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Bank Of America: WTI Oil $50/bbl Possible By 2015  
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6442 posts, RR: 34
Posted (1 year 11 months 1 week 1 day ago) and read 2986 times:

Bloomberg posted an article today where they report that Bank of America repeated their forecast that US crude may hit $50 a barrel in the next 24 months because of the huge increase in North American oil production.

Already, because of pipeline capacity limitations (that can't be eased for at least 2-3 years even if the XL and Northern Gateway are approved), oil from north of the border was already being sold at $42.50 a barrel less than U.S. crude last month (WTI is around $95/bbl).

As I have posted previously, Adam Pilarski of AVIATAS has been predicting for the last couple of years that oil could reach less than $40/bbl before the end of 2017 because of the dramatic increase in domestic oil production due to fracking, on the one hand, and the increasing fuel efficiency across both industry and transportation sectors (BTW, for the first time in ~40 years, gasoline exports were the largest US export item last year, supplanting aircraft at the top of the export list).

He points out that the often touted growth in demand from China does not have as great an impact on total global oil demand as the most people imagine. The combination of North American increased oil production coupled with decreasing oil consumption in N. America (and Europe) offsets China’s oil demand growth. Between 2005 and 2011 China’s oil consumption growth was 54% while total global demand rose only 0.5%.

It should go without saying that oil at the $40-$50/bbl range will have a significant impact on aircraft sales. The actual $ delta on re-engine vs OEO/NG NBs will be drastically reduced and it will no doubt be interesting to watch how long the OEMs keep production of the cheaper OEO/NG NBs going. As well, with oil possibly reaching those depths we might also see a longer production run of "old" WBs... and, just perhaps even a possible increase. It might even breathe a bit of life into the RJ market. And we could even possibly see EMB pushing back EIS of the G2 E-jets and just go with periodic upgrades along the lines that they are starting this year.


Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
18 replies: All unread, jump to last
 
User currently offlinerwy04lga From United States of America, joined Jul 2005, 3176 posts, RR: 8
Reply 1, posted (1 year 11 months 1 week 1 day ago) and read 2950 times:

That would dampen Delta's planned benefit from the Trainer refinery.


Just accept that some days, you're the pigeon, and other days the statue
User currently offlinerwy04lga From United States of America, joined Jul 2005, 3176 posts, RR: 8
Reply 2, posted (1 year 11 months 1 week 23 hours ago) and read 2855 times:

Quoting Planemaker (Thread starter):
huge increase in North American oil production.
Quoting Planemaker (Thread starter):
oil from north of the border

Why can't people just say CANADIAN oil?? Romney, in his campaign, always said 'North American' oil to fool people into thinking it was 'American' oil. He couldn't fool them enough by just saying 'Canadian' oil.



Just accept that some days, you're the pigeon, and other days the statue
User currently offlinetugger From United States of America, joined Apr 2006, 5797 posts, RR: 10
Reply 3, posted (1 year 11 months 1 week 23 hours ago) and read 2700 times:

Quoting Planemaker (Thread starter):
The combination of North American increased oil production coupled with decreasing oil consumption in N. America

Well if actually does go to $50/bbl then that will end or at least put a serious crimp in a lot of the "new" oil recovery currently underway across the USA, & Canada (not counting Mexico at the moment as I believe their oil reserves are mostly a different type).

If I recall, a lot of the new found oil, the shale and oil sands, requires a price of at least $60/bbl (maybe even $70) to work as a viable investment. Now granted a lot of sunk cost has already been put in place so the needed price may be different but many should remember what happened in Texas and to their economy when the oil prices dropped precipitously in the 1980's.

Tugg



I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlineDarksnowynight From United States of America, joined Jan 2012, 1412 posts, RR: 3
Reply 4, posted (1 year 11 months 1 week 21 hours ago) and read 2628 times:

So what does this mean for OPEC?

Seems that this really doesn't apply to their cartel. They do have a nasty tendency to inflate demand by reducing production when their profits are threatened. I realize that here in the US we don't buy much of our oil from there, but given the global nature of the market place, I'm not so sure we'll see low enough sustainable prices to get back into bed with RJs, for example. But make no mistake, I'd love to be wrong about that one.



Posting without Knowledge is simply Tolerated Vandalism... We are the Vandals.
User currently offlineokie From United States of America, joined Jul 2003, 3190 posts, RR: 3
Reply 5, posted (1 year 11 months 1 week 19 hours ago) and read 2543 times:

Quoting Planemaker (Thread starter):
Bloomberg posted an article today where they report that Bank of America repeated their forecast that US crude may hit $50 a barrel in the next 24 months because of the huge increase in North American oil production

I would say just an opinion and just one slice of the pie or spoke in the wheel of oil pricing. You probably would not have to look long to find an article that would say $150 in two years.

Oil priced in US dollars as the benchmark. Oil prices will generally be priced in accordance with the value of the US dollar along with supply and demand along with other economic factors.

Now I will say that I am quite integrated with the oil & gas industry so my perspective is somewhat leaning that direction.
I would only speculate that $75 per barrel at today's dollar would be the lowest you would ever see WTI and $85 for Brent, short of a massive global recession. Even if prices dropped to $75 new exploration would stop until prices came up to a point that it became profitable to drill again. That would be in pretty short order as if you understand oil production that the volume of oil out of a well drops considerably after short period of time. The larger quantities of oil we are seeing now is due to a massive investment by individuals and oil companies that have invested in the last 3 years for new exploration. That amount of production will naturally drop.

I can tell you right now from what I see is that the industry is in the process of gearing up for higher prices on the liquid side due to the expected devaluation of the dollar because of the massive borrowing of the US. The gas side is still stagnate and is expected to stay so for quite sometime. But that is just Okie's opinion.

Okie


User currently offlinewindy95 From United States of America, joined Dec 2008, 2755 posts, RR: 8
Reply 6, posted (1 year 11 months 1 week 6 hours ago) and read 2424 times:

Quoting rwy04lga (Reply 2):
Why can't people just say CANADIAN oil?? Romney, in his campaign, always said 'North American' oil to fool people into thinking it was 'American' oil. He couldn't fool them enough by just saying 'Canadian' oil.

Because it is both. Oil production is rising in both countries thus North America.

Quoting Darksnowynight (Reply 4):
Seems that this really doesn't apply to their cartel. They do have a nasty tendency to inflate demand by reducing production when their profits are threatened. I realize that here in the US we don't buy much of our oil from there, but given the global nature of the market place, I'm not so sure we'll see low enough sustainable prices to get back into bed with RJs, for example. But make no mistake, I'd love to be wrong about that one.

The Americas have enough carbon based fuels to disconnect ourselves from OPEC. Why they do not organize an cartel of the Americas is beyond me. We do not need OPEC. We could create our own market.



OMG-Obama Must Go
User currently offlinecasinterest From United States of America, joined Feb 2005, 4796 posts, RR: 3
Reply 7, posted (1 year 11 months 1 week 5 hours ago) and read 2416 times:

Quoting windy95 (Reply 6):
Because it is both. Oil production is rising in both countries thus North America.

There was a great picture the other day of a night shot of North America, and you could see North Dakota lit up due ot all the Natural Gas Burnoff. There is a lot of production in North Dakota these days. So much so that they are the 2nd largest state producing oil right now.

Quoting Darksnowynight (Reply 4):
So what does this mean for OPEC?

Seems that this really doesn't apply to their cartel. They do have a nasty tendency to inflate demand by reducing production when their profits are threatened. I realize that here in the US we don't buy much of our oil from there, but given the global nature of the market place, I'm not so sure we'll see low enough sustainable prices to get back into bed with RJs, for example. But make no mistake, I'd love to be wrong about that one.

Opec has an advantage in easy to reach oil reserves. However as currently shown in Canada and increasing locations around the world. Fracking is a viable technology. Even if a bit contoversial. OPEC has always had an advantage in that they really didn't need much oil, but controlled it all. With their instability and constant manipulation of prices, they have allowed other technologies to come online that are actually a serious threat ot their monopoly. Fracking, Natural Gas, Electric. They will still maintain wealth, but they will have competition. The upshot of that is good for all consumers.



Older than I just was ,and younger than I will soo be.
User currently offlineokie From United States of America, joined Jul 2003, 3190 posts, RR: 3
Reply 8, posted (1 year 11 months 1 week 5 hours ago) and read 2401 times:

Quoting windy95 (Reply 6):
Why they do not organize an cartel of the Americas is beyond me. We do not need OPEC. We could create our own market

Come on now, you hear all the screaming going on over "big oil" which happens to be thousands of oil producers in the US and Canada.
I would not even want to imagine what it would be like if you were talking a Cartel controlling prices.

Okie


User currently offlinetugger From United States of America, joined Apr 2006, 5797 posts, RR: 10
Reply 9, posted (1 year 11 months 1 week 4 hours ago) and read 2391 times:

Quoting Darksnowynight (Reply 4):
So what does this mean for OPEC?

Seems that this really doesn't apply to their cartel. They do have a nasty tendency to inflate demand by reducing production when their profits are threatened. I realize that here in the US we don't buy much of our oil from there, but given the global nature of the market place, I'm not so sure we'll see low enough sustainable prices to get back into bed with RJs, for example. But make no mistake, I'd love to be wrong about that one.

Well this report is mostly dealing with WTI (West Texas Intermediate) and not Brent which is what Mid-East oil tracks. This is due to the glut of oil occurs around Cushing OK, once the pipelines are built and/or reversed the glut should ease and prices for WTI should rise. Though with that said even the Middle East oil states do not really want prices to go below ~$90 nowadays. They are building a lot of infrastructure, investing a lot for when oil becomes less vital, and are spending a lot to address the "unrest" that exists over there.

Quoting windy95 (Reply 6):
Why they do not organize an cartel of the Americas is beyond me.

I believe that would be called "collusion" and is illegal here.

Tugg



I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlineAesma From Reunion, joined Nov 2009, 6958 posts, RR: 12
Reply 10, posted (1 year 11 months 1 week 4 hours ago) and read 2389 times:

What about "free markets" ?

If non OPEC countries put pressure on prices by producing more and more, OPEC countries will produce less and the price will stay high. There is no benefit whatsoever for their economies if oil is cheap, unlike our economies. They'd rather sell half as much oil for twice the price, and keep oil for the future. It seems the US doesn't care if these new discoveries only last a couple of years.

Besides, if selling prices drop in North America, the oil companies will just export to other markets to keep their margins as high as possible.



New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
User currently offlineSTT757 From United States of America, joined Mar 2000, 16907 posts, RR: 51
Reply 11, posted (1 year 11 months 1 week 4 hours ago) and read 2374 times:

Quoting rwy04lga (Reply 1):
That would dampen Delta's planned benefit from the Trainer refinery.

Buckeye pipeline recently purchased the Chevron asphalt Refinery in Perth Amboy, they have big plans for it's expansion to refine and bring to market oil from the Mid-West/Plains/Canadian fields by train.

Quote:
Buckeye’s plan is driven by changing dynamics in crude oil markets—while supplies are tight on the East Coast, a glut of oil exists in the western United States thanks in part to increased production of "Bakken’’ shale oil from Montana, the Dakotas and Canada. That makes it profitable for Buckeye to transport crude Bakken shale oil by train, and other oil supplies by boat from a hub in the Bahamas.

The article says this about DL's Trainer facility:

Quote:
High crude prices in the Northeast had prompted recent refinery sales including that of Philadelphia-area facility Trainer bought by Delta Airlines. Some analysts said unless it imported cheaper oil by train or boat, Delta would be hard pressed to make money.

Also this about their future prospects:

Quote:
But now Buckeye is exploring the option of importing Bakken crude by train at the behest of several unidentified customers.

The company’s management is keeping an eye on the jet fuel market as it also considers expanding pipelines to John F. Kennedy International Airport in the future, according to an investor presentation this spring.

I wonder who their unidentified customers might be?

http://www.nj.com/business/index.ssf...erth_amboy_refinery_to_get_ne.html



Eastern Air lines flt # 701, EWR-MCO Boeing 757
User currently offlineArrow From Canada, joined Jun 2002, 2676 posts, RR: 2
Reply 12, posted (1 year 11 months 1 week 4 hours ago) and read 2367 times:

Quoting rwy04lga (Reply 2):
Why can't people just say CANADIAN oil?? Romney, in his campaign, always said 'North American' oil to fool people into thinking it was 'American' oil. He couldn't fool them enough by just saying 'Canadian' oil.

Thank you. Not often that fact is recognized below the 49th parallel.

Quoting okie (Reply 8):
Come on now, you hear all the screaming going on over "big oil" which happens to be thousands of oil producers in the US and Canada.
I would not even want to imagine what it would be like if you were talking a Cartel controlling prices.

A form of this has been in place for several years. NAFTA (which everyone south of the border seems to think was a big sellout -- at least Democrats think that) guarantees Canadian energy supply to the US with a clause that sez Canada can only reduce supply to the US in proportion to reductions in Canada. Not a price cartel, but it's pretty effective -- and Canadian oil sells in the US now for far less than it would command in other markets.

But before everyone gets all euphoric about $50 oil, remember that below $50 most of that "dirty" tar sands oil isn't economically viable. Remember too, that with Obama's seeming determination to block Keystone, Canada is likely to focus now on pursuing Asian markets with some vigour.



Never let the facts get in the way of a good story.
User currently offlinetugger From United States of America, joined Apr 2006, 5797 posts, RR: 10
Reply 13, posted (1 year 11 months 1 week 3 hours ago) and read 2351 times:

Quoting Arrow (Reply 12):
Remember too, that with Obama's seeming determination to block Keystone, Canada is likely to focus now on pursuing Asian markets with some vigour.

Two things: First, why do people persist only putting ht Keystone fiasco on President Obama when it was the oil company the took it "political" and made it federal and tried to shove it through with eminent domain as they felt it would be cheaper and easier than adjusting the route or design and getting all the land concessions they needed. This is a property rights issue, not a Presidential issue.
http://www.businessweek.com/articles...tone-not-under-my-backyard#r=lr-fs

The pipeline will be approved and will be built but in a normal way with the property owners and states agreement and without having to get federal level politicians involved as much. It's just not that big a deal nor all that insurmountable.

Second, the reason why TransCanada is going the route it is going is because it is the best and most economical route to go. To go west means going through even worse environmental issues and through Native American territory and dealing with the Rockies. It just nowhere near as viable as going south and connecting to the pipeline network in the USA. Yes, alternate route are being explored and proposed but it won't without so significant changes in both directions.

By the way, it appears the new route was just approved by Nebraska and it is now heading for President Obama's desk. So I guess we'll find out soon whether it is a political tool or what I have been saying. http://www.ktiv.com/story/20648412/2...xl-pipeline-route-through-nebraska

Tugg



I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlineArrow From Canada, joined Jun 2002, 2676 posts, RR: 2
Reply 14, posted (1 year 11 months 1 week 3 hours ago) and read 2336 times:

Quoting tugger (Reply 13):
To go west means going through even worse environmental issues and through Native American territory and dealing with the Rockies. It just nowhere near as viable as going south and connecting to the pipeline network in the USA. Yes, alternate route are being explored and proposed but it won't without so significant changes in both directions.

All of that is true -- but you're not taking into consideration how important it is strategically for Canada to have access to more than one market for its oil. Alberta estimates that the price discount in place for oil shipped south costs them billions a year in revenues. It is foolhardy in the extreme to put all your export eggs in one basket, and Canada has done that for far too long with just about everything it sells. Frankly, I'm not all that confident that the US economy is going to recover quite as ebulliantly as predicted, given your politicians' inability to get their heads out of their a**es.

As far as "dealing with the Rockies," there are already gas and oil pipelines through the Rockies, and they've been there for more than 60 years -- the existing Trans Mountain line from Edmonton to Vancouver was built in the 50s, significantly expanded about 5 years ago, and could be significantly expanded again. Northern Gateway is probably dead in the water because they mishandled it so badly -- but there are other options, including rail. Yes -- there are lots of folks who don't want to see that -- but they are the same folks who think Canada should shut down the tar sands. I wonder if they'd be happy with their reduced standards of living should that happen.

Add to all of that the fact that domestic oil supply in the US appears to be going up -- and Canada would be absolutely nuts to think that big market down there is a given. The faster they diversify, the better -- and I don't care if the oil goes east or west, as long as they don't think it will continue to go south.



Never let the facts get in the way of a good story.
User currently offlinetugger From United States of America, joined Apr 2006, 5797 posts, RR: 10
Reply 15, posted (1 year 11 months 1 week 3 hours ago) and read 2326 times:

Quoting Arrow (Reply 14):
All of that is true -- but you're not taking into consideration how important it is strategically for Canada to have access to more than one market for its oil.

And you are right, my post wasn't in that vein. It was just looking at and considering the issues involved with the Keystone pipeline and why it was halted temporarily but the stop wouldn't be sufficient alone to give rise to a "western" solution.

You are very correct in your post regarding the strategic need to have access to markets, it will just be more difficult and take longer than it should. I do hope/think it will happen, Canada should not be as "stuck" with the USA as it currently is. I will also add that once it does have better market access I think there will be even more exploration. Right now there is a "we have enough for the USA and the USA is finding more itself so why look for more" element that is suppressing greater interior energy exploration. That along with the boom going on in Newfoundland (not the Maritime Provinces as I had noted incorrectly) will really bring Canada into its own as an "oil power".

Tugg

[Edited 2013-01-22 10:08:38]


I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlineDarksnowynight From United States of America, joined Jan 2012, 1412 posts, RR: 3
Reply 16, posted (1 year 11 months 6 days 10 hours ago) and read 2197 times:

Quoting windy95 (Reply 6):

The Americas have enough carbon based fuels to disconnect ourselves from OPEC. Why they do not organize an cartel of the Americas is beyond me. We do not need OPEC. We could create our own market.

Well, we're already not members of OPEC, and we most of our Oil from Canada, so I think we're on the way. Not sure about starting another Cartel, as our deal with the Canadians doesn't seem as advantageous to our northern neighbors as it should be. But otherwise, I wouldn't see a real problem with that, so long as it does not result in harmful effects at the consumer level.

I think my primary concern with the OPEC issue would be the distortion effect they can still apply on the global market, and how that can affect prices here...

Quoting Arrow (Reply 14):

All of that is true -- but you're not taking into consideration how important it is strategically for Canada to have access to more than one market for its oil. Alberta estimates that the price discount in place for oil shipped south costs them billions a year in revenues. It is foolhardy in the extreme to put all your export eggs in one basket, and Canada has done that for far too long with just about everything it sells.

So that begs the question, what's in it for Canada?



Posting without Knowledge is simply Tolerated Vandalism... We are the Vandals.
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6442 posts, RR: 34
Reply 17, posted (1 year 11 months 6 days 3 hours ago) and read 2135 times:

Quoting tugger (Reply 9):
This is due to the glut of oil occurs around Cushing OK, once the pipelines are built and/or reversed the glut should ease and prices for WTI should rise.

They won't rise appreciably because new pipelines will only add to the glut that exists. The REAL problem is that gasoline and diesel consumption has declined in North America (and will continue declining) WHILE oil production has increased dramatically.

Quoting tugger (Reply 9):
Though with that said even the Middle East oil states do not really want prices to go below ~$90 nowadays.

It isn't just ME countries... it is all oil producing countries.

Quoting Aesma (Reply 10):
Besides, if selling prices drop in North America, the oil companies will just export to other markets to keep their margins as high as possible.

Sounds simple in theory but it is more complicated.

Quoting Arrow (Reply 12):
But before everyone gets all euphoric about $50 oil, remember that below $50 most of that "dirty" tar sands oil isn't economically viable.

As you know, that is really a moot point without "export" pipelines. Even with existing pipelines the Canadians are getting squeezed out since the cheaper Bakken oil is able to pay for higher pipeline tolls. One CDN oil producer had to accept less than $40/bbl last month to get their oil to market.

Quoting Arrow (Reply 12):
Remember too, that with Obama's seeming determination to block Keystone, Canada is likely to focus now on pursuing Asian markets with some vigour.

The fact that Obama brought up climate change in the inaugural address darkens KXL's chances. It may be approved but I don't see it proceeding on schedule.

Quoting tugger (Reply 13):
It just nowhere near as viable as going south and connecting to the pipeline network in the USA.

The KXL is really mainly about Gulf Coast refiners substituting Venezuelan heavy oil for CDN tar sand oil as that is what many of the refineries are built for. As I mentioned earlier, gasoline exports supplanted aircraft exports as the leading export item last year.

Quoting Arrow (Reply 14):
and could be significantly expanded again.

Yes, it "could" and they are trying to sell a massive expansion (actually, another, much bigger pipe following the same right of way). However, it is going to be almost as difficult as the Northern Gateway to come to fruition for the same reasons.

However, while talking about oil production is very interesting, with fuel costs running at 40% to 50% of airline operating costs, the single largest expense line item, the real purpose of this thread was to discuss how would a 50% reduction in oil prices play out in commercial aviation (airlines/OEMs/financiers/lessors) in the next couple of years.

Airline profitability (and in some cases, survival) would obviously be greatly enhanced and reduced ticket prices would increase pax demand.

However, for OEMs... it might not be so positive. For example, the net $ delta on re-engine vs OEO/NG NB's would be reduced to single digits. Airlines could defer retirements and replacements and defer NEO/MAX deliveries. OEO/NG residual values would firm up improving the lessors' balance sheets. How long would OEM's keep production of the lower cost OEO/NG aircraft going... let alone their combined 84/mo frame rate? Ultimately, it could further delay the introduction of all-new NBs from A & B. And, perhaps, even the 767/330 might have production runs extended.

Other impacts could be a temporary "life line" for some CRJ and ERJs. We could possibly also see EMB pushing back EIS of the just announced G2 E-jets re-engine and instead just go with scheduled upgrades that they are starting this year.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlinemah4546 From Sweden, joined Jan 2001, 33289 posts, RR: 71
Reply 18, posted (1 year 11 months 6 days ago) and read 2085 times:

Oil collapsing in price again is an absolute given. I think people are used to $4/gal gas now in the U.S., but $2/gal gas is going to return, make no mistake.


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