8 ms·

Oil soars 6 percent as OPEC reaches deal to limit output in November

54 points by uptown 10y ago

jseliger 10y ago
Possible corollary: "Tesla stock rises in response." We may be heading towards a world of permanently low oil prices, as rising prices will cause more people to switch to electrics or plug-in hybrids. Car buyers exhibit amazingly lemming-like behavior, switching to more fuel-efficient cars as prices rise and switching away from those fuel-efficient cars as prices fall. That process is likely to become more pronounced as electrics become more available and affordable.
- maxander 10y ago
  What kinds of car people use is irrelevant as long as the power grid is predominantly powered by fossil fuels. The number to watch is percentage of "green" power generation, which changes far too slowly to respond to market lurches like this.
  - yessql 10y ago
    Oil is not a big part of electricity generation in most places.
    - the_economist 10y ago
      Major energy sources and percent share of total U.S. electricity generation in 2015 Coal = 33% Natural gas = 33% Nuclear = 20% Hydropower = 6% Other renewables = 7% Biomass = 1.6% Geothermal = 0.4% Solar = 0.6% Wind = 4.7% Petroleum = 1% Other gases = <1% An electric fleet (powered by coal, natural gas, and nuclear) will reduce demand for oil, so movement in that direction is likely cause falling oil prices. Which could lead to more people buying oil-powered cars again.
      - drcross 10y ago
        I think the genie is out of the bottle with regards to electric cars. They've proven they work and can compete with internal combustion cars on most metrics that people care about and exceed ICEs in a number of ways. Battery capacity generally increases 8% per year, and battery production is ramping up in ways never seen before. The mindshare has already left Gas cars, it's just a matter of time before sales slip to electric, a bit like Nokia compared to the smartphone, Nokia were still shipping millions of units but consumer demand was waiting for cheaper smartphone units, once it did Nokia was destroyed.
        wyldfire 10y ago
        By the time electric cars are ready for ubiquity, transportation-as-a-utility will have exploded thanks to autonomous vehicles. Why buy an electric car with less maintenance than a gas one when you can just skip out on owning a car entirely? Governments and/or insurance can directly or indirectly subsidize this move for the sake of safety.
        blahi 10y ago
        Why would insurance companies do this? They stand to lose a TON by autonomous vehicles. Estimates are in the 60 to 80% of the market to go away.
        botty_throwaway 10y ago
        Risk versus technological change is a dynamical system, yet many of the sky-is-falling estimates for the insurance industry myopically forecast assuming an invariant risk set-point. For an alternate perspective of a potential (lucrative) future for insurance, see my post here: https://news.ycombinator.com/item?id=12245312 https://news.ycombinator.com/item?id=12245312
        blahi 10y ago
        I see but what happens if the parameters of the transportation systems are regulated?
  - Fjolsvith 10y ago
    But when Tesla sells you a BEV, the solar roof array and household battery, and allows you to go "off-grid" with that car, the kind of car you use is relevant.
- yessql 10y ago
  Yes, we saw people switch to more efficient transport in the US at $4/gallon. I think this is the long term ceiling, where people will switch to at least a plugin hybrid and cover 90% of their driving on electricity.
  - elsonrodriguez 10y ago
    That's a pretty great point. People started trading in their SUVs last time, this time they will be getting something that doesn't need gasoline at all. I don't think OPEC realizes how dangerous of a game they are playing.
  - Fjolsvith 10y ago
    I wonder if this amount is tied to the cost of a gallon of milk in the consumer's mind?
NikolaeVarius 10y ago
I wonder if this will be like the Atlantic City Conference. See how long this lasts before someone breaks the peace.
- AnimalMuppet 10y ago
  My guess: December.
lets-tryagain 10y ago
They can't win because there are too many non-OPEC producers now. When the prices rise, the non-OPEC producers will sell into it.
chollida1 10y ago
The game theory on this is awesome. You've got OPEC a collection of countries that don't all like each other, trying to agree to lower their individual production knowing that they can't trust each other. At the same time this exact group of countries are running deficits and any cut's they make will increase those deficits in the short term. Keep in mind these are countries who can't be described as stable. In many the only thing keeping the government in power is they oil money they sprinkle on their populations. You've got oil producing countries outside of OPEC who would love to see the price of oil rise so they can expand their production of oil that's more expensive to produce. Keep in mind there is a prominent theory that OPEC flooded the market with cheap oil to drive these countries out of the oil producing business. You've got world economies that depend on oil, all of which are using cheap oil to prop themselves up to differing degrees. A return to $100/barrel oil would be short term trouble for many 1st world economies. I love the oil market. I can't figure it out, but I love trying:)
- hayksaakian 10y ago
  all this in mind, it takes a lot of thought to imagine a world not reliant on oil imagine all the countries that won't have oil money that has so many implications
- strictnein 10y ago
  > "...love to see the price of oil rise so they can expand their production of oil that's more expensive to produce" Yeah, it's a weird dynamic. For example, the higher the price of oil, the less dependent the US is on the rest of the world. Lots of oil in that $60-$80+ range in and around the US.
  - Retric 10y ago
    The 60-80$ range US Oil only lasts for a few years at US consumption rates, but that's plenty to influence OPEC. The real issue is Expensive Oil has a lot of competition but Cheap Oil does not. Further, it takes years for substitutes to get onto the market. So, OPEC is better off with large price swings than a steady state which causes long term demand to fall off a cliff or uses up their supply at very low prices. On top of that, politics can make price swings a useful weapon. Cheap Oil makes Russia for example far weaker. PS: IMO, small scale Russian aggression actually fits as a 'wag the dog' distraction from how bad things are going for them.
deleted 10y ago
[deleted]
joezydeco 10y ago
The US producers have promised they would turn fracking back on if oil crossed above the mid-40s. Canada will also be back online as the wildfires have burned out. http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-above-40-we-are-coming-back.html http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-ab...
- jdhawk 10y ago
  These prices need to show some resiliency before any producer is going to throw serious cash towards more production. There is a pretty large lag time to build back all the services and bring new wells "online", 6-12 months?. Producers need to be confident that those prices will maintain at $45+ before you'll see any major activity.
- _FKS_ 10y ago
  Smoke & mirrors. Art Berman has shown that none of the Tight&Shale producers are/has been profitable. They are largely there because of credit/debt (which of course can't grow for ever) "Tight oil companies outspend cash flow by an average of 120%: spend $2.20 for every dollar earned from operating activities." "Tight oil company debt-to-cash from operating activities ratio averages 3.3: would take more than 3 years to pay down debt if all cash flow was used." Please see: http://www.artberman.com/wp-content/uploads/The-Shale-Revolution-The-Current-Oil-Price-Collapse-21-Sept-2015-copy.pdf http://www.artberman.com/wp-content/uploads/The-Shale-Revolu...
  - emp_zealoth 10y ago
    Does it really matter if you can just print more money? As in borrow indefinitely at tiny tiny rates?
- ArkyBeagle 10y ago
  I have seen (unsupported) estimates for the quantity of zero-coupon debt that's most likely just evaporated since 2014 in the Eagle Ford shale alone run in the low trillions - maybe one, two or four or something. Meanwhile: http://fortune.com/2015/12/10/oil-zombies-debt/ http://fortune.com/2015/12/10/oil-zombies-debt/ One thing to consider ( although it's pretty different ) - the 1980s oil crash was in around 1983; the S&L bailout (FIRREA) was in 1989. Six years' latency.
jorblumesea 10y ago
Is it possible that oil prices will never be that high again due to renewables? Part of me feels like the games OPEC members are playing will be to their long term detriment. Renewable cost is only going down year after year, really the oil states have a limited time to extract as much money as possible before alt energy kicks into high gear. By the time they're done fighting with each other it may be too late to get the money that they are banking on. Also bets on whether any member countries actually follow this?
- _FKS_ 10y ago
  Renewables depend on oil. You can't make renewables with renewables energy, because their overall EROI is insufficient to both maintain the current standard of life, and make them. The other issue is mobility, oil has the best volume/energy content ratio of all energy sources we know (except uranium). Renewables can only make electricity and you need about 10x the same battery volume (and weight) to move a vehicle, compared to oil. Unfourtunately for all of us, fosil fuels are here to stay for a while, until they run out. Or until the economy crashes. Or until climate change kicks in real bad.
  - danmaz74 10y ago
    > Renewables can only make electricity If renewable energy becomes abundant/cheap enough, you can convert electricity into hydrogen or other high energy density chemicals.
    - vkou 10y ago
      Hydrogen is a nightmare to work with, and store. Other high energy-density chemicals tend to be complex hydrocarbons... So you're still burning oil - it just happens to be made from coal, or algae slush, or whatnot.
      - Neeek 10y ago
        Algae slush is carbon coming from our current system, our current atmosphere, it is renewable. Fossil fuel is releasing carbon from and external source (external on a human timescale at least). It will be essential in creating a renewable replacement for oil. Burning hydrocarbons is not the issue. Burning hydrocarbons that were extracted from the atmosphere millions of years ago, is.
nicholas73 10y ago
I explained the game theory behind the oil markets, and predicted OPEC would reach a deal, in this article from March: http://seekingalpha.com/article/3960625-prisoners-dilemma-oil-prices-will-rise-60 http://seekingalpha.com/article/3960625-prisoners-dilemma-oi...

54 points by uptown 10y ago

Possible corollary: "Tesla stock rises in response." We may be heading towards a world of permanently low oil prices, as rising prices will cause more people to switch to electrics or plug-in hybrids. Car buyers exhibit amazingly lemming-like behavior, switching to more fuel-efficient cars as prices rise and switching away from those fuel-efficient cars as prices fall. That process is likely to become more pronounced as electrics become more available and affordable.

maxander 10y ago
What kinds of car people use is irrelevant as long as the power grid is predominantly powered by fossil fuels. The number to watch is percentage of "green" power generation, which changes far too slowly to respond to market lurches like this.
- yessql 10y ago
  Oil is not a big part of electricity generation in most places.
  - the_economist 10y ago
    Major energy sources and percent share of total U.S. electricity generation in 2015 Coal = 33% Natural gas = 33% Nuclear = 20% Hydropower = 6% Other renewables = 7% Biomass = 1.6% Geothermal = 0.4% Solar = 0.6% Wind = 4.7% Petroleum = 1% Other gases = <1% An electric fleet (powered by coal, natural gas, and nuclear) will reduce demand for oil, so movement in that direction is likely cause falling oil prices. Which could lead to more people buying oil-powered cars again.
    - drcross 10y ago
      I think the genie is out of the bottle with regards to electric cars. They've proven they work and can compete with internal combustion cars on most metrics that people care about and exceed ICEs in a number of ways. Battery capacity generally increases 8% per year, and battery production is ramping up in ways never seen before. The mindshare has already left Gas cars, it's just a matter of time before sales slip to electric, a bit like Nokia compared to the smartphone, Nokia were still shipping millions of units but consumer demand was waiting for cheaper smartphone units, once it did Nokia was destroyed.
      - wyldfire 10y ago
        By the time electric cars are ready for ubiquity, transportation-as-a-utility will have exploded thanks to autonomous vehicles. Why buy an electric car with less maintenance than a gas one when you can just skip out on owning a car entirely? Governments and/or insurance can directly or indirectly subsidize this move for the sake of safety.
        blahi 10y ago
        Why would insurance companies do this? They stand to lose a TON by autonomous vehicles. Estimates are in the 60 to 80% of the market to go away.
        botty_throwaway 10y ago
        Risk versus technological change is a dynamical system, yet many of the sky-is-falling estimates for the insurance industry myopically forecast assuming an invariant risk set-point. For an alternate perspective of a potential (lucrative) future for insurance, see my post here: https://news.ycombinator.com/item?id=12245312 https://news.ycombinator.com/item?id=12245312
        blahi 10y ago
        I see but what happens if the parameters of the transportation systems are regulated?
- Fjolsvith 10y ago
  But when Tesla sells you a BEV, the solar roof array and household battery, and allows you to go "off-grid" with that car, the kind of car you use is relevant.
yessql 10y ago
Yes, we saw people switch to more efficient transport in the US at $4/gallon. I think this is the long term ceiling, where people will switch to at least a plugin hybrid and cover 90% of their driving on electricity.
- elsonrodriguez 10y ago
  That's a pretty great point. People started trading in their SUVs last time, this time they will be getting something that doesn't need gasoline at all. I don't think OPEC realizes how dangerous of a game they are playing.
- Fjolsvith 10y ago
  I wonder if this amount is tied to the cost of a gallon of milk in the consumer's mind?

NikolaeVarius 10y ago

I wonder if this will be like the Atlantic City Conference. See how long this lasts before someone breaks the peace.

AnimalMuppet 10y ago
My guess: December.

lets-tryagain 10y ago

They can't win because there are too many non-OPEC producers now. When the prices rise, the non-OPEC producers will sell into it.

chollida1 10y ago

The game theory on this is awesome. You've got OPEC a collection of countries that don't all like each other, trying to agree to lower their individual production knowing that they can't trust each other. At the same time this exact group of countries are running deficits and any cut's they make will increase those deficits in the short term. Keep in mind these are countries who can't be described as stable. In many the only thing keeping the government in power is they oil money they sprinkle on their populations. You've got oil producing countries outside of OPEC who would love to see the price of oil rise so they can expand their production of oil that's more expensive to produce. Keep in mind there is a prominent theory that OPEC flooded the market with cheap oil to drive these countries out of the oil producing business. You've got world economies that depend on oil, all of which are using cheap oil to prop themselves up to differing degrees. A return to $100/barrel oil would be short term trouble for many 1st world economies. I love the oil market. I can't figure it out, but I love trying:)

hayksaakian 10y ago
all this in mind, it takes a lot of thought to imagine a world not reliant on oil imagine all the countries that won't have oil money that has so many implications
strictnein 10y ago
> "...love to see the price of oil rise so they can expand their production of oil that's more expensive to produce" Yeah, it's a weird dynamic. For example, the higher the price of oil, the less dependent the US is on the rest of the world. Lots of oil in that $60-$80+ range in and around the US.
- Retric 10y ago
  The 60-80$ range US Oil only lasts for a few years at US consumption rates, but that's plenty to influence OPEC. The real issue is Expensive Oil has a lot of competition but Cheap Oil does not. Further, it takes years for substitutes to get onto the market. So, OPEC is better off with large price swings than a steady state which causes long term demand to fall off a cliff or uses up their supply at very low prices. On top of that, politics can make price swings a useful weapon. Cheap Oil makes Russia for example far weaker. PS: IMO, small scale Russian aggression actually fits as a 'wag the dog' distraction from how bad things are going for them.

deleted 10y ago

[deleted]

joezydeco 10y ago

The US producers have promised they would turn fracking back on if oil crossed above the mid-40s. Canada will also be back online as the wildfires have burned out. http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-above-40-we-are-coming-back.html http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-ab...

jdhawk 10y ago
These prices need to show some resiliency before any producer is going to throw serious cash towards more production. There is a pretty large lag time to build back all the services and bring new wells "online", 6-12 months?. Producers need to be confident that those prices will maintain at $45+ before you'll see any major activity.
_FKS_ 10y ago
Smoke & mirrors. Art Berman has shown that none of the Tight&Shale producers are/has been profitable. They are largely there because of credit/debt (which of course can't grow for ever) "Tight oil companies outspend cash flow by an average of 120%: spend $2.20 for every dollar earned from operating activities." "Tight oil company debt-to-cash from operating activities ratio averages 3.3: would take more than 3 years to pay down debt if all cash flow was used." Please see: http://www.artberman.com/wp-content/uploads/The-Shale-Revolution-The-Current-Oil-Price-Collapse-21-Sept-2015-copy.pdf http://www.artberman.com/wp-content/uploads/The-Shale-Revolu...
- emp_zealoth 10y ago
  Does it really matter if you can just print more money? As in borrow indefinitely at tiny tiny rates?
ArkyBeagle 10y ago
I have seen (unsupported) estimates for the quantity of zero-coupon debt that's most likely just evaporated since 2014 in the Eagle Ford shale alone run in the low trillions - maybe one, two or four or something. Meanwhile: http://fortune.com/2015/12/10/oil-zombies-debt/ http://fortune.com/2015/12/10/oil-zombies-debt/ One thing to consider ( although it's pretty different ) - the 1980s oil crash was in around 1983; the S&L bailout (FIRREA) was in 1989. Six years' latency.

jorblumesea 10y ago

Is it possible that oil prices will never be that high again due to renewables? Part of me feels like the games OPEC members are playing will be to their long term detriment. Renewable cost is only going down year after year, really the oil states have a limited time to extract as much money as possible before alt energy kicks into high gear. By the time they're done fighting with each other it may be too late to get the money that they are banking on. Also bets on whether any member countries actually follow this?

_FKS_ 10y ago
Renewables depend on oil. You can't make renewables with renewables energy, because their overall EROI is insufficient to both maintain the current standard of life, and make them. The other issue is mobility, oil has the best volume/energy content ratio of all energy sources we know (except uranium). Renewables can only make electricity and you need about 10x the same battery volume (and weight) to move a vehicle, compared to oil. Unfourtunately for all of us, fosil fuels are here to stay for a while, until they run out. Or until the economy crashes. Or until climate change kicks in real bad.
- danmaz74 10y ago
  > Renewables can only make electricity If renewable energy becomes abundant/cheap enough, you can convert electricity into hydrogen or other high energy density chemicals.
  - vkou 10y ago
    Hydrogen is a nightmare to work with, and store. Other high energy-density chemicals tend to be complex hydrocarbons... So you're still burning oil - it just happens to be made from coal, or algae slush, or whatnot.
    - Neeek 10y ago
      Algae slush is carbon coming from our current system, our current atmosphere, it is renewable. Fossil fuel is releasing carbon from and external source (external on a human timescale at least). It will be essential in creating a renewable replacement for oil. Burning hydrocarbons is not the issue. Burning hydrocarbons that were extracted from the atmosphere millions of years ago, is.

nicholas73 10y ago

I explained the game theory behind the oil markets, and predicted OPEC would reach a deal, in this article from March: http://seekingalpha.com/article/3960625-prisoners-dilemma-oil-prices-will-rise-60 http://seekingalpha.com/article/3960625-prisoners-dilemma-oi...