American Oil and Gas Reporter - February 2015 - 33

MARKETMATTERS
Views Shifting
About Likely Duration
Of Price Decline
As the deflation of energy prices continues, the ramifications
of lower prices are emerging as values erode. Assumptions that
prices will recover to $90 plus levels are being challenged. The
value of energy independence to both American domestic economics and international geopolitical arrangements is becoming
clearer.
Many analysts assumed that the erosion of crude oil prices under way since June was an aberration. They believed prices would
recover as traditional forces took hold. This meant that Saudi Arabia would, in due course, cut its production and support the global price of crude oil. One observer noted that no analyst included in a survey of oil analysts taken early in December thought Brent
crude oil might trade below $75 in 2015 (as of mid-January, Brent
crude oil was trading just above $51).
This formulation has not eventuated. The market's focus is starting to shift to the longer view that this reduction in oil prices may
be different from earlier price collapses in 1986, 1999, and 2008.
The declines in 1986 to $9.75 and in 1999 to $10.25 a barrel reflected the Organization of Petroleum Exporting Countries exerting
its pricing power, weak demand, and the development of nonOPEC supplies. The drop to $33.20 ending in January 2009 was
occasioned by the virtual collapse of the international financial
system.
The current decline has similar elements of growing supply and
weakening demand. The differences include the emergence of the
United States as a major crude oil producer; new, more efficient
technologies; and improvements in U.S. oil distribution capabilities.
All of these have effectively made oil cheaper and more accessible.
Foreign contributions to supply may be expected from Kurdistan and southern Iraq. In addition, the Russian ruble's collapse
has had the effect of lowering costs, while its oil is sold in dollars.
Saudi Arabia surprised the market by its willingness to allow
oil prices to slide. This marks a major shift in a geopolitical order that had been in place for decades. Heretofore, the Saudis had
managed production in order to support price. They were concerned
that production from non-OPEC crude oil producers such as Russia and Mexico could damage the kingdom's revenues and political
standing.
The United States' expanding production is, of course, the big
story. Burgeoning crude oil supplies from shale deposits posed
a particular threat to Saudi Arabia because the United States was
an important customer for Saudi oil. U.S. imports of crude oil and
products from Saudi Arabia have fallen nearly 70 percent from
their high of 2.3 million barrels a day in May 2003. On a broader stage, shale oil added to global stocks that already were in surplus.
To complicate the pricing situation even more, it was unlikely that other OPEC producers as well as non-OPEC Russia would
Transactions in securities futures, commodity and index futures, and options carry a degree of risk. Past
performance may not be indicative of future results. This column is for informational purposes only. It
does not represent an investment offer, solicitation or recommendation.

" The market's focus is starting to shift
to the longer view that this reduction in
oil prices may be different.

"

be willing to join in a coordinated output cut. Moreover, a unilateral Saudi cut would only invite a loss in market share.
Observers are now wondering how badly the Saudis may have
misjudged the situation. After months during which analysts projected a rapid return to $90 plus prices, it now appears that lower prices may be in the cards for some time. The technology used
in fracturing shales has shifted the oil industry from extraction
to something more like manufacturing.
The use of oil as a political weapon may be shifting, too. The
United States pressured Iran by working with the Saudis, the United Arab Emirates and Kuwait to assure buyers of Iranian oil that
alternative supplies were available, if the Iranian embargo was
observed. American energy independence has strained those relationships.
Similar strains have developed around Venezuela. That nation
used its oil revenues to fund generous social programs. It also provided 100,000 barrels of oil a day to Cuba at discounted rates.
Some suggest that the new comity between Cuba and the United States has been spurred in part by Cuba's concern that Venezuela
may not be able continue its support.
As of mid-January, oil prices had not yet given an indication
that a bottom was in place. Chart patterns are not showing a change.
Oil prices have a tendency to move rapidly out of lows, which
shows as a v-shaped pattern on price charts. This has not happened
here.
So much investment has gone into U.S. exploration and development that it will not be turned off in the near term. One analyst suggests domestic crude oil production could start to slow
in the second half of the year. At that time, OPEC output plans
and the impact of lower prices should become clearer.
Ì

ALAN H. LEVINE is chairman

and chief executive officer of
Powerhouse, a registered affiliate of Coquest Inc., and offers
hedging services to the energy
industries. Levine has more than
four decades of experience as a
petroleum specialist. He may be
reached at alan@powerhouseTL.com or 202-333-5380.
FEBRUARY 2015 33



American Oil and Gas Reporter - February 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - February 2015

Contents
American Oil and Gas Reporter - February 2015 - Cover1
American Oil and Gas Reporter - February 2015 - Cover2
American Oil and Gas Reporter - February 2015 - Contents
American Oil and Gas Reporter - February 2015 - 4
American Oil and Gas Reporter - February 2015 - 5
American Oil and Gas Reporter - February 2015 - 6
American Oil and Gas Reporter - February 2015 - 7
American Oil and Gas Reporter - February 2015 - 8
American Oil and Gas Reporter - February 2015 - 9
American Oil and Gas Reporter - February 2015 - 10
American Oil and Gas Reporter - February 2015 - 11
American Oil and Gas Reporter - February 2015 - 12
American Oil and Gas Reporter - February 2015 - 13
American Oil and Gas Reporter - February 2015 - 14
American Oil and Gas Reporter - February 2015 - 15
American Oil and Gas Reporter - February 2015 - 16
American Oil and Gas Reporter - February 2015 - 17
American Oil and Gas Reporter - February 2015 - 18
American Oil and Gas Reporter - February 2015 - 19
American Oil and Gas Reporter - February 2015 - 20
American Oil and Gas Reporter - February 2015 - 21
American Oil and Gas Reporter - February 2015 - 22
American Oil and Gas Reporter - February 2015 - 23
American Oil and Gas Reporter - February 2015 - 24
American Oil and Gas Reporter - February 2015 - 25
American Oil and Gas Reporter - February 2015 - 26
American Oil and Gas Reporter - February 2015 - 27
American Oil and Gas Reporter - February 2015 - 28
American Oil and Gas Reporter - February 2015 - 29
American Oil and Gas Reporter - February 2015 - 30
American Oil and Gas Reporter - February 2015 - 31
American Oil and Gas Reporter - February 2015 - 32
American Oil and Gas Reporter - February 2015 - 33
American Oil and Gas Reporter - February 2015 - 34
American Oil and Gas Reporter - February 2015 - 35
American Oil and Gas Reporter - February 2015 - 36
American Oil and Gas Reporter - February 2015 - 37
American Oil and Gas Reporter - February 2015 - 38
American Oil and Gas Reporter - February 2015 - 39
American Oil and Gas Reporter - February 2015 - 40
American Oil and Gas Reporter - February 2015 - 41
American Oil and Gas Reporter - February 2015 - 42
American Oil and Gas Reporter - February 2015 - 43
American Oil and Gas Reporter - February 2015 - 44
American Oil and Gas Reporter - February 2015 - 45
American Oil and Gas Reporter - February 2015 - 46
American Oil and Gas Reporter - February 2015 - 47
American Oil and Gas Reporter - February 2015 - 48
American Oil and Gas Reporter - February 2015 - 49
American Oil and Gas Reporter - February 2015 - 50
American Oil and Gas Reporter - February 2015 - 51
American Oil and Gas Reporter - February 2015 - 52
American Oil and Gas Reporter - February 2015 - 53
American Oil and Gas Reporter - February 2015 - 54
American Oil and Gas Reporter - February 2015 - 55
American Oil and Gas Reporter - February 2015 - 56
American Oil and Gas Reporter - February 2015 - 57
American Oil and Gas Reporter - February 2015 - 58
American Oil and Gas Reporter - February 2015 - 59
American Oil and Gas Reporter - February 2015 - 60
American Oil and Gas Reporter - February 2015 - 61
American Oil and Gas Reporter - February 2015 - 62
American Oil and Gas Reporter - February 2015 - 63
American Oil and Gas Reporter - February 2015 - 64
American Oil and Gas Reporter - February 2015 - 65
American Oil and Gas Reporter - February 2015 - 66
American Oil and Gas Reporter - February 2015 - 67
American Oil and Gas Reporter - February 2015 - 68
American Oil and Gas Reporter - February 2015 - 69
American Oil and Gas Reporter - February 2015 - 70
American Oil and Gas Reporter - February 2015 - 71
American Oil and Gas Reporter - February 2015 - 72
American Oil and Gas Reporter - February 2015 - 73
American Oil and Gas Reporter - February 2015 - 74
American Oil and Gas Reporter - February 2015 - 75
American Oil and Gas Reporter - February 2015 - 76
American Oil and Gas Reporter - February 2015 - 77
American Oil and Gas Reporter - February 2015 - 78
American Oil and Gas Reporter - February 2015 - 79
American Oil and Gas Reporter - February 2015 - 80
American Oil and Gas Reporter - February 2015 - 81
American Oil and Gas Reporter - February 2015 - 82
American Oil and Gas Reporter - February 2015 - 83
American Oil and Gas Reporter - February 2015 - 84
American Oil and Gas Reporter - February 2015 - 85
American Oil and Gas Reporter - February 2015 - 86
American Oil and Gas Reporter - February 2015 - 87
American Oil and Gas Reporter - February 2015 - 88
American Oil and Gas Reporter - February 2015 - 89
American Oil and Gas Reporter - February 2015 - 90
American Oil and Gas Reporter - February 2015 - 91
American Oil and Gas Reporter - February 2015 - 92
American Oil and Gas Reporter - February 2015 - 93
American Oil and Gas Reporter - February 2015 - 94
American Oil and Gas Reporter - February 2015 - 95
American Oil and Gas Reporter - February 2015 - 96
American Oil and Gas Reporter - February 2015 - 97
American Oil and Gas Reporter - February 2015 - 98
American Oil and Gas Reporter - February 2015 - 99
American Oil and Gas Reporter - February 2015 - 100
American Oil and Gas Reporter - February 2015 - 101
American Oil and Gas Reporter - February 2015 - 102
American Oil and Gas Reporter - February 2015 - 103
American Oil and Gas Reporter - February 2015 - 104
American Oil and Gas Reporter - February 2015 - 105
American Oil and Gas Reporter - February 2015 - 106
American Oil and Gas Reporter - February 2015 - 107
American Oil and Gas Reporter - February 2015 - 108
American Oil and Gas Reporter - February 2015 - 109
American Oil and Gas Reporter - February 2015 - 110
American Oil and Gas Reporter - February 2015 - 111
American Oil and Gas Reporter - February 2015 - 112
American Oil and Gas Reporter - February 2015 - 113
American Oil and Gas Reporter - February 2015 - 114
American Oil and Gas Reporter - February 2015 - 115
American Oil and Gas Reporter - February 2015 - 116
American Oil and Gas Reporter - February 2015 - 117
American Oil and Gas Reporter - February 2015 - 118
American Oil and Gas Reporter - February 2015 - 119
American Oil and Gas Reporter - February 2015 - 120
American Oil and Gas Reporter - February 2015 - 121
American Oil and Gas Reporter - February 2015 - 122
American Oil and Gas Reporter - February 2015 - 123
American Oil and Gas Reporter - February 2015 - 124
American Oil and Gas Reporter - February 2015 - 125
American Oil and Gas Reporter - February 2015 - 126
American Oil and Gas Reporter - February 2015 - 127
American Oil and Gas Reporter - February 2015 - 128
American Oil and Gas Reporter - February 2015 - 129
American Oil and Gas Reporter - February 2015 - 130
American Oil and Gas Reporter - February 2015 - 131
American Oil and Gas Reporter - February 2015 - 132
American Oil and Gas Reporter - February 2015 - 133
American Oil and Gas Reporter - February 2015 - 134
American Oil and Gas Reporter - February 2015 - 135
American Oil and Gas Reporter - February 2015 - 136
American Oil and Gas Reporter - February 2015 - 137
American Oil and Gas Reporter - February 2015 - 138
American Oil and Gas Reporter - February 2015 - 139
American Oil and Gas Reporter - February 2015 - 140
American Oil and Gas Reporter - February 2015 - 141
American Oil and Gas Reporter - February 2015 - 142
American Oil and Gas Reporter - February 2015 - 143
American Oil and Gas Reporter - February 2015 - 144
American Oil and Gas Reporter - February 2015 - 145
American Oil and Gas Reporter - February 2015 - 146
American Oil and Gas Reporter - February 2015 - 147
American Oil and Gas Reporter - February 2015 - 148
American Oil and Gas Reporter - February 2015 - 149
American Oil and Gas Reporter - February 2015 - 150
American Oil and Gas Reporter - February 2015 - 151
American Oil and Gas Reporter - February 2015 - 152
American Oil and Gas Reporter - February 2015 - 153
American Oil and Gas Reporter - February 2015 - 154
American Oil and Gas Reporter - February 2015 - 155
American Oil and Gas Reporter - February 2015 - 156
American Oil and Gas Reporter - February 2015 - 157
American Oil and Gas Reporter - February 2015 - 158
American Oil and Gas Reporter - February 2015 - 159
American Oil and Gas Reporter - February 2015 - 160
American Oil and Gas Reporter - February 2015 - 161
American Oil and Gas Reporter - February 2015 - 162
American Oil and Gas Reporter - February 2015 - Cover3
American Oil and Gas Reporter - February 2015 - Cover4
http://staging.nxtbook.com/nxtbooks/aogr/201702/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201701/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201612/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201611/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201610/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/pbios2016_programguide/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201609/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201608/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201607/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201606/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201605/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201604/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201603/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201602/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201601/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201512/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201511/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201510/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201509/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201508/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201507/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201506/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201505/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201504/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201503/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201502/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201501/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201412/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201411/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201410/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201409/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/pbios2014_programguide/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201408/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201407/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201406/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201405/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201404/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201403/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201402/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201401/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201312/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201311/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201310/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201309/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201308/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201307/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201306/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201305/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201304/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201303/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201302/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201301/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201212/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201211/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201210/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201209/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/2012_pbios/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201208/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201207/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201206/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201205/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201204/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201203/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201202/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201201/stage.php
http://staging.nxtbook.com/nxtbooks/demo/aogr_clone/stage.php
http://staging.nxtbook.com/nxtbooks/aogr/201112/stage.php
https://www.nxtbookmedia.com