Oil Back to $100?
Jamal Khashoggi... that's a name that has been flooding our news feeds recently. He's a Saudi journalist and a critic of the Saudi kingdom who is currently missing. Actually, many believe he was murdered in the Saudi consulate in Turkey.
Currently, investigations are being done and threats are being tossed around between Saudi Arabia and... the US?
Yup, Khashoggi is a Washington Post columnist and the US has always made it clear that you'll get in trouble if you inflict any harm on journalists, let alone kill them.
US Secretary of State, Mike Pompeo, has called for a “transparent” and “thorough” investigation. Vice President Mike Pence tweeted about the incident saying that
...violence against journalists across the globe is a threat to freedom of the press & human rights. The free world deserves answers.
Unfortunately, journalists get murdered all the time. According to Reporters Without Borders, 57 journalists have been killed so far in 2018 alone. Many countries have voiced out their concerns about Khashoggi and the US has threatened to sanction Saudi Arabia if they find out he was murdered. Meanwhile, the Saudi government has threatened to retaliate if the US does end up going forward with the sanctions.
The Saudi stock exchange fell 6% to the news of potential sanctions. Even more interestingly, Al Arabiya, a Saudi TV news broadcaster, released an op-ed claiming that the potential sanctions could spill into the oil markets and that oil prices could skyrocket if the sanctions are materialized, stating that
If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure.
Double that figure?? $400?? Insanity! I think $400, and even $200, is pretty farfetched.
Regardless, the geopolitical environment in the Middle East is, and always has been, sophisticated and troubling. It'll be interesting to see how this whole thing will pan out. Expect lots of action in the upcoming days or weeks.
Anything is possible. For the past 5 years global demand growth has been driven by tight oil in US shales. Starting to hear many experts talk about how the tier 1 rock has already been fracked, and breakeven prices on tier 2 and 3 rock are much higher. That, along with pipeline constraints, is why rig count is falling in Texas despite WTI >70.
The lack of investment in offshore coupled with geopolitical bullshit could skyrocket prices. On the other hand, decreasing aggregate demand (tariffs n shit) could fuck crude demand.
No one knows.
The whole different rock tiers explanation is pretty interesting. Thanks for the insight
Yeah, started hearing it a few months ago. Mark Papa (ex-EOG, centennial) put it in some words:
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/0522…
"In the Eagle Ford, located in South Texas, and the Bakken in North Dakota/Montana, my estimate is that about 70% of the good quality drilling locations have already been drilled, Papa said. So you're left ... with Tier 2 and Tier 3 qualify geologic locations and there's a really steep drop-off in the amount of oil you get per well with those locations."
Oil production from shale does not drive demand. Economic growth drives demand for oil. U.S. supply from shale has increased as demand has grown and commodity prices have increased to a level that make production from new unconventional wells economical.
Yes it might go to $100 based on the current situation. Shale gas extraction and production has been proved to be more costly which everyone thought of as an alternative.
Is it a lot based on speculation or is there always legitimacy behind oil price fluctuations?
Going from $60 to $140 a barrel in 2008 and then back down to $30 doesn’t seem too realistic. It’s not like the entire economy was killed and transportation went down 75% because of the recession.
Commodities are weird like that, but especially oil. A 1% supply or demand imbalance moves the needle an absurd amount. Couple a 1% imbalance with instability and an outlook that the imbalance could move another point or two and the forward curve goes hockeystick or straight to hell.
It seems like every week for the past year or two there's an article in the WSJ predicting oil prices increasing dramatically. I really didn't think it would take this long for oil to recover back to the pre 2014 prices.
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