Are Low Oil Prices Here to Stay?

[Ed. Note: We recently sat down with Byron King to chat about the energy market’s current state. The first question we asked him was if he thought low oil prices were here to stay — or if he sees a rebound in the near future. His answer, and more, below…}

When you look at the global supply-demand situation in oil, every day around the world, about 92 million barrels get used – get burned – it’s 1000 barrels a second basically running cars, running ships, running airplanes, whatever – going to the chemicals industry, whatever. 92 million barrels a day.

When you look at the supply issues, there is probably 2 or 3 – 400,000 at the most barrels of oil that you might call surplus – to the world – on any given day. That’s a fraction – that’s a half of a percent, one way or the other.

Yet oil prices have dropped over 40 percent in six months. It doesn’t make sense. Something else is going on.

The bottom line is that although oil prices could drift lower, I don’t see them staying too low for too long. I do see them rebounding. Will they rebound back to $100.00, $110.00 a barrel? Not sure about that.

I definitely think that by the first half of the year, we will probably see $80.00 oil again, simply because most of OPEC – maybe not Saudi; maybe Saudi wants to kind of go to the mattresses on this – but most of the rest of OPEC is going to be feeling severe economic pain with low oil prices.

You know, OPEC countries – Venezuela, Iran, Libya, Iraq – they need the money. And that’s always a good reason to do something, which is raise oil prices.

DR Question:

Do you think we’re witnessing the end of OPEC?

I think that after 40 years, we are watching OPEC dissolve. I was speaking with an executive from a major European oil company the other day and he told me – he said, “Byron, OPEC is like a dinosaur. And North American Shale is like an asteroid. And we all know what happened when the asteroid hit the earth – we know what happened to the dinosaurs.”

So the answer’s yes: I think we are witnessing the end of OPEC. It doesn’t mean that we’re going to live with low oil prices forever. It doesn’t mean that we’re not going to have fluctuations up and down in the oil prices.

But I think the days of a certain type of production discipline within a whole bunch of countries that tend to be petrol welfare states – often dictatorships – where free-market principles, rule of law – things like that – aren’t quite what we expect in the West – I think that we’re coming to the end of those days, certainly with OPEC, which means that things will get even more exciting in the future.


Byron King
for The Daily Reckoning

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