i'll tell you something wise barney, no-one predicted the fall...

i'll tell you something wise barney,

no-one predicted the fall or anticipated its severity. so why are people so certain that prices will go even lower or stay at $40 for years? even major oil company CEO's - why is everyone now so sure that its "lower for longer", when just a few months ago, everyone thought 100 oil was here to stay?

have a look at how rapidly the forward curve changed during 2007-08 and from july to december 2014. all of these charts, curves and commentary just show that we have no idea.

in these times, you have to come back to fundamentals. the fundamentals are this:

- asia cannot produce oil at breakeven for $50
- asia cannot make even a 10% hurdle rate on any new projects at these prices. there are no good projects.
- ditto for the north sea, even with tax breaks
- very few aussie projects can make any real money at these prices. DLS is one of them
- US unconventionals could not sustain themselves (i.e. fund new drilling capex from production cashflow) at double the current price. once their finance stops after HY energy bonds collapse and once the hedges and production rolls off, its game over. and it can't start up as quickly as it can stop, believe me.
- economies and currencies in oil producing countries like venuzuela, kazahkstan, russia, nigeria, brazil etc etc are crumbling.
- exploration has essentially stopped everywhere globally. even new discoveries will not even be considered for development for years. meanwhile, we pump away at the dwindling resources we have developed.
- who really has any idea about Saudi and OPEC economics? very few people. but what we do know is that they only supply around a third of global production. so, no, oil can't go to $10-20 a barrel because that's Saudi production costs. It can't because global demand is 95mmbbl today, not 35mmbbl.

so wait it out as long as you can to pick the bottom but we simply cannot stay like this for very much longer. and believe me, no-one will ring a bell - we will be back at 80 and above very quickly. and because of all this mess, in a few years time, throw in a few pipeline bombings or storms or whatever, we will be back in supply crisis and seeing 100-150 oil. everyone will be screaming "but there's no new supply! there's no investment!". the industry will be scrambling again, but it will be far too late. these things take time - years - and these companies who nearly just went under aren't going to approve a new project the day the spot price hits a hurdle price. no way

all i can say, is there is some monster money to be made here, so look at the fundamentals with a 3-5yr timeline, pick the best companies, hope for the best. the more days like this that we have, the more money is to be made in the new few years. the harder everyone hurts now is the harder that this all comes roaring back.

i say all of this with the assumption that we aren't in a secular deflationary end of the system as we know it spiral.