January 28, 2015

Paging $40 on #oilprices

If, per a previous blog post, $45 a barrel is the "break point" for a lot of US shale oil production, then we could be about to see a whole bunch more "breaking."

Goldman Sachs has pushed down its estimate on West Texas Intermediate prices to $40 for the next six months.

I'd blogged two weeks ago about this possibility, and how, if there were any realistic possibility of it being true, Texas Comptroller Glenn Hegar was full of Republicanism on his state budget revenue estimates.

Well, Glenn Hegar, you're full of Republicanism.

Sachs is tracking what I think will be the playout for the second half of the year, too, probably at $65 by the end of the year. But, it cautions that the timetable for a presumed rebound is still uncertain.

Meanwhile, Houston Chronicle business columnist Chris Tomlinson thinks that eliminating the government's ban on crude exports will help.

Can't say that I agree, not totally.

As Chris notes, refined gasoline is already exportable.

And, while it may vary a bit from source to source, for California's oil, at least, a bit more than half of it is refined into gasoline, per the diagram at left, although the EIA says its 45 percent across the US.

That said, diesel and jet fuel can also be exported. EIA doesn't list percentages, but Wiki is our friend; it notes that transportation fuel makes up 70 percent of the refined portion of a barrel of oil here in the US, though more gets used for electricity production abroad. (That said, WTI wouldn't likely be wasted on electricity.)

Even if, per the Council on Foreign Relations, there's a "mismatch" between US oil and needs and such, it's still easily arguable that half our crude oil is already "fungible" for export via refined transportation products.

That also said, Tomlinson says this would lower the price of gasoline.  Well, Chris or a web editor say that.

I don't see how. I agree that it wouldn't increase it. But, I can't see that it would decrease it in any way. Because we still import gasoline, right now.

Now, ideas of "energy security"? I agree with Tomlinson and CFR that it's hooey. So, I'm not worried about holding on to oil right now — other than possibly using low prices to expand the Strategic Petroleum Reserve.

In fact, I don't get why we aren't topping off our current reserve, which is still about 7-8 percent below capacity, then finding new storage options to expand it.

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