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The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

Guess who will pay this?

The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

This is also definitely true.

Oil Demand is going down so prices are going down.

Now how does the "peak oil" theory fit in here? Lowering prices to push up the demand makes no sense at all...

Now how does the "peak oil" theory fit in here? Lowering prices to push up the demand makes no sense at all...

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

This is def happening...
Obama is steadily playing the Long Game with Russia...
And the Saudis helped out by flooding the market with oil (on top of an existing glut).

This also caused Alternative Energy companies to collapse in value (see PBW).

And since energy issues are 20% of the Bond Market...
You will soon see a wave of high yield defaults that could cascade and become destabilizing.

Could be the start of what Central Banks feared while printing trillions... unmanagable DEFLATION.

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

Oil prices are falling because oil producing nations are not cutting supply. Supply is rising with demand remaining stagnant, and even dropping off some.

Additional shale oil supply from the US has upset the demand-supply balance in the oil market.

Very strange discussion, indeed.

What is missing in determining the value of oil from fracking, is the true and complete environmental cost.
Yes, it is delivering oil almost by magic, but it uses a LOT of water in the process and all that water + toxic chemicals used in the process are going where?

But this is probably a topic for another thread....

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

No one...

Their creditors will get their assets and sell them off to other companies. That's how bankruptcy works. Unless the government takes the company into receivership and/or bails them out.

The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

This is a strange discussion.  Must oil prices be a grand conspiracy that is only about some politics?
Is it impossible that there are new oil extraction methods that have become cheaper with technical advancements.
No one has heard of "fracking"?
(It is very controversial, possibly polluting ground water, but it produces oil where it was previously impossible.)

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on????

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on????

I think most of the QE money did not reach real economy, they went into crude oil instead (oil is also a good store of value). So now when QE has stopped, suddenly the oil market lose the continuous injection of QE money and crashed

Unlike housing, the oil crash does not hurt average consumers, but oil exporters. FED does not have to bailout those oil companies. However, the crashing oil price indicated that there are much more goods/services than dollar, so those extra oil will compete for the limited USD liquidity on the market and drag the price of everything else down in the process. Maybe eventually FED have to restart the QE again

The oil crash is simply due to an increased supply that is not related to the demand, China is scaling back on its economy with a change in leaders and this is leading to a decreasing demand for crude oil and LNG by extension.

In addition the USA has a Glut of oil from all the fracking going on over there and for once is nearing exporting status instead of importing oil from up North in Canada leading towards a decrease in North American prices, these factors together are helping to keep the price low and will likely not change for the next while.

The oil crash is also due to a lack of demand but China is doing great, the USA and Europe are going bankrupt. China is the first world economy now.

The price of Oil going down is the sign that the USA and Europe economies are slowing down despite all the debt they are accumulating to buy some time before they fail terribly.

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

The cost of some US shale producers is below $50. The cost of UK North Sea oil is about $70. These are profitable if  the oil price is over $100. A few years ago, it was expected that oil price would be over $100. There were lots of investments into oil sector. if those investors foresaw the oil price would be $70 now, they would not spend a penny into US shale or North Sea oil.

Well North Sea oil has been around since the days of the last fuel crisis.
Aka the Saudi era but true enough if they calculated fracking they would have just moved their dollars to the lowest cost area and get the gas out of there to maximize profits and keep the price down.

Once we run out of the cheap stuff then we have to go get the more expensive stuff.

Perversely, if they did foresee the price and didn't spend a penny, the price would still be over $100 because no supply increases would have occurred.  So what was done made sense.

At the lower prices, consumption will increase and then demand will rise as well.  Until then it will overcorrect and maybe whipsaw a few times.

Yep as new liberty implied price forecasting is difficult to do.

If there was no US fracking to account for or (less than what was expected) companies who spent significant amounts of money developing North Sea oil and looking for new supplies would have made greater returns on their investments.

Inversely if there was no fracking (due to environmental concerns flaming faucets anyone https://www.youtube.com/watch?v=4LBjSXWQRV8) the moves they made in that area can become profitable to them and worth the returns. It just goes to show that the market is in turmoil and has volatility.

Although if the Saudis wanted to stop/slow down the pace of new reserves and discoveries for a few years they just need to push the price down so that the industry stagnates since new development would be too costly/make them eat losses.

The oil from some of the new projects cost 60 to 90$/barrel to get.
There will be no more projects like this as long as the oil stays under 60$

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

This is a strange discussion.  Must oil prices be a grand conspiracy that is only about some politics?

I thought everyone already know that in today's system, it is fiat money supply decide the price, not supply and demand

Supply and demand are good to be used to EXPLAIN the price movement, in what ever way it suits, but that is historical trading. However, the money supply can be used to forecast: When money supply stopped, the price of everything WILL fall (since there is suddenly much less money on the market)

Since there is a consensus that QE is going to stop, the other major currencies all fell against USD this year. Take Ruble for example, it fell almost at the same pace as oil, which means the oil export income counted in Ruble is almost the same, but Russian's import from US will be affected heavily

Everyone know that FED has printed 6x more money since 2008, but there is no 6x inflation, no 6x increase in GDP/income either, where did all those QE money go?

Now it seems the answer is here: Just like housing bubble, they were loaned out massively. But they did not enter the consumer's budget
since consumer is very poor now. So they are loaned into those oil companies to build rigs over sea or shale infrastructure, at the same time, many of those fiat money went to buy commodities including oil as a store of value

That's the reason those oil that cost $30 to produce can be sold at $120 for extensive amount of time. (QE pumping out 2.8 billion per day, while world oil production is 90 million per day, gives each barrel of oil $31 premium, if you consider M2 it is even higher)

Somebody said that after housing bubble there will be a bond bubble, but I guess the oil/commodity bubble is more likely the trigger of next financial crisis. Of course in this crisis the major victim is oil companies, but if banks have been loaning heavily to these companies or investing heavily in commodity ETFs, maybe we will see a "too big to fail" bank asking for bailout again

Everyone know that FED has printed 6x more money since 2008, but there is no 6x inflation, no 6x increase in GDP/income either, where did all those QE money go?

Now it seems the answer is here: Just like housing bubble, they were loaned out massively. But they did not enter the consumer's budget
since consumer is very poor now. So they are loaned into those oil companies to build rigs over sea or shale infrastructure, at the same time, many of those fiat money went to buy commodities including oil as a store of value

That's the reason those oil that cost $30 to produce can be sold at $120 for extensive amount of time. (QE pumping out 2.8 billion per day, while world oil production is 90 million per day, gives each barrel of oil $31 premium, if you consider M2 it is even higher)

Somebody said that after housing bubble there will be a bond bubble, but I guess the oil/commodity bubble is more likely the trigger of next financial crisis. Of course in this crisis the major victim is oil companies, but if banks have been loaning heavily to these companies or investing heavily in commodity ETFs, maybe we will see a "too big to fail" bank asking for bailout again

Indeed, QE is not (yet) circulating money, but went into:
1) increased required bank reserves at the FED (which essentially means that this is money that was printed, lend out to banks, which had to put it at the FED as a banking reserve) - this money was printed and frozen.  This money will only start circulating when banks go bankrupt and their reserves have to be put on the table.
2) the FED bought a lot of stock and other bonds with it, which means that the FED made these assets being more expensive than the market would decide them to be.  As such, the FED essentially blew a stock market bubble which has been financed by all people buying stock and other paper assets the FED was buying too.    The money went to those issuing those paper certificates (bonds and other securities that the FED bought in its QE program).  That money is somewhere but hasn't entered the domestic consumer market (otherwise, indeed, massive inflation would be the result).

Central banks usually fight slumps which are the result of collapsing bubbles, with new bubbles.  Last time they blew a housing bubble.  Now they are blowing a securities bubble.

What stock did the Fed buy? I only know it bought treasuries and MBSs.

Oil production takes up to 30 years from start of investment to the product reaches the consumer. Low interest rate means to much investment (and to little investment other, unseen, places).

What stock did the Fed buy? I only know it bought treasuries and MBSs.

Is the theory here that banks will seize petrol production assets from debt defaults, those assets will be undervalue and non performing, and so it will be a bailout for oil and gas and then banks by taxpayers, or banking bail-in?

Here is the risk analysis report from before the big price drop in April 2014.
(You may not be wrong, but I don't know the future.)

http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/pub-ch-a-og.pdf

They don't directly buy stocks. However, their purchasing injected liquidity into those banks and now banks have much more money at hand to play around with other assets like oil and stocks

Imagine that you are a bank with lots of unsold houses (MBS), when FED purchased those houses from you, you suddenly get loads of cash at hand

The bank can always get more money from the Fed provided with eligible collateral.

The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

It's not arbitrary at all, and it's not really OPEC, as many OPEC members would rather see higher prices for their own internal political reasons. The primary driver is Saudi Arabia, who is trying to crush the shale oil producers in the US (particularly, and to some extent Canada) where oil cannot be produced at profit for less than $80 a barrel. A sustained price below that point is intended to chase US firms out of the market, as they can't produce profits at this level, which in the long-run would be good for Saudi Arabia.

Opec countries could have lowered oil production which would support high oil prices, but then they would lose market share. It's not that they (including Saudi Arabia) specifically hate US oil producers, they hate all competition and would do whatever it takes to protect their market share. Just as any other market participant would. E.g. Microsoft or Intel.
Anyone knows where I can get a good tinfoil hat?

The oil price will continue to fall.

Yes. The production can not be taken down quickly, because that would bankrupt the involved companies, as they are heavily debt loaded. In addition, the biggest oil investments are done by governments, who do not turn around quickly, and, they need the cash flow to stagger the hordes, even if they have to loan more to keep the oil flowing.

This is the opposite of the truth.
Look at the data.

There is MORE global usage of oil, not less.
In fact, demand is accelerating!
With lower prices, you should expect usage will increase further and more swiftly.

This is really basic economics.  It is almost surprising to see such confusion on these things in a Bitcoin forum.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

The changing of supply/demand based on price really depends on how elastic the product is. The fact that people need to use oil based products to travel to work and to ship goods purchased makes oil not very elastic from a demand point of view, and may even have negative elasticity over the short term when the price is spiking. (over longer terms consumers will likely change their consuming habits if the price of oil remains too high)

The most immediate reason behind the crashing of crude oil prize is that the Organization of the Petroleum Exporting Countries -- a  group of 12 nations including Saudi Arabia, Iran and Venezuela that holds enormous power over global energy markets, producing 40 percent of global oil supply  --  decided on Thursday not to cut production at their meeting in Vienna.

The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn't -- presumably because its members decided it was wiser to weather the current storm -- and crude oil prices immediately crashed.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

If oil prices fall far enough then oil production can be taken offline. The reason oil companies will not stop production after only a short time of low oil prices is because it costs money to both shut down production and start it back up, plus a lot of the costs associated with extracting oil is "prepaid" with the costs associated with building infrastructure to extract such oil

Oil is eligible collateral, but not when it is under $10 per barrel, same for housing, when price is in a long downtrend, anything becomes bad asset, and is not eligible collateral anymore

Prices aren't "set" in that way.  It is primarily a global auction market price, with some lesser side-deals.
What the OPEC countries do is set and publish production targets for themselves.  Sometimes they also violate these targets and release more oil than they say that they will behind the backs of the cartel partners.

To say what is "intended" by them is essentially a bizarre claim of mind-reading.  There may well be other intentions entirely, (such as maintaining the largess of their regime and thus forestalling a democratic revolt) and the effects on USA and Russia may be merely side effects and unintended consequences, or even simply not as big of a factor as other financial concerns of selling enough oil as they feel that they need to sell.

Not all effects of actions are controlled.  Even children know this the first time they accidentally break something.

In the high-stakes contest between the United States, the biggest shale oil producer, and Saudi Arabia, the biggest oil exporter, America has blinked first.

The OPEC refusal to cut production at its November meeting was widely seen as the declaration of a price war against booming U.S. shale oil producers, which had sent their country’s oil production soaring. Saudis had watched as their market share dropped precipitously in the world’s biggest oil-consuming nation, and they wanted to send a clear message across the global energy market that they weren’t about to back off.

Oil prices have been in freefall ever since. Brent crude, the global oil benchmark, sank another 3 per cent Friday to $61.85 (U.S.) a barrel, while West Texas intermediate, the U.S. benchmark, dropped 3.6 per cent to $57.81, extending its slide from well over $100 a barrel in the summer.

If the global oil standoff pits the industry stalwart Saudi Arabia against the surging U.S. rival, other global players are coping with the pricing fallout, including Canada. Oil companies around the world are being forced to revisit their spending and production plans for 2015, and in the offices towers of downtown Calgary, those changes are already well under way.

Cenovus Energy Inc. this week slashed its capital budget by 15 per cent and signalled more to come. Canadian Natural Resources Ltd. has said a quarter of its $8.6-billion (Canadian) budget is “flexible” and could be deferred if prices don’t recover. A growing number of smaller producers have cut budgets and dividends in a bid to conserve cash and ride out the storm.

More cutbacks are likely to follow in the weeks ahead, and expectations that Alberta could double oil sands production over the next decade are suddenly in doubt. After all, new oil sands projects on the drawing board have costs per barrel well above current market prices.

For Canada, future projects sidelined or scaled back will act as a drag on the national economy, which has for years benefited from heavy spending in the energy sector while other sectors such as manufacturing struggled. The case for the many new pipelines currently in various stages of planning will be weakened.

Analysts warn it could take many months – even a full year – before global oil supplies fall enough and demand catches up, so that prices recover somewhat.

The oil slump is expected to affect most quickly on production levels in the United States, where the shale boom has added four million barrels a day of supply in the past few years and prompted predictions that the country would become the world’s largest crude producer by 2016.

Already, the number of new shale drilling licences has dropped by 40 per cent, plans are being scaled back, and rigs are being pulled out of the field. With relatively short lead times from planning to production, analysts are cutting their expectations of supply growth for next year. As Saudi Oil Minister Ali al-Naimi predicted two weeks ago, the market is beginning to “stabilize itself.”

But it will take a while for the Saudi strategy to play out. American producers are still expected to continue to boost production through the first half of next year, although at a slower rate than 2014. Meanwhile, global demand growth is slowing. That will keep pressure on prices at least through the first half of 2015, unless OPEC does cut production or there is a sharp supply disruption caused by political upheaval.

Companies adjust

On Friday, the International Energy Agency shaved its forecast for 2015 demand by 230,000 barrels a day – the fourth time in five months that it has reduced its forecast – citing economic weakness in Russia and China. The Paris-based agency also raised its expectation for non-OPEC oil production in 2015, despite lower prices.

Oil companies are seeing their revenues nosedive, share prices sink, and capital market players grow wary about lending. State-owned companies are facing pressure to maintain the flow of revenue to government coffers even as their cash flow dries up. Capital discipline had been the mantra among major oil companies heading into 2014; retrenchment and focus on high-grade prospects will be the watch words as the year ends.

Even as U.S. producers respond, companies operating in high-cost, capital-intensive areas like Canada’s oil sands or Brazil’s offshore will defer and even cancel planned projects, although the impact on actual production will take longer to materialize.

It’s too early to call “mission accomplished” for the Saudis. The OPEC leader is playing a long game in order to preserve its oil market share by making life difficult for the high-cost oil producers, and its strategy is showing early signs of success.

The quick reaction time by some of the high-cost producers, notably the American shale oil drillers, is why one of the world’s foremost oilmen, Sadad Al-Husseini, the former executive vice-president of Saudi Aramco, the world’s biggest oil and gas company, is becoming bullish on oil even as Brent prices sink to the low $60s.

“If you go down low enough, as we are now, you’ll get to the point where there is little investment, which is what we’re going through,” he said in an interview in Al Khobar, the Saudi city filled with Aramco employees in the country’s oil-rich Eastern Province. “You will force the excess out of the market and demand will take you back up. That is what is about to happen.”

‘Strength of the profit motive’

Mr. Al-Husseini, 67, worked at Aramco until his retirement in 2004 and was a member of its board and its management committee. During his Aramco career, he was instrumental in making 20 discoveries, including vast gas fields and the central Arabian and Red Sea oil fields. He is now president of Husseini Energy, an oil consultancy based in Bahrain that advises financial institutions and the oil services industry.

He admits he underestimated the “strength of the profit motive” that turned the United States into a shale oil powerhouse. Since 2010, U.S. shale oil production is up by three million barrels a day. But he feels confident that waning investment is already hitting production growth and that prices won’t fall much farther as the supply-demand balance tightens up.

“When prices come down 40 per cent, you’re not going to keep spending like there is no change,” he said. “My guess is that by the end of second quarter of 2015, there will be a returning confidence in oil. Does that mean it will go to $115? No, that was never a sustainable number. Could it go as high as $80, maybe $90? Sure.”

Unlike some of their more vulnerable OPEC partners like Venezuela and Nigeria, the Saudis can afford to be patient and wait for the market to recalibrate. But it too faces fiscal pressure as it spends heavily to diversify its economy and provide social benefits to a young population. The International Monetary Fund estimated early this year that Saudi Arabia needed an oil price of $89 (U.S.) a barrel to keep its budget out of the red, up from $80 in 2012.

U.S. shale oil is generally far more expensive to produce than Saudi oil, which has the lowest pumping costs in the world. Shale oil wells deplete rapidly, meaning a lot of them have to be drilled constantly to keep production intact.

The upshot? Shale oil output is much more sensitive to falling prices than Saudi oil, and the market is beginning to work its magic. Although the U.S. rig count remains well above the level of a year ago, it saw its biggest drop in two years this week and has declined in six of the past nine weeks. And it’s expected to drop sharply next year.

Estimates of break-even costs for new production in the three key shale basins – the Bakken, Eagle Ford and Permian – range from $60 to $70 a barrel. But there is wide discrepancy in the actual break-even costs for each well, and companies will focus spending on their best prospects.

“Balance sheets are going to force discipline,” said David Pursell, an analyst at Tudor Pickering & Holt Co. in Houston. “When we look at basin economics, there’s just a handful of core areas that make economic sense to continue to drill at even $70 crude. ... Companies will drop rig count very quick to stay within cash flow so they don’t see their balance sheets unravel. And they can unravel very quickly if they maintain the current activity level into 2015 at a much lower oil price.”

Most vulnerable are the smaller exploration and production (E&P) companies that have taken on debt as their spending outpaced their cash flow, and Mr. Pursell said the high-yield debt market on which they rely is already showing signs of nervousness. Companies like Range Resources Corp. and SandRidge Energy fall into that category.

The Tudor analyst sees the rig count dropping by nearly a third from the recent 1,600, but said it will still take several quarters before production growth slows. He predicts U.S. production will rise by 592,000 barrels a day next year and 226,000 in 2016, after growing by nearly one million barrels a day this year.

In a release Friday, the U.S. Energy Information Administration also indicated it will take time for the impact of lower prices to be felt in the supply picture. The EIA forecast that U.S. production will average 9.3 million barrels a day in 2015 – up from 8.6 million in 2014 and closing in on Saudi’s estimated 9.60 million daily output.

Mr. AL-Husseini is no fan of the theories that the decision by OPEC (read: Saudi Arabia) not to trim the cartel’s 30-million– barrel-a-day production quota at its November meeting in Vienna was a political act of war aimed at punishing Russia and Iran for their support of the al-Assad regime in Syria or aimed solely at choking off U.S. shale production.

He said it was a market decision designed to trim high-cost production wherever it lies, including Brazil’s offshore fields and Canada’s oil sands, to end the oil glut. An OPEC production cut would have only propped up prices, he noted, “subsidizing the high-cost oil at the expense of low-cost oil,” the latter being Saudi Arabia and Gulf allies such as Qatar.

Among the high-cost producers, there is no doubt that U.S. shale oil would be quickest to trim investment and thus output. Mr. Al-Husseini said that, even if oil prices were to remain fairly strong, the shale industry’s ability to deliver ever-higher production would not be assured. That’s because shale wells are short-lived creatures. His research says that shale oil (and natural gas) wells decline at a rate of 50 to 70 per cent a year, “requiring intense capacity replacement drilling.”

That means shale fields require more and more drilling to maintain production and that gets expensive. At the huge Eagle Ford shale field in southern Texas, some 4,500 new wells will have been drilled in 2014, of which 3,800 are required just to maintain production.

One major test for producers will be the degree to which they can squeeze costs out of the supply chain, thereby lowering their break-even price.

U.S. shale producers say they are doing just that. Houston-based EOG Resources Inc. has slashed the average well cost in North Dakota’s Bakken play to $8.7-million from $10.5-million two years ago. In the Eagle Ford, it reduced the number of days to drill a well to 12.5 from 22.7 in 2012.

Pioneer Natural Resources Co. said last week that it was still planning to pursue production growth of between 16 and 21 per cent next year, with its key assets in the West Texas Permian basin. Pioneer chief executive officer Scott Sheffield said the Saudis had “declared war on the U.S. oil and gas industry,” and the company is responding by driving down costs and re-evaluating its drilling program. He acknowledged that a sustained period of prices below $60 a barrel could force further cuts.

The oil sands challenge

But high-cost producers across the globe are facing similar challenges.

London-based oil economist Amrita Sen said Canada’s oil sands remains the world’s highest-cost production in terms of new projects, with the U.S. shale and the offshore in Mexico and Brazil not far behind.

Existing oil sands operations aren’t likely to be cut off any time soon. Analysts say currently producing projects have average per-barrel costs in the mid-$50s to mid-$60s, depending on the type of operation. “The advantage that oil sand producers have over, for example tight oil producers, is that they typically invest for the longer term as they rely on a steady stream of production over an extended period of time, making them less susceptible to temporary price fluctuations,” Ms. Sen said in a report this week.

Cenovus, for example, is slowing spending on longer-term projects that are still in early development stage, including Narrows Lake, Telephone Lake and Grand Rapids, while it continues to advance its Foster Creek and Christina Lake projects that are closer to completion. Under that capital plan, its production won’t be affected by today’s lower price until five years from now.

The same is true for most deep-water offshore fields, where companies may defer exploration or delay sanctioning new projects, but are unlikely to reverse course on those that are under development. Still, lower revenues will force an industry-wide cutback on activity.

Ms. Sen said the seeds of another cycle are now being planted. The current drop in prices will lead to lower-than-expected production in a few years, even as consumers increase consumption. U.S. gasoline demand is climbing at a rate well above its recent five-year average. And that classic supply-demand response could trigger a snap-back in prices in two or three years.

At the moment, though, “it’s hard to say anybody that relies on oil prices wins when prices are below $60 instead of $100 plus,” said R.J. Dukes, senior analyst with the Wood Mackenzie consultancy.

The oil slump is giving Canadians a long-awaited break at the pump, but is a worry for the country’s energy future. Since new oil sands projects are expected to have per-barrel costs of $80 or higher, they may no longer make sense, and the country may need to look to other sectors for new economic drivers.

Not for the Fed, it mostly takes fixed-income assets.

It wasn't a theory or an assumption.

If you scroll up, you would notice that I was careful enough to post the actual usage data to support the claim.  Usage and demand has accelerated over all of the most recent periods measured, and the 2012, 2013, 2014 progression shows year over year increases, with some acceleration in the most recent measurements.

Mate, I'm not saying they're "set" at all. It's a function of supply and demand. I'm referencing the financial trade papers on the topic, like WSJ or Bloomberg who report that there's an oversupply of oil brought on by the shale production in the US. (US oil production has doubled since 2008 due to fracking.) Traditionally, when there is an oversupply, OPEC cuts back to keep the price elevated, and although most of the OPEC members want to cut back, Saudi Arabia (the largest oil producer in the world) has announced they will not be cutting production due to price declines. This has caused the price of oil to drop to the lowest point in 5 years because it means the oversupply is not going to be addressed. Saudi Arabia is doing this intentionally because shale oil is expensive to produce, and the state-run Saudi oil companies can stomach losses longer than American firms, who have to answer to shareholders who have no will to absorb losses for a sustained period of time. As an added bonus, low oil prices hurt Iran, a regional rival politically and militarily.

Here's an article published a few days ago about the oil blinking contest between the US and Saudi Arabia:
(article can be found in jaysabi post above)

The Article only shows that others have also speculated on the intent of others.

We agree on the consequences of the action (non-action) which this author quotes someone saying is "a declaration of war".  Accusing the head of Saudi Arabia of declaring war by doing exactly nothing seems a bit extreme to me, but maybe I am alone in that?

I think you missed my point entirely, since all you did was aggravate it with an escalation of the violation rather than suggest that my point was not correct.

To be more clear:
You do not know the mind of another person without them telling you.  Therefore claiming intention, rather than consequence, is unduly invidious.
If you brought forth a quote of someone in charge of the decision saying why they were doing it, that would be one thing.  Instead you brought forward a (worse) example of someone else doing this transgression of invidiously assuming the intention without evidence of that intention.

Nor do you know the mind of another person even with them telling you either. Governments lie about their intentions and their actions all the time. It's true no one from Saudi Arabia has said this is what they're doing, and I'd be pretty surprised if they did since they're wholly dependent on the US militarily. The Kingdom is also dependent on high oil prices, since it is basically the country's only source of income. In seeing the consequences of what they're doing, I'm making an educated guess as to the intention. But I'll even walk it back and say it's likely not the primary driver of their actions, but the fact that prolonged low oil prices hurt shale producers and increases their future market share certainly does not go unnoticed by them, and they view it as a long term benefit. To say that it was the primary objective of their actions was overshooting on my part.

I think most of the QE money did not reach real economy, they went into crude oil instead (oil is also a good store of value). So now when QE has stopped, suddenly the oil market lose the continuous injection of QE money and crashed

Unlike housing, the oil crash does not hurt average consumers, but oil exporters. FED does not have to bailout those oil companies. However, the crashing oil price indicated that there are much more goods/services than dollar, so those extra oil will compete for the limited USD liquidity on the market and drag the price of everything else down in the process. Maybe eventually FED have to restart the QE again

Nor do you know the mind of another person even with them telling you either. Governments lie about their intentions and their actions all the time. It's true no one from Saudi Arabia has said this is what they're doing, and I'd be pretty surprised if they did since they're wholly dependent on the US militarily. The Kingdom is also dependent on high oil prices, since it is basically the country's only source of income. In seeing the consequences of what they're doing, I'm making an educated guess as to the intention. But I'll even walk it back and say it's likely not the primary driver of their actions, but the fact that prolonged low oil prices hurt shale producers and increases their future market share certainly does not go unnoticed by them, and they view it as a long term benefit. To say that it was the primary objective of their actions was overshooting on my part.

Recent discussion of value in another forum proved again: supply and demand analysis only works when currency supply does not change. Now when currency supply suddenly changes (QE stopped), the total effect on the market is dominant, outweighs small change in supply and demand

The liquidity crisis will be first felt in oil, then cost of everything will go down, creating a race to the bottom price war, then mass firing of labor force...

The QE has barely made it out of the banks and into industry in the USA, and pretty much all the other central banks are just cranking it up.  Those currency supply effects are a bit further downstream, money supply is still growing just slower in the USA and faster elsewhere.

The QE has barely made it out of the banks and into industry in the USA, and pretty much all the other central banks are just cranking it up.  Those currency supply effects are a bit further downstream, money supply is still growing just slower in the USA and faster elsewhere.

QE did not flow into US economy, since the return is bad there. But after banks get rid of bad assets, their extra liquidity went into middle east and those shale companies

QE did not flow into US economy, since the return is bad there. But after banks get rid of bad assets, their extra liquidity went into middle east and those shale companies

I wish you were right and that the bubble would pop and get a little bit of fiscal and monetary sanity back, but look at the numbers.  The Fed created over 4 Trillion of new money on its balance sheet in the last QE.  (The UCP, China, BOE and others are still pumping strong yet so we won't even start adding those.)
Globally 550 Billion of new bond debt issues in oil and gas total globally since 2010 were issued.
Most estimates are that this can get up to maybe 10% default rate.  The magnitude of the issue is dwarfed by new money creation which is still ongoing.

The point here is that it doesn't pop the bubble, its just froth.  Its still getting worse and will likely continue to do so with the QE being considered a "success" until it is much worse than this.

Your analysis seems correct it will get worse before it pops. The sooner the bubble pops the better because the damage will be smaller than if the bubble gets even bigger.

Post-Fukushima, oil went on a tear, as the Japanese (and, by self-infliction, the Germans) needed gas and oil to replace off-lined nuclear.  The single largest consumer of petroleum on the planet is the U.S. military.  When they were fully stocked and reduced operations, simultaneously with the expansion of tight oil production, simultaneously with the Japanese bringing nuclear back online, a crash became inevitable.  It won't last long, but it can go very deep:  Qatar and the Saudis can operate existing wells on a $20 marginal barrel price, or less.
 

simultaneously with the Japanese bringing nuclear back online

Reasonable explanation especially since Abe, who is conspicuously pro nuclear reopening, won a decisive election victory a few weeks ago. While only one (or possibly zero, I'm not sure) Japanese nuclear plant has literally reopened so far, the market may be responding to expectations they will reopen.

There was a large run up in oil prices from about 80 USD to 120 USD in 2011 after Fukushima.

Reasonable explanation especially since Abe, who is conspicuously pro nuclear reopening, won a decisive election victory a few weeks ago. While only one (or possibly zero, I'm not sure) Japanese nuclear plant has literally reopened so far, the market may be responding to expectations they will reopen.

There was a large run up in oil prices from about 80 USD to 120 USD in 2011 after Fukushima.

A significant increase in the use of nuclear power in Japan (and more importantly elsewhere) will likely lead to long term lower oil prices. It remains that nuclear energy is much safer and much cleaner then other types of energy (including 'green' energy like solar and wind)

Decreasing demand and increasing supply is the reason oil crashed.

You should understand that "demand" and "usage" are not the same thing here.  USAGE increased, DEMAND (at a given price) decreased because of expectations of increasing SUPPLY.

The suppliers then rush to get the oil sold asap so they can get ahead of a price drop, which drives it lower still.  So it over-corrects.  It happens on the rises too.

Usage is also a measure of economic activity.  Globally usage is increasing, it will likely increase more swiftly with the lower prices.

Because windmills also sometimes create superfund radioactive sites where human life is impossible for generations?
Nuclear is safer and cleaner, except when it isn't.  Fusion reactors please.  These fission fails are for the lose.

It is very rare that nuclear reactors meltdown. The last time this happened was in Japan in 2011 and the time before that was in the mid 1980's.

It was also estimated that there would have been few deaths of people who were living in the evacuated areas in the 2011 incident, although people who would have stayed and continued to live would have had a higher risks of certain cancers, although still overall low risk.

http://en.wikipedia.org/wiki/Fukushima_Daiichi_nuclear_disaster
http://en.wikipedia.org/wiki/Nuclear_and_radiation_accidents_and_incidents#Nuclear_meltdown

Because windmills also sometimes create superfund radioactive sites where human life is impossible for generations?

They don't but they produce a tiny amount of usable energy, so you need a LOT of windmills, solar panels, etc., and this leads to other safety issues. More mundane industrial accidents perhaps (falls, car/truck accidents, electrocution, factory accidents, etc.), but if you are that person, you are just as injured or dead.

If you measure safety in the economically reasonable way, not as an absolute but with risks in the numerator and output in the denominator, then even nuclear fission looks pretty damn good compared to everything else (or another way to say that is that nuclear is still bad but everything else is worse to much worse).

Acknowledging that correctly estimating the tail risks in the numerator is difficult, but we do the best we can.

I remain skeptical, or else they would be insurable.
As it stands, only nation-states can build them.  Industry at best can do management contracts, with government backing (insured by all taxpayers).

Cleaner than coal on a per joule basis? Granted.  Cleaner than windmills?  I doubt this.  Even if you are considering the dead birds.

I remain skeptical, or else they would be insurable.
As it stands, only nation-states can build them.  Industry at best can do management contracts, with government backing (insured by all taxpayers).

Cleaner than coal on a per joule basis? Granted.  Cleaner than windmills?  I doubt this.  Even if you are considering the dead birds.

I didn't say cleaner than windmills, though that might also be true for the same reasons (I haven't seen the numbers), I said safer.

Here's one fairly recent ranking.

http://www.forbes.com/sites/jamesconca/2012/06/10/energys-deathprint-a-price-always-paid/

mortality rate

Wind: 150
Nuclear: 90

Wind is actually in second place and fairly close, so its entirely possible this ordering is wrong (likewise with solar). But what is more important is the comparison of nuclear to the scale baseload sources that realistically substitute for it (not just coal). Those differences are orders of magnitude.

Someone's cold heart... somewhere.... melted a tiny bit for this deflation to occur.

The actual reason why oil prices came down was because of a sharp increase in production by the United States and the North Sea operators which resulted in an oversupply for the market decreasing the price - it's all supply and demand.

OPEC does like the lower prices for now however, (which is why it hasn't cut production yet), because many of the new projects in the US and the North Sea are unprofitable at below $65/barrel so OPEC is hoping that the lower oil price will help drive these projects out of business (a basic monopoly tactic here), which will allow OPEC to control most of the world's oil supply once again.

I saw a few folks mention alternative energy sources in the discussion but I think this is really a stronger and valid point that deserves more elaboration.  "The reason that crude oil price crashed" is obviously the result of OPEC reactions to excess supply, demand and resultant lowered price.  However, I really 'wish' that it were for better reasons such as greater availability of renewable energy.

When home solar panels are made for the lay person to install at a low enough price and at high enough efficiency to work even during low light periods then there could be even more electric vehicles and even less demand on fossil fuels.

Im sure some of it has to do with Saudis wanting to fuck Russia over Syria

Lower crude prices are probably bad for renewable sources of energy.
Now they will be seen as uncompetitive and the required investments in renewable technology won't be made.

It has to do with a weak demand and an abundant production.

Usage is increasing slower than supply is increasing.
Oil has a large markup due to scarcity created from cartelling, and that markup is contracting.

At a lower price, usage will increase more swiftly, until then we should expect the price to over-correct.

As for renewable energy being more expensive?  That depends somewhat on what is included in the cost.

I agree with you on oil. As for "renewable" energy, it ends up being more costly than natural resources.

America's fracking boom is deeply unhealthy, both ecologically and economically, but has been pushed by the government and industry.

The interesting question is, does Uncle Sam have a desire to destroy Russia and trigger a large war to reset the financial bubble?

If so, they will subsidize (or give tax breaks/cheap credits) to the fracking industry to keep this going. Otherwise fracking will decrease quite a bit over the next year. It requires 80$ per barrel to keep fracking going on a free market.

But again I doubt that the oil market is free ATM because cheap oil hurts Venezuela and Russia and open warfare is not an option against those two.  :(

The same reason it did EXACTLY six years ago.

Yes OPEC makes profit. But many countries depend on that profit. They organize education, .... with that money.

Reason why oil price come down is not opec is companies in USA using that new technology to get oil. But that is expensive method and at some point those companies will close. Opec is smart and will not try to maintain price artificially high. Lets teh market do and take off those that produce with to big costs.

Those companies took loans in banks. And when they will bankrupt and will not be able to pay off debts. Guess who will pay this?

The question is that now that Crude is at 50 dollars a barrel where do we find support and what plays are the best for buying stock in
Either way this is a far cry from 200 dollar oil then 100 dollar oil
When it starts moving again upwards as new production etc is stopped and fracking gets owned for a while we might get some nice returns there.
Either way stock pain is coming in energy, manufacturing or companies with large oil inputs will get a boost from this so a few ways to play the stock market.

The question is that now that Crude is at 50 dollars a barrel where do we find support and what plays are the best for buying stock in
Either way this is a far cry from 200 dollar oil then 100 dollar oil
When it starts moving again upwards as new production etc is stopped and fracking gets owned for a while we might get some nice returns there.
Either way stock pain is coming in energy, manufacturing or companies with large oil inputs will get a boost from this so a few ways to play the stock market.

Can anyone mention any (fracking) stocks they would be buying now?

I do not have time to explain everything. Simple answer is increasing the production of 3-4 billion barrels a day. global strategic reserves, refineries and private reserve companies, various spot market warehouses, reserves of oil pipelines, reserve retail products, other reserves are at 90-100% capacity.  tankers ship is full of oil and wait for customers that don't coming. Eni starts production at the Nene Marine Field 05:01 2015 140 000 Barrels day, and cancel import for 140,000 barrel day from Russia, also by Eni 31.12 2014 open goliat oil field additional 100000 barrel field day, also lese import 100,000 barrel day .
Also Statoil open new well and the north sea + 100 000 a barrel to EU market.
USA every month open new well for 100000 barel.Russia is on high production 11 000000 barrel day.
Consummation  world drop for 5-6% whit pumping crude oil in  reserve .real drop 10%
China don't have more storage capacity for crude oil, and lease tanker for 80 million barrel crude oil and sale under market price for 4-5 $ barrel.china bay Crude Oil Long-term contract and now is under big shit.

according to the news there is an abudant supply of fuel thats why the prices are going down but who knows there might be another reason behind the curtain.

until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

Well finding the bottom is what the speculators are up to at the moment
40 dollar a barrel perhaps even a dip to 30 then questions of duration are we here for a long haul or only for the short run, lot of questions still in the oil market, kind of thinking it will be long term Saudis will keep production up Russia will keep production up until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

I'm not sure the game of shutting down fracking really make sense. As I understand it (not being an oil industry insider nor expert), fracked wells are pretty small, which makes production rather elastic. If prices drop, fewer wells are drilled and production does stop, but the industry doesn't really go away. Equipment gets mothballed, supply production is cut, less experienced workers are laid off. But once prices go up back up the fracking starts right up again.

LNG involved massive facilities, huge political barriers, and time scales of a decade or longer, so stopping that with temporary low prices might be more plausible. If those projects get abandoned, to a large extent the clock is reset on them ever happening.

Momentaly i don't see American Fracking operations to start shutting down. i see American Fracking operations to start new well 100000 barell every month.
Only must start shutting Canada oil sands,Australia off shore(some well)Kazahstan some well,Russia some well near arctic circle and well which have no direct connection with the pipeline.

proof
financial statement  oil company
sample
Marathon oil
Exspense crude oil production
North America E&P $11.59
International Africa $5.13 the benefits of non-existence of laws on environmental protection
Oil Sands Mining (Canada) $45.95

I doubt it. $200 bn isn't that much (compared to trillion+ questionable mortgages in 2008) and most of that debt was always considered high yield (i.e. risky), unlike mortgage bundles that were sold as AAA so leveraged sky high.

But you never know. Conditions may be worse today in some other ways.

Anyway, I wasn't suggesting that fracking wouldn't shut down, only that a deliberate strategy from OPEC to shut down fracking doesn't make sense. Predatory pricing can make sense when you can shut down a competitor which then has huge startup costs to return to the business once you stop dumping and prices recover. I don't see that at all. Fracking may consolidate but those larger surviving operators will be right back at it as soon as prices go up.

I'm not sure the game of shutting down fracking really make sense. As I understand it (not being an oil industry insider nor expert), fracked wells are pretty small, which makes production rather elastic. If prices drop, fewer wells are drilled and production does stop, but the industry doesn't really go away. Equipment gets mothballed, supply production is cut, less experienced workers are laid off. But once prices go up back up the fracking starts right up again.

LNG involved massive facilities, huge political barriers, and time scales of a decade or longer, so stopping that with temporary low prices might be more plausible. If those projects get abandoned, to a large extent the clock is reset on them ever happening.

Saudi Arabia’s influential oil minister Ali Naimi has asserted that the kingdom – the world’s largest exporter of crude – intends to persist with its current strategy of keeping its spigots open to win back market share regardless of how much oil prices fall.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant,” Mr Naimi said in an interview with Middle East Economic Survey late last month.

Mr Naimi is expected to come under increasing pressure from other members of the Organisation of the Petroleum Exporting Countries (Opec) to row back on its current strategy and agree to holding an emergency meeting of the cartel ahead of its next scheduled gathering in the summer.
Opinions differ among the 12 members of Opec over whether the decision to keep the group’s quota of 30m barrels per day (bpd) of crude unchanged in November was the correct course of action given the risks this now poses to their economies.

Those pressuring Naimi...  What are they expecting?  That the Saudis should influence pricing so that US fracking is profitable?

People are going to see conspiracies everywhere no matter what.  If they "do nothing" they are conspiring to "hurt the Russians", if they "manipulate prices up" they are supporting the US.  So no matter what happens, it is certainly going to be the fault of the USA.

Those pressuring Naimi...  What are they expecting?  That the Saudis should influence pricing so that US fracking is profitable?

People are going to see conspiracies everywhere no matter what.  If they "do nothing" they are conspiring to "hurt the Russians", if they "manipulate prices up" they are supporting the US.  So no matter what happens, it is certainly going to be the fault of the USA.

Indirectly the US are playing the Saudi's who don't give a damn about the oil price

The Saudis do care about sticking it to Iran and by extension Russia. I doubt they need a whole lot of US encouragement.

True enough I discount the Saudis too much, they have a large fund they can rely on so its not a big deal to them economically they can just stick it to their geopolitical interests to the benefit of other countries.

They get less money out of oil and they now have a deficit every year which means they spend more than they make from oil productions and other direct revenues. It is not good for their long term political and diplomatical weight.

Real reason is weak demand.

Fracking is an expensive business. Depending on site structure, companies need prices of between $60 (£40) and $100 per barrel of oil to break even. As prices drop to around $55 per barrel, investments in the sector look ever more vulnerable.

Analysts say that while bigger fracking companies might be able to sustain losses in the short term, the outlook appears bleak for the thousands of smaller,

fracking operations may default on an estimated $200bn of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.

In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.

In short: Yes.

first fracking operations  $200bn of borrowings  is simple one small peanuts in usa economy.FED delivery in couple year to ECB bank $3300bn also ECB delivery to FED 2500bn euro only for emergency use.and borrowings is not $200 bn ,about 120-130 bn.but bank credit is about $40 bn long term interest very low.
Second USA in any time can introduce import duties for crude oil 20-180% excluding Mexico and Canada.

US imports of crude oil have tumbled to levels that were the norm back in the late 1970s. In November, the US imported just 189 million barrels of crude oil, versus 188 million barrels in November 1976. The last time we’ve had readings this low was in 1994.


Main issue with bond default is contagion but the risk is likely priced in just took some of the notes from the guardian article it takes a few different factors to end up with that end result from later posts I mentioned.

http://www.theguardian.com/environment/2015/jan/06/oil-price-casts-shadow-over-frackings-future

the US imported just 189 million barrels of crude oil and also export derivate net importi is smaler.

http://www.theguardian.com/environment/2015/jan/06/oil-price-casts-shadow-over-frackings-future
some well return invest for driling in 60 days,and now any price over 12 $ is profit.All big company can return loan/bond overnight.
If you find some shale company bankruptcy i am intereted for baying i pay 1-5$ to 10$

This is a strange discussion.  Must oil prices be a grand conspiracy that is only about some politics?
Is it impossible that there are new oil extraction methods that have become cheaper with technical advancements.
No one has heard of "fracking"?
(It is very controversial, possibly polluting ground water, but it produces oil where it was previously impossible.)

Commodities markets tend to over-react before they balance out.

Or maybe it is all just a few people playing global chess over some imagined strange excuses that make everything happen?
People look for complex excuses instead of looking at simple data.

The conspiracy is the market conspiring to find the clearing price.
Today Saudi announced it is reducing deliveries, the fracking is not economical at prices below the $60 barrels. 
At this price, new demand will arise and price will rise, then Saudi may increase delivery (or not).

Maybe many people assume that governments control everything always.  Does it feel helpless to live in such a world?

People were less shocked when prices soared for the last few years then when they fall.  They went up from war and rumors of war which are certainly political.  (Or a failure of politics)  But now it is a conspiracy when they come down?  Maybe there is a conspiracy for peace?

the US imported just 189 million barrels of crude oil and also export derivate net importi is smaler.

http://www.theguardian.com/environment/2015/jan/06/oil-price-casts-shadow-over-frackings-future
some well return invest for driling in 60 days,and now any price over 12 $ is profit.All big company can return loan/bond overnight.
If you find some shale company bankruptcy i am intereted for baying i pay 1-5$ to 10$

Sure just take a shot at zerohedge
http://www.zerohedge.com/news/2015-01-07/first-shale-casualty-wbh-energy-files-bankruptcy-many-more-coming
The First Shale Casualty: WBH Energy Files For Bankruptcy; Many More Coming
And I can't find any 60 day drilling returns mind showing me where it said that.

I've heard of fracking actually, it's where they drill into the ground with high pressure right?

first fracking operations  $200bn of borrowings  is simple one small peanuts in usa economy.FED delivery in couple year to ECB bank $3300bn also ECB delivery to FED 2500bn euro only for emergency use.and borrowings is not $200 bn ,about 120-130 bn.but bank credit is about $40 bn long term interest very low.
Second USA in any time can introduce import duties for crude oil 20-180% excluding Mexico and Canada.