Here are three very different articles on the future of crude oil prices.
One of the memorable things I learned in grad school was the idea that you can’t project the current trend of something into the future forever.
Keep in mind that West Texas Intermediate price was somewhere in the region of $100 a barrel in mid ’14. WTI is now about $26. Let me round off some calculations for simplicity. Let’s call that a current price of $30. Let’s call that a year and a half.
So we see a drop of about $70 in 1.5 years. A straight line projection would calculate out as another $45/bbl in another year. Thus, by 12/31/16 WTI price will be $30 minus $45, or a negative $15. Yes, you read that right. A straight line projection means that oil producers will be paying refineries $15 for every barrel the refiners agree to take off the producer’s hands. Gas prices will consist only of the refining costs, a humongous list of taxes, with an offset for the negative cost of raw material.
You can’t do straight line projections forever.
Here are three superb articles that help me understand what is going on in the world of crude oil…
- After the Carnage, Shale Will Rise Again
- Helms predicts oil prices to rise again in foreseeable future
- Rumors Swirl Around the Saudi Throne
1/18 – Mark P. Mills at The Wall Street Journal – After the Carnage, Shale Will Rise Again / Vast swaths of shale will be profitable with oil at about $40 a barrel, and the nimble industry is ready – If you actually pay attention to my blog, Mr. Mills’ article is a must-read.
Oil prices are quite cyclical. He points out there have been six extremes since the’73-’74 oil embargo. The extremes create turmoil. At the moment we are in the carnage stage of the cyclical extremes.