how long can this price of crude last? is it a good time to buy a Escalade?
= new reply since forum marked as read
...I spit on it (ala Switters in "Fierce Invalids Home from Hot Climates"
. Or near it. In its general direction.
I've been thinking of widening my scope to include Escalades and Suburbans, et al.
You don't want to be one of those gas-guzzling douche-bags, do you?
DO YOU???
BAU and we bake the planet by 2100.
The main reason is Shale Oil. The two big Shale Oil fields, The Bakkan in North Dakota and Eagle Ford in Texas, where known for decades, but viewed as to expensive to put into production so where NOT put into production till the price of oil reached a point where it was finally profitable:
https://en.wikipedia.org/wiki/Bakken_formation
https://en.wikipedia.org/wiki/Eagle_Ford_Formation
The other "Tight oil formations" have NOT been found to have that much oil in them, thus as these two fields so, so does the present "Tight Oil" boom.
The big cost in "Tight Oil" (The more correct name for "Shale oil" is drilling the well. Once Drilled the well is good for only about five years, with "Peak Production" generally within 18 months of drilling. Please notes these are "Averages" some wells do better, other worse.
Now, when oil was hitting its high prices, oil drillers would get loans to drill new wells. The banks seeing the price of oil, then loaned them the money, based on that high price of oil. Wells were drilled, and continued to be drilled.
Another complications is most oil drillers signed leased with land owners giving the land owners so much money per month, whether oil is produced or not.
Thus till about 2014 you had easy money AND bills to be paid, so wells were drilled in the hope that the price of oil would stay high and in 2013-2014 period that the high prices would return.
Now, once the well was drilled, it is a low cost to pump out the oil. No problem when the price of oil was high, but when it started to drop, oil drillers faced a problem. The wells were producing the oil as expected, but the price the driller was getting was less then the cost of the lease, the loan and the cost of pumping. The cost of pumping was low, so the oil was pumped even if the oil was selling for less then the lease and loan costs, for if you can NOT maximize your profits, you minimize your loss. Given the cost of pumping was lower then the price of oil, the oil was sold and the "Profits" were used to pay off as much of the fixed costs as possible, those fix costs were in the form of the leases and the loans.
This is where the oil industry in the US is at the present time. The oil is being pumped and sold at a loss, for it was be a bigger loss if the oil was NOT pumped. On the other hand, the banks are no longer loaning money to drill new wells. You do NOT throw good money after bad and that is where the Tight Oil market is at the present time. Thus few new wells are being drilled.
Given the expected life time of these "Tight Oil" wells, they are expected to "peak out" in 2017 and then you will see a drop in US oil production.
Saudi Arabia has also managed to pump more oil then expects expected it do, Iraqi oil finally hit the world market after the problems during the US war in Iraq. The Kurds AND ISIS are selling whatever oil that are under their control, as is Russia. Together these countries have produced a glut of oil, and together the price may drop down to $20 a barrel. Libya had the best oil able to be produced at the least costs and that oil is still being sold.
Now, the cost of producing oil in Russia and Saudi Arabia is believed to be about $2 a barrel, but that is the "Sweet light" Oil Saudi Arabia has been selling for decades. The more recent increase in production in Saudi Arabia and Venezuela has been in "Heavy Sour" oil, best handled by the Refineries in Texas (Venezuela ships theirs to Texas by sea going BARGE and then import refined products back). This heavy sour oil is harder and more expensive to refine but it is what has been the source of most of the increase in Oil production outside the US (in the US the big increase has been in "Tight Oil" Formation as stated above).
Thus everything right now looks like 2017 is going be the turn around year, but then most of the "Tight Oil" wells in the US would have dried up and given few new ones are being drilled, no replacement oil will come from them. Saudi Arabia is also believed to be near its peak capacity in production, but Saudi Arabia has managed to exceed previous predictions of reaching peak. Please note even Saudi Arabia says it will peak, but in 2035 not before (no one believes them, but the issue is when that peak production will hit and it will be well before 2035).
Thus, most people are expecting the price of oil to continue to drop till 2017 unless something happens no one is expecting (For example if the West Antarctic Ice Sheet would collapse next March, it will increase world wide sea levels by 20 feet, and flood out most of the Texas Oil refineries) the price of oil will either stagnate or continue to drop.
I am sorry, I do not see $20 a barrel being realistic, for the simple reason that was the price in 2000 and the House of Saud could NOT keep it at that price at that time (and they tried). To many oil producers have costs that exceed $20 a barrel even to pump their oil, so at #20 a barrel I expect a lot of oil producing just stop pumping for that is the best way to minimize their loss. $45 is a price that have enough marginal producers able to make a profit,
Please note there is 42 gallons in a barrel of oil. During processing you can get 44 gallons of product (Natural Gas is used to process the oil, thus the oil can be refined into larger compounds then crude oil, thus the increase in the number of gallons per barrel).
$20 divided by 42 is just over 47 cents a gallon. Processing costs varies from 10 to 20 cents, with Federal Taxes being 18.4 cents a gallon. Thus 90 cents a gallon plus whatever is your state gasoline tax (PA is 60 Cents, so in PA the price of oil would be $1,50 a gallon). I just do not see it dropping that low, possible but not probable (and if it does, just for a few months, as the marginal oil producers just stop selling their oil). I have seen $2.35 a gallon so $1.50 is NOT unrealistic but if it hits that price, do NOT expect it to last more then a year.
Just a comment that a rapid increase in the price of oil will occur, when I have no idea and neither does anyone else, but it will occur and right now the bet is on 2017.
And the Answer is, it depends. In the 1970s when Oil first went from 25 cents a gallon in the late 1960s to 35 cents a gallon in the early 1970s (Before the oil embargo, I remember riding with my father and he complaining about 35 cents a gallon gasoline, I admit it was what brought my attention to the price of gasoline, I was only 12, I though it was normal til my older brother told me it had been 25 cents a gallon in the late 1960s, before I turned 10).
When the Oil Embargo hit in 1973, the price double to 70 cents a gallon. People were talking that it would hit a $1 a gallon. Thus my father decided to buy a Suburban.
Before you said, WHAT? Let me explain the family dynamics in 1977 when we purchased the suburban. We lived on the last Streetcar line in Pittsburgh. My father and I both used that streetcar line on a daily basis. The Suburban was NOT for commuting. How we ended up using it was to haul the whole family to events. We could fit 8 people into that Suburban, nine if someone was willing to ride "Luggage" behind the third seat. Thus it replaced two to four vehicles. Now the Suburban had a hard time getting 12 mpg, but if you look at how many people was being hauled by it, it was better then three or four cars getting 25 mpg (We are talking about the 1970s, they were very few 30 mpg cars in the market).
I bring this up, for if you are using the Escalade to commute to and from work, it is a waste of money. On the other hand if you are using it to haul four or more people to events, the Escalade/Suburban/Yukon would be a good choice. Thus my answer to your original question, buying an Escalade would be a a good or bad option depending on how you plan to use it. As a commuter vehicle by yourself, a waste of money, as a vehicle to haul four or more people, worth every penny.
Now for facts:
The Energy Information Agency is predicting oil price will bottom out in 2015 and then increase by four dollars a barrel in 2016:
http://www.eia.gov/forecasts/steo/tables/?tableNumber=8#
The World Bank is also expecting it to bottom out in 2015 and go into a slow increase:
http://knoema.com/yxptpab/crude-oil-price-forecast-long-term-2015-to-2025-data-and-charts
Here is a source that says prices will stay low til 2017:
http://fuelfix.com/blog/2015/08/18/analysts-oil-patch-will-come-roaring-back-to-life-in-2017/#30727101=0
Here is a 2010 report that said "Peak Oil" will hit in 2017:
http://oilprice.com/Energy/Crude-Oil/Respected-Oil-Analyst-Forecasts-Peak-Oil-by-2017.html
Even RT is saying the price should stay low till 2017:
http://www.rt.com/business/262645-opec-oil-rivalry-shale/
More reports indicating 2017 will be the year oil prices will start to climb:
http://www.therakyatpost.com/business/2015/07/01/global-crude-oil-price-may-start-spiking-in-2017/
http://www.miningweekly.com/article/sasol-sees-low-oil-prices-persisting-to-2017-but-expects-strong-upswing-by-decades-end-2015-09-07
Just some other cites that point to 2017 as the year the price of oil will go up. Now the EIA thinks the price of oil will bottom out in 2015, and then go into a slow but steady increase in price (2002-2008 repeated). Other sources says the price will stay low till 2017 and then start to spike.
Unlike coal, oil has always had someone setting price. Standard oil did this from the 1860s till 1912 by the simple expedient of willing to sign contracts at a set price years in advance. Most buyers of oil for distribution like the concept of a steady price, thus signed with Standard oil and kept on paying Standard oil the price agreed on in the contract even when the price of oil had dropped below that price. That set price also "saved" such distributors when the price went well above the price set in the contract. These buyers kept signing contracts with Standard Oil even when in the long run, they would have made MORE money if they just pay what the market produced. That is how Standard oil made its millions by providing a high but steady price.
In 1912 Standard oil was broken up, but WWI brought with in an increase in demand and thus price for oil (and Texas oil was discovered, oil outside the control of Standard Oil). This increase in demanded continued into the 1920s, but dropped like a rock with the great depression. At that point the Texas Railroad Commission, which had been given control over Texas oil production, started to set production limits. From the mid 1930s till 1969, the Texas Railroad Commission kept Texas oil production DOWN when the price was to low, and increased it when the price was to high. The only exception was during WWII when full production for the War Effort was permitted. One old joke about OPEC was it was formed in 1960 so the Seven Sisters no longer had to go all over the world to till the OPEC members what the Texas Railroad Commission had set for the price of oil. The Texas Railroad Commission ordered full production in all Texas oil fields in 1969, for the first time since WWII. That full production did not dropped the price of oil for Texas had loss the ability to set world wide oil prices.
Now, this was kept quite till the Oil Embargo of 1973. The Arabs had done Oil Embargo in 1956 and 1967, but since the US was a Net Oil Exporting Nations in those years, those embargo had little affect on the US. The 1973 Embargo SHOCKED the US, for the first time the US was affected by the Embargo, something no one had really thought about. It took a few years (and the affect of the 1979 Iraqi-Iranian war) for Saudi Arabia to use its ability to out produce anyone in oil to assume what the Texas Railroad Commission had done between 1935 and 1969, set world wide oil prices by controlling how much oil is produced by the House of Saud/ That is how the Saudi Arabia became so powerful, it kept its production DOWN when the price of oil was to low, and increased production when the price of oil was to high. Saudi Arabia did this for over 20 years, but then lost control of the price of oil in 2002 for the increase in oil production in Saudi Arabia was absorbed by the Market for oil and the demand for oil kept increasing. In 2008 oil prices peaked and for the first time since 1859, oil usage in the US Actually DROPPED. The price was so high every old oil well was being re opened to get what oil was left, "Tight Oil" (more after called "shale oil" finally became profitable and Saudi Arabia started to ship out heavy sour oil, a type Saudi Arabia had NEVER shipped before.
Between those three increases of oil sources and the drop in demand in the US due to the price of oil (A drop that has continued each year since 2008), the glut of oil of late 2008 was created. The subsequent drop in the price of oil was reversed within two years, i.e. 2010, but that just stabilized the price till 2014 when the bottom fell out of the market.
I bring this up for if you study the Coal Industry, you would be looking at a energy market that has NEVER had a single controlling entity over the price of coal. With Coal, you had no Standard Oil, no Texas Railroad Commission, no Saudi Arabia, no one who could increase production when the price was to high, and decrease production when the price became to low. Thus you had MASSIVE fluctuations in the price of coal, and that continues to this day. That is the future for the price of oil.
Worse, given that it appears Peak Oil has hit the world, these fluctuations will become more and more severe. One month the price of Gasoline may be $2 a gallon, and the next month $20 a gallon. The later price will bring out all types of marginal oil producers, so that the price will drop back to $5, as the marginal oil producers shut down their oil wells for at $5 a gallon, they can not make a profit. When the price hits $5 a gallon, the demand for gasoline will increase, driving up the price and the bring back the marginal oil producers til the price drops again. This cycle of boom and bust will become the norm but the overall average will be an increase in the price of oil, as each glut produces a higher lowest price then the previous glut AND each new drop in price gets shorter and shorter as more and more oil is used up.
Sooner or later the Government will have to step in to control the increase in the price of gasoline. I see the Government capping the price, but it will be a flexible cap, one that is constantly going up. I also see the government setting a bottom price. A price below which no oil can be sold. The purpose of this is to keep at least some of the marginal oil wells in production during gluts. This will smooth out the peaks and valleys in the price of oil which is the best the Government could do in such a situation. A cap with out a bottom is not workable, but a cap with a bottom price will smooth out the peaks and valleys of price.
The problem is I do not see the Government putting controls on the price of oil till after at least five years of massive price fluctuations. The Government will do so when it is forced to do so by civil unrest caused by people NOT being able to get to and from work due to the price of oil being so erratic. When people are rioting and the Police do NOT have the fuel to get the Police to the Riot, you have to address the cause of the riot, the erratic price of oil. Thus sooner or later the Government will be forced to act. If the Government does not it will be replaced.
