What I'm looking for/expecting is that oil will drop below $25 long enough for the overleveraged shale producers to go bankrupt and for most/all of the survivors to cut capex. (Maybe one/some of the weaker OPEC countries default/face rebellion/civil war, etc, but it's not necessary.) This will cut supply in the short and long term, and prices will rise as stored oil is consumed. Capex eventually starts to pick back up, but the amount of time it takes to get production and wells up and running or back online, demand will suprise supply, and we will be back in an oil bull market.

At least, that is how I have interpreted what happened in previous oil busts. Oil never seems to find true equilibrium; capital and time necessities lead to delayed responses on the supply side, resulting in such strong bull and bear markets. Though, to be fair, it seems that nearly every market operates in a similar fashion but under different time frames.

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Posted by TigerDeBaiter

Member since Dec 2010

10268 posts

Posted on 2/11/16 at 11:46 pm to Omada

Sounds reasonable to me.

I was reading an article the other day (which I cannot find now) that was discussing whether or not the US could someday become a swing producer like OPEC now that we control so much of the supply. The general consensus pointed towards "not likely" for a couple reasons. The fragmented nature of the US industry versus a coordinated cartel was paramount, as well as your points on capital on time lags. Time will tell if shale can gain enough efficiency to change those last two elements.

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Posted by LSU1NSEC

Member since Sep 2007

17243 posts

Posted on 2/12/16 at 9:36 am to Omada

I think the bottom is in for oil. Looking for a correction back to $50/$60 in next few months.

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