Who said crude wouldn't drop below $60/bbl?

Bob Tippee
Editor

Here's an assignment for anyone who has at any time this year declared that the price of crude oil would never again fall below $60/bbl.

Find a legal pad and a pencil, and write this sentence 500 times: Oil prices can't rise forever.

If the statement still seems questionable, write it 500 times again.

The price of West Texas Intermediate crude fell below $60/bbl last week after reaching $75/bbl at times in July and August.

Suddenly, instead of asking how high the crude price might go, people are wondering about the bottom.

Does a 20% price drop in 2 months' time constitute a collapse? If not, it's certainly the grad-school version of what economists refer to as "a correction."

Whatever you call it, the price drop should surprise no one.

A coincidence of extraordinary influences elevated crude prices earlier this year: low levels of idle production capacity, failure of production outside the Organization of Petroleum Countries to come on stream as expected, unusual strains in key product markets, geopolitical pressures, hurricane fears.

Several of those pressures have eased. And demand has relaxed seasonally in the US and other important markets. Prices are dropping. What else can they do?

So where's the floor? The answer to that question depends on two forces.

One of them is demand, which has wobbled under the weight of high prices but still has structural support from economic development in Asia and India and developed-world prosperity. The other critical force is the unpredictable price that elicits real production cuts, as opposed to talk about the subject, from OPEC's most important producers. That price will be the level at which revenues from unadjusted production become too low to sustain national budgets.

So there is a floor, and it's probably higher than the floor level of the last price collapse—or correction, as the case may be. Maybe it's much higher.

But for anyone who risked money on the proposition that the crude price would never again fall below $60/bbl, the difference between a floor of $40/bbl and one of, say, $30/bbl might now not matter very much.

(Online Oct. 6, 2006; author's e-mail: bobt@ogjonline.com)

Related Articles

Twists of activists’ dogma freshens view of global warming

07/02/2015

Fresh perspective on global warming, a topic that needs it, comes from a geologist.

Emerging producers offered guidelines for governance

06/26/2015 Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done—especially where oil and gas never before...

New king reshaping Saudi oil industry; extent still unclear

06/19/2015

A new ruler is making important changes in the state-run petroleum industry of the world’s most influential oil-producing nation.

Energy prominent among US rules due in next 12 months

06/12/2015

Energy figures prominently in a regulatory blitz taking shape as the Obama administration approaches its end.

Political, technical problems seen for energy-subsidy reform

06/05/2015

Fossil-energy subsidies receive more talk than action, too much of it politically opportunistic.

Oil-demand curve’s flattening adds to pressure on OPEC

06/01/2015 When leaders of the Organization of Petroleum Exporting Countries meet in Vienna on June 5, they should heed a stern signal from the oil market.

Coast Guard cadets summoned to battle climatological foe

05/22/2015 Confusion evident in President Barack Obama’s commencement address at the Coast Guard Academy raises a question bearing on American foreign policy:...

OPEC production well above quota for second month

05/15/2015

Supply data out this week provide a useful reminder about behavior of the Organization of Petroleum Exporting Countries.

Quick supply change a vital factor in oil market recovery

05/08/2015

Large among questions hanging over an oil market groping for balance is the behavior of short-fuse supply.

White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected