Verleger Predicts $20 Oil This Year on ‘Devastating’ Crude Glut

[Joanne98]

Source: Bloomberg

July 16 (Bloomberg) -- Crude oil will collapse to $20 a barrel this year as the recession takes a deeper toll on fuel demand, according to academic and former U.S. government adviser Philip Verleger.

A crude surplus of 100 million barrels will accumulate by the end of the year, straining global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said.

“The economic situation is not getting better,” Verleger, 64, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a telephone interview yesterday. “Global refinery runs are going to be much lower in the fall. If the recession continues and it’s a warm winter, it’s going to be devastating.”

Crude oil last traded at $20 a barrel in February 2002. Futures were at $61.18 today in New York, having recovered 89 percent from a four-year low reached last December. The Organization of Petroleum Exporting Countries is implementing record supply cuts announced last year in response to plunging consumption.

“OPEC don’t realize the magnitude of the cuts they need to make,” which would total about a further 2 million barrels a day, Verleger added. “Storage is going to become tight. It’s not clear if there’s going to be enough storage available.”


Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=auTu3RI8WC1A

[truthisfreedom]

1. Weird that the only thing that can save big oil is shitty weather.

Everything has been so mellow weatherwise lately. My personal prediction? $10/bbl oil within 5 years.

[happyslug]

19. Number are NOT there is Five Years

The Two biggest oil fields in Production are in decline, and that decline will accelerate over the next five years. Thus five years from now you will probably see $100-200 a barrel oil (if NOT higher). On the other hand, given the surplus of oil in the world market today, the price of oil TODAY is to high, it should be $10-20 a barrel TODAY.

More on Depletion:
http://en.wikipedia.org/wiki/Oil_depletion

Hubbert Peak Theory:
http://en.wikipedia.org/wiki/Hubbert_peak_theory

If you notice the big issue in regards to oil production peak and decline is WHEN it will occur NOT if it will occur. Sometime in the next 20 years world wide oil production will decline (Most independent geologist say around 2010, pessimists said it occurred around 2005, the US Government and OPEC says 2030, but no one believes them, most go with the Geologists and 2010). Please note all Three estimates are based on guesses as to how much oil are in the OPEC countries, no one really knows for that is a state secret in all of them. Geologist rely on the old reports of the Oil Companies when they controlled those fields (And NO major new oil fields in the OPEC countries have been found since the Oil Companies had to withdraw when the OPEC Countries nationalized their fields in the 1970s). The pessimists believe even the Oil Companies lied about how much oil was in the ground, so that when the fields were nationalized the oil companies would get the most money for the fields). Notice all three reports are attempts to work around the lies about how much oil is in the ground, the overall consensus is OPEC is lying and has been lying since the 1980s (When the previous oil glut hit, causing oil prices to drop like a rock, oil exports under OPEC was determined by how much oil each OPEC country had in the ground, given all of them a huge incentive to lie about how much oil was under their Country's lands).

This is complicated by the fact that whenever you have a shortage, price will go through the roof (Remember 2008? and then people will buy less of it. If the drop in demand is severe enough
you will see a drop in price. This seems to be what has happened since the Summer 2008, the high prices forced this recession on and the recession has seen a HUGE drop in the demand for oil (Not only in the US, but world wide including shipping goods from Asia to Europe and the US and from Europe to the US). This drop has lead to today's surplus and the forth coming drop in price. Speculators kept hoping US summer driving would increase, providing a base for the price, but it never did. US Sales drop like a rock, so demand for shipping dropped and with it even more support for the price of oil.

My point is sooner or later the US and world economy will get back on its feet and with it the demand for oil, prices will then go up. This will be a severe increase if production levels of the various major oil fields drop, as they are expected to do so. Thus I can support a $10 a gallon by Christmas, but NOT in five years. The price can be $100 by then (and drop back to $20 if the future increase in oil prices causes another recession, which in highly possible).

[excess_3]

2. the electric car is coming .n/t

[indimuse]

3. just wondering...

how this will translate at the pump?

[durablend]

4. Little or no difference

You think refiners are just going to sit by and let us clean out their bank accounts (and incomes)?

Wouldn't put it past them to close all but one refinery in the country then even it starts having a series of "accidents"

[Enthusiast]

13. They will do ANYTHING to

preserve their profits. You are right. If there is a gulf coast hurricane they will claim refinery damage whether there is or not.

[bulloney]

9. $2/gallon. And the news gerbils will proclaim happy days are here again.

[pampango]

21. Hopefully lower prices. Helps the economy and car industry short term. Either way, big oil can

look bad. Lower prices - short term pain for them (they sure have the financial reserves built up), but perhaps a long term effort on big oil's part to discourage the switch to electric and higher mileage cars in order to keep up hooked on oil indefinitely - more profits in the long run. Higher prices - they're greedy and don't pass on the savings from lower oil prices in the form of lower gas prices to the consumer.

Gas prices usually go down in late summer and the fall, so the first scenario is more likely, but $20 a barrel oil seems unlikely either because of economic recovery somewhere in the world or unforeseen events that threaten or actually reduce the supply of oil.

[Turbineguy]

5. Considering that a significant factor

in the last 8 years of high prices was the political uncertainty injected by the Bush administration, he could be right. In Feb 2002 the price had receded from $30 per barrel on inauguration day, because Bush hadn't attacked anybody yet.

[Mudoria]

6. Excellent news... would be nice to see the petro-states take it to the chin..

[ohio2007]

7. Sounds like a $1/ gal gas tax is just around the corner

maybe $1.50 / gal tax?

[excess_3]

8. joyous Europeans already enjoy that tax .n/t

[lefthandedlefty]

10. Now if the same would happen to insurance industry

My insurance cost`s went up over four hundred percent during Bush years and no I am not a bad risk.I have not costed insurance one thin dime in the 35 years I have driven.The last speeding ticket I got was 33 years ago.

[Skink]

14. Defensive driving.

take the course.

[sarcasmo]

23. Insurance companies are in the money making business, not the helping people business.

Switch Insurance companies every five years or so it will save you money.

[Bankhead_ATL]

11. That would be nice for the short term but we still need to move away from oil

[robcon]

12. Utter nonsense.

There will be no glut, just because economies are down about 10% worldwide.

Wishful thinking, IMO.

[sfwriter]

15. How so...

I thought the logic seemed pretty sound.

A seemingly "manageable" surplus of 1 million barrels a day x 100 days going into a finite storage capacity = the need to sell 1 million barrels a day AT ANY PRICE in about three months.

The sudden influx leads to price decline.

He also nails the root cause at OPEC over production and the need to cut 1 million to 2 million barrels a day.

Unless the estimates of surplus or storage capacity are wrong, then I'm missing the hole in his logic. Maybe 1 million extra barrels a day is not enough to depress oil trading? Or maybe you think production will curtail and lags behind the reports?

This is a serious inquiry. What am I missing? :-)

[mule_train]

20. correct - you fill up all the storage, then look out below - nt

[Sen. Walter Sobchak]

25. there is a glut because speculators are hoarding physical oil

[tomm2thumbs]

16. Governor Perry in Texas is gonna be feeling some pressure again - ha, ha, ha

Those big oil companies want their money and they want it now!

[Romulox]

17. Time for a BAILOUT of the oil industry!!! nt

[safeinOhio]

18. Price wars,

sunday drives. Obama-good.

[Javaman]

22. The economy isn't' there to support it.

oil is based on the US petrodollar. Only when the dollar strengthens will the price of oil go down.

But since we are in a recession and we are paying for things with play money, the concept of a near recovery is a pipe dream.

and to say that the price of oil will go down because the recession says so is just plain ignorant.

The very last thing the oil rich middle eastern nations who have been living very high on the hog will ever want is to return to the days of camel trade.

If oil drops to $20 bucks, be prepared for wide spread rioting in those same nations as they will have to cut back further on services to their populations.

saudi arabia is already dealing with it's first deficit ever. Do you honestly believe that they will allow themselves to go further into the red, giving rise to new riots?

the $20 a barrel oil is the neo-con wet dream.

If the price of oil hits $50 I will be very surprised.

we are at plateau. Which means oil prices will be all over the map for the next few years. And in about 3 years, the freight train to hell begins as all the good sweet crude is tapped dry and we are left with the sour crap to run our nations. Which means, more pollution, more heavy metals and more global warming.

Weeeee!!!

[hunter]

24. So, is it a Depression yet?

In this nasty curve on the peak oil roller coaster to hell we get to see our industrial capacity to extract difficult oils rot away...

It's a really shitty day in Alberta if you are grubbing for money in the tar sands, and those ultra deep ocean platforms are not looking so sexy as they did last night.

[conspirator]

26. You are forgetting one detail: MONOPOLY

A few rich families control the oil trade. They can set the price they feel.
As an example of other monopoly industry: telecoms.
With the current level of technology and number of qualified engineers, both the internet and mobile communications should be cheaper than water. How much does it cost to maintain a few antenas?

[NickB79]

27. 100 million barrels is only 1.2 days worth of global consumption

And OPEC will cut production long before it hits $20/barrel, IMO.

[Blue For You]

28. That's good news, my Caddy is too old to qualify as a clunker:

Not that I would consider trading it anyway. ;-)

[NickB79]

29. Everyone realizes this will cause oil prices to SKYROCKET when the economy resumes, right?

$20/barrel oil will have several undesirable effects.

First, oil exploration and development will come to a crashing halt. Already, new drilling and field expansions have been drastically scaled back at $40-$60/barrel compared to when it was $140. Development of areas such as Alberta's oil sands and deepwater Gulf reserves will be completely uneconomical, and have to be shut down.

Second, such low oil prices could lead to social and political unrest in several nations that rely heavily on oil exports to fund social programs. If these nations can no longer support the demands of their populations, you have the making of revolution and civil war. Civil wars tend to reduce oil output to nil.

Third, low gasoline prices will encourage people to purchase larger, less fuel-efficient vehicles rather than compacts and hybrids. There are incredible deals to be had on trucks and SUV's (new and used) on the market right now, and $2/gal or less will make them look mighty tempting.

All of this could add up to create global oil shortages when economic activity and the corresponding increase in oil demand resumes.