Oil is about $32/barrel now and the price might be stabilizing there. Is there now much more upside than downside, or does huge downside still remain in the event of a bad recession?
What are the breakeven prices of the major players? Which ones matter the most?
What might be a worst case price range if we have a recession this year and demand continues to fall? How far has it crashed below breakeven prices in the past - do breakevens even help to set a floor on the price when in an economic crisis?
Oil crash / breakeven prices
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2Birds1Stone
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Re: Oil crash / breakeven prices
Didn't the Saudis recently say their cost is $3/barrel?
Re: Oil crash / breakeven prices
Cost is one thing, but not the only thing.
SA has the lowest cost to produce large quantities, but they also rely almost entirely on oil profits to fund their generous government programs. So they need an oil price closer to $85/barrel to balance their budget. Similar situations exist for other OPEC producers, at varying price levels. But at the moment, they've opened their taps up wide, and are even bringing oil to market out of storage. Russia is also pumping to their limit, as is the UAE.
The price will go up when SA and Russia come to an agreement. It's my expectation that the political realities will force this before oil production limitations will. Basically every other OPEC member is in weaker positions than SA -- both politically and in terms of market influence -- and risk social upheaval if the price of oil doesn't improve. SA likely doesn't want to risk Arab Spring-style revolts, either at home or in neighboring countries. (Or maybe in the case of Iran, they do.....)
SA has the lowest cost to produce large quantities, but they also rely almost entirely on oil profits to fund their generous government programs. So they need an oil price closer to $85/barrel to balance their budget. Similar situations exist for other OPEC producers, at varying price levels. But at the moment, they've opened their taps up wide, and are even bringing oil to market out of storage. Russia is also pumping to their limit, as is the UAE.
The price will go up when SA and Russia come to an agreement. It's my expectation that the political realities will force this before oil production limitations will. Basically every other OPEC member is in weaker positions than SA -- both politically and in terms of market influence -- and risk social upheaval if the price of oil doesn't improve. SA likely doesn't want to risk Arab Spring-style revolts, either at home or in neighboring countries. (Or maybe in the case of Iran, they do.....)
Re: Oil crash / breakeven prices
Believe US shale and Brazil presalt breakevens are around $40/bbl and, yes, Saudi is only a couple of bucks.
Significant growth is expected to be from US and Brazil. So basically all growth in supply capacity is neutralized. But now supply and demand isn't balancing at a price that's acceptable to Saudi and other OPEC countries anymore.
I simply can't see how they'll solve this - especially with a recession coming and lackluster oil demand perspectives in the first place. Even at these prices US oil production is only forecasted to drop a few 100,000 barrels per day in 2021 so they can't be counting on a collapse of US oil production.
@Chris
MBS vs. Putin is the faceoff of a century. Also, Russia has so far refused to cut any production while Saudi has been cutting 1-2 million barrels per day. Do you really think Russia will suddenly change their strategy?
Significant growth is expected to be from US and Brazil. So basically all growth in supply capacity is neutralized. But now supply and demand isn't balancing at a price that's acceptable to Saudi and other OPEC countries anymore.
I simply can't see how they'll solve this - especially with a recession coming and lackluster oil demand perspectives in the first place. Even at these prices US oil production is only forecasted to drop a few 100,000 barrels per day in 2021 so they can't be counting on a collapse of US oil production.
@Chris
MBS vs. Putin is the faceoff of a century. Also, Russia has so far refused to cut any production while Saudi has been cutting 1-2 million barrels per day. Do you really think Russia will suddenly change their strategy?
Re: Oil crash / breakeven prices
Thanks for the info, I didn't realize Saudi could produce it so cheaply!
As low as prices are now, we may still be in the middle of a prolonged secular oil/commodities bear and I think it may be premature to try and start bargain buying. Seems like according to the mainstream media right now a recession is getting to be more and more expected but we cannot be certain until confirmed by Q2 and Q3 numbers. The people who strongly expect a recession are arguing about it being a short V-shaped recovery vs. a prolonged recession. If we are in the midst of a recession with no quick recovery in sight, the debate will turn to regular recession vs. another great depression...
I will be keeping my eye on oil and commodities in general, but I would want to wait to buy at least until recession/depression expectations and oil prices stabilize and even start to improve.
As low as prices are now, we may still be in the middle of a prolonged secular oil/commodities bear and I think it may be premature to try and start bargain buying. Seems like according to the mainstream media right now a recession is getting to be more and more expected but we cannot be certain until confirmed by Q2 and Q3 numbers. The people who strongly expect a recession are arguing about it being a short V-shaped recovery vs. a prolonged recession. If we are in the midst of a recession with no quick recovery in sight, the debate will turn to regular recession vs. another great depression...
I will be keeping my eye on oil and commodities in general, but I would want to wait to buy at least until recession/depression expectations and oil prices stabilize and even start to improve.