Friday, September 21, 2012

Analysts predict lower petroleum prices

Though the central banks of the world are printing money like mad, the petroleum watchers are predicting a downturn in the price of oil.

The reason: demand for energy will fall as the global economy cools off in the face of willy nilly inflation.

Such economic giants as China are joining western Europe in a sea of red ink and slowing demand for energy to support expanding manufacturing activity.

(click here to access Federal Reserve report)
Aside from purely economic factors, the truism that an energy surplus won't last for long applies, here. Drilling in huge new oil reserves in shale rock formations across the U.S. - in the North Dakota Bakken formation, the Marcellus Shale of the northeast and New England, and the Eagle Ford in South Texas – is driving natural gas prices down to rock bottom, falling from $14 per thousand cubic feet in 2008 to today's $2.75, an 80% decline.

Though West Texas Intermediate Crude jumped from $97 to $99 per barrel on September 14 when Ben Bernanke announced a third round of Quantitative Easing (QE3), it soon dropped to $96.51 on the 17th.

The next trading day, oil dropped to $95.25 a barrel. On the 19th, oil dropped again… Crude plunged more than 3.5% to $91.73 a barrel, even though the Bank of Japan announced a new round of QE3 in that nation.

It's impossible for a surplus of energy to last for long,” savvy analysts always say because history proves the point. The cheaper an energy commodity becomes, the more uses consumers find for it.

Supplies are at a record high and growing. That will merely exacerbate dips in the price of crude resulting in lower the pump costs for gasoline and diesel.

Here is how it plays out in the shale play of south Texas:

According to Texas geologists and energy executives, “Past discoveries have been in relatively small, scattered fields, while this play underlies most of Southeast Texas. It is essentially a massive, nearly continuous oil and gas field. Petrohawk Energy is one of the primary lease holders and their vice president, Richard Stoneburner, reported for one of their key areas, “The gas-in-place numbers are so exceptional because the shale is some 250 feet (76m) thick over a 50 by 25 mile (40 by 80 km) swath and is 100% net pay.” The play could easily be many times bigger in size.

Mr. Tucker Hentz, an active Eagle Ford researcher with the Bureau of Economic Geology at The University of Texas at Austin, says “The Eagle Ford started out like the other shale plays, concentrating on the gas potential of a prominent, widespread shale formation. Oil production from the shale in the Maverick basin area has led us to start looking at the depth, thickness, and rock characteristics of the unit across its subsurface area of occurrence. This will give a first approximation of the potential gas-producing areas.”

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