Pundit expects oil price to settle into $60-$75 range long term.

[pampango]

"Just as there was no reason for oil to trade at $147 per barrel, there is absolutely no fundamental reason why oil should trade at levels below $60 on a long term basis.

(I)n my view, the long term marginal cost of production should fall within a range of $48 to $53 per barrel. If new production is required as a consequence of rising demand, long term oil prices can be expected to range from $55 to $61 per barrel.

(T)he marginal cost of production of OPEC is low, very low; the OPEC oil industry can remain profitable even at $15/barrel. The marginal cost of production from oil sands (Canada) and deep/ultra-deep water (United States, Brazil, Angola, Nigeria) is far higher and it is these which will bring new production on market. Now, the marginal cost of production for deep/ultra-deep water (main new production expected from Brazil, United States and Angola) is near enough $60 per barrel; the marginal cost of production for oil sands (Canada) is much higher. Realistically, even with a significant economic slowdown, demand growth will surpass production growth. If production growth is to come to market, oil prices must sustain over $60.

Outside of the OPEC, there is visible production able to come to market of 1 million barrels per day from United States (447k barrels), Brazil (291k barrels) and Azerbaijan (268k barrels). Brazil and United States bring new production from deep/ultra-deep water with high marginal costs of production. Azerbaijan has a lower marginal cost of production; nonetheless its source in the Caspian Sea. The Caspian is an expensive operating environment because it is land locked which makes transportation an expensive proposition; in addition because the Caspian Sea is land-locked, the cost of bringing offshore drilling equipment is high; so while cost of production is lower than deep/ultra-deep water, it is not cheap. Offsetting these visible production gains are visible production declines in the North Sea (282k barrels) and Mexico (287k barrels); on a global level, net non OPEC visible production capacity will increase by 105k barrels per day."

http://seekingalpha.com/article/108685-opec-and-production-cuts-why-now-s-the-time-to-buy?source=yahoo

His main point seems to be that while OPEC can produce oil profitably at $15, then can't produce enough to meet world demand even at the reduced levels of the economic crisis. As more expensive wells are needed to meet demand, the marginal cost of rises to the $60 level of offshore wells. Oil prices below this level, as they are now, will lead to reduced production at these higher cost wells.

[bemildred]

1. Happy talk. Nobody even knows what "long term" means.

"Volatility" is very high, and there is no reason at present to expect it to come down.

[ThomWV]

5. Actually there is a pretty good definition of "long term" as concerns oil

I think when you talk about "long term" as concerns oil the time period is from the present until such a time as diversification of energy sources has reached the point at which oil use has reached a constant minimum, that in each case where a suitable alternative to oil has been found and is in use and the consumption rate is more or less constant - then you will have reached long term. Basically when oil is used primarily for lubrication (with recycling) and other tasks and we quit burning it.

[bemildred]

7. Bah.

Economies are complex, non-linear equilibrium systems. Once you disturb a stable state, you don't know:

1.) When you might be able to get it stabilized again.
2.) Whether the new stable configuration will be near or far from the old one.
3.) What particular procedures you need to follow to stabilize it, though you can make general statements that pushing it farther from balance is not good, disrupting the negative feedback mechanisms is not good.

This is not physics, physics is the wrong sort of model entirely, and the mathematics of physics is the wrong mathematics for it. Pretending that you know where you are going just makes it easier to keep driving into the ditch. Humility and fear are the proper emotions, dispassionate and open-minded attention is the proper attitude.

[ThomWV]

8. Wise answer

You did not ask about a stable economy and I did not speak about one. I said when the use of oil has stabilized and hinted that would come when it was used only where there was no substitute for it. If you had a clue about economics you would know that it the idea of substitution that determines long from short or intermediate term. Schools teach this stuff, you should avail yourself of one.

[bemildred]

9. I explained why nobody knows what "long term" means.

If you don't know when or how things will stabilize, you don't know what "long term" means, you don't even know what it might look like.

Not trying to annoy you, just expressing my views.

[pampango]

10. While no one can predict when and at what level the world economy will stabilize,

I believe the author's point was that, unless world oil demand is low enough to avoid the necessity of using offshore and other "expensive" sources of oil, the price will have to approach $60 in order to get production from these sources.

[bemildred]

11. I'm not against the law of supply and demand.

I'm against the notion that business as usual will be restored any time soon, which the very use of the term "long term" implies, that over the "long term" things are still predictable, or that the result will look something like what we had, in other words that there will be substantial continuity in the global economy. I don't think that that is likely, and I think the likelihood decreases as time goes on.

[bemildred]

12. My point is that we have LOST CONTROL of the economy.

Our leaders are pulling the levers and the levers do not work. In this situation, talking about what the long term stable price of anything is going to be is happy talk.

[tritsofme]

2. Weren't these people predicting $300/bbl oil by January?

The only certain thing about this oil market is uncertainty.

[pampango]

3. I don't know if this person was predicting $300 earlier this year. If the cost of offshore oil is

$60 a barrel and the current (reduced) world demand requires some offshore oil, he provides some basis for his price estimates. Of course, oil demand could plunge with the continued economic crisis, so that there is no need for offshore (or other more expensive) oil, so that the price could go down further.

You are right about the uncertainty. This pundit is merely an investment guy who thought oil was overpriced earlier this year and underpriced (in terms of how much it costs to produce) now. Doesn't mean he is right, but the information about costs in different parts of the world and different types of oil wells was helpful to me. :hi:

[MessiahRp]

13. Some financial pundits were...

Although I'm not sure if it was so much a truthful speculation or wishful thinking based on their own personal investments.

Rp

[ThomWV]

4. $35~$40

Its not worth a dime more.

[RB TexLa]

6. Then don't purchase it for more than it's worth. If it's not worth more than that, you would never

pay more than that for it, right?

[spanone]

14. probably right where they should have been for the last several years...we been gouged