It’s a story that dominated 2015, and now weary commodities traders are asking if it will stick around for 2016 too. 2015 was a terrible year for oil industry, with the crude sliding all the way to $35 a barrel, where it has hit a floor, of sorts. This slide despite continued unrest in the Middle East and oil fields coming offline as a supply glut persists.
Dan Dicker of Merc-block and author of the book “Shale boom, shale bust: The Myth of Saudi Arabia” peered into his crystal ball to see if the commodity get back to an equilibrium price sometime in the near future.
“It’s always tough because the oil market has never really seen an equilibrium price – it’s nothing but spikes up and spikes down and I think it will continue to do that,” Dicker says in the attached video. That being said, Dicker says getting to that equilibrium price entails figuring out the price of extracting the ‘marginal’ barrel of oil out of the ground, meaning that last barrel that would fill demand.
“You’ve got to get that marginal barrel out of the ground.” he says. “That doesn’t equate to breakeven points for any particular player, but if you have 92 million barrels a day of oil that’s in demand, to get an equilibrium price you’ve got to pay [for] that last hundred thousand barrels to to meet demand – and everybody gets priced off of that last piece of the puzzle and that’s that’s closer to about $80.”
Although there will be some shakeout, Dicker does believe some names – small and large, in the energy sector will survive and do well. To hear more about those, watch the rest of the video above.
- Commodity Markets
- Energy Industry
- equilibrium price
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