Category Archives: Energy markets

Goldman Sachs Predicting $45 Oil By October

Conventional wisdom for some time has been that weakness in oil prices would be short-lived, with prices rallying in the second half (and arguably, the current rally representing the financial markets correctly anticipating a much improved supply/demand picture soon).

Goldman breaks with this consensus, arguing that prices will fall again as drilling will pick up again quickly. Their argument is similar to that of John Dizard, who at the outset of the oil price swoon, said it would not be over until the US shale players ran out of financial rope and money for oil plays became more scarce and costly.

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Why Putin Doesn’t Need To Pander To The West

When sanctions were imposed and tightened against Russia, and oil prices plunged, conventional wisdom in the US press was that the Russian people would not tolerate a decline in living standards and therefore Putin’s days were numbered. In fact, Putin’s approval ratings rose and even most of his opponents in the Moscow intelligensia fell in behind him. Some analysts pointed out that sanctions seldom succeed and were unlikely to work on Russia. That view has become more prevalent as Russia has proven to be less dependent on oil revenues than widely assumed and Russia’s foreign currency reserves have stabilized.

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Why Did Commodity Prices Move Together?

As strange as it may seem, most economists loudly disputed the notion that the rise in commodity prices, particularly in the first half of 2008, was in large measure due to financial speculation. More and more analytical work (such as comparisons of price action in commodities trades on futures exchanges with ones that have large markets but are not exchange-traded, like eggplant, a staple in India, and cooking oil) have dented the orthodox view.

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Shale Gas: “An Orgy of Over-Production”

As we pointed out early on in the oil price bust, following the argument of John Dizard of the Financial Times, shale gas operators, aka frackers, were often carrying so much debt that they simply could not afford to cut production. They’d keep pumping, even at a loss, to generate cash flow to keep servicing their obligations. Over-production would tail off only when the money sources dried up.

As we’ve since chronicled, even though rig counts have fallen, shale gas production has actually increases. Arthur Berman provides a detailed look at tight oil and shale gas output, and confirms that the rig count cuts for shale gas have not been deep enough.

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