What is the long run average oil price?

Comments

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   Daniel Victor

   9 January 2016, 05:14

   If there is a long runoil price of $80 a barrel,it will only arrive once the market has chewed its way through most of the US and other shale oil production,since that is viable at below that price level.That would take a very long time and no one can be bothered to look that far ahead.

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   Drunken Sailor

   9 January 2016, 09:17

   Steve,

   When you have something that has such large peaks and troughs like the oil price (a large standard deviation) then any averaging process is going to be largely meaningless. We know the oil price is cyclical so look at the peak to trough cycles.

   If you argue that anything before 1970 is completely irrelevant – there was a very clear permanent step effect at that time. There was a peak that built up throughout the seventies then collapsed back during the eighties to continue through the most of the 90s at a low level peaking back up through the 2000s. Time from peak in the very early eighties to the bottom in the late 90s is about 17 years. Thus we should see the very bottom of this down cycle around 2030, if the cycle repeats as before. However if you take account of all the data you could argue that from the peak in the 1860s (at 2014 prices) it took 110 years to reach the very bottom thus each down cycle is getting shorter by a factor of 6.5 from the last one and thus we should hit the bottom by the end of this year.

   Of course historic graphs with weighted and adjusted figures can be used to support just about any argument.

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   Striebs

   9 January 2016, 10:32

   All in all , I don’t think historic prices have much relevance with a finite resource especially when spare production capacity has never been lower .

   Over history , the dollar has fluctuated against a basket of currencies . Currently our own pound is ridiculously strong as anyone who exports their services knows .

   After the current price war , oil patch banks are going to be more conservative with reserve based lending and there is unlikely to be finance for growing production in the Bakken , Eagleford , Permian Basin .

   The light tight oil operators are going to burn through their best acreage at much less than $100 / bbl .

   As Steve Brown points out , the regulatory environment operators have to work in gets more onerous .

   Politicians are becoming more and more greentarded and the sheeple have decided onshore oil and gas should be opposed .

   If OPEC can charge $90 before demand destruction sets in then that is where it’s going after the Saudi Iran thing is sorted out .

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   Paul Curtis

   9 January 2016, 11:09

   Steve

   Good article but does it not boil down to one question

   What is the marginal cost required to balance demand, currently c. 93/94m bopd?