RE:RE:I'd like your opinion on the following scenarioCpeczek, thank you for taking the time to express your views. I appreciate it.
When trying to get to the "truth" its best to consider a large number of opinions as everybody has a different angle from which they view a subject. Views are not only formed by facts but by emotional factors as we all have a certain bias. In seeking the "truth" or "accurate view" it's best to be aware of this and to try "deactivate our biases" - which is what I'm trying to do by aksing for various opinions. It always gives me more to think of to try to prove to myself or to disprove and your and Nukester's input is valuable. Thank you.
Of course the price of oil is notoriously difficult to predict - even one year out. The next 20 - 30 years out is likely an exercise in futility but one that I'm interested in nonetheless.
My own view is that it is all about supply going forward and over time will become even more so and this will keep the price "elevated". I'm trying to figure out if we will see massive consolidation in the industry. If yes, then there will be a lot of money to be made. I believe the lack of production will lead us in the direction of consolidation.
Some factors for consolidation being a lot of oil producers have large tax losses that are valuable to larger producers to offset their gains, in many cases it is cheaper to buy an oil producer than to drill, getting economies of scale to lower break even, more control on the amount of oil produced in the industry as you have more control when there are fewer players, cheap equity prices for acquisitions etc.
A lot of the nations that produce oil need an elevated price to break even. It was Cornerstone analytics, a very respected oil research firm, that has said the following:
Saudi Arabia’s talked about break-even oil price is mid-single digits, about 5%. But their true break-even price is much higher. When you are responsible for 70% of state revenues, you have to be responsible for 70% of state expenses. So to the $5 per barrel break-even price you have to add their military spending per barrel of $20 and their social spending per barrel of $40 - $45 in addition to other expenses. So when you fully burden the state company with their share of state expenses, their true oil break-even price is more in the $70 - $80 range.
So if the above is accurate then Saudi Arabia needs $80+ oil going forward and will not oversupply.
While the whole world agrees we will reach peak demand at some point - I've seen estimates of 2025 - 2035 - my view is that the supply side will dictate the price of oil and not the demand side and the whole industry has a vested interest in keeping supply limited.
I would expect fewer players but more profitable players.
Thank you again for your thoughts Cpeczek.