Goldilocks zone for oil prices is gone for good

I thought this was a pretty good read, obviously opinion, but insightful:

Five years ago, I wrote an article for Reuters titled “Goldilocks and the Three Fuels.” In it, I discussed what I call the Goldilocks price zone for oil, natural gas and coal, a zone in which prices are “just right” — high enough to reward producers but low enough to entice consumers. Ever since the start of the fossil- fuel era, such a zone has existed. Sometimes price boundaries were transgressed on the upside, sometimes on the downside, but it was always possible to revert to the zone.But now, the Goldilocks zone for oil has ceased to exist. This will have staggering consequences throughout the economy for the foreseeable future.
During the past decade, the Goldilocks zone for oil steadily migrated higher. As conventional crude reservoirs depleted and production rates leveled off, drillers had to spend proportionally more to develop the capacity to pump the next marginal barrel. Oil prices soared from $30 a barrel in 2005 to nearly $150 a barrel in 2008, collapsed during the economic crisis, then clawed their way back to roughly $100 a barrel, a price that was maintained through mid-2014. But the economy did not do well during this period. Despite massive bailouts, stimulus spending and low interest rates, the recovery following the 2008 crash was anemic.
However, at $100 a barrel, the oil price was high enough to incentivize fracking. Small, risk-friendly companies leased land and used expensive drilling techniques to free oil from rocks that geologists had previously described as too impermeable to bother with. This entailed a tenuous business model that required not only high oil prices but easy money as well, as low interest rates enabled producers to pile on enormous amounts of debt.
Oil production in the United States rose sharply as a result, and this eventually had an impact on prices. Since mid-2014, the oil price has declined by half, settling around the historic, inflation-adjusted mean price of $50 a barrel. Consumers are much happier than they were with oil at $100 a barrel, but producers are wilting. The American petroleum industry has seen more than 75,000 layoffs, the balance sheets of fracking companies are bleeding and drilling rigs are being idled by the score.
For consumers, experience suggests the acceptable oil-price zone is $40 to $60 a barrel in today’s dollars; higher than that, goods and services, particularly transportation, become more expensive than current spending patterns can handle. For producers, the acceptable zone is more like $80 to $120 a barrel; lower than that, upstream investments make little sense, so production will inevitably stall and decline — eventually making consumers even less happy.
You will have noticed that there is no overlap. An oil price of $70 a barrel would not be high enough to give the industry a rebound of confidence sufficient to inspire another massive round of investment. Clearly, consumers would be happier with $70-a-barrel oil than they were with $100-a-barrel oil, but if $70 isn’t a high enough price to incentivize production growth, then it’s not really in the Goldilocks zone.
According to the narrative emanating from most mainstream energy economists, oil production rates will soon slow, prices will rebound and everyone will be happy. That narrative misses the all-important news that Goldilocks is dead. There is no longer a price that everyone can live with. And that’s a recipe for price volatility.
For oil traders, price volatility may offer opportunities for profit. But for everyone else, it is treacherous. Price volatility only hints at the real extent of our peril: We have built an economic system overwhelmingly reliant on a nonrenewable, depleting resource. This is not a sustainable situation. Unless our dependency on oil somehow magically disappears, we are in for a wild ride on an unmapped road.

I don’t believe the op/ed really says anything which isn’t common knowledge…

volatility in energy prices has existed since the 70s…why do the producers seem to always forget this when making their spending decisions?

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Its just crazy how some commodities can be subject to such price swings independent of everything else, while others barely.

This site has some really interesting charts…yeah ted that chart looks great with your tie!

[QUOTE=z-drive;157612]I thought this was a pretty good read, obviously opinion, but insightful:

http://blogs.reuters.com/great-debate/2015/03/24/goldilocks-zone-for-oil-prices-is-gone-for-good/[/QUOTE]

Anybody else mystified by the rational discussion in the article about the sweet spot between producer costs and consumer prices and then the ADHD-leap in logic to the Malthusian “peak oil” conclusion?

Opinion, yes. Agenda too.

The backlash after the short term cheap frac oil in US are gone, is going to be brutal. All it does for the moment is destroying the market. The second Russia and Venezuela have had a regime change, the US goverment is going to legislate it to death.

And people who buy a car based on short term oil prices are morons.

I agree. But what about those who sell a “gas guzzler” when gas is cheap? Inverse of moron, perhaps?

[QUOTE=z-drive;157644]I agree. But what about those who sell a “gas guzzler” when gas is cheap? Inverse of moron, perhaps?[/QUOTE]

Well if you have a gas guzzler you want to sell, this is the time to do it. It’s a time of opportunity :slight_smile:

[QUOTE=lm1883;157686]It was not lost on me. BTW I just read that the U.S. Department of Energy estimates there are over 1 trillion bbls of reserves in Venezuela, 80 billion in proven reserves. Interesting.[/QUOTE]

obviously we need to invade and install a government friendly to the US! I mean what is the point of having this megasized military if we can’t use it to further OUR strategic interests/

[QUOTE=c.captain;157688]obviously we need to invade and install a government friendly to the US! I mean what is the point of having this megasized military if we can’t use it to further OUR strategic interests/[/QUOTE]
Yes because the US have such a good track record of installing friendly governments around the world.

The smartest thing we could do is to stay out of Venezuela, and just let it collapse under the weight of its own failed socialist experiement.

[QUOTE=tugsailor;157699]The smartest thing we could do is to stay out of Venezuela, and just let it collapse under the weight of its own failed socialist experiement.[/QUOTE]

how in the name of God did Venezuela end up sitting on top of so much oil…a trillion barrels possibly? I mean even 100billion barrels is more than all the combined proven reserves of the USA including Alaska!

why are we being such nice guys where the late Chavez and now Maduro are concerned? I guess it is because they are keeping the spigots open to us but if the close them, then I would bet we’d be down there with a carrier battlegroup or two to flex a little muscle and intimidate the crap out of them

[QUOTE=tugsailor;157699]The smartest thing we could do is to stay out of Venezuela, and just let it collapse under the weight of its own failed socialist experiement.[/QUOTE]

It is sad to see how it went with Venezuela. But as most latin american countries the foundation for a successful socialist society was not in place.

[QUOTE=lm1883;157711]More Miss Universe winners from Venezuela than any country. I stand ready to help win the hearts and minds…[/QUOTE]

HEAR! HEAR!

I stand ready to assist to deal with your rejects!

[quote=c.captain;157723]hear! Hear!

i stand ready to assist to deal with your rejects![/quote]

sign me the fuck up!

[QUOTE=Kraken;157702]It is sad to see how it went with Venezuela. But as most latin american countries the foundation for a successful socialist society was not in place.[/QUOTE]

Not with a government run by entrenched petty thugs and endemic corruption. Think corruption 100 times worse than Mexico, or about two times better than Nigeria.

Those huge Venezuelan oil reserves are mostly a semi-liquid sour asphalt like substance that is very expensive to produce and refine. A lot of it is in very remote areas, such as Orinoco. Arctic oil will be cheaper to produce and refine with a lot less political risk.

[QUOTE=Kraken;157698]Yes because the US have such a good track record of installing friendly governments around the world.[/QUOTE]

Those idiots in washingrad can’t deliver mail without going a billion dollars a year over budget, and some how they think they can set up a friendly democracy in a place that never was friendly, and does not want to be democraciezed. I am not sure who is more Delusional the idiots in washingrad or the foolish people who continue to vote the same idiots back in office.