls on Demand. You control supply by pumping more oil and that appears harder and harder to do (and cost more and more money). That leaves controlling demand and you do that by increasing the price, and the best way to do that is though taxes. A 10 cents a month increase in the tax will spread out the effect of the tax over four years, which will give people time to further adjust to the increase price of fuel.

We need to control the price of oil, not to keep it low or high but stable. We have to address the problems of price spikes and that leads to controls on low prices. This was the key to Standard Oil and later why the Texas Railroad Commission controlled Texas oil production. We need controls and the best option we have is one based on taxes and for that reason a $5 a gallon tax should be adopted.