oil prices - how low can they go?, page-2

  1. 2,705 Posts.
    I am told $15 US as a bottom line if the market is flooded. This is from WPL. It is premised on the fact that the war is quick, the US takes control of IRAQ and installs their interim government. The assumptions which have some weakness in my opinion are:

    1. The war is quick. The Gulf war concluded quickly because of superiority in tank technology in a desert war. Iraq is tipped to result in urban guerilla fighting in which hi tech weapons are not as effective and the visibility of civilian casualties prohibits indiscriminate bombing.

    2.The US gets control of the oil. The UN and in particular NATO powers are unlikely to allow the US to get full control of the oil, for obvious economic reasons. This is where further conflicts can result.

    3. the oil can be pumped. Are the the oil fields going to be left intact in IRAQ and for that matter in other Middle Eastern countries?

    4.IRAQ oil supply freed up following a confined military scenario will have a massive impact on price. IRAQ has the most proven and unpumped reserves but is by no means the largest producer. It is the proven but unpumped oil that is of real interest to the US nad this wont hit the market immediately.

    IMHO war would certainly see a short term spike. A protracted engagement would lead to higher prices than we have now. Alternative oil supplies become invaluable Mauritania would be of much greater interest but better is something like Perth Basin cause it is in Oz and preferably on shore for full safety. If you have oil stocks you should be valuing at the 18-19 USD long run oil price. 15 would have a bad impact on valuations but the likelihood of continuing 24-25 and higher would have a massive upside impact on NPV's and profit figures(not ARQ they already use this valuation on Hovea)
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