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00:00OR BEING A DOMINANT FORCE, REALLY, FOR OIL PRICES. FOR MORE ON OIL, LET'S BRING IN THE DIRECTOR OF COMMODITY STRATEGIES FOR THE EURASIA GROUP. IT'S FUNNY, I COUPLE OF DAYS AGO PEOPLE WERE SAYING THAT IT LOOKED LIKE WE HAD REACHED THE BOTTOM IN OIL, THINGS WERE STABILIZING. YOU TURN AROUND AND BARCLAYS COMES OUT WITH A REPORT SAYING -- HANG ON, HEAD FOR THE EXITS, THIS HAS NOTHING TO DO WITH FUNDAMENTALS. >> I WOULDN'T SAY THAT. I THINK IT HAS A LOT TO DO WITH FUNDAMENTALS. THE SUPER CYCLE IS OVER. PEOPLE ARE USED TO SEEING OIL DO ONE THING, GO STRAIGHT UP. I THINK WE NEED TO GET USED TO A NEW PRICE REGIME. THAT'S REALLY ALL ABOUT RESETTING INTO RANGES . WE'VE HAD FORCEFUL RALLIES FROM THE LOWS. FOR SURE. BETTY: IT WAS LIKE A 25 YEAR LOW. BRUNO: SURE, SURE, WE NEEDED TO TEST THE RESOLVE OF U.S. OIL AND GAS PRODUCERS. LET FORGET, WE MEDIA PRODUCTION OFF THE MARKET. BETTY: BUT IS THIS ENOUGH? AT WHAT POINT DOES THIS BRING THE SHALE PRODUCERS BACK IN TO CAPITALIZE ON SOMEWHAT HIGHER PRICES? BRUNO: THE ANSWER IS THAT IT'S VERY HARD TO TELL. THE REASON FOR THAT IS THAT WE'VE NEVER BEEN THROUGH A CYCLE WITH SHALE YET. YOU CAN'T INCLUDE 2008 FROM THE CYCLE -- IN THE CYCLE BECAUSE THE BOUNCE FROM THE LOW WAS SO EXTREME AND IT DIDN'T START AS AN OIL PROBLEM. IT STARTED AS A REAL ESTATE PROBLEM. WE CANNOT FORGET, THE SHALE PHENOMENON IS A NASCENT PHENOMENON. WE HAVEN'T BEEN THROUGH A CYCLE YET. WE DON'T REALLY KNOW. WHAT WE CAN DO IS GRAVITATE TOWARDS WHAT THE EMTS ARE TELLING US. WHAT THEY ARE TELLING US IS THAT ON $50 AVERAGE IN THE U.S., THEY ARE LEARNING HOW TO BE PROFITABLE. FIRST I THINK WE SET A RANGE. BETTY: WAIT, SO WHAT'S THE RANGE? BRUNO: LOOK, WE ARE CALLING FOR AN AVERAGE PRICE OF $40 AND 2016 BECAUSE WE DON'T THINK THAT PRODUCTION WILL COME OFF MATERIALLY UNTIL WE GET INTO THE FIRST QUARTER OF 2017. THAT WILL BE PRICED BASED. WHAT'S ULTIMATELY HAPPENING, PRODUCTION DECLINES, THE WELLS ARE NEVER BETTER OR MORE PRODUCTIVE THAN THE FIRST DAY THEY ARE DRILLED. EVERY DAY AFTER THAT YOU START TO LOSE STEAM IN THE WELL. YOU HAVE TO CONSTANTLY DRILL NEW RESERVES. TRILLING NEW RESERVES IS NOT GENERALLY ECONOMICAL AT THESE LEVELS. WE ARE STARTING TO DISINCENTIVE EYES NEW PRODUCTION COMING ON. DECLINES WILL KICK IN, THE MARKET WILL REBALANCE. BETTY: SO FAR SINCE 2015 WE HAVE SEEN MORE THAN 50 BANKRUPTCIES OF NORTH AMERICAN OIL AND GAS COMPANIES. HOW MUCH FURTHER DOES THIS HAVE TO RUN? BRUNO: YOU KNOW, THAT'S THE MILLION-DOLLAR QUESTION. EVERYONE SEEMS TO GRAVITATE TOWARDS THAT QUESTION. EVERY PIECE IS DIFFERENT. BUT IF YOU LOOK AT HISTORY, RIGHT? WHAT YOU REALLY KNOW IS THAT WHEN PRODUCERS GO INTO BANKRUPTCY, IT'S NOT LIKE THE SPIGOT GETS TURNED OFF AND THAT'S IT. SOMETIMES A BANKRUPTCY PROTECTION CAN MAINTAIN PRODUCTION. WHILE YOU HAVE ORGANIZED THE COMPANY IT IS IN EVERYONE'S BEST INTEREST TO HAVE ONGOING AND PROFITABLE OPERATIONS. THE REALITY IS THAT EVEN IF THEY DECLARE BANKRUPTCY, THE PRODUCTION IS NOT GOING AWAY, A PORTION OF IT IS GOING AWAY. WHAT I THINK THE REAL OUTLIER RISK IS IF BANKS THAT HAVE ALREADY LET MONEY TO PRODUCERS HAVE DRAWN LINES OF CREDIT , THERE IS A RISK THAT SOME OF THESE BANKS GET WORRIED AND THEY DEMAND MONEY BACK. BETTY: THAT HAPPENED IN TEXAS, DIDN'T IT? IN THE 1980'S? THERE WERE A LOT OF BANKRUPTCIES. BRUNO: A LOT OF REPORTS OF COME OUT TO SAY THAT THERE WERE 30 COMPANIES THAT HAVE ALREADY BEGUN TO'S TO LAW FIRMS, BANKRUPTCY LAW FIRMS IN PREPARATION. THE QUESTION REALLY IS -- HOW MANY COMPANIES THAT ARE VOLUMETRIC LATE SIGNIFICANT -- VOLUMETRICALY SIGNIFICANT ARE GOING TO GO UP? LISA: SPEAKING OF, WHAT IS THE CHANCE THAT OPEC COULD COME TO AN ACCORD ABOUT A PRODUCTION FREEZE? BRUNO: WE HAVE TAKEN A LONG, HARD LOOK AT THIS AND AS A COMPANY WE UNDERSTAND THE POLITICS A WELL, LOOKING AT THE MIDDLE EAST. WE ARE ONLY PUTTING UP A 15% PROBABILITY THAT SOMETHING WILL HAPPEN AND LIKELY IF IT DOES, IT WILL BE A FREEZE. A FREEZE ON JANUARY OUTPUT LEVELS THAT DOESN'T DO MUCH TO BALANCE THE MARKET. AT THE END OF THE DAY, I THINK THAT OPEC IS SMARTER THAN PEOPLE GIVE THEM CREDIT FOR. THEY KNOW THAT THIS IS A SECULAR SHIFT IN THE MANNER IN WHICH WE PRODUCE OIL. THE GENIE IS OUT OF THE BOTTLE. WE KNOW THAT. IT BEHOOVES THEM TO ACTUALLY COMPENSATE FOR LOWER PRICES BY GAINING MORE VOLUME. HOW YOU COMBAT A LOWER PRICE REALIZATION? YOU INCREASE VOLUME. THEY WILL GO AFTER MARKET SHARE. EVEN IF YOU DO COME UP WITH SOMETHING, WHEN THE RUBBER HITS THE ROAD THE REALITY IS THAT THE NUMBERS WILL NOT ADD UP. THEY WILL CONTINUE TO BATTLE FOR MARKET SHARE. LISA: SO -- BETTY: SO, BRUNO, TO TOP IT ALL OFF, WHAT DO YOU THINK WAS BEHIND THIS DATE REBOUND? SHORT COVERING? IS THERE A SOUND CAUSE FOR THIS? WHAT WAS IT? BRUNO: I THINK THERE WERE A COUPLE OF THINGS. PRIMARILY IT WAS FLOW DRIVEN. PEOPLE CHASING ALPHA. IF YOU LOOK AT CRUDE OIL'S PERFORMANCE RELATIVE TO EVERY OTHER ASSET CLASS LAST YEAR, IT WAS HORRIFIC. RIGHT? LOOK AT THE PRICE DECLINE. A LOT OF PEOPLE WERE GEARING UP FOR COMMODITIES TO OUTPERFORM. YOU HAVE TO PUT MONEY TO WORK. YOU ARE GOING TO ALLOCATE SOMETHING. ALLOCATING MORE TO COMMODITIES VERSUS OTHER ASSET CLASSES. THAT IS WHY YOU HAVE SEEN THAT PERFORMANCE. HAVING SAID THAT, FUNDAMENTALLY WE ARE SEEING SOME SIGNS OF DEMAND STABILIZING. CHINA WAS A BIG FACTOR. PEOPLE WERE WORRIED ABOUT A HARD LANDING. WE ARE MORE CONSISTENT IN THE MODERATION FOR DEMAND. PEOPLE SEEM TO BE EMBRACING THE EFFECTIVENESS OF THE FISCAL MEASURES. SO, CHINA IS NOT AS BIG A PROBLEM IN THE EYES OF THE WORLD. GASOLINE HAS BEEN A SHINING STAR OF DEMAND. CONSUMERS ARE NOT SPENDING IT ON A LOT OF THINGS. BUT 56% OF NEW CAR SALES ARE SUV'S ALL OF A SUDDEN. ON A MICRO LEVEL, GASOLINE DEMAND HAS BEEN STRONG THROUGHOUT THE WORLD. CHINA IS LESS OF AN ISSUE. THE FISCAL PLANS SEEM TO BE SATIATING CONCERNS IN THE MARKET. I THINK THIS OTHER FACTOR IS --

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Why U.S. Crude Production Might Not Fall Until 2017

Bruno Stanziale, Eurasia Group's director of commodity strategy, discusses the outlook for oil prices and production with Bloomberg's Betty Liu and Lisa Abramowicz on "Bloomberg Markets." (Source: Bloomberg)

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