Exxon Mobil CEO Says Oil Price Should Be $60 to $70 A Barrel

[value-is-what-you-get]

"Rex Tillerson, the boss of ExxonMobil admitted last week that  the price of oil–based purely on supply and demand- should be in the $60 to $70 a barrel range. The reason it’s above $100 a barrel, Tillerson  explained, is due to the oil majors using futures contracts to lock in current high prices...."

 

If I we locking in higher prices, I'd sell futures contracts.  How does this in any way drive up oil prices?

 

Onyx1 - you are saying that the boss of ExxonMobil is bullshi**ing on this fact and you are right.  Well done!  Charlie Munger would give you an A on that one - clear thinking amid the noise.

[Guest VAL9000]

I don't think it's fake at all.  Perhaps, not completely accurate, but his point was that oil's current price is being driven primarily by speculation, and not supply and demand.  I can tell you for a fact that a strong Canadian dollar is actually detrimental to the Canadian economy.  That the Canadian economy is happiest when the dollar is somewhere between 90 cents and 98 cents or so.  Is that fake, or is that an accurate supposition?  The reason behind my statement is because we have both a resource-heavy/export economy, and a tourism/manufacturing/import economy.  If the dollar becomes too strong, it hurts tourism, manufacturing and import-related businesses.  When the dollar weakens significantly, it hurts our resource, export economy.  So, I can provide some idea of what a happy-medium would be for the Canadian dollar without being exact.  

This phenomenon is known as "Dutch Disease"

 

http://en.wikipedia.org/wiki/Dutch_disease

 

It's something that Canada and Australia will have to deal with (and have dealt with in the past).  The winners curse in terms of oil has also hit Saudi Arabia et al.  Despite all their riches, they continue to be run as authoritarian regimes with terrible human rights records and floundering education statistics.  Luckily we're a relatively socialist democracy, so we can expect to see much of the wealth generated by commodity driven businesses get redistributed to improve education, health care, and manufacturing competitiveness.  See have/have-not wealth redistribution by province for indications.

 

In terms of peak oil:  They were talking about peak oil 30 years ago.  The world got spooked and they became more efficient consuming half as much per capita 30 years later.  The same thing will happen now.  We will consume less oil per capita another 30 years from now, extending the life of oil reserves and oil that can be retrieved.  The free market will force consumers to make hard choices, and governments to enact change.  I'm a firm believer that in that, and that capital will flow to areas of science that will make us more efficient, as well as find alternatives that will become more prevalent.  

 

In the meantime, you have such periods where panic sets in, and the price of a commodity is driven signficantly higher than what actual supply and demand would dictate.  Currently the world believes that China will endlessly consume the world's resources...that prices will rise uncontrollably, and China will continue to consume.  As if rising prices will have no effect on China.  I've seen it and heard it all before.  We've had numerous commodity booms and busts in the last 150 years in North America.  This will be no different.  Cheers!

 

I think you're right on the money here.  Despite my railing against speculators, they perform an enormous service for the free market.  By pumping up oil to radical prices today, consumers see a glimpse of the future and make long-term decisions based on that glimpse.  New car purchases are the most obvious examples.  The rise of the Prius is inextricably linked to the rise of oil prices.  Nobody who lives outside of Vancouver (no offense, but really there's a high % of granola residents there) would buy a Prius at $30/barrel.  By pushing the limits on oil prices, long-term demand is reduced, which checks the price of oil.  So while it's painful to see gas at $1.45/l (That's $6/gal for my American friends), the short term pain caused by this spike results in a better long-term picture.  Corporations are similarly afflicted by these glimpses (e.g. SSW's push for fuel-efficient vessels).

 

And yeah, Myth is right, too, in that these high oil prices cause political shifts as well, and these shifts defer the pain.  The pain is coming, but the better we can diversify away from oil, the better off we'll be.  Having thought through the above paragraph, I would probably prefer that the gov't lets the free market be free.  Otherwise political meddling will blunt the impact these spikes have on consumer and corporate psyche, and that's not a good thing.

 

[Parsad]

Sanj,

Isn't that the other way round? i.e. when the CDN $ is strong, it helps import-related businesses (cost us less to import) and when it's weak, it also help our exports (the demand for our products rise)?

 

Whoops!  Thanks for catching that Alek.  Cheers!

[Aberhound]

People that believe in the steady improvement of technology believe that prices higher than $60 to $70 will bring a torrent of supply.

 

1. What if more cheap natural gas is used for transportation?

 

2. What if more of the 150 trillion barrels of oil shale in US is exploited?

 

http://dailyreckoning.com/oil-shale-reserves/

 

3. What will happen to oil production when the fracking technology is used to exploit oil reserves like the Baaken formation?

 

4. If deep high pressure wells like Macondo well in the GOM are put into production isn't the only safe way to produce such high pressure wells to allow such wells to flow at high rates to keep the pressure from building?

 

5. What if oil wells replenish and you can increase the yield by encouraging the up migration from the deep sources where abiotic oil is formed? Isn't this why lots of oil is found near faults?

 

6. What will happen when the THAI process for oil sands rolls out?

 

The technology genie is already out of the bottle. If the existing technologies could be exploited oil prices would fall to $60 to $70.

[goldfinger]

Interesting analysis on future all liquids production world-wide: http://www.theoildrum.com/node/7909

and http://www.theoildrum.com/node/7785.

Oil depletion may not be as steep as originally feared by most peak-oilers but the production plateau seems to have been reached

and we may get into 3.5% decline rates later down the road (by 2015 and then increasing). It may give us time to adapt but also may bring lots of volatility.

[Myth465]

How does one get the confidence of Jim Rogers. Right or wrong, he is one confident guy.

 

http://news.bbc.co.uk/2/hi/programmes/hardtalk/9488885.stm

 

You guys bring up good points, I focus on 2 things demand and supply declines. Perhaps I should look at supply increases.

[rjstc]

On a recent interview on I think Reuters one of the top commodity guys from Goldman Sachs said that the market had gotten ahead of itself and they feel the price will resume going up within the next 12-18 months if not before.

[biaggio]

Myth thanks for the post. I enjoy listening to  J Rogers. I like the way he talks.

 

I gotta believe that in dollar terms he is going to be right eventually. Amusing that the government wants to punish the energy companies (with more taxes?) because they are perceived as gouging the public-yet this is surely to lead to higher energy prices.

 

If they continue to print money + devalue it, will it not be better to own companies with oil reserves rather than cash?

 

I don t understand why canadian oil sand companies are selling for $2-4 per barrel of oil of reserves e.g SU has 27 billion of barrel of oil reserves selling for $50 B + ~ $14 B or $64b= 64/27 or $2.37 per barrel. With current cost of $38-42 per barrel why would you not want to own these? I  would rather own a barrel of oil at $2-3 than having $1 in cash in the bank

 

Myth, you work in the oil industry, there must be something wrong with how I am looking at things?

[Myth465]

I dont think you are missing much, except for Parsad's post.

 

A decent segment of the population believes that oil is up because of speculation. The recover is very weak, and the mid east is claiming down. If they are right and oil is supposed to be $60 then I wouldnt want to own Canadian Oil Sands. You also have to discount it slightly because they may not perform, and you also have the environmental risks.

 

I think oil will go up gradually and we will see a super spike once the global economy is firing on all cylinders. This would be after the 7 lean years. Right now I dont want oil over $80 or $90, because the economy is rather weak. I havent looked at the new supply side such as shale and sands in detail though.

 

---

 

With regard to the producers, I am kind of for a tax on profits for the super majors. They were just at the right place and right time, and arent doing anything special to earn the profits they are getting. Its just a wind fall. Exxon is basically liquidating and they arent really using the money to find more oil. We need reinvestment, but these arent the companies pushing technology and doing it inmo. I would structure the tax in a way that excess profits which arent reinvested in finding more oil and gas are taxed at a windfall rate. Thats what I would do in this environment.

[ericd1]

Today 60% to 70% of global oil is used for transportation - gasoline & diesel. If developing economies demand more cars and trucks at a higher growth rate than the development/adoption of electric vehicles then global oil production won't meet the rising demand. Rising prices will ultimately control demand--and they will be much higher than what we see today.

 

Electric vehicle production/adoption will help offset future demand, but it will take many years to make a significant change in the "global fleet" and lower the demand for oil. Unless there's a significant technological breakthrough in batteries or alternative power sources I believe the oil/energy industry has at least a decade of strong growth ahead.