In the bigger economy, the most conclusive analysis of the expectations of the oil situation and the 2015 market is often one big question mark. The complexities of the world situation will remind the analysts of the inter connectivity of the world. Any one element in the total equation has the potential to grow in importance and serve to minimize the other considerations.
Shawn Bartholomae states “It is this inter action of so many factors that makes the outlook for the market in 2015 so complex. As the senior partner for Silver Tusk Oil Co., this executive is well aware of the potential of the future of world oil production to be greatly swayed by any number of potential events.
EIA (Energy Information Administration) offers the following analysis:
“With price volatility high and markets in flux, small changes to fundamentals or perceptions can cause prices to shift rapidly. Several factors could cause oil prices to deviate significantly from current projections. Chief among these is the responsiveness of supply to the lower price environment. Despite OPEC’s recent decision to leave its crude oil production target at 30 million bbl/d, if crude oil prices continue to fall, Saudi Arabia and others could choose to cut production in order to tighten market balances. The level of crude oil production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Iran, Nigeria, and Venezuela. Additionally, the price and lag time required to cause a reduction in forecast non-OPEC supply growth, particularly U.S. tight oil, could be longer or shorter than expected. The degree to which non-OPEC supply growth is affected by lower oil prices will also affect market balances and prices. Finally, consumption could turn out to be more responsive to lower oil prices than anticipated. How these factors evolve over the next several months will shape the market both in 2015 and beyond.”
The senior partner of Silver Tusk Oil Co., Shawn Bartholomae states that the industry could hope for an era of price stability. “It is the relative stability that would allow drillers and producers of petroleum to make their energy investment plans for the long term”.
“It could potentially take from a few months to perhaps a year for the lower oil prices to feed through the global economy,” states noted analyst Fawad Razaqzada at trading site Forex.com. The actual number of analysts who go on record as predicting a long-term recession in oil prices and production activities appear to be in a minority. The more optimistic assessments seem to suggest that the oil prices should stabilize in a few months. .
The sudden drop in oil prices got acceleration when, in late November, the Organization of Petroleum Exporting Countries, OPEC, had decided against cutting its oil production despite the falling oil prices. Analysts would note that the market has to respect the viewpoints of a cartel that produces fully one third of the world’s oil. As weighty as the OPEC opinion is, it is a far different situation from the times in recent decades when the OPEC production was more than one half of the world’s oil output.
If the long-term strategic objectives of the Unites States were to deflect the center of gravity for the oil powers and the control of resource production away from a highly volatile and uncertain Middle East and to bring the critical resources of oil production closer to home, then it would appear that these objectives have been met.
Many analysts had stated that they preferred the lower prices in spite of the dropping income levels it brought. They had viewed this drop as a counter weight to United States shale production, which has a high per barrel, cost to it its production.
However as the world has to balance its checkbooks, the shale producers in the United States are far from being the only ones who need more revenue. Already, in Venezuela, the government and the people have seen that tensions brought on by the drop in oil revenues has made an uneasy political situation more tense. The government and military officials are concerned that the nation might be dealing with a revolution if the revenues and the provisions for basic necessities are not restored. This potential unrest goes beyond a mere desire for more revenue. It is perhaps more accurate to call it a crisis. Immediately after the meeting of OPEC, the president of Venezuela, Nicolas Maduro has ordered the slashing of the budget for the population. This comes amid an already austere economy.
In Russia, exasperation also seems to be the most accurate description of the oil market situation. The plunge in crude prices has been particularly hard on the Russian economy. Fully half of Russia’s governmental operating revenue comes from oil. The high lifting costs of the Siberian oil makes Russia one of the first countries to acutely feel the pain of lower prices. These were the same conditions that had played such a huge role in the dissolution of the Soviet Union. As the prices fell below a certain point, the actual profit level of the nation’s oil production fell below the zero margins. The government was effectively out of business. In a nation where the government survives or fails depending on its oil revenue, the current situation is one of desperation.
If the current prices are depressed for an extended period of time, the funding of a variety of Russian projects is likely to completely dry up. In the earlier crisis that had occurred during the Reagan era, this crisis level on pricing was roughly 80% of the former stabilized price, On a par with $100 barrel oil, this would equate to $80 a barrel as the new “shock level”.
Premier Putin has recently quoted by Russian news agency RIA Novato “If world oil prices stay at $80, all production will be ruined. No major market participant is interested in this. “The ruble is taking a major hit. The Russian currency has already suffered a major blow. The lessening value of the ruble has experienced a 25% decline in the past four months relative to the dollar as the nation suffers a double whammy from both the imposed sanctions and the falling oil prices.
Shawn Bartholomae goes on to state “Much of the world seems restless amid the stresses that uncertain oil situation are bringing. The senior partner of Silver Tusk Oil co. further states that it is a time to be vigilant and to keep aware of the changing situation. “
Mr. Bartholomae also notes “One cure for low oil prices is low oil prices themselves. “
It is this self-regulating aspect of the market that keeps the long-term investors in the market and assures the world that the conditions of the free market will eventually win out. It is the competitive elements of this free market that may prove to be the greatest contribution of the shale producers to world oil.
Oil output for the United States has been booming thanks to hydraulic fracturing, which involves blasting a high-pressure blend of water, sand and chemicals deep underground in order to release hydrocarbons trapped between layers of shale rock.
It is the success of this type of production that is drawing much attention to the Texas and the American oil industry. The big question emerging in the 2015 markets is related to the staying power of the various oil producers around the world. Analysts seem to be in agreement that the basic question of oil coming back is a matter of when it occurs and not if it does occur. Shawn Bartholomae, senior partner of Silver Tusk Oil Co. states that that the company will keep a keen awareness of the factors that will shape the market in this pivotal year. This shale production boom has been the center of the attention focused on the production surges in the United States.
Source: Shawn Bartholomae
Silver Tusk Oil